Caution against the risk of coffee surplus

Record prices due to supply shortages

One of the main reasons that coffee prices in the world and Vietnam reached record levels - often exceeding expectations - in the 2023-2024 coffee season (which just ended in September 2024) is the shortage of Robusta coffee supply.

According to the Vietnam Coffee and Cocoa Association (VICOFA), the 2023-2024 coffee season saw the highest and fastest price fluctuations ever recorded. Export supplies have been lacking since the end of the 2022-2023 season, leading to continuous price increases from the start of the 2023-2024 season. At the peak of the season, coffee prices reached approximately 5.27 USD/kg.

On the global market, the 2023-2024 coffee season also saw very high prices, particularly for Robusta coffee, which reached record levels not seen in over 30 years. This has narrowed the price gap for futures between London and New York to less than 20 cents per pound at times. Mr. Do Ha Nam, Vice Chairman of the Vietnam Coffee and Cocoa Association (VICOFA), noted that after decades in the coffee business, he has seen Robusta prices exceed 5.000 USD/ton on the London exchange for the first time.

Thanks to these record prices, even though export volumes reached less than 1.5 million tons in the 2023-2024 season, the revenue hit a record high of 5.43 billion USD.

Many forecasts for the new coffee season

As the coffee season 2024-2025 (from October 2024 to September 2025) begins, coffee prices remain very high compared to previous years. In the Central Highlands, coffee prices in October 2024 are maintaining levels above approximately 4.24 USD/kg.

With coffee prices continuing to stay high as the new season starts, questions have arisen about the production and supply of coffee in Vietnam and globally, especially for Robusta coffee (the main type produced in Vietnam) in the 2024-2025 season.

According to Mr. Do Xuan Hien, Secretary General of the Vietnam Coffee and Cocoa Association (VICOFA), there are many forecasts regarding global coffee production for the 2024-2025 season (from October 2024 to September 2025) and production levels in leading coffee-producing countries such as Brazil, Vietnam, and Colombia.

According to the Brazilian Institute of Geography and Statistics (IBGE), Brazil's coffee production for the 2024-2025 season is estimated to reach around 59.7 million bags (1 bag = 60 kg). Compared to the 2023-2024 season, production for 2024-2025 is expected to increase by 4.8%, driven by an average yield increase of 3.6% and a 1.2% expansion in area. The production of Arabica coffee is estimated at about 42 million bags, a 6.5% increase from the previous season, while Robusta/Conilon coffee is projected to reach around 17.7 million bags due to a 3.3% reduction in area and a 1.1% decline in yield.

According to StoneX news agency, at the Victoria Coffee Summit held in Espírito Santo state (Brazil) on September 26-27, 2024, information indicated that Brazil's coffee production for the 2024-2025 season is expected to reach 65.9 million bags, with Arabica at 44.7 million bags and Robusta at 21.7 million bags.

In a report by the U.S. Department of Agriculture (USDA), Brazil's total coffee production for the 2024-2025 season is projected to be 69.9 million bags, with Arabica at 48.2 million bags and Robusta at 21.7 million bags.

The Brazilian National Supply Company (Conab) has provided its third estimate as 96% of the coffee area has been harvested in Brazil. According to Conab's estimate, Brazil's coffee production for the 2024-2025 season is expected to reach 54.79 million bags, a decrease of 0.5% compared to the 2023-2024 harvest. This includes an estimated 39.59 million bags of Arabica coffee, which is a 1.7% increase from the previous harvest, while Robusta/Conilon is projected to be 15.2 million bags, down by 6%.

Vietnam's coffee production (the second-largest coffee producer in the world) also has various forecasts. According to a USDA report, Vietnam's coffee production for the 2024-2025 season is projected to be around 29 million bags, with 24.4 million bags for export and 4.6 million bags for domestic consumption.

Other forecasts suggest that Vietnam's coffee production in the 2024-2025 season will be around 1.6 million tons (26-27 million bags).

Colombia is predicting its coffee production for the 2024-2025 season could reach 12.4 million bags, an increase of 1.65% compared to the 2023-2024 season. Indonesia's coffee production for the 2024-2025 season is forecasted to be between 7.5 to 11 million bags.

Risk of coffee surplus

According to VICOFA, before 2022, due to the extremely low coffee prices, many farmers in certain coffee-growing regions switched to planting durian and other crops with higher economic returns. Many households also started intercropping (with pepper, durian, etc.) in their coffee gardens, leading to a significant reduction in both the number of coffee trees and coffee production. The exact data on the area of coffee that has been converted to other crops or intercropped is currently very difficult to determine accurately.

Over the past two years, the surge in coffee prices has allowed farmers to make more substantial investments in maintaining and nurturing their coffee gardens. This increase in investment can be attributed to the positive outcomes of the Coffee Replanting Project implemented in the Central Highlands from 2014 to 2020. This project has played a crucial role in boosting productivity and overall yield, especially in provinces such as Lam Dong and Gia Lai.

Since 2022, with coffee prices continuing to rise, farmers in various coffee-growing regions across Vietnam and globally have been proactive in not only enhancing the care and management of their existing coffee trees but also in expanding the acreage dedicated to new coffee plantations.

Mr. Nguyen Quoc Manh, Deputy Director of the Crop Production Department, noted that by the end of 2023, the total area of coffee in the country had increased to 718.000 hectares and is continuing to expand in 2024 as the demand for coffee seedlings in the market rises. Coffee yield is also increasing. While the average yield for Vietnamese coffee was around 2.7 tons/ha 2-3 years ago, it reached approximately 2.9 tons/ha by 2023.

Not only in Vietnam but also around the world, the area dedicated to coffee cultivation is on the rise, driven by the increasing coffee prices. Mr. Nguyen Quang Binh, a coffee market analyst, noted that when global coffee prices soared to 3.000 USD/ton, several countries - including Uganda, Kenya, Tanzania, and India - expressed intentions to expand their coffee-growing areas. This trend isn't limited to just Arabica and Robusta coffee; even Liberica coffee, which is less commonly cultivated, is seeing interest from various countries in expanding its production. Given this potential surge in production, Mr. Binh has expressed concerns about a possible oversupply of coffee in the coming years.

In light of the risk of rapid growth in coffee area and production globally, VICOFA emphasizes the need for caution to avoid a surplus crisis similar to that seen in the early 2000s. Mr. Binh further advises that coffee producers in Vietnam should not simply chase higher quantities of production. Instead, they should carefully consider their strategies to maximize efficiency and quality. He warns that if coffee production increases substantially, it is inevitable that coffee prices will decline sharply.