Coffee has been a big deal in Ethiopia for centuries. It’s where the coffee plant, coffee arabica first came from. Let’s see the impact of Coffee export on economy in Ethiopia in detail!
Nowadays, Ethiopia makes about 17-20% of all the coffee in the world. So yeah, it’s super important for Ethiopia’s money – about 30-35% of the cash they get from other countries comes from coffee. And around 15 million people in Ethiopia work with coffee in some way to make a living. Just last year, in 2023, they made $300-400 million from selling coffee to other countries, which was about a quarter of all the stuff they sold abroad that year.
Economic Contributions of Coffee Exports
Agriculture plays a number one role in Ethiopia’s economy, accounting for approximately 90% of foreign exchange earnings and 40% of GDP, making it the linchpin of the national economy. Within the agricultural sector, the coffee industry holds significant importance, particularly in contributing to both the overall economy and the export sector. Ethiopian coffee is a key driver of the economy, representing an average of 5% of GDP, 10% of total agricultural production, and 60% of export earnings.
In the first half of the Ethiopian 2023/24 fiscal year, which began on July 8, the Ethiopian coffee industry sent about 117,955 tons of coffee to other countries. The Ethiopian Coffee and Tea Authority said that Saudi Arabia, South Korea, the United States, Germany, Japan, and China were the top places that got Ethiopian coffee during that time. In the last Ethiopian fiscal year (2022/23), Ethiopia made Coffee export earnings
of $1.3 billion by selling about 240,000 tons of coffee to other countries. That’s a lot of money from selling coffee!
Coffee Production and Export Trends (2023-2024)
For the coffee year 2023/24, the outlook suggests that global coffee consumption will rise by 2.2% to reach 177.0 million bags. This growth is driven by expectations of continued economic expansion above 3.0%, along with a reduction in coffee stocks. Non-producing countries are anticipated to contribute significantly to this increase, with their coffee consumption expected to grow by 2.1%. Consequently, the global coffee market is projected to have a surplus of 1.0 million bags during this period.
Ethiopia holds the title of being the biggest coffee producer in Africa and ranks as the fifth largest exporter of Arabica coffee globally. By the end of the year 2024, Ethiopia is expected to produce about 8.35 million bags of coffee, each weighing 60 kilograms (or 501,000 metric tons in total). The coffee industry in Ethiopia is incredibly important, not just for the economy, but also for the culture and spirit of the people.
Coffee Export Companies and Their Contribution
When speaking about the impact of coffee export on economy in Ethiopia, the contribution of coffee export companies takes the top place.
Coffee exporting companies significantly contribute to the global economy’s size. Additionally, they play a significant role in advancing both the coffee industry and national economic wealth. This is particularly evident in countries such as Vietnam, Brazil, and Colombia, where coffee exports serve as a mainstay for economic development.
Exporting coffee enables coffee companies in Ethiopia to capitalize on the high global demand for their product, thus increasing sales. Moreover, it addresses the challenge of foreign currency earnings, incentivizing businesses to improve product quality continually. Notably, by showcasing locally cultivated flavors on the international stage, coffee exporters generate significant value for their products.
Companies such as AMG Coffee Export, Ardent Coffee Export, Wondo Trading PLC, Green Gold Ethiopia PLC, and Lucy Ethiopian Coffee Exporter are among the leading contributors to Ethiopia’s coffee export earnings. These companies play an important role in promoting Coffee export revenue in Ethiopia going with the coffee export growth trends.
Impact of Coffee exports on GDP and Trade Balance
Coffee exports have a significant impact on Ethiopia’s GDP, as they contribute a substantial portion of the country’s overall economic output. According to data from the USDA Foreign Agricultural Service, coffee accounts for a considerable share of Ethiopia’s export earnings, thus playing a main role in boosting the nation’s GDP.
Furthermore, the coffee trade balance in Ethiopia, which is the difference between the value of coffee exports and imports, has a direct effect on Ethiopia’s economic health. A positive trade balance in coffee signifies that Ethiopia earns more revenue from exporting coffee than it spends on importing it. This contributes positively to the country’s overall trade balance and can lead to increased foreign exchange reserves and economic stability.
