High Coffee Prices and Supply Shortage: A Deep Dive into Vietnam’s Coffee Sector in 2023

The coffee industry in Vietnam, a major player in global coffee production, is currently facing a unique conundrum. Coffee prices have surged to historic highs, with levels not witnessed in a decade. This price boom has brought joy to coffee farmers, but it has also given rise to a complex supply and demand scenario. The shortage of coffee supply is now a significant challenge in the market. This article delves into the dynamics of Vietnam’s coffee production, with a particular focus on Đắk Lắk province and its pivotal role in this thriving industry.

Vietnam is renowned for its coffee industry, with coffee being a cornerstone of the country’s agricultural economy. In this article, we examine the recent developments and forecasts for the 2023 coffee season in Vietnam. We also explore the global coffee production landscape, as well as the complexities of high coffee prices and the limited availability of supply.

Coffee Production in Đắk Lắk

Đắk Lắk, a province located in Vietnam’s Central Highlands, stands at the forefront of the country’s coffee production. As of early 2023, this region has solidified its position as a crucial contributor to the nation’s coffee output. The province boasts an extensive coffee plantation area, encompassing over 212,912 hectares, which represents a substantial 32.37% of the total agricultural production land within the Central Highlands.

In terms of production volume, Đắk Lắk is the driving force behind Vietnam’s coffee industry, contributing more than 550,000 tons of coffee. This staggering figure accounts for approximately one-third of the entire country’s coffee yield. The province’s dominance in coffee production is the result of decades of investment and dedication to this valuable crop, with coffee farming becoming a cornerstone of its agricultural landscape.

The 2022-2023 coffee season has witnessed a distinct focus on Đắk Lắk’s efforts to enhance the quality of coffee production and processing. This emphasis on quality is crucial for increasing the overall value of the coffee being produced. It has been a concerted effort by the local government and coffee farmers to ensure that the coffee grown meets high standards, both in terms of flavor profile and presentation.

Moreover, there has been a deliberate decision to avoid expanding the coffee cultivation area beyond what is sustainable and in line with the regional development plan. This approach is designed to maintain the equilibrium of coffee production while adhering to the replanting schedule prescribed in the 2021-2025 re-cultivation plan. The objective is to ensure that the industry remains both economically viable and environmentally sustainable.

The commitment to quality, sustainable practices, and adherence to a strategic replanting plan underscores Đắk Lắk’s pivotal role in Vietnam’s coffee industry. It is through these initiatives that the province continues to excel as a leader in coffee production, further cementing its reputation as a key contributor to the nation’s coffee sector.

Rising Coffee Prices in Đắk Lắk

Currently, Đắk Lắk and the broader Central Highlands region are witnessing an unprecedented surge in coffee prices. Coffee is trading in the range of 65,000 to 68,000 Vietnamese Dong per kilogram, marking the highest prices seen in over a decade. This has brought immense joy to the coffee farming community, especially in a time when coffee has become a vital part of their economic livelihood.

Several factors have contributed to the surge in coffee prices. Firstly, the global supply shortage has been a dominant factor, with many major coffee-producing nations reporting crop failures or reduced yields. This has exerted significant upward pressure on coffee prices worldwide, and Đắk Lắk is no exception. Vietnam’s coffee crop failure in 2023 is a prime example of this. It has led to a decrease in coffee production and created a supply-demand imbalance, resulting in a scarcity of available coffee.

Secondly, Robusta coffee, in particular, has seen higher prices compared to previous years. This type of coffee is in high demand in the coffee industry, especially in the production of instant coffee. The price hike has prompted businesses to quickly deplete their coffee stockpiles, and as of June 2023, there’s a noticeable shortage in coffee supply. Despite the record-high prices, there is a severe shortage of coffee available for trading, a paradox that both coffee businesses and Vietnamese coffee farmers are grappling with.

These events have created a perplexing scenario: record-high coffee prices alongside an extreme shortage of supply. Coffee businesses and coffee farmers in Đắk Lắk and the Central Highlands are facing this supply shortage and are striving to maintain stability in a volatile market. The next challenge lies in how to sustain coffee production and meet global demand in a supply-constrained environment, with coffee prices on the rise.

Explanation for Record Coffee Prices

The record-high coffee prices in Đắk Lắk and the Central Highlands in 2023 can be attributed to a confluence of global and local factors.

▬ Global Supply Shortage:
The foremost factor contributing to the surge in coffee prices is the worldwide shortage of coffee supply. This phenomenon is not exclusive to Vietnam but is part of a broader global trend. Several significant coffee-producing countries, including Brazil, Colombia, and parts of Africa, have experienced adverse weather conditions, such as unseasonable rains, droughts, and extreme temperature fluctuations. These climate-related issues have negatively impacted coffee crop yields, resulting in a reduced global coffee production. Consequently, the decrease in supply has driven up prices in coffee markets around the world.

 

▬ Vietnam’s Crop Failure:
Vietnam, as one of the world’s largest coffee producers, was significantly affected by this global supply shortage. In 2023, the country experienced a nationwide crop failure. This crop failure was a result of unfavorable weather conditions, pests, and other factors, leading to a considerable decrease in coffee production. As Đắk Lắk is a major coffee-producing region in Vietnam, the local coffee industry was severely impacted by the nationwide crop failure, contributing to the surge in coffee prices.

 

▬ Robusta Coffee’s Elevated Prices:
Another critical factor is the surge in prices for Robusta coffee. Robusta coffee is highly sought after in the coffee industry, particularly in the production of instant coffee and espresso blends. The increased demand for Robusta has led to higher prices, which has been especially pronounced in Đắk Lắk. As a result, businesses have rapidly depleted their Robusta coffee stocks, creating a significant shortage in supply.

 

▬ Speculative Investments:
Speculative investment activities have also played a role in the escalation of coffee prices. Investors and traders have been attracted to the coffee market due to the perception of coffee as a profitable commodity, given the supply shortages and increasing demand for premium coffee products.

 

▬ Strong Consumer Demand:
Additionally, strong consumer demand for coffee, both domestically in Vietnam and internationally, has contributed to higher prices. Coffee remains a beloved beverage globally, and its popularity continues to grow. The robust demand has further fueled price increases.

In sum, the record-high coffee prices in Đắk Lắk and the Central Highlands are a result of a complex interplay of global factors, including a worldwide supply shortage, adverse weather conditions, elevated Robusta coffee prices, speculative investments, and strong consumer demand. This unique combination of circumstances has led to an unprecedented price surge, creating both opportunities and challenges for the coffee industry in the region.

The 2023 coffee season in Vietnam has thrown up unexpected challenges, with surging coffee prices and a shortage of supply being among the most prominent. The situation highlights the interplay of both global and local factors in determining coffee prices and production. While the current high prices are a positive development for coffee farmers, they also emphasize the need for careful planning and commitment to sustain this vital industry, both in Vietnam and on the international stage. This is a reflection of the dynamic nature of the coffee market and its profound impact on the nation’s economy.

M.Sc – Nguyễn Thùy Tiên
Assistant Vice Chairman of KAI Farm