Vietnam Opens First Coffee Exchange to Boost Exports

Dec. 11 (Bloomberg) -- Vietnam opened its first coffee exchange, giving growers in the world’s biggest producer after Brazil more control in pricing beans and helping the Southeast Asian economy to boost exports from the $2 billion industry.

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Vietnam Technological & Commercial Joint-Stock Bank, Vietnam’s seventh-biggest bank, joined with the Dak Lak People’s Committee and Thai Hoa Joint Stock Co., a trader, to open the exchange today in Buon Ma Thuot, capital of the highlands province of Dak Lak, the nation’s main coffee-growing region.

The venture may help Vietnam to cut pricing discrepancies for the crop within the country, boosting farmers’ confidence in the market and ensuring a steadier supply for exports. Prime Minister Nguyen Tan Dung is trying to boost overseas shipments to counteract the slowest economic expansion since 1999.

“The exchange is definitely good for farmers because their profit margin will increase as they don’t have to go through a middleman,” said Nguyen Tuan Ha, director of the exchange.

The price of robusta, which is used in instant coffee by Nestle SA, has lost 24 percent since the end of June. Vietnam is the world’s biggest exporter of that variety, which closed yesterday on London’s Liffe exchange at $1,887 a metric ton.

At present, Vietnam’s coffee farmers deposit crops with local middlemen, who have storage facilities and sell the beans to domestic and overseas trading companies, speculators and domestic processors. The exchange, which has its own warehouse and will trade from 9 a.m. on weekdays for two hours, will compete with the middlemen if farmers opt to truck their crops to the new venture, shunning traditional purchasers.

Market Target

“The difficulty is persuading farmers to change their habits,” Ha, the exchange director, said in an interview after today’s opening. “We have to convince them the cost of transporting the beans can be well covered by improved profit margins when selling coffee to the exchange.”

The new venture may cut trading costs and offer better prices, according to Le Van Ke, general director of An Giang Joint-Stock Co., a trading company based in Dong Nai province. “It reduces the risk of farmers defaulting,” Ke said.

About 40 percent of the 1 million tons of coffee that Vietnam sells annually to world markets is expected to trade on the exchange, according to Nguyen Duc Vinh, chief executive officer of Hanoi-based Vietnam Technological & Commercial, which is 20 percent owned by HSBC Holdings Plc.

Futures Contracts

“The exchange will start with physical contracts first and we aim to handle futures contracts in 6 to 12 months,” Vinh said by telephone yesterday. Techcombank, as the lender is known, has spent about 10 billion dong ($592,000) on equipment for the exchange, Vinh said.

“Brazil has had success with their exchange that helps farmers price their product more efficiently,” said Pamela Thornton, a portfolio manager at Armajaro (USA) Inc., which runs a coffee and cocoa fund of more than $400 million.

“Farmers may not know the final price of beans shipped to New York but they know what price to ship within their country,” Thornton said in a Dec. 9 interview. “This creates a kind of transparency and price efficiency.”

The difference between prices in local exchanges in Brazil and Vietnam, and the global benchmarks in New York and London will also help arbitrage opportunities, Thornton added.

‘Good Opportunity’

“It’s a good opportunity to maximize returns” for farmers and funds, said Robin Dand, product manager for commodity derivatives at NYSE Euronext in London. Farmers can see “what price their produce is and what they’re able to obtain in the open market rather than at the farm gates.”

Vietnam’s coffee shipments totaled 853,000 tons and were worth $1.8 billion in the first 11 months of the year, a 6.6 percent increase in value from a year earlier while the volume fell 21 percent, according to data from the General Statistics Office. Commodities account for about a third of Vietnam’s exports, and coffee is the most valuable crop after rice.

Vo Sy Gia, a 52-year-old farmer who lives 70 kilometers (44 miles) from the new exchange, said he was debating whether to switch his business away from the middlemen, and holding talks with other local growers about sharing transport costs.

“I believe we would get a better price and that it’s less risky to do business with the exchange than with a middleman,” Gia, 52 said. “But I’m not sure if the profit margins will improve enough to cover the extra costs.”

To contact the reporters on this story: Beth Thomas in Buon Ma Thuot at bthomas1@bloomberg.net; Nguyen Dieu Tu Uyen in Buon Ma Thuot at uyen1@bloomberg.net; Claire Leow in Buon Ma Thuot at cleow@bloomberg.net

Region: Indonesia, Vietnam reeling from downturn

The global economic uncertainty is having a detrimental impact on the coffee industry in Southeast Asia - particularly in Indonesia and Vietnam.

The worst affected growers are those planting Robusta coffee, who tend to be the poorest of the region's farmers. According to reports, while prices have been slumped, stockpiles have been building up - meaning that even if there is a rise in demand, prices are likely to remain low. The director of the Central Queensland University's Centre for Plant and Water Science, David Midmore, told Radio Australia's Connect Asia program, that this could be an opportunity for farmers."The price of coffee's probably gone down about 20 per cent over the last six weeks," he said."But on the other hand, it may open up some opportunities because over the last year or so, the price of other agricultural commodities such as cereals has more than doubled."

Associate head of the Purdue University Agricultural Economics Department, Gerald Shively, has studied the impact of falling coffee prices on Vietnamese smallholders.He explains though, that it is not always easy for farmers to switch."One of the fundamental problems with perennial crops is that they often go through boom and bust cycles because farmers who are responding to higher prices plant the crops," he said."But in a case of coffee, it takes two to three years for the crop to begin producing and then when the coffee prices decline, farmers are somewhat locked in to the fact that they have coffee plants in production."

Professor Shively says these farmers had been attracted by high prices in the mid-90s, which transformed rural life in parts of Vietnam.However, because of seasonal differences, in Indonesia, the poorest farmers are being shielded from some of the impact. "In Indonesia, we have so far Arabica and Robusta and the harvest seasons are inverted, so fortunately the Robusta farmers, who are the ones producing the cheaper coffee, their main crop was when the price were at the highest," said coffee exporter Olivier Tichit from IndoCafe."Fortunately for them they could sell most of their products, maybe 85, 90 per cent of their coffee at very good prices."You can find the full story at the Connect Asia website: http://www.radioaustralia.net.au/connectasia

Region: Vietnamese Coffee Makers Seek Outlets in Italy

Representatives from 11 Vietnamese leading coffee producers and exporters met with Italian businesses at a workshop in Rome on September 26 to study market demand and to seek Italian distribution partners. (Visit our gourmet select roasts HERE. Roasted specially for you)

Addressing the seminar, jointly held by the Vietnamese Embassy in Italy and the authorities of the Lazio region, President of the Vietnam Coffee Corporation (VINACAFE) Doan Dinh Thiem said that Vietnam is the second-largest coffee exporter in the world, holding a 20 per cent share of the world market with an average annual export volume of 840,000 tonnes. Vietnam also stands second, following Brazil, in exports of coffee to Italy, though he added that there is still substantial potential for further trade between the two countries.

During the past eight years Italy has imported on average 66,000 tonnes of coffee per year from Vietnam, becoming the fourth-largest importer from Vietnam, after Germany, the US and Spain.

Some of the largest coffee businesses in Italy have opened representative offices and commenced joint ventures in Vietnam. According to Vincenzo Sandalj, President of the Coffee Association of Trieste city, Vietnam has increased its market share in Italy as the taste of its coffee has met with Italian consumers requirements and palates.

He said Italy, the fifth-largest coffee importer in the world, with an annual growth rate of 6 per cent, holds still more opportunities for Vietnamese businesses.