World Coffee Market Forecast in the Coming Years

Production in the form of farms accounts for a negligible proportion. Due to the form of production organization in the form of scattered, small and relatively independent households, the investment rate/ton of product of each household in particular and the entire coffee industry in general increases because each household has to buy its own pumps, means of transport, milling machines, etc., invest in building drying yards, warehouses, etc., but the efficiency of use is low because it is only used for a short period of time in the year, thereby increasing production costs, leading to low economic efficiency. Access to scientific and technological advances as well as other services such as credit loans, banks, etc. is also very difficult, due to small, fragmented areas and limited financial capacity. Resources are being exhausted, especially groundwater and forest resources. Also due to the form of production organization, small scale, scattered and the relative independence of households, the products are not only of low quality but also unstable due to different understanding conditions and investment levels in harvesting and processing, thereby seriously affecting the quality of coffee in the whole industry. Building a brand and certifying the quality of goods is difficult to implement.

Besides, many coffee areas have entered the aging stage and are not developed according to planning.

According to statistics from the Vietnam Coffee - Cocoa Association, out of the total of over 500,000 hectares of coffee in the country today, only about 274,000 hectares, accounting for 54.8%, were planted after 1993, aged 10 - 15 years. This is the area of coffee that is in its prime and has the highest yield. In the coming years, Vietnam's coffee output will depend mainly on this area. Meanwhile, the remaining coffee area of 139,600 hectares, accounting for 27.9%, was planted during the period from 1988 - 1993, now aged 15 - 20 years, most of this area has begun to enter the aging stage and the ability to yield is gradually decreasing. The area of coffee planted from

Before 1988, up to now, there have been over 20 years of age, with up to 86,400 hectares, accounting for 17.3%. These areas are old and no longer exploited effectively and need to be replaced.

Thus, it can be seen that in the next 5-10 years, over 50% of Vietnam's coffee area will have passed its effective business period and will have to be cut down to restore or replant. Along with the increase in the area of old coffee trees, the total coffee output of the country will decrease, no longer able to maintain the current figure of about 1 million tons.

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Although in recent years, due to high prices, the area of newly planted coffee has increased significantly, some years up to nearly 30,000 hectares. However, most of these new planted areas are not in the planning area, mainly planted in unsuitable places such as shallow soil, steep slopes, places lacking irrigation water, etc. and many of them are forest land. Therefore, although the area of newly planted areas has increased, because they are planted in unsuitable areas, it will be difficult to achieve high economic efficiency due to low productivity and high production costs. This newly planted area is not only not enough to compensate for the lack of output of old coffee areas that must be liquidated, but also directly threatens the sustainability of the remaining coffee areas due to environmental destruction, especially irrigation water sources.

Along with the unplanned expansion of acreage, the Vietnamese coffee industry in recent years, especially since 1990, due to many years of high coffee prices, coffee growers have removed shade trees, increased chemical fertilizers, irrigation water, etc., with the aim of achieving maximum productivity. These highly intensive farming measures have not only caused coffee trees to quickly become exhausted and age prematurely, but also seriously polluted the soil environment, giving rise to many types of pests and diseases, especially fungi and root-damaging nematodes. In fact, in recent years, tens of thousands of hectares of coffee have been affected by diseases that are unable to recover.

must be liquidated and many old coffee areas after liquidation also cannot be replanted with coffee.

(*) Labor shortage, farmers' limited knowledge of market economy, production costs are increasing day by day

The process of cultivating, caring for and harvesting coffee trees requires a lot of labor. To carry out the steps of weeding, fertilizing, watering, pest control, etc. and harvesting in a year, on average 1 hectare of coffee requires 300 - 400 workers, of which harvesting alone accounts for over 50%. Previously, during the coffee harvest season, thousands of workers from the coastal provinces of the Central region and the Mekong Delta came to the Central Highlands to participate in coffee harvesting, but starting from the past one or two years, the number of workers from these regions coming to the Central Highlands during the coffee harvest season has decreased significantly. Due to the very strict seasonal nature, in a very short harvesting period of only about 2 months, a very large amount of labor is required, accounting for over 50% of the total labor in the year, making the labor shortage even more serious, thereby pushing up the price of a day's work. Faced with the pressure of labor shortage and high labor costs, to reduce harvesting costs, farmers tend to reduce the number of harvests to one or two times, leading to a decrease in coffee quality due to harvesting unripe fruit and lack of drying conditions.

