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

Australia Knights Prince Philip, Sparking National Outrage

Abbott's surprise reintroduction of knights and dames in the country's honors system last year drew criticism that he was out of touch with national sentiment More

SAG Award Boosts 'Birdman' Oscar Hopes

Individual acting Oscars appear to be sewn up: SAG awards went to artists who won Golden Globes: Julianne Moore, Eddie Redmayne, Patricia Arquette, J.K. Simmons More

Katy Perry Lights Way for Super Bowl's Girl Power Moment

Pop star's selection to headline US football championship's halftime show extends NFL's trend of selecting artists who appeal to younger viewers 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.
Zoo Animals Show Their Artistic Sidesi
X
June Soh
January 23, 2015 10:03 PM
The pursuit of happiness is so important, America's founding fathers put it in the Declaration of Independence. Any zookeeper will tell you animals need enrichment, just like humans do. So painting, and even music, are part of the Smithsonian National Zoo's program to keep the animals happy. VOA’s June Soh met some animal artists at the zoo in Washington. Faith Lapidus narrates.
Video

Video Zoo Animals Show Their Artistic Sides

The pursuit of happiness is so important, America's founding fathers put it in the Declaration of Independence. Any zookeeper will tell you animals need enrichment, just like humans do. So painting, and even music, are part of the Smithsonian National Zoo's program to keep the animals happy. VOA’s June Soh met some animal artists at the zoo in Washington. Faith Lapidus narrates.
Video

Video Progress, Some Areas of Disagreement in Cuba Talks

U.S. and Cuban officials are reporting progress from initial talks in Havana on re-establishing diplomatic ties. U.S. Assistant Secretary of State (for Western Hemisphere Affairs) Roberta Jacobson said while there was agreement on a broad range of issues, there also are some “profound disagreements” between Washington and Havana. VOA State Department correspondent Pam Dockins has the story.
Video

Video Worldwide Photo Workshops Empower Youth

Last September, 20 young adults from South Sudan took part in a National Geographic Photo Camp. They are among hundreds of students from around the world who have learned how to use a camera to tell the stories of the people in their communities through the powerful medium of photography. Three camp participants talked about their experiences recently on a visit to Washington. VOA’s Julie Taboh reports.
Video

Video US, Japan Offer Lessons as Eurozone Launches Huge Stimulus

The Euro currency has fallen sharply after the European Central Bank announced a bigger-than-expected $67 billion-a-month quantitative easing program Thursday - commonly seen as a form of printing new money. Henry Ridgwell reports for VOA from London on whether the move might rescue the eurozone economy -- and what lessons have been learned from similar programs around the world.
Video

Video Nigerian Elections Pose Concern of Potential Conflict in 'Middle Belt'

Nigeria’s north-central state of Kaduna has long been the site of fighting between Muslims and Christians as well as between people of different ethnic groups. As the February elections approach, community and religious leaders are making plans they hope will keep the streets calm after results are announced. Chris Stein reports from the state capital, Kaduna.
Video

Video As Viewership Drops, Obama Puts His Message on YouTube

Ratings reports show President Obama’s State of the Union address this week drew the lowest number of viewers for this annual speech in 15 years. White House officials anticipated this, and the president has decided to take a non-traditional approach to getting his message out. VOA White House correspondent Luis Ramirez reports.
Video

Video S. Korean Businesses Want to End Trade Restrictions With North

Business leaders in South Korea are calling for President Park Geun-hye to ease trade restrictions with North Korea that were put in place in 2010 after the sinking of a South Korean warship.Pro-business groups argue that expanding trade and investment is not only good for business, it is also good for long-term regional peace and security. VOA’s Brian Padden reports.
Video

Video US Marching Bands Grow Into a Show of Their Own

The 2014 Super Bowl halftime show was the most-watched in history - attracting an estimated 115 million viewers. That event featured pop star Bruno Mars. But the halftime show tradition started with marching bands, which still dominate the entertainment at U.S. high school and college American football games. But as Enming Liu reports in this story narrated by Adrianna Zhang, marching bands have grown into a show of their own.

Circumventing Censorship

An Internet Primer for Healthy Web Habits

As surveillance and censoring technologies advance, so, too, do new tools for your computer or mobile device that help protect your privacy and break through Internet censorship.
More

All About America

AppleAndroid

World Currencies

EUR
USD
0.8930
JPY
USD
117.98
GBP
USD
0.6673
CAD
USD
1.2445
INR
USD
61.498

Rates may not be current.