VietNamNet Bridge - According to the latest report of the Ministry of Agriculture and Rural Development, the export volume of coffee in the first four months of 2015 reached 466,000 tons, worth $970 million, down 41% in volume and more than 39% in value over the same period of 2014.

Coffee exporters said that besides the fall of demand for coffee beans in the world, another reason may be the competition from China.

Chinese competes with cheap prices

Nguyen Quang Binh, Director of Chanh Tinh Anh Coffee Ltd., said: "China is among the big markets for Vietnamese coffee. Each year the country imports nearly 30,000 tons of coffee from Vietnam. However, China is developing coffee planting to meet the growing demand for this product of the domestic market and for export.”

In a recent press interview, an official with the Agriculture Department of China's Yunnan Province said the coffee area of the province had reached nearly 125,000 hectares (compared to only 40,000 ha some years ago), accounting for 85% of coffee area in China.

Binh said that the geographical conditions and soil in Yunnan Province are suitable for coffee trees.

A few years ago China was still a coffee importer. Last year they began exporting coffee beans and a small volume of instant coffee, with some big coffee roaster plants in Yunnan.

Chinese coffee is mainly exported to Germany, Japan, South Korea and the US.

Pham Ngoc Bang, Deputy Director of Dak Man Coffee Joint Venture, said China mainly grows arabica coffee with high quality and higher value than robusta coffee, which accounts for 90% of the coffee area in Vietnam.

Although China’s coffee output is not much compared to Vietnam, which is the second largest exporter in the world, the cost of production is much higher than in Vietnam as China uses organic fertilizer.

But Chinese coffee is always sold at cheaper rates. China is trying to create a coffee brand to compete with big exporting countries like Vietnam, Brazil, and Colombia.

Bang said in previous years, coffee exports to China through the border were high, sometimes from 50,000 tons to 100,000 tons per year. But in the past few years, since Yunnan’s development of its coffee area, the volume has dropped.

Vietnam needs to invest in processed coffee products

Experts said that China’s development of coffee areas is not worrying because its coffee brand has not been clearly confirmed as that of Vietnam and Brazil.

But it is a problem that Vietnam mainly exports raw coffee beans of low value while China is becoming the destination of the world’s leading coffee processors.

Chinese companies are promoting cooperation with big coffee processors in the world to develop coffee products of high value. This will increase competition for Vietnam coffee in overseas markets.

Nguyen Quang Binh, a coffee expert, said the value of a kilogram of raw coffee beans will increase by 4-5 times if it is processed into instant coffee.

If Vietnam does not build its coffee industry towards processing products with high added value, it will always be just a provider of cheap raw materials for world coffee processing groups.

Solutions for the sustainable development of Vietnam's coffee industry, according to Mr. Nguyen Huu Thang, Chair of Hanoi Trading Company (Hapro), are improving the capacity and production of instant coffee.

Right now the State should choose companies with good competitiveness and instant coffee brands to support their development and to help market their brands in the world market.

"The state should choose core brands for development assistance, such as Vinacafe, Vinacafe Bien Hoa and Trung Nguyen," Thang suggested.

Replanting old coffee gardens

Currently, Vietnam has five major production areas including: the Central Highlands, the Southeast, South Central, North Central and Northern mountainous regions.

The total coffee area of these regions by the end of 2014 was approximately 641,000 ha but the old coffee gardens (low productivity and quality) covered up to 40% of the total area.

Specifically, there were about 86,000 hectares of coffee trees over 20 years of age, accounting for 15% and about 140,000 ha of trees 15-20 years of age, accounting for 25%. In the coming years these old coffee trees should be replaced.

The Prime Minister has approved a plan to give loans to coffee growers in the Central Highlands in 2014-2020 to renovate their coffee gardens.

Coffee plan focuses on processed products

The Ministry of Agriculture and Rural Development (MARD) has unveiled a master plan (until 2020 with vision extended to 2030) to develop the coffee industry, focusing mainly on processing as the main value-adding measure.

Vo Thanh Do, deputy head of the ministry's Agro-Forestry, Seafood Processing and Salt Industry Department, said that although Viet Nam is the leading country in robusta coffee production and export, it lagged behind in making value additions to its produce.

The ministry will focus on improving the quality and hygiene of existing roasted and ground coffee products consumed domestically while increasing productivity to 50,000 tonnes (90 per cent of the designed capacity) in 2020 from the current 26,000 tonnes (50 per cent of the designed capacity).

Another priority is elevating instant coffee to become a high value-added product for export and domestic consumption, with an output of 55,000 tonnes by 2020 and 120,000 tonnes by 2030. Production of mixed coffee products like three-in-one and two-in-one sachets is expected to reach over 200,000 tonnes by 2020 and 230,000 tonnes by 2030.

Over the next 15 years, processed coffee products for export and domestic consumption are expected to generate US$1 billion, accounting for 25 per cent of the production value.

The plan is to encourage instant coffee processing in the Central Highlands, Southeast and Mekong Delta regions and develop mixed instant coffee production in the southern central coastal and northern mountainous areas along with the three above-mentioned regions.

Do said the plan accords special importance to domestic market development, particularly in the northern localities, to increase consumption rate to 25 per cent by 2030 from the below 10 per cent at present.

Trade promotion activities will be fostered to enhance coffee penetration of international markets with extra focus on Northeast Asia, Eastern Europe and ASEAN nations.

The rate of coffee beans processed on an industrial scale will be increased to 40 per cent this year, 70 per cent by 2020 and 80 per cent by 2030. The ministry has set its sights on yearly revenues of $3.8 million to $4.2 billion from coffee exports by 2020 and $4.5 billion by 2030.