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Tiêu đề Improving the Vietnam’s Coffee Value Chain in the Global Market
Tác giả Do Thi Thuy Ninh
Người hướng dẫn Dr. Nguyen Thi Thanh Tan
Trường học Banking Academy
Chuyên ngành International Business
Thể loại Bachelor’s Thesis
Năm xuất bản 2023
Thành phố Hanoi
Định dạng
Số trang 74
Dung lượng 1,45 MB

Cấu trúc

  • 1. The rational of the research (10)
  • 2. Literature review (11)
  • 3. Research purpose (13)
  • 4. Research objectives and scope of study (13)
    • 4.1. Research objectives (13)
    • 4.2. Scope of study (13)
  • 5. Research methods (13)
  • 6. Structure of the thesis (14)
  • CHAPTER 1: AN OVERVIEW OF THE COFFEE VALUE CHAIN (15)
    • 1.1. Overview of the Value chain (15)
      • 1.1.1. A brief history of “value chain” (15)
      • 1.1.2. Definitions of Value chain (16)
      • 1.1.3. Structure of value chain (17)
      • 1.1.4. Classification of the value chain (19)
    • 1.2. Overview of the value chain in the coffee sector (20)
      • 1.2.1. Characteristics of the Coffee value chain (20)
      • 1.2.2. The structure of Coffee value chain (22)
      • 1.2.3. The added value in the coffee value chain (27)
    • 1.3. International experience in improving the coffee value chain (29)
      • 1.3.1. Brazil (29)
      • 1.3.2. Colombia (31)
      • 1.3.3. Lessons for Vietnam (33)
  • CHAPTER 2: THE REAL SITUATION OF VIETNAM’S COFFEE VALUE CHAIN (36)
    • 2.1. Overview of the coffee sector in Vietnam (36)
      • 2.1.1. Legal regulations and policies in the coffee sector (36)
      • 2.1.2. Coffee production and productivity (39)
      • 2.1.3. Coffee export (43)
      • 2.1.4. Stakeholders in the Vietnamese coffee sector (47)
    • 2.2. The current situation of Vietnam’s coffee value chain (48)
      • 2.2.1. Input supply (48)
      • 2.2.2. Cultivation and harvesting (50)
      • 2.2.3. Processing (52)
      • 2.2.4. Marketing & Distribution (54)
    • 2.3. Evaluation of the Vietnam’s coffee value chain (56)
      • 2.3.1. Achievements (56)
      • 2.3.2. Limitations and reasons (57)
  • CHAPTER 3: SOME RECOMMENDATIONS TO IMPROVE THE VIETNAM’S COFFEE VALUE CHAIN (62)
    • 3.1. The present development trends of CoffeE sector (62)
      • 3.1.1. Increased exports from the rise of FTAs (62)
      • 3.1.2. High demand for certified sustainable coffee products (63)
    • 3.2. Government's strategic vision for the development of Vietnam's coffee industry (64)
    • 3.3. Recommendations to improve the Vietnam’s coffee value chain (65)
      • 3.2.1. Recommendations for enterprises (65)
      • 3.2.2. Policy suggestions for the Government (68)

Nội dung

BANKING ACADEMY INTERNATIONAL BUSINESS FACULTY --- BACHELOR’S THESIS IMPROVING THE VIETNAM’S COFFEE VALUE CHAIN IN THE GLOBAL MARKET Student’s name : Do Thi Thuy Ninh... BANKING AC

The rational of the research

In a highly integrated and interdependent global economy, the rising importance of value chain is a proof of which benefits countries can gain from the creation, production and export of a given product Many countries have already drawn significant benefits from their involvement in value chain, including Vietnam According to KPMG's assessment, Vietnam is in the second of four stages of integration into the value chain, in which production levels are still limited The domestic value-added content of exports comes from manufacturing activities accounted for 60% to 80%, often along with raw materials while production is mainly involved in low value added segments, leading to low profits At this stage, the country is mainly focused on manufacturing industries that are labor-intensive and whose outputs require low technical complexity

According to the International Coffee Organization (ICO), Vietnam is the second largest coffee supplier and exporter in the globe, accounting for 17.1% of worldwide coffee output However, Vietnam mainly focuses on cultivation segment which meanwhile only contributes about 10% of the value chain In addition, 90% of coffee beans produced in Vietnam are Robusta while only nearly 10% are Arabica, which has a higher value due to the stronger flavor that coffee beans bring During the last decade, green beans accounted for more than 90% of Vietnam’s exported volume but the export value of green beans is much lower than one of the processed Thus, the low-value segments of coffee are still being mainly focused by Vietnam and it leads to low added value Vietnam can gain from the Coffee value chain

The era of integration and globalization not only brings opportunities for Vietnam's agriculture and coffee industry, but also challenges from multilateral sides The establishments of numerous trade agreements, to which Vietnam is a member, such as EU-Vietnam Free Trade Agreement (EVFTA), will create desirable conditions for Vietnam's coffee industry to be able to gain access to important markets around the world However, these opportunities can only be seized if

Vietnam's agricultural products fully meet the quality standards and strict requirements of these markets Additionally, in recent years, Vietnam’s coffee industry has faced severe environmental issues In Vietnam, after deforestation to plant coffee, the forest layer declined from 3-5 layers to only 1-2 layers (Ngo, D Q et al., 2010) The rapid expansion of the coffee industries has also caused widespread environmental degradation, inappropriate land use, and severe deforestation Farming communities widely adopted intensive management practices to maintain high yield resulting in the misuse and overuse of fertilizers, irrigation water, and pesticides

The challenge for Vietnam is hence, to comprehend the competitiveness and profitability of the coffee industry and devise strategies to overcome relevant issues

As mentioned above, at present, Vietnam is mainly engaged in cultivation and production - the stage that brings the lowest added value in the Coffee value chain This is not commensurate with the development potential of Vietnam's coffee industry The study “Improving the Vietnam’s coffee value chain in the global market” is extremely essential for the development of Vietnam's coffee industry, contributing to enhancing added value for Vietnamese coffee products Therefore, I have chosen the topic "Improving the Vietnam's coffee value chain in the global market" with the main purpose of improving added value at all stages of Vietnamese coffee products.

Literature review

The coffee value chain is a topic that has received much attention in the world as well as in Vietnam with many studies

Shujiro Urata and Youngmin Baek (2020) wrote that high labor productivity, a large firm size, foreign ownership, and high technological capability are important for a firm to participate in value chains These attributes are particularly important for SMEs to enable them to participate in value chain and to increase their level of engagement in value chain networks Joselyne Nájera (2017) analyzed impacts, challenges and opportunities derived from the insertion of small farmers in the value chain It suggests that small farmers are intertwined between both challenges and opportunities for development in this globalized market, nonetheless a model for sustainable and competitive insertion can be placed under consideration since aspects like education, access to technology, access to finance, policy support, and innovation can hold the key for turning a crisis into an opportunity Carlos Julian Ramirez- Gomez (2022) indicated that macro-institutions have a relevant effect on coffee- producing properties (micro-level), and meso-institutions play a central role in differentiating the way in which agents adopted voluntary sustainability standards (VSS) in each country Carlos et al.,(2018) evaluated the Brazilian competitiveness position and highlighted the main challenges of Brazil in the global coffee value chain They also mentioned that technology, certification, geographical indication, traceability and the strengthen of the quality and marketing of the Brazilian coffee were main factors that enhance the Brazilian competitiveness Jeff Neilson (2013) illustrated that the global value chain for Indonesia coffee undergone significant structural changes The author pointed out that the value chain analytical approach could be applied by the Government of Indonesia in its attempts to integrate coffee sector development within its broader initiatives to promote a national green economy

In Vietnam, Thich et al., (2017) identified the leverage points in the Vietnam’s coffee supply chain that would be used for increasing competitive advantages of the product A sequential approach by combining two established modelling techniques (Causal loop diagram and Bayesian Belief Networks - BBNs) was applied and the results indicated that higher investment in all elements of the coffee value chain will lead to an enhanced competitive advantage Giang N T Nguyen and Tapan Sarker

(2018) discussed the evolution towards sustainable coffee supply chain and its management in Vietnam The analysis confirmed that although productivity is high, and farmers have positive experiences in this sector, sustainability issues are emerging Nhung Thi Hong Thang (2022) drew out the advantages and disadvantages of Vietnam's participation in the world coffee market and analyzed the role of Vietnam's coffee industry in the coffee value chain through a variety of steps: from production, collection, and processing to domestic consumption and export Both these two research just focus on analyzing the current status of Production segment which Vietnam pays most attention to while others such as Marketing and Distribution with higher added value have not been mentioned in detail yet It is necessary to have a study covering all the segments involved in the coffee value chain to have a comprehensive and specific view By doing this, the study can make appropriate recommendations to improve the added value in the value chain for coffee industry.

