Bloomberg News

Sustainable Coffee Means Higher Yield for Vietnam Farmers

November 24, 2013

Coffee Beans

The adoption of certified coffee in Vietnam comes as bean prices slumped 35 percent from a March high to 29,600 dong ($1.40) a kilogram on Nov. 7, the lowest since October 2010 and threatening farmers’ income, data from the Dak Lak Trade & Tourism Center show. The price was 32,400 dong on Nov. 22. Photographer: Jerome Ming/Bloomberg

Phung Thi Huu is embracing the global movement toward sustainable coffee two decades after she first planted the crop and brought her family out of poverty.

“Coffee changed my life,” said Huu, a diminutive 53-year-old farmer with calloused hands and weathered skin in the coffee-rich Dak Lak province. “The future is brighter.”

She’s among thousands of Vietnamese farmers who benefited from coffee, which enabled her to expand her modest farm, buy family members motorbikes and provide her grandchildren with opportunities. Vietnam, the world’s biggest producer of the robusta variety used in instant drinks, wants to profit from the sustainable coffee movement led by Nestle SA and Mondelez (MDLZ:US) International Inc. to guarantee the environmentally farmed and traceable coffee sought by Western consumers.

“Consumers want to feel good about the coffee they are drinking,” Francesco Tramontin, European director of sustainability at Mondelez, the world’s second-largest coffee maker after Nestle, said by phone. “They expect big buyers like us to take action. We also need to secure the right quality of coffee.”

Mondelez, which makes Gevalia, Kenco and Grand Mere, said all beans used in its European coffee brands will meet sustainability standards set by certifying bodies such as Rainforest Alliance Inc. and 4C by 2015. Nestle has committed to buy more than 180,000 metric tons of certified beans worldwide by 2015, Hans Joehr, the company’s global head of agriculture, said in an e-mail.

Higher Prices

“Roasters want all the coffee to be sustainable,” said Nguyen Duc Tuan Vinh, managing director of trader Nedcoffee Vietnam Ltd. “That’s the message.”

Nestle, Mondelez and others are offering farmers in the Central Highlands coffee belt free training and higher prices for certified beans, said Flavio Corsin, Vietnam manager for IDH Sustainable Trade, a foundation that develops farming programs and partners with companies including DE Master Blenders 1753 NV and Tchibo GmbH. Nestle has trained about 40,000 coffee farmers, Joehr said.

Farms are certified by independent groups and must follow procedures, including water use, wildlife conservation and labor protection, said Corsin. Beans can be traced back to individual farms, he said.

A Rainforest Alliance report in May showed streams were healthier on certified coffee farms in Colombia and growers adopted best practices at a higher rate while productivity gains meant net revenue more than doubled at some plantations.

Price Pressure

The adoption of certified coffee in Vietnam comes as bean prices slumped 35 percent from a March high to 29,600 dong ($1.40) a kilogram on Nov. 7, the lowest since October 2010 and threatening farmers’ income, data from the Dak Lak Trade & Tourism Center show. The price was 32,400 dong on Nov. 22.

Adopting sustainable farming in Vietnam could boost production among individual farmers by 10 percent and incomes by 30 percent on average, according to IDH. While certified beans earn farmers only about 500 dong more, the revenue gains come from increased productivity and reduced costs, said Corsin.

Dak Lak, Vietnam’s largest coffee-producing province that accounts for almost a third of the nation’s harvest, is adopting new farming practices. The province is dotted with small coffee farms linked by rutted, muddy roads shared by scattering chickens and families bouncing along on motorbikes.

“Two, three years ago, almost no one was doing this,” said Huynh Van Phuoc, a farmer whose coffee beans are piled in neat rows on his cement driveway, a new drying process that produces more flavorful coffee. “Farmers can improve their brand with better quality coffee. We want prices to be steady so our lives are stable.”

Standardization Need

The certified coffee movement is still a work in progress that needs standardization, said Corsin. Not all certified coffee is produced the same way because of different guidelines used by certification bodies, he said. A certification may not guarantee adoption of the best sustainable practices because growers may not be using the latest scientific methods to minimize environmental effects, he said.

There’s also concern that the costs of complying with new standards could create a market barrier for small farms, the International Coffee Organization said on its website about sustainability programs.

“A high degree of uncertainty still exists as to whether the benefits of participation in a specific scheme outweigh the costs,” it said.

Production Increase

Certified coffee production rose to 660,000 tons in the 2012-2013 crop year from 330,000 tons a year earlier, according to Vinh. Vietnamese farmers reaped 1.5 million tons of beans in 2012-2013 and 1.65 million tons in 2011-2012, according to Bloomberg historical surveys. Those numbers show certified beans account for about 44 percent of total production, compared with 20 percent a year earlier.

At the pace now, more than 80 percent of Vietnam’s coffee will be grown on a sustainable basis by 2020, said Corsin.

Growers like Huu are optimistic the new methods will improve their lives more. Since she adopted environmentally-friendly farming in 2011, her costs have dropped while production and bean quality have improved, said Huu.

“I can’t really get more land because it’s very limited, so I have to learn how to boost yields,” she said. “Back in the old days, we just had enough to eat and we had to ride bicycles. With sustainable practices, our lives will be even better.”

To contact Bloomberg News staff for this story: John Boudreau in Hanoi at jboudreau3@bloomberg.net; Diep Ngoc Pham in Hanoi at dpham5@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net


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