Vietnam Coffee Continues to Face Difficulties

Vietnam exported a total of 1.163 million tonnes of coffee worth US$1.075 billion to 97 countries and territories in 2009, up 2.6 percent in volume but down as much as 21.3 percent in value compared with 2008, according to the General Department of Customs (GDC).

The 10 biggest export markets, except Belgium and the Netherlands, saw sharp drops of between 5 percent and 45 percent in export revenues against 2008. The Vietnamese coffee industry will face another difficult year this year.

Growing difficulties

In early 2010, despite relatively optimistic forecasts about the global economic recovery and coffee consumption growth, the Vietnamese coffee industry has not enjoyed revival. In the first three months this year, Vietnam’s coffee price and export volume sank to its lowest level in three years.

Under the plan of the Ministry of Agriculture and Rural Development, in 2010, Vietnam will plant coffee on 530,000 hectares, an increase of 0.6 percent compared to 2009, including 515,000 hectares of blossoming coffees. Coffee output is expected to reach 2.1 tonnes per hectare, or 1.082 million tonnes in total, an increase of 6.1 percent over 2009.

However, according to Agromonitor, the agricultural information service provider, the ministry’s plan is unlikely to be reached. Prolonged drought is hitting large areas of coffee trees.

Dak Nong province, a major producer of coffee, is estimated to lose 300 hectares because of water shortage, while 1,200 hectares in Dak Lak province, the largest producer, will die without rain.

In addition, input prices also keep rising even though coffee prices remain as low as in 2009. For this reason, farmers tend to reduce the amount of fertilisers and watering, and they will not replace old trees with new ones. Therefore, both the quality and quantity of coffee in 2010 will probably fall short.

On the other hand, in 2009 and the first quarter of 2010, robusta coffee prices in global markets were falling, leaving coffee growers in a dilemma. However, the situation is expected to improve, especially for robusta coffee.

Robusta prices decreased sharply in the first quarter of 2010, because it was the high point of harvesting season. The high supply prompted speculators to force prices down.

Robusta coffee prices will rebound when the harvesting season ends, the world economy revives from the crisis and demand revives. The International Coffee Organisation (ICO) forecast that global coffee demand may reach 134 million bags in 2010, up by 1.5 percent over 2009.

The World Bank (WB) recently predicted that robusta coffee prices would stay at US$1,470 per tonne, a rise of 6.5 percent over 2009.

Meanwhile, Arabica coffee prices tend to move in the opposite direction. After a sharp rise in the first quarter of 2010, the price is expected to drop as Brazil and Colombia, the two main producers, harvest the main crop in April. According to the World Bank, the Arabica coffee price will drop to US$2,240 per tonne in 2010 from US$2,670 in 2009.

In couple with supply and demand, exchange rates also affect the price.

In March 2010, the debt crisis in some European countries causes a sharp increase of the US dollar against the euro. Many believe that coffee prices will not rise.

In the remaining months of 2010, according to Eurostat, a statistical agency of Europe, the European economic situation tends to worsen.

In the meantime, according to latest reports, the US economy is recovering.

Hence, a sudden price surge on the world coffee market may not happen.

Export matters

At present, domestic coffee prices depend on global movements. Therefore, domestic prices in the remaining months this year are expected not to increase to 2008 levels. However, prices will not plummet too sharply, because the Government’s plan to collect coffee for export keeps the floor price for Robusta coffee at 23,000 dong per kilo.

According to the Ministry of Industry and Trade, Vietnam plans to export 1.1 million tonnes of coffee in 2010, a decrease of 5.8 percent from 2009. With an expected price of US$1,550 per tonne, up 5 percent over 2009, Vietnam will rake in US$1.71 billion. But, looking at what happened in the first four months, the target of US$1.71 billion in 2010 is not feasible.

According to the General Department of Customs, in the first three months of 2010, Vietnam exported only 345,000 tonnes valued US$483 million, down 22.3 percent in volume and 27.8 percent in value compared to the same period of 2009.

The average export price also slumped 7.4 percent to only US$1,398 per tonne, making coffee the only decliner amongst key agricultural products.

If this price rate is the average for this year, the export value of Vietnam’s coffee will reach US$1 billion, give or take a little, according to the Vietnam Coffee and Cacao Association. If that is the case, value will drop 40 percent from 2009. But if the price rate is equal to the WB’s forecast, the target of US$1.7 billion is still far-reaching.

If the same export price is maintained for the whole year 2010, Vietnam would be able to reap only one billion dollars in the whole of 2010.

VCCI

Tags: Vietnam Coffee, vietnam coffee exports