Brazil and Vietnam: Kings of the crop

GCR looks at the world’s dominant coffee producing superpowers – Brazil and Vietnam – to discover how, amid a year of market instability, they have remained resilient and defiant at the top of the production chain.

Brazil has long been identified as the world’s largest producer of Arabica coffee, and Vietnam of Robusta coffee, and the two giants show no signs of stopping.

According to Brazil’s government statistics agency CONAB’s (Companhia Nacional de Abastecimento) latest estimate, released in September 2020, Brazil produced 61.63 million bags in the 2020-21 harvest from June to September.

“Brazil harvested one of the largest coffee crops in its history,” says Professor Luiz Gonzaga de Castro Junior, Coordinator of the Management and Markets Intelligence Centre at the Federal University of Lavras (UFLA).

He cites favourable weather conditions in the country’s main production regions of Mina Gerais, Espírito Santo and São Paulo, as the direct link to the country’s high production of Arabica coffee and Conilon/Robusta crops. But the success of Brazil’s reign as a producing giant comes down to several factors, including ideal climate, topography, and soils suitable for coffee growing.

“Nature favoured us in this respect, but it would all be for nothing if it weren’t for national research bodies. Brazilian researchers have developed many technologies that have helped boost our production capabilities,” Gonzaga tells Global Coffee Report. “Over the last decades there have been great advances, such as coffee genetic improvement, nutrition, management, mechanisation and post-harvest techniques. All this has made Brazilian crops more productive, more sustainable, and able to produce coffee of the highest quality.”

Gonzaga says the country went from an average productivity of seven or eight bags per hectare of Arabica coffee in the early 1990s to 31 bags per hectare in 2020. 

“Some producers already average more than 50 bags per hectare. Brazil’s main competitors in the international Arabica coffee market harvest less than 18 bags per hectare. That’s a big competitive advantage we have.”

Caio Alonso Fonte, Head of Planning at International Coffee Week, Brazil’s tradeshow for the specialty coffee market, says a large part of Brazil’s 25 per cent increase in production, and 10 to 15 per cent increase in productivity, is due to its emphasis on quality production. 

“This year we experienced wonderful quality with different flavours, lots of floral coffees, not common to Brazil’s traditional taste profile. This is a result of post-harvest processing methods,” Fonte says. “Lots of farmers are engaged in fermentation processing to create different aromas and unique flavours, or new types of varietal.”

Fonte says producers are listening to the demands of local and international consumers, but quality must come first. 

“International consumers appreciate mature fermentation flavours with acidity. The local market drinks coffee like water, so there’s more work to be done, but specialty coffee is a maturing market here.” 

There’s also been a shift in the attitude of producers when it comes to crop management. Before, it was price driven, and now, it’s about improving crop quality to increase income.  

“With education, producers are committed to embracing technology, farm management, implementing sustainable practices, and learning how to trade better and hedge coffee when the dollar is good. All these things help control costs,” Fonte says.

King of Robusta
Across the South Pacific Ocean and Vietnam only just started its 2021-21 harvest in November. At time of print, Rabobank estimated a production of 28.8 million bags of (mainly) Robusta coffee, which is a drop of 0.7 million bags from its previous harvest. 

“Vietnam experienced challenging weather patterns in 2020,” says Carlos Mera, Senior Commodity Analyst at Rabobank. “From the current harvest, I expect a drop in production volumes following drier than normal conditions during growing season and at the start of flowering, followed by a delayed wet season.”

Despite the country’s unstable weather patterns, Jeremy Mpalampa, General Manager of Volcafe Vietnam, says the country has seen “exponential growth” in the production of Robusta over the last two decades, moving from just over one million bags in the 1990s to the 30-million-bag mark it holds today.

“There has been a lot of work that has gone into Vietnam’s agricultural industry, thanks to a positive drive by the government’s Doi Moi economic reforms (launched in 1986) to restore crops and boost productivity, especially in the central highlands,” Mpalampa says.

On average, Mpalampa says farms produce anywhere from three metric tonnes per hectare to 7.5 metric tonnes.

“That volume is phenomenal by any standard. When we go out to these farms, we see trees loaded with beautiful coffee cherries,” Mpalampa says. “Productivity is remarkable in comparison to some of the numbers we’ve seen from other Robusta production countries.” 

A large contributing factor, like Brazil, is Vietnam’s focus on research and development of high yielding varietals. 

“We’re seeing some trees that are 20 years old that could be giving 1.5 to two metric tonnes per hectare, being refreshed with higher yielding plants either through direct replanting or by means of grafting where a scion is attached to an old root stock. You will see almost double the production by just adopting these varieties,” Mpalampa says.

What’s more interesting, is that smallholder farms are starting to explore how to reduce the excessive use of water and fertiliser to minimise their carbon footprint.

“Irrigation or simple mechanised agriculture is at play in Vietnam, which means that some of the shocks as a result of weather changes are mitigated because farmers can control the amount of water the plant receives. The next step, however, is further research to balance environmental conservation with productivity to make Vietnam’s farming industry sustainable,”Mpalampa says. “I think we can do it. How we can, to some extent, will be through diversified farming systems: optimising water usage, increasing tree and plant cover, and adopting climate smart approaches to plant and soil nutrition.”

