Vietnam’s processed coffee products, roasted and ground, and instant coffee exports have significantly increased in recent years. Post revises its MY 2013/14 forecast for processed coffee product exports (including roast and ground, and instant coffee) up to 920 thousand bags, or 55 TMT of GBE, a 21 percent increase over the previous year due to increasing instant coffee product exports.
In recent years, China, Russia, Hong Kong, South Korea, Japan, and the United States have become important export markets for Vietnam’s instant and roasted and ground coffee.
Prices
Vietnam’s average domestic coffee price for Robusta common ungraded coffee beans in the first seven months of MY2013/14 was VND 35,957/kg ($1.71) in Dak Lak province, and VND 39,545/kg ($1.88) in Lam Dong province, the largest coffee growing areas in Vietnam. Local prices have been linked with international coffee market trends.
In March and April 2014, prices spiked in all four major growing provinces due to the increase of international coffee prices caused by the deterioration of the Brazilian coffee crop.
Average local farm gate prices in Dak Lak and Lam Dong provinces in May 2014 were quoted at VND 40,100/kg ($1.90) – 40,200/kg ($1.91), a slight drop from the previous month. Local exporters indicate that farm gate prices higher than VND 40,000 would continue to motivate farmers to sell their coffee beans into the export channel.
Stocks
According to exporters, as of the end April 2014, the stocks are estimated at about 26-29 percent of total coffee production (about 450-500 TMT) held by farmers, traders and processors.
Farmers are reportedly holding about 20 percent of their production (about 350 TMT). Although there is no official data for coffee stocks available, Post’s initial forecast of MY 2014/15 carry-in stocks is 3.25 million 60-kg bags, or about 195 TMT GBE, which is higher than previous years as higher MY exportable supplies and limited exports during the first quarter of MY 2013/14 push stocks higher.
Industry reports that farmers continue to hold higher stocks than in previous years due to low interest rates limiting the pressure they feel from financial institutions to repay loans with the proceeds of selling their coffee beans.
Post forecasts that ending stocks for MY 2014/15 will be about 2.66 million bags or about 158 TMT GBE, a drop of 19 percent as export potential and high robusta prices prompt a faster paced export quarter during the first three months of MY 2014/15, leading to record exports and a drawdown in ending stocks.
Credit squeeze forces exporting firms to contract and consolidate
Since the end of 2012, the number of Vietnamese exporting firms have consolidated, downscaled their operations, or simply collapsed in the face of mounting debts, and evaporating credit availability. Approximately, 40 percent of the firms operating in the coffee industry have stopped trading and shifted to other businesses.
In July 2013, the Ministry of Agriculture and Rural Development reported that the non-performing loans in the coffee sector may represent as much as 60 percent of all coffee sector loans.
High interest rates during the 2010-11 period when Vietnam suffered high inflation is cited as the main reason for current consolidation in the industry.
To address the non-performing loans, the Government has extended the repayment period on some loans from 12 to 36 months, in an attempt to stabilize the domestic industry.
In addition to non-performing loans, banks are reportedly offering new loans to the coffee sector at interest rates higher than the prevailing rates extended to other industries, highlighting how sensitive the banking sector views the coffee sector.
Source: USDA – GAIN Report
