Why is Vietnam coffee production declining in 2024?

Vietnam's coffee export volume fell 10.5 percent year on year to 902,000 tons in the first half of 2024, yet export value rose 34.6 percent to US$3.22 billion because average export prices climbed 50.4 percent. The lower volume traces to reduced coffee production, after drought damaged coffee trees in ways that are difficult to reverse and farmers shifted to more profitable crops.

Fruit tree planting area reached 12.711 million hectares, up 2.6 percent from June 2023. Durian alone covered 1.539 million hectares, up 17.4 percent, with passion fruit at 126,000 hectares and guava at 272,000 hectares. Since fruit earns more than coffee or pepper, planting areas are expected to keep shrinking. Growing demand in South Korea offers some support to the export outlook.

As a major global coffee producer, Vietnam faced a decline in export volume in the first half of 2024. Data shows that coffee export volume in the first six months fell 10.5% year-on-year to 902,000 tons, but thanks to a 50.4% surge in average export prices, total export value instead climbed to US$3.22 billion, an increase of 34.6%. Behind the production decline were both irreversible damage to coffee trees caused by drought and competitive pressure from cash crops such as durian and passion fruit. A large number of farmers switched to growing more profitable fruit trees, causing coffee planting area to keep shrinking. Although coffee prices have risen to high levels, they are still not attractive compared with the profits from crops such as durian. At the same time, demand for Vietnamese coffee in the South Korean market is growing, bringing a glimmer of warmth to the export outlook.

The export report for the first half of 2024 previously released by Vietnam's Ministry of Agriculture and Rural Development shows that in the first six months of this year, the country's coffee export volume was 902,000 tons, down 10.5% from the same period last year. However, because the average coffee export price rose sharply by 50.4%, export value reached US$3.22 billion, up 34.6% year-on-year.

The core reason for the lower export volume is the decline in coffee production. In the first half of this year, Vietnam experienced drought, and coffee trees suffered damage that is difficult to reverse. At the same time, competition from other fruit crops also led to a reduction in coffee planting area, further worsening the production decline and ultimately creating a market shortage.

Data recently released by Vietnam's General Statistics Office shows that the country's total fruit tree planting area has reached 12.711 million hectares, up 2.6% from the end of June 2023. Among this, durian planting area reached 1.539 million hectares, an increase of 17.4%; passion fruit was 126,000 hectares, up 9.3%; and guava was 272,000 hectares, up 5.6%. Since growing fruit is clearly more profitable than coffee and pepper, more and more farmers are turning to fruit tree cultivation, and coffee and pepper planting areas are expected to continue shrinking.

The general manager of Simexco Daklak, Vietnam's third-largest coffee exporter, said in a recent media interview that earlier, when robusta coffee and pepper prices were low, many people chose to cut down these crops and switch to fruits such as durian. But this shift also led to lower coffee and pepper output, causing shortages and driving prices up accordingly.

At the same time, agricultural land is becoming increasingly scarce, while the global population continues to grow and demand for pepper and coffee keeps rising. Although coffee and pepper prices have now risen to high levels—pepper reaching VND 100,000/kg and green coffee beans reaching VND 120,000/kg—they are still not enough to attract farmers to replant. Compared with other crops such as durian, the profits from coffee and pepper remain relatively low.

Affected by weather factors such as drought in the first half of the year, coffee and pepper inventories are expected to continue declining over the next 3 to 5 years. In the long run, market prices for coffee and pepper are unlikely to fall sharply.

At present, Vietnam's domestic coffee market is also not encouraging. According to local traders, spot trading of Vietnamese coffee is in a sluggish state. Spot purchase prices remain high at VND 117 million to 120 million per ton, but many farmers have already sold out their coffee beans. Some companies, in order to fulfill previously signed contracts, have had to buy coffee beans at high prices, but after completing delivery, they are unwilling to continue purchasing at excessively high prices.

However, there is also good news from the market. According to reports, South Korea will increase its imports of Vietnamese coffee. At present, South Korea adds four cheap coffee shops every three days, with each cup selling for about KRW 1,500 (about RMB 7.89), which is very popular among local consumers, and these coffee brands are therefore expanding rapidly.

Due to their geographical proximity, South Korea is bound to increase coffee imports from Vietnam. In 2023, South Korea already imported 41,450 tons of Vietnamese coffee, with export value reaching US$93.35 million, up 17.9% from 2022, and export value in 2024 is expected to reach US$2.2 billion.

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