microeconomics essaytopic the price movements of robusta coffee in vietnam

7Chapter 2: In depth analysis of Robusta coffee...91.Price movement of Robusta coffee in Vietnam for 5 years...92.Analyzing factors affecting Viet Nam’s Robusta coffee demand between 202

MICROECONOMICS ESSAYTopic: The price movements of Robusta coffee in Vietnam

Group 4:

Huỳnh Ngọc Duyên - 723K0007Đặng Nguyễn Ánh Xuân - 723V0021

Lâm Gia Huy - 723V0002Nguyễn Kim Ánh - 223V0001

Table of Contents

Table of Contents 1

Introduction 3

Chapter 1: General theory 5

1.Definition of demand and supply 5

1.1 Definition of demand 5

1.2 Definition of supply 7

Chapter 2: In depth analysis of Robusta coffee 9

1.Price movement of Robusta coffee in Vietnam for 5 years 9

2.Analyzing factors affecting Viet Nam’s Robusta coffee demand between 2023 10

2019-2.1 Economic Conditions 10

2.2 Culture and Lifestyle 10

2.3 Product Diversity: 10

2.4 Advertising and Trends: 11

2.5 Health and Lifestyle: 11

3.Analyzing factors affecting Viet Nam’s Robusta coffee supply between 2023 12

2.1 Coffee production is still spontaneous and small 18

2.2 Climate Change 19

3 Opportunities 19

3.1 Taste is increasing for high quality coffee 19

4 Threats 19

4.1 Competition in the market 19

4.2 Challenges in resource management and environmental protection 20

Reference Documents 21

Page of 221

Firstly, Robusta Coffee has emerged importantly in Vietnam's economy As one of the key products in agriculture, it has been not only a significant contribution in exportation and country’s income but also has created a job for millions of Vietnamese farmers Analyzing the price of Robusta coffee help us understanding more about price structure of this factory and its role in Vietnam economic.

Secondly, the Robusta coffee market in Vietnam has impacted the global coffee market Vietnam is one of the biggest Robusta coffee manufacturers and exporters in the world Grasping Robusta coffee’s price in Vietnam, we are able to provide important informationto businesses and investors about market fluctuations, due to which they can choose out their business and finance decisions.

Thirdly, influencing factors to Robusta coffee’s price is variable and complicated, from weather, fluctuations in commodity prices to government policy Analyzing these factors is said to predict price in future, help managing risks and give suitable business strategy.Finally, analyzing Robusta coffee in Vietnam not only give a deep information of the coffee industry but also open opportunity gates for research and applications in Vietnamese business and agricultural development.

In this essay, we embark on a retrospective analysis of price movements in the Robusta coffee market in Vietnam between 2019 and 2023, seeking to unravel the underlying drivers, trends, and implications thereof Through a combination of empirical research, industry insights, and economic theory, we aim to elucidate the complexities of the Vietnamese coffee market and its significance for stakeholders within and beyond the country's borders.

Page of 321

Chapter 1: General theory1 Definition of demand and supply

1.1 Definition of demand

Definition : Demand is a curve/schedule showing quantities that consumers are willing and able to purchase at each alternative price, at a specific point in time (other things constant) Other things are non-price determinants of demand (Things that determine consumers buying the good other than good’s price).Quantity demand (Qd ): the amount of the good that consumers are willing or able to purchase.

Market demand and Individual demand:

- Individual demand is the quantity demand of each buyer for each price.- Market demand is the sum of quantity demand by all buyers at each price.Demand curve shifters:

- Demand curve shows how price affecting quantity demanded, other things being equal.

- It is shifted when other things change.Things shift demand curve:

- Income:

Demand for a normal good is positively related to income because the increasing income causes an increase in quantity demanded at each price,shifts the demand curve to the right.

Page of 421

However, demand for an inferior good is negatively related to income due to the increase in income causes decreasing in quantity demanded ateach price, shifts demand curves for inferior goods to the left.

- Prices related goods:

Substitutes: Two goods are substitutes if an increase in the price of one causes an increase in demand for the other Example: Increasing in priceof Arabica Coffee causes the increase of demand for Robusta Coffee, the demand curve of Robusta Coffee shifts to the right.

Complements: Two goods are complements if an increase in the price ofone causes a fall in demand for the other Example: Condensed milk andmilk coffee If the price of condensed milk rises, people buy fewer condensed milk, therefore less milk coffee Milk coffee demand curve move to the left.

Tastes:

Page of 521

- Anything that causes a shift in tastes toward a good will increase demand for that good and shift its D curve to the right Example: Salt coffee becomepopular in 2023 so the demand of coffee increase and demand curve shifts to the right.

Expectations

- They affect consumers’ buying decisions Example: If people expect their incomes to rise, their demand for drinking coffee more for a week will increase now.

1.2 Definition of supply

- Supply (S) is a curve/schedule that shows the quantities that producers are willing and able to offer at each alternative price, at a specific point in time (other things constant).

