VIETNAM NATIONAL STRATEGY FOR SUSTAINABLE COFFEE SECTOR

Phung Duc TungIndochina Research and Consulting

Content

Overview of coffee production in

Vietnam

Key issues of Coffee sector in Vietnam

Strategy for Vietnam coffee

sustainable development

Overview of coffee production in Vietnam

Production

Coffee was introduced to Vietnam in 1857 by the French and it was slowly developed before 1990.

In 1975, Vietnam had only about 13,000 hectares, produced around 6,000 tons.

Coffee could be considered as a success story of trade liberalisation in agriculture in Vietnam

In 2000, the coffee area has increased by 23 times and the output increased by 83 times compared to 1980

Production

Processing and trade

Mainly prelemilary processing, weak processing capacity and lack of brands

Low percentage of wet- processing Quality is varied Major production is for export. Coffee is one of

the major export items over the past two decades.

The export volume in 2010 was nearly five times higher than that of 1996 (>30% growth rate per year)

Processing and trade

Processing and trade

Vietnam has become one of the leading producers and exporters in the world coffee market.

Vietnam’s coffee was exported to 96 countries. 95% of coffee export is green coffee beans, 1-2

% is roasted ground coffee and 3-4 % is instant coffee.

Robusta accounts for nearly 95 %t of Vietnam’s total output and it accounts for 41.3% of Robusta produced in the world.

KEY ISSUES OF THE COFFEE SECTOR IN VIETNAM

Institutional issues

No coordination body of the sector

Farmer organization

UnsustainableHard to apply technoLimited mechanizationUntrustHard policy design, implement

Small scale (580000 HH, 90%< 1ha)

No representative

Separate, no collective action

Old style cooperative (not

efficient , less trust )

Farmer groups (10% of

production)

1 new cooperative (reduced farmer

participation)

Farmer union (less role in agri production)

Women union (mainly in micro credit, social)

R&D system

Lack specialized researchers, less state

fund

Not demand-driven

Short term research, no strategy

Lack, unqualified extensionist

Less state fund (US$2/person/year)

Old style of service provision

No private investment No private, based on coffee companies

Weak linkage

Research system(technical – policy)

Extension system

Marketing actorsFlexible, direct with farmersSmall scale, small profitMarket distortion, competition in tradingNot representative

Growing, higher market shareInvestment in sustainable coffeeNo representativeness

Vulnerable to macro-eco changesNo investment for value chainRepresented by VICOFA

Domestic companies

Small traders

Int’l traders

VICOFA difficulties:Deal with int’l trade conflicts limited training and service

less – irregular trade promotionlack market forecast, analyzed infor

Coffee marketing channel

FarmersFarmers

Farmers groupsFarmers groups

New corporativesNew corporatives

State farmState farmCollecting

AgentsCollecting

Agents

Dom

estic Consum

ptionD

omestic

Consumption

Priliminary

ProcessorsPrilim

inary Processors

Domestic processorsDomestic processors

International traders International traders

ExportersExporters

TradersTraders

Environmental problemsNatural resources: Scared water resources:

Unbalanced underground water due to overuse, wrong method Surface water not fully and effectively used, lakes – damps for

hydroelectricity but not for agricultural production. Deforestation:

Forest covering ratio + forest quality reduce water mechanism, weakening renew underground water

Poor bio diversification Lost of livelihood for farmers, especially the poor

Land erosion, degraded land quality Exploited unfavourable land lower yield, soil quality poorer. Unsustainable practices degraded land quality, eroding land

nutrition, reducing cultivation surface.

Environmental problemsClimate change: Central Highland: temperature; water volume changed

dramatically, affecting biological cycle of crop and yield reduction Temperature up by 0.3 degree in 2020, 0.8 in 2050, 1.6 in

2100. Evaporation volume a year increase 8.5% in 2049-

2059,14.47% in 2080-2099. Water volume (Rainfall in rainy season up by 0.3% by 2020,

0.7% by 2050, 1.4% by 2100) and distribution change (weather extremes), surface and underground water reduction

fiercer (more regularly, extremely, widely) natural disasters (draught, flood, forest fire...)

Social issues

High poverty rate among ethnic minorities Migrant growers benefited from recent expansion of coffee

while indigenous, ethnic left behind. Urbanization, market liberalization social and community

relation of ethnic minorities Hard cooperation (of ethnic and migrant) in production,

protection of asset, environment, natural resource. Poor infrastructure, service and labor hard to attract private

investment. Hard access to public support, credit. Migration: social security, working condition for migrant

labors.

Financial issuesLack capital for rejuvenation, technology, infrastructureLack formal insurance for reducing impacts of risks Lack fund for basic needs (vulnerable group) Banks have less incentive, less trust on small farmersLack fund to cover operation, management, market development. Inability to access to formal credit

Difficulties in macro economic changes Lack fund for purchasing coffee, infrastructure, advancing to apply sustainable standards

Trading companies

Small farmers

Cooperative, farmer groups

No other income sources: loans, contracted fund from private, no returns for R&D activities R&D

Financial issues

Leans on state budget, no PPP in investing through BOT manner

Investment from households without support from state or loans from banks.

