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Vietnam's Coffee Industry Navigates High Prices, Climate Challenges, and Diversification

Vietnam's coffee sector is experiencing a period of mixed fortunes, with high global prices offering a temporary boost to production and exports but overshadowed by long-term concerns about climate change, dwindling water resources, and the allure of more lucrative crops.

The latest report from the USDA's Foreign Agricultural Service (FAS) highlights the ongoing challenges faced by Vietnam's coffee farmers, despite the positive impact of soaring coffee prices.

While total coffee area in Vietnam is expected to remain stable, the report acknowledges the trend of diversification in the Central Highlands region, where farmers are increasingly choosing to grow crops like durian and passion fruit, which offer significantly higher earnings.

"Farmers in the Central Highlands region have diversified away from coffee cultivation to add, or switch to, higher earning crops such as durian and passion fruit," the FAS report states. "Farmers can earn twice the income growing durian they can growing coffee."

However, the report also acknowledges that high coffee prices have played a role in stabilizing coffee area and production levels.

"High coffee prices in MY2023/2024 caused farmers to increase investments in labor to reduce harvest loss as well as other inputs," the report notes.

Despite the financial benefits, coffee farmers continue to grapple with the impact of high temperatures and extended dry seasons, which have become more frequent due to climate change. These conditions, coupled with declining groundwater levels in some areas, pose a significant threat to the long-term sustainability of coffee production.

The report underscores the efforts of agricultural officials and research institutes in supporting farmers to mitigate these challenges. Programs focusing on replanting with new, drought-resistant varieties, promoting intercropping to increase shade and water retention, and introducing water-saving irrigation systems are underway.

"The provincial Department of Agriculture and Rural Development (DARD) and Western Highland Agriculture and Forest Science Institute (WASI) have developed strategies to maintain and improve sustainable coffee production," the report explains.

While coffee production is expected to remain stable in the 2024/25 marketing year, the report forecasts a 7% decrease in coffee exports during the first half of the current marketing year, driven by lower exports to key markets such as Belgium, the United States, and Germany. Exports to other markets, including Spain, Japan, and Algeria, have seen an increase.

FAS concludes that despite the challenges, high coffee prices will stabilize production levels for now.

"High coffee prices have helped stabilize coffee area and production levels," says FAS. "[We forecast] Vietnam MY 2024/25 total coffee production will remain stable at 29 million bags (GBE) as higher coffee prices help halt declining production trends."