Here’s what Vietnam has to do with the cost of your coffee

VVietnam’s vast reserves of coffee beans are shrinking, a phenomenon that will push rising global prices even higher.

Stockpiles will halve by the end of September from a year earlier, according to the median estimate in a Bloomberg survey of traders. Production from Vietnam, the world’s largest robusta supplier and second largest coffee producer, is also expected to fall in 2022-23.

The dwindling reserves and poor harvest outlook come at a time when global coffee consumption is recovering from a virus-induced decline. Benchmark robusta prices have risen 17% from a 10-month low in mid-July on supply concerns from Brazil to Africa.

Robusta, used by instant coffee makers including Nestle SA or as a blend in espresso, has made a comeback. The variety, usually cheaper than Arabica, is in demand as people look for alternatives to cushion the impact of rising inflation.

Bean availability in Vietnam has fallen as shipments rose 17% to 1.13 million tonnes in January-July from a year earlier, according to customs data. The increase in exports has been helped by better access to containers and ships, but may be difficult to sustain given the shrinking stocks.

“We are worried” about a shortage through early November, said Phan Hung Anh, managing director of Quang Minh Coffee Trading JSC in the southern province of Binh Duong. Local growers probably have only about 2% of their annual production, compared with about 13% a year earlier, he said.

The global coffee market is facing one of the biggest deficits in recent memory after drought and frost reduced Brazilian production. Colombia is struggling to recover from crop-damaging rain, while Honduras, Guatemala and Nicaragua are running out of supplies from the 2021-22 harvest. Costa Rica’s crop for next season is showing signs of stress, and a drought has cut robusta crops in Uganda.

Coffee production is falling

The decline in Vietnamese inventories pushed domestic robusta prices in Dak Lak province, which accounts for about a third of the country’s crop, to a record high of 49,100 dong ($2.10) a kilo last week.

Carry-over stocks are seen at 200,000 tonnes at the start of the new season on October 1, compared with an estimated 400,000 tonnes a year earlier, according to the survey. Production could fall 6% to 1.72 million tonnes in 2022-23, the survey showed. The robusta variety accounts for approximately 90% of Vietnam’s coffee production.

A drop in the planting area of ​​”profitable” fruit trees and an increase in fertilizer prices are likely to affect production in 2022-23, said Do Ha Nam, Intimex Group chairman and Vietnam Coffee and Cocoa Association vice chairman.

Citigroup Inc. has trimmed its forecast for coffee production in Vietnam this year and next, as local crop surveys indicated cherry development had suffered from a lack of fertilizer use this year. “This poses a significant risk to the outlook for the upcoming planting season,” it said in a report earlier this month.

With the assistance of Marvin G. Perez

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