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Vietnam: Coffee profit not worth
beans
By Nelson Rand
HO CHI
MINH CITY and DAK LAK PROVINCE - Vietnam's 80 million
people consume only about 5 percent of the country's
total coffee output, but one would never guess that if
they were inside a Highlands cafe in Ho Chi Minh City or
Hanoi. With high-quality coffee served in a relaxing
atmosphere, the coffee chain is Vietnam's version of
Starbucks - and it's brewing up big business among the
country's middle and upper classes. But the other 95
percent of Vietnam's coffee is exported, and with world
coffee prices falling to a 30-year low last year,
Vietnam's coffee farmers have been facing lean times.
"I can't make money anymore selling coffee,"
said 57-year-old farmer Dao Dinh Phuc, who has five
hectares of farmland in the country's biggest
coffee-producing province of Dak Lak. He said it costs
about VND10,000 (about 67 US cents) for him to produce a
kilogram of coffee - about the same price as what he can
sell it for. "I can't make any profit." His tiny shack
without electricity and running water on a remote
hillside in the Central Highlands of Vietnam is a stark
contrast from a Highlands cafe in the city that sells a
regular cup of coffee for the same price as what he
sells his kilo for.
In response to Vietnam's
coffee problem, the country has been changing its
production strategy. The world's No 2 coffee exporter is
now focusing on improving quality and increasing value
while reducing output.
"The over-supply of
coffee in the world has brought many difficulties to
Vietnam's coffee industry and [especially] growers,"
said Doan Trieu Nhan, chairman of the Vietnam Coffee and
Cocoa Association (Vicofa), in an e-mail interview. So
the country's industry is making a strategic adjustment,
he said. Under the plan, the area under coffee
production is to be reduced and farmers are encouraged
to switch from the low-grade Robusta bean to the higher
quality Arabica bean as well as to diversify to other
crops such as rubber, cashew nuts, pepper and fruit
trees. Vicofa said the area under coffee production in
the country has been reduced by 100,000 hectares over
the past three years to a total of 470,000 hectares now.
Vietnam has been blamed for over-supplying the
world's coffee market with its rapid expansion of
production in the 1990s and contributing to the coffee
price slump by selling its coffee at the world's lowest
prices. After government encouragement in the early '90s
to expand coffee production, the crop became Vietnam's
second-highest export earner after rice by 1995. By
1999, Vietnam was the third-largest coffee exporter in
the world after Brazil and Colombia but world coffee
prices were on a downward trend. Vietnam has since
surpassed Colombia to become the world's No 2 exporter
of coffee and the world's No 1 exporter of Robusta -
just as the world's coffee industry has slid into a
serious crisis. In the 1980s, world coffee prices
averaged about US$2.64 a kilo. Today, they average about
$1.10.
In 1994, Dak Lak coffee farmer Sui Thom
cashed in on the coffee market and bought a Honda
motorcycle with his earnings. Now he doesn't have enough
money to repair it. Last year, he lost about $400
growing coffee. This year, he has stopped growing the
money-losing crop and is banking on corn and cashew nuts
among other crops to make just enough money to survive
on. On his remote hillside farm, Phuc has also slashed
his coffee crop, although just by half. He too is
counting on corn and cashew nuts among other crops such
as cotton and pepper to offset his coffee losses.
According to Vietnam's Ministry of Agriculture
and Rural Development (MARD), the total coffee output
for the 2002-03 crop year that ends at the end of
September is 550,000 tons. This is down from a record
900,000 tons in 2000-01. According to MARD, the export
target for 2003 is 635,000 tons, compared with 713,000
tons last year, which includes coffee stored from
previous years. In the first eight months of this year,
Vietnam shipped 459,000 tons of coffee, a drop of 6.1
percent from the same period last year, according to
MARD. Vietnam's main export market for coffee is the
United States, which buys about 90,000 tons from the
country per year at a total cost of about $41 million.
The production costs of Robusta coffee in
Vietnam averages about VND10,000 a kilo, while the
current market price is just over VND9,000 a kilo. Total
losses this year are expected to be about $18 million
for local coffee growers and producers.
But as
Vietnam's coffee farmers are facing lean times, coffee
houses such as Highlands are thriving in the domestic
market. In a country where Starbucks has not yet entered
the retail sector - despite having more than 1,000
stores outside of North America - Highlands is brewing
up Ho Chi Minh City and Hanoi with nine outlets and two
more to open by the end of next month. With oversized
lounge chairs, Western music, lighting and mirrors
designed to make the customer feel as relaxed and
comfortable as possible, and people filling up the cafes
at all times of the day to drink some of the best coffee
in Vietnam, one would never guess that there is a coffee
problem in the country. For now, only the farmers are
missing out on the profits.
(Copyright 2003 Asia
Times Online Co, Ltd. All rights reserved. Please
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