Coffee Prices Soar as Coffee Bean Sales Slow in Vietnam

May 12, 2014 Posted by Vietnam Briefing Reading Time: 4 minutes

HANOI – After a record crop of 1.7 million tons of robusta beans, Vietnam’s current reserve of coffee beans has shrunk to a low of 390,000 tons at the end of April. This is less than the average reserve of 25 percent which had been seen over the last five years. Last year saw a reserve of 27 percent of the total crop.

Vietnam is the top producer of the Robusta variety of coffee and produces 900 million kilograms annually. Robusta is used primarily in instant coffee and specialty drinks, such as those made by Nestle.

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The current reserve has seen a sharp 54 percent decrease from its previous size, this decline in unsold product foreshadows a slowdown in sales in the coming months. Farmers are expected to hold off on reducing their stockpiles any lower, which will in turn push prices up as supply dwindles.

Coffee prices in Vietnam have risen nearly 20 percent during this crop year, reaching VND41,900 per kilogram in early April.

Beans in Dak Lak province, which accounts for 30 percent of domestic production, traded at VND41,200 (US$1.95) a kilogram on May 8, rebounding from a three-year low of VND29,600 in November 2013. In the first four months of 2014, Vietnam shipped 822,000 tons – 39 percent more than last year. Total exports this year are expected to be around 25.1 million bags.

The reduction in beans available on the market has already had a marked effect on the price of robusta beans, which have climbed 24 percent this year. The increase in prices has seen the generally low priced robusta bean steadily gain on the price of the more expensive Arabica variety, favored by premium coffee brands such as Starbucks.

Arabica prices have seen dramatic price increases of 66 percent due to the drought ravaging crops in Brazil – the country accounts for more than a third of world output. The increase in Arabica prices has pushed roasters to add robusta to their Arabica coffee mixes in order to reduce costs, however this has put further strain on the supply of robusta beans.

As prices continue to rise, Vietnam’s farmers are expected to continue holding on to their reserves in the hopes of getting a more attractive price later. Many farmers believe that the coming El Nino will have adverse effects upon Brazil’s crops, thus raising prices further.

Additionally, farmers may be reluctant to sell because of a recent increase in transport costs. On April 1, Vietnamese authorities initiated a campaign to inspect overloaded trucks by deploying weigh bridges across the country. This move has raised transport and logistics expenses by around US$22 per ton since more trucks are now required to carry the same load. The increase in shipping costs has been passed on to the farmers, who have less bargaining power than the traders.

At the same time, Brazil’s Arabica crop production will drop more than expected in the 2014-2015 season – 49 million bags, down from a January forecast of 55 million and last year’s crop of 53.3 million. This will be the largest deficit since the 2009-2010 season and will mark higher prices for Arabica and more opportunities for robusta producers in Vietnam.

More beans are expected to come onto the market soon as Brazil and Indonesia begin their harvests. Indonesia and Vietnam account for a combined 27 percent of global coffee output.

Last week, Robusta futures settled at US$2,093 a ton on NYSE Liffe in London and Arabica closed at US$1.839 a pound on ICE Futures U.S. in New York. In 2014, coffee has been the best performing commodity in the Standard & Poor’s GSCI gauge of 24 raw materials.

Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email vietnam@dezshira.com or visit www.dezshira.com.

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