Price drop prompts motion to stockpile coffee

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Vietnam, the world's second-biggest coffee producer, may stockpile the beans to protect growers as export prices have dropped too low for comfort.

The Ministry of Agriculture and Rural Development has asked the government to stockpile coffee in line with a proposal by the Vietnam Coffee and Cocoa Association, said deputy minister of agriculture Diep Kinh Tan in Hanoi Thursday.

"Vietnam is among the world's biggest producers of rice and coffee, and we should have some national stockpiles to support our exporters," Tan said in an interview.

Coffee is Vietnam's second-most valuable crop, and a key foreign-exchange earner, after the government encouraged farmers to ramp up production of the beans early last decade. The government is trying to ensure that economic growth meets its 5 percent target this year.

Robusta coffee, the bitter-tasting variety cultivated in Vietnam and priced in London, dropped 13 percent in June to US$1,335 a metric ton.

"We are asking the government to buy coffee for an annual stockpile to support our export prices and limit losses for companies," Luong Van Tu, chairman of the coffee association, said in an interview Thursday. "We've also asked exporters not to sign any new contracts to avoid further losses as prices have dropped recently."

Tu said at a meeting on Wednesday that coffee prices had dropped not only because the global economic downturn cut demand but mainly because speculators worldwide stopped buying in an effort to force prices down.

Coffee hoarding

Coffee exporters in Dak Lak Province are likely to support the stockpile initiative.

They have complained they don't have enough material for upcoming shipments as farmers and traders in the nation's largest coffee growing region have been hoarding the beans due to the low prices.

Le Duc Thong, general director of Dak Lak September 2nd Import Export Company, said his company couldn't buy enough raw material for exports because farmers and traders had been refusing to meet full orders for more than a month.

As a result, the company had to stop all export activities after shipping only 73,000 tons in the first six months of this year.

Global price reductions have pushed Vietnamese coffee prices to their lowest level since 2007. Coffee prices hit VND21,800 ($1.22) per kilogram in the Central Highlands province at the end of June, only to rise slightly to VND22,700 in the past two days.

Tay Nguyen Coffee Investment and Import-Export Joint Stock Company said it had offered to pay VND2,000- 3,000 per kilogram higher than market prices. But farmers and traders had refused the offer as they wait for a price surge, the company said.

Nguyen Anh Dung, deputy director of Dak Lak Province Department of Industry and Trade, said the province would fall short of its 2009 coffee export target if farmers and traders continued hoarding.

The province exported 166,500 tons of coffee in the first six months, a 12.4 percent drop compared to the same period last year. It plans to export a total 380,000 tons this year.

Vietnam's coffee exports fell in value to $1.1 billion in the first six months of this year, a 12 percent drop compared with the same period in 2008.

The global coffee harvest will drop 5.4 percent to 127.44 million bags in the 2009-2010 year as Brazil, the world's largest grower, enters a less productive phase, the US Department of Agriculture said on June 12. A bag weighs 60 kilograms, or 132 pounds.

Vietnam may harvest 18.35 million bags in 2009-2010, about 6.7 percent less than this year, the agency said.

Doan Trieu Nhan, an expert at the Vietnam Coffee and Cocoa Association, said global coffee prices are likely to increase in October due to lower output in Brazil.

Macquarie Group Ltd. said in a May 27 report that global coffee demand would outpace supply by 4.6 million bags in the 12 months ending September 2010, overturning the surplus.

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