Vietnam Coffee Defaults Spur Trade To Source From Farms - SCTA HeadDJ

Vietnam Coffee Defaults Spur Trade To Source From Farms - SCTA HeadDJ
 International trade houses are shying away from deals withVietnamese exporters due to the rising number of defaults on coffee export contracts, the president of the Swiss Coffee Trade Association said Tuesday.   Traders have struggled with defaults on exports from the world's largestproducer of robusta beans for several seasons, but the number of unfulfilled contracts have surged this year as coffee prices have risen.   Nicolas Tamari, who is also the director-general of Geneva-based coffeemerchant Sucafina, said the issue had reached such a level that the SCTA hadasked the Swiss government to raise it with their Vietnamese counterparts.   "This year there has been a significant increase in the number of membersreporting high volume of defaults...because of the rising market," he said."The major losers have been the trade."   In some cases, international merchants have even started investing directlyin farming projects to cut out unreliable middlemen, he added.   "There is much dissatisfaction expressed by Vietnamese exporters over foreigncompanies purchasing direct from the farmer, claiming that they have theadvantage of lower financing costs," he said. Because "the reliability of localenterprises" has been called into question, "we may see a continuation offoreign investment in the coffee sector," he added.   Coffee prices climbed to multi-decade peaks earlier this year as poorproduction in some countries and rising consumption sparked concerns of ashortfall of supplies. Prices for robusta beans rose by around 50% during theyear, meaning many exporters in Vietnam preferred to default on contracts inthe hope of getting more for their supplies later.   Tamari, whose SCTA handles around two-thirds of world coffee exports fromproducing countries, declined to give an estimate of the scale of the defaults.Traders said up to 100,000 metric tons of coffee have been affected. One addedthat many buyers are refusing to pay for coffee in advance as a result.   "You'd be absolutely mad to stump up the cash until the beans are sittingright in front of you," he said.   But Luong Van Tu, chairman of the Vietnam Coffee and Cocoa Association playeddown the problem, saying that exporters have "postponed" rather than defaultedon contracts. He estimated only 30,000-40,000 tons had been affected.   "These are postponed, not defaults," he said. "Some of them are waitingbecause the new crop is coming."   Tamari said the SCTA is also lobbying for a pan-European arbitration panel tobe created to deal with such problems in the future. Although there are alreadynational arbitration bodies in France, Germany, Italy and the U.K., he saidenforcing arbitration awards in other countries can be difficult.