Ethiopia PM says will probe coffee export defaulting

Ethiopian Prime Minister Meles Zenawi
Ethiopian Prime Minister Meles Zenawi

By Barry Malone  (Reuters) – Ethiopia’s Prime Minister Meles Zenawi said on Wednesday he would look into claims Ethiopian coffee exporters have been defaulting on contracts since U.S. arabica futures hit a 12-1/2-year high.

Sources at the Ministry of Agriculture in Addis Ababa told Reuters they were aware of several complaints from European buyers and were investigating how widespread the defaulting might be.

Meles said he had not previously been aware of the claims but that he would investigate them.

“If indeed our companies are improperly defaulting on their contracts, then the government has a responsibility to enforce the law and see that contracts are implemented or the necessary penalties are substituted,” Meles told reporters.

Ethiopia is Africa’s biggest exporter of coffee.

The ministry of trade this week told Reuters the country earned $528 million from exports of the bean in the 2009/2010 season, rebounding from a poor $375.8 million in 2008/2009. Coffee contributes more than a quarter of foreign earnings.

Meles has personally intervened in the coffee export market before, last year privately meeting with industry players and threatening to “cut off their hands” if they did not release stocks they were hoarding in the hope of better prices.

The government then seized 17,000 tonnes of the bean and revoked the licences of six major exporters it accused of holding stock back.

“I can understand why there may be a rash of defaults given the (U.S. futures price),” Meles said. “The contracts might have been based on lower prices. But that is not a legitimate reason to default.”

Ethiopia prides itself as the birthplace of coffee. Some 15 million smallholder farmers grow the crop, mostly in the forested highlands in the huge country’s west and southwest.

The Ethiopian government predicts growth of about 10 percent for 2010/2011. The International Monetary Fund says the economy will grow by 7 percent.