Vietnamese businesses will study American coffee exchange floors like New York and Chicago in the second quarter of this year, said chairman of the Vietnam Coffee Association (Vicofa) Van Thanh Huy.
The association will also study Brazilian coffee markets in Brasilia, Sao Paulo, and Mias Geras in the second and third quarters of 2007.
According to Vicofa chairman, though it is a legitimate aspiration of Vietnamese businesses to enter many different markets to protect themselves against constant price fluctuations, the American and Brazilian markets are still unfamiliar.
Huy also said the risks caused by price fluctuations wouldn’t just affect Vietnamese agricultural product exporters, but the whole country. Thus, one of the most effective tools to minimize risks is to use future contracts.
In Vietnam, Techcombank was the first institution to be granted a permit to use future contracts for coffee as well as other products such as beans and rubber. Bank of Investment and Development of Vietnam (BIDV) and a Vietcombank-owned company, Asian Trade Bank (ATB), can also deliver future contracts.
Future contracts for coffee, which make price fixing flexible and protect in-stock and price-frozen products, have been used for a long time at such exchange floors as LIFFE and NYBOT to minimize risks to businesses and increase benefits to coffee growers.
But Vicofa chairman said that there was no perfect tool to protect prices. Accordingly, the association warned its members that international exchanges like LIFFE and NYBOT are much more complex and larger than domestic markets. Price fluctuations are high: from $40 to $60 per ton. Meanwhile, Vietnamese companies’ financial capacity is limited. Businesses also don’t have a good knowledge of price fluctuation protection regulations, nor are they skillful in conducting exchange activities, especially at NYBOT.
Studying the American or Brazilian markets, thus, will help to familiarize Vietnamese exporters with such big markets.
According to Vicofa statistics, in the 2005-2006 period, Vietnam exported more than 775,000 tons of coffee, fetching US$827 million. The largest importers of Vietnam’s coffee were the US, Germany, Spain and Italy.
Vietnamese exporters, however, didn’t take advantage of momentary high prices on the coffee markets. It is estimated that in the near future, coffee prices will continue to increase due to decreasing supply in Brazil, Indonesia and Vietnam.
For a long time, Vietnamese businesses conducted coffee sales through European Community contracts (E.C.C for short) which set down clearly contract items such as quantity, quality, and price.
Because negotiating prices at the moment of signing contracts is risky, since 2005, Vietnamese companies have used ‘price to be fixed’ contracts in which prices are determined after signing the contracts. (VietnamNet)
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