The downside when coffee prices increase sharply
– TASTE THE ORIGIN –
Coffee prices have increased continuously recently, even during the harvest season. Along with that is the excitement of farmers when the crop gets a good price. People also have more motivation to continue growing coffee and not massively switch to other crops. However, rising coffee prices also lead to sad consequences for small-scale coffee buyers and dealers.
Coffee prices increased to the highest in 20 years
In recent times, coffee prices have had consecutive high increases. From October to mid-January next year is the time to start the coffee harvest in key regions in Vietnam. The story of coffee prices peaking even during the harvest season is rare in history. According to the usual rule, when the harvest is strong, coffee prices will decrease because of abundant supply. In the last days of the year, coffee prices exceeded 70,000 VND/kg. Thus, coffee prices for the whole year 2023 increase by up to 70%.
Benefits when coffee prices are high
It is easy to see that high coffee prices will bring economic benefits to farmers and businesses in the industry. Farmers are happy to see coffee prices 1.5 times higher than at the same time in 2022. Mr. Tran Dinh Trong, Chairman of the Board of Directors and Director of Ea Tu Fair Service Agricultural Cooperative (Dak Lak ) said: The average profit of coffee growers is about 120-130 million VND/ha. Garden owners who invest methodically and produce according to scientific processes can earn around 200 million VND/ha.
Farmers’ income improves when coffee prices increase
Not only does it bring joy and profit, but peak coffee prices also show the transformation of Vietnamese coffee. Vietnamese coffee brands are gradually achieving a certain position in the international market. With these numbers, we can believe that Vietnamese coffee is entering a bright decade. And the price of this agricultural product will remain high for the next ten years, not just this year’s crop. This result is an affirmation of the quality of Vietnamese coffee.
The downside of increased coffee prices
Besides joy, Vietnam’s coffee industry is also facing underground waves when prices increase. The reason is due to the way many agents and purchasing units operate. Specifically, Mr. Do Ha Nam, Chairman of the Board of Directors of Intimex group, said that a characteristic in the coffee industry is buying and selling first, then delivering. This not only happens in key coffee-growing localities but also in the futures exchange in London.
While many people can rely on the price rules for this commodity from previous years, thinking that every year, coffee prices will decrease, or even decrease sharply each time the harvest comes. This year, coffee prices will also be the same, so many agents and small businesses in localities have signed contracts in the form of pre-sales at high prices. Then, when the harvest comes, they will buy at a cheaper price with the hope of gaining a large difference.
=> Thus, agents and businesses that have sold in advance to buy in after the harvest will encounter high coffee prices and will suffer losses or even go bankrupt.
The consequences of increasing coffee prices give many businesses headaches
In coffee growing areas, people usually send coffee to agents’ warehouses when harvesting. When farmers need money or think they can sell, they will notify the agent to negotiate and get the money. This also shows that agents and small coffee-purchasing businesses in localities often have limited capital resources, so they often use the amount of coffee sent by people as revolving capital. If agents can sell coffee before the price drops, they will make a profit. But when coffee prices increase and increase continuously like this year, it will lead to a situation where agents cannot afford to pay farmers for sending coffee. While many agents have limited capital, they have to borrow interest to buy coffee. Coffee prices do not follow any rules.
Purchasing units and small businesses go bankrupt, causing many export businesses to struggle because they cannot ensure the source of goods to supply to the market and serve exports.
Although this situation has been warned, it still occurs. The form of ‘selling young rice’ by many agents also leads to a situation where farmers are disadvantaged because when sold in this form, people rarely receive high prices according to the market price.
The News section has sent readers some difficulties when coffee prices increase. Coffee is a harsh commodity, so farmers need to look at the practices of agents and purchasing businesses that have lost money to learn lessons for themselves by implementing trust contracts to help farmers. avoid price pressure when the crop is in full swing.