Major commodity exchange NYSE Liffe has launched a scheme to grade robusta coffee supplies in Vietnam, a move that experts believe will help exporters and farmers.
Under the plan, 50-ton parcels of coffee will be stored in warehouses in Ho Chi Minh City under Liffe's supervision. Samples will then be sent to the UK to be graded. Approved stocks get a certificate valid for six months and can be delivered with no need for retesting, according to reports.
Dow Jones cited Peter Blogg, Liffe's head of commodity product management, as saying the scheme could bring more transparency to the market as there will be more of an idea of how much coffee in Vietnam is deliverable.
He said the grading will also help exporters secure financing for coffee by attaching a futures value to the supplies at origin.
The second-largest European derivatives trading platform also plans to roll out similar schemes to other coffee producers such as Indonesia and Brazil.
Experts said the grading by Liffe is more proof of increasing interest in Vietnam's coffee supplies. The Singapore Commodity Exchange and the Tokyo Commodity Exchange have also encouraged Vietnamese coffee traders to join them.
Being graded and traded on international exchanges is something Vietnamese coffee products need, the experts said. Even though Vietnam is the world's largest producer of robusta coffee, the industry is still hit by price fluctuations, they added.
There are new opportunities to commodities investors as well.
Luong Van Tu, chairman of the Vietnam Coffee & Cocoa Association, said investors can earn a lot of money even if there is only a 5-percent difference in local and world quotes.
Earnings could be even higher, Tu said, noting the prices paid for the bean at home are always 20 to 30 percent lower than international prices.
Economist Dinh The Hien said commodities are among the most preferred assets to invest in around the world, especially amid these turbulent times, he said.
Commodities investments are not popular in Vietnam now.
Three commodities exchanges have been opened in Vietnam the Vietnam Commodity Exchange, the Buon Ma Thuot Coffee Exchange Center, and the Sai Gon Thuong Tin Commodity Exchange. They allow investors to trade in several commodities including coffee, rubber and steel.
Some local investors said futures trading carries high risks and requires them to do their homework very carefully. Any information on production output and reserves can easily affect prices, they said.
As liquidity at the local exchanges is still low and they are not yet linked to overseas exchanges, many investors fear that the risks are even worse.
Hien said prices of commodities have been fluctuating sharply and advised investors to be cautious to avoid huge losses. But he also said that like other assets, commodities trading is not just about risks, but about opportunities as well.
Vietnam just started its new coffee crop. Output is expected to hit a record 1.25 million tons in the 2011-12 season, up from 1.2 million tons in the current crop year, Bloomberg reported, citing Sucafina SA, a green coffee trader based in Switzerland.