Employment in the Coffee Export Sector
The coffee industry ranks among the world’s largest traded commodities and is believed to provide employment for a significant number of people globally. According to a 2019 report by IISD Global Coffee Market, estimates suggest that anywhere from 125 million to 800 million individuals are employed in various roles within the coffee sector worldwide.
Accounting for approximately 30-35% of total export revenue, coffee stands as Ethiopia’s top export commodity, with all production centred on the Arabica variety renowned for its quality.
Beyond its economic significance,It’s deeply ingrained in Ethiopia’s culture and daily life, playing a central role in traditions and spirituality. While not every one of Ethiopia’s 127 million people works in coffee farming, a significant portion of the population—around 31 million people, or 25%—is directly or indirectly reliant on the coffee industry. This includes cultivation, processing, and distribution sectors.
Coffee Export Policies
Coffee export policies in Ethiopia are guided by the government’s efforts to promote and regulate the coffee industry, ensuring fair trade practices and sustainable development.
Exporting coffee from Ethiopia involves following specific policies and procedures. Firstly, coffee exporters must obtain a license from the Ministry of Trade to operate legally. Once they receive an order for coffee, they prepare the beans accordingly. Then, they finalize the export contract, specifying payment terms, and submit a copy to the bank.
Challenges faced by coffee exporters
Ethiopian coffee is famous worldwide for its great taste and quality. But a recent report from the USDA Foreign Agriculture Service shows that Ethiopia’s coffee industry is facing some big challenges. These include problems like climate change, trade barriers, and changes in how farmers grow crops. Climate change-induced stress on coffee plants, exacerbated by deforestation and erratic rainfall patterns, poses a significant threat to coffee farming communities, particularly those cultivating the vulnerable Arabica variety.
Climate change is making it harder for coffee plants to grow well, with less rain and more stress on the plants. Some farmers are even switching to growing other crops like khat because it’s easier to grow and sells for more money. While this transition may yield immediate financial gains, concerns arise regarding its long-term environmental and health implications.
Even though Ethiopia’s coffee industry faces tough challenges, the FAS report expects a small increase in coffee production and exports for the next year. They estimate that around 8.35 million bags of coffee will be produced, with about 4.83 million bags exported. These numbers show that Ethiopia’s coffee sector is tough and can handle difficulties, but it’s important to keep working hard to overcome these challenges and make sure the industry keeps growing in a sustainable way.
Economic Benefits of Coffee Farming in Ethiopia
- Coffee farming in Ethiopia plays a role in the country’s economy, offering significant economic benefits across various fronts.
- Firstly, it serves as a crucial source of employment, particularly in rural areas where agriculture is the primary livelihood. Millions of Ethiopians are involved in coffee production, from planting and tending to harvesting and processing, providing income opportunities and contributing to poverty reduction and economic development. Additionally, coffee farming stimulates capital formation through investments in agricultural infrastructure and technology.
- Farmers reinvest their earnings into their farms, improving equipment, irrigation systems, and farming practices. Moreover, the coffee industry attracts investment in processing facilities, transportation networks, and export infrastructure, further fueling economic growth and prosperity.
- Ethiopia’s coffee industry benefits from favorable real effective exchange rates, enhancing its competitiveness in global markets.
- A weaker exchange rate makes Ethiopian coffee more affordable for international buyers, increasing demand and export revenues. This strengthens the country’s foreign exchange reserves, improves trade balances, and supports overall economic stability.
- Coffee farming in Ethiopia not only sustains livelihoods and drives capital investment but also promotes favorable exchange rates to propel economic growth, contributing to the nation’s development and prosperity.
Conclusion
In conclusion, coffee exports are undeniably important for Ethiopia’s economy as a major source of income, employment, and foreign exchange earnings. This blog has covered the impact of Coffee export on economy in Ethiopia. With coffee contributing greatly to the country’s GDP, export revenue, and employment opportunities for millions, it remains a basis of Ethiopia’s economic prosperity and social development.
However, amidst the challenges posed by climate change, trade barriers, and evolving agricultural practices, it is imperative to prioritize sustainability in the coffee industry. By holding sustainable farming methods, investing in infrastructure and technology, and supporting smallholder farmers, Ethiopia can ensure the long-term viability and success of its coffee sector.