Coffee prices are on the rise in Vietnam

Amid a supply shortfall, financial speculations and an increase in demand for Robusta beans, Vietnamese coffee prices are surging.

By Anna Affranio

Vietnam has very quickly become one of the world's leading producers of coffee. This product, massively consumed around the globe, was introduced to Vietnam as early as 1857 by some French priests during the colonial period, first in the northern provinces, and then later in the central and southern highlands. The soil and climatic conditions soon proved ideal for the cultivation of the robusta and arabica varieties, to the point that over time the country has gained a relevant position among the world's largest coffee producers (second largest exporter by volume after Brazil). This has been possible in recent decades thanks to large investments that followed the liberalization of land tenure with the Đổi Mới reforms in the mid-1980s, and World Bank/IMF policy recommendations incentivizing farmers to produce coffee for export. During this period, Vietnam specialized in producing beans of the Robusta variety, of which it is also the world's largest producer and which makes up almost all of the coffee produced in the country. 

But something is changing in the coffee market, in Vietnam and around the world. According to a recent report by the International Coffee Organization, in April prices of the Robusta species reached their highest levels in 45 years. What are the reasons for such a drastic increase in prices? The causes are mainly to be ascribed to the imbalance between supply and demand.

Currently, Robusta beans account for less than 30 percent of the world's coffee production, compared to the Arabica variety, which is much more in demand because of its softer taste and lower amount of caffeine. In contrast, the Robusta quality has a stronger, more bitter flavor and is easier to produce because, as the name suggests, it is more resistant to pests and is better adapted to different climatic and geographical conditions. These beans are usually used in espresso blends to add strength and body to the cup, but they are also widely used in instant coffees due to their convenience and consistent flavor profile. In fact, demand for the Robusta species is higher than ever, given their greater resilience to climate change than Arabica. In addition, rising transportation and fuel costs are pushing major European and U.S. companies to switch from the high-end Arabica variety, produced mainly in Central and South America, to the more affordable Robusta.The higher demand is thus inevitably driving up their price.

But back to Vietnam. Here, supply is contracting sharply due to a reduction in coffee-growing areas. In fact, local farmers are gradually replacing coffee cultivation with that of durian, the strong-smelling fruit much loved on the Asian continent. In particular, China has increased its demand for durian, and production of this fruit is proving more profitable for many farmers than coffee. It does not help that to comply with Chinese durian export requirements, which prevent durian from being grown with other plants, farmers are also cutting down existing coffee trees within mixed coffee-durian plantations. In addition, this particularly hot and dry season has not been conducive to an abundant harvest of beans.

Last but not least, it should be noted that coffee is one of the favorite commodities (along with oil and gold) for financial speculation, and the changing geopolitical, environmental, and climatic conditions provide fertile ground for wide volatility in coffee futures, thus further increasing prices.