COFFEE AGRICULTURE IN VIETNAM
Vietnam is a major coffee producer. With the help of government subsidies, it expanded coffee production by eight fold in the 1990s to over 550,000 tons a years to become the world's number two producer in 2001 after Brazil and ahead of Columbia. The increased production provided Vietnam with valuable hard currency but caused a worldwide coffee glut and a drop in prices which hurt coffee farmers around the globe. There are persistent rumors that Vietnamese coffee is contaminated with dioxins produced by Agent Orange in the Vietnam War.
Vietnam is the world's biggest producer of the strong-flavored robusta beans, used in instant coffee and coffee-blend drinks such as packaged espresso milk drinks. Vietnam accounts for around 17 percent of the world's coffee output and provides 50 percent of the world's low-end Robusta beans Vietnam’s coffee sector has experienced a decade of solid growth which has seen coffee exports reach $3 billion a year. Vietnam's 2013/2014 coffee crop was a bumper harvest, forcast to be around 17 million to 29.5 million 60-kg bags. Unfortunately this has added to a global oversupply and lowered coffee prices by 10 percent between October 2012 and August 2013.
In the early 2000s, Vietnam cut down 7 percent of it coffee trees in an effort to ease the coffee glut and help bring prices back up. Some coffee farmers switched to cocoa, cotton, hybrid corn, cashews and tobacco. To encourage farmers to switch the government offered tax relief and guarantees of buying the harvest of their new crop. The drop to 520,000 tons made Vietnam the world’s No. 3 coffee producer.
David Lamb wrote in the Los Angeles Times, “By any yardstick, Vietnam's newest crop has been an astounding success, lifting entire regions out of poverty. "As Vietnam's economy grows, coffee will become a bigger and bigger crop," said Thai Doan Lai, general director of Vinacafe, the largest of the state-owned coffee companies here. "It's creating jobs and eliminating poverty in poor areas, and raising the standard of living to levels rice farmers have never known." [Source: David Lamb, Los Angeles Times, September 18, 1999]
In April 2013, AFP-Jiji reported from Buon Ma Thuot, Vietnam: “Vietnamese coffee farmers have changed the global market: If you had a cup this morning, there is a high chance you consumed at least some Vietnamese beans with overseas companies such as Nestle and Britain’s Costa Coffee among major buyers. In 20 years, Vietnam went from contributing less than 0.1 percent of world production in 1980 to some 13 percent in 2000 — staggering growth that has been partially blamed for the collapse of global coffee prices in the 1990s. The rise of cash crops such as coffee in the Central Highlands has come at a price, however. Some indigenous minorities have lost their land to large-scale plantations, often run by the majority Kinh who have migrated to the region. Demonstrations have been repressed. [Source: AFP-Jiji, April 21, 2013 ***]
“The communist country is now the world’s second-largest coffee producer, but is seen as high volume rather than high quality — its bitter-tasting Robusta wins few accolades internationally and is mostly exported as raw beans. "Vietnam is an amazing phenomenon," said Jonathan Clark, general director of coffee exporter Dakman. He said exports "shot up" last year to nearly rival Brazil, the world’s top exporter and producer. In 2012, Vietnam exported over 1.7 million tons of coffee, worth some $3.6 billion and accounting for more than 50 percent of the world’s Robusta, which is used in instant coffee or other blends. ***
Coffee, See Food. See Land, Geography, Weather
Coffee Prices and Vietnam
Many blamed the overproduction and the collapse of prices in the 1990s and early 2000s on Vietnam. Between 1990 and 2000 over a million acres of robusta were planted in Vietnam, increasing its annual coffee production from 84,000 tons in 1991 to 950,000 tons in 2002. Practically overnight Vietnam rose from being a minor player in the world coffee market to a major player, and overtook Columbia as the world?s No. 2 producer. Their exports flooded the market with coffee as Brazil was boosting it production in Brazil, resulting in oversupply and declining prices.
Vietnam has demonstrated how coffee prices and coffee farmers can be dramatically affected by globalization and decisions made by major financial institutions. The program to boost coffee production Vietnam was largely the idea of the World Bank. In the early 1990s, Vietnam was facing an export crisis so the World Bank designed a $96 million rescue plan that revolved around generating foreign currency by growing and exporting coffee.
