Vietnamese companies have started buying coffee on the domestic market under a plan to stockpile 200,000 tons for nine months to shore up prices that dropped again this week, an industry official said on Tuesday.

The plan by the world's second-largest exporter after Brazil is aimed at keeping off the market one fifth of Vietnam's coffee output to boost prices, which on Tuesday revisited an eight-month low last seen in late February.

"The prime minister has approved this plan and it is up to companies to decide their purchase details," Chairman Luong Van Tu of the Vietnam Coffee and Cocoa Association told Reuters. "Some of the companies have started buying."

Companies joining the stockpiling plan are among the 20 largest coffee export firms, Tu said, without giving any names or saying at what price companies should buy.

He said the companies were entitled to bank loans to smooth their purchases at a preferential interest rate, which would be 60-70 percent lower than the usual market rates.

Robusta beans fell on Tuesday to VND22,500-22,700 per kg, tracking falls in the London futures market where the May robusta contract lost $10 a ton to close at $1,222 per ton, after setting a contract low of $1,217.

The Vietnam Coffee and Cocoa Association, or Vicofa, is an industry body that oversees coffee production and export.

Offer at a premium

Traders said Vietnamese sellers stopped quoting prices for robusta grade 2, 5 percent black and broken, on Tuesday. Their last quotation on Monday was at $1,250 a ton, free-on-board for spot shipment, a premium of $28 to London May contract.

Bids for Vietnamese robusta beans grade 2 stood on Tuesday at a discount of $20 to $25 to the May contract, or around $1,200 per ton, but exporters did not accept, traders said.

"Trade is frozen today and prices are still low," a trader in Ho Chi Minh City said. "It means companies have not accelerated their purchases."

Another trader said that there were signs in pricing that the purchases for stockpiling are underway, but coffee companies have not officially announced the move.

A third trader said Vietnam's five largest coffee export companies could meet on Wednesday to discuss details on implementing the stockpiling scheme, which traders said could involve allocation of the purchase volume and the funding bank.

At the current price of around $1.2 per kg, banks would need $240 million to fund coffee firms to buy all the 200,000 tons of beans. On Feb. 23 coffee prices in Vietnam dropped to $1.2 a kg, a level last seen in late June 2009.

On Monday, short-term money market rates in Vietnam rose as banks sought fresh funds to meet demand from the rice and coffee sectors in particular.