Research purpose

The main purpose of the thesis are:

 To give theoretical basis of value chain and coffee value chain

 To analyze and evaluate current situation of the coffee value chain of Vietnam

 To give some recommendations to improve the coffee value chain of Vietnam.

Research objectives and scope of study

Research objectives

The thesis focus on the coffee value chain In this research, the author will concentrate on the organizational level as the unit of analysis In particular, organizations involved in including cooperatives, small-holder farms, businesses, related associations and the institutions.

Scope of study

 Geographical scope: the Coffee value chain of Vietnam

 Time scope: The research is conducted in the period from 2013 to 2022

Research methods

The research uses qualitative research method and secondary data are collected and compiled from reliable data sources such as General Statistics Office of Vietnam, General Department of Vietnam Customs, ICO, OECD,… Descriptive and Analytical Methods are also provided to assess current status of Vietnam’s coffee industry in the value chain Comparative and Evaluation Statistical Methods are implemented to point out the strengths and weaknesses to gain opportunities and limit threats, as a result, in order to increase the participation of the Vietnamese coffee industry in the global value.

Structure of the thesis

In addition to the introduction, conclusion and references parts, the thesis is structured into 3 chapters:

 Chapter 1: An overview of the coffee value chain

 Chapter 2: The situation of the Vietnam’s coffee value chain

 Chapter 3: Some recommendations to improve Vietnam’s coffee value chain

AN OVERVIEW OF THE COFFEE VALUE CHAIN

Overview of the Value chain

1.1.1 A brief history of “value chain”

The concept of the value chain can be introduced with some work of Hopkins and Wallerstein on the “commodity chain” The elementary idea was to locate all inputs and transformations that lead to an “ultimate consumable” and to describe a linked set of processes that culminate in this item (Hopkins and Wallerstein, 1977) In 1994, found in the work of Gary Gereffi, the concept of “commodity chain” described the apparel commodity chain, from raw materials (such as cotton, wool or synthetic fibers) to final products (garments)

In the early 2000s, there was a shift in terminology from “commodity chain” to the

“value chain” that emerged from the analysis of trade and industrial organization as a value added chain in the international business literature (Michael Porter, 1985) Confusion in the definition of the Value Chain is that it is used interchangeably with the concept of Commodity Chains by some authors (i.e Davion & Ponte, 2005) However, there are some differences Firstly, the Value Chain construct is also influenced by transaction cost economics (Sturgeon, 2009) Secondly, Value Chain analysis focuses on the structure of the world economy, but its level of analysis is the transnational networks of companies rather than countries (Gere and Korzeniwicz,

1994) Thirdly, Value chain analysis was developed under the name of “commodity chain”, but the term “commodity chain” has been replaced by “value chain” in order to enable coverage of those products that lack commodity characteristics (Gibbon and Ponte, 2005), including service sectors An important distinction emphasized in the literature is between “producer-driven” and “buyer-driven” chains Producer-driven chains are mainly found in high-tech sectors Because these industries rely on technology and research and development (R&D), lead firms are placed upstream and control the design of products as well as most of the assembly, which is fragmented across different countries In buyer-driven chains, retailers and branded marketers control the production, which can be totally outsourced, the focus being on marketing and sales Value chain with lower needs for capital and relying on fewer skilled workers are generally organized this way, as illustrated by the apparel commodity chain (Gereffi, 1994)

In this chapter, the focus is more on “value chains”, describing countries’ participation in their value chain

There are currently many academic definitions of the concept of “value chain” However, three emerged as the most widely accepted definitions by the World Business Council for Sustainable Development (WBCSD), by UNCTAD and Michael Porter

According to WBCSD, “Value chains are an integral part of strategic planning for many businesses today A value chain refers to the full life cycle of a product or process, including material sourcing, production, consumption and disposal or recycling processes.” A value chain in this definition is considered as a cycle of 2 flows: one starts from inputs to final products and another reverses (WBCSD, 2011)

According to UNCTAD, the value chains include a full range of activities and processes, now being split and undertaken in different countries/continents, bringing a product from conception through the intermediary stage of production to delivery to final consumers and final disposal after use From this definition, a value chain can be understood as the sequence of all functional activities required in the process of value creation involving (UNCTAD, 2013)

In the book “Competitive Advantage” (1985), Michael Porter explains that a value chain is a collection of activities that are performed by a company to create value for its customers It links systems and activities to each other and demonstrates what effect this has on costs and profit margins Consequently, the Value Chain Analysis makes clear where the sources of value and the losses can be found in the organization In this thesis, value chain in the concept of Michael Porter will be used and understood as the concept of global value chain

Value chain in the concept of Michael Porter focuses on the systems and business activities with customers as the central principle rather than on departments and accounting expense categories Porter divided them into primary and support activities, as shown below

Figure 1.1: The value chain in the concept of Michael Porter

Primary activities have an immediate effect (cost advantage) on the production, maintenance, sales and support of the products or services to be supplied These activities consist of the following elements:

+ Inbound logistics –These are all processes that are involved in the receiving, storing, and internal distribution of the raw materials or basic ingredients of a product or service The relationship with the suppliers is essential to the creation of value in this matter

+ Operations –These are all the activities that convert inputs of products or services into semi-finished or finished products Operational systems are the guiding principle for the creation of value

Human Resource Management Technology Development Procurement

+ Outbound logistics –These activities deliver the product or service to the customer These are things like collection, storage, and distribution systems, and they may be internal or external to the organization

+ Marketing and sales –These are all processes related to putting the products and services in the markets including managing and generating customer relationships The guiding principles are setting oneself apart from the competition and creating advantages for the customer

+ Service –This includes all activities that maintain the value of the products or service to customers as soon as a relationship has developed based on the procurement of services and products b Support Activities

These activities support the primary functions above In our diagram, the dotted lines show that each support or secondary, the activity can play a role in each primary activity For example, procurement supports operations with specific activities, but it also supports marketing and sales with other activities

+ Procurement (purchasing) –This is what the organization does to get the resources it needs to operate This activity includes finding vendors and negotiating the best prices

Overview of the value chain in the coffee sector

1.2.1 Characteristics of the Coffee value chain

The characteristics of the coffee value chain are similar to those of the agricultural value chain, which has some unique characteristics that are different from other product value chains such as machinery a Seasonality and price

Because of seasonality of agricultural products, the value chain of coffee often face discontinuous characteristics and changes in volume and quality Seasonal price spreads can be explained by storage losses, large postharvest sales, and lack of trader participation in isolated markets during average and good years Thus price seasonality is negatively related to production anomalies, where higher (lower) production will create lower (higher) prices during the post-harvest season because of the inability or unwillingness of households and traders to store b Affected by weather, disease and food safety

