Vietnam: Stockpiling of Coffee

November 07, 2010

The Vietnamese government has decided on annually stockpiling thousands of tons of coffee beans to better control the price of their coffee. This year the country’s coffee industry plans to hold back 500,000 tons for six months. Exporters are recommending that the coffee stockpiling begin in December following the peak of the harvest, because the supply coming into the market would be large enough to lower prices. By withholding the large amount of coffee, the prices will remain higher.

However, since trade in Vietnamese coffee has slowed in the last month, the additional beans coming online from the harvest would add to the pressure to lower prices drastically.

Vietnam is the world’s second-largest coffee producer after Brazil. It’s a matter of comparing Robusta to Arabica though; Vietnam’s Robusta is used for instant coffee, so there are two different markets involved. In any case, being the number one producer of Robusta does mean that what Vietnam does affects instant coffee prices worldwide.

Other factors affecting the country’s output were a drought in some coffee-growing regions and smaller bean sizes. Also a third of the trees are nearing the end of their 25-year production lifespan. Prices are additionally affected by forecasts of the different organizations: the growers, the exporters and the government. This is complicated by the changes in the world coffee industry and the interplay of supply and demand created by the growth of new countries to the coffee producing arena and the growth of multinational coffee roasters.

It still appears too soon to be sure, but the word is out that we will probably see a rise in coffee prices because of the many variables of supply and demand and the factors influencing them. Stockpiling of coffee is only one of these factors; it will be interesting to see if the Vietnamese growers will have an effect or not.

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