Vietnam's coffee exports could fall 25 percent in 2016 to their lowest in a decade at 1 million tons (16.67 million 60-kg bags), hit by drought, lower yields from old trees and increased output from domestic roasters, a senior industry official said.
Tighter supply from Vietnam, the world's largest producer of robusta beans, coupled with concerns over lower output in Brazil and Colombia, could boost global coffee prices.
ICE July robustas settled up $13, or 0.8 percent, at $1,578 per ton on Wednesday. The contract has gained around 3 percent so far this year.
"Coffee processing in the country serving a higher number of coffee shops, plus more newly registered roasting businesses, will bring down the country's coffee bean exports," said Luong Van Tu, chairman of the Vietnam Coffee and Cocoa Association.
He added that local consumption now accounted for 10 percent of Vietnam's output, up from 5 percent in 2006, when the Southeast Asian nation exported 981,000 tons of coffee. Apart from domestic roasters, foreign firms including Nestle have established processing facilities in Vietnam. Nestle alone buys up to a quarter of Vietnam's coffee.
Farmers in the Central Highlands coffee belt have been hit by the widening impact of the worst drought in three decades brought on by the El Nino weather pattern.
The October 2016/September 2017 coffee crop could drop 30 percent if the drought intensifies in the Central Highlands during April, Tu told Reuters. The region produces 80 percent of the country's coffee.
Output from the key growing province of Daklak is expected to drop 30 percent.
Tu said lower yields from old trees, which account for 35 percent of Vietnam's 650,000 hectares of coffee, will contribute to the decline in output.
Dryness brought on by El Nino could also cut supply from Colombia in the second half of 2016, the International Coffee Organization said in its March report.
"Drought is also affecting supply expectations in Vietnam and (the state of) Espirito Santo in Brazil, which could lend support to robusta prices in the near future," the report said.
But BMI Research, a Fitch Group company, has forecast higher 2016/2017 output in Vietnam, Brazil, Colombia, Ethiopia and Mexico despite concerns over El Nino.