Low prices to hit Vietnam coffee sales

Low prices to hit Vietnam coffee sales

BUON MA THUOT, Vietnam (Reuters): Vietnam's second largest coffee firm said on Thursday the country's robusta exports could plunge this year as low prices discourage farmers from selling beans unless absolutely necessary.

Le Duc Thong, director of Daklak September 2nd Import Export Company (SIMEXCO), said that without a recovery in international prices, Vietnam's 2000/2001 coffee exports might drop by as much as 20-30 percent from the previous year.

Thong was speaking to Reuters in the capital of Vietnam's key coffee-growing province of Daklak.

International robusta prices have slid towards US$600 per ton, or 30-year lows, from above $1,200 per ton one year ago as Vietnam is entering its peak harvest season for yet another bumper crop of at least 700,000 tons.

Vietnam is set to overtake Colombia this year as the world's second-biggest coffee producer after Brazil.

"At current price levels, exports could drop 20 to 30 percent... Only the poorest farmers are selling beans, and only when they need cash," said Thong.

Simexco plans to cut exports to 60,000 tons in the 2000/01 crop year from 79,000 tons the previous season, he said. Vietnam's coffee crop year runs from October through September.

Traders have long lashed out at the Vietnamese official retention plan of 60,000 tons as too little compared with its overall production and exports, though Hanoi was not a member of the Association of Coffee Producing Countries (ACPC) that decided to retain 20 percent of exportable coffee to rescue prices.

With the 1999/2000 crop output of 700,000 tons, Vietnam exported 692,000 tons of coffee beans in the previous year.

"In the domestic market, sales have been much slower so far than in the past," Thong said, adding that some farmers did not even have enough money to hire people to pick cherries.

Traders have said the sharp decline in London futures had pushed local coffee prices to around 5,800 dong to 6,000 dong per kg, well below average production costs of about 9,000 dong per kg among private growers and about 12,000 dong among state producers.

Thong said Simexco, a coffee trading arm of the Communist Party cell in Daklak, was to begin purchasing coffee from farmers next week for the government-sponsored retention scheme.

Besides, the company has already started to make advance payment to farmers on delivery of beans into its warehouses, and has asked the central bank for credit for such payments to farmers, he said.

The current Hanoi retention scheme provides for designated trading companies to acquire interest-free loans to purchase and store a total of 60,000 tons for six months from Nov. 15. The purchases at market prices must be complete by end-January.

Thong said initially the agriculture ministry had asked the central bank to allow farmers to seek fresh loans from banks by mortgaging a total of 80,000 tons of beans. But the banks rejected the proposal, unwilling to take the direct risk related to coffee prices.

Private speculators have come into play in Vietnam since the previous season, buying coffee beans from farmers.

"Beside the 60,000 tons, there's an unknown amount kept by rich people," Thong said. "In the past Vietnamese people have kept savings in gold. Some have started keeping coffee instead but the prices have dropped to new lows."

He said he had bought 6,000 to 7,000 tons of coffee which was kept in warehouses on behalf of such individual speculators in the previous season.

There has been no spare storage room left for this year, he said.