Some Vietnam coffee farms thrive despite drought, but may not stop espresso price hikes

Vietnamese coffee growers are facing significant challenges this year due to a severe drought, which is the worst in almost a decade. This has raised concerns about the potential increase in coffee prices globally. Despite the adverse conditions, some farmers have managed to maintain healthy yields by adopting clever strategies.

The forecast for the next coffee harvest season in Vietnam, the world’s second-largest coffee producer, is not optimistic. The Mercantile Exchange of Vietnam (MVX) predicts a 10-16% decrease in output due to the extreme heat that affected the Central Highlands coffee region from March to early May, as stated by Nguyen Ngoc Quynh, the deputy head of MVX.

Fortunately, there has been some relief in recent weeks with the return of rains, which has improved the overall outlook. This has boosted the confidence of farmers and officials in the industry. However, it is still uncertain whether the improved weather conditions will significantly increase output and lead to a decrease in prices of robusta beans. Vietnam is the largest producer of robusta beans, which are commonly used in espressos and instant coffees worldwide.
Nguyen Huu Long, a coffee farmer in Gia Lai, Vietnam, expects the country’s output to decrease by 10-15%. However, he is confident that his own farm will actually increase production. To combat the heatwave and protect his trees, Long keeps the soil moist by covering it with leaves. Unlike other farmers who cut down their trees after a few years, Long allows his trees to grow for decades, resulting in deeper roots and better access to underground water reserves. In addition, farmers in his plantation soften the soil around their plants to improve absorption of rainwater and fertilizers. Another farmer, Tran Thi Huong, who works in a nearby plantation, used more water than usual during the heatwave. Fortunately, she had access to abundant water reserves from canals built by local authorities, allowing her to adequately irrigate her plants.
The size of coffee cherries this year is smaller, but the overall output is expected to remain unaffected. The use of biopesticides helped control the increased number of bugs caused by extreme weather. This aligns with the forecast from the United States Department of Agriculture (USDA), which predicts that Vietnam’s next harvest will be relatively stable compared to the current season. However, coffee prices for consumers worldwide are likely to increase. Wholesale prices in Vietnam and London-traded robusta futures reached record highs earlier this year due to a disappointing harvest in Vietnam and concerns about the upcoming harvest after the drought, according to traders and analysts.
According to the latest Eurostat data, wholesale prices have had a limited impact on consumer prices so far. In April, coffee inflation increased by only 1.6% in the 27-country European Union and 2.5% in Italy, a country known for its love of robusta coffee. Although these price increases are lower than those seen a year ago, they are higher than the 1% increase in the EU reading for March. This suggests that coffee roasters may be passing on their higher costs to consumers.

There are ongoing concerns about the situation in Vietnam. A trader based in Vietnam has warned that insufficient rains after the drought or excessive downpours before the upcoming October harvest season could further reduce coffee output. This means that the high wholesale prices may continue in the future.

The demand for robusta coffee is growing globally, which is contributing to the high prices. Additionally, farmers have increased their leverage in the current circumstances. Many of them have even replaced coffee plants with durian, a tropical fruit that is experiencing huge demand in China and has a strong smell.
Le Thanh Son, a representative from Simexco, one of Vietnam’s largest coffee exporters, explained that they have the financial means to stockpile and retain goods, so there is no urgency for them to sell. The report was compiled by Phuong Nguyen and Francesco Guarascio, with additional contributions from Maytaal Angel in London, and edited by Lincoln Feast.