Coffee Crisis and the Birr

Coffee Crisis and the Birr

Just a small window into how the current coffee price crisis has a real effect, not only on the lives of millions of farmers from producing countries, but in the economy of those same countries, and the lives of millions of their citizens. The market is wreaking havoc in the local economies of small countries which depend highly on the hard currency generated with coffee exports. Like Ethiopia.

Today, the black-market rate for USD to Birr in Ethiopia has reached, if not surpassed, 43 birr per USD, while the official rate stands under 29 birr per USD. That’s a 50% premium.

This time last year, with New York at 110 cts/lb, the black market was paying 34 birr per USD, a 26% premium over the official 27.25 Birr per USD rate.

This reflects on the cost of everything in the country, from luxury cars to medicines, food or the industrial inputs the country needs to keep its economy going.

This disfunctional exchange rate has a lot to do with coffee, the commodity we can’t live without, but that apparently, we don’t want to pay too much for. Coffee generates a big chunk of those US Dollars the country needs. But the international market is paying for Ethiopian natural coffees, the bulk of their production, around 78 cts/lb, when the production cost for this coffee is 105 cts/lb.

Of course the situation is complex, and it is this “black market premium” what’s helping to protect farmers from the blunt of the price disaster. Farmers and middlemen still get paid around 93 cts/lb for this coffee when they deliver it to the Exchange. The loses are taken by the exporters, who then process this coffee, move it to Djibouti and sell it at 78 cts/lb. Sustainable?

BY Pablo Martinez

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