Europeans love their morning coffee – and Vietnam could continue to profit from this habit if domestic exporters make good use of the trade agreement with the EU.
However, the competition remains active too, increasing the pressure from markets like Brazil and Southeast Asia, in addition to the seemingly ever-lasting challenges in freight costs.
Global coffee prices are predicted to remain high in 2022, but more than 40 tons of green coffee are still in the warehouse of the Eatu Fair Agricultural Service Cooperative in Ea Tu commune in the Central Highlands province of Dak Lak. The annual coffee harvest of this cooperative is about 200 tonnes, meaning a fifth of its output is stuck.
Tran Dinh Trong, director of Eatu Fair, said that the cooperative stopped purchasing produce “because it could not sell anything.” In previous years, in addition to the output from a 60-hectare coffee plantation, Eatu Fair also purchased about 1,000 tonnes of green coffee from farmers to resell to exporters.
However, the pandemic has caused many companies to suspend exports to avoid a logistical crisis. Trinh Duc Minh, chairman of the Buon Ma Thuot Coffee Association, said that only a few businesses remain capable of “adapting and maintaining coffee purchasing activities for export.” On average, the member businesses of the association export about 200,000 tonnes of green coffee per year.
Dak Lak is one of the largest coffee localities in Vietnam and has over 209,000ha of coffee trees, of which about 190,000ha are used for business, with an expected output of 557,000 tonnes of coffee. Thus, Dak Lak requires a large number of seasonal workers to help farmers harvest coffee. However, the pandemic made it difficult to travel between localities, leading to a shortage of workers.
In addition to this, Vietnamese coffee producers and exporters also have to cope with the shortage of containers, while freight rates are constantly escalating. The BDI Index, a measure of freight rates globally, has fallen from its peak in October but is still 2.5 times higher than a year ago.
These challenges were the main factors that harmed Vietnam’s coffee exports to the EU in the crop year 2021-2022. The Ministry of Industry and Trade (MoIT) estimates that Vietnam’s coffee exports to the EU in 2021 reached around 556,000, worth over $1 billion and down 7.9 per cent in volume.
Despite the general trend, there was a silver lining. In the first 11 months of 2021, Vietnam’s coffee exports to Germany reached nearly 210,000 tonnes, worth over $377 million, up 1.9 per cent in volume and 18.2 per cent in value compared to the previous period. Germany is the largest coffee consuming market in the EU, with a growing roasting industry serving the internal and export markets.
The EU market accounts for 40 per cent of the total volume and 38 per cent of the total coffee export turnover of Vietnam. The average value of coffee exports to the EU has reached up to $1.4 billion per year in the last five years.
Vietnam’s exports to the EU mainly focus on unroasted and decaffeinated coffee, with a volume of approximately 482,000 tonnes, worth $838 million in the 11 months of 2021, down 12.8 per cent in volume and 1.2 per cent in value over the same period in 2020.
Europe is the world’s largest coffee consumption market and accounts for 47.9 per cent of the total import value worldwide. The EU’s coffee import rate in the last five years grew on average by 0.3 per cent per year, reaching an average value of $14.6 billion per year, according to statistics from the International Trade Center.
Vietnam focuses on producing and exporting robusta coffee to the EU market, but the country’s market share in total EU imports decreased from 23.69 per cent in the first nine months of 2020 to 19.04 per cent in the first nine months of 2021, according to Eurostat data.
Vietnam is competing with coffee-producing countries to sell to the EU, the largest being Brazil, while emerging Honduras, Indonesia, and India are also very active. Vietnam and Brazil both have free trade agreements (FTA) with the European Union, both benefiting from tariff rates on coffee exports.
But Brazil is taking a bigger advantage as the largest supplier, supplying two varieties of robusta and arabica – accounting for 71 per cent – to this market. Brazil’s share of coffee in total EU imports increased from 30.61 per cent in the first nine months of 2020 to 36.15 per cent in the first nine months of 2021.
Demand for processed and high-quality coffees is on the rise in Europe, and the MoIT believes that the volume of the EU’s coffee import market will remain large. Thus, Vietnam could still boost exports in 2022, if exporters make use of the EU-Vietnam FTA and increase their supply of high-quality coffee.
Nguyen Van Thanh, director of Hoa Trang Import and Export Co., Ltd., said that by the end of 2021, Hoa Trang had exported more than 45,000 tonnes of green coffee with a turnover of about $60 million, with the EU being a major market.
According to Thanh, Hoa Trang is trying to maintain stable export activities. In the last two years, large European roasters have approached the Vietnamese market, creating opportunities for businesses to expand exports. Previously, they only bought green coffee through foreign companies.
Elsewhere, Hungary and Estonia are considered to have potential, as Vietnam’s coffee exports to these markets remain low. Vietnam’s coffee exports to Hungary in the first 11 months of 2021 increased by 536.7 per cent in volume and 505.9 per cent in value, reaching approximately 1,600 tonnes, worth $7.2 million, while exports to Estonia increased by 387 per cent in volume and 316.7 per cent in value, reaching 269 tonnes, worth $563,000.