Which country is the world’s largest coffee producer? You would guess correctly with Brazil. But the world’s second largest? The answer is Vietnam. Producers based in Buôn Ma Thuột—the city at the heart of the Vietnamese coffee industry—have seen their share of global production rise from just about nothing in 1990 to near 20% in 2018, based on data from the International Coffee Organization. These gains have been both dramatic and unexpected.
One reason why Vietnam is not commonly understood as a coffee powerhouse is that the vast majority of its production is cheap, robusta beans. These varieties are commonly used in instant coffee or as filler in mass-market brands. The expensive, arabica beans are the ones you find in swank packaging at coffeehouses.
Vietnam rose to prominence in the global coffee business because of government reform initiatives to support private-sector activity. Đổi Mới policies were first rolled out in 1986. Growing coffee for export markets made sense, given the deeply-agrarian economic base. The vast majority of Vietnam-grown beans are harvested on small, if not tiny, land holdings. International demand for these low-cost Vietnamese beans have soared over time in the price-sensitive segment of the coffee market. There is only a thin domestic requirement for the crop in Vietnam.
Export gains for Vietnam have not necessarily been to the detriment of other nations. Coffee production worldwide has been growing to meet market demand for decades. Vietnam has been capturing a bigger-and-bigger piece of a growing pie. Key players like Colombia and Indonesia, for instance, have more-or-less maintained their market share during this period. If anything, marginal robusta producers in West Africa—such as the Ivory Coast, Guinea, and Togo—have lost some footing.
For historical context, coffee has actually been a cash crop in Vietnam for generations. The French first introduced the commodity to Indochina in the late 1850s. The industry reached a certain heyday in the early part of the twentieth century as colonial authorities shifted production to large plantations. The Vietnam War obliterated coffee production, however, as the prime growing region was in the crossfire between the North and South.
There is a dark side to this modern-day growth in output. The land that is used for coffee production is being exhausted because of the overuse of chemicals, while deforestation is a growing concern. The answer to these problems in part can be found by moving more-and-more production into the arabica business so that farmers are empowered to be more profitable. But that process is tedious. The more expensive varieties, for instance, are less disease- and pest-resistant. The Vietnamese government set-up the Coffee Coordination Board in 2013 to encourage sustainable farming and better align the industry with global industry trends. ■
Our Vantage Point: Coffee prices are expected to increase over the year ahead because of a run-off in surplus inventories. While robusta beans may not see as much upside as arabica ones, the Vietnamese economy could be a direct beneficiary of an upward commodity-price shift. More buoyant prices, in turn, will help to accelerate the local transition to arabica varieties.
Learn more at the International Coffee Organization
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Image: The economy of Đắk Nông Province, like other districts in the Central Highlands, relies heavily on coffee production. Credit: Xuanhuongho at Can Stock Photo Inc.
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