Vietnam, the world’s second-biggest coffee producer, should limit coffee production to roughly 1.2 million tons a year to prevent price falls, an industry official said.

Luong Van Tu, chairman of the Vietnam Coffee and Cocoa Association, urged provincial authorities to keep coffee-planting areas from expanding too fast. 

Speaking at a coffee festival in Buon Ma Thuot, the country’s largest coffee-growing region, Tu said it’s time for the country to stop focusing on exporting as many raw beans as possible.

Instead, the nation’s growers need to focus on producing a more refined product that will promise a greater return on investment.

“It’s necessary to form a fund to stockpile coffee and protect growers against price falls,” he said. “At the same time we need to expand the market for Vietnamese coffee.”

Many officials and experts attending the festival, which ended on Tuesday, agreed that the local coffee industry has grown at a startling pace over the past ten years. The country now cultivates coffee over an area of 540,000 hectares and boasts an annual output of more than one million tons.

Coffee exports

Vietnam’s coffee exports rose from US$483 million in 2000 to a record $2.1 billion in 2008. Although the figure fell to $1.76 billion last year, coffee exports are expected to again achieve the $2 billion mark this year, thanks to rising world prices.

Experts warn that the development path for Vietnam’s coffee industry has not been sustainable.

As much as 20 percent of the country’s coffee area is occupied by old trees whose output and bean quality are both low.

What’s more, the link between coffee growers, processors and exporters is weak. Many growers just act on price pressures – that is, they expand their coffee areas when prices rise and then cull their plantations whenever prices fall.

Phan Huy Thong, deputy director of the Cultivation Department at the Ministry of Agriculture and Rural Development, said the government has greenlighted a 10-year program to reform the industry.

Thong said a national committee will be set up to oversee and coordinate all stages of coffee production – from cultivation to export – due to the fact that the coffee industry has expanded beyond government targets.

Bean counting

Jose Sette, acting interim executive director of the International Coffee Organization, joined a number of other experts in voicing concerns that today’s high prices could incite Vietnamese farmers to produce an overabundance.

Last December, official forecasts anticipated that Vietnam would turn out 17.5 million bags of coffee during the 2010-2011 crop year.

According to Sette, Vietnam would exceed all expectations and yielded 18.4 million bags.

The world’s coffee supplies remain low compared to demand. On Monday (March 14), Reuters reported that low supplies have helped drive Arabica prices to a 34-year high – nearly $3 per pound.

Sette said the “tight supplies” of Arabica will persist at least until the end of 2011.

Arabica, ho!

Tu, chairman of the Vietnam Coffee and Cocoa Association, said the nation should move away from further cultivating Robusta plantations.

The bean is both cheaper and less flavorful than its counterpart, Arabica.

Robusta, however, accounts for almost all coffee production in Vietnam – the world’s largest producer of the variety.

He was quoted in a report on the government website on Monday as saying that Vietnamese farmers need to gradually make room in their plantations for Arabica. He suggested that farmers could more than double their profits from switching varieties.

He said such a transformation would require a large amount of money and that the government should provide subsidized loans to coffee growers to spur the transition.