23 September 2024
Insight~ Written by Angela Kolongo
Hero image description: Ethiopian coffee cherries lying to dry in the sun in a drying station on raised bamboo beds. This process is the natural process. Bona Zuria, Sidama, EthiopiaImage credit:Ethiopian coffee cherries on a drying station. Sidama, Ethiopia. Photo: Eric Isselee / Shutterstock
The global push for a greener future, while commendable, is reshaping international trade and introducing new challenges for developing countries like Ethiopia.
A new ODI working paper, Avoiding a ‘green squeeze’: supporting Least Developed Countries navigate new greening trade measures, warns of a potential ‘green squeeze’ on the world’s most vulnerable nations, where well-intentioned climate-related trade measures inadvertently hinder their economic progress.
Ethiopia: a case in point
Ethiopia, Africa’s largest coffee producer and exporter, is a prime example of this dilemma. Coffee is not just a commodity in Ethiopia, it is a way of life deeply ingrained in the culture and economy supporting millions of livelihoods. In recent years, the coffee industry accounted for around 30 – 35 per cent of the country’s total export earnings.
The European Union (EU) is an important market for Ethiopia, but new regulations such as the EU Deforestation Regulation (EUDR), set to take effect in December 2024, may induce major disruption to supply chains. The EUDR imposes strict requirements on coffee production, requiring traceability and deforestation-free supply chains. For Ethiopia’s millions of smallholder coffee farmers, many of whom lack access to electricity and modern farming techniques, meeting these requirements is a daunting task.
A recent modelling exercise conducted by ODI for Ethiopia explores some of the potential economic fallout of the EUDR. In the most extreme scenario, where exports to the EU cease completely, Ethiopia could face an 18.4% drop in overall exports, a 5.8% fall in imports, a 0.6% decrease in GDP and a 3.3% reduction in public revenue. This would exacerbate poverty and inequality in the country, undermining its development goals.
Ethiopia has asked for more time and support with adjusting to the new requirements. Whilst some coffee importers supplying the EU market and sourcing from Ethiopia, have confirmed that they may be able to absorb the costs of compliance from adhering to the new regulation, shifts in sourcing may occur if buyers choose not to do so.
Navigating the green trade landscape
This situation is not unique to Ethiopia. There are major risks of a ‘green squeeze’ unless country-specific packages of support accompany the implementation of new measures intended to green production and trade. While the urgency of addressing climate change is undeniable, the challenge is to find a way to balance the urgent need for climate action with economic progress. The Paris Agreement and the Global Development Goals are mutually supportive, but greater nuance is needed in current approaches within the realm of climate-related trade policy formulation to ensure this is the case.
Ethiopia, for example, is already adapting to the changing climate and is taking proactive action to address the challenges posed by the EUDR. The government has developed a National Action Plan to support compliance with the EUDR. However, the timeline for implementation is tight. Investments in digital traceability systems and other technical support are needed now to assist household production systems adapt to new requirements and invest in sustainable farming practices.
The ‘green squeeze’ is a complex issue with no easy solutions. For Ethiopia, the stakes are high. The future of its coffee industry, and the livelihoods of millions of its citizens, hangs in the balance. The case of Ethiopia serves as a stark reminder that the transition to a green economy cannot come at the expense of the poorest countries.