The coffee industry in Vietnam has been blooming the past decades, with a current position of the second largest coffee exporter in the world. The success originates roughly 30 years back, where the industry grew from 0.1% to 20% of the world’s market share. For instance, a quarter of all consumed coffee in the UK is produced in Vietnam. The coffee output has been one of the cornerstones of the Vietnamese economic prosperity. Partly because of this, the nation has been led from 60% poverty rate in 1994, down to 10% in only 20 years.
Despite the significant economic progress, there are also downsides that follow the coffee production in Vietnam. Not to mention the amount of unexploded mines from the Vietnam war and the ongoing logging and land waste. But there are also other factors influencing the long-term perspective of Vietnam coffee future.
A Relapse of the Vietnamese Coffee Industry
The Vietnam coffee future is currently facing serious problems that are difficult to control or are even uncontrollable, such as the sharp fall of the world price of coffee. These issues might be threaten the Vietnam’s position as one of the largest coffee exporters in the world.
Firstly, the past months have had severe drought in Vietnam, leading to serious effects on coffee crops. If these effects persist, the production in Vietnam might fall by 15% this year according to the US Department of Agriculture. Changes in El Niño are the main cause of these whether disruptions. A number of farmers have been using irrigation water and fertilizer in order to save their crop, but it has proven very expensive and cuts into a large part of their income.
Another related problem Vietnamese farmers face is that the price of coffee rather than following natural factors such as supply and demand, instead is following the performance of financial markets. The price has fallen from the highest price of 2,240 USD, down to 1,612 USD per ton of coffee, which in many cases is under the cost of production. Despite the looming crop failure, the world price has not begun to raise and that is causing problems for coffee farmers in Vietnam. This has already started to influence the attractiveness of Vietnam coffee future as a key exporter. Markets such as Brazil and Colombia have been moving forward as their currencies are devaluating.
In addition, Vietnamese farmers have in large parts failed to replant coffee trees the past years. This means that the coffee trees are becoming rather old, at the expense of the yield. The trees have a lot of leaves but relatively little fruit. Many farmers resist planting new trees due to their current profit of the old ones. It takes time and the initial direct cost is high. However, a new production from recently planted coffee trees are expected to deliver more value in following seasons. Obviously, newly-replanted trees will maintain Vietnam coffee future.
Looking Further – Vietnam Coffee Future Over Next 10 Years
Taking everything into account, farmers are consequently starting to grow black pepper to a greater extent, instead of coffee. The price for the coffee is hardly profitable as it is. But how are future prospects looking for the coffee industry in Vietnam?
As long as the weather conditions remain stable enough, the prospects are good for the coffee industry in Vietnam. Whilst, if the weather pattern remains as is, conditions will be challenging for farmers. The Vietnamese government has encouraged and supported farmers to respond to the situation by establishing replanting programs, exchanging old trees for new ones. This is supposed to enable the farmers to increase production within the next few harvest seasons. In five to 10 years, it is estimated that production in Vietnam could increased by 40% reaching 30 to 32 million bags of coffee, but only if they managed to renew their infrastructure.
Parallel to increased coffee consumption worldwide in general, several emerging markets such as China and India are quickly raising their demand. This might become a problem since crop yields are failing and price is expected to rise. In 10 years, experts believe that coffee production has to increase by 40-50 million bags to keep up with demand.
To draw up the prospects of the Vietnamese coffee future within the next 10 years, there are some crucial external factors at play. Global warming will affect the farmers’ ability to grow the coffee successfully. How much they will be able to grow will result in their scope as one of world’s largest coffee exporters. That is because the world demand is expected to exceed the supply within the next decade. As long as the Vietnamese infrastructure is well maintained, the industry will continue to grow, and there are no specific reasons why Vietnam should not remain in their current position as the second largest exporter of coffee worldwide.
Source: Written by Kristofer – a coffee expert from Market Inspector