VIETNAM NATIONAL STRATEGY FOR SUSTAINABLE COFFEE SECTOR Phung Duc Tung Indochina 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 coffeeproduction 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
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 issuesNo coordination bodyof the sector
Farmer organization Small scale (580000 HH, 90%< 1ha) Unsustainable Hard to apply techno Limited mechanization Separate, no Untrust collective action Hard policy design, implement No representative Old style cooperative (not Farmer groups 1 new cooperativeefficient , less trust (10% of (reduced farmer ) production) participation) Farmer union (less role in Women union (mainly in agri production) micro credit, social)
R&D system Research system Extension(technical – policy) system Lack specialized Lack, unqualifiedresearchers, less state extensionist fund Old style of service Short term provisionresearch, no strategy Weak linkage Less state fund Not demand-driven (US$2/person/year)No private investment No private, based on coffee companies
Marketing actorsFlexible, direct with farmersSmall scale, small profitMarket distortion, competition in trading Small tradersNot representativeGrowing, higher market shareInvestment in sustainable coffee Int’l tradersNo representativenessVulnerable to macro-eco changes DomesticNo investment for value chainRepresented by VICOFA companies VICOFA difficulties: Deal with int’l trade conflicts limited training and service less – irregular trade promotion lack market forecast, analyzed infor
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 forrejuvenation, technology, infrastructureLack formal insurance for reducing impacts of Small farmersrisksLack fund for basic needs (vulnerable group)Banks have less incentive, less trust on smallfarmersLack fund to cover Cooperative, faoperation, management, market development.Inability to access to formal credit rmer groupsDifficulties in macro economic changes TradingLack fund for purchasingcoffee, infrastructure, advancing to apply sustainable companiesstandardsNo other income sources: loans, contracted fundfrom private, no returns for R&D activities R&D
Financial issuesLeans on state budget, no PPP in investing Infrastructurethrough BOT mannerInvestment from households without supportfrom state or loans from banks. TechnologyNo support from state, small loans from banksbut short-term and lender-selective. Production cost
STRATEGY FOR VIETNAM COFFEE SUSTAINABLE DEVELOPMENT
Coffee board organization 1. Sector institutional reform sector: Private Public sector: Board Steering -Farmer Ass -Ministries -Processing Ass committee -Domestic -Provinces TradersFarmer -Insurance VICOFA Small trader Processing Assos -Int’l traders Consumerassociation -Research Assos -Commercial Assos -Extension banks Members -Support service Board of directors Coffee board Production Policy & Market Coffee fund: Close linkage, members section strategy section Planning & Research & section Government: Finance Banks, public Extension Ministries, local services
Institutional developmentFarmer 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 developmentR&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 developmentR&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 developmentAssociation: 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