Vietnam Coffee Production to Drop, Association Says

By Nguyen Dieu Tu Uyen
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Aug. 8 (Bloomberg) -- Coffee production from Vietnam, the world's biggest grower after Brazil, will be less than expected because of dry weather and rising fertilizer costs, according to the Vietnam Coffee and Cocoa Association.

The crop will be 950,000 metric tons for the year ending Sept. 30, 2009, below a previous estimate of 1 million tons, Luong Van Tu, chairman of the association, said in an interview today. Vietnam may produce 1.3 million tons, Fortis, a Belgian financial-services firm, said in a June report.

``Production can't be that high since the crop was hurt by unseasonal rains earlier this year, dry weather and high fertilizer prices,'' Tu said in Hanoi.

A drop in production from Vietnam, mostly a grower of the bitter-tasting robusta variety used in espresso and instant coffee, may boost bean prices in London. Robusta has climbed 30 percent in the past year, increasing costs at Nestle SA, the world's largest food company, and Kraft Foods Inc.

``The dry period in July with much less rain than previous years meant some trees shed fruit, but I don't think the damage will be that much,'' said Hoang Tuan Khai, chairman and chief executive officer of Vietnam General Import Export No.1 Joint- Stock Co., known as Generalexim. Khai, whose main business is exporting coffee, said the harvest would be 1 million tons.

Robusta coffee in London traded at $2,354 a ton today.

Lower Rainfall

Rainfall declined last month in the provinces of Dak Lak, Lam Dong and Dak Nong, which grow three-quarters of Vietnam's coffee. In Dak Lak, the largest growing area, rainfall fell 16 percent to 1,436 millimeters from a year earlier, the Dak Lak Hydrology and Meteorology Office said. Buon Ma Thuot got 87.3 millimeters compared with 197.1 millimeters.

``The region is not yet seeing any dramatic reduction in crop potential,'' said Joel Widenor, meteorologist for MDA EarthSat Weather Services in Rockville, Maryland. ``But good August rains will be important to ensure recent drier trends don't become a more dramatic issue.''

Neighboring Lam Dong province, the second-biggest growing area, got 2,180 millimeters of rain last month, 27 percent below July 2007, according to the local weather office. Rainfall in Dak Nong declined 28 percent to 2,856 millimeters.

Vietnam's Coffee and Cocoa Association estimates production at 900,000 tons in the crop year ending next month, said Tu, a former deputy trade minister responsible for negotiating Vietnam's entry into the World Trade Organization last year.

Dry Weather, Fertilizer

The current Vietnamese crop may total 19.5 million bags, or 1.17 million tons, Fortis said in June. The International Coffee Organization and the agricultural attache's office at the U.S. Embassy in Hanoi expect 2007-08 production to total 17.5 million bags, or 1.05 million tons.

A May report from the U.S. agriculture office forecast an increase in production to 21.5 million bags in the 2008-09 year, citing higher yields and an increase in growing areas.

The dryness and high fertilizer costs have hurt production in Vietnam, said Nguyen Xuan Thai, director of Dak Lak-based Thang Loi Coffee Co., the largest grower. Output from his plantations dropped by as much 30 percent because trees shed fruit, Thai said.

The amount of coffee fruit in some areas of Dak Lak and neighboring provinces has dropped by about a quarter, said Huu Thanh Hong, business manager of Dak Lak-based Sept. 2nd Import- Export Co., Vietnam's third-biggest exporter.

Beans Shed

``The dry weather was part of the reason the beans shed,'' Cao Van Tu, director of Dak Lak-based Ea Pok Coffee Co. ``In addition, when there is no rain, you can't put fertilizer on the trees. If you do, the chemical will burn the tree.''

Costs of fertilizer in Vietnam have doubled this year because of a three-fold increase in international prices, said Ha Dac Thuy, Hanoi-based vice chairman of the Vietnam Fertilizer Association. Vietnam imports about 40 percent of its annual fertilizer needs of 1.7 million tons, he said.

An increase in bank lending rates to as much as 21 percent also means the country's fertilizer producers and importers raised prices, Thuy said.

To contact the reporter on this story: Nguyen Dieu Tu Uyen in Hanoi at uyen1@bloomberg.net.