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Copyright Warning COPYRIGHT WARNING This paper is protected by copyright. You are advised to print or download ONE COPY of this paper for your own private reference, study and research purposes. You are prohibited having acts infringing upon copyright as stipulated in Laws and Regulations of Intellectual Property, including, but not limited to, appropriating, impersonating, publishing, distributing, modifying, altering, mutilating, distorting, reproducing, duplicating, displaying, communicating, disseminating, making derivative work, commercializing and converting to other forms the paper and/or any part of the paper. The acts could be done in actual life and/or via communication networks and by digital means without permission of copyright holders. The users shall acknowledge and strictly respect to the copyright. The recitation must be reasonable and properly. If the users do not agree to all of these terms, do not use this paper. The users shall be responsible for legal issues if they make any copyright infringements. Failure to comply with this warning may expose you to: Disciplinary action by the Vietnamese-German University. Legal action for copyright infringement. Heavy legal penalties and consequences shall be applied by the competent authorities. The Vietnamese-German University and the authors reserve all their intellectual property rights. THE MARKET OF COFFEE IN VIETNAM: STRUCTURE AND DEVELOPMENT Bachelor Thesis Vietnamese – German University Le Lai Street, Binh Duong New City, Binh Duong Province, Vietnam The market of coffee in Vietnam: Structure and Development Submitted to Professor Dr. Roland Eisen Vietnamese – German University Faculty of Finance and Accouting By Pham Ngoc Tan FA 2012 B-24 [email protected] Vietnamese – German University major in Finance and Accouting Table of Contents I. Introduction ................................................................................................................. 1 1. Background of Vietnam’s Coffee ........................................................................... 1 2. Research problem .................................................................................................... 4 II. The market of coffee in Vietnam: Structure and Development ............................. 5 1. Vietnam’s Coffee market ........................................................................................ 5 2. Structure of Vietnam’s Coffee................................................................................ 9 a. State of Demand ............................................................................................................... 9 b. State of Supply ............................................................................................................... 12 3. Development of Vietnam’s Coffee........................................................................ 17 a. State of Coffee’s production in recent years .................................................................. 17 b. Competitive advantage and potential development ....................................................... 20 III. Case study .................................................................................................................. 27 1. Trung Nguyen Coffee ............................................................................................ 28 2. Highlands Coffee ................................................................................................... 30 3. Vinacafe .................................................................................................................. 32 IV. Conclusion ................................................................................................................. 35 V. References .................................................................................................................. 36 List of Tables Table 1: Coffee shops/ specialized coffee shops categorized in groups for period 2009 - 2014 .. 11 Table 2: Supplies and Demands of Vietnam Coffee production .................................................. 13 Table 3: Coffee planted area and coffee production (2005 - 2014) .............................................. 19 Table 4: Total coffee production from 2013 -2016 ...................................................................... 20 I. Introduction 1. Background of Vietnam’s Coffee Over past 20 years, Vietnam Coffee history has been changed speedily and remarkably. Being from a non-well-known industry, it becomes one of the most important industries which are bringing huge revenues to the whole nation since the Government changed and amended policies and market structure. Since the 1990s, Vietnam has moved from a closed economy to a more open minded economy in which international investors/companies, as well as private companies are more welcome. As the consequence of changes and amendment in government policies, Vietnam became and still has been a quickest growing country and standing at the 2nd position of producing and exporting coffee in the globe. The remarkable development of Vietnam Coffee Industry could be explained by three vital reasons in the last two decades: the stimulation from changes and amendment in government policies following with liberalization in agriculture and finally thank for favorable developments in the global coffee market. Surprisingly, Vietnam is a country which has the fastest growth rate in producing and exporting coffee in comparison with other countries; such as a strong competitor – Colombia spent about 75 years to achieve the volumes that Vietnam already achieved in last decade, started from 2004. Particularly in Vietnam Coffee industry, producing and exporting segments take majority parts while coffee consumptions of Vietnamese contribute a small amount in total of revenue made from Coffee industry. In term of coffee production segment, Vietnam largely produces Robusta coffee which has highly contributed to and assisted Vietnam Coffee to become a strong country in the global coffee industry. 1 Refer to a period of the 1990s on which Vietnam had been through an open-minded circumstance, Vietnam’s coffee sector experienced explosive growth by following main reasons. A first important reason is the looseness of governmental policies, especially for agricultural segments. Export crops including coffee were favorably mandated and stimulated by the government in different forms; prioritizing for favorable credits, supplying inputs, supporting with low-cost of land rent. The looseness of policies consequently led to an increase in cultivated area as well as a remarkable amount of outputs. A short-term after this looseness, Vietnam had soon earned the highest input production – average in more of two tons or 34 bags (60 kilograms) per hectare by the year 2000. At that time, the success and fastest growth of Vietnam Coffee industry had additionally driven by two external factors: weather problems and willingness of using Robusta coffee. In 1994 and respectively in 1997, climate changes significantly affect Brazil’s coffee growing; therefore it created substantial hikes in global coffee price. Also with that, the global roasters changed their coffee preferences when they use more Robusta coffees in their blends since there were technological improvements in the coffee processing in which Robusta’s harsher flavor characteristics were softened. Vietnam government in the last two decades had unique and consistent development policies for the national economy. Industrialization had to be prioritized; however, it must be implemented in parallel with agricultural developments. Developments of Vietnam economy in the last ten years had recorded that agriculture still plays a substantial role where it highly contributed a quarter of whole nation’s GDP – a part of that is contributed by growing and producing coffee. The first position in the national agriculture is growing and producing rice and the next after position is growing and producing coffee. This agricultural segment directly 2 employs huge amount of workers, especially during at the harvest seasons and might occupy about 3% of agricultural labor force. Despite the advantages of changes in governmental policies and external factors, Vietnam Coffee industry had confronted a plenty of challenges in the global trade arena. The success of Vietnam Coffee industry is remained consistently since now is due to well-understanding of coffee trade dynamics in new environment in which transparency and agility. Comprehensive understanding of the global coffee market allowed Vietnam Coffee Industry to reach new opportunities; such as gaining market share over the competitors in Africa and Asia. Nevertheless, it at the same time created more strict competition for Vietnam Coffee since it not only had to compete with the existing ones but also had to seek new market and market channels. Understanding and exploiting the comparative production advantages, Vietnam had been very competitive in its core business – producing and deliver basic coffees. One of the advantages is the lowest cost of providing of bulk coffee with little add values. However, Vietnam Coffee Industry still had several significant challenges and difficulties to enhance Vietnam Coffee’s reputation over the global market; for example promoting consistent and high quality. Vietnam’s competitors did not face these obstacles; such as the number one coffee producer – Brazil which had the longest history in growing and producing coffee. Therefore,
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