From Forests to Markets: Why Ethiopia’s Coffee Needs Urgent Green Financing

Ethiopia’s coffee sector, a cornerstone of its economy and rural livelihoods, faces growing threats from climate change, stricter global regulations, and a massive shortfall in green finance needed to adapt and remain competitive. A new World Bank–commissioned study finds that closing a US$2.4 billion green finance gap is critical to securing the future of Ethiopian coffee in global markets.

Ethiopia’s coffee sector, the birthplace of Arabica and one of the country’s economic pillars, is standing at a critical crossroads. A recent World Bank–commissioned market study, conducted by First Consult Ethiopia with financing from the Compact with Africa Green Business Trust Fund, finds that while Ethiopian coffee continues to command strong demand globally, the industry is under growing pressure from climate change, new environmental regulations, and a severe shortage of green finance. The study draws on extensive field surveys and interviews across the value chain to paint a clear picture of both risk and opportunity.

A Sector That Feeds the Economy, and Millions

Coffee is far more than an export crop in Ethiopia. It generates around 30–35 percent of foreign exchange earnings and supports the livelihoods of more than 15 million people. Over 95 percent of production comes from smallholder farmers working plots smaller than one hectare, often using traditional forest, semi-forest, or garden systems. These methods give Ethiopian coffee its unique taste and biodiversity advantages, but productivity growth has been slow. Aging trees, limited access to improved seedlings, weak extension services, and lack of finance continue to hold farmers back.

Exports, however, remain strong. Ethiopia ships close to 290,000 metric tons of coffee a year, earning more than US$1.4 billion, with the European Union, Asia, and the United States as key markets. Yet farmers receive only about 60 percent of the export price, far less than in other coffee-producing countries, reducing incentives to invest in quality and sustainability.

Women at the Heart, Yet Left Behind

The coffee sector is one of Ethiopia’s biggest employers, stretching from farms to processing stations and export hubs. Women carry out an estimated 65–75 percent of the labor, planting, harvesting, sorting, and processing, but earn less than half of the income generated. Many lack land titles, access to credit, cooperative membership, and decision-making power. These inequalities are not only unfair; they weaken the entire value chain by limiting productivity, innovation, and resilience.

Climate Change and New Rules Raise the Stakes

Climate change is the biggest long-term threat facing Ethiopian coffee. Rising temperatures, erratic rainfall, water shortages, and pests are already affecting yields and bean quality. Studies cited in the report warn that up to half of Ethiopia’s suitable Arabica-growing areas could disappear by mid-century if no action is taken. Smallholders and processors, especially those relying on water-intensive wet processing, are highly exposed.

At the same time, global regulations are tightening. The European Union Deforestation Regulation will soon require proof that coffee is deforestation-free and fully traceable to the farm level. The study finds that awareness of the rule is low and compliance capacity weak, especially among smallholders and informal traders. Without investment in digital traceability, mapping, and certification, Ethiopia risks losing access to premium EU markets.

The Green Finance Gap

Green finance is the missing link. Ethiopia’s financial system provides only limited credit to agriculture, and even less to climate-smart or sustainable investments. While institutions like the Development Bank of Ethiopia and the Commercial Bank of Ethiopia manage some green and concessional credit lines, these are small and not well-tailored to coffee-sector needs. Private banks and microfinance institutions face liquidity constraints and lack tools to assess green investments.

Demand, however, is high. Most coffee actors surveyed want to invest in energy-efficient machinery, renewable energy, water-saving technologies, waste recycling, eco-friendly inputs, digital traceability systems, and certification. By scaling survey results nationally, the study estimates the potential green finance market for the coffee sector at about US$2.5 billion. Current supply is just over US$100 million, leaving a gap of roughly US$2.4 billion.

Why Green Finance Is No Longer Optional

The study’s conclusion is straightforward: green finance is now an economic necessity, not a luxury. Without it, Ethiopia’s coffee sector risks losing competitiveness, market access, and rural livelihoods. With the right mix of tailored finance, risk-sharing tools, policy support, and capacity building, especially for smallholders and women, the sector could instead become a flagship of climate resilience and sustainable growth. The future of Ethiopian coffee, the report makes clear, depends on closing the green finance gap before climate and regulation close the market.