News / Economy

Crippling Debts, Bankruptcies Brew Vietnam Coffee Crisis

A coffee seller displays coffee beans for sale at a shop in Hanoi, August 13, 2013.
A coffee seller displays coffee beans for sale at a shop in Hanoi, August 13, 2013.
Reuters
Desks are empty, the office silence broken only by a handful of staff chit-chatting or playing on cellphones. It's another slow day at the headquarters of Vinacafe, a state-owned firm once the vanguard of Vietnam's coffee export boom.
 
“There's no one here for you to talk to,” a receptionist said when asked who was in charge at the Vietnam National Coffee Corporation in Ho Chi Minh City, the hub of an industry that produces 17 percent of the world coffee output.
 
The bosses and managers of Vinacafe have either quit or were not at work that day, like most of the 80-plus staff the company says are employed there, according to the company website.
 
Vietnam is the world's biggest producer of the strong-flavored robusta beans, used for instant coffee, and has experienced a decade of solid growth which has seen coffee exports reach $3 billion a year.
 
But its coffee industry is now in crisis, plagued by tax evasion, mismanagement, insolvency, high interest rates and a credit squeeze. Many coffee operators are trapped with crippling debt and banks are reluctant to lend them more money.
 
Vietnam's credit crunch is blamed largely on state-owned enterprises that borrowed big during the economic boom of the past decade and squandered cash on failed investments, which has left banks crippled by one of Asia's highest bad-debt ratios.
 
Of the 127 local coffee export firms that operated in Vietnam a year ago, 56 have ceased trading or shifted to other businesses after taking out loans they can't repay, according to industry reports.
 
Few coffee exporters are willing to talk about their financial problems. In communist Vietnam, people are often reluctant to speak publicly about sensitive issues like politics and business, especially to foreign media.
 
But Nguyen Xuan Binh is one major coffee exporter who admits he's in deep trouble.
 
His firm, Truong Ngan, is wilting from $28 million of debt owed to seven banks from which it borrowed at interest rates of 20 percent. With barely any cash flow, its only collateral is its stock of coffee beans - enough to fill 200 small trucks.
 
“Now the banks want to come and repossess all that we have, our 4,000 tons of coffee,” Binh told Reuters.
 
Vietnam's 2013/2014 coffee crop is forecast to be a bumper harvest, around 17 million to 29.5 million 60-kg bags, based on a Reuters poll, adding to a global oversupply and pressuring coffee prices which have lost about 10 percent since October.
 
But only a few firms, like Vietnam's top coffee exporter Intimex Group, which accounts for a quarter of exports and made $1.2 billion in revenue in 2012, will benefit from this year's crop. The rest will be lucky to survive, with a government assessment of the coffee industry painting a bleak picture.
 
The value of non-performing loans or debts in the sector likely to go unpaid stands at 8 trillion dong ($379 million), or 60 percent of all coffee industry loans, said a July circular signed by the Deputy Agriculture Minister Vu Van Tam.
 
Bankruptcies and Metal Bolts
 
“No one wants to admit they're going bankrupt,” said one coffee trader in Ho Chi Minh City, who like many of his competitors, asked that his name be withheld. “Once they go bankrupt, they can never borrow from banks again and their businesses are finished.”
 
Even in the coffee-rich central highlands of Daklak, export firms are fast going bankrupt. “Only half have survived this past year,” a local government trade official said.
 
Struggling coffee exporters blame local banks for their predicament, citing high interest rates issued to lure depositors due to high inflation in 2010-2011, which has in turn curbed the economy to its slowest pace in 14 years.
 
Many overseas coffee dealers say Vietnamese exporters dug themselves into a hole by overzealous borrowing for expansion and bungled attempts to play the global robusta futures market, which rallied to a three-year peak around $2,600 a ton in early 2011 but then plunged to the current level below $2,000.
 
Unscrupulous middlemen have also played a part in the crisis, cheating exporters by selling them weighted coffee bags and inferior beans which are difficult to sell or fetch lower prices.
 
“What I found out is the market there is quite dirty. Middlemen often sell poor beans to exporters. They even put metal bolts in the bags to outweigh them,” said Joyce Liu, an investment analyst at Phillip Futures in Singapore.
 
In an attempt to support its biggest currency earner among agriculture exports, the government last month extended the loan repayment period for coffee firms from 12 to 36 months.
 
But traders said the move was more aimed at helping troubled banks, by preventing coffee exporter debts being classified as non performing loans.
 
