Quantity Has a Quality All its Own

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Vietnam intends to maintain its global position as the world’s largest producer of robusta, increasing both acreage and yield, while transitioning several promising growing regions to arabica.

By Josh Doyle

The coffee industry in Vietnam is an unquestionable success story. What began as a post-war state with a few coffee farms in the Central Highlands has ballooned into the second largest producer in the world. Vietnam now stands only behind Brazil in production, a country with 25 times more land than Vietnam.

The question for Vietnam is whether that pace is sustainable. The country’s focus on growing high volumes of robusta with the heavy use of chemical fertilizers has degraded the soil. Climate change threatens to reduce acreage suitable for growing arabica by up to 63% by 2050 due to a longer dry season, straining water supplies for farmers.

Government and industry leaders are nonetheless determined to expand production and coffee processing throughout the country. A new emphasis on sustainable farming practices, improved yields, and greater focus on higher-earning arabica exports will help Vietnam maintain its position as a coffee producing powerhouse.

Coffee was first planted in this narrow, mountainous land by French colonists in 1857, where it became a cash crop for small farms. It was discovered in the 1920s that Vietnam’s Central Highlands were ideal for coffee cultivation, but it wasn’t until after the Vietnam War, when the north and south reunited, that the area found its potential as a coffee producing giant. In the 1990s, the government encouraged migration to low-population areas in the Highlands, creating a work-force that would eventually form the backbone of the coffee industry. From 1986 to 2016, production in Vietnam rose from 18,400 tons to 1.76 million metric tons per year.

Arabica on the rise

Today less than 4% of the coffee harvest is arabica, the variety of bean used to make drip and pour-over coffee and to fill coffee capsules. Vietnam has been almost singularly focused on growing the lower-quality robusta bean, carving out a niche as a provider of large quantities of cheap instant coffee. But this trend is changing, as the country turns its eye to more arabica production, and seeks to improve the way it processes and packages coffee for export.

In 2012 the government unveiled plans to expand land used for arabica production, hoping to more than double output of the superior-quality bean by 2020. The goal is to have 40,000 hectares under arabica, and maintain that level until 2030. This would mean increases of around 96,000 tons per year, bumping arabica production up to 9% of the country’s total production.

According to Patricia Marques, general manager of Starbucks Vietnam, the Da Lat area is prime growing region for quality arabica. This led Starbucks Vietnam to release their Reserve Da Lat product, a robusta-arabica hybrid grown outside the Highlands town, cashing in on the rising popularity of arabica harvested inside the country. But with so many farmers reliant on growing robusta, Marques believes it could take up to a decade before arabica is exported in any real quantity.

The case for robusta

Vietnamese farmers are hard-pressed to give up the robusta crop they’ve learned to harvest with higher efficiency than any other nation. Yields for robusta in Vietnam reach 2.4 tons per hectare per year, outpacing even Brazil at around 1.4 tons, and more than doubling most nations. Effective farming practices have been the deciding factor.

Vietnamese farmers irrigate their robusta crops, whereas other producers consider the returns on robusta too low to bother. They’ve also managed to plant improved tree varieties, on which they practice pruning to maximize fruiting and use large amounts of chemical fertilizers, all of which contribute to their record-high yields. This despite aging trees. More than 30% of Vietnam’s robusta trees are between 20 and 30 years old. Yields are declining. For farmers in key areas, this is an incentive to start harvesting more arabica.

Café culture

Rising affluence among Vietnamese citizens has allowed for more income to spend in cafés, which are quickly becoming the country’s most popular urban hangouts. In 2000 Vietnam’s annual per capita income averaged around $400.

In 2016, that number has jumped to more than $2,200.

The Coffee House is a homegrown chain of shops founded by Hai Ninh Nguyen, who recently appeared on Forbes’ 30 Under 30 Asia list. The company operates 74 locations. Nguyen’s cafés serve a base for Vietnamese who find Starbucks too expensive, but have moved on from the traditional roadside ca phe sua da and prefer Western style pour-overs and latte. He’s catering to a generation of Vietnamese who’ve traveled to cafés abroad and want the same experiences back home.

Nguyen’s success sets him apart, but his story is not unique. Independent cafés are becoming more common in Vietnam, many of them serving high-grade blends using locally sourced beans. This marks a departure from the commodity-based market Vietnam is known for. At least domestically, consumers and café owners are embracing a high-quality scene and finding a ready supply of local arabica to meet demand.