William Pesek Jr wrote in Bloomberg News, “Hanoi also is working to diversify agriculture. As of mid- May, it had cut down about 7 percent of the coffee trees in its main growing province, Dak Lak, to help end the global glut. . "It's our advice to people to convert coffee areas to other crops if other crops also bring the same or higher value," says Nguyen Van Lang, chairman of the Dak Lak Province People's Committee. Vietnam plans to offer tax incentives and guarantees to purchase agricultural products to get farmers to shift production. It also wants coffee growers to shift production from lower-quality robusta beans to higher quality arabica beans. Currently, 98 percent of production is of the lower-quality variety. There's international pressure for such a shift, too. The International Coffee Organization wants Vietnam to raise the quality of its export beans. [Source: William Pesek Jr., Bloomberg News, June 2, 2003 -/]
“That Vietnam helped overload the global coffee market with cheap, easy-to-produce beans has two parallels with the Asian crisis. First, prior to 1997, Asian tigers also made money flooding the globe with cheap, modest-quality goods. Secondly, western companies are profiting from Vietnam's overproduction. It has hurt Vietnam's economy and those of other coffee producers like Brazil, Colombia, Indonesia, Peru and some African nations. But huge coffee operations are profiting from lower input prices. You don't see Starbucks and Tully's charging customers less, even though coffee prices fell to 30-year lows.” -/
Coffee Production in Vietnam
Vietnam’s volcanic soil is perfect for growing coffee. Dak Lak Province accounts for more than half of Vietnam’s coffee harvest. Production there increased from 30,000 hectares in 1986 to 250,000 hectares in 2000. Huge swaths of rain forest have been cleared and coffee tree were planted with technical assistance from East Germany in the 1980s. There have been clashes between coffee farmers and minorities who have objected to the forest being cleared.
Vietnam has a reputation for producing low quality beans. In the early 2000s, 98 percent of Vietnam’s production was robusta beans. It is s now making an effort to produce more arabica beans. Vietnam’s coffee goes to 50 countries, with the United States being the biggest customer.
Vietnam has among the world’s lowest coffee production costs. Most of the crop is raised by small farmers. In the harvest season tractors are piled high with bags of coffee. Coffee beans are laid out on village roads and in front of village huts to dry. Coffee is usually harvested three times a year. But when coffee prices are low it is harvested only once to save in fertilizer and water pumping costs. A drought in the 1990s caused $385 million in damage.
Top Producing Countries of Green Coffee: (Production, $1000; Production, metric tons in 2008, FAO): 1) Brazil, 2286655 , 2796927; 2) Viet Nam, 872663 , 1067400; 3) Colombia, 563037 , 688680; 4) Indonesia, 558342 , 682938; 5) Peru, 223831 , 273780; 6) Ethiopia, 223520 , 273400; 7) Mexico, 217321 , 265817; 8) India, 214200 , 262000; 9) Guatemala, 203256 , 248614; 10) Uganda, 173098 , 211726.
Vietnam's top coffee exporter Intimex Group, accounts for a quarter of exports and made $1.2 billion in revenue in 2012,
Vietnam’s Aims to Dominate the Global Coffee Market
In April 2013, AFP-Jiji reported from Buon Ma Thuot, Vietnam: Most Vietnamese coffee farmers have never heard of a double tall skinny latte, but they can tell you the price of the beans that are used to make one in their sleep. From high-tech Israeli irrigation systems to text message updates of global prices for the commodity, coffee farming in Vietnam’s Central Highlands has come a long way since the French first introduced the bean over a century ago. "I used to carry my coffee to market by bicycle," said 44-year-old farmer Ama Diem. "Now I check the bean price on my mobile phones" before making the trip. [Source: AFP-Jiji, April 21, 2013 ***]
“By texting "CA" to the number 8288 from any Vietnamese mobile phone, farmers almost instantly receive a message with the London prices of Robusta coffee beans and the New York price of Arabica beans from a data supply firm. Farmers are only too aware that the price of coffee — the second most traded commodity in the world after oil — can move quickly. "We only take the coffee to market when we can be sure of getting a high price," Diem said at his plantation outside Buon Ma Thuot, Vietnam’s coffee capital. "We check the price a lot." ***
“Coffee consumption in Asia is on the rise and roasters are eyeing the low-cost country — where there is no tax on coffee exports — to set up operations to boost their regional presence, Dakman’s Clark said. As consumption volumes have stagnated in the West, Vietnam, with its growing middle class and long standing love of coffee, is full of "tremendous opportunities," Jinlong Wang, president of Starbucks Asia-Pacific, said. ***
