Enterprises Face Difficulties as Coffee Prices Spike

​(News Portal – Dong Nai) - Recently, coffee prices have surged to unprecedented levels, at times exceeding 130,000 VND/kg, nearly three times the usual rate. This sharp increase in coffee prices has left businesses and processing facilities struggling to maintain profitability amidst the rising production costs. ​

Coffee processing at 89 Nguyen Anh Co., Ltd., Phu Loi Commune, Dinh Quan District. Photo: Song Le 

The significant reduction in supply is the main reason behind the relentless rise in coffee prices.

Loss of Coffee Cultivation Areas

In its prime, Dong Nai province cultivated over 10,000 hectares of coffee. Thanks to the advantage of having large specialized coffee-growing areas, many localities were able to attract businesses and investors to establish coffee processing facilities. However, the current area dedicated to coffee cultivation in the locality has drastically decreased.

According to a report by the Department of Agriculture and Rural Development, by the end of 2023, the total area of coffee cultivation in the province had dwindled to nearly 5,500 hectares, a reduction of hundreds of hectares compared to 2022 and more than half compared to several years ago. Moreover, the remaining coffee areas are mostly intercropped or consist of aging trees that yield poorly.

Mr. Tran Xuan Long, Chairman of the Farmers' Association of Phu Tan Commune, Dinh Quan District, compared the current situation to the past, stating that the commune once had about 1,700 hectares of coffee cultivated intensively on a large scale. Today, only about 200 hectares remain, most of which are intercropped with other plants, and the coffee trees are old, producing a low yield of just 1-1.5 tons/ha compared to the 5-6 tons/ha achieved in the past.

According to local coffee farmers, the recent drought has severely weakened coffee plants, potentially reducing next season's harvest. Climate change is having a significant impact on coffee productivity. Additionally, the aging of long-term coffee trees is another factor contributing to the significant drop in yield.

Enterprises Worry About Shortage of Raw Materials

The shrinking coffee cultivation area brings with it concerns and numerous challenges for businesses investing in coffee processing.

According to some coffee processing enterprises in the province, Dong Nai's large coffee cultivation area was a key factor in their decision to establish processing facilities near the source of raw materials. However, with the current significant reduction in coffee cultivation, businesses are now forced to source coffee from other regions. When raw coffee prices rise too high, small-scale production facilities without stockpiled inventory are hesitant to accept large orders. As a result, businesses have been operating at a minimal level and are uncertain when the coffee market will stabilize again.

Given the situation, coffee processing businesses had already secured orders for the latter half of the year, and even for the following year, well before the price surge. Based on these orders, they negotiated with coffee farmers to secure product commitments at reasonable prices. However, this year, both producers and coffee farmers remain inactive due to the extreme volatility of the coffee market.

Mr. Tran A Sang, Director of Tran Minh Agricultural Products Co., Ltd. (Phu Tan Commune, Dinh Quan District), shared: “Our company is both a wholesale buyer of agricultural products and a producer of coffee powder for the market. In over 30 years of doing business in this sector, I have never seen coffee prices skyrocket like they have recently." For months now, the company has been operating on a survival basis, even incurring losses on labor costs and packaging due to the soaring price of raw materials, while the selling price of ground coffee has only slightly increased because customers are unwilling to accept a sharp rise in prices. At this point, the company is afraid to purchase more stock, fearing that increased production will only lead to greater losses. Currently, the company's purchase and sale volume is just a fraction of what it used to be, as the risks and pressures in the coffee business continue to grow. When coffee supplies were abundant, companies did not need to stockpile raw materials because prices were stable. Given the current situation, during the coffee harvesting season, companies must stockpile coffee, which requires a significant investment. ​