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Coffee Supply ChainIN VIETNAM

COFFEE SUPPLY CHAIN IN VIETNAM LEARN. SHARE. NETWORK

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RESEARCH INDEXI. Overview

II. Production

III. Consumption

IV. Trade

V. Price

p. 11 1. Exportp. 14 2. Importp. 16 1. Export pricep. 18 2. Domestic price

VI. Stock

VII.Government policies

VIII. Industry activities

References

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I. OVERVIEWCoffee registered current off-trade value growth of 14% and off-trade volume growth of 10% in 2013. This growth was supported by higher demand for coffee from the younger generations. Furthermore, the increase in unit prices and efforts of manufacturers /distributors in stimulating the demand were other factors supporting the growth of this category. In particular, they introduced new product developments and ran promotional activities such as discounts. For example, in April 2013, Trung Nguyen introduced a new product called G7 Gu Manh X2. This product was developed from its popular product line G7, targeting men and was advertised as it could enhance alertness and concentration as well as increase creativity and productivity.

Nestlé remained the leader in coffee in 2013, with 33% of value sales, largely due to the dominance of its brand Nescafé. A diversified product portfolio, acceptable product quality, reasonable prices and a nation-wide distribution network were the main reasons for its success in the country. Furthermore, new products were launched on the market in 2013 and active marketing activities, including advertising and product promotions supported sales further. In the first quarter of 2013, the company introduced a new product under the brand “Nescafé Café Viet”. This new product was a coffee in concentrated liquid form that only required ice to produce an iced coffee. In 2013, the company also opened a new coffee manufacturing facility in Vietnam. This new plant is located in the Amata Industrial Zone of Bien Hoa Dong Nai province and cost the company US$248 million. As a result, thanks to these heavy investments, the company continued to strengthen its dominant position in coffee and was the company that enjoyed the fastest value growth of 16% in 2013.

Coffee is projected to see a constant value CAGR of 6% over the forecast period, nearly one percentage point higher than the historic constant CAGR. The increasing awareness of health and wellness trends, higher disposable incomes, higher living standards and better education are the main factors fostering this trend. Furthermore, manufacturers, especially leading ones such as Nestlé and Trung Nguyen are expected to invest more heavily in new product developments and marketing activities in order to continue to stimulate the demand.

II. PRODUCTIONAccording to local exporters, coffee cultivated area continues to expand in the major coffee growing areas in Vietnam. Based on estimates from MARD, Provincial Departments of Agriculture and Rural Development, and local coffee industry, Vietnam’s coffee area is estimated at 633,295 hectare (ha) in 2013, about a 3 percent rise from 616,407 ha in 2012, and about an 11 percent increase over 2011 (571,000 ha).

Dak Lak, Lam Dong, and Dak Nong Provinces continue to expand coffee area (mainly Robusta coffee), and account for 76 percent of total growing area in Vietnam. Arabica cultivation was estimated at about 42,000 ha, accounting for about 6.6 percent of total coffee area.

35,000

30,000

25,000

20,000

15,000

10,000

5,000

2001/2002

2002/2003

2003/2004

2004/2005

2005/2006

2006/2007

2007/2008

2008/2009

2009/2010

2010/2011

2011/2012

2012/2013

2013/2014(F)

Arabica RobustaU

nit:

Thou

sand

60

kg b

ags

Sources: USDA, Local exporters, Vietnam coffee semi-annual report 2013 estimatesVIETNAM’S COFFEE PRODUCTION



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In general, weather has been quite favorable for the development of coffee trees for the 2013 coffee crop. According to local traders, favorable weather more than offset the reported productivity drop with lower yielding, aging coffee trees (making up a large portion of total area) and the small areas that remained drought affected. According to MARD, there are about 140,000-160,000 ha of ageing trees needing to be replanted over the next 5-10 years, and about 200,000 ha by 2020.

MY 2011/12

MY 2012/13 MY 2013/14Old New Old New

Production (green bean, 000 tons)

1560 1497 1590 1374 1740

Average coffee yield(tons/ha)

2.44 2.32 2.47 2.1 2.63

Source: Vietnam coffee semi-annual report 2013 estimatesCoffee ProduCtion by Marketing year (oCt.-SePt.)

In Vietnam coffee semi-annual report 2013, post revises its initial forecast of coffee production in MY 2013/14 up to 29 million bags or 1.74 MMT, about 9 percent increase over the previous crop year. Post also revises its forecast for Arabica coffee production in MY2013/14 to about 70 TMT of green coffee, or 1,167 60-kg bags as Arabica area continues to expand significantly in Lam Dong, and as additional output became available from newly productive, and replanted coffee areas.