Agricultural production in general and coffee production in particular is an industry directly affected by weather conditions and natural resources such as land and water The change of all these factors will directly affect the production outcomes and the sustainability of the value chain Additionally, diseases and food hygiene and safety are huge challenges to the development of global agricultural value chains because of the effect of agricultural products on consumer health Governments often set strict requirements and regulations for imported agricultural products and refuse to import consignments of poor quality, carrying pathogens, and with toxic content exceeding the allowable threshold These measures are legitimate and necessary but negatively affect global agricultural trade and significantly affect the spread of agricultural value chains c Characteristics of product processing and storage

Agricultural product processing and storage plays an important role in food preservation In the value chain of agricultural products, goods need processing before being transported to markets far away from the place of production Although processing technology has developed and modern storage facilities achieved remarkable achievements, the investment cost will be considerable d Other specific characteristics of agricultural value chain

The number of stages in agricultural value chain may be lesser than other product value chain, and the value added in some stages is also different While some agricultural products can usually be distributed to the end consumer (such as fresh vegetables and fruits), there are many types of agricultural products that continue to be the input of processing industries before moving through Marketing and Distribution, taking coffee products as an example

Additionally, actors involved in the cultivation and production process are mainly farmers and a few businesses One of the requirements of the value chain is to create business links by engaging actors in the value chain (farmers, processors, retailers, and exporters) in proper coordination so that it requires good coordination in the process of information exchange and decision making The value chain is different from the supply chain While the supply chain focuses on the rationality and savings in supply, the value chain focuses on consumer demand and competitiveness, creativity, association, and growth It is necessary to have good management to promote coordination of individual activities in the chain so that each stage in the chain must meet consumer demand and be competitive Thus, each value chain must always innovate, effectively, and share the profits rationally to encourage actors to participate in the chain

1.2.2 The structure of Coffee value chain

Figure 1.4: The Coffee Value Chain

Source: (ICO - International Coffee Organization, 2020)

In the Coffee Development Report 2020, ICO comprehensively described the coffee value chain made up of 7 segments: Input supply, Cultivation & harvesting, Post- harvest processing, Processing, Commercialization, Consumption and Disposal However, the coffee value chain can be divided into four main segments: Input Supply, Cultivation and Harvesting, Processing (including Post-harvest processing and Deep processing), and Distribution & Marketing

The inputs needed to maximize the coffee cultivation process include physical inputs (seedlings, fertilizers and sprays), land and labour (G Gereffi, 2014) These inputs are typically sourced directly by producers (smallholders or estates); however traders, non-governmental organizations (NGOs) and government may provide assistance to finance the purchase of inputs

The land where coffee is grown is a key and important factor in deciding which coffee seeds to cultivate A coffee variety that has a high yield and meets the needs of the market, but is not suitable for the climate and soil in the cultivation site, is difficult to choose for planting

Fertilizing plants means adding nutrients to the soil to support plant growth, fight certain diseases, or increase yields Fertilizers can be of natural origins, such as manure, compost, or synthetic Although using fertilizers can significantly affect yields and make inefficient soils suitable for cultivation, it can harm the environment and human health if their use is not carefully controlled

Farmer’s productivity, work skills and experience are extremely needed for input supply and has an effect on increasing production The farmers should be taught on proper planting of coffee, nursery establishment and farm maintenance such as proper pruning, proper application of fertilizer, pesticide, and fungicide as well as monitoring of abnormalities that the plants incur from pests and diseases

Frequently, technical assistance in the form of workforce development and agronomy services are also required for growers to increase their productivity and the value of their products (Murray et al., 2006)

The coffee cultivation process begins with a coffee cherry – red cherry A coffee plant usually starts to produce flowers 3–4 years and the first useful harvest is possible around 5 years after planting Cherries typically ripen and are harvested around 8 months after the emergence of the flower The fruit is initially green and turns red when it is ready for harvesting

Picking the coffee cherries is the first part of the harvesting process There are two different ways of picking coffee cherries The first is strip picking, which means that all coffee cherries are picked from the tree at the same time with large machinery regardless of maturity level This method is a lot quicker and easier, but there is a higher risk of unripe and defective coffee being taken to the next level of processing This method is mostly used on large coffee plantations The another picking method is hand picking This method is very labor-intensive and difficult because not all cherries will ripen at the same time, pickers must keep coming back to the tree to pick the cherries at the right maturity levels Despite the extra cost and time, the care and attention paid by pickers leads to superior coffee, which offers a more sophisticated and refined flavour

After about twenty years of harvesting, the coffee tree’s productivity diminishes, however with correct handling trees can bear cherries for more than fifty years Therefore, the technical process of replanting coffee and grafting coffee trees suitable for each ecological region is one of the particularly important solutions for maintaining and improving the coffee bean harvest

International experience in improving the coffee value chain

Currently, Brazil is the most important player in the coffee market worldwide with the world’s largest production of coffee and controlling more than 40% of the global coffee production Over 2 million hectares of Brazilian land are dedicated to coffee, producing 69.9 million bags of coffee in 2021, of which at least 70% is Arabica These numbers are staggering, yet they make perfect sense when is considered that 22% of the planet’s cultivable land is found in Brazil: it is the number one crop producer in the world, and the fourth largest food producer

Coffee farms in Brazil range in size from small family-run plantations of less than ten hectares, to large estates in excess of 2,000 To put their scale in perspective, many of the bigger farms in Brazil produce more coffee annually than Bolivia does as an entire nation (last year Bolivia produced 22,000 bags) One of the things that separates Brazil from other producing nations is the flat terrain found in many coffee- growing regions, which allows for large, uninterrupted plots of land to be dedicated to coffee farming This means that many aspects of the production process (such as picking and irrigation) can be mechanised, which has helped increase coffee farmers’ potential to produce great coffee

 Coffee growing areas are concentrated only in areas with suitable conditions for coffee development

Coffee plantations in Brazil cover approximately 1.9 million hectares and are projected to expand to 2.48 million hectares in 2021/2022 (USAD) The majority of production takes place in the South-Eastern states of Minas Gerais, So Paulo, and Paraná, where the environment and climate are suitable for growing with availability of a large area, sufficient air resources, and geographical conditions in the form of a mountainous location Instead of expanding the planting area rampantly, they only focus on developing coffee trees in the most favorable conditions, avoiding inefficient investment and wasting land that can cause damage to other production industries

 Application of science and technology in coffee production

The innovative effort of coffee growers, through the adoption of good practices and technologies developed by educational, research and extension institutions, notably those members of the Consórcio Pesquisa Café (Brazilian Consortium for Coffee Research), coordinated by Embrapa Coffee, has contributed to the highly positive performance of Coffees of Brazil, which, among other highlights, has tripled its production volume with a 20% reduction in the respective cultivated area, i.e., approximately 500,000 ha This performance reinforced Brazil’s leadership in world coffee production, in line with the economic, social and environmental aspects of sustainability

When domestic demand has an overall expectation for “high quality” products and services, according to Porter (1998), the industries are more likely to respond by upgrading their production capacity Brazil stands out as the consumer of coffee: the country is the 3rd largest global consumer, behind only the European Union and the United States Brazil's domestic coffee consumption is expected to reach 23.655 million bags in 2021/22 An increase of almost 1% over the revised projection of 23.307 million bags for 2020/21 Among the main types of coffee, the class of roasted and ground coffee, including flavored and in capsules, represented around 66% of the total value of R$ 10.24 billion of industrial production in 2016 It can be seen that Brazil is constantly improving the domestic coffee market, not only focusing on exporting The promotion of the development of the domestic market has contributed to boosting the production and quality of Brazilian coffee in response to the needs of the domestic market

Brazil focuses on the establishment of clusters of sophisticated suppliers and related sectors, which are areas where coffee actors may coordinate throughout the value chain As a result, an ecosystem of complementing sophisticated businesses provides technological spillovers and productivity gains that benefit the economy

