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| Vietnam wants to buck coffee
price decline with higher quality. |
| Courtesy VICOFA |
After years of falling prices and financial losses,
Vietnam is changing its coffee production strategy.
The world’s second biggest exporter will focus
on improved quality and value-added while reducing
overall output.
VICOFA, the Vietnam Coffee – Cocoa Association,
said the land under coffee production has been reduced
by 30,000 hectares to 500,000, and total output will
fall to 700,000 tons in 2003, from a record high of
900,000 tons in 2001.
The problem of the world’s coffee industry is
quite fundamental: too many beans for a very mature
market with limited possibility to increase demand.
As a consequence, world prices are at a 30-year low.
The chairman of VICOFA, Doan Trieu Nhan, says Vietnam
needs to revolutionize coffee quality if the country
wants to create a stable industry. At the moment,
Vietnam is the world’s top exporter of Robusta
coffee, the lower quality variety. About 100,000 hectares
will be converted to Arabica by 2004, the higher-value
product. Farmers are also encouraged to invest in
organic, shade-grown and other higher-end varieties.
As a sign of early success, at least Vietnam’s
coffee prices are recovering. While the export volume
in the first quarter of the 2002-03 season is down
by about 10% to 173,000 tons, revenue is up by 60%
over the same quarter a year ago. Overall export predictions
for 2003 are 600,000 tons, down 113,000 tons from
last year.
Coffee is one of the major hard currency earners for
Vietnam. Vietnamese coffee is consumed in nearly 60
countries around the globe, including the United States,
which buys 90,000 tons of beans per year at a cost
of almost $41 million, around 12% of the industry’s
total export revenue.
Aside from shifting production from Robusta, which
covers 90% of Vietnam’s coffee growing area,
to the higher quality Arabica coffee, the government
also wants to encourage shifting to other crops.
Diversification is supported by VICOFA, which also
represents the cocoa industry. Chairman Nhan also
supports intercropping with fruit trees like apricot
and plum, or cinnamon.
By contrast, Nhan is opposed to simply uprooting
coffee bushes. Half a million hectares should not
be considered too much, he says, especially when
compared to the millions of hectares in Brazil.
He thinks that Vietnam should not put itself in
the position of not having a coffee industry left
at the time the market recovers. Vietnam’s
climate is perfectly adapted to producing high quality
coffee, and the slump in the market should not put
a permanent damper on this sector of agriculture
– the second biggest after rice.
Changing addiction
Coffee is mildly addictive, and some farmers are hooked
on it in spite of their better judgement. Many farmers
are still in debt from moving into coffee production,
and find it difficult to raise more capital to change
to another crop. This problem faces agricultural extension
workers when they recommend a move from Robusta to
Arabica coffee as well as when they suggest a different
crop altogether.
Cocoa is a crop that is finding favors among planners
again, after a first introduction four decades ago
did not succeed. With varieties from Malaysia that
are well adapted to Vietnam’s soil and climate,
there is hope the second coming of cocoa will be a
success.
The main problem the first time round was that farmers
could not find markets for their cocoa crop, but with
the help of international advisers, this hurdle should
be possible to overcome, given Vietnam’s greater
connection with the global economy today. Nevertheless,
as a commodity very similar to coffee, the dependency
on international market fluctuations is equally high
in the cocoa as in the coffee market.
The biggest hold-up in the switch to cocoa is farmers’
inability to obtain loans in those many cases where
the land is still mortgaged from the introduction
of coffee.
Nhan predicts that both the switch to cocoa and the
quality improvements in the coffee industry will provide
investment opportunities for domestic as well as foreign
firms. |
