Vietnam’s Coffee Growers Face Profit Squeeze from Bumper Crop

John Reed

21:52 23/08/2018

Almost all of the coffee grown in Vietnam is robusta, the bitter-tasting bean used in instant coffee, of which the south-east Asian country accounts for about 40 per cent of global output. 

Vietnam’s Coffee Growers Face Profit Squeeze from Bumper Crop
Vietnam’s robusta coffee growers are anticipating a bumper crop this reason — good news for fans of an instant cup but bad for the profit margins of hard-pressed farmers in the world’s largest exporter of the commodity. 
Coffee farmers and traders in Dak Lak, the biggest coffee-producing province in Vietnam’s central highlands region, said favourable weather this year and a replanting programme would boost the industry’s output of the crop. 
However, they were worried that another record season would depress the prices they could command at a time when other coffee-producing countries were also reporting higher output, which was accelerating their own push into more profitable crops. 
“Suppliers of coffee all over the world — also Brazil, Indonesia, and Colombia — already have a bumper crop,” said Nguyen Tien Dung, head of sustainable agriculture at Dak Lak-based Simexco — one of Vietnam’s biggest coffee exporters. “That’s also putting pressure on the coffee price.” 
The US Department of Agriculture recently estimated that Vietnam’s coffee production in 2018/9 would reach a record 29.9m bags, a 2 per cent increase on 2017/18. 
Almost all of the coffee grown in Vietnam is robusta, the bitter-tasting bean used in instant coffee, of which the south-east Asian country accounts for about 40 per cent of global output. 
Coffee has been grown in the region since French colonial times. Unlike in Brazil — the second-biggest grower of robusta — most Vietnamese producers are smallholders, with limited access to capital and technology and little power to influence prices set by futures traders overseas. 
“With the market at the level it is, farmers cannot ensure a good living standard from the price,” said Ho Sy Trung, general manager of Phuoc An Coffee, another big coffee exporter based in Dak Lak. 
Faced with falling prices in recent years, Vietnam’s coffee producers have diversified into more profitable crops. Many planted black pepper, the price for which surged earlier this decade, but the crop has also seen its price fall recently, and some farmers’ plants were hit by disease. 
More recently, many coffee farmers in the highlands moved into durian, south-east Asia’s pungent-smelling “king of fruits”, demand for which is surging in China. 
“Farmers are switching to other crops like pepper, durian and avocado,” said Tran Duc Tho, director of the trading company Duc Nguyen Cofexim, whose clients include Nestlé. “When the farmers see they cannot get a profit from coffee, they move away from coffee.” 
Phuoc An Coffee’s Mr Trung said farmers could command a profit margin for durian that was eight to 10 times higher a tonne than for coffee. 
Carlos Mera, senior commodity analyst at Rabobank in London, said: “I think we are getting close to the cost of production: the level at which farmers are not incentivised to expand coffee production.”

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