In Brazil, the Brazilian Coffee Industry Association (ABIC) was founded in

1973 and serves as the industry's most prominent regulatory body Several programs are offered by the institution, all of which focus on the purity, quality, and sustainability of Brazilian coffee ABIC now operates over 500 roasting and grinding companies across the country, with headquarters in Rio de Janeiro It also provides its actors in the coffee value chain with a comprehensive database that includes macroeconomic studies, opinion and market polls, sectoral diagnosis, legal guidance in the areas of taxation, labour, constitutional, and consumer protection, a detailed register of companies, brands, and products, statistical production and consumption information, financial advisory, and business and technology development information, as well as a detailed register of companies It is the smooth coordination between actors in Brazil's coffee value chain and a key message here is that Brazil takes risk management seriously and is more sophisticated

Colombia is the third largest coffee producer in Latin America In fact, Colombia alone accounted for nearly 10% of the worldwide coffee production, third only to Brazil (35.3%) and Vietnam (17.6%) Recorded annual coffee production in Colombia, still the world’s largest producer of washed mild Arabica, closed 2022 at nearly 11.1 million 60-kg bag, 12% less than the nearly 12.6 million bags produced in 2021 While the area planted with coffee in Colombia has been continuously decreasing in recent years, the country still dedicates more than 850 thousand hectares of land to this crop The Colombian coffee value chain relies on farmers, who produce the dry, raw coffee beans and an extensive network of domestic marketing companies consisting of coffee farmers' cooperatives and numerous buyers or intermediaries, threshers and exporters s The green coffee beans, which result from threshing, go to external marketing companies or to the domestic market for use in the domestic roasting industry

Colombia’s coffee supply chain differs from other coffee chains in several aspects Firstly, harvesting occurs year round in Colombia while other countries typically have shorter, more intense harvesting periods With two harvests a year,

Colombia can produce up to 14 million 60 kilo bags Secondly, nearly all farmers process the coffee bean before selling it; elsewhere, it is more common for farmers to sell cherries directly to processors, which usually have more resources Third, cooperatives have a strong presence in Colombia, accounting for 35% of coffee sales, the highest share in Latin America

 Close and effective operation of cooperatives

Colombia builds the central idea underpinning the country’s cooperatives: organised groups of coffee producers who use collective power to gain access to a range of benefits, from better access to resources to protection against market volatility Because the labour-intensive process of growing coffee means it can be difficult for farmers to connect with buyers directly, these cooperatives helps increase joint bargaining power of their members and outsource key activities to the cooperative Moreover, cooperatives across Colombia play a pivotal role aiding the switch to more sustainable practices They focuses attention on improving the environmental sustainability, such as by installing solar panels to power processing machinery and applying for globally recognised certifications

 The big reputation of Colombian coffee in the global market

Colombia is recognised globally as one of the world’s leading producers of good quality coffee Coffee in Colombia is more than just a crop; coffee growing has become a part of Colombia’s national identity In the 1950s, the National Federation of Coffee Growers of Colombia (FNC) launched an ad campaign that would create a national icon The local coffee sector has flourished for decades, thanks in no small part to this hugely successful “100% Colombian Coffee” marketing strategy Around 95% of FNC’s outgoing investments were targeted at the large markets such as the United States, Europe, and parts of Asia for years, looking at existing coffee consumers in these countries That specialist media and international television channels were used to spread the message For example, NBC’s Today, a news programme in the US, proved to be an effective channel as it aired during breakfast The logo of Colombian coffee even appeared on seat backs onboard American Airlines flights, reading “Colombian Coffee is now on board on American Airlines”

This label has influenced the price of Colombian coffee and consumer perception for years Therefore, the strategy for building brand for Colombia coffee has a extremely huge influence in the position of Colombia in the coffee global market

 Application of sustainable techniques in production and cultivation process

According to FNC, at least 42% of Colombian farms have sustainable certification or practices to some degree Colombian coffee, in general, is grown on steep slopes, surrounded by trees – in most cases by banana plants – which provide shade and prevent the beans from being scorched in the sun Moreover, coffee cherries is wholly harvested by hand in Colombia and the coffee pickers examine a tree every 10 days while some countries favor strip picking usually by machine, which means pulling all the coffee cherries off the branch in one go Because mountainous terrain makes it almost impossible for the mechanical harvesting methods familiar on Brazilian coffee farms to operate As a result, this process makes a huge difference in the quality of Colombian coffee The country’s unique history of sustainable coffee farming traditions on small plots helped earn the region a spot on UNESCO’s world heritage list

Government and businesses need to actively promote the country’s coffee, support organizations and trade promotion events, and participate in international trade organizations and open trade with more countries The quality of exported coffee needs to be strictly control by authorized agencies and organizations

THE REAL SITUATION OF VIETNAM’S COFFEE VALUE CHAIN

Overview of the coffee sector in Vietnam

Over nearly four decades (since the 1986 reform), coffee has been one of the most important contributors to the revenue of Vietnam's agricultural sector in particular and to the national GDP in general With extensive investment and development vision, Vietnamese Coffee is affirming its position and role in the international coffee market as the second largest coffee producer in the world According to ICO, coffee production in Vietnam has increased nearly 100-fold, from 0.0184 million tons in 1986 to 1.81 million tons in 2021

2.1.1 Legal regulations and policies in the coffee sector

Regarding the land rent policy for agricultural production purposes, land rent will be paid to the State through annual payment or land use fees upon transfer of land use rights Regulations on payment and land rent exemption policies with preferential rates (3-year, 7-year, 11-year, 15-year exemption; or exemption for the whole land-rent period depending on which incentive field the project is in) are prescribed in the policy of land rent collection under Decree No.142/2005/ND-CP, as amended and supplemented in Decree No.121 /2010/ND-CP of the Government

On 23 March 2011, the Government issued Decree No.20/2011/ND-CP which stipulates and guides Resolution No.55/2010/QH12 of the National Assembly of Vietnam on exemption and reduction of agricultural land use tax with a reduction of 50-100% This creates favorable conditions for farmers and enterprises to invest in coffee production

In addition, the Government's Decree No 210/2013/ND-CP dated December

19, 2013 stipulated encouraging policies that promoted enterprises to invest in agriculture and rural areas by providing incentive exemption or reduction in land use fees; and exemption or reduction in land rent

Regarding support due to natural disasters and epidemics, the Government of Vietnam issued Decree No 02/2017/ND-CP on mechanisms and policies to support agricultural production to restore production in areas damaged by natural disasters and epidemics The Decree mentioned support of 4 million VND/ha for industrial crops with over 70% damage and 2 million VND/ha for 30 to 70% damaged areas

On May 11, 2015, Official Letter No 3227/NHNN – TD and Official Letter

No 3228/NHNN-TD were issued by the State Bank’s Governor to guide Agribank implement the coffee-replanting lending policy; and to implement this policy in the Central Highlands provinces in the period 2014-2020, respectively

In addition to policies to support restructuring, the government also introduced many input support policies such as the policy of rental support, the policy of agricultural land-used tax exemption and reduction In particular, Decree 67/2012/ND-CP amending and supplementing a number of articles of Decree No 143/2003/ND-CP on irrigation fee exemption for households whose land and water surface are used for agricultural production purpose Circular No 209/2013/TT-BTC was mentioned to implement the Decree of value-added tax reduction On 23 January

2014, Circular No 02/VBHN-BCT was introduced to exempt for imported input supplies for agriculture, forestry and aquaculture, salt production, and artificial imported-seed production