“While global coffee drinkers are more used to Arabica, which has 1.5 percent caffeine, they should wake up and smell the joys of 2.5 percent strength Robusta, according to Vietnam’s "coffee king" — Dang Le Nguyen Vu. The founder of home-grown coffee giant Trung Nguyen — which has 55 stores in Vietnam and five in Singapore — is passionate about putting Vietnam’s Robusta coffee on the map. "Robusta is not lower quality. It’s just that globally, people have learned to drink Arabica coffee," Vu said in an interview at the village of Trung Nguyen in Buon Ma Thuot. A big part of the company’s work is to improve the quality of local beans, working with farmers to introduce high-tech irrigation, reduce pesticide use and boost their income. ***
“Trung Nguyen already exports to 60 countries and Vu said Starbucks’ recent arrival in his homeland had increased his determination to open cafes in the United States that offer Vietnam’s traditional style of thick, strong coffee brewed in individual drip filters. "We must be able to surpass Starbucks. We must offer something more attractive for U.S. consumers," Vu said. "I want the world to understand that Vietnamese coffee is the best, the cleanest, most special coffee." ***
History of Vietnamese Coffee Farming
Coffee has been cultivated in Vietnam for nearly 150 years, and the industry boomed in the 1980s and 1990s. David Lamb wrote in the Los Angeles Times, “The coffee industry here dates to the 1920s, when plantations were run by French colonialists. When peace returned in 1975, the Communist government in Hanoi gave top priority to expanding the industry, but like almost everything it touched in agriculture, the results were disastrous. "Yes, we had a small failure," admitted Lai, the Vinacafe director. "The government tried to tell the farmers everything, even where to plant their trees, and it really had no idea what it was doing." [Source: David Lamb, Los Angeles Times, September 18, 1999 ::]
“The boom began after 1989, when new policies allowed farmers to keep their profits, lessening the state's role in production. The government also has encouraged coffee-growing with special tax incentives and subsidies when the world price falls below certain levels. Partly as a result, the number of acres devoted to coffee has risen over 25 years from 40,000 to 740,000. In 1998, ranked as Vietnam's fifth-largest hard-currency earner, behind petroleum, textiles, footwear and rice. ::
Vietnamese Coffee Farming the late 1990s
Reporting fron Ban Me Thuot, David Lamb wrote in the Los Angeles Times, “Y Mum Eban saw the future 10 years ago. The first thing he did was abandon the corn and beans his family had been growing for generations. The second was to plant as many coffee trees as he could get his hands on. Like hundreds of others who have rushed into the central highlands to capitalize on Vietnam's coffee bonanza, that decision made Eban a wealthy man, by local standards, with an annual income of more than $3,000 — nearly 10 times the national average. "I never dreamed coffee could do this," said a beaming Eban, 46, who has built a spiffy new home, bought a television and two motor scooters — "one of them a real luxury model" — and works his three-acre farm with a small tractor. [Source: David Lamb, Los Angeles Times, September 18, 1999 ::]
“But success has come at a price. Longtime farmers and an influx of new settlers to the highlands are clearing land for coffee production at such an alarming rate that the government in Hanoi has issued new decrees to protect the forests and stop erosion. Here in Dak Lak province, which accounts for 60 percent of Vietnam's coffee, the forest cover has been reduced to 15 percent from 70 percent since the Vietnam War ended in 1975. International farming experts also are concerned that Vietnam's obsession with increasing crop yields so that it can earn much-needed foreign currency has led to unsustainable farming practices. One example: the widespread use of fertilizers that accelerate growth but are so strong they "burn" the soil, destroying nutrients that the next generation of farmers will need. ::
“Farmers generally own their land and sell their beans to collectives, which then sell to about 80 private and state companies that market and export the coffee. "The potential of Vietnamese coffee is huge," said David Thai, a Vietnamese American investor in Ho Chi Minh City. "It's on an upward trend now, but that's just the first dimension. The second dimension is more sophisticated farming techniques and shifting from Robusta to Arabica." For now, however, there is little immediate incentive to start emphasizing quality over quantity. Vietnam has the highest per-acre yield in the world, the government says. :/:
“But Vietnam's efforts to move ahead in the international coffee business have been hindered by poor processing, storage and sorting, and antiquated machinery, farm experts say. Coffee buyers complain that they are never sure if what is sold as premium beans is really premium. There are few standards, and quality is apt to vary from farm to farm. "The state companies are unpredictable," one buyer said. "You don't know if they're trying for quality or just trying to sell a bag. Until Vietnam gets its quality up to speed, it's not going to be a dominant player in the market, like, say, Brazil." Vietnam's marketing also remains unsophisticated, and as Hanoi looks to increase coffee production. “ ::
