USDA Attache: Vietnam 2008-09 Coffee Output To Rise 17%

Vietnam's total coffee production for 2008/2009 is expected to increase by 17%, according to a U.S. Department of Agriculture attache report posted on the Foreign Agricultural Services Web site.

Coffee production in 2007/2008 was about 13.7% less than the previous crop year. Consequently, export volumes were also down 10% from the previous market year.

Vietnam produced 1.1 million metric tons or 18.33 million 60-kilogram bags of coffee in market year (MY) 2007/2008. This represents a 13.7 percent decline in production from the previous crop year, though still 5 percent higher than our earlier forecast. Post maintains its earlier estimate for MY 2008/2009 coffee production at about 21.5 million 60 kg bags or 1.29 million metric tons, which is 17 percent more than the current market year. This improved outlook takes into account an anticipated small increase in the growing area as well as improved weather conditions and better yields.

Even with a 10 percent reduction in coffee export volume in MY 2007/2008, Vietnam remains the world's top Robusta exporter. This market year also marks the first time exports reached a value of over $2 billion. This 20 percent increase in value over the previous market year was largely due to higher coffee prices. It should be noted, however, that coffee prices are expected to fall during the first months of MY 2008/2009 due to effects from the global financial crisis on commodity markets, including coffee, despite the fact that, as International Coffee Organization (ICO) reports, coffee supply and demand fundamentals remain unchanged. The effects of falling coffee prices are already being felt by Vietnam's coffee growers, some of which have already started holding more stock as prices continue the sharp decline since July. Post has therefore revised upwards its earlier estimate for ending stocks for market year 2007/2008. PRODUCTION Vietnam's 2007/2008 Coffee Crop

Post revises Vietnam's 2007/2008 coffee production estimate to 1.1 million metric tons or 18.3 million 60kg bags. This represents a decrease of 13.7 percent from the previous crop which is largely attributable to loss of coffee blossoming during heavy rainfall as well as unseasonable frost in several key planting areas (Graph 1). Coffee yields for the 2007/2008 crop year was down 14.8 percent from the previous crop year.

Coffee growers continued to expand their production area in the face of high export coffee prices despite of government efforts urging growers to focus on sustainable production techniques and better harvesting practices in order to improve coffee quality. Farmers reportedly spend an average of VND20 million to grow one hectare of coffee. Application of such sustainable cultivation techniques as reasonable use of fertilizer (i.e. correct amt.) and sufficient water, the expense is reduced to VND15-16 million per hectare, a 25 percent cost savings.

The Ministry of Agriculture and Rural Development (MARD) reports that coffee is currently planted in 20 provinces across Vietnam, but the primary plantation areas are in Dak Lak, Lam Dong, Gia Lai, and Daknong provinces in the Central Highlands (picture 1). All but about 2.2 percent of Vietnam's coffee production is Robusta coffee. Coffee growers note the difficulty in developing Arabica plantation areas, which need to be at an appropriate elevation. Farmers must also change their farming and harvesting/handling techniques to one requiring more intensive labor, which can be quite costly as is the investment needed for processors' equipment and the higher processing standards required for Arabica beans.

Moreover, all of these factors/requirements have to be in place at the same time in order to have a good marketable Arabica product.

Vietnam's 2008/2009 Coffee Crop 

Vietnam's 2008/2009 coffee production is expected to increase about 17.3 percent over the 2007/2008 market year due to anticipated better growing conditions and improved coffee yields in the major coffee growing areas. While some growers continue to replant old trees, this should not adversely impact output levels as the replacement has been gradual, with growers paying particular attention to the care of existing coffee trees with an aim to augmenting output yields so as to offset losses from the newly planted areas.

Post's estimate for Vietnam's 2007/2008 domestic consumption is revised upwards to 885 thousand 60kg bags or 53.1 thousand metric tons (tmt) green bean equivalent. Continued domestic marketing campaigns by major processors and supportive government strategies aimed at increasing domestic consumption appear to be bearing fruit. Dak Lak Peoples' Committee is also organizing the "Second Buon Ma Thuot Coffee Festival" in Buon Ma Thuot City, Dak Lak province, the largest coffee growing region of Vietnam, in mid-December with an aim of promoting Vietnam's coffee products to both the domestic and international market. Local consumption currently accounts for around 5 percent of total production. Post expects that 2008/2009 domestic consumption should reach 55 thousand metric tons.