Associated with sustainable development, the State also provides many supports for production according to VGQP and GAP standards (UTZ, 4C, GAP,…) such as Decision 86/2007/QD-BNN, TCVN 4193:2005 national standard on quality inspection of exported green coffee; Circular 75/2009/TT-BNNPTNT on food safety and hygiene in agricultural production; Circular 03/2010/TT-BNNPTNT, TCVN 4193:2005 national technical standards for green coffee; Decision 01/2012/QD-TTg on support policies in the application of good agricultural production practices in agriculture, forestry and fishery promulgated by the Prime Minister; Directive

1311/CT-BNN-TT, introduced in 2012 to promote the application of Good Agricultural Practices (GAP) in crop production;…

2.1.1.3 Policies for coffee rejuvenation and sustainable and high-quality coffee development

On 11 December 2013, a Steering Committee for Coffee Replanting was established, mentioned in Decision No 2927/QD-BNN-TCCB, to support the MARD coordinate and administer the implementation of effective coffee-replanting program Following the task of coffee replanting, the MARD approved Decision No.2085/QD- BNN-TT dated 31 May 2016 and Decision No 4428/QD-BNN-TT dated 9 November 2018 on promulgating the process of replanting Robusta and Arabica coffee, respectively These two Decisions gave detailed instructions on replanting techniques including replacing old and poorly grown crops in order to improve coffee productivity In addition, the approval of the Coffee Replanting Project for the 2021-

2025 period through Decision No 1178/QD-BNN-TT on March 31, 2022 has contributed significantly to promoting the replanting process The coffee replantation is extremely significant in helping to improve productivity and quality of coffee as well as business efficiency and income for coffee growers; thereby improving Vietnam coffee ‘s competitiveness and added value in the integrated market

On 1 August 2014, Decision 3417/QD-BNN-TT was issued by the MARD to approve the Scheme for sustainable development of the coffee industry until 2020 The development goals in the sustainable direction of diversified and high-quality coffee products can bring Vietnam coffee products high value-added, thereby increasing incomes for farmers and profits for businesses Additionally, Decision No 3540/QD-UBND was promulgated on 25 December 2017 to implement the sustainable coffee development project in Dak Lak province until 2020 and orient towards 2030 Dak Lak is currently the leading province in the plan to implement the sustainable development goal of the coffee industry in Vietnam

Decision 4635/QD-BNN-KHCN dated November 15, 2017 approved the national product development framework project “high-quality Vietnamese coffee” The main objectives of this project includes: synchronous application of new varieties; advancement of cultivation techniques and post-harvest technologies associated with production reorganization, branding and market development; climate change adaptation and greenhouse gas emissions reduction, and the environment protection

A draft document of certification criteria has also been proposed to build a strict quality management system for Vietnamese coffee In addition, Decision No 3156/QD-BNN-TT dated 19 August 2022 introduced temporary guidance documents on granting and managing the Production Unit Code, which creates a premise for the long-term development of Vietnamese coffee by forming a concentrated production area with effective farming processes application

2.1.1.4 Trade and investment promotion policies in the coffee industry

On 30 September 2015, the Prime Minister issued Decision No 1684/QD- TTG on the international economic integration strategy of agriculture and rural development until 2030 This strategy indicated the role of international economic integration in terms of creating a favorable environment, increasing resource quality, and expanding markets in order to develop Vietnam's agricultural sector sustainably and effectively Furthermore, the final purposes of this strategy are creating an equal competitive environment; promoting innovation in thinking, science and technology; and reforming institutions and policies, which contribute to building a strong internal force in agriculture and improving the competitiveness of Vietnamese agricultural products in the global market

Decree No.57/2018/ND-CP was issued to set out the initial mechanisms to attract agricultural and rural development investment This Decree stipulates a number of policies on incentives and additional investment support of the State; and also stipulates the procedures for the implementation of incentives and investment support for enterprises investing in agriculture

The current situation of Vietnam’s coffee value chain

The input supply is the first stage in Coffee value chain and has an important impact on the production segment Inputs involved in the coffee sector include seedlings, fertilizers and sprays, land and labour

Coffee varieties are mainly purchased from many sources such as cooperatives and private seed suppliers However, if coffee seedlings sourced from private seed suppliers the lack of quality control of seedlings that causes uneven seed quality which can lead to low yield and poor resistance to pests and diseases Furthermore, coffee seedlings can be supplied by green coffee buyers such as exporters, processors and roasters Taking Nestlé as an example, with the effective cooperation between

Nestlé and the Central Highlands Agro-Forestry Science Institute (WASI), quality coffee seedlings are distributed to farmers with the support of seed prices

The farming capacity of farmers has some limitations: too intensive farming, too large amount of water for irrigation, intercropping coffee with other crops without enough scientific basis, the management of varieties is still not strict,… However, this situation has been significantly improved because of the cooperatives programs such as NESCAFE Plan between farmers and related partners Up to now, in the Central Highlands provinces, the NESCAFÉ Plan has more than 21,000 farmers complying with 4C standards (The Common Code for the Coffee Community) and more than 15,000 farmers actively participate through the distribution of seedlings The Good Agricultural Practices Introduction Program has trained more than 260,000 farmers and helped them apply the knowledge they have learned in their farms with an application rate of more than 80 % As a result, 40%-60% reduction in irrigation water, as well as 20% reduction in the amount of chemical fertilizers and pesticides, and fertilizer use by putting into production compost made from bark and coffee grounds

Fertilizer has a huge impact on coffee productivity and quality as well as the production cost In fact, however, the connection between the coffee and fertilizer industry is still unstable, making the coffee price competitiveness limited Vietnam's fertilizer industry in 2019 was valued at 4.5 billion USD and is projected to reach 5.7 billion USD by 2027, growing at a CAGR of 3.8% from 2020 to 2027 While the fertilizer domestic production industry has developed, imported fertilizers are chosen for farming because the fertilizer domestic price is much higher than fertilizer price from China, whose imported fertilizer makes up 49% of fertilizer imports into Vietnam in terms of quantity And because the price of fertilizer imported from China is cheaper along with easy access to cheap supplies, coffee growers tend to choose cheap fertilizers to optimize production costs without paying attention to their quality This actions will cause coffee producers difficult to ensure a stable supply in the long run

Thus, while the positive signs in the farming capacity of farmers, the high cost of raw materials leads to increased coffee production costs, thereby lowering the competitiveness of Vietnam coffee in the global market

Cultivation is an extremely primary stage in coffee value chain, however, its operations has not yet brought high added value as it mainly focuses on increasing coffee output instead of enhancing added value of coffee products Specifically, Vietnam still mainly cultivates Robusta coffee with much lower value than Arabica coffee

Figure 2.7: Coffee production worldwide in 2020, by leading country

Currently, there are more than 75 countries involved in the coffee production, mainly in South America, Africa and Asia The total growing area of coffee is approximately 10 million hectares and an average output annually reaches more than

8 million tons For the top coffee producers, coffee export value makes up nearly 25% of the export value of each Despite the large number of countries involved in coffee production, this stage is dominated by five largest coffee suppliers in terms of quantity including Brazil, Vietnam, Colombia, Indonesia and Ethiopia account for 75% of global coffee production in 2020 According to Statista data, in 2020, Brazil has an output of 69 million 60 kg-bags, followed by Vietnam (29 million 60 kg-bags), Colombia (14.3 million 60 kg-bags), Indonesia (12.4 million 60 kg-bags), During the last 6 harvests, Brazil gain the highest annual output with 35.3% of the total on average The second is Vietnam with 17.6%, followed by Colombia, Indonesia, It can be seen that the level of market concentration in coffee production is extremely high, being held by major countries

Coffee production, especially in Vietnam, depends mainly on weather conditions and effects of climate change In recent years, Vietnam has been greatly experienced severe weather High temperatures cause prolonged drought in addition to more frequent floods and storms, making coffee production activities in Vietnam challenging

Figure 2.8: Average prices for Arabica and Robusta coffee worldwide from 2014 to 2024 predicted (USD/kg)

