Ethiopia, Africa’s biggest coffee grower, has threatened to ban exporters and producers caught hoarding beans or defaulting on contracts from trading on the domestic commodity exchange.
Those found holding surplus stocks in the hope of future price rises and therefore delaying deliveries are “stopping the country from getting the foreign exchange it could earn, making foreign buyers lose trust, and spoiling the country’s image,” Yakob Yala, state minister of trade, said in an April 29 letter to the Ethiopian Coffee Exporters’ Association. The directive, which was handed to Bloomberg News by an industry official, was confirmed by Amakele Yilma, a spokesman for the Trade Ministry.
Hoarding by traders is “harming the wide-ranging efforts of the government to grow the coffee sector,” Yakob said.
Ethiopia earned $528 million from its most valuable export in the year to July 7 and the Horn of Africa country plans to almost double revenue this year. Shipments totaled 3.64 million 60-kilogram (132-pound) bags of coffee between April 2010 and March 2011, ranking the country as the world’s eighth-largest exporter, according to the International Coffee Organization’s website.
Shippers who hold 54 metric tons to 500 tons of beans for two months without an export contract will be barred from buying from the state-owned Ethiopia Commodity Exchange for two months, according to the directive that took effect on April 28. Those holding more will be suspended for three months, it said.
The regulation isn’t “workable” because exporters have legitimate reasons to contravene it, said Fekade Mamo, a board member of the exchange and chief executive officer of Mochaland Import and Export Plc, a closely held coffee exporter. The process of delivering samples to buyers before a contract is signed may take more than two months and a “good” exporter would want to hold as much as 1,000 tons in stock ready to deliver, he said by phone on May 9 from Addis Ababa, the capital.
“The law has been drafted by someone who does not know anything about the coffee industry,” he said. “How do you expect the country to export over 400,000 tons this year without holding a working stock? It’s not a day-to-day business.”
Exporters who default on delivery contracts for shipments of more than 36 tons will be prevented from trading for six months, while for lesser volumes the buying ban will be three months, the directive said. If a producer with an export contract doesn’t deliver within one month of the agreed date, the National Bank of Ethiopia won’t process any of their contracts for two months, it said.
In March 2009, the government suspended the licenses of six exporters for hoarding coffee and selling export-grade beans on the domestic market.
William Davison, Bloomberg
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