As production picks up, Vietnamese arabica will become a highly-desirable bean in international markets. Distributors like Len Smith, who roasts and sells Vietnamese coffee to 40 cafes in the US and abroad, says the market for specialty Vietnamese coffee is active and growing.

“It’s a built-in market because every year people come back from Vietnam, and they loved the coffee but there’s nowhere else to buy it,” said Smith, who noted that arabica beans or blends make up about two-thirds of his sales.

Quality is still an issue

Inferior quality has plagued the nation in recent years. In 2016, a study by the Vietnam Standards and Consumers Association found that 30% of coffee products sold in Vietnam contained very little or no caffeine, despite what their labels claimed. In order to reduce production costs, some manufacturers mixed coffee with large quantities of cereals and other beans, adding chemicals to create a coffee taste.

Distributors like Smith have said the issue hasn’t affected his business, and believe it isn’t as far reaching as some fear.

“We get the whole bean version of these coffees, and we can brew them side by side with the ground version, and usually they’re pretty similar,” said Smith.

But he did add that being prudent in checking your purchases is important when dealing with certain distributors. “If you’re not thoroughly checking what you’re buying, they might not feel obliged to give you the best quality,” he said.

Production of soluble coffee is on the rise in Vietnam. Domestic sales of instant coffee are expected to grow by 7% this year, thanks to busier lifestyles and longer working hours. In 2016, ready-to-drink (RTD) coffee sales grew by 4% in retail volume. Attractive advertisements helped peak curiosity, especially among the younger generation. Young urban dwellers from mid to high-income groups have been key contributors to RTD sales growth.

Instant coffee still drives Vietnam’s export market, as most of Vietnam’s robusta disappears into branded soluble powders. Growth for instant coffee is projected at 13.6% between 2018 and 2021, and we’re expected to see more investments in companies exporting to the Chinese market, according to the US Department of Agriculture.

Lack of brand recognition and limited marketing skills of exporters have been issues for Vietnam in the past, resulting in lower export prices, according to a National Export Potential Assessment Report in 2014. But producers are now focused on adding more value to products in-country.

Industry leaders like Dang Le Nguyen, president of Vietnamese coffee giant Trung Nguyen, echoed a desire in 2012 to improve production inside the country, including modern processing and better marketing for instant products. The TNI King Coffee corporation recently completed a factory in the southern province of Binh Duong, adding to a string of such factories aimed at shipping more finished products abroad. TNI Corporation also has a foothold in China’s online market for instant coffee and aims to start distributing there through a chain of supermarkets.

The government is encouraging production of these factories, but only until 2020, after which they’ll stop accepting new proposals. The race is on over the next two years to build modern plants for processing raw coffee into marketable instant products.

Achieving a sustainable rate of growth

The Vietnamese government has accepted that its high-yield production model is unsustainable without changes at the farm and supply-chain levels. In 2016, they introduced the Sustainable Coffee Plan Till 2020 and Vision to 2030. Working with organizations like Rainforest Alliance and UTZ, their aim is to educate farmers, improve irrigation practices, and restructure farms to grow more arabica beans, all while increasing export earnings and ensuring stable production. Their goal is to achieve $3.8-4.2 billion in export revenue, up from a current $3.2 billion. This signals that while sustainability is their goal, it will not come at the expense of growth.

Climate change will reduce arable land for coffee, but given the government’s plan to cap land for coffee production at 600,000 hectares, there will be enough to meet demands. The trick is keeping deforestation to a minimum so as to avoid future water shortages and further erosion.

Bright future

The industry is growing in every respect, with some lag in arabica expansion. The café sector shows great promise as cafés become preferred hangouts for Vietnamese in both urban and rural settings. Arabica still makes up only a fraction of Vietnam’s production, but with government plans to increase arabica production and a growing interest in specialty coffee, demand is set to spike. That demand has been demonstrated by positive reviews and quick sales of products like Starbucks’ Reserve Da Lat, along with the rising quantities of arabica sought out by buyers in the US and abroad.

More businesses are investing in companies exporting to the Chinese market. This should lead to more growth in the instant market, especially with Vietnam’s increased focus on improved processing, and better storytelling to market instant coffees.

Unsustainable farming and climate change both pose challenges, but Vietnam’s government is taking the proper steps to ensure sustainable growth and help curb damage to farms. Following the current plans, Vietnam will continue growing as an exporter for years to come, improving its stake through increased attention to sustainability certifications, increased quantities of high-quality arabica, and better processing of all coffee products.