As mentioned before, Vietnam mainly grows Robusta with lower value compared to Arabica coffee Robusta and Arabica are the two most popular types of coffee beans and are most traded all around the globe In reality, Arabica coffee beans often have a higher product value The price of Arabica green coffee is usually higher more than twice the price of Robusta However, about 96% coffee beans produced in Vietnam are Robusta, only 4% are Arabica In the 2021-2022 harvest, the Arabica coffee growing area was 51,000 hectares and the production was 1.15 million 60 kg- bags with the average yield of Arabica coffee reaches only 1.27 T/HA In contrast, Robusta coffee production in this MY reached 30.48 million 60-kg bags (1.83 million tons) with the highest average yield of 2.95 MT/HA

It can be seen that, Vietnam has a high position in the production segment of the coffee value chain as the 2nd largest coffee supplier in the world However, cultivation of Robusta having lower added value are mainly concentrated by Vietnam instead of Arabica

Processing is considered as the most important segment which significantly influences the coffee beans quality This segment is divided into 2 steps of processing: post-harvest processing and deep processing

Regarding to Post-harvest processing, wet-processing or dry-processing methods are common in Vietnam and also have different effects on coffee quality, resulting in different coffee flavors Each country have a variety of processing methods, but the final quality must meet a standard And the final product of this step is green coffee beans, which are then directly distributed or become raw material for deep processing to produce higher quality products such as roasted coffee In Vietnam, post-harvest processing is implemented by households, private collectors and businesses

 Post-harvest processing at households: In Vietnam, the infrastructure of machinery in the households for post-harvest processing is extremely poor and sketchy Few households can dry fresh coffee beans by machine The fresh coffee cherries are mainly dried in the yard or sold directly to the collectors because it is easy to implement with low cost But the drying method in the yard can be hard to control the quality If the dried coffee beans are too thick or piled up, it can bring about unsafe drying and preliminary processing of coffee within 24 hours after harvest And as a result, it leads to the uneven quality In addition, this method is based on the experience of households If the level of processing labor is low, the quality of coffee beans will not be ensured

 Post-harvest processing at private collections facilities: Private collectors play as an intermediary between coffee growers and deep processors or exporters Private collectors only implement simple tasks of dry processing such as removing impurities, blending and polishing

 Processing at enterprises: While the majority of enterprises follow the dry processing method, there are some applying wet-processing Post-harvest processing in these enterprises is quite simple mainly for the export of green coffee beans The principal tasks includes additional drying, sorting, rubbing and polishing However, domestic businesses now focus on applying wet processing methods by importing new and high-technological machine to improve coffee quality For green coffee processing, there are 100 coffee processing establishments nationwide with a total designed capacity of 1.5 million tons/year Regarding to deep processing, there are currently 113 enterprises involved in deep-processing and export, which includes 13 foreign-invested enterprises In reality, only one-third of them own coffee processing factories In particular, powdered coffee is processed at about 600 factories with a total capacity of more than 73,000 tons/year A half of which are small-scale factories Instant coffee has only 7 factories with a limited capacity of 52 tons per year

Evaluation of the Vietnam’s coffee value chain

Coffee appeared in Vietnam from the end of the 19th century, but, in fact, Vietnam's coffee industry has only been established and developed for more than 30 years Vietnam's coffee industry has affirmed its position in the national economy, which is clearly reflected in the achievements that the industry has gain:

 Vietnam is a role player in coffee supply and export in the world

By favorable natural conditions for coffee trees, Vietnam owns high coffee production volume and the relative stability of coffee production Vietnam's coffee productivity is more than 3 times higher (2.8 tons/ha) than the world's (0.8 tons/ha) and considerably higher than that of any coffee producer in the world Being the second largest coffee producer in the globe, Vietnam also ranks the first position in Robusta coffee export, making up 40% of the market share of global Robusta coffee export The planned expansion of the planting area and reasonable re-cultivation of coffee have contributed to maintaining the high output and productivity of Vietnamese coffee trees

Coffee exports are the bright spot of Vietnam's agricultural exports and coffee export in Vietnam makes up 8.3% of the global coffee export market share The coffee market expands with diversified products and coffee exports dominate in many large and potential markets such as the EU, the US, Japan, Russia, the Philippines, the UK,…

 High-quality, certified and branded Vietnamese coffee are improved in certain extent

There is an increase in consumer demand for high quality and transparency of origin, sustainable values, and environmental protection Intensive and sustainable farming practices, and registration of geographical indications and trademark protection are trained and applied in some growing regions In addition, the development of production unit code areas is being implemented in localities According to the statistics of the provinces, by 2022 the certified coffee area reached 185,800 hectares In which, UTZ certification with the total number of participating farmers is 11,296 farmers, with an area of 13,713 hectares and an output of 49,979 tons; 4C certification with a total area of 26,091 ha, production of 94,357 tons with 18,450 participating farmers; RFA certified with an area of 5,123 ha and 2,771 participating farmers with a total registered output of 12,719 tons; Fairtrade certification has a total area of 747.2 hectares, 447 participating farmers with a total registered output of 3,255.9 tons A large number of certificated sustainable coffee growing areas accounts for 40-50% of the total national coffee growing area Vietnam gains the third position in certificated areas, after Brazil and Colombia

In addition to these above achievements, there are also limitations that need to be given appropriate solutions and policies

 Vietnam mainly focus on Robusta production, which has lower export value than Arabica

As Vietnam's strong coffee, Robusta coffee accounts for the main proportion in terms of both area (93.06%) and output (96.22%), playing a key role in production, cultivation, process and export Whereas, the growing area of Arabica only account for a small proportion while it has better flavor and much higher value than the former The main reason is that few areas have the most suitable natural conditions for the growth of Arabica while it is extremely suitable for the development of Robusta This is a factor related to the natural condition of the country, which is difficult to improve

 Unsustainable farming techniques are applied in many growing areas as well as the quality of Vietnamese coffee are not even

Unsustainable farming techniques such as the abuse of fertilizer and pesticides are still being used in many localities These techniques which reduce soil’s fertility and cause water shortages have a huge impact on the quality of Vietnamese coffee Despite the increase in certificated growing areas, small-scale production causes problems with limited quality management Moreover, irrigation is necessary for coffee production, however, groundwater are at the edge of depletion The climate change nowadays more make this problem serious, especially in the dry months When farmers try to discover the new suitable locations to plant coffee, it also increases the deforestation

The explanation for limited quality management is that 95% of coffee growing areas are held by private farmers and the majority of which are smallholders Such small-scale and fragmented production can differentiate in investment and methods of harvesting and processing among farmers, leading to unstable yields and uneven product quality As a result, this affects negatively the quality and output of Vietnamese coffee beans and Vietnamese coffee beans face many obstacles in the global market with high requirements, especially in strict markets

 Low technology infrastructure for high-added value segments

Although Vietnam is the world's second-largest coffee exporter in output and the leading country in Robusta coffee output, technology infrastructure still has many shortcomings Most of them are not in accordance with the technology process standards and less supporting equipment Product quality and value are always low and less competitive than coffee in other countries

In terms of post-harvest process, most of the post-harvest processing of coffee uses dry processing, which highly depends on the weather conditions and requires a large drying yard Most of drying yards and coffee storages at the farmer scale are inadequate and not suitable for the technical requirements In particular, 61.5% of harvested coffee beans are dried in cement yards at 61.5%; 13.5% in canvas and 25% in soil yards This situation results in low and uneven quality of raw coffee and a high percentage of black and moldy beans In terms of farming and production, it is the lack in modern technology in farming and production such as automatic water-saving irrigation systems, systems for drying coffee by dry or wet methods in preliminary processing and systems of coffee storage Moreover, although the technology of deep processing coffee has had remarkable highlights, it is only enough to meet the needs of the domestic market with its current capacity A large number of factories only process green coffee, with little use of high-quality coffee processing technology Therefore, coffee exports still focus mainly on green coffee beans and only a small amount of processed coffee As an result, the export value of coffee has not yet achieved as expected

