Enhancing the Competitiveness of Vietnamese Coffee, Interview with MARD Vice Minister

 

How do you assess the coffee production and export in recent years?
In recent years, Vietnamese coffee has recorded fine achievements in output, processing and export, contributing significantly to the agricultural production and national economy. Vietnam has some 500,000 hectares of coffee (mainly in the Central Highlands - 90 percent) with 64.2 percent of high yield crops due to the application of high technology. The output is much higher than the average of the world.

 

Vietnam has become the world second biggest exporter of coffee bean, accounting for 15-17 percent of the market share, and the first position in Robusta coffee (18 million bags, equivalent of 35 percent of the world output). In 2007, the coffee export value was US$1.8 billion. In 2008 it is expected at US$2 billion.

The coffee sector has created jobs for over 560,000 households, improved their living conditions, especially ethnic minorities, and ensured socio-economic development in the Central Highlands.

 

There are, however, certain dangers such as unbalanced development and low competitiveness. The small production without planning, poor infrastructure, especially roads and irrigation works, low technique of cultivation, harvesting and processing have caused big losses in output and quality. As a result, Vietnamese Robusta coffee, though good in quality, the poor processing has devalued it and the price depends mostly on the demand.

 

The world coffee market is very diversified, depending on the taste, culture of each nation or region and business objective of customers. The world output increased from 113 to 120 million bags between 2004-2005 and 2006-2007 crops (6.78 – 7.2 million tonnes). With 60 percent in Arabica and 40 percent in Robusta. The trade volume is 116-121 bags a year (6.96 – 7.26 million tonnes). The supply was surplus of 3.8 bags in 2004-2005 crop and deficit of 7 million bags in 2006-2007 and 8 million bags in 2007-2008 crop. The supply of Robusta coffee is surplus of 1.1 – 3.2 million bags a year. Vietnam has comparative edge in Robusta coffee. 30 percent of Vietnamese coffee in upmarket such as LIFFE have higher price of US$50-100 per tonne compared to other markets, and the 70 percent are for regional consumption and processing of instant coffee.

 

In the coming years, though the supply and demand remain stable, the world economic crisis will decrease the prices of agricultural produce and coffee significantly. In such conditions, Vietnam must increase the quality and competitiveness of its coffee. Due to the lack of market information, farmers and businesses have increased their stocks and now will face losses to sell coffee at lower price.

 

Vietnam has encouraged export, for instance in 2000, assisted coffee sector to purchase coffee and reduce interest rates and now support farmers in strains and technology and establish export credits for technology transfer and higher competitiveness.

 

In face of the current world economic crisis, the government has applied policy to restrain inflation and ensured enterprises of reasonable interest rates in working capital, stable supply of input resources and technical measures in conformity with international commitments. The Ministry of Agriculture and Rural Development (MARD) has taken certain measures to help enterprises expand market and develop the production.

Vietnam exports almost 90 percent in coffee bean. WTO offers opportunities for Vietnam to expand cooperation with equal footing in the world market and to apply high technology in processing and diversifying coffee products. However, there are also several challenges: firstly, technical barrier on standards such as 4C principle and Resolution 420 of International Coffee Organization (ICO), Vietnam standard TCVN 4193:2005; secondly, poor structure of consumption without famous brands and direct contacts to major importers; thirdly, low expertise in negotiation causing business losses; fourthly, Vietnam Coffee-Cacao Association tend to be export association without adequate attention for planting and processing.

 

To ensure fast and sustainable development, the coffee sector must apply series of measures to increase competitiveness in the world market.

 

Then, what should Vietnamese managers and businesses do? 
On August 26, 2008, MARD issued Decision 2635/QD-BNN endorsing Project on increasing coffee competitiveness to 2015, vision of 2020, with measures to be taken by managers and businesses, such as:

- promoting the coffee sector with higher business efficiency;

- improving the State management and coffee association.

 Vietnamese Robusta coffee makes up 35 percent of the world output, but it is little known to the world. It is because Vietnamese export mainly in coffee bean for mixing with other coffee in the world market, while Vietnamese exporters fail to promote their brands with only some cases of instant coffee.

To develop national trademark of Vietnamese coffee, the strategy must be as follows:

- organizing trade fairs at home and abroad to highlight the quality of Vietnamese coffee (mainly Robusta) with emphasis on geology, bio-sphere and culture;

- basing trademark on stable foundation of quality and high competitiveness with the determination of the State and participation of the whole business community to ensure practical changes in product chains from planting, harvesting, processing and sales.

- Increasing marketing and processing of high quality products meeting the demand and taste of consumers and in conformity with international practice.

 

Most successful provinces and companies are:

- Dak Lak with total area of over 165,000 hectares, mainly in Robusta coffee, 1.06 tonnes/ha and annual output of over 330,000 tonnes. The province is also leading in export value, transaction and marketing.

- Lam Dong with advantage in climate, planting mainly Arabica coffee ith 120,000 hectares, output of over 200,000 tonnes, stable production and processing with high quality and added value.

- Tay Nguyen and Thai Hoa JSC accounting for 18-20 percent of export value with modern production line, high quality standards and products approved by MARD.

- Trung Nguyen Company in coffee processing and Vinacafe Bien Hoa in instant coffee.