Foreign buyers dominate coffee industry

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The market for Viet Nam’s unprocessed coffee beans could become dominated by foreign companies, according to leading exporters who spoke at a recent meeting held in HCM City.

Foreigners bought 50 per cent of raw coffee from the 2010 and 2011 crops, according to participants.

They took Dak Lak Province which is the country’s biggest coffee producers as an example. They said local coffee farmer harvested 400,000 tonnes in the 2010-11 crop, 180,000 tonnes of which were bought by foreign companies for their export plans.

The situation would likely be more serious in the next crop since foreign companies often double the volume they planned to buy every year. Consequently, domestic enterprises now must face a serious shortage of raw coffee for export, they said.

Do Quyet, deputy general director of Dak Lak September 2nd Import-Export Company, said his company purchased 100,000 tonnes of coffee in the last crop, but it expected to buy only 50,000 or 60,000 tonnes in this crop.

A representative of the Tay Nguyen Coffee Investment, Import and Export Joint Stock Company also revealed that the company had to lower its export target from 140,000 tonnes of coffee to 100,000 tonnes this year because of a shortage of raw material.

The meeting heard many reasons raised by coffee exporters to explain foreign companies’market domination.

One of foreign companies’advantages was their strong financial potential. They could get access to low interest loans while they were able to directly sell coffee products on the London Trading Floor, which can enable them to offer attractive prices for local farmers to buy raw coffee, they said.

Worse still, inconsistent legal positions also created opportunity for foreign companies to conquer the domestic raw material coffee market.

Nguyen Toan Thang, an official of the Dak Lak Planning and Investment Department, said the Trade Law and Decree No 23/2007/ND-CP did not allow foreign companies to directly buy commodities from producers. Meanwhile, the Investment Law did not ban this practice.

Consequently, many foreign companies had set up networks to directly purchase raw material coffee from local farmers, he said.

Branches of Australia-based Neumann Grouppe and American-base Olam International Ltd purchased 129.28 tonnes of unprocessed coffee in 2009 and the figure rose to 226.6 tonnes in 2010.

Some foreign companies even established companies under Vietnamese names so that the latter could directly buy raw material coffee.

Coffee exporters said that the presence of foreign companies on the domestic raw material coffee market might bring some benefits, one of which was to create a competitive environment, forcing domestic companies to improve their competitiveness.

The competition would also help farmers take advantage of prices, they said.

They however were worried about the possibility that the market would be dominated by foreign companies.

Too high lending interest rates together with poor ability to gain access to capital sources made domestic companies less competitive with foreigns companies so the market would easily be controlled by foreigns in the future, said Tran Hieu, vice chairman of the Dak Lak People’s Committee.

Le Xuan Loi, director of the An Thai Coffee Investment and Development Companies, said when foreigners monopolised the market they would determine market prices. At that time, the domestic coffee production industry would meet many difficulties.

In anticipation of this possibility, Hieu said, the Dak Lak People’s Committee had petitioned the Government and ministries to develop policies to support domestic coffee companies.

The support policies would focus on providing credit for companies to improve their capital ability, encourage coffee enterprises to invest in processing technology in order to increase the added value of domestic products.

Training in management and international transaction skills would also be helpful, Hieu said.

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