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Aroma of Coffee Profits Lures Vietnam Farmers

Ben Bland
Wednesday, 20 Apr 2011 | 7:30 PM ET

Like many farmers in Son La, a remote mountainous province in north-west Vietnam, Lo Van Dinh never drinks coffee. But growing the beans has changed his life.

AP

He still lives in one of the traditional one-room wooden houses favored by the Black Tai, an ethnic group from this region. However, by switching from sugar cane to arabica coffee four years ago, he has more than doubled his income, allowing him to spruce up his home — buying beds, a satellite TV dish and a motorcycle for the first time.

“Sugar cane requires a lot of effort but the profits are very small,” says Mr Dinh, who earned about 170 million Vietnam dong ($8,200) last year from less than one hectare of arabica. “This year I will dare to invest more and grow more arabica as I have seen the benefits despite my initial worries.”

Mr Dinh is one of a small but growing number of Vietnamese farmers producing the high quality coffee beans beloved of espresso connoisseurs.

Since the early 1990s, Vietnam has become the world’s second-biggest coffee producer after Brazil. But most of the 1.2 million tons of coffee Vietnam produced last year — earning the country $1.8 billion — were low-grade robusta beans that ended up in cheap, generic instant coffee in the U.S., Europe, Japan and China.

While Vietnam is the world’s biggest exporter of robusta, it still lags behind small growing nations such as El Salvador, Kenya and Papua New Guinea in arabica production.

With stronger-flavored arabica beans selling for more than double the price of robusta, Vietnamese officials want farmers to grow more of the former.

Arabica beans are now approaching a 34-year high of nearly $3 a pound because of supply disruptions in Colombia, the world’s top arabica producer. Plentiful robusta supplies mean the price difference between the two beans is a near record. This is part of a wider push to increase the quality and value of agricultural exports as the government strives to put the economy on a stable growth path.

However, switching to arabica is not straightforward: the high quality beans require a particular kind of soil and weather to develop. They are also more vulnerable to bad weather and diseases, something other countries that have attempted a switch, including Indonesia and Ivory Coast, learnt the hard way.

But Vietnam producers are still optimistic. “After the ups and downs of the last decade, the Vietnamese coffee industry has learnt vital lessons and started to grow coffee with more focus on stable development,” says Nguyen Van An, chairman of Thai Hoa, Vietnam’s biggest arabica exporter. “As part of that shift we want to grow more arabica.”

The government and industry want to expand the area under arabica cultivation from 40,000 ha, about 6 percent of the coffee production area, to 100,000 ha over the next five years, says Mr An.

“The Vietnamese have been getting better at working out where to grow arabica and they have good potential if they want to do it,” says Jens Nielsen, director of Oriental Coffee & Commodities, a trading house based in Singapore.

In Vietnam, arabica grows best at higher altitudes, such as in Son La, where Thai Hoa is leading the drive to increase production. Mr An admits that Vietnam’s arabica potential is limited by a lack of land at high altitudes and difficulties securing financing.

Luong Van Tu, chairman of the Vietnamese coffee industry body, says the agriculture ministry is drafting a policy that will allow foreign coffee groups to invest in plantations, rather than just buying beans from middlemen.

Analysts remain skeptical.

“There’s a lot of rhetoric about quality, but the reality is going to be quantity for a very long time,” says Sarah Grant, an anthropologist who is conducting academic research on Vietnam’s main coffee growing region, the Central Highlands.

“There’s still a huge market for really low grade coffee and Vietnam is the best producer of bad coffee in the world.”

A move to arabica would involve a barren period when smallholders would not be producing any coffee and there is little incentive for them to take such a big risk. Some have already switched back to Robusta because the latter is easier to grow, she adds.

Additional reporting by Javier Blas

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