Post also revises its production estimate for MY 2012/13 upwards to 26.5 million bags or 1.59 MMT of green coffee beans. This is attributed to strong exports during the MY and reported large MY ending stocks being held by farmers, dealers, and exporters.

Province Coffee area in 2012

Coffee area in 2013

Target by 2020

Daklak 202,022 207,152 170,000

Lam Dong 145,735 151,565 135,000

Dak Nong 116,350 122,278 69,000

Gia Lai 77,627 77,627 73,000

Dong Nai 20,000 20,000 13,000

Binh Phuoc 14,938 14,938 8,000

Kontum 12,158 12,158 12,500

Quang Tri 5,050 5,050 5,000

Son La 6,371 6,371 5,000

Ba Ria Vung Tau 7,071 7,071 5,000

Dien Bien 3,385 3,385 4,500

Other 5,700 5,700 n/a

Total 616,407 633,295 500,000

Sources: MARD, Provincial DARD, Local exportersVIETNAM’S COFFEE AREAS bY PROVINCE



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200018001600140012001000800600400

700

650

600

550

500

4502004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Lam Dong25%

Dak Nong20%

Gia Lai 13%

Dong Nai 3%

Binh Phuong 2%

Kontum 2%

Quang Tri 1%Daklak 34%%

MARD, Provincial Departments of Agriculture and Rural Development (DARD), Local exporters

COFFEE PlANTATION AREA IN VIETNAM IN 2013

Sources: General Statistics Office (GSO), MARD, Post EstimatesVietnaM’S Coffee growing area and ProduCtion (Calendar year)

Thou

sand

met

ric to

ns

Thousand haCoffee Production (thousand metric tons)Coffee plantation area (thounsand ha)

III. CONSUMPTION

Vietnamese domestic consumption continues to grow. Café culture and retail coffee shops continue to spread in Vietnam with presence of many giant players such as Starbucks, Trung Nguyen, Highlands, Vinacafe, Gloria Jeans, and The Coffee Bean. Vicofa and its members recently organized a coffee tasting event for two months in Hanoi from August through October 2013 in Vicofa’s Headquarters, in order to promote a variety of coffee brands from different local coffee manufacturers and to increase local coffee consumption. Participating in this coffee tasting event, were seven local coffee producers.The domestic consumption is estimated to be at 1.83 million bags the MY 2012/13, about 7 percent of total annual coffee domestic production, and 2 million bags, in MY 2013/14, up 10 percent from the previous MY. The expanding coffee retail sector will contribute to stronger coffee consumption growth next MY, and into the foreseeable future.

Africa 3,282Ethiopia 1,833

asia & the Pacific 8,351India 1,573Indonesia 3,333Vietnam 1,583

latin America 26,646Brazil 18,390Mexico 2,200Venezuela 1,650

Source: ICO and “The coffee guide” estimatesDOMESTIC CONSUMPTION IN COFFEE PRODUCINg COUNTRIES IN 2010



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THE COFFEE VALUE CHAIN

Bar

Reta

ilFa

ctor

yIm

port

age

nts

Expo

rter

Fact

ory

Farm

CO

NSU

MIN

G C

OU

NTR

YPR

OD

UC

ING

CO

UN

TRY

Fresh Cherry

Dry processDry Cherry

Wet processWashed parchment

Unwashed greenbean

Unwashed greenbean

Beans forexport

Freight andinsurance

Beans clearedfor market

Dealer

Processingcompany Coffee house

Instant coffee

Shop retail forhome market

Commercial andcatering

Coffee bar

Roasted groundcoffee

Export Duty

Import duty

IV. TRADE

1. Export:According to data from MARD and Global Trade Atlas (GTA), Vietnam exported 23.6 million bags, or 1.4 MMT of green coffee in MY 2012/13, a drop of about 1.6 percent from the previous MY.

Month 2010/2011 2011/2012 2012/2013% Change2012/12 over 2011/12

Volume Thousand Metric Tons %October 67 58 118 103November 77 79 112 42December 93 124 125 1January 129 121 163 35February 84 168 131 -22March 137 161 141 -12April 145 132 132 0May 104 160 118 -26June 81 121 101 -17July 78 115 110 -4August 81 106 92 -13September 53 91 71 -23Total 1,129 1,436 1,414 -1.6

Sources: MARD, GTAVietnaM’S green Coffee bean exPortS, My 2010/11 – My 2012/13



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The export pace through the first 4 months of MY 2012/13, highlighted in the table above, was very strong. However, beginning in February, Vietnam’s coffee bean exports dropped significantly, relative to the previous MY, due to falling export prices in global markets.

