Why Are Vietnam Coffee Prices Rising While Global Markets Drop?

Vietnam's domestic farmgate coffee prices have set a new record while international futures decline. On February 25, purchase prices in the Central Highlands rose by 600 to 700 Vietnamese dong per kilogram within half a day, reaching 81,500 to 82,300 dong per kilogram, an average of about 82,000 dong. London robusta for March 2024 delivery settled at $3,047 per tonne, down 4% from the prior close.

The rally runs against weak international benchmarks: robusta traded between $3,020 and $3,179 per tonne in London, and arabica slipped to 180.30 cents per pound. At the same time, Germany's share of coffee imports from Vietnam has grown, according to Eurostat data, deepening Europe's reliance on Vietnamese robusta among the major coffee producers. Lower output expectations tied to climate change and some farmers switching to durian add supply uncertainty.

Vietnam's domestic coffee market has recently seen a rare turn of events: even as international futures prices broadly decline, domestic farmgate prices have bucked the trend and risen, with the top price in the Central Highlands provinces hitting 82,300 Vietnamese dong per kilogram, setting a new all-time record. At the same time, Germany's share of coffee imports from Vietnam has risen rather than fallen, showing that Europe's reliance on Vietnamese robusta is still deepening. However, expectations of lower output due to climate change, along with some coffee farmers switching to durian cultivation, are sowing more uncertainty on the supply side going forward. This article combines the latest exchange data with regional quotes to trace the ins and outs of this round of price fluctuations.

According to data released by the Vietnam Coffee and Cocoa Association, the price of the robusta coffee contract for delivery in March 2024 fell back to $3,047 per tonne, while arabica dropped to 180.30 cents per pound. Yet Vietnam's domestic market charted an independent course: on February 25, domestic coffee purchase prices were raised by 700 Vietnamese dong per kilogram, with the highest transaction price reaching 82,300 Vietnamese dong per kilogram.

On the international front, coffee prices on the two major exchanges remain weak. On the London market, robusta has recently fluctuated within a range of $3,020 to $3,179 per tonne, while robusta quoted for March 2024 delivery in London stood at $3,047 per tonne, down 4% from the previous trading day's close, equivalent to a drop of $127 per tonne.

Domestic prices in Vietnam, by contrast, rose by 600 to 700 Vietnamese dong per kilogram within half a day. Quotes across the Central Highlands provinces generally fell between 81,500 and 82,300 Vietnamese dong per kilogram, averaging about 82,000 Vietnamese dong per kilogram. Specifically, purchase prices in Lam Dong and Dak Lak provinces were both raised by 600 Vietnamese dong per kilogram, quoted at 81,500 to 82,100 Vietnamese dong per kilogram; Gia Lai and Kon Tum provinces reached 82,000 Vietnamese dong per kilogram, 700 Vietnamese dong per kilogram higher than in the morning session.

One of the factors driving this rally is the expansion of Germany's import share of Vietnamese coffee. Data from Eurostat show that Germany imported a total of 845,500 tonnes of coffee from origins outside the EU, worth 2.98 billion euros (about $3.2 billion), with an average import unit price of 3,511 euros per tonne. Compared with the same period in 2022, import volume fell by 17.1%, while import value dropped by 27.6%.

Germany's main sources of coffee purchased outside the EU are Brazil, Vietnam, Honduras and Uganda. Although Germany's coffee imports from Vietnam fell 11.3% year on year to 1.9868 million tonnes in the first 11 months of 2023, Vietnam's share of Germany's total imports climbed from 21.89% to 23.41%, and has recently shown a trend of continuing to rise.

Local traders in Vietnam report that producers and growers have begun gradually releasing their inventories, but strong demand combined with shrinking supply continues to push prices higher. Many coffee companies are stepping up purchases in order to lock in sufficient supply as early as possible, further intensifying upward pressure on prices.

However, Vietnam's coffee industry also faces multiple challenges. Affected by climate change, this year's output is expected to shrink by 10%. At the same time, since China opened access to Vietnamese durian in 2023, some farmers have shifted to durian cultivation, as durian and other fruits have huge potential in the Chinese market and offer higher economic returns. Taken together, coffee prices may still have room to rise further in the future.

The above content is compiled by CoffeeHunters, a coffee news website.