Vietnam to Uproot Old Coffee Trees

Vu Trong Khanh

     HANOI--Vietnam plans to uproot as many as 95 million old coffee trees in its first systematic

replanting program, a process that would make coffee scarcer in the near term, as well as cutting

future years' exports.

     The news comes as a drought in Brazil, which produces about one-third of the world's coffee and

more than half of the arabica beans used to make higher-quality and gourmet coffee, has shriveled

crops. Prices have risen to multiyear highs.

     Now Vietnam, the top producer of robusta beans, is forecasting a big drop in its next harvest,

and harvests thereafter, because aging plantations and dry weather could cut yields. Adding to the

uncertainty is the El Niño weather cycle, which has the potential to further erode output in

Vietnam and Indonesia, another major producer.

     Vietnam's robusta output in the 2014 to 2015 crop year, which starts in October, likely will be

15% to 20% below the current crop of an estimated 1.3 million metric tons, Nguyen Viet Vinh, general

secretary of the Vietnam Coffee-Cocoa Association, told The Wall Street Journal. Exports this crop

year are likely to be lower than in the 2012 to 2013 crop year.

     Robusta beans make stronger-tasting coffee, with higher caffeine levels, than arabica beans.

They are used primarily for espresso-type coffee or in lower-quality blended or soluble products.

     Prices of both types of beans surged on April 22 after Volcafe Ltd., a unit of commodities

trader ED&F Man Holdings Ltd., cut its forecast for Brazil's output. Arabica for May delivery hit a

26-month high of nearly $2.12 a pound on the ICE Futures U.S. exchange and the July robusta contract

on the Liffe exchange in London reached a six-week high of $2199 a ton. Prices have since retreated.

     "We are planning to undergo a long-term process of replacing old coffee trees, and this,

together with the current dry weather conditions, will hurt coffee output," Mr. Vinh said.

     Vietnam exports about 90% of the beans it grows, and its stockpiles are small. Vietnam has

already exported 1.1 million metric tons of coffee so far this crop year, and only a relatively

small amount remains.

     "I think there are only around 200,000 tons left," said Luong Van Tu, the association's

chairman.

Others tell a similar story.

     "Vietnam has exported around 80% to 90% of this crop year's output and coffee stocks among

local growers and exporters are very low now," said Tran Duc Tho, chief executive officer of Duc

Nguyen Coffee Co., which is based in Dak Lak province, in Vietnam's Central Highlands, the country's

key coffee- growing area.

     Vietnam needs to replace old trees, as the trees' average age was getting too high, Mr. Tu

said. Trees older than 20 years produce an average of one ton of beans per hectare in Vietnam,

compared with 2.5 tons per hectare a year for younger ones. Moreover, the bean quality from older

trees is lower. The tree replacements will help Vietnam keep its position as the world's second

largest producer, he said.

     The process of replacing trees has started, and will last about 10 years, said Mr. Tu.

Previously, farmers had uprooted trees on their own accord, he said.

     State media cited the Ministry of Agriculture and Rural Development as saying earlier this

month that it will cost between $5,000 and $6,000 to regrow one hectare of coffee trees.

     Also earlier this month, Mr. Tu told local media that Vietnam intended to keep the active

coffee-production area above 570,000 hectares during the replanting cycle.

     His association, also known as Vicofa, says 13.8% of Vietnam's 622,000 hectares of coffee trees

are older than 20 years and a further 22.5% are between 15 and 20 years old, all of which need to be

replaced. This brings the uprooting totals to the hundreds of millions of trees. It takes at least

five years for seedlings to develop and produce beans.

     A potential El Niño weather pattern could reduce production further. Many forecasters predict

that the phenomenon, which disrupts rainfall and temperatures globally, may appear later this year.

     "A strong El Niño would have negative implications for the 2014/15 coffee harvests in Vietnam

and Indonesia (which together account for nearly a quarter of global output) perhaps suggesting

prices will stay higher for longer than we currently forecast," Capital Economics said in a recent

report. It noted, though, that output in Brazil might benefit from El Niño.