Tension from coffee prices in Vietnam could worsen

Mon Apr 19, 2010 8:05pm EDT
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By John Ruwitch and Ho Binh Minh

EA KENH, Vietnam (Reuters) - Ironically, Nguyen Tan Dinh was enjoying a coffee with friends early one Monday in March when he heard the unwelcome news that Phan Thi Kim Hoa was claiming to be bankrupt.

Hoa had played a crucial role for more than 20 years in tiny Ea Kenh commune in Vietnam's Central Highlands coffee belt, linking farmers like Dinh with the global coffee market.

One of hundreds of buying agents in the world's second-biggest coffee exporting country, Hoa took bean deposits from farmers and brokered deals with bigger middlemen or exporters.

For years, when coffee prices were rising, the calculus was straightforward: buy low, sell high later. But over the past two years, the price of coffee has fallen by nearly half.

During the fourth quarter of 2009 and the first quarter of this year, coffee prices in London fell so sharply that local prices, usually quoted at a discount, dropped slower than the benchmark, catching the industry in Vietnam flat-footed.

Traders say exporter delays or defaults have been widespread. Some put the volume of affected beans at 200,000 tonnes.

Reports are emerging that middlemen like Hoa are increasingly being caught out, too, having to pay farmers at higher prices than anticipated, or than where they sold up the supply chain.

Prices are now rising, which is causing farmers who track London's market closely via SMS and the Internet to seek payments for bean deposits, piling more pressure on the buying agents.   Continued...