The current coffee price is about one and a half times higher than the previous crop year, bringing a significant boost to the Central Highlands provinces to improve their socio-economic situation and increase people’s income. However, for coffee traders, this is a challenging year, because coffee buying and selling prices fluctuate unpredictably, and risks are always lurking. Ensuring business operations in this case is very difficult. Some small businesses only dare to do business moderately, while farmers are nervous because they sell immediately and worry that the price will continue to rise, but if they keep it, they worry that the price will drop a lot.
Coffee buying and selling prices fluctuate unpredictably, risks are always lurking
Mr. Nguyen Trong Ngoc has a long-standing coffee business in Krong Pak district, Dak Lak province. Last year, near the New Year, his company purchased nearly 600 tons of green coffee, with a total capital mobilization of about 24 billion VND. In this 2023 – 2024 crop year, although there is a lot of coffee among the people and there is no shortage of capital, businesses only purchase very little.
According to Mr. Ngoc, part of the reason is that people have the mentality of hoarding goods waiting for prices to increase, the other part is that coffee prices fluctuate with a large amplitude, businesses feel many risks. Specifically, from the end of August to the beginning of December, coffee prices increased for 7 consecutive days, but there were also price decreases for 1 month in a row, with a sudden decrease of up to 7 million VND/1 ton. In December, coffee prices basically kept increasing, sometimes reaching nearly 70 million VND/ton, but in early January they were in a downward trend and are now increasing again. Mr. Ngoc said that, while the market fluctuates up and down like today, he is content with the state of moderate trading.
“Coffee is very sensitive and risky. If the price suddenly drops, the business will lose money. If the company keeps it at market price, it will make a small profit, or it will break even. In general, coffee business depends on each market stage and according to the feelings of each business, buying first and selling later should follow market rules,” Mr. Ngoc shared.
Coffee prices increasing and decreasing with large amplitudes not only challenge businesses. Many coffee farmers are also confused, not knowing whether to sell immediately or continue to wait for the product to continue to increase in price. Ms. Nguyen Thi Nguyet in Ea Yong commune, Krong Pak district has 2,900 coffee trees planted with durian. In recent years, durian has been in good season, so the family has the means to wait for coffee prices to increase, but she has never been able to sell coffee at a good time.
“In 2021 – 2022, home-grown coffee sells for 35,000 VND/kg because the family needs money then. But that same year, there was a time when the price of coffee rose to as high as 48,000 – 49,000 VND/kg and I thought the price would increase further but it fell, so when I sold it cheap, I unfortunately had to bear it. In 2022 – 2023, the family also waited for the price to reach 69,000 – 70,000 VND/kg and thought it would increase further before selling, but the price dropped to 65,000 VND/kg and had to sell because they needed money. The family is not in a hurry to finalize this year’s crop, just recalculating and waiting to see if the price will increase again. Wherever you need money, you will sell there. If the price goes up, you have to wait. When the price goes down, you have to accept it,” Ms. Nguyet calculated.
Since the country’s reform, farmers have been free to produce and do business according to the law. Coffee trees have always been the driving force for growth in the Central Highlands region, especially Dak Lak. At its peak, in 1995-1996, coffee helped Dak Lak achieve economic growth of around 20%/year. But after the peaks created by coffee, there are often long periods of decline, leading to storms of default by businesses and agents, affecting thousands of farming households.
Working at an enterprise with 30 years of business and exporting coffee and a history of never losing money, Mr. Le Thanh Son, Marketing Director of 2/9 Import-Export Co., Ltd. (Simexco) Dak Lak stated his experience, When coffee prices increase and price fluctuations are large, businesses must pay more attention to risk management options. Like this crop year, quick capital turnover is very important, to adapt to the risk of possible price collapse.
“For the 2023 – 2024 crop year, businesses have strategies to synchronously implement price and purchasing risk management in many different forms. At the same time, organize production, processing and export on the spot and accelerate capital turnover. In addition, businesses also speed up the purchase of raw coffee, and maintain high purchasing prices for farmers,” Mr. Son said.
When coffee prices rise and fluctuate widely, businesses must pay more attention to risk management options
The entire Dak Lak province currently has 213,000 hectares of coffee, the output of this crop year 2023 – 2024 is estimated to reach 580,000 tons of coffee. The province’s export coffee output is expected to be at 330,000 tons. If prices stay as high as they are now and fluctuate slightly in the near future, coffee export turnover could reach 900 million USD.
In parallel with taking advantage of new opportunities from the market, Dak Lak is still on the roadmap to improve both productivity and product quality, and increase attraction of investment in deep processing. Considering the quality of green coffee beans and increasing the proportion of deep processing is a way to maintain the sustainability of the industry and avoid risks from the market.
