Vietnam’s coffee industry, after achieving notable success in 2022 with 1.78 million tons of coffee exported and total revenue of over $4.06 billion, the highest in over a decade, is expected to face potential challenges in 2023. These challenges may arise due to unpredictable fluctuations in the US dollar and other market factors, including decreased domestic coffee supply, potential exchange rate fluctuations, adverse weather conditions, and other market factors, which could impact Vietnam’s coffee exports in the coming year.
The strong performance in 2022 was driven by high coffee prices and a favorable USD/VND exchange rate caused by the US Federal Reserve’s consecutive interest rate hikes. Yet, this massive export surge led to a significant decrease in domestic coffee supply by the end of 2022, potentially impacting early 2023 exports.
Pham Quang Anh, Director of the Vietnam Commodity News Center, explained that:
Businesses rapidly purchased coffee from farmers and increased exports during the second and third quarters of 2022, leading to a sharp drop in inventory. This decrease may affect coffee exports in early 2023.
In 2022, Vietnam’s coffee exports grew by nearly 14% compared to 2021, while output increased only 9%. Moreover, heavy rain at the end of 2022 is expected to reduce coffee output by 10-15%, resulting in a lower total supply in 2023. This reduction will make it challenging for the industry to maintain the same export levels as in 2022.
Additionally, the US Federal Reserve’s slower interest rate increases in 2023 could narrow the exchange rate gap, potentially limiting Vietnamese enterprises’ exports.
The coffee export challenges in 2023 are not limited to supply but also involve coffee quality and origin. The European Union’s recent ban on coffee produced after deforestation and tighter pesticide residue regulations present obstacles for Vietnamese coffee farmers. However, these regulations can also serve as a driving force for the industry to improve and align with global market trends.
Despite these challenges, there are bright spots for Vietnam’s coffee industry in 2023. As China reopens its economy post-Covid-19, global demand for coffee is expected to rise. Additionally, the price gap between Arabica and Robusta coffee may lead some consumers to switch to Robusta to reduce costs.
The Mercantile Exchange of Vietnam (MXV) predicts that Vietnam will continue to be the world’s largest coffee producer and exporter from 2023 to 2033. Shrinking supply from other major exporting countries, such as Brazil and Indonesia, presents an opportunity for Vietnam to expand its export market.
While Vietnam’s coffee exports face challenges in maintaining previous growth rates, there are positive signals. Export volume and turnover may be lower than 2022 but still higher than 2020 and 2021 levels, with a likely average turnover of over $3 billion in 2023.
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