USDA Attache: Vietnam’s 22-23 Coffee Crop Revised Down to 30.22 Million Bags

CoffeeNetwork (New York) – The latest USDA attache report noted that Post revises its estimate of Vietnam marketing year 2022/2023 (MY 2022/23) coffee production down to 30.22 million bags, green bean equivalent (GBE), due to lower yields, despite abundant rainfall that supported the flowering and cherry setting stages. Post revises MY 2021/22 coffee exports up to 27.70 million bags, driven by increasing demand and improved logistics. Widening gaps in prices of Arabica versus Robusta, as well as Vietnam Robusta versus other sources, will support exports of the new crop. Post revises its estimate of MY 2022/23 coffee exports up to 27.65 million bags.

All coffee producers and traders reported higher than average precipitation that supported irrigation for the MY 2022/23 coffee crop. The Global Agricultural and Disaster Assessment System (GADAS) also confirmed these observations.

GADAS’s data reported that monthly rainfall in most Vietnam coffee growing provinces was higher than normal in January-July 2022, benefiting the coffee flower blossom and cherry setting. Coffee traders noted that harvest of the MY 2022/23 crop started one to two weeks earlier than the previous crop, especially in Gia Lai, Kon Tum, and Dak Nong which had higher ripening ratios. Although weather has been relatively favorable for crop development, forecasts of higher-than-average precipitation during the harvest season and a prolonged rainy season have raised concerns that wet weather could negatively affect coffee picking and drying in the Central Highlands. According to the Vietnam Meteorological and Hydrological Administration’s observations and forecasts, there is an 80-90 percent chance that the La Niña phenomenon will continue until the end of 2022 and could extend through the start of 2023, leading to a wetter climate in some areas of Vietnam. The Vietnam Meteorological and Hydrological Administration also forecasts that rainfall will be 50 to 100 percent higher than average in the Central Highlands this November and will remain 20 to 40 percent higher in December.

Despite generally favorable weather conditions, MY 2022/23 Robusta coffee yields saw lower performance compared to the previous crop. Coffee traders reported smaller bean sizes and lower cherry survival rates. While some attributed this to the reduced application of fertilizers because of high prices, others suggested that it simply an off-cycle year. According to the Ministry of Industry and Trade’s Vietnam Industry and Trade Information Center (VITIC), in the first nine months of 2022, imports of fertilizers were down by 29 percent in quantity, but up 12 percent in value. Fertilizer imports from China and Russia, Vietnam’s two largest suppliers, declined by 27 and 42 percent respectively. Retail prices of fertilizers in September 2022 increased by 40-50 percent compared with the same period last year, although this was a decline from peak prices in the first half of this year.

Due to lower yields, Post revises its estimate for MY 2022/23 total coffee production down to 30.22 million bags (GBE), including 29.20 million bags of Robusta, 4 percent lower than the previous crop. Industry contacts also forecast less coffee output than the MY 2021/22 crop, ranging from 2 to 8 percent lower.

CONSUMPTION

The Vietnam economy saw a strong recovery from the serious effects of COVID-19 that occurred in 2021. The Vietnam Gross Domestic Product (GDP) grew by 8.83 percent in the first nine months of 2022, its strongest rise in ten years and the World Bank forecasts that Vietnam’s overall annual GDP will surge from an estimated 2.6 percent in 2021 to 7.5 percent in 2022. The Vietnam General Statistics Office (GSO) estimates that revenue from the accommodation and food and beverage service sectors in the first nine months of 2022 increased by nearly 55 percent compared to the previous year. The travel sector also saw an exceptional increase of 295 percent in revenue during this time. The strong recovery of these sectors has supported more domestic demand for out-of-home coffee drinking which had declined significantly in 2021 due to the COVID-19 pandemic.

Consumers continue to prefer instant powdered coffee and ready-to-drink coffee for their convenience. Vietnam saw expanding investment in instant coffee manufacturing to meet both domestic and export demand in the recent years. Although demand for ready-to-drink coffee might decline in 2022 as out-of-home drinking resumes, Euromonitor forecasts that sales will still see steady year-on-year growth of 5 percent from 2022 to 2026. Ready-to-drink coffee manufacturers are eager to develop new products, flavors, and packaging to meet the diversified demands of customers. Post also notes the increasing presence of new ground coffee brands which are packed in sizes of 250-500 grams by small roasters for retail. These products are often described as “pure”, “fine,” and “single-source” to meet more sophisticated at-home demand. Post maintains its estimate of MY 2022/23 domestic consumption at 3.30 million bags.

TRADE

Exports

Based on Vietnam Customs’ statistics, Vietnam total coffee exports in MY 2021/22 reached 27.42 million bags, 9.6 percent higher than the previous year. Germany was the largest market for Vietnam coffee, although its volume dropped by 2 percent. Other major markets, such as Belgium, Spain, and Russia, saw a jumps of 126, 36, and 34 percent respectively.

In general, exports to the European Union (EU) in the first nine months of 2022 increased by 22 percent in quantity and 48 percent in value, thanks to improved logistics and ocean freights, as well as the phasing out of tariffs under the EU-Vietnam Free Trade Agreement (EVFTA). Traders noted that the quantity of coffee held in bonded warehouses at the end of September 2022 was approximately 40,000 tons, much lower than 134,000 tons last year, confirming strong physical shipments in the marketing year. According to some coffee traders, physical shipments in MY 2021/22 were 24 to 29 percent higher than the previous year. Therefore, Post revises MY 2021/22 total coffee exports up to 27.70 million bags.

Coffee traders forecast world demand to grow in MY 2022/23, but at a much slower pace than pre-COVID levels due to inflationary pressures in many major coffee consuming countries. Inflated costs could potentially limit coffee consumption growth at below 1 percent, according to some studies. Ocean freights and shipping capacity have improved significantly, boosting exports in the recent months. S&P Global Platts and other media outlets report that container rates have fallen and that the market expects spot rates to continue to trend downward in line with shrinking demand. The Vietnam Dong has depreciated by almost 9 percent against U.S. Dollar since the beginning of 2022, supporting exports in general. Widening price gaps between Brazil Conilon and Arabica led to forecasts of higher Conilon demand for local consumption than exports. Brazil Conilon exports in the first six months of MY 2022/23 saw a 50-60 percent decline year-on-year. In addition, Vietnam Robusta has priced at a discount compared with Brazil Conillon and some African Robusta sources over the past year, which will benefit exports in coming months. Together with the current steady exporting pace, Post revises its estimate of MY 2022/23 total coffee exports up to 27.65 million bags.

Green Bean Exports

Vietnam green bean exports increased to over 24 million bags in MY 2021/22, the majority of which was Robusta (Figure 4). Much of this growth was due to improved logistics and ocean freights. Vietnam Robusta also raised its market share due to several factors, including a forecasted global Arabica deficit in MY 2021/22 and MY 2022/23, the widening price gap between Arabica and Robusta, and high Brazil Conilon prices. Coffee traders estimate that inclusion of Robusta in roasters’ blends will be higher because of the above factors. Post revises its estimate of MY 2021/22 and MY 2022/23 green bean exports up to 24.70 million bags and 24.50 million bags.

STOCKS

High farm-gate prices encouraged farmers to quickly sell beans, signaling stock drawdowns at the farm level at the end of MY 2021/22. Strong exports in past months also reduced stocks in Ho Chi Minh City before the arrival of new crop. Post revises MY 2021/22 stocks down to 4.89 million bags on higher exports. Post also revises MY 2022/23 stocks down to 4.74 million bags on lower production and higher exports.