Banks say they have no ban on further lending to coffee exporters, with rates still high at 10 to 16.5 percent, but admit they are reluctant to do so.
 
“We don't have any barrier with lending to coffee companies, but we have to be very careful with bad debt. The coffee business is now very unstable so it's not on our preference list,” said a deputy manager at a major commercial lender in Ho Chi Minh City, who asked not to be named.
 
Banks Key to Vietnam's Crisis
 
The Vietnam Coffee and Cocoa Association (Vicofa) has sought government approval to stockpile 300,000 tons - a fifth of the country's output - to try to boost prices, and offer exporters soft loans to finance purchases of beans from farmers.
 
But the last such stockpiling effort in 2010 flopped, with only 60,000 of the 200,000-ton target stored because of logistical glitches and slow disbursement of funds.
 
For cash-strapped exporters, selling beans to repay debts is more important than stockpiling for potential price gains.
 
But domestic prices are trading near a 16-month trough below 40,000 dong a kg ($1.90) after benchmark London futures sank to a 32-month low on concerns over rising global output. Prices below 40,000 dong usually deter farmers from selling.
 
“Even top exporters are now having problems,” said a dealer in Singapore who trades Vietnamese beans. “I don't think they are going to buy 300,000 tons. How do you expect companies which are suffering from heavy losses to find cash?”
 
While a prolonged crisis in Vietnam could curb exports, second-largest robusta producer Indonesia may seize the opportunity to sell more beans as the country's production is forecast to hit an all time high this crop year.
 
Without a dramatic increase in global consumption, top producer Brazil and some other producing countries could lift world inventory to a five-year high in the 2013/2014 crop year, keeping further downward pressure on prices.
 
“There may be a revamp of the entire coffee industry, and I think those who immediately benefit from the situation in Vietnam are Brazil and Indonesia,” said Liu.
 
Domestic traders believe the only solution to Vietnam's coffee crisis rests with the government and banks that are able to lend, but say the banks are shunning coffee exporters or offering them interest rates they can't handle.
 
“I'm sure those struggling companies can recover if they get support from banks. But it's unlikely they'll get it,” said the director of a leading firm, who asked not to be identified by name.

You May Like

Lion Cecil's Killing Sparks 'Canned Hunting' Debate in S. Africa

Conservationists believe incident, which triggered worldwide outrage, will reshape debate about practice in which hunters are allowed to target animals bred for hunting More

Taliban's New Leader Says Jihad Will Continue

Top US Afghan diplomat also meets with Pakistani, Afghan officials following news of Mullah Omar's death More

Environmentalists Issue Warning on Mekong Biodiversity

Scientists say decades of economic development, hydropower-dam construction, lax law enforcement and trafficking have taken their toll More

This forum has been closed.
Comments
     
There are no comments in this forum. Be first and add one

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Astronauts Train Underwater for Deep Space Missionsi
|| 0:00:00
...    
🔇
X
George Putic
July 30, 2015 8:59 PM
Manned deep space missions are still a long way off, but space agencies are already testing procedures, equipment and human stamina for operations in extreme environment conditions. Small groups of astronauts take turns in spending days in an underwater lab, off Florida’s southern coast, simulating future missions to some remote world. VOA’s George Putic reports.
Video

Video Astronauts Train Underwater for Deep Space Missions

Manned deep space missions are still a long way off, but space agencies are already testing procedures, equipment and human stamina for operations in extreme environment conditions. Small groups of astronauts take turns in spending days in an underwater lab, off Florida’s southern coast, simulating future missions to some remote world. VOA’s George Putic reports.
Video

Video Civil Rights Leaders Struggled to Achieve Voting Rights Act

Fifty years ago, lawmakers approved, and U.S. President Lyndon Johnson signed, the Voting Rights Act of 1965. The measure outlawed racial discrimination in voting, giving millions of blacks in many parts of the southern United States federal enforcement of the right to vote. Correspondent Chris Simkins introduces us to some civil rights leaders who were on the front lines in the struggle for voting rights.
Video

Video Booming London Property a ‘Haven for Dirty Money’

Billions of dollars of so-called ‘dirty money’ from the proceeds of crime - especially from Russia - are being laundered through the London property market, according to anti-corruption activists. As Henry Ridgwell reports from the British capital, the government has pledged to crack down on the practice.
Video