STOCKS 

Official data for coffee stocks are not available. Reportedly coffee growers are holding more stocks than usual. Farmers often retain part of their beans to sell or blend with newly harvested beans in October/early November before the harvest peaks in late November. However, domestic prices for Robusta coffee have fallen almost 14% since July and several coffee growers are reported to be holding more of their beans in anticipation of more attractive prices. Post therefore revises its estimates for 2007/2008 ending stock to around 427 thousand 60kg bags.

TRADE 

Vietnam exported around 17.93 million 60kg bags of green coffee for MY 2007/08, a 10 percent decline from the previous market year. Notwithstanding this, earnings were valued at a record $2.116 billion, thanks to high international commodity prices. This represents an increase in value of 20 percent over the previous market year.

Vietnam currently exports coffee to about 75 countries around the world. Germany and the United States remain the two largest buyers of Vietnam's green coffee exports. Russia is becoming a bigger importer, with over 20,000 metric tons or about 334,000 60-kg bags in MY 2007-2008, up from its previous seven-year average of 5,500 tons per year, thus earning it 11th place among Vietnamese coffee export markets. Other coffee producing countries also buy Vietnam's Robusta coffee for blending and re-export because of its competitive price.

Ecuador recently imported 18,000-20,000 metric tons of Vietnam's Robusta coffee and Thailand, India and Indonesia are regular importers. Vietnam imported a small quantity of green coffee in CY 2007/2008, about 65 thousand 60kg bags or 3.9 tmt , which is 17 percent less than last market year. Much of this green coffee import is for further processing and/or re-export.

Vietnam's instant coffee, roasted/ground coffee and 3-in-1 coffee mixes are mainly sold domestically, though also in a few international markets: Canada, Germany, Australia, Korea China and the United States. VICOFA reports that Vietnam has also introduced instant coffee trademarked "VINACAFE" and "Trung Nguyen" in a new market: China. Reportedly, Chinese young people in big cities like to drink coffee and favor Vietnam-made coffee for a variety of reasons, including its competitive price.

PRICES 
Export 

Vietnam's Robusta coffee had an average export price of $1,967/mt (FOB basis) during MY 2007/2008, which is a substantial increase of 34 percent over the previous market year ($1,463.2/mt). This is also the highest price in 13 years (since MY 95/96) although these prices still remain below historical highs of 1994-1995. Since the start of the new market year, however, export coffee prices have been declining; going from $1,830/mt to $1,480/mt (FOB, HCMC) due to effects from the global financial crisis on commodity markets, including coffee. Prices continue to decline despite the fact that coffee supply and demand fundamentals, as noted by the International Coffee Organization, (ICO) have been unchanged. Local traders are hopeful that export prices will increase later in MY 2008/2009 once the financial crisis shows signs of improvement and provided there is continued strong global coffee demand.

The Vietnam coffee industry has been urging farmers to delay selling their stock until next June-July when prices should be better and also to avert huge decline in prices. However, credit restrictions and high bank interest rates are serious constraints for farmers, who may suffer huge losses in trying to sell to meet their credit obligations. Some local banks have been considering measures alleviate the situation and possibly help out the coffee industry.

Domestic 

In keeping with higher export prices during MY 2007/2008, Vietnam's domestic coffee prices climbed up to 35.8 percent higher than the previous crop year, before starting to decline in July. Prices in Dak Lak province, Vietnam's largest coffee-producing region, have dropped from VND30,500 ($1.81) to VND 24,200 ($1.44) for common Robusta coffee bean since October, a decrease of almost 21 percent in just one month.

POLICY 

Vietnam government signed International Coffee Agreement 2007 Vicofa, Vietnam's coffee association, reports that Vietnam signed the International Coffee Agreement 2007 (ICA) in August 2008 and is one of 77 International Coffee Organization (ICO) members that have now done so. ICO also reports that five exporting and two importing countries, including the European Union and the United States, have ratified or approved the ICA as of October 15, 2008. The ICA 2007, the seventh Agreement since 1962, was agreed to by 77 members of ICO on 28th September 2008, and will last for ten years. Its main objective is to strengthen the global coffee sector and promote sustainable expansion in a market-based environment for the betterment of all participants in the sector.

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