Market Reports

Vietnam’s harvest size curbed by old coffee trees

Vietnam’s coffee farmers are facing an increasingly difficult challenge when it comes to keeping up with their reputation of being the world’s most efficient growers. With over 30 per cent of the entire Vietnamese coffee park between 20 and 30 years old and only little replanting carried out in the past five years, the old trees are taking a visibly heavy toll on the 2015-16 harvest. In addition to old trees, a drought earlier in the year also caused bean size to drop significantly, and low prices for most of the past year have not encouraged growers to fertilise fields, instead they are starting to replace ageing coffee trees with pepper or other crops. “The Central Highlands provinces have in the 2015-16 crop year faced drought, which caused a severe water shortage by a reduction of 10 to 30 per cent in the rainfall compared to last year,” says Chairman of the Vietnam Coffee and Cocoa Association (Vicofa), Luong Van Tu. “The weather was unusually cold and we also saw many coffee plants infected with a ‘flu’ when flowering, which caused dropped leaves, and the area was also affected by frost.” Van Tu adds that close to 48,000 hectares of coffee alone in Dak Lak suffered from inadequate water between May and July – the period when cherries were going through the crucial bean formation stage. The drought hit the entire Central Valley region, including the provinces of Lam Dong, Gia Lai, and Dak Nong, which together with Dak Lak account for between 85 and 90 per cent of Vietnam’s annual production. It is irregular weather such as this that for the past two years has caused a significant reduction to the initial forecasts for the Vietnamese crop, and which by all accounts look set to also negatively affect the new 2015-16 harvest. However this has not affected the rosy outlook given by many multinational trading houses, which still say the new harvest from Vietnam can reach up to 30 million bags despite the adverse impact of the drought. But local exporters and producers agree with Vicofa, and say the new crop could be as low as 22 million bags, in part because of weather but much more importantly because of poor yields from old trees. “Look at these trees. There are lots of leaves but very little fruit. All these farms here will at the most be able to produce one metric tonne of green beans, and for a lot of the farmers it may even be as little as 800 kilograms,” says Ngoc Quang, who covers Dak Lak and Lam Dong for Intimex, one of Vietnam’s biggest coffee exporters. In most of the world’s producing countries, yields of 800 to 1000 kilograms would be considered good or even high from small growers with little access to training or financing for inputs such as fertiliser. But in Vietnam, where most of the past 30 years’ consistent coffee growth is based on intensive farming practices and at least three rounds of fertiliser, yields for many small farmers used to reach a minimum of four to six tonnes, and it was not unusual to meet small farmers who would be able to get as much as eight tonnes from one hectare of land. Driving over 100 kilometres through the back roads of the Buon Ma Thuot coffee lands in the Central Highlands, the sight of the once-impressive Vietnamese coffee yields is not looking good. For a country like Vietnam, which for years has been known as the world’s most efficient producer, with an average yield per hectare of cultivated land reaching as much as 38 60-kilogram bags of green coffee, this is a both sad and worrying development. In its prime, the main producing region of Dak Lak accounted for up to 40 per cent of Vietnam’s entire harvest. Today these figures are down to 30 per cent at the most. According to Vicofa, approximately half of the total area of some 200,000 hectares in Dak Lak province alone has not seen any renovation since the trees first were planted during the 1980s and 1990s. On a national level, Vicofa estimates that 30 per cent of the coffee farms are now covered with old trees and are in urgent need of replanting. “Most of the buyers and multinationals today only take visitors to the area of recently replanted coffee farms supported by companies such as Volcafe and Ecom,” says Quang, who like many Vietnamese in Buon Ma Thuot has been around and worked in coffee since the crop was first planted here and has seen these developments first hand. “But those farms with 100 per cent new coffee represent less than 10 per cent of the coffee area of Dak Lak, so this does not give a good idea of the real situation and how the old trees are affecting production today. “In Vietnam today, coffee is not necessarily a first choice for a farmer when he considers where and how to invest his money and land. We have a lot of options and there are many other products like pepper that can yield much higher economic returns for the farmers,” Quang adds. When Arabica coffee prices reached between US$2-3 per pound in 2010 and 2011, growers accounting for an estimated 30 percent of the land under coffee in Dak Lak province started replanting parts of their farms. But as international prices in the past year have dived to levels of around US$1.15 a pound, producers have swiftly changed their plans for coffee, or part of their coffee, to be replanted by other crops. “I first planted this coffee 20 years ago and when the plants were new I could easily get up to six tonnes per hectare,” says Phan Hung, a small grower with two hectares about 20 kilometres from Buon Ma Thuot. “Even up until two years ago I could still get two tonnes, but the last year prices have been very poor and fertiliser is very expensive so I am starting to plant pepper instead.” Vicofa has warned the market not to overestimate the new crop, saying the official projection for production in the 2015-16 harvest is set at 21.7 million bags due to the many problems affecting the crop. The agency also added that stocks are not as high as many in the market would like to believe because the last 2014-15 harvest ended well below forecasts too. “The 2015-16 coffee production is expected to be lower than the 2014-15 crop, and this will be the second consecutive coffee crop year with a production decline,” said Vicofa in a statement released just before the new harvest started in October. It said the 2014-15 harvest ended 20 per cent below initial estimates at just 25.5 million bags due a combination of bad weather and old trees. This would be the lowest crop since the 2010-11 harvest of 20 million bags, statistics from Vicofa, the International Coffee Organization and the US Department of Agriculture show. Many local exporters and producers agree, saying the last harvest was as low as 25 million bags, but that the shipment of carry-over stocks that added to the export volume has given the market a false impression of the real crop size. This is not unusual, industry officials and analysts agree. Since Vietnam officially became the world’s second largest coffee grower after Brazil 15 years ago, the market has engaged in speculation about Vietnam in the same way as is seen with the Brazil crop size. As the world’s largest grower, Brazil also continues to struggle with the negative impact of drought, the market will increasingly – and soon – be looking to Vietnam to fill the gap. But while Vietnam and Brazil have, for most of the past 10 years, been able to come to the market’s rescue every time production took a dive elsewhere, this year it is unlikely that any additional crop will be available. And this is happening at a time when world demand continues to expand by between 3-4 million bags per year. Small pockets of hope remain, however, that the hard-working Vietnamese coffee growers will get the crop back on track. If weather permits, new production from trees replanted in the past three to five years are expected to start reaching the market starting in the 2016-17 cycle. While climate change is expected to continue to bring on increasing challenges to growers, Vietnam’s coffee industry remains hopeful that the renovation efforts and replanting programs of old trees that have started in the last few years will make it realistic for Vietnam to increase its annual production to at least 30 million to 35 million bags in the next five to 10 years. Meanwhile, in another sign of positive developments in the coffee industry, the production of Arabica coffee in Vietnam has slowly but steadily increased, reaching between 1.1 million and 1.2 million bags in the past two years, according to the USDA This places Vietnam as the world’s 15th-largest Arabica grower, significantly ahead of countries such as Kenya and Tanzania. When Vietnam announced in the late 1990s that it was going to start to increase Arabica production, most in the market doubted that would happen at any significant scale. While the Arabica crop represents less than 5 per cent of the overall Vietnamese harvest, analysts agree that production over 1 million bags represents a volume considered attractive to traders. This development, combined with the official support from Vicofa toward replanting of old trees, is what in the coming years will put Vietnam back on track, says Intimex’s Quang. “The Arabica harvest is improving a lot. The quality has improved significantly and this is creating a lot of interest in Vietnam,” Quang says. “In the next few years when we will start to get the new coffee from the farms that have been replanted, the national production should get back to at least 28 to 30 million bags.” GCR

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