Solutions to expand the coffee market

Wednesday, 2017-02-22 01:26:08
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A farmer in Cuor Đdng Commune, Cu M'gar District, the Central Highland Province of Dak Lak is harvesting coffee. (Credit: VNA)
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NDO—Vietnam has striven to increase by 25%-30% of the rate of its soluble, roasted and processed coffee exports earning a total turnover of from US$3.8 billion to US$4.2 billion by 2020. In order to achieve this target, it is necessary to set out market strategies on the principle of producing things the market needs and giving priority to shifting high added value product structures.

Overcome inadequacies

According to the Vietnam Coffee and Cocoa Association (VICOFA), Vietnam has exported its coffee to more than 80 countries and territories around the world, accounting for 14% of world market share and becoming the second-largest coffee exporter in the world, following only Brazil.

In particular, the expansion of roasted, husked and soluble coffee has initially yielded encouraging results. Vietnam currently stand fifth in the world in exporting soluble coffee, following Brazil, Indonesia, Malaysia and India, accounting for 9.1% of world’s market share, opening up prospects for the country’s coffee industry as Vietnam deeply penetrates into international markets through free trade agreements.

Although the Vietnamese coffee industry has rapidly developed in both area and output in recent years, big foreign brands with strong financial resources hold the majority of assets in the market. This situation is due to weakness and inadequacies in corporate governance and international trade in the Vietnamese coffee industry.

Doan Xuan Hoa of the VICOFA says that currently, Vietnam has 150 exporting enterprises and more than 3,000 dealers purchasing coffee, including 13 with foreign direct investment (FDI). However, only one third of these enterprises have green coffee processing plants for export. In addition, 90% of domestic businesses and 100% of FDI enterprises buy green coffee from traders and purchasing agents to export, so the quality of exported coffee was not high; while the lack of connection in negotiations on price caused artificially low rice prices and export dumping.

Most Vietnamese export enterprises sell their goods via wholesales and foreign businesses because they cannot directly access coffee roasters around the world; while the foreign language and international commercial transactions skills of employees working on coffee consumption and exports in Vietnamese enterprises are still weak.

Many other factors have constrained the development of Vietnam’s coffee exports, including weak commercial infrastructure, slow formation of trading and auction floors and passive information and analysis systems of market prices.

Building product strategy

According to Doan Xuan Hoa, in order to increase the added value of Vietnamese coffee products, in addition to investment on technological innovation and the significant improvement of the processing phase, it is highly essential to build a product strategy, under the principle of producing according to the market’s demand, giving priority to shifting the structure of products in the high added value segment.

Accordingly, enterprises need to examine the market’s demand in all three dimensions: market share, tastes and prices, to properly orient products, as well as determine the proportion of processing the appropriate products (percent of primary products and percent of refined products), in order to develop a marketing strategy matching the potential capacity of enterprises.

The promotion of the consumption of domestic products is a very important task, propping up exports. Currently, the consumption of processed coffee products in the country is still low (under 10%); so it is necessary to bring consumption to 30% in 2030. In order to achieve the target, the implementation of the “Vietnamese people prioritize using Vietnamese goods” campaign as well as the encouragement of using coffee in association with the health of consumers need to be enhanced. In addition, relevant agencies should create favourable conditions, particularly in infrastructure and administrative procedures, to support businesses processing soluble, roasted and husked coffee, to gradually establish a processing and consumption network in the country. Managers also need to focus on improving the efficiency of trade promotion through exhibitions, fairs and activities promoting high-quality coffee and diverse products.

Regarding export markets, relevant agencies and enterprises need to research, analyse and forcast the demand and trends of consumption as well as market volatility to build development strategies to gradually increase exports of soluble and roasted coffee while decreasing exports of green coffee, striving to attain an export turnover of US$3.8 billion–US$4.2 billion by 2020 and US$5 billion–US$6 billion by 2030. In order to achieve the target, it is essential to prioritise using funds from the national trade promotion programme to support coffee export enterprises promote their products to markets that require high quality, including the US, the EU, Japan, the Republic of Korea and Australia, as well as to access major distributors and supermarkets.

Relevant agencies should support enterprises building their brands through training activities related to formatting products and methods to build and promote their brands. The diversification of markets, particularly developing potential and niche markets, will contribute to creating conditions favourable to the consumption of high-added-value products. In addition, managers need to actively develop appropriate trade defense measures to deal with disputes and technical barriers to quality and protectionist tariffs on processed products, helping Vietnamese coffee deeply penetrate into international markets.