Long-term price crisis brewing for Vietnam coffee industry

06:00 | 20/05/2020 Trade

(VEN) - The coffee industry was expected to prosper in 2020, but coffee prices have plummeted to their lowest level over a decade due to the Covid-19 pandemic and show no signs of recovery in the foreseeable future.

long term price crisis brewing for vietnam coffee industry
Falling prices hurt coffee growers, exporters

Record low prices

According to the Ministry of Industry and Trade’s Agency of Foreign Trade, at the end of March, domestic Robusta coffee prices dropped to their lowest level over a decade. Specifically, the price on March 30 decreased 4.8-5.7 percent compared to February 29 to VND29,500 per kilo in Di Linh District in the Central Highlands province of Lam Dong and VND30,000/kg in Cu M’gar District in the Central Highlands province of Dak Lak. In Ho Chi Minh City’s ports, the price of R1 Robusta coffee dropped 4.9 percent compared to February 29 to VND31,300/kg, while the average production cost in farmers’ gardens was VND35,000/kg. Vietnam is the world’s second-largest exporter of coffee but low prices have hampered coffee growers’ ability to cover their production costs and repay bank loan interest.

Growers in the Central Highlands province of Dak Nong have been hit by shortage of irrigation water since the beginning of the dry season. According to the province’s Dak Mil District People’s Committee, the district has 42 irrigation dams and reservoirs, of which five are empty and almost 20 others do not have enough water for the third phase of irrigation this year. About 300ha of coffee in Nam Xuan and Dak Sor communes of the province’s Krong No District are thirsty for water due to prolonged drought and exhausted streams and ponds.

Sharp export drop

According to the Ministry of Agriculture and Rural Development, in the first quarter of 2020, coffee exports hit an estimated US$765 million, down 9.8 percent compared to the same period last year. Already in 2019, coffee exports reached 1.57 million tonnes worth US$2.71 billion, down 15.2 percent in volume and 22.7 percent in value compared to 2018.

The average export price of Robusta coffee was US$1,521 per tonne in the first two months of 2020, down 3.1 percent compared to the same period of 2019, and 43 percent less than US$2,300/tonne in 2014. Coffee exports by enterprises in Dak Lak Province have been crippled.

The Covid-19 pandemic is disrupting the entire world coffee industry, as coffee stores, cafes, and restaurants worldwide have closed. According to the Goldman Sachs Group, Inc., a leading global investment banking, securities and investment management firm, the global demand for coffee is expected to fall 10 percent due to the Covid-19 pandemic; although home consumption may be higher, it cannot compensate for the reduction in consumption at coffee stores and restaurants.

Some large coffee exporters in Vietnam said they already signed large coffee export contracts but the pandemic led to cancellation of orders. Not only has the price of coffee plummeted, enterprises cannot sign new export contracts with EU importers and are finding it hard to access new markets in the context of the expanding pandemic.

Luong Van Tu, Chair of the Vietnam Coffee and Cocoa Association, said many coffee businesses intended to develop domestic sales in the context of export difficulties, but the closure of 30,000 cafeterias and stores has frustrated their plans. The association has proposed that the government provide coffee exporters and growers with assistance in the form of lower loan interest and credit to help them maintain operations and production.

Coffee consumption has been reduced due to the Covid-19 pandemic, while abundant supply has pushed down the global price of coffee. In Vietnam, domestic coffee prices also dropped to their lowest level of the past 10 years.

Thanh Ha