Additionally, local exporters continue to struggle with the GOV’s value added tax (VAT) refund policy which is creating a delay in transferring VAT refunds to local coffee exporters and has also reportedly affected exports during MY 2012/13. At the end of the MY, dealers and exporters reported withholding exports from the market in anticipation of higher prices.

Accordingly, ending stocks for MY2012/13 increased considerably. In 2012/2013, Vietnam exported coffee beans to 70 countries worldwide. The top eighteen markets accounted for about 92 percent of total green coffee bean exports. The United States is the largest importer of Vietnamese green coffee beans, and Germany is second.

USA

Germany

SpainIta

ly

BelgiumJa

pan

AlgeriaRussi

a

Ecuador

France

Mexico UK

China

South KoreaIndia

Philippines

Malaysia

Netherlands

305

255

205

155

105

5

Sources: MARD, GTAVIETNAM’S KEY MARKETS FOR gREEN COFFEE ExPORTS

My2010/11-My2012/13

MY 2012/2013 MY 2011/2012 MY 2010/2011

Thou

sand

met

ric to

ns

According to official data from Vietnam’s General Customs Office (GCO), in MY 2012/13, Vietnam exported about 1.43 MMT (all types of coffee products, including green bean coffee, roast and ground coffee, and in-stant coffee) valued at $3 billion. This is a drop of 11 percent in both volume and value from the previous marketing year 2011/12.

Month

2010/2011 2011/2012 2012/2013 % Change

Volume Value Volume Value Volume Value

Volume 2012/12

over 2011/12

Value

Oct. 58 98 32 73 103 230 222% 215%

Nov. 77 134 71 149 128 262 80% 76%

Dec. 164 292 157 325 163 330 3.8% 1.5%

Jan. 215 414 118 241 219 455 86% 89%

Feb. 144 303 206 428 100 219 -51% -49%

Mar. 215 487 210 440 158 354 -25% -20%

April 129 308 169 356 111 243 -34% -32%

May 98 238 205 435 117 253 -43% -42%

June 69 162 141 304 88 186 -18% -39%

July 58 135 117 256 91 194 -22% -24%

Aug. 42 95 103 230 84 179 -22% -24%

Sep. 28 64 71 160 64 136 -10% -25%

Total 1297 2370 1600 3397 1426 3041 -11% -11%

Sources: General Customs Office (GCO), General Statistics Office (GSO)VietnaM’S Coffee ProduCt exPortS (all Coffee), My 2010/11-My 2012/13

(in VoluMe of tMt and Value of Million $)



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2. Import:Vietnam continues to import small, but growing, quantities of green coffee, as well as roasted and instant coffee, from neighboring countries.

2011/2012 2012/2013

Country Volume (MT) Country Volume (MT)

U.S 190 U.S 279

Laos 3734 Laos 4651

Cote d’Ivoire 2076 Indonesia 3261

Thailand 1742 China 3075

Indonesia 1422 Cote d’Ivoire 1681

China 961 Uganda 530

Uganda 669 Brazil 295

Brazil 422 Thailand 200

Kenya 260

Others 414 Others 262

Total 11890 Total 14216

Sources: Vicofa; General Customs Office; GTAgreen Coffee iMPort trade Matrix for My2011/12-My2012/13



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V. PRICE

1. Export price:The average export price of Vietnam’s robusta coffee in MY 2012/13 was $1,919/MT (FOB HCMC), a drop of 3 percent from the previous MY ($1,984/MT), and a 10 percent decline from MY 2010/2011.

Month 2010/2011 2011/2012 2012/2013% Change

2012/12 over 2011/12

FOB HCMC price for common ungraded coffee beans (US$/MT) %

October 1625 1993 2022 1.5November 1806 1818 1849 2December 1821 1853 1827 1.4January 1910 1790 1887 5February 2093 1923 2003 4March 2281 1992 2088 5April 2328 1988 1985 0.2May 2492 2111 1994 0.6June 2350 2073 1853 -11July 2351 2103 1921 -9August 2357 2016 1870 -11September 2197 2053 1731 -16Average 2134 1984 1919 -3

Sources: Dak Lak Trade, Investment & Tourism Promotion Center (Daktip); Vicofa, Buon Ma Thuot Coffee Exchange Center (BCEC), and Local ExportersaVerage exPort PriCeS for green Coffee, My 2010/11-My 2012/13

$2,700

$2,500

$2,300

$2,100

$1,900

$1,700

$1,500

$1,300Oct. Nov. Dec. Jan. Feb. Mar. April May June July Aug. Sept

Although Vietnam has faced difficult economic times over the past two and half years, coffee growers and local exporters have done fairly well and have been relatively profitable over the past three years (export prices above $1,900/MT). However, the large estimated production in MY 2013/14 has already put downward pressure on prices, both domestically and internationally. As a result, Vietnam’s export prices have declined significantly since October 2013, and as of October 31, 2013 were $1,529/MT (FOB HCMC).

