Challenges in Vietnam's Coffee Industry Prompt Contract Renegotiation and Sourcing Strategies Shift

The coffee industry in Vietnam faced several challenges during the 2022/23 season. Reductions in cultivated land, combined with increased labor and fertilizer expenses, contributed to a decline in coffee production. Production costs surged by 15% to USD 1,200 per metric ton (mt), primarily driven by a significant 70% rise in fertilizer prices, prompting some farmers to switch to natural alternatives, albeit at the expense of reduced yields. Notably, the Central Highlands region witnessed a decline in coffee cultivation as farmers turned to intercropping or shifted towards high-value fruit trees like durian, avocado, and passion fruit. Consequently, Vietnam's coffee production fell by 6% year-on-year (YoY) to 29.75 million bags, with Robusta accounting for the majority of the output, according to the United States Department of Agriculture (USDA).

Figure 1: Vietnamese Coffee Production (2019/20 - 2023/24)

The 2022/23 season marked Vietnam's poorest coffee crop in six years, leading to a carryover of contracts into the following season. However, the 2023/24 harvest is also underperforming, exacerbating the supply shortage. As the world's largest supplier of Robusta coffee, Vietnam's production challenges have reverberated across global markets, leading to tight supplies in major markets, such as Europe. As a result, coffee prices surged, prompting farmers to seek renegotiation of their contracts due to concerns over profitability.

Given the current impasse between Vietnamese coffee suppliers and buyers, importers may consider diversifying their sourcing strategies by exploring alternative origins. South American countries, particularly Brazil and Colombia, emerge as promising options. Brazil stands out as the world's largest coffee producer, renowned for its diverse range of coffee varieties and robust industry infrastructure. Therefore, Brazil offers stability and reliability to buyers seeking a consistent coffee supply. Additionally, Brazil's coffee industry has demonstrated resilience in navigating market fluctuations, making it a dependable source for coffee procurement.

On the other hand, Colombia has witnessed a notable increase in coffee exports in recent months, as highlighted in Tridge's Monthly Outlook Report. Renowned for its high-quality Arabica coffee beans, Colombia boasts a strong reputation among coffee enthusiasts worldwide. By exploring alternative origins like Brazil and Colombia, importers can mitigate supply chain risks associated with the current situation in Vietnam.

Tridge's comprehensive monitoring of price, production, and export trends in both Brazil and Colombia provides valuable insights into the current landscape of these coffee-producing giants. By leveraging Tridge's platform, buyers gain access to real-time data and analysis, enabling informed decision-making and strategic sourcing strategies. Moreover, Tridge facilitates close collaboration between major coffee suppliers in Brazil and Colombia, serving as a trusted channel for building lasting trade relationships. Through Tridge, suppliers can connect with potential buyers, negotiate deals, and establish mutually beneficial partnerships, fostering growth and stability in the global coffee trade.

As negotiations between Vietnamese coffee suppliers and buyers unfold, major importing countries of Vietnamese coffee, such as Germany and Italy, must remain vigilant and proactive. Tridge's ongoing monitoring and analysis will continue to provide timely updates on market developments, empowering stakeholders to navigate uncertainties and seize emerging opportunities.