I. Overview

1. Introduction on the product group mentioned in the report

This report mentions mainly coffee species for export of Vietnam, coffee Arabica, Robusta and Chari.

2. Overview information of coffee industry

Vietnam locates in the tropical belt of Northern Hemisphere, where the climate is suitable for developing coffee trees, and brings Vietnamese coffee a very special flavour. Especially in the south, near the equator, hot and wet tropical climate is suitable for Robusta coffee tree, gathering in Tay Nguyen area of which Dac Lac accounts for over 50% of national output. The north with cold winter is suitable for coffee Arabica.

Coffee C.Canephora Robusta of Vietnam, which is famous on the world, is a product originating from Robusta species having been selected for decades. Since they are produced concentratedly in good soil with suitable climate high intensive cultivation, especially most of them are planted at altitude of 400 m and over, big amplitude of temperature between day and night, so they not only have high productivity  but also good taste fancied by many countries on the world.

Vietnamese coffee has been developing fast. The whole nation had 13.000 ha of coffee with the output of over 6.000 tons in 1975, and now approximatedly 500.000 ha with the output of over 700.000 tons.

Among Vietnamese agricultural product commodities, coffee plays a quite important role, every year coffee brings export turn-over of over 500 million US dollars, ranking the second after rice.      

II. Production situation

1. Production location

The area of coffee planting nationwide is 489.000 ha, mostly concentrates in Tay Nguyen areas.

The biggest area for coffee raw materials of Vietnam is still Dac Lac province. The whole province has about 311.000 ha basalt soil, which is most suitable for coffee tree to develop, among them planting area is 170.000 ha. This area maily plants coffee Robusta. In the last crop, Dac Lac harvested 432.025 tons, and the expectation of 2007 – 2008 is 400.000 tons reaching the new quality standard. Dac Nong ranks the second, and Lam Dong third.

The matter is for Tay Nguyen provinces, and Dac Lac in particular,  how to improve coffee value by cutting Robusta planting area, increasing Arabica one, attaching importance to intensive cultivation, investing processing industry, diversifying ground coffee products.

Main coffee planting areas in Vietnam

(Source: Vietnam Coffee and Cocao Asociation)

Companies running in the field of producing and processing coffee also concentrate mainly in those areas.

2. Characteristics, classification, and product structure

Vietnamese coffee has main types: Arabica, Robusta, Chari. TCVN 4193:2001 defines ranking coffee according to method of couting faults in a kernel coffee sample. More specific classification can be seen from the table about allowed ratio of mixing other kinds of coffee, as following:

(Note: A: Arabica, R: Robusta, C: Chari).

  At present, coffee output of Vietnam has been mainly Robusta with main processing method of dry processing, harvested coffee is dried by sun power. In years of long lasting rain, in the crop they have to dry them in ovens fired by coal or firewood… There have been some companies who process with the wet method. A little output of coffee Arabica has been processed by state-owned companies using wet method. Many companies use colour selecting machine Sortex in the phase of classifying, removing black, brown bean…

3.  Production scale and capacity

25 years ago, a quarter of century, the matter of developing coffee trees was set up with loud starting steps, mostly in area of 2 provinces of Dak Lak and Gia Lai Kontum in Tay Nguyen. An that time, the whole country only had less than 20.000 ha of low growth and productivity, with output of only about 4.000-5.000 tons. Till now, in the year of 2007, the whole country has over 500.000 ha coffee of strong growth, high productivity, the total output reaches 800.000 tons. Those figures go far across all thoughts, strategic goals of the industry. Area of coffee in Vietnam started to raise fast in the final half  of 1980s in 20^th century. Until 1992, world price of coffee dropped at the lowest level since coffee production countries in the world threw their inventory coffee to the market because International Coffee Organization still applied im-export quotas. After 1992, coffee price recovered and gradually reached  the top in 1994 and 1995. At this time, everyone from farmers, worker families in TayNguyen to city people from Nha Trang to HCM cities flocked into looking for soil, buying gardens for coffee, resulting in fast increase in coffee output yearly.

Vietnam is a top-ranking nation producing and exporting coffee Robusta in the world, in the 2006-2007 crop, the output reached about 17,4 million 60 kg packs of coffee. However, according the Vietnam Cocao and Coffee Asociation,  real output could be 21 million packs, increasing 56% compared with 2005-2006 crop.

Development of area and output of Vietnam coffee in the past crops

(Source: Vietnam Cocao and Coffee Asociation)

With the total planting area has reached over 500.000 ha, and output of over 10million packs each year, at the present coffee ranks the second after rice in the catalogue of Vietnam exporting agricultural products. In order to reach such a high ouput, Vietnam coffee industry attract about 300.000 families, with more than 600.000 labours, especially in 3 months of harvesting, these figures can be 700.000 or 800.000. Thus, the number of labours in coffee industry has reached 1.83% of total labours nationwide in common, and 2.93% of agriculture in particular.

4. Raw materials for production

Raw material coffee for production of Vietnam is harvested from material production areas mentioned above in II.1. Apart from Tay Nguyen, recently, Son La has planned to aim at coffee as the main goal for agriculture development. Son La determines to develop the main tree of coffee till 2010 will reach area of 10.000 ha coffee with the total output of 6.000 tons, assuring for the demand of developing processing industry. This is a promising source of material for the demand of developing Arabica processing industry.

5. Production trend

At the present, the amount of Vietnam exporting coffee to the world market accounts a high rate, but the quality is not high enough, so the export turn-over is still low.

