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Domestic coffee firms hit hard by fluctuations in export prices
The Chairman of the Viet Nam Association of Cacao and Coffee, Luong Van Tu, speaks with Dau Tu (Investment) newspaper about challenges facing Viet Nam's coffee sector.
What is your assessment of the recent fluctuations in export coffee prices?
Coffee prices have been fluctuating extraordinarily. One tonne of coffee is being sold at between US$1,250 and $1,270 on the LIFFE (London) trading floor, which is about a 30 per cent decrease against the same period last year. Domestic coffee prices stand at VND22 million ($1,200) per tonne, which is half of what it was priced at in 2008.
There are a variety of reasons why prices continue to fluctuate, but the primary reason is due to foreign speculation which has worked to corner the global coffee market. This has resulted in a sharp decrease in coffee prices. Also, coffee processors, who apply pressure to market prices, have added to the fluctuation.
How has the fluctuation of prices impacted domestic export companies?
Export coffee companies have two ways of selling their products. They sell on the spot, which is often for immediate deliveries that are usually paid for in cash, and contracts that involve exporting beans. With the spot sale, buyers and sellers fix prices when they sign the contracts, regardless of how prices might change in the future. This is not the case with export deals. Exporters ask importers to pay 70 per cent of a negotiated price in advance to exporters. Thus, companies selling into the future are prone to suffer heavy losses. Even worse, they are at risk of being sued for late deliveries.
Why are Vietnamese enterprises still using export contracts?
It is hard to forecast changes in the agriculture market. Enterprises will benefit from future contracts more than spot deliveries if the world market prices increase. The association has been unceasingly warning member enterprises to cut down on this mode of sale in the past three years. The warning, however, has fallen on deaf ears.
What will the association do to help enterprises solve this problem?
The association has already sent a document asking the Government and ministries to implement support measures, including policies that advocate the temporary stockpiling of coffee to stabilise export prices and setting up loans for enterprises. In my opinion, a fund needs to be set up to purchase key agricultural commodities from producers when market fluctuation occurs.
What long-term measures should be taken to develop the coffee sector?
There are still many shortcomings in the sector. There is a shortage of land to cultivate coffee crops, and there also needs to be a better synchronisation of plans. The association suggests expanding coffee production to an area of 500,000ha nationwide, while focusing on improving the quality of the crop and limiting the number of export coffee companies.
Another matter is many enterprises have not put enough emphasis on improving the quality of their coffee, which importers are still purchasing. By doing this, importers can put pressure on the producers of this low quality coffee. The importer will then refine the product and export it to a third country at higher prices. This is detrimental in the long run because it means Viet Nam may continue to export only average quality coffee, while coffee growers and businesses do not benefit from the full potential of the enterprise.
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