Vietnam's Record Coffee Sales in 2007
In July 2007, Reuters reportedL Vietnam’s 2007 coffee sales are forecast to rise to a record 18.33 million bags, surpassing a high in 2001 that saw world prices plunge to 30-year lows, traders said. A global deficit should rescue prices this time, they added. Coffee exports are forecast to grow 22.6 percent even though shipment in the second half could drop 23 percent to 5 million 60-kg bags, Vietnam Coffee Association chairman Van Thanh Huy was quoted by Wednesday's state-run Saigon Times Daily as saying. The annual forecast would break the previous high of 15.2 million bags, or 910,000 tonnes, in 2001, when Vietnam was blamed for flooding the world's coffee market, sending prices to their 30-year lows. "But this time prices would not be hurt as the industry has already forecast a deficit world-wide for the next 2007-2008 crop," a trader with a foreign firm in Ho Chi Minh City said. [Source: Reuters, July 26, 2007 ~~]
“A poll of 21 analysts and traders on July 10 showed global output for the 2007-2008 crop would fall 6.5 percent to 118 million bags, while consumption would edge up 1.4 percent to 122 million bags, resulting in a deficit of 4 million bags. London's benchmark Robusta contract was forecast to end the year at $1,785 a tonne and fall to $1,656 by end 2008 — both above the contract's close at the end of 2006 of $1,590, but down from a recent nine-year peak of $1,945. Chairman Huy told a trade ministry meeting that the coffee export revenues could total $1.5 billion for the whole of this year, up from $1.1 billion last year according to government statistics. Huy's forecasts are based on the calendar year ending in December, while Vietnam’s coffee crop year lasts between October and September. — Reuters "The forecast could be true as Vietnam often exports 200,000 tonnes during the first three months of its new crop year, while shipment between now and September may hit 100,000 tonnes," the Ho Chi Minh City-based trader said, adding that only a thin stock remained. ~~
“Vietnamese Robusta edged up to 27,800 dong-28,000 ($1.72-$1.173) per kg this week from 27,700 dong last week but trade has slowed to a trickle due to supply shortages in the period between crops, traders said. Despite the fall forecast for the last six months, the volume for the whole of 2007 would be reached as January to June's shipment surged 63.8 percent to 13.9 million bags, or 831,500 tonnes, thanks to strong demand partly from rival Robusta grower Indonesia, government statistics showed. Vietnam exported 674,200 bags of coffee, or 40,453 tonnes, to Indonesia in the first half, a 45-fold increase from a year earlier, as dry weather delayed Indonesia's own harvest and sent its exporters and roasters looking for other supplies. ~~
Vietnam’s Coffee Harvest in 2010
In November 2010, Reuters reported: “Farmers started the early harvest in late October but repeated rains disrupted the process and slowed cherry ripening. Apart from harvesting delays, export of the commodity has not been hit as Vietnam has carryover stock for November loading. Farmers said they will start full-scale harvesting in the next 15 to 20 days, so beans would be ready for loading from as early as the second week of December. It takes about two weeks from the moment coffee cherries are picked until the beans are delivered to the port for loading. Rain during the outdoor drying process can extend the process by another week, processors said. [Source: Ho Binh Minh, Reuters, November 18, 2010 ]
“Apart from a later-than-usual end to the rainy season this month, rains could also fall in early December, a state forecaster said. The harvest, normally at the start of Vietnam's new coffee crop year, will now peak in December and finish by early January as usual, while the 2010/2011 crop year ends in September. A small volume of new beans has arrived from areas of lower altitude, such as Ba Ria-Vung Tau and Dong Nai, where the cherries become mature earlier. Harvesting in the central highland provinces of Lam Dong, Dak Nong and Daklak follows.
“Prolonged rains prevent farmers from using the preferred method of drying beans outdoors. Beans can be dried in ovens, but that raises the risk of a higher black bean ratio, which is counted as a defect in exportable beans. Oven drying also worsens the taste of robusta beans. Coffee prices in Vietnam, which closely track London futures prices, hit 25-month highs last month. The rise has sparked concern over looting as many farmers do not have proper protective measures against thieves of coffee cherries. Farmers in several areas have now rushed to harvest to avoid losses even though around 60 percent of the crop has not ripened. Green cherries going through splitters will raise the ratio of broken beans, which is another defect in export standards. Coffee export companies say they will start harvesting when 95 percent of cherries turn red and the other 5 percent yellow to ensure the best bean quality.”