The main reason why technology infrastructure for coffee processing industry is that these technology requires a large capital investment In fact, deep processing technology for coffee beans is concentrated mainly in FDI enterprises and some large enterprises in Vietnam It does not mention the inappropriate technology transfer from foreign investment to domestic enterprises Meanwhile, the resources of Vietnamese enterprises are limited Enterprises in Vietnam are mainly SMEs with insufficient financial capacity and inexperience Besides, the time to recover capital and profit for these investments also makes many businesses hesitate because they must borrow from banks with high interest rates

 Vietnam coffee has poor official distribution channel and brand name in the foreign markets

The main distribution channel and brand name is two main barriers for Vietnam to participate in the foreign market The building and development of the brand has not been fully realized and effectively implemented by businesses, which is a reason why Vietnam's coffee has not been known to consumers in the world The position of Vietnamese coffee in international trade is also lower than that of competitors Because coffee beans are mainly exported indirectly through middle man such as foreign distributors and then are resold in the commodity to coffee beans roasters under their brands For green coffee, the distribution channel becomes even more difficult to control Fresh coffee after harvest is pre-processed in one or a few households, then enterprises and traders purchase domestically and process for export to foreign distributors With processed coffee products, the distribution channel will be easier to identify Because this product is manufactured by corporations and companies, it is usually boxed with clear labels and specific branding and information on the packaging

To export directly, Vietnamese coffee needs to have a brand name such as Trung Nguyen Legend or Vinacafe However, this is not easy for Vietnamese businesses The cost to build a production chain from production to processing and consumption is extremely expensive Besides, marketing activities, distribution network or the market entry, brand building cost a lot of money It requires to be large and experienced businesses Therefore, only some Vietnamese can make their brands in international market

It can be seen that Vietnam’s coffee industry only has high concentration on the Cultivation segment – the lowest value added in the chain while higher value segments such as processing and Marketing and Distribution are relatively poor

Chapter 2 gives an overview of Vietnam’s coffee industry and the current situation of coffee value chain in Vietnam While holding the high position in the global market in terms of coffee supply and export, the coffee value added in the value chain is low because Vietnam produces the large proportion of Robusta coffee and mainly exports the green coffee beans, which has less value than Arabica and processed coffee respectively In addition to illustration of each segment in Vietnamese coffee value chain, the author also collect related policies of the Government in coffee industry

Moreover, in this chapter, the author also evaluate the capacity of Vietnamese coffee value chain by highlighting the remarkable achievements and indicating its limitations and the reasons that causing the situation.

SOME RECOMMENDATIONS TO IMPROVE THE VIETNAM’S COFFEE VALUE CHAIN

The present development trends of CoffeE sector

3.1.1 Increased exports from the rise of FTAs

Benefits from Free Trade Agreements (FTAs) are considerable Up to now, Vietnam is a signatory to 17 active and planned bilateral and multilateral Free Trade Agreements These offer direct potential trade advantages when Vietnamese products in general and Vietnamese coffee in particular penetrate the foreign market Taking FTA between Vietnam and Europe (EVFTA) as an example, this FTA has many incentives for Vietnamese coffee In particular, tariffs on all unroasted or roasted coffee products are eliminated by 7 %-11% to 0% and tariffs on processed coffees are reduced from 9% -12% to 0% as soon as the Agreement comes into force Furthermore, coffee beans are one of the 39 geographical indications of Vietnam that the EU commits to protect, which creates a huge competitive advantage for Vietnam compared to competitors in the EU market Beyond the obvious benefits of helping to increase export competitiveness such as tariffs, it also attracts Foreign Direct Investments (FDI) to step in Vietnam’s processing and roasting coffee industry

However, to benefit from FTAs, it is the Vietnamese coffee industry that needs to change to be able to meet the strict requirements of its partners At the end of 2022, the EU issued a decree banning the import of coffee related to deforestation This causes concerns about the amount of Vietnamese coffee that can be exported to this market and poses a problem for Vietnam to develop coffee in a more sustainable way The new European decree not only leads to stricter restrictions on coffee exports, but is also a factor that can promote the development of a more sustainable coffee industry Moreover, the EU's tightening regulation of pesticide residues for nuts, including coffee at 0.1 mg/kg is also a difficulty, requiring Vietnamese farmers to adjust production methods to can meet new standards for export activities On positive side, this is the driving force for the Vietnamese coffee industry to make changes and improvements to keep up with the general trend of major export markets

If done well in this period, it will create a premise to maintain Vietnam's leading position, not only in terms of output and export, but also in the quality and scale of the industry

3.1.2 High demand for certified sustainable coffee products

Certified coffee has experienced significant growth in major countries around the world It originates from growing consumer concern regarding the social, environmental and health impacts associated with coffee production and distribution Certified sustainable coffee by the popular definition today is coffee products that cover the three aspects of sustainability, namely “economic sustainability for farmers”, “environmental conservation” and “social responsibility” Certification is the certification body's assurance about the quality of the coffee and the production process that complies with defined requirements

The market segment that has grown strongly in recent years is coffee certified to sustainability standards such as UTZ, Rainforest Alliance, Organic and Fairtrade Some other coffees are also called sustainable according to standards developed by the company itself, with or without independent third-party monitoring and inspection such as C.A.F.E of Starbucks and Nespresso AAA of Nestlé Besides, a Common Code of Conduct for the Coffee Community (4C) is also developed to establish the requirements for coffee products 4C differs from certified coffee standards in that it is based solely on testing and not certification of conformity Inspection takes into account the internal monitoring system within 4C units and does not rely solely on external supervisory agencies and/or third-party assurances Certification has even become a requirement for some importers and retailers Certification of sustainable coffee based on common assessment criteria on (1) Management and documentation system; (2) Health and safety; (3) Working conditions; (4) Use and management of chemicals; (5) Soil protection; (6) Waste management; (7) Water source protection; (8) The protection of biodiversity and ecosystems Meanwhile, traceability is the most significant aspect of many certification program, which helps consumers better awareness of the coffee origin and how coffee is produced As a result, the production and trade of certified coffee based on transparent sets of criteria and evaluation processes is increasingly being implemented

Vietnam is currently one of the three countries with the third largest certified coffee area in the world This will be a great competitive advantage for Vietnamese coffee products in the international market The continuous promotion and awareness raising of farmers in the deployment and construction of certified coffee growing areas creates a premise for the increase in the value of Vietnam's products as well as helps Vietnamese coffee products meet the new increasing market demand.

Government's strategic vision for the development of Vietnam's coffee industry

The coffee industry is one of the strategically important industries for the development of the national economy Recognizing the strengths and weaknesses of the coffee industry, the Government's vision for the development of Vietnam's coffee industry becomes even more profound in the face of opportunities and challenges from the world business environment

Maintaining the position of Vietnam's coffee industry, increasing productivity and output, and developing Vietnam's coffee industry with the goal of sustainable development is the guideline for the development of the coffee industry in Vietnam MARD has policies to guide coffee producers to follow the Replanting Process and sustainable coffee production Specialty coffee in many growing areas is applying care procedures according to VietGAP, 4C, Rainforest, Organic certification standards Currently, MARD have issued technical procedures for cultivation, replanting and processing, and as well as give guidance for localities follow certification standards Depending on the actual conditions, each locality will choose appropriate processes to apply in the production, preliminary processing and processing of high-quality coffee With the process of preliminary processing and processing, the locality recommends that only ripe fruits be harvested; applying proper harvesting techniques and freshly harvested coffee must meet national standards The Government has also increased investment in the development of specialty coffees with high added The “Project for Development of Vietnamese

Specialty Coffee for the period 2021-2023” has been approved by MARD to meet the increasing demand for “Specialty Coffee” in both domestic and export markets and at the same time increase the competitiveness of Vietnamese coffee products in the world market

Attracting investment in deep processing activities, and finding new markets are important orientations of the Government to enhance the added value of the Vietnamese coffee products The rise of FTAs and international economic integration have opened up a large market for the deep-processed coffee industry The Government encourages enterprises to take advantage of this opportunity to improve production capacity for deep processing and to participate more deeply in the value chain with high-added value segments.