 Many main coffee production areas in Vietnam still aplly old production methods. To maintain the 2^nd position in the world of exporting coffee, Vietnam coffee industry will concentrate in improving the quality of coffee products. So, the first task is to care about the quality  by improving breed, creating a new variety with high productivity and good quality. Besidesm Vietnam also apllies new technology in production.

6. Major producer

After 1975, in starting production, Vietnam only had a few old processing workshops. In the North, there were some in Dong Giao, Phu Quy, with the equipment since 1960-1962 by Germany. In the South, there were some of old land exploitation like Rossi, Delphante. Together with extending the coffee planting area, Vietnam also began to build new processing workshops, from separate equipment to production chains copying  the Hang-xa sample of Hai PHong 1/5 Mechanic Factory, A74 Factory in HCM City. In recent years, mnay companies have built new processing factories with equipment imported from Germany, Brazil.

Processing agents with new equipment, good quality have been built in recent five and 7 years assure to process from 150.000 to 200.000 tons export coffee. Besides, there are many uncompleted reprocessing agents with many separate machines, processing   of preliminary treatment bought from civilians in order to assure export standard.

7.  Domestic and foreign famous coffee brands

Vietnamese coffee are widely known by domestic and foreign consumers thanks to best brands including Vinacafe, Trung Nguyen, Thu Ha, Bao Loc, Buon Ma Thuot, etc. Thu Ha Coffee is the brand proceeded by former Dinh Dien brand which existed before 1975.

Other best known brands are also finding ways to improve its coffee quality by applying new advanced technologies.  These brands owners have marketed instant coffee made by Moka and Robusta or coffee products with flower favors, etc.

III. Domestic consumption

1. Market features

Although this is a big market with huge population, the demand on coffee products is still limited. Vietnamese coffee products are made mostly to be exported.

2. Consumption situation

The average amount of coffee that Vietnamese people consume each year is 0.5 kg per one. Recent reports of World Bank show that with its potential, Vietnam’s market may consume 70,000 tons per year. It means that this market can consume 10% of the amount harvested each year which is 700,000 -800,000 tons. Meanwhile, according to the World Coffee Association, Vietnam’s domestic consumption is now nearly 3.6% which is the lowest in the group of coffee producers. This difference is bigger if compared to the amount consumed by the members of the World Coffee Association which is 25.16%.

Coffee beans of Vietnam are mostly produced for exportation. Like many other industries such as aquatic or farm products, coffee producers are more interested in producing for exportation than domestic consumption.. A new way of Vietnam’s coffee producers is investing in a production line of  ground and instant coffee to meet the demand of the domestic taste but the result is still limited.

3. Consumption trend

Among the Vietnamese young people, the trend of drinking instant coffee is more and more popular to meet the demand of the modern life. Instant coffee becomes the main trend of consumption so it has different tastes and meets different demands very well. However, the investment in producing instant coffee requires a huge ammount of caapital and cost of technique transferring, which troubles small and medium enterprises. As a result, they still focus on producing and exporting coffee beans or ground coffee and skip the domestic market.

The too high rate of exported coffee at this time has put a pressure of exporting market for Vietnamese coffee, especially when the exporting market have problems, Vietnam’s coffee industry may easily go into an overproduction and suffer from big disadvantage in prices. Therefore, Vietnam intends to encourage domestic consumption. The amount consumed in 2010 which is estimated to double the current amount and accounts for 20% of the production may be able to limit the pressure.

4. Price

The coffee prices in 2007 has fluctuated extraordinarily. Average FOB price in Vietnam  in the first 3 months is 1417 USD per ton, much higher than that of the last year which was 289 USD per ton. The amount of cofee exported  has a sharp and extraordinary rise in the first 3 months of the year reaching 494,000 tons, 228,000 tons higher than the same period of the last year. This is also the reason why the price declined in March.

In the first 6 months of 2007, the price of coffee in Vietnam rose very quickly and followed closely to the world market. The average FOB price in Hochiminh city declined by 53USD per ton in March and rose again in April, and in June reached the average of 1802 USD per ton, rised by  177 USD per ton compared to the previous month and 326 USD per ton compared to April 2007.

The defference between the domestic and the world price decreased from 200 to 100 USD per ton. The price of rough coffee beans (cà phê nhân xô) in Vietnam in June 2007 rised 10% than May which is 2,530 VND per kg, reaching 28,171 VND per kg.

In August 2007, the pice in Vietnam delined sharply to 1,679 USD per ton, 132 USD and 7.3% lower than the average price of the previous month ( the reason is that the timed price of robusta coffee  is declined due to the fluctuation in the world financial market). But in September, the price continued to rise and the average price reached 1,739 USD per ton, rising 50USD per ton compared to the August.

At the end of November 2007, the export pice of robusta range II of Vietnam continued to rise slightly , fluctuating in the range of 1,650 to 1,685 USD per ton, decreasing about 200 USD compared to the middle of Nov, but still 23% higher than the same period of the last year. The price of coffee beans also falls to 26,400 VND per kg, 200VND lower than in the middle Nov but still 5000 VND higher than the same period of last year.

At the beginning of December 2007, the price of robusta range II of Vietnam continues to slightly decrease, fluctuating from 1615 to 1625 USD per ton, 2.12% lower than the end of Nov 2007. The domestic price of coffee beans fluctuates from 26200 to 26400 VND per kg.

Therefore, the price of Vietnamese coffee is still 50-70 USD per ton lower than other coffee producing countries (the reason is that the trading doesnot comply with the international standard)