Sector searches for a rich blend

Local firms have seen a dwindling market share since foreign-invested enterprises (FIEs) are trying to buy materials directly from farmers. What will agricultural authorities do to boost local firms’ competitiveness?

A Vietnam Coffee-Cocoa Association report shows that 13 FIEs are operating agents and branch offices purchasing 377,000 tonnes of coffee in Vietnam in 2011’s first half, making up 30 per cent of total production. We reviewed regulations on international economic integration and Vietnam’s undertakings relative to FIEs’ purchasing rights. In fact, these FIEs bought coffee via local firms, therefore they did not abuse Vietnamese law.

It would be unfair to say FIEs grabbed more competitive advantages then local firms in accessing low-cost credit. I know some FIEs took dollar-denominated loans at around 8-9 per cent interest rates. They then converted the loans into dong to buy coffee materials. After finalising export deals, they procured dollars to repay banks. Meanwhile, quite a few local firms with dollars from exports sold the greenbacks in the unofficial market but not to banks. So, we should take an unbiased look on the issue. Local firms need to mature as they seem to be heavily reliant on state support.

A great many of coffee exporters suffered losses. Should the coffee sector tighten regulations to cut down export numbers to make the market healthier as with the rice sector?

That would be a right step in the right direction which was applauded by the Ministry of Industry and Trade (MoIT), the Ministry of Agriculture and Rural Development (MARD) and the Vietnam Coffee-Cocoa Association. Doing this would help heighten Vietnam’s global coffee brand value.

Vietnam is a world leading exporter of coffee which every year brings the country $2-3 billion in export revenue. Paradoxically, nearly 70 per cent of businesses out of 160 coffee exporters have underperformed. Restructuring coffee exporter network would be smart move.

The coffee 2011-2012 season is approaching. What supportive steps have relevant management agencies taken to help businesses tackle capital shortages?

The estimated coffee output in the upcoming coffee season will be around one million tonnes with 70 per cent of this procured by local firms. Firms will need to source approximately VND16 trillion ($773 million) to procure material for export in this coffee season.

The Vietnam Coffee-Cocoa Association has worked with MoIT, MARD, the State Bank and commercial banks to discuss on credit sources for material purchases. Local banks were supportive of the commitment. Agribank alone said it had VND5 trillion ($241.5 million) cash to lend coffee firms.

One big issue is whether coffee firms are eligible to borrow since a  slew of firms incurred losses and could not repay debts in the past two years.