It is reported that the price fell approximately $100/MT in a one week period from October 23 – 31, 2013, due to the drop in global market prices. This rapid drop in export and domestic prices has prompted Vicofa to seek MARD to allow a stockpiling program to stabilize prices. The Minister of MARD recently petitioned the National Assembly to permit such a program. As of the publication of this report GOV had not decided to implement a stockpiling program.

Sources: Daktip, Vicofa, BCEC, and Local ExportersaVerage exPort PriCeS for green Coffee, My2010/11 – My 2012/13

Unit

pric

e : U

S$/ M

T FO

B ba

sic

MY 2010/11 MY 2011/12 MY 2012/13



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2. Domestic price:Vietnam’s average domestic coffee price for Robusta common ungraded coffee beans in MY2012/13 was VND 40,159/kg ($1.91) in Dak Lak province, and VND 39,917/kg ($1.90) in Lam Dong province, the largest coffee growing areas in Vietnam (See Table 7, Graph 7). This is a decrease of about 1 percent from the previous MY, and about a 7 percent drop from MY2010/11.

In March 2013, prices spiked in all four major growing provinces as the specter of the drought in the Central Highlands took hold. Prices reached VND 44,000-VND 45,000/kg before falling off in late March and April as rainfall increased and crop prospects improved.

Local prices kept falling from May to October in line with the decline of export prices and international prices. Average local farm gate prices in Dak Lak and Lam Dong provinces in October 2013 were quoted at VND 34,636/kg ($1.65) and VND 34,220/kg, respectively, about a 5-6 percent drop from the previous month. It is reported that prices have continued to fall in growing regions, and as of October 31, 2013, local farm gate prices were quoted at VND 30,900/kg in Dak Lak Province.

93/9494/95

95/9696/97

97/9898/99

99/0000/01

01/0202/03

03/0404/05

05/0606/07

07/0808/09

09/1010/11

11/1212/12

30002000200015001000

5000

Sources: Daktip, Vicofa, BCEC, and Local ExportersAVERAgE ExPORT PRICES FOR gREEN COFFEE FOR 20 MARKETINg YEARS

Unit

pric

e : U

S$/ M

T FO

B ba

sic

Oct

.N

ov.

Dec

.Ja

n.Fe

b.M

ar.

Apr.

May

Jun.

JuL

Aug.

Sept

.

55,000

45,000

35,000

25,000

Oct

.N

ov.

Dec

.Ja

n.Fe

b.M

ar.

Apr.

May

Jun.

JuL

Aug.

Sept

.

55,000

45,000

35,000

25,000

In Dak lak

In lam Dong

Source: Daktip, Vicofa, BCEC, and Local ExportersAVERAgE PRICES FOR COMMON RObUSTA bEANS IN DAK lAK & lAM DONg

2010/11 2011/12 2012/13



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VI. STOCKAlthough there is no official data for coffee stocks available, MY 2012/13 ending stocks were estimated by local growers and exporters at about 7-8 percent of the MY 2012/13 crop. Traders, processors, farmers, and collectors are holding the stocks. Industry reports that farmers are holding higher stocks than in previous years due to favorable, low interest rates limiting the pressure they feel from financial institutions to repay loans with the proceeds of selling their old-year crop.

VII. gOVERNMENT POlICIES1. establish coffee coordinating board:On July 30, 2013, in response to requests from MARD’s Department of Crop Production (DCP), the Institute of Policy and Strategy for Agriculture and Rural Development (IPSARD) and the Department of Personnel, the MARD Minister issued Decision 1729/QD-BNN-TCCB establishing Vietnam’s Coffee Coordinating Board (Coffee Board). The Coffee Board’s members include representatives from MARD’s Planning Department, International Cooperation Department, Department of Processing and Trade in Agriculture, Forestry, Fisheries and Salt, VICOFA, officials from two main coffee growing provinces (Dak Lak and Lam Dong), domestic and foreign enterprises, and producers.

