VietNamNet Bridge – Despite the warning from the Viet Nam Coffee & Cocoa Association that the country's coffee harvest may decline for a second straight year because of drought in the main growing regions, prices have continued to drop, putting coffee traders in distress.

Many face bankruptcy since, under pressure from lending banks, they have been forced to sell at much lower than the prices they paid for the coffee several months earlier.

Luong Van Tu, chairman of VICOFA, told a seminar in March that Viet Nam's coffee output could drop 30 per cent in the 2013-14 crop.

Production fell 25 per cent the previous year from 1.5 million tonnes a year earlier.

VICOFA statistics show that over 100 local coffee traders were in debt to the tune of thousands of billions of dong (VND1 billion = US$47,600) last year.

According to the Dak Lak Province Department of Industry and Trade, 43 coffee trading firms in the province went bust last year after owing VND300 billion ($24 million) while payment for 3,000 tonnes of coffee beans belonging to local farmers that have been sold has not been made.

The recent seizure of collateral from Binh Duong-based Truong Ngan Company for failure to repay loans is also indicative of what coffee trading firms face at the moment.

The company owes debts totalling VND600 billion ($28.85 million) to several lenders including Military Bank, VIB, Oricombank, Agribank, Maritime Bank, Vietinbank, and Techcombank.

Nguyen Xuan Binh, the company's director, said falling coffee prices and high interest rates have driven the company into insolvency.

Truong Ngan began operating in 2005 and has been exporting 30,000-70,000 tonnes of coffee annually.

"At times we had to pay interest rates of over 20 per cent, and that led to our financial problems in the last four years," Binh lamented.

Prices of beans in the Central Highlands, the largest coffee producing region in Viet Nam, dropped to VND38,500 per kilo on June 13, VND1,500 down from just three days earlier and VND7,500 down from the peak rates of 2012-13, according to Nguyen Quang Binh, director of HCM City-based coffee trader Chanh Tinh Anh Co. Ltd.

On the Liffe London robusta trading floor, coffee prices fell by $99 per tonne from $1,848 last week.

The global coffee market has seen prices of arabica coffee fall relentlessly from US$6,800 per tonnes two years ago to some $2,690 recently on the Ice New York trading floor.

In London robusta coffee prices fell from $2,200 per tonne three months ago to less than $1,747 on June 13.

The falling prices have affected Viet Nam's coffee exports in the past few months, which have fallen to 100,000 to 110,000 tonnes per month.

Binh said Viet Nam's coffee exports have slumped because exporters are unhappy with current prices.

"Vietnamese traders expect to export larger volumes of coffee if prices reach $2,100 to $2,200 per tonne," Binh told Viet Nam News.

Figures from the Ministry of Agriculture and Rural Development show that Viet Nam exported only 109,000 tonnes last month for $226 million.

The exports in the first five months stood at 697,000 tonnes for a turnover of $1.49 billion. This represented a 23.2 per cent decrease in volume and 21.7 per cent fall in value from the same period last year.

But exports by other coffee-producing countries have increased in the last few months.

Binh cited reports from the International Coffee Organisation as saying that global coffee exports in the first seven months of the coffee crop (from October 2012 to April 2013) amounted to nearly 66 million bags (of 60kg), a year-on-year increase of 7.1 per cent.

In the fiscal year ending 30 April exports topped 68.2 million bags of arabica, up by 4.9 per cent year-on-year, and 45.64 million bags of robusta, up 18.9 per cent.

Source: VNS