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Country gets first coffee exchange
Vietnam’s first coffee exchange opened Thursday, giving growers in the world’s second largest coffee-growing country more control over price and promising to give the US$2 billion industry an export boost.
Vietnam Technological & Commercial Joint-Stock Bank, Vietnam’s seventh biggest, joined with the Dak Lak People’s Committee and Thai Hoa Joint Stock Co., a trader, to set up the exchange in Buon Ma Thuot, capital of the Central Highlands province of Dak Lak, the nation’s main coffee-growing area.
“The exchange is definitely good for farmers because their profit margin will increase as they don’t have to go through a middleman,” Nguyen Tuan Ha, director of the exchange, said.
The price of robusta, which is used to make instant coffee by Nestle SA, has plunged 24 percent since the end of June. Vietnam is the world’s biggest exporter of that variety, which closed Wednesday on London’s Liffe exchange at $1,887 a metric ton.
Coffee farmers now deposit their crops with local middlemen who have storage facilities and sell the beans to domestic and overseas trading companies, speculators and domestic processors.
The exchange, which has its own warehouse and will trade for two hours from 9 a.m. on weekdays, will compete with the middlemen if farmers opt to truck their crops to the new venture, shunning traditional purchasers.
Market target
“The difficulty is persuading farmers to change their habits,” Ha said in an interview after Thursday’s opening.
“We have to convince them the cost of transporting the beans can be well covered by improved profit margins when selling coffee to the exchange.”
The new venture may cut trading costs and offer better prices, according to Le Van Ke, general director of An Giang Joint-Stock Co., a trading company based in Dong Nai Province. “It reduces the risk of farmers defaulting,” Ke said.
About 40 percent of the one million tons of coffee that Vietnam sells annually to world markets is expected to trade at the exchange, according to Nguyen Duc Vinh, chief executive officer of Hanoi-based Vietnam Technological & Commercial Joint-Stock Bank, which is 20 percent owned by HSBC Holdings Plc.
Futures contracts
“The exchange will start with physical contracts first and we aim to handle futures contracts in six to 12 months,” Vinh said by telephone Wednesday. Techcombank, as the lender is known, has spent around VND10 billion ($592,000) on equipment for the exchange, Vinh said.
“Brazil has had success with its exchange that helps farmers price their product more efficiently,” said Pamela Thornton, a portfolio manager at Armajaro (USA) Inc., which runs a coffee and cocoa fund of more than $400 million.
Vietnam’s coffee shipments totaled 853,000 tons and were worth $1.8 billion in the first 11 months of the year, a 6.6 percent increase in value from the previous year while the volume fell 21 percent, according to data from the General Statistics Office.
Commodities account for about a third of Vietnam’s exports, and coffee is the most valuable crop after rice.
Vo Sy Gia, a 52-year-old farmer who lives 70 kilometers from the new exchange, said he is debating whether to switch his business away from the middlemen, and is holding talks with other local growers about sharing transport costs.
“I believe we would get a better price and that it is less risky to do business with the exchange than with a middleman,” Gia said. “But I’m not sure if the profit margins will improve enough to cover the extra costs.”
Stunted coffee farms increasing
More than 50 percent of Vietnam’s coffee-growing area will become old and stunted in the next five to 10 years and need to be cultivated again, Hoang Thanh Tiem, head of the Central Highlands Agriculture and Forestry Science and Technology Institution, said.
Coffee farmers should grow more shade trees as this is the most sustainable measure to improve a coffee plants’ lifespan, Tiem said at a seminar held at the Buon Ma Thuot Coffee Festival, which runs from December 10-14.
He also said growers should gradually replace old coffee plants with carefully chosen new ones and limit the use of chemicals.
Doan Trieu Nhan of the Vietnam Coffee and Cocoa Association (Vicofa) said the increasing incidence of stunted coffee plants poses a serious threat to the annual output target of one million tons.
He added that domestic demand for coffee was very low and this affected the industry’s development since it meant an overdependence on exports.
Last year, Vietnam consumed just 6 percent of its coffee output, according to statistics from the Ministry of Industry and Trade.
TN, Bloomberg
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