“What else could affect coffee exports? Next month when supply arrives in bulk, domestic prices are expected to soften and it will be easier for exporters to sign new deals with foreign buyers. But if London futures prices drop quicker than prices in Vietnam, exporters could face losses as they would have to pay more at home to secure beans for loading, leading to delays or defaults, as happened in early 2010. Coffee exports could also slow if the government approves a plan to stockpile between 300,000 and 500,000 tonnes of beans to help stabilise market prices, as top exporters have proposed to start the six-month scheme in December. The volume of exportable beans could drop as early tests suggested the bean size this year is smaller than usual. To get a kg (2.2 lb) it takes up to 1,200 cherries this crop, from 1,000 in the 2009/2010 crop, partly because of dry weather early this year, said a trader in Buon Ma Thuot, the capital city of Daklak, Vietnam's top growing province.
“How big will the harvest be? On Vietnam's sell side, many believe that at best the output will be on par with the 2009/2010 crop, while the Vietnam Coffee and Cocoa Association chairman said on Oct. 30 that output could drop to between 17-17.5 million 60-kg bags. A Reuters poll of Vietnamese exporters and traders at foreign firms last month found output from the 2010/2011 harvest could rise 2.3 percent to 19.77 million bags. The gap in crop output estimates is usual in Vietnam, since the sell side, from farmers to exporters to industry officials, often lowball crop estimates in an attempt to lift prices. The International Coffee Organization expects Vietnam's harvest to rise to 18.73 million bags from 18 million bags in the previous season, accounting for nearly 14 percent of the global output of between 133-135 million bags.
Coffee Prices in Vietnam in 2009 and 2010
In April 2010, John Ruwitch and Ho Binh Minh of Reuters wrote: “Ironically, Nguyen Tan Dinh was enjoying a coffee with friends early one Monday in March when he heard the unwelcome news that Phan Thi Kim Hoa was claiming to be bankrupt. Hoa had played a crucial role for more than 20 years in tiny Ea Kenh commune in Vietnam's Central Highlands coffee belt, linking farmers like Dinh with the global coffee market. One of hundreds of buying agents in the world's second-biggest coffee exporting country, Hoa took bean deposits from farmers and brokered deals with bigger middlemen or exporters. For years, when coffee prices were rising, the calculus was straightforward: buy low, sell high later. But over the past two years, the price of coffee has fallen by nearly half. During the fourth quarter of 2009 and the first quarter of this year, coffee prices in London fell so sharply that local prices, usually quoted at a discount, dropped slower than the benchmark, catching the industry in Vietnam flat-footed. [Source: John Ruwitch and Ho Binh Minh, Reuters, April 19, 2010 =]
“Traders say exporter delays or defaults have been widespread. Some put the volume of affected beans at 200,000 tonnes. Reports are emerging that middlemen like Hoa are increasingly being caught out, too, having to pay farmers at higher prices than anticipated, or than where they sold up the supply chain. Prices are now rising, which is causing farmers who track London's market closely via SMS and the Internet to seek payments for bean deposits, piling more pressure on the buying agents. And banks that were already under pressure from the state to cut credit growth this year to help check inflation are making fewer loans in this precarious environment, traders say. Industry experts say more defaults or delays may be in store, and some fear that a government stockpiling scheme to try to boost prices may be ineffectual or even cause problems. "This is the tip of the iceberg," said one industry insider who has watched Vietnam's coffee business expand over more than two decades. =
“Seventy-five families in Ea Kenh commune, which has a population of 13,327 people and a per capita annual income of 10.2 million dong ($536.80), did business with Hoa, according to the local government chairman. With an expression that was half smile, half grimace, Dinh said his life savings were on Hoa's books. "We deposited 15 tonnes of robusta beans and 50 million dong in cash," he said. In the end: "She didn't give specifics. She only said that she had lost the ability to pay." That Monday morning in early March, around the time world prices were scraping the bottom at $1,212 per tonne, Dinh left his friends at the coffee shop and hurried home to tell his wife the bad news. Then he headed for Hoa's house. =
“Bankruptcies are not new, industry experts say. But this year there appear to be many more than usual. "The whole problem in Vietnam for many years has been there are too many companies involved in this business and it has never left the Vietnamese companies with much of a chance to make money," said one coffee trader for a foreign firm based in Vietnam who declined to be identified. There are now some 150 exporters near the top of the food chain. Margins have narrowed, and some firms have exacerbated the problem by piggybacking on the government's support for the coffee industry to trade beans at zero gain just to have access to the dollars exports bring in. They then use the dollars to import more lucrative products, one trader said. =
