Struggling Businesses and the Dream of Coffee Prices

The price of coffee is soaring unusually. This is the assessment of many coffee business representatives today. Meanwhile, the supply of raw coffee is disrupted, leaving businesses struggling as long-term export contracts have been signed...

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The Unruly Horse

Nguyen Ngoc Luan, the founder of the agricultural coffee brand Meet More (in Hoc Mon, Ho Chi Minh City), said that his company has been greatly affected by the increasing prices of fresh coffee beans. Just a few days ago, the price was 86,000 VND per kilogram, and the next day it rose to 91,000 VND per kilogram…

Currently, the price has reached 95,000 VND per kilogram. “Last year, the price of coffee was only 41,000 VND per kilogram, but now it has nearly doubled to almost 100,000 VND per kilogram. The price of coffee is like an unruly horse, and our company is struggling to keep up,” Mr. Luan said.

According to Mr. Luan, since mid-June 2023, the price of coffee has shown signs of increasing from 40,000 to 45,000 VND per kilogram, and then to 50,000 VND per kilogram. Each price change has lasted for several months. However, after the Lunar New Year, the price has increased rapidly and unusually high. Despite the high price, farmers have not benefited because they do not have enough coffee to sell. They sell the coffee right after harvesting, instead of storing it to wait for the price to increase.

Representatives from Meet More Company said they can only survive until June if the price of coffee continues to rise. Photo: U.P

Mr. Luan said that when the cost of raw materials increases, Meet More and other coffee producers and processors are greatly affected, especially with their previous export orders.

Typically, the time from signing a contract to delivering the goods is about 7 months. The sudden and significant price increase has made it impossible for companies to stock up on enough raw materials. Mr. Luan said there are two reasons why his company cannot increase the prices for its customers. The first reason is that the USD exchange rate is rising, and logistics transportation costs are also increasing. If the price of goods continues to rise, it will be almost impossible to sell the products. Therefore, the company has to cut all profits and even make a loss for the large orders that were signed earlier.

“We can only buy a small amount of raw materials to complete the orders. From the beginning of the year until now, many foreign partners have come to buy our products, but we have declined because receiving more orders would mean more losses, unless our partners agree to increase the prices,” Mr. Luan said. According to him, the company can only survive until around June.

Real Bean Coffee Company is managing by timing its orders. Photo: NVCC

According to Do Ha Nam, Chairman of the Board of Directors of Intimex Group, the price of coffee has doubled compared to the same period last year, reaching the desired price of farmers. According to Mr. Nam, the reason for the high price of coffee is the global shortage of supply, and Vietnam is almost the only supplier.

In addition, the EU’s regulation stipulating that coffee exports to this market must meet the Forest Law Enforcement, Governance, and Trade (FLEGT) requirements is also affecting the current coffee prices. Meanwhile, many countries have not had enough time to prepare the necessary procedures to meet the regulations, while Vietnam has basically met these requirements, so customers choose Vietnamese coffee.

Pricing According to Timing

Van Thi Loan, Director of Real Bean Coffee Company (in Thu Duc, Ho Chi Minh City), said that the average monthly coffee export volume of her company has decreased by 50% compared to the previous period. The high price of coffee beans has reduced the supply. To cope with the situation, Loan’s company does not sign long-term contracts with foreign partners but instead adjusts the prices according to the market situation. They also accept losses to maintain their business.

With the current excessively high prices of coffee, Loan believes that this is not the actual price. Agricultural prices fluctuate, and once they reach their peak, they will have to decrease. Around April or May, when the Brazilian and Indonesian markets return, there may be adjustments in the market.

Many agricultural exporters believe that with historically high prices like today’s, they cannot afford to buy goods. Furthermore, some suppliers do not deliver due to price fluctuations.

For imported coffee products, because of difficulties in the market, they cannot increase the selling price to consumers at these new prices. The market has not accepted or caught up with the new prices, so both exporters and importers are facing risks.

According to Nguyen Van Muoi, Head of the Southern Subdivision, Vietnam Gardening Association, the coffee shortage is not only happening in Vietnam but also worldwide, which has pushed prices up.

In the Central Highlands, coffee buyers are going to the farms and accepting even the previously rejected coffee beans. The output has decreased considerably.

“I think that in this situation, each company must have its own plan. We must accept waiting and overcome the current difficult period,” Mr. Muoi said.

Coffee Shop Owners Worried

Many coffee shop owners are feeling anxious about the soaring prices of coffee. Nguyen Thi Ha, the owner of Ha Minh Coffee Shop (Nam Ky Khoi Nghia Street, District 1, Ho Chi Minh City), said that her coffee supplier has announced two price increases since the beginning of this year, each time by 5,000 to 10,000 VND per kilogram (depending on the type of coffee beans).

“After the increases, the price of coffee ranges from 135,000 VND to 155,000 VND per kilogram. Although the price has increased, we cannot raise the price of a cup of coffee because the number of customers has decreased significantly,” Ha said.

Tran Van Binh, a customer who buys coffee to take away, is very worried as the price has increased several times in the past 3 months.

“I try to maintain the selling price to retain customers, but if the price of raw materials continues to rise, I will have to increase the price by about 2,000 to 3,000 VND per cup,” Binh said.

The price of pure ground coffee for brewing in a filter has now reached 200,000 to 250,000 VND per kilogram, and some places even quote it at 300,000 VND per kilogram. Nguyen Van Thanh, who specializes in providing packaged coffee, said that he has visited many farmers in Gia Lai, Dak Lak, etc., but there are no supplies available.

In order to achieve sustainable development, companies need to focus on processing and increase the added value of their products. According to Phan Minh Thong, Chairman of the Board of Directors of Phuc Sinh Corporation, the coffee industry needs to continue to promote the processing stage. “We need to acknowledge the fact that we cannot always do business in a purely commercial way. We need to build factories, invest in deeper processing, and focus on technology. This is the key point and advantage that will help Vietnam export agricultural products with higher value,” Mr. Thong stated.

SOURCEcafef
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