Corralling coffee production towards higher sustainability

Many coffee growers, particularly in the Central Highlands, are embracing the public-private partnership model, photo Le Toan

Tran Duc Truong grows coffee and pepper in Ea Ktur commune in the Central Highlands province of Dak Lak, and has become renowned for applying the sustainable coffee farming techniques of the NESCAFÉ Plan programme, aiming to save 40 per cent of irrigation water and reducing the use of chemical fertilisers and pesticides by 20 per cent.

Since he started participating in the plan, he and his wife increased their income by 30-40 per cent with the same hectare of land. However, his story also shows the decline of traditional farming practices as consumers become increasingly aware of how food is made.

“Coffee is more profitable than other crops,” Truong explained. Even as he is intercropping coffee with pepper on the same plot of land, Truong’s family is generating an income of VND200 million ($8,700) per year, with him and his wife being the only ones to work the field.

Truong’s family is not the only one. According to the Ministry of Agriculture and Rural Development, the public-private partnership (PPP) model is the most commonly found within Vietnam’s agriculture, especially in the Central Highlands provinces.

Pham Phu Ngoc, chief representative of Nestlé Vietnam office in the Central Highlands, explained that the NESCAFÉ Plan was created to provide high-quality seeds and farming techniques to local farmers.

Up to now, the programme has trained more than 260,000 farmers, and he noticed that “the number of farmers involved in the project has skyrocketed over the past 10 years as local agricultural organisations have encouraged them to participate in this programme.”

Coffee is life

In Dak Lak’s Cu Kuin commune, Yphai Eban’s life is all about coffee trees. Upon joining the NESCAFÉ Plan, he wanted to encourage others like him to grow coffee, as many people in the area are returning to agriculture.

Since the programme, he uses less pesticide and water, while trying to fertilise properly. “After my initial success, I wanted to show everyone how I was farming. I love growing coffee. It is my family’s life,” Eban said.

The Central Highlands region has long been known as the coffee capital of Vietnam, and nowadays the area is home to PPP projects worth billions of US dollars. With the apparent demand for flexible cooperation between small producers and commercial traders, sustainable coffee farming will likely gather speed with or without the support from local authorities.

These flexible arrangements are aimed at improving access to resources and input materials for local production and public services.

A study on these associations and coffee farmers in Dak Lak province by Tay Nguyen University showed that the average coffee yield of affiliated households amounts to 2,874kg per hectare, 16 per cent higher than the regional average.

In the group of linked households, coffee yield reached 2,667kg per hectare, which is higher than the average yield of the whole region but lower than those of other linked models. This is due to the fact that the vast majority of coffee areas are aging, with many acres originating from the 1980s and 1990s that nowadays yield low outputs.

Such associations can only be successful when farmers have a high need for co-production with quality products and reach a consensus in benefit and risk sharing. The NESCAFÉ Plan was designed with simple mechanisms to elevate coffee farming practices and herd the sector towards sustainability without shackling participants with obtrusive sales arrangements. The programme allows farmers to freely sell their harvest to the highest bidder.

In Ea Ktur, although benefiting from the support of the NESCAFÉ Plan, households do not all sell goods to Nestlé agents. By not using the same fertilisers or pesticides, the quality of coffee can vary, even if produced in the same area.

Like many others who have been trained in the programme, Nguyen Van Thanh from Ea Ktur received support to get the 4C certification, the Common Code for the Coffee Community, and received seedlings from Nestlé for an area of 1ha.

However, after harvest, he often sells the green coffee beans to other dealers and found that this helped him “make an extra VND2,000-3,000 (8-13 US cents) per kilogramme of coffee”, as “Nestlé does not require farmers to only sell to them.”

Traders reduce prices and refuse to buy coffee from previous crops, even with 4C-certified farmers. Falling prices since the 2015-2016 crop year led to roasters like Nestlé and Dutch beverage giant Jacobs Douwe Egberts controlling most of the certified coffee in the market, thus reducing the amount of certified coffee, including those with the 4C certification. As a consequence, large buyers such as Anh Minh Co., Ltd., Armajaro Co., Ltd., and Hoang Phuong Co., Ltd. – renowned for its popular Trung Nguyen brand – all strongly decreased their purchases of certified coffee from associated households.

Economic links between farming households and agricultural enterprises in the Central Highlands are expressed through the four principles of scope of association, organisational structure, binding rules, and implementation governance. The binding rules in this framework are in the terms of the associative contract, which stipulates responsibilities and interests between both as the basis for effectively and sustainably implementing the cooperation. These rules refer to schedules, quantities, quality, pricing, delivery terms, and payment methods, as well as risk handling and dispute solving.

However, the tight relationship between farmers and firms also bears risks for both sides. If disputes occur, provincial economic courts can support in solving conflicts, but only if both sides signed a contract.

Links under pressure

This year, the harsh impact of the global health crisis has also been pushing farmers and businesses to re-evaluate their partnerships and establish new ones, arriving on more mutually advantageous terms.

Firstly, the state is offering incentives on partnerships between agricultural producers and distributors.

Secondly, the rising demand for traceable and high-quality coffee products creates a driving force for the development of associative models between farmers and businesses. Lastly, such partnerships offer opportunities to apply advanced science and technology to coffee production and processing.

However, COVID-19 also presents challenges for these partnerships as global coffee prices depend heavily on the control of the pandemic. Price risks due to market volatilities are the main cause of performance failures of both farmers and businesses. Besides this, the difficulties in accessing governmental preferential policies are also a challenge for businesses in implementing associations with coffee farmers.

Assoc. Prof. Dr. Dao The Anh, deputy director at the Vietnam Academy of Agricultural Sciences, more than once mentioned the importance of professionalising farming households to cope with the multitude of risks, especially as the state management system for the agricultural sector should be improved. The Ministry of Agriculture and Rural Development (MARD) mainly manages production, and the Ministry of Industry and Trade (MoIT) manages trade. Thus, there needs to be tighter cooperation between the two ministries.

“There is no agency with a clear mandate for the agricultural market,” and said, adding that the MoIT and the MARD need enhanced competencies and a clearer demarcation of areas under their preview to be able to enhance the impact of their policies.

Anh said the state should have a policy to support small farming households to better participate in the value chain.

“At the same time, it is necessary to train farmers to scale up production and create partnerships with distributors in order to increase resilience against risks,” he added.