Coffee exporters fear profit drop next year

Vietnam’s coffee exports reached a record US$2 million this year thanks to soaring global prices. Vietnam’s coffee exports reached a record US$2 million this year thanks to soaring global prices but the economic crisis has threatened a sharp profit decline for the next crop, according to a conference last week.

Local coffee businesses exported about 1 million tons of coffee in the period between October 2007 and September 2008, Luong Van Tu, chairman of Vietnam Coffee and Cocoa Association (Vicofa), said at the conference in Ho Chi Minh City on Friday. Vietnam, the world’s second largest coffee exporter after Brazil, has seen steady increases in export revenues for the past three years from $1.2 billion in 2006 and $1.8 billion last year, official statistics showed. Tu, a former deputy trade minister, said the country’s export volume remained unchanged from last year but coffee prices in the world market reached a ten-year high this year. On average, the price increased to $1,937 a ton on average this year from $1,463 last year, 2.5 times higher than in the late 1990s, according to Vicofa. Tu said the prices were boosted by increasing demand in the global market and a rush by international investment funds which switched to agricultural products as a safer bet than the more unstable crude oil and gold. However, many analysts agreed that Vietnamese coffee businesses were just “lucky” this year since the coffee season wrapped up before the global economic downturn expanded. Feeling bearish Nguyen Xuan Thai, chairman of Thang Loi Coffee Company, said the global fear of economic recession has driven foreign importers to cut orders and prices. The Ministry of Industry and Trade also forecast lower coffee export revenue next year but it did not give figures. The average export price has already fallen to $1,600 a ton but Do Ha Nam, Vicofa’s vice chairman, said coffee prices may fall further to as low as the 2006-2007 level. Nguyen Xuan Han, chief executive officer of Maseco Company, said, “Foreign customers are showing signs of financial shortage.” Some had refused to receive shipments they signed for at higher prices earlier, he said, suggesting local exporters check their foreign partners’ financial capacity carefully. Falling export prices have forced businesses to buy coffee beans from farmers at just VND24,000 a kilogram, a VND18,000 reduction from the first quarter of this year causing huge losses to Coffee farmers, Vicofa said. Thang Loi’s Thai warned that farmers trying to reduce losses would rush to sell their beans, which in turn would push prices further south. It would be better if businesses could try to store coffee until June-July next year, when the world prices would recover, Thai said. However, businesses have pointed to local banks’ high borrowing costs and their reluctance to give loans to coffee businesses as a great deterrent. Tu said most local exporters were small and medium-sized businesses that mainly relied on bank loans for investments. They would need about VND12,000-15,000 billion ($700-900 million) to buy coffee next year, Tu said. However, the common annual Vietnamese dong loan interest rate offered by commercial banks is more than 19 percent, which not many businesses could afford. The central bank has also restricted exporters from getting loans in foreign currencies, which have lower interest rates. Nam said the central bank’s policy was “unfair” and called for lifting it. Yet an official from Vietnam Technology and Commercial Bank (Techcombank) said at the conference his bank felt it was risky to loan exporters as the global economy has been very unstable. Reported by Minh Quang – Quang Thuan