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Investors not keen on instant coffee projects
High requirement investment rate, high bank loan interest rate and the small market, all make investors hesitant to develop instant coffee products.
The Ministry of Agriculture and Rural Development (MARD) has made public the draft programming on the development of the coffee bean processing and preservation system in association with production and export by 2020.
MARD said that the total designed capacity of the existing coffee bean, coffee powder processing and the storage capacity have exceeded the demand.
There are 97 enterprises and workshops that are processing coffee beans which have the designed capacity of 1503 million tons. The figure was 1.2 million tons higher than the demand in 2011.
In the coffee powder processing sector, the existing workshops can put out 51,664 tons a year, but the actual capacity is just 50.51 percent of the designed capacity.
In 2011, the powder coffee processing line of Vinacafe Bien Hoa ran at just 2.63 percent of the designed capacity. Meanwhile, a lot of the processing workshops of Vinacafe’s subsidiaries only ran with one production shift for about 30 days a year. This was because the supply exceeded the demand in the domestic market already, while it was nearly impossible to export powder coffee.
Therefore, investors have been advised not to build new processing factories or increase the coffee bean processing designed capacity and the storage capacity in the years from 2012 to 2020.
Instead, they have been advised to continue making investment in the instant coffee production, a very promising sector. The investors in the field can take full advantage of the profuse coffee mean resource (now ranks the second in the world with the output of 1.1 million tons). Meanwhile, the outlet for instant coffee is very potential with the increasing demand in the domestic market and new emerging markets.
Developing instant coffee products, in fact, is the thing the government of Vietnam strives for, because this would help increase the total value of processed coffee products in the added value chain of the Vietnamese coffee industry.
Nguyen Xuan Thai, Director of the Thang Loi Coffee Company, still keeps hesitant to make instant coffee as advised.
He said on Dau tu that the investment rate of an instant coffee factory is very high, about 300-400 billion dong, therefore, he still dares not inject money in the field.
Thai said Thang Loi can arrange 30 percent of the total investment capital, but it still has not made decision, since he is still not sure about the outlet of instant coffee products. Meanwhile, the bank loan interest rates remain overly high, which also means high risks for projects.
Thang Loi’s situation is nearly the same as the situations of other companies in the industry.
If the State wants investors to focus on developing instant coffee products, it should apply reasonable policies to drive the capital flow to the sector. If not, the strategy of the Vietnamese government on encouraging investments in processed high-value products would remain on paper for ever.
Doanh Nhan Saigon has quoted their sources as showing that G7, Nescafe and Vinacafe are dominating the domestic instant coffee market. However, the cutthroat competition in the market makes the figures about market shares change regularly.
Trung Nguyen Company stated at a press conference in 2011 that its G7 products are leading the instant coffee market with 38 percent of market share. The second position belongs to Vinacafe of Bien Hoa Coffee Corporation with 31 percent of the market share. Meanwhile, Nescafe of Nestle ranks the third with only 27 percent.
Sources have predicted that Starbucks is making hectic preparations to penetrate the Vietnamese market, slated for 2013. It has registered trademarks for protection and set up a representative office in Vietnam.
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