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The rise in domestic prices pushes coffee businesses into a loss-making position

– TASTE THE ORIGIN –

In recent days, we have witnessed the scene of domestic coffee prices soaring rapidly, continuously breaking decades-old records to reach a new peak of nearly 105,000 VND/kg. The price level hasn’t stopped here but is forecasted to continue rising in the future. High prices combined with a shortage of supply have pushed many coffee businesses onto the path of losses. The equation to escape losses has become more difficult and urgent than ever.

 

Coffee prices continue to soar

 

As of April 9, 2024, coffee prices are ranging between 104,000 and 104,500 VND/kg (See today’s coffee prices in each locality at Today’s coffee prices, view today’s accurate coffee prices). The beginning of April marks the peak period of the dry season in the Central Highlands provinces, with this year’s drought forecasted to be more severe than in previous years. Water levels and flows in rivers and streams are gradually decreasing and maintained below-average levels for many years. Thousands of hectares of crops are withering due to water shortages. The scarce rainfall, dry conditions, and water shortages during the dry months of 2024 will significantly impact the production activities and livelihoods of the people. Coffee production, which is already low, is further expected to decrease this year. Concerns about the supply have driven coffee prices to unprecedented levels.

 

Many coffee businesses are seeking ways to escape losses

 

The sudden surge in coffee prices has caught many businesses off guard because contracts are usually signed when coffee prices are low, without much fluctuation as seen currently. Businesses are forced to fulfill contracts they have already signed in a situation where there is no coffee to buy and prices are “skyrocketing.”

The rise in domestic prices pushes coffee businesses into a loss-making position

Many businesses are struggling to fulfill previously signed contracts

According to Mr. Phan Minh Thong, Chairman of Phuc Sinh Group – one of the leading coffee export companies in Vietnam, in the first three months of the season, export companies, foreign traders, and FDI often sell up to 50% of their production in advance and buy during the season. However, companies sell at low prices in advance, and when companies buy, coffee prices are continuously pushed up. In November 2023, prices ranged from 59,000 to 60,000 VND/kg, then in December 2023, it was 62,000 VND/kg and 69,000 VND/kg. By January 2024, it was 70,000 VND/kg and 82,000 VND/kg by early March, reaching 86,000 VND/kg and up to 94,500 VND/kg.

For each ton of coffee, companies have to bear losses of tens of millions of VND, while coffee contracts range from hundreds to thousands of tons. The level of damage is extremely high, incalculable, causing many small and medium-sized enterprises unable to sustain themselves.

Traders also face many risks when buying from farmers, and when farmers see high prices and refuse to deliver the goods they have signed contracts for, traders incur significant losses or bankruptcy, and they also lack financial resources to deliver to export companies or foreign companies for the contracts they have signed. Many exporters are demanding thousands or tens of thousands of tons they have already bought or even received deposits for but have not been delivered, facing mounting difficulties.

As manufacturing enterprises, they face even more difficulties such as low capital turnover. They have to increase various expenses, such as production costs, labor costs, bank loan interest costs, transportation costs, even double compared to traders, machinery depreciation costs, opportunity costs,…

 

What are coffee businesses doing to address immediate challenges?

 

A volatile market is the time when businesses need to change their procurement plans and strategies. To ensure the supply from farmers, businesses may have intensified their cooperation with farmers by investing in fertilizers, providing them with loans to cover living expenses as well as cultivation costs. By applying this method, Bao Anh company still ensures a supply of 10,000 tons per year for Vinh Hiep each year and partially meets the demand for other leading export businesses in Vietnam amid the broken coffee supply chain.

The surge in prices coupled with the risk of not being able to collect goods has put many businesses, especially small and medium-sized ones, in a dilemma. Supply chain integration is seen as a useful solution to help businesses overcome this situation.

Stay tuned to the News section for more useful information!

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