VietNamNet Bridge – One day in March, an SMS woke coffee grower Nguyen Van Phuc at 3am, telling him the London coffee price had just risen by 15 per cent. As soon as trading started in his commune the next morning, Phuc sold 30 tonnes of coffee at VND40.7 million per tonne, minutes before the price fell to VND39.8 million.

The SMS service, which keeps farmers in the Central Highlands province of Dak Lak informed of the fluctuation in London and New York coffee prices, earned his co-operative in the remote Ea Kiet Commune, Cu M'Gar District, an extra VND30 million (US$1,500).

Having his new business cards printed for the first time this month, Phuc is leading 56 households, forming part of the Ea Kiet agricultural co-operative, in mastering the sale of Robusta coffee at a premium $500 per tonne higher than most other producers in Viet Nam. The farmers have become the first in the Central Highlands - the country's main coffee-producing region - to have built their own Fairtrade accredited processing mill handling semi-washed Robusta.

Phuc currently chairs the co-operative, established in 2008, growing coffee on 100 hectares in the province.

Knowing labelled coffee would gain higher prices, one of his first moves was to ensure international recognition via the 4C mark in 2008 and the Fairtrade stamp in 2009. At the time of certification, 1 tonne of Robusta could make them an additional $220 on top of the standard $1,100 price.

However, during the first crop, the co-operative could sell only 5 per cent of its registered volume, the figure rising to 10.5 per cent in the second year.

The low quality of coffee produced by traditional harvesting methods was found to hold farmers back in that both ripe and unripe beans were mixed together. Drying beans in the sun added to the deteriorated state of coffee products.

While the Ea Kiet co-operative struggled to improve quality, its major buyer, Dakman Coffee, approached them with an innovative idea. Its managing Director Jonathan Clark had only just returned from India where he witnessed first-hand accounts of farmers enjoying high premiums for their high-grade Fairtrade Robusta. He suggested the co-operative build a coffee washing facility capable of processing Robusta at a less defective rate.

"Fairtrade coffee buyers expect higher grade along with sustainability. Certificates mean little without fine quality," Clark says.
It was a bold proposal because it would be the first such facility in the country owned by farmers. However, the risks involved were so high that no bank would agree to offer loans to kick start the initiative.

The Viet Nam Challenge Fund (VCF), run by the British Department for International Development and the Asian Development Bank (ADB), on the look out for innovate but challenging projects with potential social impacts around the country, eventually granted the project its support.

The VCF provided $160,000, or 49 per cent of the capital needed, towards the facility, under the condition that the remaining funds come from farmers themselves. Each producer contributed from VND5 million to VND80 million while Dakman provided temporary loans that farmers could pay back in coffee.

Buddhika Samarasinghe, a VCF representative, explained that this type of financing mechanism would ensure the necessary commitment and persistence needed for success.

"My people had every right to be sceptical about the project because there was no precedent for them to see it would actually work, nonetheless we stuck to the plan," Phuc says.

The co-operative used its initial investment to build a semi-washed line that could process 5 tonnes of coffee beans per hour and a water waste treatment facility.

The mill, completed in December 2010, went on to process about half of the following Robusta crop, redressing the shortcomings of traditional methods in selecting only fresh beans for washing and shortening the drying period to only 38 hours.

In becoming more widely known, the co-operative can now sell its produce under the Fairtrade label at a premium of 440$ per tonne, plus an additional $88 for semi-washed coffee.

On average, annual incomes rose to VND20 million ($950) per producer, with the total Fairtrade premium of $175,000 placed in the co-operative's own Development Fund.

"The success of the project has surpassed our imaginations," marvels Phuc as he takes us around the still new facility surrounded by the greenery of coffee trees.

Looking forward, Clark, whose company is part of the ED&F Man Group - one of the top four coffee suppliers in the world representing 10 per cent of global coffee exports - says the prospects of the new segment of Fairtrade Robusta are quite promising, adding that current demand is mainly coming from Western Europe.

"We note that demand follows supply, and we believe that step by step we can grow this new market from which we can get big profits as long as we guarantee quality," he says.

The success of this business model may prove a good example to thousands of Robusta growers in the Central Highlands striving to add value to the coffee they grow.

Yet to scale up the model, there are many challenges ahead. Trinh Tien Bo, from the provincial Department of Agriculture and Rural Development, says obtaining capital to open more such washing facilities remains a problem.

"Accessing bank loans is difficult. High interest rates are also causing discouragement amongst farmers," he adds.

In agreement, scientist Nguyen Van Thuong, from the Central Highland Agro-forestry Science and Technology Institute, says capital will not only have to cover construction of the mill itself, but also a waste treatment facility.

"In the long run, waste treatment will account for a remarkable expense. I know some enterprises that have halted development of washing facilities due to insufficient funds for waste treatment," he adds.

Thuong points out that teaching farmers to operate and maintain mechanical facilities is another concern that needs addressing.
Nonetheless, Bo believes that as long as profits remain at least 10 per cent higher than before, farmers would find it worth their while.

"We need solid evidence to convince producers that they would profit from the model rather than from price fluctuations," he emphasises.

Phuc says the Ea Kiet co-operative managing board has received hundreds of applications from nearby farmers who wish to join its operations.

The co-operative leader has many plans for utilising the Development Fund. He wants to expand waste treatment at the semi-washed facility, pave the bumpy main road for better transportation and buy the co-operative a new truck.

ADB officier Dao Viet Dung says: "We support this model because it can group the farmers together so they can adopt more professional production process."

"This is the first step to improve Vietnamese coffee quality and move it up in the global market's value chain".

VietNamNet/Viet Nam News