- Other things are non-price determinants of supply.Quantity supplied (Qs)

- It is the amount that sellers are willing and able to sell

Market Supply and Individual Supply

- Individual Supply: the quantity supplied is able to sell by sellers.- Market Supply: the sum of the quantities supplied by all sellers at each

price.Supply Curve Shifters

- The supply curve shows how price affects quantity supplied, other things (non-price determinants of supply) being equal

- Changing in other things shift supply curve.Page of 621

Things change supply curve

- Input Prices: A fall in input prices makes production more profitable at eachoutput price, so firms supply a larger quantity at each price, and the S curveshifts to the right.

Chapter 2: In depth analysis of Robusta coffee

1 Price movement of Robusta coffee in Vietnam for 5 years

- 2019: The price of Robusta coffee in Viet Nam was about 33,500 VND/KG In thistime, the quantity supplied was larger than the quantity demanded so that Robusta coffee became surplus.

- 2020: In this year, COVID-19 occurred and made the economy go down, includingRobusta coffee factory Consumers decreased their quantity demanded to save more money in this disease Due to that, the surplus quantity was higher than it in 2019, price dropped to about 32,500 VND/KG.

- 2021-2022: Worried about the elasticity in supply, the quantity of demand in whole world rose and pushed the price of Robusta coffee in Vietnam to 46,500 VND/KG.

- 2023: Because of El Nino and economic hardship, the price of coffee changed incredibly Robusta coffee was more popular than Arabica coffee Due to its lower price, people bought Robusta more than Arabica, the quantity demanded of Robusta coffee rose and caused the elasticity After that, the price of Robusta coffee in this period was about 66,400 VND/KG.

Page of 821

2 Analyzing factors affecting Viet Nam’s Robusta coffee demand between 2023

2019-2.1 Economic Conditions

Economic conditions deeply influence the demand for coffee among consumers In a developed economy, as personal income rises, consumers often have more spending power for luxury consumer goods like coffee Conversely, in difficult economic times, coffee consumption may decrease due to cost-saving measures.

2.2 Culture and Lifestyle

In Vietnamese culture and lifestyle, coffee is not just a beverage but also an integral part of daily life Vietnam has a deep tradition of coffee consumption, from using traditional filters to brew rich coffee to enjoying coffee at local cafes orlarge coffee chains The habit of drinking coffee has become an indispensable part of daily life and an important social gathering point for many people.

Reasons of drinking coffee

Increasing concentrationAwaking

Relaxing, chating

2.3 Product Diversity:

In the Vietnamese coffee market, product diversity is an important factor attracting consumer interest From traditional phin-filtered coffee with the robust and distinctive flavor of Vietnamese coffee, to variations like iced coffee, all preferences are catered to

Additionally, combining coffee with other ingredients such as condensed milk, egg, or fresh milk creates unique and enjoyable experiences for consumers This diversity not only enriches sensory experiences but also reflects the flexibility and creativity in how Vietnamese people enjoy coffee.

Page of 921

2.4 Advertising and Trends:

In the Vietnamese coffee market, advertising and trends play a crucial role in stimulating coffee consumption The advertising and marketing strategies of renowned coffee brands are becoming increasingly powerful and creative, capturing consumer attention and generating new trends

By leveraging media channels and social networks, coffee brands not only advertise their products but also build brand images and create unique experiences to attract and retain customers These efforts not only increase sales but also influence consumer preferences and trends, creating new trends in coffee consumption in Vietnam.

2.5 Health and Lifestyle:

Consumers are increasingly aware of the health benefits of coffee, not only in terms of its ability to stimulate the mind but also its positive effects on health Studies have shown that coffee can improve mood, enhance concentration, and reduce the risk of certain diseases, while still maintaining consideration for moderate consumption Therefore, this awareness has driven the demand for coffee not only for enjoying its flavor but also for maintaining a healthy and balanced lifestyle.

Page of 1021

3 Analyzing factors affecting Viet Nam’s Robusta coffee supply between 2023

2019-3.1 Quantity

Cultivating coffee area in Viet Nam

- The coffee growing area in Vietnam is approximately 660,000 hectares (according to the most recent data in 2023, trend: increasing and decreasing).

Quantity of the Robusta coffee

- The annual production of Robusta coffee has consistently decreased over the five-year period from 2019 to 2023, as illustrated in the following table:

Crop yearQuantity (Million tons)

(Source: The General Statistics Office)

- The productivity of Robusta coffee has consistently decreased over the years, indicating a trend toward scarcity in the supply of Robusta coffee in Vietnam Several main factors contribute to this downward trend, including reducing coffee cultivation areas, weather conditions, and disease outbreaks.

3.2 The manufacturers in the industry

Throughout the country, there are 97 coffee processing facilities for raw coffee beans, with a total designed capacity of 1.5 million tons per year; 160 coffee roasting and grinding facilities, with a total designed capacity of 51.7 thousand tons of products per year; and 11 coffee blending facilities, with a total designed capacity of 139.9 thousand tons of products per year (according to the latest data available in 2022).

