Summary of Competitive Advantages of Green Coffee Products

Figure 3.2 Summary of competitive advantages of green coffee products

Source: Author's description

Therefore, to create and nurture sustainable competitive advantages for green coffee products of economic organizations in Dak Lak province, it is necessary to comprehensively analyze the factors affecting competitive advantages, creating a basis for

Develop appropriate strategies and measures to enhance the advantages of green coffee.

Product competition

Competitive advantages of Dak Lak province's green coffee products are summarized.

in Diagram 3.2.

3.2 Factors affecting the competitive advantage of green coffee products

The competitive advantage of green coffee products is affected by the combined effects of

many factors, among which the fundamental factors of competitive advantage include

self condition

However, the capacity of organizations

economic organization

(household)

farmer, business

industry), micro and macro environmental quality (domestic demand conditions;

support industry

support

and investment

work; organization

industry management) and its policies

Government. The competitive advantage of green coffee products is created and maintained based on the continuous movement and development of the above fundamental factors.

3.2.1 Natural conditions

The natural conditions of the region have a great influence on the quality and efficiency of green coffee production, including the abundance and quality of land, climate,

irrigation water source... In the scope of the thesis, the author focuses on

Evaluate the impact of land factors on the efficiency of coffee bean production.

Dak Lak is the province with the largest coffee growing area in the country. The total coffee growing area of the province in 2009 was 181,960 hectares, accounting for 34%

coffee growing area of the whole country and 38% of the coffee area of the Western Region

Nguyen (Appendix 14). Coffee grown on basalt soil accounts for 91% of the total coffee cultivation area, compared to the entire Central Highlands and the whole country, this ratio is 74-75% respectively. This advantage has helped Dak Lak form and develop the largest concentrated and specialized coffee growing area in Vietnam.

The quality of coffee-producing land plays an important role in determining the productivity and efficiency of coffee production. Coffee grown on suitable and highly suitable land yields 1.3 to 1.6 times higher than that of less suitable land, while the cost is only 73 to 88% (Table 3.13). According to the results of land classification by the Institute of Agricultural Planning and Design (classifying coffee-growing land according to the level of suitability, based on 4 factors: soil type, slope, altitude and soil layer thickness), Dak Lak is the province with the highest proportion of very suitable and highly suitable land for coffee production in the Central Highlands, of which the area of very suitable land accounts for 60% of the total area of the Central Highlands (Table 3.12).

Thus, thanks to its fertile and good quality land resources, Dak Lak has become the most effective coffee growing region in Vietnam, creating a foundation to enhance its competitive advantage in the international market.

Table 3.12 Coffee growing soil quality in 2009

Very adaptable		Adapt		Less adaptable
Area area (ha)	Proportion (%)	Area area (ha)	Proportion (%)	Area area (ha)	Proportion (%)
Central Highlands	130 217	27	156 518	32	195 072	41
Dak Lak Province	78 640	43	54 844	30	48 476	27
Dak Lak compared to the West Original (%)	60		35		25

Maybe you are interested!

Source: Institute of Agricultural Planning and Design

Box 3.3 Coffee production can be sustained on less suitable soils

The Food and Agriculture Organization of the United Nations (FAO) recommends that coffee should only be produced on suitable soil to ensure efficiency. Thus, the coffee area of the province

Dak Lak retains 133,844 hectares for intensive investment, accounting for 73% of the total coffee growing area of the province, while this rate of the entire Central Highlands region is 59%.

However, according to the research results of the Ministry of Agriculture and Rural Development, comparing the productivity, quality and efficiency of coffee production on less suitable areas of the Central Highlands provinces with other regions of the country, Dak Lak still has a competitive advantage if it grows coffee on this type of land. Therefore, in the perspective of planning the development of Vietnam's coffee industry until 2020 and vision to 2030, some of the province's less suitable coffee growing areas will still be maintained.

Source: Ministry of Agriculture and Rural Development [3]

Table 3.13 Robusta coffee production efficiency according to soil quality

Unit	Very adaptable	Adapt	Less adaptable
Productivity	tons/ha	2.56	2.04	1.59
Production cost 1 hectare	1000 dong	48 814	45 939	40 550
Price of 1 ton of green coffee	1000 dong	19 068	22 519	25 503
Profit 1 hectare	1000 dong	15 186	5 061	800

Source: Ministry of Agriculture and Rural Development and author's calculations

3.2.2 Capacity of economic organizations producing and trading coffee

3.2.2.1 Capacity of coffee producing households

* Labor

On average, each coffee-producing household has 2 to 3 workers. They participate in all stages of the coffee production process, but the role of family labor is mainly to make decisions on the quantity and structure of investment; on innovation in cultivation techniques, harvesting, processing technology; the level of participation in support services and deciding on the time of product consumption. Most households have to hire additional outside labor, especially households with large production scale. In the group of households with an area of over 2 hectares/household, more than 96% of households have to hire seasonal labor and nearly 47% of households have to hire regular labor, each household hires from 1 to 2.

regular workers, Table 3.14).

Table 3.14 Labor for coffee production of farming households

Target

Unit	According to the scale of coffee area
Unit	Below 1 hectare	From 1 up to 2 hectares	Above 2 hectares
Average labor/household	labor	2.2	2.3	2.5
Average labor/ha of coffee	labor	3.3	1.9	1.0
Labor cost per household	labour	48	115	217
Labor cost per hectare of coffee	labour	73	97	84
% of households hiring seasonal workers	%	60	94	96
% of households hiring regular workers	%	0	14	47

Source: Farm household survey results March 2011

The results of a survey of farming households (Figure 3.7) show that 22% of agricultural workers are illiterate. In terms of professional qualifications, 89% of workers have not attended any training courses, while only 11% of workers have attended short-term or intermediate vocational agricultural training courses. Limited labor qualifications are a factor that hinders the ability to access knowledge sources and make production decisions.