Video Hometown of Boy Scouts of America Founder Reacts to Gay Leader Decision

Ottawa, Illinois, is the hometown of W.D. Boyce, who founded the Boy Scouts of America in 1910. In Ottawa, where Scouting remains an important part of the legacy of the community, the end of the organization's ban on openly gay adult leaders was seen as inevitable. VOA's Kane Farabaugh reports.
Video

Video 'Metal Muscles' Flex a New Bionic Hand

Artificial limbs, including the most complex of them – the human hand – are getting more life-like and useful due to constant advances in tiny hydraulic, pneumatic and electric motors called actuators. But now, as VOA’s George Putic reports, scientists in Germany say the future of the prosthetic hand may lie not in motors but in wires that can ‘remember’ their shape.
Video

Video Russia Accused of Abusing Interpol to Pursue Opponents

A British pro-democracy group has accused Russia of abusing the global law enforcement agency Interpol by requesting the arrest and extradition of political opponents. A new report by the group notes such requests can mean the accused are unable to travel and are often unable to open bank accounts. VOA's Henry Ridgwell reports.
Video

Video 'Positive Atmosphere' Points Toward TPP Trade Deal in Hawaii

Talks on a major new trade agreement among 12 Pacific Rim nations are said to be nearing completion in Hawaii. Some trade experts say the "positive atmosphere" at the discussions could mean a deal is within reach, but there is still hard bargaining to be done over many issues and products, including U.S. drugs and Japanese rice. VOA's Jim Randle reports.
Video

Video Genome Initiative Urgently Moves to Freeze DNA Before Species Go Extinct

Earth is in the midst of its sixth mass extinction. The last such event was caused by an asteroid 66 million years ago. It killed off the dinosaurs and practically everything else. So scientists are in a race against time to classify the estimated 11 million species alive today. So far only 2 million are described by science, and researchers are worried many will disappear before they even have a name. VOA’s Rosanne Skirble reports.
Video

Video Scientists: One-Dose Malaria Cure is Possible

Scientists have long been trying to develop an effective protection and cure for malaria - one of the deadliest diseases that affects people in tropical areas, especially children. As the World Health Organization announces plans to begin clinical trials of a promising new vaccine, scientists in South Africa report that they too are at an important threshold. George Putic reports, they are testing a compound that could be a single-dose cure for malaria.
Video

Video 'New York' Magazine Features 35 Cosby Accusers

The latest issue of 'New York' magazine features 35 women who say they were drugged and raped by film and television celebrity Bill Cosby. The women are aged from 44 to 80 and come from different walks of life and races. The magazine interviewed each of them separately, but Zlatica Hoke reports their stories are similar.
Video

Video US Calls Fight Against Human Trafficking a Must Win

The United States is promising not to give up its fight against what Secretary of State John Kerry calls the “scourge” of modern slavery. Officials released the country’s annual human trafficking report Monday – a report that’s being met with some criticism. VOA’s National Security correspondent Jeff Seldin has more from the State Department.
Video

Video Washington DC Underground Streetcar Station to Become Arts Venue

Abandoned more than 50 years ago, the underground streetcar station in Washington D.C.’s historic DuPont Circle district is about to be reborn. The plan calls for turning the spacious underground platforms - once meant to be a transportation hub, - into a unique space for art exhibitions, presentations, concerts and even a film set. Roman Mamonov has more from beneath the streets of the U.S. capital. Joy Wagner narrates his report.
Video

Video Europe’s Twin Crises Collide in Greece as Migrant Numbers Soar

Greece has replaced Italy as the main gateway for migrants into Europe, with more than 100,000 arrivals in the first six months of 2015. Many want to move further into Europe and escape Greece’s economic crisis, but they face widespread dangers on the journey overland through the Balkans. VOA's Henry Ridgwell reports.
Video

Video Stink Intensifies as Lebanon’s Trash Crisis Continues

After the closure of a major rubbish dump a week ago, the streets of Beirut are filling up with trash. Having failed to draw up a plan B, politicians are struggling to deal with the problem. John Owens has more for VOA from Beirut.
Video

Video Paris Rolls Out Blueprint to Fight Climate Change

A U.N. climate conference in December aims to produce an ambitious agreement to fight heat-trapping greenhouse gases. But many local governments are not waiting, and have drafted their own climate action plans. That’s the case with Paris — which is getting special attention, since it’s hosting the climate summit. Lisa Bryant takes a look for VOA at the transformation of the French capital into an eco-city.

VOA Blogs

World Currencies

EUR
USD
0.9118
JPY
USD
124.31
GBP
USD
0.6420
CAD
USD
1.3048
INR
USD
64.136

Rates may not be current.