2.approve extending export credit terms for coffee exporters:In response to MARD’s proposal to the Prime Minister, the GOV recently issued Decree 133/2013/NDCP, dated October 17, 2013, approving the extension of export credit terms for coffee enterprises from the current maximum of 12 months to the new maximum of 36 months to help ease the pressure of bad debts.

3.Issues value added tax refund for agricultural exports directive:In June 2013, the Ministry of Finance (MOF) issued Directive 7527/BTC-TCT, which informs exporters that all value added tax (VAT) refund claims for agricultural export products need to be withheld for verification. According to foreign exporters with operations in Vietnam, Directive 7527 has led to them limiting their purchases in order to avoid purchasing from dealers and middleman who are involved in VAT scams. Recently, local coffee exporters proposed that the GOV to remove the VAT for coffee entirely, as almost all coffee (95 percent) is exported.

4.Coffee stockpiling program to stabilize prices:On November 12, 2013, Vicofa received approval from MARD to submit a proposal to GOV to implement a stockpiling program of 300,000 MT or 5 million 60-kg bags of coffee beans during MY2013/14 to stabilize coffee prices, which are currently at a three year low. Government must now decide whether to implement the program.



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VIII. INDUSTRY ACTIVITIES1. Starbucks opened its first café in Vietnam:In February 2013, Starbucks, the U.S. Seattle-based coffee company, opened its first café in Ho Chi Minh City, as a part of its strategy to expand across Asia, and plans to add more cafés throughout the country.

2. ngon Coffee ltd launched instant coffee processing plant in dak lak Province:On April 28, 2013, Ngon Coffee Ltd. Co., 100 percent Indian-invested company, launched the operation of instant coffee processing plant in Cu Kuin District, Dak Lak. The plant has a total annual capacity of 10 TMT of coffee products, which are mainly for export

3. Vinacafe continues its replanting program: Vinacafe has replanted about 1,400 ha old age and low yield coffee trees, of which 500ha in Dak Lak province; 500 ha in Gia Lai province; 100 ha in Kontum province; 300 ha in Dak Nong province.

4. Sustainable coffee production attracts more farmers and trading companies:Certified/verified coffee production standards for quality and sustainability, including UTZ certified, the Common Code for the Coffee Community (4C) Association, and Rainforest Alliance, continue to gain favor with farmers and traders in Vietnam. Recently, Nedcoffee, the Amsterdam-based trading group, has been strongly committed to developing a sustainable coffee sector. Additionally, Mondelēz International will join the agricultural sustainability drive in Vietnam and implement “Coffee Made Happy” – the sustainability initiative of the company.

5. Trung Nguyen introduces g7 gu Manh x2 into the local market:On April 24, 2013, Trung Nguyen Coffee Corporation launched its new instant coffee product into market, G7 Gu Manh X2. G7 is the best-selling brand name of Trung Nguyen Coffee Company in local market and has been exported to about 60 countries over the world, including the United States, ASEAN, Germany and Japan markets.

6. Vicofa and Dak lak governments continue to support sustainable coffee production:Dak Lak’s provincial government’s sustainable target is to maintain only 150,000 ha producing about 400 TMT of coffee beans, annually, by 2015. In 2013, Vicofa and the Dak Lak Province will provide about 1,650kg of coffee seeds to farmers for the replanting program.

7. Coffee Production in lam dong province:As of March 2013, about 20,000 ha of over 50,000 ha of aging and low yielding coffee area have been replanted. There is demand for about 15 million seedlings and 43 million coffee shoots in Lam Dong in the period of 2012-2015.

8. nestle Vietnam launches new instant Coffee Plant in dong nai:On July 9, 2013, the new Nescafé Tri An factory was inaugurated in the Amata Industrial Zone, Bien Hoa, Dong Nai. Nestle set up its representative office in Vietnam in 1995 and has since grown to include five plants in the country with more than 2,000 staff nationwide at total investment of over US$450 million.

SOURCES:1. Euromonitor2. United States Department of Agriculture (USDA)3. Vietnam coffee semi-annual report 2013, 20144. Vietnam Coffee Annual report on 2012, 2013, 20145. Ministry of Agriculture and Rural Development (MARD)6. Provincial Departments of Agriculture and Rural Development (DARD), 7. General Statistics Office (GSO)8. Dak Lak Trade, Investment & Tourism Promotion Center (Daktip); 9. Vietnam coffee and Cocoa Association (Vicofa)10. Buon Ma Thuot Coffee Exchange Center (BCEC)11. Passport Coffee in Vietnam by Euromonitor International12. Report of Agriculture and Rural Development Department in 2013

COFFEE SUPPLY CHAIN IN VIETNAM


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