microeconomics essay topic the price movements of robusta coffee in vietnam

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2 Analyzing factors affecting Viet Nam’s Robusta coffee demand between 2019-

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Introduction

Firstly, Robusta Coffee is an important key to Vietnam’s economy As one of significant role in agriculture, it has not only contributed incredibly in exportation and country’s income but also has created job for millions of 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 a large impact on the global coffee market Vietnam is one of the biggest Robusta coffee factories and exporters in the world Grasping Robusta coffee’s price in Vietnam, we are able to provide important information

to 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, such as weather, fluctuations in prices to government policy Analyzing these factors is said to predict price in future, help managing risks and give suitable business strategies

Finally, analyzing Robusta coffee in Vietnam give not only a deep information of the coffee industry but also open opportunity gates for research, applications in Vietnamese business and agricultural development

In this essay, we will analyze the price movements in the Robusta coffee market in Vietnam between 2019 and 2023, finding the underlying factors, trends and impaction

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Chapter 1: General theory

1 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

Quantity Demanded

“* Market demand and Individual demand:

- Individual demand 1s 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

- Itis 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 mcrease in quantity demanded at each price, shifts the demand curve to the right

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

Price per Can

Quantity

- 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 price

of 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 of one causes a fall in demand for the other Example: Condensed milk and milk 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:

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- 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 become popular in 2023 so the demand of coffee increase and demand curve shifts

to the nght

“* 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

“+ Definition

- 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)

- Itis the amount that sellers are willing and able to sell:

Quantity Supplied Overview

“* 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

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s* Things change supply curve

- Input Prices: A fall in input prices makes production more profitable at each output price, so firms supply a larger quantity at each price, and the S curve shifts to the night

Chapter 2: In depth analysis of Robusta coffee

1 Price movement of Robusta coffee in Vietnam for 5 years

The price of Robusta coffee in 5 years (VND/KG)

- 2020: In this year, COVID-19 occurred and made the economy go down, including Robusta 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

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And specially in 2024, coffee’s price has changed dramatically Due to the drought from El Nino in the start of year, coffee could not be growth and coffee production dropped The price increased to about 80,600 VND/KG in February 2024 and boosted

2 Analyzing factors affecting Viet Nam’s Robusta coffee demand between 2019-

2023

2.1, Economic Conditions

Economic conditions have a significant effect on the demand of consumers In

a developing economy, as personal income rises, consumers often indulgent themselves They will buy more product which make them happy such as coffee However, when the economy in difficult time, the consumption of coffee may decline due to cost-saving measures

2.2 Culture and Lifestyle

Coffee is an indispensable part of daily life in Vietnam People have their tradition of drinking coffee They usually drink rich coffee which is brew by filter

to enjoy at local cafes or large coffee shops The habit of drinking coffee become

an important part of their life and a social gathering point for many people

Reasons of drinking coffee

@ Pleasure

@ Increasing concentration Awaking

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Moreover, combining coffee with other ingredients such as condensed milk, egg, or fresh milk creates unexpected and enjoyable experiences for consumers This not only open more sense of taste experiences but also reflects the flexibility and creativity in how Vietnamese people enjoy coffee

2.4 Advertising and Trends

To stimulate coffee consumption, advertising and trends is one of the most important keys Advertising and marketing strategies of renowned coffee brands which creative, attractive are increasing incredibly These strategies successfully capture consumer attention and generate new trends

By influencing media channels and social networks, coffee brands aims are not only advertising their products but also building brand images and creating unique experiences to attract and keep customers These efforts not only increase sales, influence consumer preferences but also create new trends

2.5 Health and Lifestyle

Consumers are increasingly aware of the healthy benefits of coffee, both in its ability to stimulate the mind and its positive effects on health Studies have shown that coffee can help people have mood, concentrate and reduce the risk of certain diseases Therefore, this information has driven the demand for coffee not only to enjoy its flavor but also to maintain a healthy and balanced lifestyle

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3 Analyzing factors affecting Viet Nam’s Robusta coffee supply between 2019-

2023

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:

(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

“+ 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

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“+ Input prices

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 yards

is emphasized

«+ Allocating budget for research and technology transfer, particularly in biotechnology, to develop coffee varieties with high yield, stable quality, resistance to pests and diseases, late ripening, and uniform maturity; promoting care and harvesting processes; researching water-saving irrigation solutions

“+ We are developing a system of national standards and technical regulations in line with international standards to guide businesses in implementation

s* Through agricultural promotion programs, retrainmg management personnel to adapt to market mechanisms and international economic integration; training technical staff and workers to absorb and master modern technologies, equipment, sustainable farming practices, and transferring technical advancements in processing and preserving coffee beans

3.6 Price expectation

¢« Similar to consumers, producers also make supply decisions based on expectations As COVID-19 restrictions was lifted allowing coffee shops to resume operations, producers had been optimistic that coffee demand would increase shortly As the result, this has prompted production expansion, leading to

an increase in supply and a nghtward shift in the supply curve

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In contract, the shortage of empty containers for transportation is becoming a

“nightmare” for businesses, especially during the peak season towards the end of the year, exacerbated by the ongoing pandemic Pessimistic about the lack of empty containers for transportation, businesses may reduce production, resulting

in a decrease in supply and a leftward shift in the supply curve

3.7 Other sides

“* In Vietnam’s agriculture and economy, coffee effects both livelihoods and economic activities, can’t deny that it has a crucial role However, like other crops, coffee 1s susceptible to various diseases that can reduce both quality and amount and affect the overall supply for the market Some of the diseases are:

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

- Coffee rust disease: Primarily affecting the junction between the stem and branches, this fungal disease shows 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 diseases affect coffee supply, but also the COVID-19 pandemic has significantly affected the coffee market Over two years, the Vietnamese government implemented movement restrictions This leaded to the situation that many companies had to stop operations It also leaved varying impact on coffee cultivation, harvesting, processing, and transportation As the result, an

insufficient supply of coffee met the consumer demand Despite being the world's second-largest exporter of coffee, Vietnam had to face the disruption in coffee exports because export centers such as Ho Chi Minh city closed from 2019 to

2021 Specifically, in August 2020, Vietnam's coffee export decreased by 8.7% compared to July, reaching only 111,697 tons

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