Coffee plays a vital role in the economy of our country, generating foreign currency and supporting livelihoods. However, the coffee industry faces challenges such as smuggling, contraband trade, and a decline in export volumes. To tap into the immense potential of our coffee sector and improve our balance of trade, it is crucial for different stakeholders, including government entities and banks, to support and incentivize the coffee industry.
In this blog, we will explore various measures and incentives that can be implemented to promote coffee production and exports, with a focus on empowering producer exporters.
Strengthening Producer Exporters
- Importance of Producer Exporters: Producer exporters are key players in ensuring the traceability, quality, and social responsibility of coffee production. Their grassroots-level investment in farms, coffee processing, and industry development is vital for sustainable growth.
- Financing Challenges: Unlike trader exporters, producer exporters require longer financing cycles, typically taking nine to 12 months from farm to receiving payment. Therefore, traditional 90-day financing options are not suitable for their needs.
Government Support and Incentives
- Value-Based Financing: Allowing exporters to obtain the value of exported goods from their bank, even if the goods are in transit or at the port, enables smoother operations and cash flow management.
- Market Access Initiative: Covering the costs of promoting exports, exploring new markets, and supporting export promotion activities, including participation in global coffee bazaars and exhibitions, will expand market reach and visibility.
- Export Incentives: Providing incentives to compensate for costs incurred during exporting, the government should motivate and support exporters who bring in foreign exchange.
- Exchange Rate Incentives: Offering producer exporters a payback of up to 65% on top of the prevailing exchange rate for their export earnings will encourage more investment in coffee farming and exporting, ultimately boosting exports and foreign currency generation.
Facilitating Export Processes
- International Connections: Assisting producer exporters by connecting them with potential coffee buyers worldwide enhances market opportunities and fosters direct trade relationships.
- Export Subsidies: To mitigate losses resulting from volatile market conditions, providing export subsidies can support exporters when faced with price drops or unfavorable market trends.
- Low-Cost Loans and Tax Exemptions: Offering exporters access to low-cost loans at 0% interest rates, combined with tax exemptions on export profits, enhances their competitiveness in the global market.
- Rebates and Reimbursements: Rebating duties and taxes on exported products, as well as reimbursing central and state taxes on fuel used for transportation, reduce export costs and make Ethiopian coffee more competitive.
- Government-Financed Advertising: Encouraging exporters to engage in international advertisements, with the government as the sponsor, will boost visibility and brand recognition in global markets.
Supporting Coffee Farmers
- Subsidizing Inputs and Seedlings: The government should subsidize the costs of seedlings and inputs for coffee farmers, enabling them to invest in quality and productivity enhancements.
- Duty-Free Import of Packaging Materials: Duty-free privileges for packaging materials, such as jute bags, through a voucher system, reduce costs for exporters and promote sustainable packaging practices.
- Raw Material Imports: Allowing 0% import duty on raw materials used for manufacturing export products encourages local value addition and enhances the competitiveness of Ethiopian coffee products.
Financial and Insurance Support
- Optimum Loan Allocation: Implementing policies to guide financiers in allocating an optimum share of their loanable funds to the export sector ensures sufficient financial support for exporters.
- Incentivizing Financiers: Offering reimbursement of forgone interest income to banks that allocate funds to the export sector encourages financial institutions to support coffee exporters.
- Insurance Coverage: Availing insurance for coffee contracts against market price fluctuations, especially in the New York market, protects exporters from potential losses and stabilizes their operations.
Direct Export from Coffee Source Areas
- Economic Benefits: Encouraging and supporting producer exporters to export directly from coffee source areas brings numerous economic advantages, including increased employment, improved local infrastructure, and enhanced regional development.
- Quality Assurance: Direct export allows for better control over the coffee supply chain, ensuring traceability, quality, and adherence to social responsibility practices.
Treating Coffee as a Valued Export Commodity
- Equitable Incentives: Recognizing coffee as the backbone of our economy, similar to gold, justifies providing comparable incentives to promote coffee exports.
- Privileged Guidelines: Introducing guidelines that offer percentage-based increases on international prices for coffee suppliers, similar to the guidelines followed for gold exports, can incentivize coffee production and support coffee suppliers across different scales.
Expanding coffee exports and revitalizing the coffee industry requires a comprehensive approach involving government support, financial incentives, streamlined export processes, and targeted assistance to producer exporters. By implementing the outlined measures, our country can unleash the full potential of its coffee sector, improve the balance of trade, and foster sustainable economic growth. Embracing these initiatives will not only benefit the coffee industry but also contribute to the development of rural communities and the overall prosperity of our nation.