How did Vietnam use coffee to build a future? ⋆ The Coffee Blog

What is the top coffee producer?

“Although, Brazil is the largest coffee producer in terms of Volume; Vietnam leads with the lowest cost of production, fastest industry growth and the most competitive coffee industry in the world.”

We have partially covered Vietnam case in a couple of articles before, nevertheless Vietnam’s coffee history is so amazing it deserves a full article just to understand the overwhelming influence it has had in the global coffee economy.

Vietnam coffee industry started with the introduction of coffee by the French in 1857, a few years later Vietnam was occupied and became Indochina; a French colony that included Laos and Cambodia as well. The French ruled the country for almost 70 years, until they were expelled by a communist uprising in the north on 1954. The same year, a Geneva Conference divided the country into North and South. After a brief break a second conflict (A.K.A Vietnam War) started on 1955; the South began fighting the communist insurgency in the North supported by US troops. In a few years the conflict escalated to a major war that involved more than half a million American soldiers. After the Americans withdrew from battle, the North and South unified into one country under a communist regime.

By April 1975, the Vietnam War was over, the country was completely devastated and bankrupted. The new government desperately needed a source of income. Coincidentally, the same year Brazil suffered, the “Black Frost”, the worst frost in history, where almost 90% of all coffee trees were damaged and most of the coffee harvest was lost. Consequently, global commodity coffee prices soared, triggering instability and a major political crisis in East Germany that persisted for the entire decade.

East Germany saw an opportunity in Vietnam, a new ideological partner with the right weather to grow coffee. Between 1980 and 1986, both countries signed two cooperation agreements for coffee production, where East Germany would provide machinery, irrigation systems, a 20 million dollar power plant, training, hospitals, shops and housing for 10 thousand people; in return East Germany would receive half of the coffee harvest for the next 20 years.

The two countries created the Kaffee-Kombinat Viet-Duc the largest collective Robusta coffee plantation in Vietnam. It started with only 600 hectares and grew up to 8600 hectares by 1989. East Germany, received five thousand tons each year from 1986 until its dissolution in 1989.

Nevertheless, Collectivizing agriculture proved to be a disaster for Vietnam; corruption and the lack of incentives for farmers made profits elusive. For this reason, in 1986 the communist party initiated important economic reforms and privately owned enterprise was once again permitted, resulting in a surge of growth in the industry. The large collective plantations were suddenly replaced by half a million smallholder farms no larger than three acres each; Coffee production then grew 30% every year during the 90s; representing an unprecedented milestone for Vietnamese economy and society. By 1994 some 60% of Vietnamese lived under the poverty line, nowadays less than 10% do.

The explosion the Vietnamese coffee industry experienced during the 90s helped millions of people to move out of poverty, Nowadays coffee is the most important and strategic agricultural commodity in the country dethroning rice for the first time in history; breaking all records and exceeding all expectations.

Today, Vietnam is the largest Robusta coffee producer in the world with 26 million bags (1 bag = 60Kg)
Vietnam enjoys the leading coffee yields, twice as much as Brazil with 2.8 Ton/HA and the lowest cost of coffee production in the world.
Vietnam coffee industry had the fastest overall growth in history of any other country; from 0.1% global share in the mid-70’s to 20% on 2017

Unfortunately, the sudden economic growth Vietnam experienced during the past 30 years hasn’t been without negative consequences.

Economic Consequences

Robusta coffee is largely considered lower quality and cheaper than Arabica, it is mostly used commercially for the production of instant coffee. However, it is frequently used by roasters, conditioned on price, instead of Arabica for the assemblage of coffee blends as well.

The oversupply of substandard beans was the responsible for the near collapse of the global coffee industry during the early 2000s and Vietnam coffee was the main contributor.

The same coffee that helped millions of people to rise out of poverty in Vietnam, is now impoverishing coffee farmers around the world, by triggering persistent global market prices below the cost of production.

Low market coffee prices are the tendency nowadays and farmers from around the world are forced to switch to new processing techniques and aim for better markets in order to survive. Obviously, it’s a hard and expensive endeavor, especially for the most vulnerable coffee farmers.

Environmental Consequences

WWF estimates that 40,000 square miles of forest have been cut down since 1973, some of it for coffee farms, and experts say much of the land used for coffee cultivation is steadily being exhausted. The massive deforestation have threatened many animal species as well. By the end of the Vietnam War there were around 2000 wild elephants and today just a few dozen are still left in the wild, there are only 30 wild tigers and the Java Rhinoceros was declared extinct recently, after the last one was poached on 2010.

Conclusions

Although Vietnam success brought dignity and prosperity to the country, there are major issues that must be addressed urgently before it’s too late. Vietnam should develop a more environmentally friendly approach to agriculture and a more sustainable and strict policy about water usage. If not, a full collapse of the coffee industry is imminent including the livelihood of millions of people depending on it.
While, mainstream coffee would never disappear from global markets; consumption habits are clearly shifting towards a better quality, socially responsible and environmentally conscious product. If Vietnam wants to stay competitive in the future, it must reinvent itself by investing on coffee varieties that could potentially offer a significant profit out of quality rather than by volume.

Last comments

Vietnam has used coffee to raise victoriously out of one of the bloodiest wars in the 20^th century; the economic and social challenges from the past have been replaced by environmental challenges of the future. Reducing the stress over the land and water is the new battle against a relentless demand of resources from persistent population growth.

“I am optimistic though, in a land where achieving the impossible becomes the norm, it only requires consciousness and political will to achieve the unimaginable.”