Foreign coffee firms stir the pot

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According to the Vietnam Coffee Cocoa Association (Vicofa), in the last coffee season less than 10 foreign-invested enterprises (FIEs) held around a half of Vietnam’s total coffee production output with the remainder being on the hand of 140 local firms. Vicofa assumed that FIEs succeeded in establishing an extensive local agent network by breaking existing state regulations.

The Ministry of Industry and Trade (MoIT) has urged relevant state management bodies to check FIEs’ material procurement and export businesses.

The MoIT was also reportedly engaged in compiling a draft circular guiding FIEs’ commodities trading in Vietnam which regulates that FIEs are not eligible to establish local agents to purchase products directly from farmers, but they can buy directly from legitimate local traders.

Vicofa chairman Luong Van Tu said the association expected to see stronger action to put an end to FIEs illegally setting up local agent networks in the country.

FIEs said current state regulations have no impacts on their performances since the coffee they bought directly from farmers was minimal.

“The coffee volume our firm bought directly from farmers is less than 1 per cent of the total. We even do not want to do so as it was extremely hard to get value added tax refund,” said director of Olam Company Limited’s Dak Lak branch office Le Tran Anh Dung.

Vicofa former chairman Doan Trieu Nhan said most of local coffee volume was held by coffee agents which often advance capital to help farmers re-invest in coffee fields. At harvest season, farmers have to sell almost their total coffee to these agents.

FIEs usually buy coffee from these agents but not directly from farmers, according to Nhan.

In respect to whether FIEs should be allowed to buy agricultural produce directly from farmers, some industry insiders argued that businesses, the state and local farmers had, for years, injected a big sum into developing coffee areas, so that allowing FIEs to buy products directly from farmers would be irrational and hurt local firms.

To enhance competitive advantages, local firms needed to join hands in establishing strong distribution network and expanding material growing areas, according to industry experts.

Local coffee firms said a dearth of capital, difficult access to loans and high lending rates were key reasons why they stood behind FIEs in material procurement.

In this context, the Ministry of Agriculture and Rural Development is submitting to the government a draft decision on policies and mechanism to support coffee consumption.