Internal and External Pressures on Vietnam's Coffee Industry
Vietnam's coffee industry is a significant pillar of the global coffee market and contributes significantly to the national economy. Vietnam is currently the world's largest producer of Robusta coffee, with about 97% of its production being Robusta coffee. The remainder consists of Arabica coffee and other specialty varieties.
Although domestic coffee consumption is increasing, exports remain the primary source of income for Vietnam's coffee production industry.
Coffee exports are estimated to total 25 million bags (60 kg/bag) in the 2023-2024 crop year, down about 10% from the previous year. However, after Brazil, Vietnam remains the second largest exporter of Robusta coffee globally.
According to Dr. Devmali Perera, a Finance lecturer at RMIT University, the Vietnamese coffee industry faces significant challenges and changes in the context of a volatile market and increasing environmental pressures.
"The Vietnamese coffee market faces two main challenges this year: declining production and rising prices. Prices have increased due to high demand both domestically and internationally, especially in Southeast Asian countries, while adverse weather conditions and supply chain disruptions have contributed to declining production," said Dr. Perera.
Vietnamese coffee production has been increasingly affected by prolonged droughts and rising temperatures, resulting in decreased yields and a decline in crop quality.
Meanwhile, the global supply chain is facing significant disruptions due to container shortages and port congestion, causing delays in shipments and increasing costs. These challenges are further exacerbated by geopolitical tensions worldwide.
Dr. George said: "Such logistics barriers make it difficult for Vietnamese coffee to reach international markets on time, affecting the ability of export businesses to meet market demand."
Inefficient value chains also pose some challenges. Many smallholder producers in Vietnam still rely on traditional farming methods, resulting in inconsistent quality and yields. The lack of advanced facilities for post-harvest processing and storage can lead to significant quality degradation.
"New environmental regulations, especially those of the European Union related to pesticide residues, require producers to adjust their farming practices and increase compliance costs. This puts additional pressure on smallholder farmers who may not be able to adapt quickly," said Dr. George.
Despite having over 700,000 hectares of coffee land, Vietnam is struggling to find suitable land to increase production due to concerns about deforestation and pressures to meet climate-related targets.
According to Dr. Perera, many domestic coffee farmers have switched to growing durian due to increasing demand from the Chinese market for this fruit. This shift has further reduced the area dedicated to coffee production.
In addition, Vietnamese farmers are facing higher production costs, mainly due to rising fertilizer and labor costs. While the increase in domestic coffee prices can partially offset production costs for farmers, increased production costs have put exporters in a difficult position.
Dr. Perera said: "Exporters are currently struggling with financial pressures, product shortages, and higher shipping costs, making them more cautious about taking on new orders."
"Increasing demand in the context of supply chain constraints is creating further price volatility and uncertainty in the coffee market," she said.
Strategic solutions to ensure sustainability and competitiveness
The Vietnamese coffee market is at a critical juncture as rising prices and declining production create both challenges and opportunities.
According to two experts from RMIT University, Dr. Devmali Perera (Finance lecturer) and Dr. Majo George (Senior Lecturer in Supply Chain Management and Logistics), stakeholders can navigate this volatile environment and equip themselves for long-term success by adopting strategic approaches. Farmers, exporters, and investors must be flexible and proactive in their strategies to thrive in the dynamic coffee market.
A top priority is to promote sustainable farming activities and initiatives focused on environmental conservation. This can help mitigate the negative impacts of climate change on coffee production.
According to Dr. Majo George, public-private partnerships such as the Production, Protection, and People (PPI) Compact in Dak Lak can create sustainable models and improve farmers' resilience. These partnerships can also facilitate agroforestry models and other environmentally friendly practices to enhance long-term sustainability.
In addition, the adoption of strict quality standards and certification processes related to coffee processing is also crucial.
Furthermore, training programs for farmers on best practices, as well as quality management and certification processes, can encourage them to produce high-quality coffee that meets international standards.
"Moreover, the government can collaborate with domestic and international universities to conduct research on sustainable farming practices and new technologies to support the industry," said Dr. Perera.
Investing in modern infrastructure for transportation, storage, and processing plants is also essential to improve post-harvest handling and reduce quality losses. This can help streamline the supply chain and improve the efficiency of coffee transportation and storage.
Government support in the form of financial assistance and subsidies can reduce production costs for coffee farmers. In particular, subsidies for fertilizers and advanced farming equipment can help farmers maintain and improve coffee-growing areas at a more reasonable cost.
In addition, export promotion is another important focus area. Policies to promote Vietnamese coffee in international markets, including participation in global trade fairs and leveraging trade agreements such as the Vietnam-EU Free Trade Agreement, can enhance market access for Vietnamese export coffee.
"The industry must continue to innovate and adapt to mitigate risks. The resilience and adaptability of Vietnamese coffee producers, along with strong government support and innovative measures, will be key to overcoming current challenges and ensuring long-term success in the global coffee market," concluded Dr. Perera.
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