The industrialization process not only fails to attract labor from other regions, but also a part of the young, healthy labor force from coffee growing regions to cities and industrial zones, causing a serious labor shortage in the coffee industry. Thus, it can be foreseen that in the coming years, the labor shortage will be a heavy pressure for coffee growers and labor costs will increasingly account for a large proportion of production costs. The competitive advantage of cheap labor prices in the Vietnamese coffee industry compared to other countries will no longer exist.

Along with the shortage of labor and the high cost of labor, the price of fertilizers, gasoline, etc. is also on the rise, which will increase production costs and reduce profits from coffee production. In fact, in the 2007-2008 crop year, although coffee prices increased, due to the high cost of labor, fertilizers, etc., coffee growers still did not earn much profit. Along with that, the understanding of the market economy of coffee growers is still very limited. Farmers still only focus on selling what they have without knowing what the market really needs and what requirements it has. The quality of coffee produced is according to the farmers' own standards, they do not fully understand the quality requirements of the market, leading to rejection and price pressure.

(*) Domestic coffee exporting enterprises are gradually losing their advantages since joining the WTO.

Previously, domestic coffee exporting enterprises almost had a monopoly in purchasing coffee directly from households and coffee producing enterprises for export, so these enterprises did not really care about the producers, the link between producers and enterprises almost did not exist. Due to the lack of connection, when coffee prices increased, enterprises often encountered difficulties in purchasing large quantities in a short time for export. Moreover, due to limited financial resources, most of them had to borrow from banks, so they easily encountered risks when the delivery deadline came but they still had not purchased enough quantity. On the contrary, when coffee prices fell, producers encountered many difficulties because they could not sell their products, while they needed capital to invest in garden care, and had to borrow from banks, increasing production costs. The quality of coffee is determined by the producers, from the selection of varieties to the care, harvesting and processing, but because businesses still buy and sell according to the "buy what you have" model, the price difference between good and bad quality is very large.

not enough to stimulate producers to invest in improving quality. That is why, over the past decades, although the coffee industry has tried very hard to improve the quality of exported coffee, it has not achieved the desired results due to the lack of role of businesses. However, after 2 years of Vietnam joining the World Trade Organization (WTO), many foreign enterprises have gradually directly participated in purchasing coffee products from farmers and domestic coffee production enterprises. By, through organizations that issue certificates on product quality such as UTZ Certified, Rein Fruit Alliance, Organic Coffee, 4 C, etc. to establish direct links with producers. Due to technical support and guaranteed commitments to higher purchase prices, farmers are very willing to agree to participate in these organizations and from there, foreign enterprises will control the output, quality of coffee as well as the actual production costs of each region. With abundant financial resources, at some point foreign enterprises will be the ones to decide the price of coffee purchased from farmers.

CHAPTER 3

SOLUTIONS TO IMPROVE COMPETITIVENESS OF VIETNAMESE COFFEE

3.1. Forecast of the world coffee market in the coming years

3.1.1. New context affecting coffee production and export activities

Our country's economy is increasingly integrating into the world economy, so we will also have to comply with all conditions set by the world's playing field. The coffee industry is also an industry that is subject to both positive and negative impacts of the integration process. The impact of integration on the competitiveness of the Vietnamese economy in general and the Vietnamese coffee industry in particular is reflected in two aspects:

*Positive impact,

Firstly, Vietnam has gradually expanded its relations with partners, thereby expanding its market. Up to now, we have had trade relations with more than 230 countries and territories. Agricultural products and technological products in large quantities produced by our economy have a large consumer market. For coffee alone, Vietnam exports nearly 1 million tons of beans each year. Next, we have gradually perfected the institutions of the market economy, attracted capital, technology, and management experience to improve competitiveness. Coffee has gradually become an important export commodity in commodity agriculture. Integration will create a large market for Vietnamese coffee consumption, and Vietnamese coffee exporting enterprises will be able to export directly to WTO countries.