The ongoing challenge to implement such investments is price. Mapalampa says the last two years have been quite challenging for Vietnamese producers, with the market experiencing “softer” local prices. As of 4 December, the price of Robusta was 71.07 US cents per pound according to the International Coffee Organization.  

Non-existent impact
While 2020 proved disruptive to much of the world thanks to the spread of COVID-19, Brazil came out of the 2020-21 harvest relatively unaffected. UFLA’s Gonzaga says there was real concern at the start of the year, with fears of a shortage of labour for harvesting due to restrictions of social distancing, and a lack of containers for exports with the decrease of international trade. However, the harvest took place without major problems. 

“Many crops are mechanised, which drastically reduces the need for workers. In addition, in small properties, the family workforce predominates without the need for hiring. And even where it was necessary to hire workers, coffee growers adapted to the new sanitary measures and got employees,” he says. 

“As for exports, there was some shortage of containers for a few months, but the situation is already normalised. So much so that the Ministry of Economy reported that November exports were the largest ever recorded in a single month at 4.6 million bags. The previous record was December 2018, at 4.1 million bags.”

Vietnam’s supply chain was also unscathed thanks to the majority of harvest taking place between the end of November 2019 and mid-January 2020, with ports still operational. 

What did surge was Robusta demand, especially in the early half of the year on the back of panic buying and strong retail demand for the at-home segment, predominantly from the United States and European Union. Demand has now stabilised, with Volcafe forecasting about 1.5 per cent growth in Robusta consumption in 2021. 

“So far, we’ve seen a two-fold increase of soluble exports from Vietnam during the 2019/20 crop season. It goes to show confidence in the sector and that there is a real opportunity for investment in processing and value addition to coffee in Vietnam,” Mpalampa says. 

Perceiving ongoing demand for instant coffee products across the market, Vietnam has seen the commissioning of three new instant coffee plants during the last two years, with announcements for another two by 2022. As of August 2020, Vietnam also signed the EU-Vietnam Free Trade Agreement, meaning a drop or elimination of taxes for soluble coffee from Vietnam into the EU from 3.1 per cent to zero.

Fear factor
On a global scale however, Rabobank’s Mera maintains demand will be the industry’s concern of 2021, following a 2 per cent drop in global demand in 2020.

“The world saw a drop in out-of-home consumption, and it continues with countries still experiencing a lockdown so there’s less traffic in coffee shops, people are working reduced hours, therefore demand will be subdued until COVID is no longer a problem in our population. The big challenge then is how to regain that market share and how to regain that presence in the market. We are seeing the same drop in demand in cocoa, over 3 per cent, and in cotton of more than 10 per cent,” he says. “If demand continues to decline and we see an oversupply of coffee, prices will remain low into 2021.”

On the production front, Gonzaga says climate remains the biggest, if not the greatest, threat of all. In 2020, rainfall in Brazil was well below the historical average in the South of Minas Gerais, the country’s main producing region. Other regions were also under-optimal rainfall. As such, Gonzaga’s major concern at present is the impact the lack of rainfall will have on the 2021-22 crop. “Producers are apprehensive about the possibility of a much smaller harvest than normal,” he says.

However, with current information available, he anticipates the world will consume more than is harvested. 

“With the fall in Brazilian production, and expectations of an increase in world coffee consumption, driven by the gradual control of the COVID-19 pandemic, we may have this deficit,” Gonzaga says.

Is the price right?
Based on data the UFLA collected throughout Brazil via the Campo Futuro project, carried out by the Confederation of Agriculture and Livestock of Brazil in partnership with the National Rural Learning Service and  the Management and Markets Intelligence Center of the UFLA, coffee prices of recent months have been remunerated for most Brazilian coffee growers. That is, the average revenue from the commercialisation of coffee was higher than the production costs. 

“One of the factors responsible for this was the appreciation of the international price. Another important factor was the exchange rate devaluation. When the Real depreciates against the US dollar, the remuneration of commodity producers increases. At the same time, production costs increased moderately,” Gonzaga says.

“However, it is important to note that many producers have spent the last three years with tight margins, and even losses, in some cases.”

To sustain future production, Gonzaga says further government support for the coffee sector must be maintained and expanded, including research, credit programs, and farm management techniques to enable further crop productivity. 

Onwards and upwards
Rabobank’s Mera is confident Brazil’s lucky streak is set to continue despite 2021 being an off-year in the biennial production cycle. 

“It will still be a pronounced year. Rainfall hasn’t been that great but prices for farmers in Brazilian Real are so good that we expect a rather decent off-cycle for Arabicas, with potentially record Robusta levels,” Mera says.

He will eagerly watch Central American countries such as Costa Rica and Colombia to see if they can take a bite out of Brazil’s pristine producing record, but like Vietnam running its own race when it comes to Robusta production, he says there is no immediate threat to Brazil’s title: “Brazil is still the dominant force of production and very clearly so.” GCR

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