The Bank of Agriculture and Rural Development of Viet Nam (Agribank) plans to provide about VND5 trillion (US$240 million) in loans to the domestic coffee sector.

It is hoped that the extra funds would help coffee businesses purchase raw material for coffee production and export during the 2011-12 harvest starting next month.

The announcement was made at a meeting held by Agribank in Buon Ma Thuot City, Dak Lak Province, on Tuesday, aimed at finding adequate solutions to satisfy capital demand for thirsty coffee businesses.

At the meeting, Kieu Trong Tuyen, deputy general director of Agribank, said that out of the total loans, around VND4.672 trillion (US$225 million) would be short-term, VND41 billion ($2 million) medium-term and VND265 billion ($12.7 million) aimed at reducing post harvest losses in agricultural and seafood products.

He said that his bank would supply direct loans to companies collecting, processing and selling coffee products on both domestic and international markets as well as members of the Viet Nam National Coffee Corporation.

Agribank additionally plans to apply soft lending interest rates, ranging from 17 to 18 per cent per year, to the coffee sector.

Tuyen said that the bank would co-operate with the Viet Nam Coffee and Cocoa Association (VICOFA) to solve possible obstacles in helping businesses access bank loans more easily.

According to VICOFA, the domestic coffee sector has the potential to reach significant growth this year.

Luong Van Tu, chairman of VICOFA, said that thanks to increased coffee prices and global market demand, the Vietnamese coffee sector was forecast to reach a volume of 1.2 million tonnes valued at $2.4 billion-$2.5 billion which, in turn, would help coffee growers profit.

However, the coffee industry is still faced with many challenges.

Tran Minh Thuy, general director of the Phuoc An Coffee Company, said that Vietnamese coffee prices were cheaper than that of other countries due to low quality and out-of-date technology.

In fact, most coffee growers were up against capital shortages while coffee processing companies had to contend with worn-out machinery.

Coffee producers polish coffee beans for export and mostly produce small-sized coffee powder, lowering product quality.

Ngo Minh Nam, director of the Da Lat Coffee Export and Import Company, said that too many financially incapable companies were involved in the coffee market at present, which negatively affected future harvests.

He added that bank loans at interest rates of 20 per cent per year had caused coffee businesses many difficulties, having to pay VND700 interest on every kilo of coffee.

Agreeing with Nam, VICOFA chaiman Tu said that if the price per tonne of coffee cost VND40 million ($1,900) during the 2011-12 coffee crop, businesses would need VND12 trilllion ($577 million) to purchase 300,000 tonnes of coffee beans.

Businesses would be unable to find capital without the support of commercial banks.

In the past few months, Agribank has provided loans to coffee businesses in order to help them survive the recession. In August alone, the bank disbursed around VND6.793 trillion ($327 million) to 370 companies and 69,504 coffee growers in highland provinces.

Agribank on Wednesday announced a VND15 trillion ($721 million) package aimed at food processing, seafood, coffee for export, livestock and poultry breeding with preferential interest rates ranging from 17 to 19 per cent per year.

A re-examination of coffee trading activities is considered vital in rejuvenating the industry.

More co-operation is also called for among coffee enterprises and more loans from commercial banks to enable domestic buyers to compete with foreign companies.

Coffee prices have surged in recent months, which in turn cause fierce competition among buyers.

This has placed domestic enterprises in a difficult situation as most foreign companies have set up illegal buying networks.

At a meeting of 20 leading domestic coffee companies (G20) in HCM City on Thursday, coffee businesses said the sector needed to change its trading methods by purchasing insurance at the beginning of the growing season.

Do Ha Nam, chairman of the G20, said domestic coffee traders should send their produce to the London Commodity Exchange to attract more international customers and attract much higher prices.

Luong Van Tu, chairman of the Viet Nam Coffee and Cocoa Association (VICOFA), said members had agreed to buy at least 300,000 tonnes of coffee from each harvest for three-month reserves.

This harvest, coffee businesses have registered to buy 425,000 tonnes of coffee for reserves with loans supported by Agribank and Military Bank.

At the last harvest (2010-11), Viet Nam exported 1.25 million tonnes of coffee. Of this, members of the G20 exported 700,000 tonnes or 56 per cent of the total, compared with 80 per cent of the previous harvest.

Nam said the reduction in the volume of exported coffee was caused by competition from buying agents from illegal, foreign-invested enterprises.

VNS