CHAPTER 4
Chapter 4-Ethiopias domestic and global economy.
This chapter will be focusing on the economic issues that have been brought about as a result of the environmental issues in Ethiopia. I aim to look at the economic landscape of Africas biggest coffee supplier and explain the struggles it faces not only directly from climate change in the country but also via climate change trade measures that are in place in order to try and limit the effect of climate change. However, these changes are not always good for small holders and have led to Ethiopia being put in a “green squeeze.” I will explain the meaning behind this and show how moving to greener economies can often come at the expense of poorer countries.
Implications on the economy and people's livelihoods.
The people of Ethiopia rely heavily on the sustainability of the coffee industry wether they work in it or not. This is due to the economy relying on the funds produced from the coffee exports in order to stay stable. Furthermore, the fact that 50-55% of the coffee produced is consumed domestically shows the cultural significance of the drink. In 2019 The government of Ethiopia has helped to give Ethiopian coffee small holders more control over all aspects of coffee production this should hopefully encourage more vertical integration and improve coffee traceability. This is of importance as many independent coffee shops in the west look for traceability and flavour profile when buying coffee. Hopefully, this will allow smaller farmers to increase their profits and not feel the effects of climate change quite so much.
Ethiopias global exports and “the green squeeze”
One of Ethiopias biggest export markets is the EU. Since December 2024, the EU has become much stricter on regulations surrounding coffee that is coming out of countries like Ethiopia. They want to ensure that deforestation regulations are being followed. So that climate damage can be limited. This poses an issue as although most of the small holders in Ethiopia are within the regulations and have a selection of traceability before purchase, they are unable to show this due to lack of electricity or modern farming techniques leaving them to be unable to export their coffee to the EU or being faced with fines for not having the correct traceability. As a result, Ethiopian farmers are desperately asking for more support as they face an estimated (stats from ODIs modelling exercise looking at the effects the EUDR (EU regulation on Deforestation-free products) could have on Ethiopia) 18% drop in overall exports due to lack of ability to comply. Which would lead to a 0.6% decrease in GDP and a 3.3% decrease in public revenue for the country. While these numbers do seem small, the impact they will cause is widespread for a developing country like Ethiopia.
A 0.6% decrease in GDP would be damaging to the country as any economic slow down will reduce the countries' ability to reduce poverty and supply new jobs to its population. As businesses will be less likely to invest in the economy as they do nottrust it. Economic stagnation like this becomes increasingly prevalent in the rural areas, as the farms cannot afford to bring new people in when their businesses are barley afloat. The ripple effect of this is that farmers could abandon coffee farming for a heartier plant, that will make them more money.
Public revenue decline effects everyone in Ethiopia. A reduction will mean that the government will bring in less money via taxation and exports. As a result of this the government will have less money to put into development of the country and will notbe able to improve education, infrastructure, and healthcare. For a country like Ethiopia that is already damaged by debt and inflation, a decrease in the economy like this would cause even more setbacks for the country.
However, for Ethiopia its not all bad news. Out of the many countries affected by the “green squeeze” Ethiopia is one of the most proactive ones. They have started to get those importing Ethiopian coffee to pay for the countries compliance with the EUDR and other green economic policies. This allows farmers and the country to still get a fair amount of pay for their coffee without paying the excess fees for compliance.Ethiopia has also produced a “national action plan” this should allow Ethiopia to acquire digital traceability and other technical supports, so that they can be a part of the EUDR properly and no longer rely on other countries paying their fees. The main issue with the plan is that it requires heavy investment quickly so that all the small holder farm can have access to the new farming practices. This is something that is likely to pose a challenge. The farmers of Ethiopia can also make minor changes to try and help themselves too, such as diversifying what they grow. This would reduce the reliance on coffee in Ethiopia and start. To develop other agricultural sectors in the country.
This chapter has aimed to show how it is not always the direct impact of climate change that can cause problems in developing countries. The greener economic policies are complex issues that do not have quick solutions. The coffee industry in Ethiopia will continue to have issues when trying to follow the green trade agreements due to the speed of its development. While it is important to act on climate change, greater nuance needs to be used when creating these agreements or smaller countries will continue to be damaged and not be able to advance into a stronger economic position.