Vietnam’s Coffee Sector Faces Headwinds in Global Market

Vietnam, the world’s second-largest coffee exporter and leading producer of robusta coffee, is facing numerous challenges in its coffee industry. The country is the largest robusta coffee producer globally, with 97% of its output being robusta coffee. Despite rising domestic consumption, exports are the main income for Vietnamese coffee producers, with total coffee exports estimated at 25 million 60-kilogram bags by the end of the 2023-2024 period. However, Vietnam remains the second-largest coffee exporter for robusta coffee globally, following Brazil.

The Vietnamese coffee market faces two main challenges this year: declining output and rising prices. The increase in prices is driven by heightened demand both locally and globally, especially among Southeast Asian countries. Adverse weather conditions and supply chain disruptions contribute to the decrease in production. Vietnam’s coffee production is increasingly affected by prolonged droughts and rising temperatures, which reduce yields and affect crop quality. Climate-related stress is particularly acute in the Central Highlands, where severe droughts have scorched coffee plantations and exacerbated water scarcity for irrigation.

Global supply chain disruptions due to container shortages and port congestion have delayed shipments and increased costs, worsened by ongoing geopolitical tensions. These logistical hurdles make it difficult for Vietnamese coffee to reach international markets on time, affecting exporters’ ability to meet demand. Inefficiencies in the value chain also pose challenges, as many smallholder farmers in Vietnam still rely on traditional farming methods, leading to inconsistent quality and yields. New environmental regulations, particularly from the EU regarding pesticide residues, require adjustments in farming practices and increased costs for compliance, putting additional pressure on smallholder farmers who may struggle to adapt quickly.

Despite having over 700,000 hectares of coffee land, the country is struggling with finding suitable land to further increase production due to concerns about deforestation and the pressure to meet climate-related goals. Many coffee farmers have switched to farming durian due to rising demand in China, further reducing the area available for coffee production.

In addition, Vietnamese farmers are experiencing increased costs of production mainly due to rising prices of fertiliser and labor. Rising domestic prices for coffee partially compensate farmers for these costs, but the increased cost has made the life of exporters challenging.

Read More @ The Investor