Second, the integration process forces Vietnamese enterprises to compete more with foreign enterprises, thus, pushing enterprises to innovate technology and improve coffee quality. The system of coffee processing facilities (drying yards, warehouses, etc.) and the coffee consumption network have also been strongly developed during the integration process. More importantly, through integration, the business community has made great strides in understanding the world coffee market and in trading coffee in the market. The Vietnamese coffee brand, the Trung Nguyen brand, etc. have gradually been affirmed in the world market.

Third, by becoming a member of the WTO, Vietnam will be treated more equally with other countries in trade relations. Vietnamese coffee exporting enterprises will face fewer obstacles from importing countries and have a greater voice in the organization.

*Negative impact

Besides, integration also has many negative impacts on our country's coffee industry, shown in:

Firstly, Vietnamese goods must not only compete in the world market but also compete in their “home market”. Joining the organization means we have the right to freely export to countries in the organization, but at the same time, those countries also have the right to freely export goods to our country. With a weak manufacturing industry, having to compete fiercely with foreign manufacturers who are strong in finance and technology will make it extremely difficult for Vietnamese businesses. For Vietnamese coffee businesses that have begun to focus on the domestic market, it is also time to compete with many large coffee brands in the world that have penetrated our market.

Second, joining the WTO, the pressure on the quality of goods, especially agricultural products, of the world is becoming more and more stringent while Vietnam's production technology is still very backward and cannot meet the requirements. Therefore, although it is classified in the group of competitive goods today along with cashew nuts, rice, pepper, some specialty fruits (lychees, grapefruit), seafood, garments, footwear, ... the coffee industry is also subject to many negative impacts. Vietnam's coffee exports increase in quantity every year, but due to backward processing and preservation technology, customers often use low quality as an excuse to lower prices, so the value of turnover increases disproportionately. Vietnamese coffee businesses, as well as those in other developing countries, often use less modern technology than large companies in developed countries and therefore have to use more labor for a unit of product, causing prices to increase and competitiveness to decrease.

Third, for coffee products, currently most tax policies of coffee importing countries are very disadvantageous to our country. Because Vietnam is not among the countries that are given preferential tariffs for instant coffee products when entering traditional markets such as

The US, Japan and the EU … These countries apply import tariffs of almost 0% to most coffee exporting countries in the Americas. Meanwhile, this tariff applied to Vietnam is from 2.6% to 3.1%. Furthermore, many countries use non-tariff barriers as protection measures for the domestic coffee industry such as import quotas and high consumption taxes. This is a huge obstacle for Vietnam.

In addition, another major challenge for coffee businesses is that businesses will not enjoy State protection because one of the important commitments when Vietnam joined the World Trade Organization (WTO) is that the State will not deeply intervene in business activities of businesses. In that situation, industry business associations will play a very important role, both representing and guiding small and medium enterprises to fully implement WTO commitments.

3.1.2. World coffee market forecast to 2015

Global coffee consumption is forecast to increase by 2-2.5% between now and 2015, from around 125 million bags in 2008 to 130.73 million bags in 2010 and could reach 140 million bags in 2015.

Consumption in developing countries is forecast to reach 33.54 million bags in 2010, with an average consumption growth of 2.5%/year, bringing the share of developing countries in total global coffee consumption to 30% this year. Rising incomes and population in developing countries are factors leading to high consumption growth in countries in this region. However, in terms of product structure, developing countries still focus on low-priced products.

Coffee consumption rate of developed countries is about 1.3%/year, forecasted at about 97.19 million bags in 2010. EU is still the largest coffee consuming region in the world, accounting for 1/3 of total consumption of developed countries, of which

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