Recommendations to improve the Vietnam’s coffee value chain

To help Vietnam improve the value chain of the coffee industry, the role of businesses is a key factor They base themselves on the awareness and promotion of their intrinsic advantages to devise short-term and long-term strategies that are appropriate and catch up with the development trend of the coffee industry

Firstly, enterprises should strengthen research and development activities in seedlings quality and cultivation techniques

Investments in varieties research are extremely essential Enterprises need to pay more attention in the process of varieties creation and selection with high productivity, high quality and high added value Moreover, they need to upgrade mechanization of coffee cultivation, prioritize the application of biotechnological technology and research water-saving irrigation solutions, to overcome the situation of low and uneven quality

Secondly, develop coffee products with higher added-value and cooperate in technology investments in processing segment

Instead of distribution and export of green coffee beans, businesses should aim to develop deep-processed coffee products and organic coffee and increase the output of roasted and ground coffee and instant coffee To improve processing capacity and quality of processed coffee, businesses also need to take measures to improve the quality of fresh coffee beans before putting into process and processing equipment

Regarding processing materials, businesses should plan a concentrated and stable coffee growing area Due to the situation of farming fragmentation and poor processing equipment, the quality of coffee after post-harvest is uneven Businesses need to choose fresh coffee beans input more carefully Thus, small households and farms can cooperate and choose a common farming method suitable to the characteristics of each region, combined with sharing supply inputs These cooperations, if done on a large scale, can help considerably improve the quality of coffee and increase the value of coffee products sold in the domestic market and for export

Regarding processing equipment, businesses and coffee growers have to invest more in machinery and technological equipment However, it costs a lot of money Households and businesses can cooperate and distribute capital in establishing the high-technological equipment in processing segment And not only is it important to invest a lot to have the most advanced and modern equipment, but they also have to determine what their production scale is at Currently, Vietnam has many processing factories by large companies and corporations, however, the current quantity and level of linkage is not enough The solution requires companies and corporations to cooperate with each other more than just operating based on their own interests This is not an easy thing to do, especially businesses with different core values and different profit goals However, in the long-term, this is the right thing to do for the common purposes of Vietnamese coffee: improving the value of Vietnamese coffee in the international market, making Vietnam not only a strong country in terms of coffee export in raw forms but also a source of quality processed coffee in the world

Thirdly, upgrading distribution network and building brand name in the both domestic and international market are essential

In the domestic market, enterprises need to increase investment to expand distribution networks on the existing system of distributors, agents and stores in the market as well as strengthen the capacity of existing distribution channels The management of distribution systems also contribute to upgrading the distribution network The image and brand need to be associated with the quality and cultural values of Vietnamese coffee The awareness of brand in domestic market is considered as the foundation for the promotion of the brand to the international market In addition, businesses need to diversify product portfolios and improve quality to maximize customer satisfaction All of these will help Vietnam enterprises maintain and gain the domination in the domestic market and improve their competitiveness from foreign enterprises in Vietnamese coffee market as a result

In the international market, Vietnamese coffee should be sold directly to independent buyers such as international roasters and trading companies instead of through third-party At first, Vietnamese enterprises need to have thorough market research and decide the suitable approach Exploiting their own strengths in providing high-quality coffee products with a stable supply, Vietnamese businesses can negotiate directly with large roasters and distributors They can franchisees to export directly to foreign customers or can make joint ventures with the local roasters to establish large-scale processing facilities, build own brands, and approach the roasters’ wide direct distribution network in the international market This depends on the capacity of Vietnamese enterprises involved in coffee value chain

Fourthly, Enterprises need to actively participate in trade fairs and specialized seminars

When participating in these fairs and seminars, the enterprises will accumulate more knowledge about production, farming techniques, technology or market information as well as exchange and learn from domestic and foreign enterprises that have been successful in the industry It is the experiences learnt from each other that can improve the quality of coffee beans and capacity of businesses itself Moreover, trade fairs and seminars are the golden opportunity for the promotion of Vietnamese coffee beans and enterprises’ brand name, and in large extent, these opportunities can create the cooperation in production and distribution

3.2.2 Policy suggestions for the Government

Firstly, the State need to keep on with existing policies and create favorable conditions about land rent for enterprises to invest in coffee industry

In addition to the existing policies such as exemption and reduction in land use fees and taxes, the government can propose more favorable conditions for enterprises to benefit from preferential land policy and supervise the new area of coffee cultivation Only new coffee areas that reach conditions in land policy can gain benefits from policies of the State

Secondly, the State need to pay more attention in policies on science and technology research and transformation

Policies aim at increasing budget investment for research and transfer of science and technology, especially biotechnology to create coffee varieties with stable yield and quality Moreover, Government needs adequate support from scientific career capital for the design and manufacture of coffee processing lines, which meet the requirements of modernizing coffee processing technology according to international standards Deploying and promulgating a technology system of national standards and technical regulations need to be in line with international standards, which create better guidance for enterprises in implementation

Thirdly, the Government should increase investment in trade promotion and provide market information for Vietnamese enterprises

The State should also continue to invest in trade promotion activities and provide market information for Vietnamese enterprises in the most sufficient and accurate way The Government needs to continue to innovate mechanisms and come up with optimal policies for supporting trade promotion to improve the competitiveness of coffee in the domestic, regional and international markets Currently, businesses still have to collect information from different sources, sometimes causing confusion and duplication Thus, the Government can build a specialized information center that is fully qualified to research and forecast the situation of supply and demand, prices, markets and customers to create more favorable conditions for businesses In addition, the Government also needs to strengthen the mass information in coffee regions focusing on prices, consumption markets and issues related to coffee production

Fourthly, Promote the development of specialty coffee, organic coffee and high- quality coffee associated with green growth and sustainable development is extremely necessary in the current situation

To develop high-quality Vietnamese coffee associated with green growth and sustainable development, the Government needs to support programs on technical training, new planting models, and advanced technical applications In addition, the Government needs to develop testing programs and projects to select new coffee varieties which adapt to climate change and reduce inputs and emissions for producers to improve coffee productivity and quality The Government should strengthen the application of technological advances in production and soil improvement in order to preserve the physical and chemical properties of the soil; control soil conditions, water resources and other factors to protect high-quality coffee growing areas The government needs to support mechanization and automation technology in deep processing and storage to ensure the quality of specialty coffee with its own distinctive flavor, to meet the needs of export and domestic markets

It is necessary for the State to coordinate with experts in the coffee industry in exchanging international experiences in developing high-quality coffee management as well as proposing the development of a set of criteria for Vietnamese coffee quality This policy is extremely significant that officially opens the development period of Vietnam's coffee industry in the direction of enhancing value by quality Therefore, the Government should actively support localities to implement the project effectively and substantially, contributing to improving the quality and value of Vietnamese coffee in the global market

The process of globalization is increasingly strong, competitive pressure on coffee enterprises will increase Vietnam coffee industry cannot only rely on the massive output to compete, but Vietnam also has to compete with the quality of coffee

In order to increase the added value and competitiveness of Vietnamese coffee products, it needs more investments in deep processing technology as well as building brand and distribution network Along with the consumption trends of sustainability and certificated products, it requires higher investment in sustainable farming techniques and high standards This will help Vietnamese coffee only stop at green beans but also continue to be processed into higher value-added products with high quality

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