Falling supply forces coffee prices to boil over: exec

Coffee supply has decreased due to extreme weather conditions and a lack of agricultural land, causing coffee prices to climb, Phan Minh Thong, general director of Phuc Sinh Group, a leading Vietnamese coffee exporter, tells The Investor.

Coffee prices have doubled since last year. Why has this happened?

The explanation is a drop in global supply. There are three variables contributing to the global supply reduction.

First, Vietnam is the world's largest supplier of robusta coffee, ranking second in coffee production. However, in recent years, real estate prices have risen, and many people are selling agricultural land, which has led to shrinking plantations.

Second, following Covid-19 and the associated losses, many people are unwilling to work, and labor prices are extremely high.

Third, climate change and extreme weather events have reduced coffee production dramatically.

The above three variables cause Vietnam's coffee output to fall dramatically, affecting global supply.

The world has grown accustomed to Vietnamese coffee's vast, seemingly limitless output and affordable pricing. They've altered various brewing recipes, including using Vietnamese robusta coffee. As a result, even as prices rise, people are continuing to buy.

Vietnam is a major coffee exporter, so how can it gain from higher prices?

Vietnam has profited from high pricing over the last two years. Coffee exports generate a significant amount of foreign currency. The world has come to learn that Vietnamese coffee is wonderful but expensive, rather than cheap and despised as it once was. Furthermore, Vietnam's coffee quality has increased in recent years, and coffee drinkers all over the world now prefer Vietnamese coffee.

According to the General Department of Vietnam Customs, export turnover increased by 56.4% between January 1 and April 15. The average export coffee price reached $3,351 per ton, a 49.5% increase from the same period in 2023. The general picture is positive, but there are certain challenges in the industry, such as enterprises trying to find sources of goods to deliver to clients and high purchasing prices. As a significant and long-standing enterprise in the coffee market, could you please share some of the stories that coffee enterprises are currently facing, and how are the farmers benefiting?

Farmers have reneged on deals signed with wholesale agents who would normally supply coffee to exporters for a fixed price. This is causing widespread market chaos.

Farmers normally sell around half of their produce ahead of the harvest, but this year they are only allowing a trickle of supplies through to the agents as they wait to renegotiate at higher prices.

Demand is high, but sales are minimal, leaving agents and exporters looking for tens of thousands of tons to meet their contracts. This has left farmers in the driving seat, and many wholesale agents who paid up front are at risk of going bankrupt.

For exporters and international corporations that have signed export contracts, they still need to find supplies to deliver on their commitments. Domestically, prices are rising daily, and companies are causing considerable losses to agents and exporters. The magnitude of the loss is difficult to comprehend.

The market also faces other challenges. When the price of Vietnamese robusta coffee soared dramatically at the beginning of the season, large roasters around the globe refused to buy, and waited for prices to drop. They claimed the price was at a record high, but instead of capitulating, farmers continued to raise prices, forcing the rest of the supply chain into a corner. Wholesale agents are nervous about agreeing to new fixed deals with farmers, and even if they do, there remain concerns over whether they will be able to deliver on time.

Is it true that because coffee is so expensive, multinational corporations are flocking to Vietnam?

Before coffee became pricey, enterprises from all over the world rushed to Vietnam. They were accustomed to utilizing inexpensive Vietnamese coffee, which features in their products. As a result, when costs rise, they grit their teeth and seek alternate sources.

What is the role of the Vietnamese coffee business amid the market fever?

We recently returned from a tour of the U.S., where we met with major coffee companies. Actually, in earlier years, Brazil was a major story in the global coffee market. However, Vietnam held a unique position both last year and this year.

Shipping charges have recently surged due to global changes. How are export companies like Phuc Sinh affected?

No one expects war, and war is a force majeure clause. As a result, we must deal with frequent swings in shipping charges, as well as communicate with buyers in order to discover ways to compromise, cooperate, and share with them in the current situation.

What do you believe coffee pricing will look like in the near future? Will the global coffee market see significant changes?

When coffee costs rise, market disruptions occur, and we must strategize to lower prices. Currently, the price of coffee has dropped by 20% in just one week, shocking many people. Coffee prices will be extremely high for the next five years due to low supplies.

Brazil has had really terrible weather, with temperatures reaching 60 degrees Celsius in some areas. In recent days, temperatures in Ho Chi Minh City have exceeded 40 degrees. Forest fires in Brazil, the world's largest producer of coffee, have had an impact on global production. Thus, worldwide coffee prices will remain high.