Vietnamese coffee exporters are crying foul over intermediaries failing to meet supply commitments as farmers hoard coffee in anticipation of continued price hikes, writes Phan Minh Thong, general director of Phuc Sinh Group, a leading coffee exporter in Vietnam.
Coffee prices have climbed steadily from VND60,000 ($2.42) per kilogram in November 2023 to VND80,000 ($3.23) per kg at the end of January 2024. To take advantage of this, farmers have reneged on deals signed with wholesale agents who would normally supply coffee to exporters for a fixed price, 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.
Earlier this year, I conducted a survey of coffee plantations and discovered that crops were doing fine, and Vietnam could guarantee more than 28 million bags (1.7 million tons) for export in what could be considered an excellent season.
Coffee prices now stand at VND94,500 ($3.81) per kilogram, and companies have not had time to react. 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 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 new fixed deals with farmers, and even if they do, there remain concerns over whether they will be able to deliver on time.
Everyone is watching each other.
Vietnam now has the world's highest robusta coffee price, surpassing India and forcing buyers to seek new sources. Given these difficulties, many foreign purchasers have raised their new acquisitions this year and are now selling for a large profit. Coffee is extremely difficult to sell at prices above $3.81 per kilogram. Buyers who buy to store will lose a significant amount of money if the price falls.
Adapting to fluctuations
Roasters around the world have developed a coping strategy to adjust to robusta coffee price variations in Vietnam, a major supplier of raw coffee beans to various markets.
Specifically, when the price of Vietnamese coffee exceeds $4,100-4,200 per ton, the price of Brazilian coffee drops to $3,400–3,500 per ton. However, most coffee purchasers worldwide prefer Vietnamese robusta. In the last 14 years, Brazil has increased production to 23 million bags (1.38 million tons) per year. Brazilian Conilon is primarily consumed in Brazil, with only about two million bags exported. However, due to the high prices that make such purchases impossible, many large roasters around the world have partially converted to Brazil, and arabica prices have not increased significantly.
There is no lack of arabica sources, and for the first time in 52 years, robusta will cost more than arabica. As a result, huge roasters worldwide have purchased a portion of the conversion from robusta to low-quality arabica to compensate.
Look at other products
I recall that between 2012 and 2015, the price of Vietnamese black pepper increased from $6,000–7,000 per ton to more than $11,000 per ton, and everyone who grew pepper was ecstatic. However, in 2017, the price fell from $11,000 per ton to $2,500 per ton, shattering all business structures and forcing many enterprises, agencies, pepper growers, and connecting links to fail. I went to the plantations at the time, and there were people who had five to seven tons remaining, but they wanted the price to climb to VND250,000 ($10.1) per kilogram before selling. Nobody expected the price to drop to VND36,000 ($1.45) per kilogram.
Following the price shock, black pepper production decreased because farmers no longer wanted to produce it. Vietnam's output has dropped from 300,000 tons per year in 2015 to 170,000 tons per year, at a price of little more than $3,800 per ton.
Back to the current coffee situation, when prices are high, Vietnamese farmers plant more, as do Brazilian farmers. Therefore, Vietnam must consider this as well. Brazil delivered 68 million bags last year of arabica and robusta, in addition to producing another 50 million bags. Brazil's large area could one day meet the entire world's coffee demand.
People believe that the faster a price rises, the faster it falls. We are dealing with current coffee prices, and they may remain high for a long time. However, we must consider the possibility of price declines, which would be equally painful.