“Vietnam's capital account is not open and dollars are not readily available at banks. The government is launching a scheme for the country's biggest exporters to stockpile 200,000 tonnes of coffee, or about a fifth of the crop, to boost prices. But with Indonesia's crop due to hit the market soon, it remains to be seen if there will be a measurable effect. A second trader with a major foreign commodities company in Vietnam said the scheme could even lead to more defaults because it will get priority treatment. "Maybe they might start delaying coffee that they sold to others at a cheaper price," he said. Some analysts say that as much as 80 percent of the 2009/2010 crop, estimated at about 18 million 60-kg bags, has already shipped. =
“The global coffee market is expected to have a surplus of robusta this year, and Vietnam's troubles may have little impact. "The industry as a whole is not that badly off," said Kona Haque, commodities strategist at Macquarie Bank in London. "From an historical point of view prices are not that low. They are not close to the costs of production, so they are still making money. It's not a situation where prices are so low that they won't plant next year." =
“When Dinh reached Hoa's house that first day, hundreds of people had gathered to demand payment, but she had managed to slip away and police convinced the angry crowd to leave. Two days later, though, the authorities were powerless to stop the mob from ransacking her single storey, tin roofed home. "They took everything they could," said Dinh, who suspects Hoa moved the beans and invested the money secretly in property. The door, the front gate, the lights and switches, the windows, even the kitchen sink: gone. Stray coffee beans and burlap sacks lay on the floor of the warehouse. Hoa eventually surfaced, and in a one-page handwritten letter with a six-page annex she listed who, and how much, she owed. She also paid up more than 300 million dong, but it was a fraction of what she owed, locals said. "For us farmers, when something is spilled, anything that can be retrieved will do," Dinh said as he stood up to show visitors out of his home. "We'd be happy to get half of what she owes." =
Vietnam's Goal of Creating a Prestige Global Coffee Brand
Emma Thomasson wrote in Reuters: “Dang Le Nguyen Vu may not rate the coffee, preferring the brand from Vietnam's top processor which he heads, earning him the regal epithet. But the U.S. chain is in his sights as a marketing model for Vietnam, the world's second largest coffee grower, to multiply income by putting its brew and not just its beans on the map. "Our ambition is to become a global brand," the chairman of privately-owned Trung Nguyen told Reuters. [Source: Emma Thomasson, Reuters, November 8, 2012 /*/]
"They are great at implanting a story in consumers' minds but if we look into the core elements of Starbucks, what they are doing is terrible. They are not selling coffee, they are selling coffee-flavored water with sugar in it," he said. Trung Nguyen also runs Vietnam's biggest chain of coffee houses, and Vu has his pitch ready for the Western market. "American consumers don't need another product. They need another story," he said, adding that his company aimed to improve the lives of people in Vietnam's coffee-growing highland region, a link he sees lacking in larger rivals. "They sing great songs about sustainable development but at the end of the day, the return on investment is what they care about. They don't grow coffee, do they? We do." Trung Nguyen says all its beans come from smaller farms certified for sustainable growing practices, with growers receiving guaranteed prices. Vu was in Lucerne to tout what he calls "responsible creativity for harmony and sustainability". /*/
“Vietnam is the world's top exporter of cheaper robusta beans. However, like many nations that produce soft commodities coffee, cocoa and sugar, Vietnam only earns a fraction of the income ultimately generated by its crops once they are processed, packaged and marketed abroad. "Vietnam currently exports 90 percent of beans raw. These beans carry no brands. That needs to be changed," said Vu. He said Vietnam should be able to earn $20 billion from coffee within the next 15 years, up from less than $3 billion now, if it boosts agricultural productivity and does more to add value to its coffee by roasting, blending and packaging beans. /*/
“Trung Nguyen hopes to quadruple revenues to $1 billion by 2015 from $250 million in 2011 as Vu seeks to take on big global brands like Nestle's Nescafe and Starbucks. "We are like a grasshopper fighting against a giant elephant. In terms of technology, marketing, Nestle is way ahead of us," Vu said. "Our strategy is to be smarter and more focused," he said, noting that his G7 brand is the country's top selling instant coffee ahead of Nescafe and local rival Vinacafe. "For the consumer, Vietnam was closed for a long, long time so they would always prefer the foreign brand versus the local brand so for G7 to win this race it took extra effort from us." /*/
