Coffee Firms Face Disadvantages

The data released by the General Statistics Office (GSO) showed that Vietnam’s coffee exports in the year to date declined in both volume and value from the same period of 2010. Vietnam exported only 55,000 tonnes worth US$130 million in the first seven months of 2011. Coffee exporters are facing difficulties in default of materials. In fact, foreign traders combed Vietnamese coffee from the public after the harvest in 2011 had completed. However, domestic coffee traders were at an advantage over foreigners in this matter due to capital shortage. Vietnamese traders have to cover contracts signed earlier at any cost. The higher prices rise, the more loss companies suffer.

 

According to the Vietnam Coffee and Cocoa Association (VICOFA), currently stockpiled coffee in Vietnam is forecast at 200,000 tonnes. Particularly, over a half belongs to two largest traders. Only foreign traders sell back in the Vietnamese market, they will earn a larger margin on profit than they export to warehouses assigned by LIFE in Europe and North America to deliver goods to London commodity exchanges.

 

At early August 2011, as many as 100,000 tonnes of coffee are kept by farmers, or just 7 - 10 percent of total output. Meanwhile, foreign traders are offering the commodity to Vietnamese exporters. As known, a vast majority of farmers sold out their stock just after they harvested because foreigners offered relatively high prices. Sometimes, prices went to VND51,000 - 52,000 per kilo, the high of all times.

 

In 2011, Vietnam is applying the tightened credit policy, thus Vietnamese companies are facing numerous difficulties with capital sources. As a result, they did not have enough funds for purchasing when the supply was abundant. According to the VICOFA, for the time being, the amount of coffee held by farmers is limited while capital strains and forthcoming export contracts will send some Vietnamese exporters to bankruptcy because they cannot wait until the next harvest. Just after over one month purchasing at VND35,000 per kilo, foreign traders sold back to Vietnamese companies at VND49,000 per kilo.

 

In Central Highlands provinces - the largest coffee field in Vietnam, it is a repeated experience that whenever coffee prices rocket, a series of agents and traders will go to bankruptcy. Grave capital shortage remains a daunting challenge for coffee exporters. Sometimes, they run out of cash when selling power resumes.

 

Given current financial and price volatility, bank-backed credit contracts will help companies to stockpile the commodity to steer clear of loss when they accelerate exportation.