No support from state, small loans from banks but short-term and lender-selective. Production cost

Infrastructure

Technology

STRATEGY FOR VIETNAM COFFEE SUSTAINABLE DEVELOPMENT

Main strategic pillars

21

Domestic market• Trade mark, marketing• Reference, awarenessExport market: • Potential market•Types of products

Institional/organization reform•Coffee board•Farmer groups - association•Trader Association (VICOFA – WEF taskforce)

Institutional arrange

Market developm

ent

Sustainable develop

Financial Access

Agricultural credit program: banks, credit orgs, donnors (community based, daily lending)

Sustainable production:• Coffee rejuvenation• Sustainable production, national quality baseline• Post-harvest processing•R&D

Social, environemtn

- Social safety net prog-Sus resource use- Climate change mitigation

1. Sector institutional reform

Farmer association

Small trader Assos

VICOFA Processing Assos Consumer Assos

Research & Extension

Government: Ministries, local

Banks, public services

Coffee board

Members

Close linkage, members

Board Steering

committee

Public sector:-Ministries-Provinces-Insurance-Research-Extension

Private sector:-Farmer Ass-Processing Ass-Domestic Traders-Int’l traders-Commercial banks -Support service

Production section

Policy & strategy section

Market section

Board of directors

Coffee fund:Planning &Finance

Coffee board organization

Institutional development

Farmer organization Registered and institutionalized: farmer group, club,

cooperatives, sub-association, association Principles: voluntary, fair, transparency, and self-

sufficience. Clear regulations, working mechanism, commitments. Organization principle: bottom up, start with one sub-

association from existing farmer groups and then association at national level

After seed organization is established, representative of farmers will be selected to participate in the coffee board.

Institutional development

R&D organization State research institutes:

WASI reorganized into Coffee Research Institute, fund from coffee fund and service contract.

IPSARD: capacity building, fund support for policy research, market monitoring, forecast.

State extension system: Mechanism to connect with research Separate state fund for coffee extension Capacity building for extensionists Reform services management.

Institutional development

R&D organization Private service providers:

Support, monitor sustainable practices for farmers. Organize FF group under private service providers Provide and monitor information Provide technical support services.

Institutional development

Association: Traders Association: include more small companies, traders,

improve services, market linkage. Roasters association:

Organizing their agents to invest and collect sustainable coffee

Connecting with associations, farmer organizations on investment plan, monitoring, registering, maintaining sustainable standards.

Investment in processing industry to domestic demand and export final blended coffee

Sustainable production Rejuvenation

Rejuvenation strategy, increase Arabica in suitable areas Intercrop coffee with others , rotation in rejuvenation area, Good seedlings from WASI, seedling agencies Disseminate strategy to coffee growers Special credit scheme for poor and small coffee growers

Prioritized areas of sustainable production: Reassess sustainable production planning Indicate area for sustainable production Restructure coffee sector (coffee age and type).

Sustainable production

Standard framework engagement, application Review TCVN 4193: 2005, 4C, Utz, RF, Fair Trade for

alignment Apply standards in the large scale. Use FF group: technical services, farmer groups, M&E. Policies for farmer groups and new cooperatives Investment from domestic and int’l traders. Review, select a model applying sustainable coffee production

Standard support for poor, vulnerable groups: Engage ethnic minorities on sustainable production process. Increase access to credit, resources and trainings

Marketing and domestic consumption

Preliminary processing Storage system: one store, drying facilities for each

group, cooperative Transportation: inter-commune, inter-garden roads

acilitating bigger transportation means, irrigation system.

Water facility: new technology in watering (dropping) Electric facility: Electricity system connected to

production areas

Marketing and domestic consumption

Export and domestic consumption: Diversify client groups, especially the emerging and

potential markets like China, Indochina countries, India and etc. Design export market development strategy

Improve domestic consumption to reduce the price risks of great fluctuation in international market Design a domestic coffee consumption strategy

Social support

Design support program for vulnerable groups in other livelihood: forest production, tourism, coffee trade promotion, coffee picking, security protection, processing industry, resource management

Finance sources for social support: Projects of development agencies, enterprises Government programs Part of coffee fund Service fee from coffee garden security protection

Encourage young and unskilled labors in short and long vocational trainings and cooperate with enterprises.

Strengthen capacity of vocational training schools and expand the vocational training for ethnic minorities.

Access to finance

Reform the credit program The mechanism to apply BOT for PPP in

investment of basic infrastructure of coffee production

Create the insurance fund Engage other development projects on the credit

program

Climate change

Design local climate impacts profile (LCLIP) to help assess their exposure

to weather and climate, describes weather types, impacts, consequences and

response.

Develop a climate risk tool to design technical measures for the adaptation

of climate change in coffee production

Design and pilot implementation of the climate change adaptation and

mitigation strategy

Study and propose solutions on investment and policy to deal with natural

disasters

Thank you