“Trung Nguyen already exports to 60 countries, but plans a big new push into the United States next year, hoping to eventually reverse the split in its sales of 70 percent for the domestic market and 30 percent for export. Trung Nguyen also expects to benefit from the fast-growing popularity of coffee in the traditional tea-drinking countries of Asia. Vu hopes to lift Vietnamese coffee consumption from a current 1 kilogram per head per year to the 5 kgs of Brazil. "We are running our factories at up to 110 percent of capacity and still we cannot provide enough to the Chinese market," said Vu, who says he drinks 10 cups a day himself. "If crude oil is the energy of the industrial economy then coffee is the energy of the knowledge-based economy." /*/
Coffee Crisis in Vietnam: Crippling Debts and Bankruptcies
In August 2013, Reuters reported: Vietnam’s coffee industry “is now in crisis, plagued by tax evasion, mismanagement, insolvency, high interest rates and a credit squeeze. Many coffee operators are trapped with crippling debt and banks are reluctant to lend them more money. Vietnam's credit crunch is blamed largely on state-owned enterprises that borrowed big during the economic boom of the past decade and squandered cash on failed investments, which has left banks crippled by one of Asia's highest bad-debt ratios. [Source: Nguyen Phuong Linh, Ho Binh Minh and Lewa Pardomuan, Reuters, August 15, 2013 |^|]
“Of the 127 local coffee export firms that operated in Vietnam a year ago, 56 have ceased trading or shifted to other businesses after taking out loans they can't repay, according to industry reports. Few coffee exporters are willing to talk about their financial problems. In communist Vietnam, people are often reluctant to speak publicly about sensitive issues like politics and business, especially to foreign media. |^|
“But Nguyen Xuan Binh is one major coffee exporter who admits he's in deep trouble. His firm, Truong Ngan, is wilting from $28 million of debt owed to seven banks from which it borrowed at interest rates of 20 percent. With barely any cash flow, its only collateral is its stock of coffee beans — enough to fill 200 small trucks. "Now the banks want to come and repossess all that we have, our 4,000 tonnes of coffee," Binh told Reuters. |^|
“The value of non-performing loans or debts in the sector likely to go unpaid stands at 8 trillion dong ($379 million), or 60 percent of all coffee industry loans, said a July circular signed by the Deputy Agriculture Minister Vu Van Tam. "No one wants to admit they're going bankrupt," said one coffee trader in Ho Chi Minh City, who like many of his competitors, asked that his name be withheld. "Once they go bankrupt, they can never borrow from banks again and their businesses are finished." Even in the coffee-rich central highlands of Daklak, export firms are fast going bankrupt. "Only half have survived this past year," a local government trade official said. |^|
"Even top exporters are now having problems," said a dealer in Singapore who trades Vietnamese beans. "I don't think they are going to buy 300,000 tonnes. How do you expect companies which are suffering from heavy losses to find cash?" |^|
“While a prolonged crisis in Vietnam could curb exports, second-largest robusta producer Indonesia may seize the opportunity to sell more beans as the country's production is forecast to hit an all time high this crop year. Without a dramatic increase in global consumption, top producer Brazil and some other producing countries could lift world inventory to a five-year high in the 2013/2014 crop year, keeping further downward pressure on prices. "There may be a revamp of the entire coffee industry, and I think those who immediately benefit from the situation in Vietnam are Brazil and Indonesia," said Liu. |^|
Reasons for Vietnam’s Coffee Crisis
Reuters reported: “Struggling coffee exporters blame local banks for their predicament, citing high interest rates issued to lure depositors due to high inflation in 2010-2011, which has in turn curbed the economy to its slowest pace in 14 years. Many overseas coffee dealers say Vietnamese exporters dug themselves into a hole by overzealous borrowing for expansion and bungled attempts to play the global robusta futures market, which rallied to a three-year peak around $2,600 a tonne in early 2011 but then plunged to the current level below $2,000. [Source: Nguyen Phuong Linh, Ho Binh Minh and Lewa Pardomuan, Reuters, August 15, 2013 |^|]
“Unscrupulous middlemen have also played a part in the crisis, cheating exporters by selling them weighted coffee bags and inferior beans which are difficult to sell or fetch lower prices. "What I found out is the market there is quite dirty. Middlemen often sell poor beans to exporters. They even put metal bolts in the bags to outweigh them," said Joyce Liu, an investment analyst at Phillip Futures in Singapore. |^|
Efforts to Reasons for Vietnam’s Coffee Crisis
