Four principles for developing coffee growing nations

As the largest producer of Robusta coffee, it’s always seemed strange to me that Vietnam is less known around the world as a coffee powerhouse.

It might have something to do with the fact that our producers only receive between 7 to 10 per cent of the profits from their final product. 

It’s a story that’s all too well known in the industry. Procurement standards in coffee trading and branding power have meant that producers have limited tools to increase their share of the profits. Without the same access to advanced information technologies as developed countries, producers find themselves in ‘the coffee paradox’: they are the foundation of the entire coffee industry, yet are the most vulnerable link in the chain.   

In the 2012 calendar year, Vietnam surged forward as the world’s largest exporter of coffee. I believe that this position makes us an ideal country to lead the process of resolving this paradox, evening out the wealth imbalance. With coffee one of the top five industries in the global economy, advancements in this front could have consequences on the sustainable development of the globe as a whole. To do this, I propose the following four principles for multilateral collaboration between coffee growing and consuming nations.

Equalising value for stakeholders across the value chain
Recent events have highlighted that the current situation, where coffee farmers live on the fringe of poverty, is not only unfair from a social standpoint, but is unsustainable from a commercial perspective. Although Vietnam is a top exporter of coffee around the world, our country’s revenue from coffee pales in comparison. Because our coffee is sold in raw form, we only receive a minimal reward for all this effort.
Brazil here can be used as a shining example of how producing countries can reverse this trend. By becoming a consuming nation, the value-added proportion of the equation can remain within a producing country’s borders. Because we certainly don’t want to deny consuming countries of coffee supplies, trade mechanisms need to be tightened to ensure fairer trade that shares more of the profits with farmers.

One trade mechanism that needs to be carefully monitored is the fluctuating price of coffee on international markets. Financial mechanisms that motivate price drops – those that are removed from physical coffee – need to be addressed. The livelihoods of farmers should not be played with by Wall Street speculators.

Parties that are close to physical coffee need to invest in developing new technologies in cultivation, storage, and processing. They must also continue to support community development programs for farmers, and coffee-growing countries in general. These activities play a very important role in equalizing added-value along the coffee chain.

The sustainable development of green coffee
Sadly, Vietnam is like many other coffee growing countries in lacking sustainable models for farming practices. Farming is often carried out with little consideration for maximising yield, conserving natural resources, or maintaining the traditional identities among local indigenous populations.

In looking inwards first, in Vietnam we propose the following improvements be made. The first is to take advantage of advanced technologies to protect natural resources, especially in the cultivating and processing stages. The second is to support mechanisms that ensure the stability of prices, which farmers can then use to invest in their crop. The third is to synchronise the application of new cultivation technologies with the preservation of cultural identities among indigenous coffee growers. The final improvement should be integrating industrial education at origin, alongside general education, healthcare, and the spiritual support of coffee farmers and workers. This helps create a positive association between farmers and the industry they work in.

Executing quality standards among exporting and consuming nations
Vietnamese coffee is currently blocked at the low standard (R2). As a result, our farmers receive 10 – 20 per cent lower prices than other Robusta exporting countries, such as India, Indonesia and Malaysia. Working closely with Vietnamese coffee, I can testify that this quality assessment across the board is simply unfair. When traders are only seeking a higher quantity of coffee, and not a higher quality, then this price situation can never be reversed. Long-term stakeholders in Vietnam’s coffee industry must collaborate to set out suitable standards directed at improving the quality recognition of the country’s coffee. We have seen elsewhere that improving quality and yield is the best tool farmers have to increase their income.

To implement this principle, we believe that there must be collaboration between industry authorities and coffee traders/purchasers in establishing quality standards for commercial coffee. This must be used to motivate farmers to improve their quality. Vietnamese exporting standards must fall in line with those used on international commodities exchanges. Authorities play an important role here in helping farmers meet these quality standards.

Implementing business ethics
An ethical business model should be used to discourage practices that encourage farmers to sell at a lower price than they are entitled to. I have witnessed traders consistently offer farmers lower than market value, justifying the undercutting based on the value of their coffee. Let’s be clear: even at market value, farmers are not getting enough for their coffee. Coffee roasters and traders need to understand that when they are getting a “bargain” on their coffee, it’s through the exploitation of the most vulnerable part of the value chain.

If we are able to advance these four principles, we can create a fairer platform between coffee-growing countries and coffee-consuming ones. As key stakeholders in the coffee chain, they should be freed from the vulnerable position they find themselves in today.

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