3.3 Modern technology

- In order to meet the demand of the coffee market, technology plays a significant role in increasing coffee production in Vietnam - This is evidenced through various processes of improvement and

application across different aspects of the coffee agriculture sector The following are some important technologies:

Advanced cultivation techniques:

- The IoT (Internet of Things) and AI (Artificial Intelligence) technologies have been applied to intelligent fertilization for coffee plants, a

collaboration between the Agricultural Science and Technology Institute of the Central Highlands and Enfarm Agritech Company This tool collects data on soil nutrients, moisture, and pH levels, which are then transmitted to farmers' phones The benefits of applying this technology include cost reduction, reduction of fertilizer waste, and increased coffee bean productivity.

Improvement of crop varieties:

- Biotechnology and genetic engineering are researched and developed to create new coffee plant varieties with enhanced resistance to pests and diseases, high productivity, and suitability for diverse geographical conditions.

Page of 1221

Harvestinglabor cost(VND/working

Urea fertilizercost(VND/kilogram)

DAP fertilizercost(VND/kilogram

Potash fertilizercost(VND/kilogram)

(VND/ literdepending on the

2018-2019 60.000 - 90.000 12.000 10.000 8.000 15.000 – 250.000

2019-2020 70.000 - 100.000 14.000 12.000 9.000 20.000 - 300.000

Input prices

Page of 1321

Harvestinglabor cost(VND/working

Urea fertilizercost(VND/kilogram

DAP fertilizercost(VND/kilogram)

(VND/ lidepending

the speciinsecticid

2020-2021 80.000 - 110.000 14.000 12.000 9.000 20.000 - 30

2021-2022 90.000 - 120.000 15.000 13.000 10.000 25.000 - 35

2022-2023 100.000 -130.000 17.000 15.000 12.000 30.000 - 40

Page of 1421

3.4 Government policy

Vietnam has become the second-largest producer of coffee This is the reason that achievements are policies from the government to encourage the production of coffee.

Building supportive policies to assist farmers in constructing coffee-drying yardsis emphasized.

Allocating budget for research and technology transfer, particularly inbiotechnology, to develop coffee varieties with high yield, stable quality,resistance to pests and diseases, late ripening, and uniform maturity; promotingcare and harvesting processes; researching water-saving irrigation solutions.We are developing a system of national standards and technical regulations in linewith international standards to guide businesses in implementation.

Through agricultural promotion programs, retraining management personnel toadapt to market mechanisms and international economic integration; trainingtechnical staff and workers to absorb and master modern technologies, equipment,sustainable farming practices, and transferring technical advancements inprocessing and preserving coffee beans.

3.6 Price expectation

Similar to consumers, producers also make supply decisions based onexpectations As COVID-19 restrictions are lifted allowing coffee shops to resumeoperations, producers are optimistic that coffee demand will increase shortly.Consequently, this has prompted production expansion, leading to an increase insupply and a rightward shift in the supply curve

Page of 1521

Conversely, the shortage of empty containers for transportation is becoming a“nightmare” for businesses, especially during the peak season towards the end ofthe year, exacerbated by the ongoing pandemic Pessimistic about the lack ofempty containers for transportation, businesses may reduce production, resultingin a decrease in supply and a leftward shift in the supply curve.

3.7 Other sides

Coffee plays a significant role in Vietnam's agriculture and economy, impacting both livelihoods and economic activities Like other crops, coffee is susceptible to various diseases that can reduce both quality and yield, affecting the overall supplyfor the market Some of these diseases include:

- Wax scale disease: This pest damages various parts of the coffee plant by sucking sap, particularly affecting the flower stems and causing dried, fallen fruit.

- Coffee rust disease: Primarily affecting the junction between the stem and branches, this fungal disease manifests as a light pink powdery layer of spores As the disease progresses, it spreads along the branches, eventually causing them to wither and die if left untreated.

Not only do diseases affecting coffee plants impact coffee supply, but the 19 pandemic has also significantly affected the coffee market Over two years, the Vietnamese government implemented movement restrictions, leading to temporarysuspensions of operations for many companies These measures have had varying degrees of impact on coffee cultivation, harvesting, processing, and transportation,resulting in an insufficient supply to meet consumer demand Despite being the world's second-largest exporter of coffee, Vietnam experienced disruptions in coffee exports and other commodities due to the closure of export centers such as Ho Chi Minh City from 2019 to 2021 Specifically, in August 2020, Vietnam's coffee exports decreased by 8.7% compared to July, reaching only 111,697 tons.The current extreme weather conditions are adversely affecting coffee production, area, and quality of coffee products According to the International Center for Tropical Agriculture (CIAT), rising temperatures and changing rainfall patterns could lead to a 50% loss of current Robusta coffee production areas in Vietnam by2050.

COVID High temperatures cause coffee to ripen quickly, leading to decreased quality, increased susceptibility to pests and diseases, and reduced vegetative growth.

- Strong winds and heavy rain damage coffee trees, causing fruit drop and washing away the nutrient-rich topsoil.

Page of 1621