- Coffee makes up between 30 and 35% of Ethiopia’s exports
- Ethiopia’s government uses the US dollars used to pay for coffee to buy foreign weapons
- Certain major roasters have made the decision to stop buying Ethiopian coffee altogether
THE TIGRAY War has afflicted Ethiopian and Eritrean civilians indiscriminately and disrupted many of Ethiopia’s economic sectors – especially coffee. Despite the 2022 peace agreement, ongoing violence presents coffee producers and importers with a bleak economic conundrum.
The two-year conflict started in 2020 when the Ethiopian federal government launched military operations in the country’s northernmost region, Tigray, against its ruling party – the Tigray People’s Liberation Front (TPLF).
Eritrea’s military entered Tigray as an ally of the Ethiopian government, waging a campaign of sexual violence, enforced starvation, torture, and mass killings against civilians. An estimated 600,000 people have been killed.
Despite the peace deal, Eritrean and Ethiopian soldiers continue with acts of sexual violence, looting livestock, kidnapping civilians, and isolating communities with roadblocks – preventing aid groups from delivering supplies and farmers from accessing seeds and inputs.
The weaponization of Ethiopian coffee
Exports are an integral part of Ethiopia’s economy. “Ethiopia’s closed currency and economy mean income is generated primarily through exports, international aid, and debt,” says Matthew Harrison, sourcing manager of the coffee importing company Trabocca.
Coffee generates 30 to 35% of Ethiopia’s export earnings – it is their primary traded commodity. In addition, some 25% of Ethiopia’s population is directly or indirectly dependent on the coffee industry. As such, the toll of the war on the local coffee industry is inextricably linked to the population’s quality of life.
Yet the coffee industry has been weaponised against them.
International coffee buyers pay the National Bank of Ethiopia in USD, and the bank can choose whether to pay farmers in local currency (Birr), USD, or both.
“The Ethiopian economy heavily relies on USD to facilitate imports, creating a unique situation where coffee exports subsidise the need for foreign currency,” Matthew says.
In order to boost foreign exchange earnings, the government aimed to export US $2 billion worth of coffee in the 2022/23 market year. Indeed, Ethiopian coffee production and exports have continued to grow since the beginning of the Tigray War.
The underlying motive for this is what is causing many coffee buyers the conundrum: The Ethiopian government needs foreign currency – i.e. USD – in order to purchase foreign arms. As such, it can choose to bank more USD from coffee exports to buy arms on the international market – effectively using coffee as a means to fund the war.
No easy way around it
Importers must decide whether to support farmers by purchasing their coffee, or to stop buying from Ethiopia altogether to ensure they are not indirectly funding the government’s purchase of foreign arms.
While this seems like too binary a situation, there are no easy alternatives. Matthew explains that buying coffee in Birr to avoid the central banking system is not so simple for importers. On the global coffee market, buying in USD is standard practice because it is relatively stable and can be hedged against other currencies.
Conversely, Birr is a risky currency to trade in because it can’t be pegged against the USD – which means it can lose its value relatively quickly.
Furthermore, Ethiopian coffee farmers face challenges in finding alternative export avenues, and can’t feasibly circumvent the centralised banking system. For example, selling coffee domestically is not an option because government regulations make the sale of export-quality coffee in the local market illegal. Additionally, Ethiopian producers lack the direct access to international markets that, for example, Brazil benefits from.
Pact Coffee made the decision to pause purchasing from Ethiopia at the beginning of the Tigray War, and will continue to do so until hostilities have truly ceased.
“We believe that international coffee roasters and importers can act together to collectively put pressure on the government to instead find a peaceful solution to what has been a devastating three years in the country, and this can be done by putting a pause on purchasing the country’s coffee,” says William Sowerby, Communications and Content Lead at Pact Coffee.
No one wins in war
While this form of economic pressure on the government is certainly commendable, and could potentially force the government’s hand if carried out on a wide scale, it’s not without its consequences for Ethiopian coffee farmers.
According to Matthew, restricting Ethiopian coffee trade could lead to currency devaluation, hyperinflation, defaults on loans, unemployment, and potentially lead to a humanitarian crisis. “Thousands could fall into poverty and face hardship,” he says.
If coffee buyers do terminate their contracts, Ethiopian farmers are concerned that prices will fall. As Ethiopia represents just 4% of global coffee production, trade restrictions are unlikely to affect the C price, but they would severely harm local farmers
“The market for Ethiopian coffee could be filled by other coffee-producing countries, eroding Ethiopia’s position. This could lead to coffee roasters choosing more reliable and less risky sources,” Harrison says.
Looking at this more broadly, Matthew explains that trying to achieve political goals through foreign economic sanctions is rarely successful. Trade restrictions have historically harmed the population’s poorest people, rather than effectively influencing the local government.
Having said this, instances where foreign trade so directly facilitates mass violence are also rare. As such, determining the appropriate response is clearly a complex issue in such uncharted territory.
The harm resulting from either refusing or continuing to buy coffee from Ethiopia reinforces the fact that no one wins in war. In a situation like this, defaulting back to honest, direct relationships with individual farmers – specialty coffee’s roots – could be a way through this situation in the short-term, and could mitigate the coffee industry’s impact on this war.
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Coffee Intelligence
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