Ethiopia Risks $453 Million Loss in Coffee Export Revenue Under EUDR Rule – CoffeeTalk

Ethiopia stands to potentially lose up to $453 million in coffee export revenue due to stringent European Union (EU) environmental regulations, according to a report by ODI Global titled “The Case of EUDR in Ethiopia: How to Secure Climate, Trade and Development Goals, and Overcome Risks of Market Exclusion.” The introduction of the EU Deforestation Regulation (EUDR) poses significant risks to Ethiopia’s coffee sector, which is crucial to rural livelihoods and foreign exchange earnings, threatening overall economic stability.

The study estimates that export losses could reach $160 million if 20% of EU-bound shipments are excluded, escalating to $453 million in a worst-case scenario where 57% of the market is cut off. Even if coffee is redirected to alternative buyers, it is expected that Ethiopia would incur losses between $42 million and $118 million due to lower market prices than those commanded in the European market. Highlighting the impact on smallholder farmers, the report notes that Ethiopia’s coffee production relies heavily on around four million small-scale farmers, who manage approximately 95% of the output on plots often less than one hectare in size.

The EU accounts for about 30% of Ethiopia’s coffee exports, with roughly 15 million people depending on the coffee value chain—nearly a quarter of the population relies on the sector in one way or another. The report identifies three main compliance barriers to EUDR adherence: inadequate geolocation data, gaps in supply-chain traceability, and challenges in legal verification.

EUDR mandates precise geolocation data for each coffee production plot, which incurs mapping costs between $4 and $7 per plot, with additional verification expenses of $5 to $12. Given the fragmented nature of Ethiopian coffee farms, these costs become prohibitive, leading exporters to favor pre-certified farmers and leaving approximately 20% of smallholders at risk of market exclusion. Local collectors and informal traders contribute to over 57.4% of marketed coffee, and their exclusion from compliance could disrupt established trade networks vital for farmers reliant on immediate cash flow.

To counteract these challenges, the Ethiopian Coffee and Tea Authority (ECTA), in conjunction with the Ministry of Finance and the Ministry of Agriculture, has initiated a three-year national action plan that includes efforts in farm data collection, digital supply-chain tracking, and the enhancement of the Coffee Market Information Management System into the Ethiopian Coffee Traceability Management System (ECTMS). However, ECTMS remains only partially operational, with geolocation data coverage still lacking; as of July 2024, only 200,000 hectares had been mapped out of approximately 860,000 hectares under cultivation—just 23%. Additionally, their land documentation continues to face gaps, with ambiguities surrounding the EU’s classification of Ethiopia’s traditional forest and semi-forest coffee systems.

These export disruptions could exacerbate Ethiopia’s foreign currency shortages, as coffee accounts for roughly 35% of national export earnings, with 11% stemming directly from EU sales. A decrease in exports could lower total foreign exchange earnings by up to 8.5%, straining the national currency, the Birr, and accelerating domestic inflation.

Financial institutions could also face significant credit risks, as exporters and cooperatives may find it challenging to meet seasonal procurement loans if they lose access to premium EU markets. The ODI Global report emphasizes the need for proactive measures, advocating for flexible bilateral dialogue with EU authorities, increased technical support for smallholders, expanded environmental financing opportunities, and a more equitable distribution of price premiums throughout the coffee supply chain.

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