Coffee processors fight to hold onto domestic market share
Viet Nam Coffee Association chairman Luong Van Tu spoke with the newspaper Hai Quan (Customs) about the competition between domestic and foreign firms
How are foreign firms faring in the Vietnamese market?
Foreign firms operating in the domestic market are all coffee processors. Under Vietnamese law, they have to invest in production lines and processing factories, and they must use domestically produced raw materials to produce coffee for export. This helps to increase the value of Vietnamese coffee. However, foreign firms ignored local dealers during the 2010-11 crop, and went directly to the farmers. This proved lucrative for the farmers because they were often paid up front and in full which helped them to pay off any expenditure incurred from cultivating and harvesting their crops. Foreign firms have been paying from VND35,000 to VND37,000 (US$1.6 - $1.7) per kilo of coffee, compared to VND24,000-VND25,000 ($1.1) in previous years.
It has been difficult for local coffee firms to mobilise funds to purchase coffee in 2011, and they have had to compete with foreign enterprises. What is your opinion of the situation?
While local firms continue to have difficulty accessing bank loans, they are also having to cope with increasing coffee prices. The price soared to VND49,000 per kilo ($2.3) in the middle of this year, due to demand from foreign coffee processors. Many local firms had no alternative but to purchase raw materials from foreign firms to deliver coffee to their partners on time. The purchase price was VND49,000 per kilo instead of VND35,000.
Foreign firms have advantages over local dealers because they possess strong financial resources and wide distribution networks. While they are only charged 3 per cent interest for loans in US dollars, local firms have to pay 8 per cent. What measures should local firms take to tackle these challenges?
Some local firms have taken the initiative by stockpiling coffee at the start of the harvest when prices are still low and before farmers sell their crops en masse. Co-operation from banks is also needed, and local firms should take out insurance to cover their stocks. This is a new trading method and needs co-ordination between banks and local firms. It is the job of local firms to seek goodwill from banks.
What are the long term measures that need to be taken?
World coffee prices fluctuate quickly. This causes difficulties and the only way to solve them is to list Vietnamese coffee on an international commodities exchange. By doing so, local firms will still make profits regardless of how high or low prices are.
At present, local firms are under great pressure from their foreign counterparts. They could become a force to be reckoned with, and co-operation with foreign firms that is mutually beneficial may transpire in the future. In addition, local firms should contact and trade directly with the eight biggest roasting and grinding coffee companies to cut production costs.
If local firms develop sound business plans with support from banks and State incentive policies, the coffee sector would be able to develop more. — VNS