Stagnant Response to Coffee Price Fluctuation

The global coffee market witnessed a bounce and a dip in the first half of 2010 and the Vietnamese coffee industry still showed its slow response and inconsistent guidance to cope with market fluctuations. This fact has put coffee traders, exporters and farmers at a disadvantage.

Although Vietnam is the second largest coffee exporter in the world, it is subjected to global price developments while other countries join hands together to control the price.

Puzzled at price change

Global coffee price has leaped 20 % in the past 30 days to a 15-month high of US$1,700 per tonne and is forecast to say on the uptrend.

The domestic coffee price climbed 9.5 % within a week to VND28,900 per kilo from VND26,400. In the past three weeks, the coffee price in the Central Highlands rose 18.4 % in the past three weeks. The hike in domestic price is not resulted from the government-backed stockpiling programme but global jumps.

Although prices are high, exporters difficultly purchase the commodity from farmers. “The price spirals up very rapidly but there are very deals have been reached because coffee owners still wait for higher prices.”

Looking back three months ago, we will understand what are causing this short supply. From February to March this year, coffee prices dropped sharply, in region of 30 % year on year, to US$1,100 per tonne, and farmers scrambled to sell off. By the end of April, when coffee prices became stable again, farmers continued to sell futures at low prices. As a result, this has led to current supply shortfall.

In general, Vietnamese merchants and farmers are always put at a disadvantage no matter how coffee prices rise or fall. According to experts, coffee prices are quoted according to the supply and demand on the London, New York and other mercantile exchanges. When the price falls, instead of stopping selling, traders and farmers rush to sell out, causing the price to sink even deeper. In addition, the price-to-be-fixed future trading method is also the opportunity for foreign purchasers to drive the price. According to this method, foreign purchasers advance some 70 % of the contract value as they know that Vietnamese traders will have to accept losses to execute the contract.

Mr Do Van Nam, General Director of the Vietnam Coffee Corporation (Vinacafe), said: The price-to-be-fixed trading method is potentially risky to the seller. Moreover, speculative funds can anticipate the supply and they know how to drive prices up or down.

Hard to compete with foreigners

Nam said foreign purchases are now holding about 90 % of coffee the Central Highlands. They have capital advantages so that domestic enterprises can hardly compete face to face.

Mr Le Xuan, Director of Agriculture, Forestry Products Processing and Salt Production Department, said: Vietnam has hundreds of coffee exporters but they lack consistent guidance and they usually hunt for local interests, not the general development of the coffee industry and market. The action actually damages the credit and image of the Vietnamese coffee brand.

Mr Nam added most exported coffee was in the form of raw or crude; thus, the price margin from the harvesting to exporting was only 11 %. Added value is made by instant coffee producers. Unfortunately, Vietnam holds only 0.4 % of the global instant coffee market share. This proportion is extremely incommensurate to the position of the world’s No. 2 coffee exporter.

Recently, the Prime Minister has agreed to provide preferential loans for coffee traders to stockpile coffees to put an end to the paradox but very few businesses can access to this source of capital.

According to the General Statistics Office of Vietnam, Vietnam’s coffee exports slumped 11.8 % year on year in the first half of 2010. Mr Luong Van Tu, President of the Vietnam Coffee and Cocoa Association (Vicofa), said coffee exporters encounter more difficulties in market and price in 2010. Coffee exports this year are anticipated to decline in the neighbourhood of 300,000 tonnes from last year.

Tags: Vietnam Coffee, Vietnam coffee prices