Coffee Export: Careful with Opening Coffee market

According to the Vietnam Coffee and Cocoa Association (VICOFA), before and after the Tet, or Vietnamese traditional Lunar New Year, which fell on mid-February, coffee prices on global markets sank to unprecedentedly low levels. The world coffee price plunged a record of US$113 to only US$1,226 per tonne, compared to the first days of February 2010. Domestic coffee price also declined from nearly VND24,000 per kilo in early February to only VND22,000. This was the lowest price since early 2009.

 

According to VICOFA, there are many causes for sinking coffee prices but the main is speculative moves. At present, at two major world agricultural commodity exchanges, namely LIFE (London) and Chicago (United States), coffee traders sell coffee in two methods. First, the price is struck when the contract is signed. Second, the price is not fixed for futures contracts. The price is based on the market rate but it is added price difference. With this sort of contract, importers will advance 70 & of contract value to exporters. Ignoring risk warnings for futures contracts, most Vietnamese coffee exporters are using this method.

 

Coffee is an important export of Vietnam but there are still so many vitalities. Vietnam is the second largest coffee exporter in the world in terms of quantity but is ranked the fourth in terms of quality. Currently, only Vietnam’s Robusta coffee is globally recognised to meet export standards (VN 4193-2005) but many enterprises have not applied these standards to growing, harvesting and processing. As many as 80 & farmers keep the practice of plucking all coffees on branches only one time a year. If the VN 4193 is applied and harvesting is made two or three times per crop, Vietnam can earn an additional US$100 million a year.

 

In the past 10 years, the scale of world coffee market has doubled and profits of dominating retailers are very colossal. In a cup of coffee, the farmers get only 8 & of profit, or even less and less. Knowing that Vietnamese coffee exporters always seek all ways to export, foreign importers agree to import at low prices, even when the quality is disqualified for export. Without due attention paid to quality issue, certainly Vietnamese coffee traders and growers cannot enjoy the highest value part. Without stable quality and incompliance to world standards, Vietnamese coffee is usually forced to lower the real grade and sell at low price; thus, the value is not high.

 

Many coffee growing countries forecast that the global output will reach 145 million bags in 2010. However, bad weather in key producers like Brazil, Vietnam and Colombia will adversely affect production. Temperature increases more than half a Celsius decree in the past 25 years, forcing coffee growers to find higher land to plant the crop many coffee plantations have been empty. Coffee production in Colombia, the world’s third largest coffee producer after Brazil and Vietnam) fell to its lowest level in 33 years because of heavy rains and reduction of pesticides.

 

According to the International Coffee Organisation (ICO), coffee production in Brazil in the 2010-2011 crop will reach 46-47 million bags while Colombia's output will stand at 9 million bags. In the latest forecast, ICO said the global coffee consumption may reach 134 million bags, weighing 60 kilo each, in 2010, an increase of 2 million bags from 2009. The strong demand for coffee amidst supply slump in major producers will help spike the price.

 

The Vietnamese coffee industry is striving to keep an average annual growth 4.9 & and export output of 900,000 to 1.1 million tonnes of coffee, which is expected to be traded at US$2,000 per tonne. The thin global supply is a good opportunity for the Vietnamese coffee industry to add the value on each export unit. VICOFA has proposed the Government, ministries, related authorities to implement sound methods to support and procure coffee for temporary stockpile to wait for higher prices while funding exporters to achieve the goal.

 

But, VICOFA Chairman Luong Van Tu, said: “Vietnamese coffee traders and exporters should closely track market movements and price trends, proactively approach information sources on a regular basis, avoid selling in improper times as it will make the market worse.” In the long term, “Vietnam should not expand coffee areas but boost production, improve processing and apply VN 4193-2005 standards to enhance the coffee quality, especially a new trading and exporting approach,” said Tu.