Foreign players brew up coffee market dominance

It is time for local companies to wake up and smell the coffee

Nguyen Minh Duong, vice director of Central Highlands’ Dak Lak province-based, leading  coffee exporter Tay Nguyen Coffee Investment Export-Import Company, said Vietnam-based foreign coffee processors had used their big pockets to buy up a large volume of coffee beans from farmers.

“Shortages of coffee beans in the market have squeezed local exporters. Many of them have had to borrow capital outside banks at high lending rates to purchase foreign processors’ coffee stock at higher prices to fulfill their contracts with partners overseas,” Duong said. “But, foreign firms are waiting for more market scarcities to sell the stock and then grind local rivals.”

He said foreign processors could borrow preferential loans from foreign banks at average lending rates of 3-4 per cent, per year. Meanwhile, many local coffee exporters were cash-strapped as they could not seek bank loans.

The National Assembly Economic Committee reported that the commercial banks’ lending rates had been 22 per cent and even 25-27 per cent per year, which had been strangling local enterprises.

At present, exported coffee prices have touched a record level of over VND50 million ($2,500) per tonne averagely, up from $2,400 per tonne early this month. “Thus, local exporters’ losses are bigger than ever. This high price can benefit foreign firms only,” Duong said.

According to Vietnam Coffee and Cocoa Association (Vicofa), local exporters often inked contracts with their overseas partners before they had coffee beans. If the contracts were not fulfilled, local exporters would face punishments from foreign partners and even lose such partners. Moreover, if the situation continued, the local coffee sector might soon be controlled by foreign firms.

According to Vicofa, about 10 foreign coffee firms had established branches in some coffee-planting Central Highlands’ provinces of Dak Lak, Dak Nong, Lam Dong and Gia Lai to purchase 60 per cent of Vietnam’s coffee from farmers.

Nguyen Van Thao, a coffee farmer in Lam Dong province’s Lam Ha district, said thousands of coffee farmers in his locality had sold coffee to dealers who then resold the coffee to foreign firms from India and Singapore at higher prices.

“Farmers like us are interested in high prices only, not who buyers are,” said Thao who owns a two hectare coffee plantation.

“If local firms cannot keep themselves alive until the new coffee crop, which will take place in October, they will go bust soon,” Duong said.

Vietnam exported 913,000 tonnes of coffee beans in the 2011’s first half, with turnover of $1.93 billion, up 38.6 per cent in quantity and more than double in turnover against last year’s corresponding period.

Vietnam, home to 146 coffee exporters, is the world’s largest robusta and second largest arabica coffee exporter. Some 40 per cent of the exporters are foreign ones.