But government support still crucial as Vietnamese coffee industry faces challenging times
A worker checks coffee beans at a processing factory in the Central Highlands
With capital and policy support from the government, Vietnamese coffee enterprises will be able to compete well with their foreign counterparts, Nguyen Viet Vinh, general secretary of the Vietnam Coffee and Cocoa Association, tells Vietweek.
Vietweek: Coffee exporters and farmers this year have strengthened reserves to wait for better prices. Will this be an effective measure?
Nguyen Viet Vinh: It is good. It has helped raise coffee prices, benefiting both farmers and enterprises. Last crop, the government planned to stockpile 200,000 tons of coffee, but we only reserved 66,000 tons. The reserves that the prime minister has asked firms to maintain have been effective. Farmers have followed the instruction, thus coffee has not been sold en masse.
During previous crop harvests, coffee prices normally plummeted, as farmers and enterprises sold everything they had. Foreign speculators spread rumors that the price reduction would continue, forcing farmers to boost their selling at low prices. At that time, they purchased, and then resold the products, even to local enterprises, when the prices increased.
Farmers maintaining reserves means enterprises can spend less capital on purchases, which is good, because their purchasing power is not as high as in previous years.
The reserve policy, therefore, is really effective when prices are too low, and the state should support farmers and enterprises to do it.
But can our farmers do it? Do they have the financial and storage capacity?
Farmers have coordinated with enterprises. Now, each household in the Central Highlands, which is Vietnam's biggest coffee growing area, reserves some two tons of coffee. They will sell it to coffee companies later.
To ensure that the reserves policy is utilized most effectively, the government should strengthen support to farmers and enterprises should establish closer cooperation with them.
Twenty of our biggest coffee firms have met and agreed to reserve 200,000-300,000 tons of coffee this year to prevent price drops.
Could Vietnam use its position as the world's second largest coffee exporter to influence international prices?
To do this, coffee exporting countries need to strengthen their cooperation. However, it is difficult. Brazil focuses mainly on arabica, and Vietnam on robusta.
Vietnam's exporters once planned to apply coffee export quotas with the aim of controlling prices in the world market, but it could not be implemented. Now, prices of our agricultural products in general and coffee in particular are impacted by world prices.
We should build a national fund to help stabilize coffee prices to which both firms and the state contribute. Many countries have national funds to support farmers and enterprises to minimize market risks. This is one of the measures needed to help the coffee industry develop in a stable manner.
What is the output and export outlook for Vietnam this year?
Our coffee output in this crop will be lower than last year because of unfavorable weather conditions. It was rainy when coffee trees were in bloom. So output may fall by up to 15 percent.
With reduced output, exports will decrease as well. However, the most important goal is to get higher prices. We cannot always avoid price reductions by stockpiling. The association therefore always keeps its members updated about world market changes so they can adjust their business plans accordingly.
Coffee prices may come down this year, after reaching a peak last year. The price is expected to stay at some $2,000 per ton, down from over $2,500 per ton last year.
Is our export target of $2.75 billion for this year feasible?
It is difficult to make any prediction now. However, if the price is kept at $2,000 per ton, our export turnover could reach $2.3-2.5 billion this year.
Should Vietnam shift from growing robusta to arabica to gain higher export value?
Yes. We are studying ways to do this. To shift to arabica, we could select Lam Dong Province in the Central Highlands, where both arabica and robusta beans are being produced now.
The cultivation of arabica is more difficult and its output is moderate. However, arabica prices are 1.5-2 times higher.
If we increase our arabica cultivation, our exports will go up and have higher value. However, the issue is how to make the development stable, and how we can mobilize investment for it.
Many coffee firms are facing big losses. Will this impact Vietnam's coffee production and export?
At interest rates of 18-20 percent per year, it is difficult for traders of agricultural products to earn profits. Thus, the government should subsidize interest rates, or allow coffee companies to extend their debt payments.
Many foreign coffee firms have entered Vietnam. Should we worry about the competition?
No. When doing business in Vietnam, they also have to obey our regulations, which are in line with the World Trade Organization commitments. They are allowed to do business or export coffee, but not purchase the product directly from farmers.
If local firms have close cooperation with farmers and they could get the state's support in terms of capital, we would not have to worry about anything.
But most of our coffee firms are small. What can they do to compete with foreign ones, which are stronger in terms of capital and experience?
Local firms should increase cooperation among themselves to compete with foreign ones. However, the most important task now is recultivation. Vietnam now has about 530,000-540,000 hectares of coffee trees, according to the Ministry of Agriculture and Rural Development. Old coffee trees aged 20 years and upwards account for 25 percent of the total coffee acreage now.
If we do not pay due attention to growing new saplings, our coffee output will fall, and we will not be able to maintain the position of the world's second biggest coffee exporter.
We should learn from the example of Colombia, whose replanting strategy caused coffee output to slip to some 8 million bags from 17 million.
We should increase investment in production to improve coffee quality. Vietnam needs both local and foreign investment in coffee processing, especially instant coffee production.