Vietnam Coffee Industry: Stimulating Domestic Consumption, Promoting Deep Processing

The Ministry of Agriculture and Rural Development said Vietnam exported nearly 1.7 million tonnes of coffee valued at US$3.74 billion in 2012. Coffee industry creates jobs for more than 1 million workers and is the source of income for over 560,000 households. Coffee growers receive 95 per cent of total value of coffee bean exported.

 

To date, Vietnam's coffee industry has made a long stride to the world's second position on export output and the first place on robusta coffee export but the value earned is too low. Luong Van Tu, Chairman of the Vietnam Coffee - Cocoa Association (Vicofa), said, coffee is considered the second main crop after rice in Vietnam. The country rose to the leader in coffee exports in the world in 2012. However, alarmingly, raw export remains dominant and quality is unstable. Coffee exported is largely not undergone deep processing, leading to low added value. Hence, Vietnam may lose the top position in coffee export because aging coffee area widens. Aging coffees produced fewer fruits, he said.

 

Nguyen Thanh Tung, Vice President of Bien Hoa Coffee Company, said a kilo of coffee beans costs about US$2, equivalent to the price of a cup of coffee in importing countries while a kilo can blend 50 cups of coffee. Vietnam holds 20 per cent of the world’s coffee market share but its export value accounts for about 2 per cent, he added.

 

Some domestic businesses used to announce that the value share would increase by 10 times in the next 10 years to equal the volume share. Given the export earnings of US$3.74 billion in 2012 and presumed annual growth of 2 per cent, Vietnam’s coffee export turnover will reach US$45 billion in the next 10 years. The value-increasing approach is the right direction for the Vietnamese coffee industry but this rough is very rough to go, according an expert.

 

Doan Xuan Hoa, Director of Horticulture Department under the Ministry of Agriculture and Rural Development, said, Vietnam’s coffee processing capacity reaches only 10,000 tonnes a year, or just 10 per cent of the output. Meanwhile, according to the coffee industry development plan till 2030, deep processing capacity will reach 135,000 tonnes, including 60,000 tonnes of instant coffee. Citing the case of Thang Loi Coffee Co., Ltd based in Dak Lak province, Luong Van Tu said this company picked 98 per cent of ripen coffee fruits and applied wet processing technology, its product export price is US$200 per tonne higher than the market average. Thus, he believed that increasing the value to coffee can start right from the cultivation process, not just deep processing.

 

Dr Truong Hong, head of the Western Highlands Agriculture and Forestry Science Institute (WASI), said the application of integrated crop management (ICM) solution can reduce production costs, thereby enhancing the value of coffee. He said, according to surveys, more than 50 per cent of households in the Central Highlands use more fertilisers than recommended and this leads to increased costs. If fertiliser use is well managed on just 30 per cent of coffee area in the Central Highlands, farmers will save up to VND351 billion (US$16.7 million) a year. Even, watering costs are also 32 per cent higher than the recommended level.

 

Deep processing encouragement is necessarily tied to consumption care where domestic stimulus is an important objective. Brazil annually consumes 12 times of coffee more than Vietnam. So, to build a true coffee consumer culture, Vietnam will surpass the limit of US$600 million worth of coffee powder and instant coffee sold at VND2,000 per cup, a coffee producer said. If 50 per cent of high-quality coffee output is consumed in the domestic market, Vietnam will have over US$15 billion from this source.

 

According to experience from successful countries, domestic demand stimulus plus deep processing will lay another stepping stone for Vietnam to move towards the top place of coffee export in the world in 2013.