Coffee sector strives for improved efficiency

Despite having become the world’s second biggest coffee exporters, Vietnamese businesses deal passively with fluctuations on the world market which directly affect farmers’ incomes.

More exports less profit

Every year Vietnam exports around 1 million tonnes of coffee, mainly Robusta, to 80 countries and territories, including 10 major clients. Twenty-six large foreign companies purchase coffee directly from Vietnam and 126 local businesses sell their products to 3,000 purchasing agents. Most businesses apply old criteria in purchasing and processing. Only 1 percent of local businesses apply the 4193:2005 standard. This reduces the value of Vietnamese coffee on the world market.

Ninety-five percent of Vietnam’s coffee production is for export while only 5 percent is consumed domestically. At present, Vietnam processes no more than 10,000 tonnes of its coffee. This figure will increase to 30,000 tonnes in the next five years. The amount is very small compared to the total production output of 1 million tonnes. Experts worry that the coffee sector is too dependent on exports.

Vietnam has more than 100 processing factories with a total capacity of 1 million tonnes per year, but these factories operate inefficiently. It costs tens of billions of Vietnam dong to build a factory but its production seldom exceeds 20-30 percent of capacity. Meanwhile, 80 percent of the coffee being processed is processed by small family operations.

It is wasteful to pour much investment into building underutilised processing factories. At the same time many farmers lack drying grounds and driers, and as a result, the quality of Vietnamese coffee suffers. Every year, Vietnamese coffee which is rejected accounts for 80 percent of the total volume on the world market.

Without supporting policies, the image of Vietnamese coffee will remain poor, says Nguyen Thai Hoa, general director of the Thai Hoa group.

Chairman of the Vietnam Coffee and Cocoa Association, Luong Van Tu, says most of world coffee sector’s total revenues of US$80 billion fall to the major processors. The coffee producers, including Vietnam, receive only a small portion – around US$11-13 billion.

Risk reduction helps increase effectiveness

Vu Van Dong, Deputy Director of the Dak Lak Provincial Department of Agriculture and Rural Development (DARD), says that in 2009, the province had a total coffee area of 180,000 ha (30,000 ha higher than plan), yielding 380,000 tonnes. 85 percent of the area is cultivated by farming households. According to Dong, the biggest problem is that there is no difference in the purchase price of ripe and unripe coffee, which motivates farmers to harvest coffee before it is ripe to avoid changeable weather.

Dak Nong DARD director Nguyen Duc Luyen is worried that unplanned expansion of the coffee cultivation area will reduce the area of forest and negatively affect water sources.

Although coffee contributes 40 percent of the province’s GDP, it is a risky business, says Luyen, noting that farmers are often selling coffee at a loss. Coffee cultivation can be less efficient than other cultivated crops. So it is important to consider the area of coffee cultivation very carefully.

Luyen proposes a direct support policy for coffee farmers because nobody has benefited from the recent policy of buying coffee for stockpile.

MARD deputy minister Bui Ba Bong says that according to the government, its policy to buy coffee for stockpile is aimed at ensuring consumption to help farmers when prices fall and adjusting the export prices for maximum benefit, in order to avoid dumping when prices drop, which can cause damage to both traders and farmers.

The Department of Cultivation under MARD proposes building a sustainable coffee development programme to 2020, setting up a national coordinating committee for the coffee sector, establishing an assistance fund, building a mechanism to buy coffee for stockpile to counter price drops, and making coffee a candidate for government price intervention to protect the farmers.

VOVNews

Tags: Vietnam agriculture, Vietnam Coffee