Figure 3.7 (a and b) Labor structure of coffee producing households according to educational level and professional level

Source: Farm household survey results March 2011

* Coffee growing land of farmers

Although it is the largest coffee growing region in Vietnam, Dak Lak's coffee production is mainly distributed among small-scale farming households, averaging more than 1 ha/household and more than 1/3 of households have an area of less than 0.5 ha (Appendix 15). Meanwhile, Indonesia's coffee production is distributed among large-scale farms and households with an average area of 2 to 3 ha, more than twice that of Vietnam (Dak Lak). The fragmented and dispersed coffee production area is a fundamental factor that limits the ability to improve technology and coffee production efficiency. According to the survey results of farmers, the area size has a significant impact on the efficiency of coffee production. Households with large cultivation areas have quite good production conditions (machinery, assets, linkages in production, consumption and access to information and knowledge), thereby the production and business efficiency is more stable (Table 3.15). Thus, to improve the efficiency of coffee bean production, create a foundation to enhance competitive advantage, it is necessary to effectively carry out land accumulation and concentration, first of all through linkages to improve the capacity of coffee producers.

Table 3.15 Coffee production efficiency by area scale

Target

Unit	Under 1 hectare	1 to under 3 hectares	3 to under 5 hectares	Over 5 hectares
Productivity	kg/ha	2 273	2 681	2 923	2 955
Output value	thousand dong/ha	56 023	66 079	72 054	72 830
Total cost	thousand dong/ha	59 018	54 500	52 818	48 515
Price	thousand VND/ton	25 968	20 331	18 069	16 421
Profit	thousand dong/ha	2 995	11 579	19 235	24 314

Source: Farm household survey results March 2011

* Coffee production capital of farmers

Table 3.16 Coffee production capital of farming households

Target

Quantity

Unit

1. Average production capital

thousand dong	59 576
In which + Equity	%	66
+ Loan capital	%	34
2. Percentage of households buying materials and fertilizers on credit	% of households	37
Amount of credit purchase	thousand dong	7 722
3. Repayment period
+ In 1 month	% of households	0
+ After harvesting coffee	% of households	97
+ Anytime	% of households	3
4. Credit purchase terms
+ Pay interest by bank	% of households	51
+ Pay higher interest than banks	% of households	41
+ Pay with coffee (*)	% of households	8

Source: Farm household survey results March 2011

Note: (*) Rate is calculated based on coffee price (time of debt repayment) and fertilizer price (time of purchase, plus interest, interest rate is decided by fertilizer supplier)

The characteristics of coffee production require a large amount of investment capital compared to other types of production. On average, each household needs about 60 million VND to invest in coffee production per crop, mainly to cover expenses such as buying fertilizers, irrigation fuel (concentrated from February to June of the year) and hiring workers (concentrated from the harvest from October to December). However, the savings of households for self-sufficiency only meet 1/3 to 2/3. The remaining households borrow from banks and buy materials and fertilizers on credit. 37% of coffee-producing households have to buy fertilizers on credit from agents and stores (Table 3.16). In 2010, the average value of materials purchased on credit per household was 7.7 million VND, the repayment period was immediately after the coffee harvest (97%), of which more than 40% of households had to pay interest higher than the bank interest rate.

Due to lack of investment capital, most households sell their products at unfavorable price times, which is right after harvesting or at the beginning of the season.

time to need money

cover living expenses, even some households

still for sale

young coffee to agents to get money in advance (Chart 3.8). The contract to sell young coffee from farmers to agents in August 2010 (delivery in December 2010) had a price ranging from 26 to 27.5 thousand VND/kg, while the average selling price in December 2010 was more than 34 thousand VND/kg (28% higher).

Chart 3.8 Coffee selling time of farming households (% of households)

Source: Farm household survey results March 2011

Box 3.4 Capital difficulties of farming households

Mr. Tran Van Dung's household (33 years old in Cu M'gar district) has more than 1 hectare of coffee. In the 2010-2011 crop year, his family harvested 3.1 tons of coffee beans and sold them immediately in December 2010, earning more than 90 million VND. He paid for the hired laborers 3 million VND, paid off the bank loan of more than 30 million VND, paid for fertilizer on credit of more than 10 million VND, and the rest was used to cover family expenses before Tet. By March 2011, his family needed capital to buy fertilizer and gasoline to water the coffee for more than 10 million VND, but they could not borrow from the bank due to complicated procedures, so his family continued to go to the dealer to register to buy fertilizer on credit. He said that in previous years, due to low coffee prices (more than 20,000 VND/kg), his family had even more difficulties, sometimes after selling coffee, they paid off all the debt, and had no money left to cover family expenses...

Source: Farm household survey results March 2011

3.2.2.2 Capacity of coffee bean processing and exporting companies

Company capacity includes financial capacity, technological capacity, human resources, research and development capacity (market research, research on transfer of technical advances, investment in human resource development, etc.). The capacity of coffee processing and exporting companies is considered a central factor in creating and enhancing the competitive advantage of green coffee products. These factors are always highly appreciated by companies, from quite important to very important (Appendix 21).

Chart 3.9 Total capacity of coffee processing and exporting enterprises in Dak Lak province (points, maximum 100 points)

Source: Business survey results

In fact, the competitiveness score of coffee processing and exporting companies in Dak Lak province is only above average (from 58 to 68/100 points, Chart 3.9) compared to the general capacity of the whole industry (the whole country). However, compared to the capacity of foreign companies, it is clear to see the weaknesses of companies in the province, especially in terms of financial capacity.

Table 3.17 Financial capacity of companies (million VND)