Reuters reported: “In an attempt to support its biggest currency earner among agriculture exports, the government in July 2013 extended the loan repayment period for coffee firms from 12 to 36 months. But traders said the move was more aimed at helping troubled banks, by preventing coffee exporter debts being classified as non performing loans. Banks say they have no ban on further lending to coffee exporters, with rates still high at 10 to 16.5 percent, but admit they are reluctant to do so. "We don't have any barrier with lending to coffee companies, but we have to be very careful with bad debt. The coffee business is now very unstable so it's not on our preference list," said a deputy manager at a major commercial lender in Ho Chi Minh City, who asked not to be named. [Source: Nguyen Phuong Linh, Ho Binh Minh and Lewa Pardomuan, Reuters, August 15, 2013 |^|]
“The Vietnam Coffee and Cocoa Association (Vicofa) has sought government approval to stockpile 300,000 tonnes — a fifth of the country's output — to try to boost prices, and offer exporters soft loans to finance purchases of beans from farmers. But the last such stockpiling effort in 2010 flopped, with only 60,000 of the 200,000-tonne target stored because of logistical glitches and slow disbursement of funds. |^|
“For cash-strapped exporters, selling beans to repay debts is more important than stockpiling for potential price gains. But domestic prices are trading near a 16-month trough below 40,000 dong a kg ($1.90) after benchmark London futures sank to a 32-month low on concerns over rising global output. Prices below 40,000 dong usually deter farmers from selling. |^|
“Domestic traders believe the only solution to Vietnam's coffee crisis rests with the government and banks that are able to lend, but say the banks are shunning coffee exporters or offering them interest rates they can't handle. "I'm sure those struggling companies can recover if they get support from banks. But it's unlikely they'll get it," said the director of a leading firm. |^|
Tea Agriculture in Vietnam
In 2009, Vietnam was the world's fifth-largest tea exporter and producer with shipments generating $179 million in 2010, up 5.3 percent from 2009, said General Secretary Nguyen Thi Anh Hong of the Vietnam Tea Association. In October 2010, a kilogramme (kg) of Vietnamese black tea brought in $1.36, while green tea was sold abroad at an average $1.66 per kg, data from the tea association show. Black tea now represents the majority 55 percent of Vietnam's tea production, while other varieties such as jasmine tea make up the remaining 5 percent. [Source: Ho Binh Minh, Reuters, November 24, 2010 /|]
Vietnam's tea sector employs about 6 million people living in more than half of the country's provinces, but its tea export revenues are far behind the $1.3 billion that Sri Lanka, the world's third-largest producer, earns. Vietnam shipped an estimated 112,000 tonnes of tea in the first 10 months of 2010, unchanged from a year ago, while revenues rose 11 percent to $163 million, government data show. Vietnam has been exporting its CTC (crush-tear-curl) black tea to Taiwan, China, Indonesia. It also sells black or green tea to Pakistan, Russia, the United States, India, Afghanistan and the United Arab Emirates. The world's biggest tea producers also include China, India, Kenya and Indonesia. /|\
In 2010, Ho Binh Minh of Reuters wrote: “Vietnam's tea exports next year could rise 4 percent to 130,000 tonnes but the industry is aimed at improving tea quality to raise revenues, rather than increasing volumes, an industry official said. "Vietnam will not try to raise output but will focus on quality, especially to meet those standards demanded on the international market," Hong told Reuters in an interview. "The target now is to raise export prices," she said, adding that Vietnam will try to increase the ratio of the more expensive green tea to half of annual output over the next few years, from 40 percent now, as a way to increase revenues. /|\
The average export price of Vietnamese tea in 2010 year would reach an average $1.45 per kg, and the industry hoped to raise to $1.6 next year, Hong said. "Over the next three to four years Vietnam will shift its tea export to markets where a high quality is required," Hong said, citing England, Germany and other member states of the European Union. Next year, Vietnamese tea producers will start reorganizing production in order to obtain quality certificates granted by UTZ Certified, Rain Forest Alliance, Viet Gap, which will help raise the selling price, Hong said. /|\
The worlds top producers of tea are (1988): 1) India, 2) Sri Lanka, 3) China, 4), Kenya, 5) Indonesia, 6) Malawi, 7) Argentina, 8) Bangladesh, 9) Tanzania and 10) Vietnam.
Text Sources: New York Times, Washington Post, Los Angeles Times, Times of London, Lonely Planet Guides, Library of Congress, Vietnamtourism. com, Vietnam National Administration of Tourism, CIA World Factbook, Compton’s Encyclopedia, The Guardian, National Geographic, Smithsonian magazine, The New Yorker, Time, Newsweek, Reuters, AP, AFP, Wall Street Journal, The Atlantic Monthly, The Economist, Global Viewpoint (Christian Science Monitor), Foreign Policy, Wikipedia, BBC, CNN, Fox News and various websites, books and other publications identified in the text.
Last updated May 2014