Coffee farmers in Vietnam to maintain output even as prices drop

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Coffee farmers in Vietnam, the biggest producer of robusta beans used in instant drinks, plan to maintain production even after costs increased and prices slumped to the lowest level in three years.

Nine out of 10 growers surveyed by Bloomberg in Dak Lak province, the main producing region, said that while margins had narrowed they would continue to apply fertilizer and invest in their plantations to preserve output. Farmers are now harvesting a record crop of 1.7 million tons, 13 percent more than a year earlier, according to the median of 11 trader and shipper estimates compiled separately.

Futures traded in London slumped 17 percent in the past month and reached a three-year low as supplies of the beans used by Nestle SA (NESN) outpaced demand. The survey of farmers shows prices may have to decline further to spur production cuts. Global harvests are set to expand 7 percent this crop year to 68.4 million bags (4.1 million tons), exceeding a 1.9 percent gain in demand to 66 million bags, according to Macquarie Group Ltd. (MQG) on Nov. 11. A bag weighs 60 kilos (132 pounds).

"Farmers in my area definitely will not chop down trees or cut investment," said Tran Van Nguyen, 54, head of the farmer association in Hoa Thuan Commune in Buon Ma Thuot City, Dak Lak province. "They will keep applying fertilizer and pesticide to boost yields in the next season."

Bean prices in the province slumped 35 percent from a March high to 29,600 dong ($1.40) a kilogram on Nov. 7, the lowest level since October 2010, data from the Trade & Tourism Center show. While rates fell, spending on everything from fertilizer and pesticide to labor rose about 30 percent in the past three to five years, said Van Thanh Huy, general director of Daklak Investment Export-Import Joint-Stock Corp.

Government help

Assessing the exact level of output costs is hard because it varies with location, yield and tree maturity, said Huy. The government may help if farmers don't have enough funds. The agriculture ministry and Vietnam Coffee and Cocoa Association will propose stockpiling as much as 300,000 tons to stem price declines, Thoi Bao Kinh Te Saigon said last week, citing Nguyen Viet Vinh, Vicofa's general secretary.

Futures in London dropped 46 percent from a 2011 peak to $1,431 a ton on Nov. 7 and traded at $1,447 on Nov. 14. Robusta slumped 25 percent this year as raw sugar dropped 9.6 percent and cocoa gained 20 percent.

"When farmers in Vietnam say they're going to keep producing regardless, it's because the margins are still fairly decent," said Abah Ofon, a Singapore-based analyst at Standard Chartered Plc. "After three years, if they make losses, it will be a different story altogether."

Vulnerable crops

While most growers will continue to invest in their plantations, others may be tempted to switch crops or convert their land to residential use, said Huy from Daklak Investment Export-Import Joint-Stock Corp.

"I may turn to other plants that require less investment if prices stay this low," said Vo Xuan Thang, a 52-year-old farmer, who has grown coffee for two decades. "It would be a good time to let the soil recover, and I'll switch back after a few years if prices are good."

The harvest in Vietnam is about 30 percent complete, more than the 20 percent rate at the same time last year, according to the survey of traders and shippers compiled on Nov. 4-7. Less than 10 percent has been sold, a similar level to a year earlier, it shows. The farmers were surveyed on Nov. 5-7.

"Other crops like fruit are more vulnerable to weather than coffee," said Huynh Van Phuoc, a 45-year-old grower, who is among farmers who stayed in the industry even during periods of depressed prices. Coffee-growing had allowed him to provide for his family, build a good home and buy a motorbike, he said.

"Now it's essential for me to boost yields to make up for rising costs and lower prices," said Phuoc. "We want a steady income and a stable life."

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