Market Positioning

1.Consumption

According to ITC’s International Trade Statistics, USA is the world’s largest importer of coffee/coffee substitute with the world’s second followers of Germany and the third is Japan. Following is the data of USA’s coffee import in the period 2000 – 2004 compared with its followers:

Unit: thousand USD
Country Y 2000 Y 2001 Y2002 Y 2003 Y 2004
U.S 2,814,477 1,789,118 1,799,246 2,075,051 2,394,800
Germany 1,637,142 1,248,623 1,111,530 1,272,700 1,583,969
Japan 916,734 687,723 668,090 683,060 775,664
France 746,404 592,523 586,680 692,048 766,959
Italy 659,760 514,423 428,822 503,149 567,336
(Source: International Trade Statistics – ITC)

The U.S coffee consumption supposed to be the total import by value in thousand USD because this country does not grow coffee.

2. Foreign Trade

Export markets and competitiveness
Vietnam coffee is now exported to over 50 countries. America and Germany are the primary trading partners. Although Western European market are among its strongest, there is also a growing demand in newly expanding markets such as Poland and Hungary. In Asia , Japan is the most important client, followed by Korean . Besides there is also notable demand from other producing countries, particularly for soluble manufacturing and re-exports.

The exporters are responsible for the processing, transportation and exportation of coffee. These companies are often conglomerates that process and trade a wide range of products, including manufactured goods. However in fact most of their export sales are to agents of multinational traders who take over coffee at the port and ship it to their clients. Most of the domestics companies have no international relationships with buyers, who reportedly prefer to use multinational traders because they can better assure specified quality, volume, and delivery schedules.

By finding a shorter way to final buyers, Vietnamese exporter will gain substantial more revenue and profit. Besides, they would have more ability to orient the buying market and more choice of optimizing products and buyers. USA market is currently the No2 consumer of Robusta coffee and this promising market is still on-growing.

Advantages and challenges in developing the direct market to USA

Advantages: some big Vietnamese exporters, especially the state-owned companies already have enough coffee volume and financial power to finance them with the overseas marketing activities, operations and distributions. Another substantial advantage is those Vietnamese exporters have conditions to understand Vietnamese coffee local market, which is one of the most important parts of the Robusta world.

Challenges of domestic company in joining the external market directly:

They are unable to manage price risk as the single most important concern in their trading activities. Consequently, in extended periods of falling prices, such as from 1998 onward, losses on almost every ton sold were almost inevitable except for those fortunate to catch one of the few upward price spikes, and those losses could have increased based on the length of holding period. The experienced ability to hedge allows the multi national firms to better protect themselves from falling prices. Such operations are closed to domestic traders who often have only a limited understanding of futures markets and do not have the regulatory approval to use them.
Besides, unlike the international traders, domestic exporters are usually unable to select and sort for more exact and higher specifications when required. This has enabled foreign traders to capture mire of the trade and add value to them when processing for export.
Secondly, the state-owned enterprises are also hampered in accessing these markets not only by poor technology but also by the lack of external marketing skills and contacts, often exacerbated by language difficulties. This can be compounded by importers concerns over the higher level of business risk in dealing with domestics traders.

Policy disadvantages: domestic exporters are limited from the access to oversea risk management markets by the foreign exchange regulations. This also provides perverse trading incentives to generate foreign currency, even in loss making business involving the commodity trade.
Contract enforcement and Default risks: this is the issue that proved to be the most damaging to Vietnam s reputation as a reliable supplier of coffee. Default risks arise with some frequency, particularly when prices rise and a seller of coffee prefers to find another buyer at higher prices then the original contract.
These problems for the domestic traders extend to their involvement in international marketing. Roaster and other buyers will prefer to buy from international coffee houses who have developed local networks and who can replace coffee lost to default through other sellers.
In addition to using futures to limit losses, international traders can buy spot and sell forward thus being able to capture the price difference between spot and forward prices, This can be an important source of profitability for these international traders, but this also something that domestic traders can not due to performance risk and regulations.

Country USD (thousand) MT (Million Tonnes)
U.S 92,123 66,801
Germany 77,492 63,074
Spain 34,745 39,736
Italy 33,862 28,844
Korea 18,524 16,099
U.K 16,860 13,298
Belgium 16,045 13,125
France 15,657 11,434
Japan 12,159 10,447
Philippines 10,882 10,318
India 9,158 10,175
Others 149,093 87,649
Grand Total 486,600 371,000

3. Marketing:
The first and fundamental thing to do in order to approach the USA customers. Different from European or Japanese buyers, USA buyers mostly buy delivered coffee, which mean coffee has to be shipped and stored in USA warehouses waiting to be sold and picked up by buyers.

In order to do this, there is no other way than setting up satellite office in the US , or signing in a agency contract with local company. Vietnamese exporters will then have to be able to communicate, persuade the international customer to buy coffee.

Branding:
Building up a traceable coffee with a good brand name is also a good way to marketing Vietnamese coffee. This, of course will help to create more competitiveness to our product.
Exporters should also be able to catch up with the market requirement, balance the market demand with our storage and production. A sustainable relationship with international will be stronger if domestic traders can prove the ability of risk management, the ability to fulfill the contractual responsibilities.
International network could also be gained from creating an information network between buyers and suppliers. Vietnamese have the advantage of understanding the Vietnam local market. Vietnamese traders can improve this buy sending people to coffee areas, making survey and prospects. A professional international info sharing is a very good bridge to connect with US/ worldwide partners.

Financing system and risk management system:
As Robusta coffee price is directed mostly by London futures price, it is very necessary for traders to open and maintain a futures book in order to hedge their coffee and limit the risk of price falling down. The government has consistently supported parts of the coffee sector when prices have been low, with a variety of financial measures. This measure introduces moral hazards into the system by isolating the managers from the consequences of business risks and probably crowds-out parts private sector insurance-based solutions.
Furthermore, the operations of the futures market are relatively new concepts in Vietnam domestic sector and most domestic company has limit understanding of how risk management instruments work, and how to integrate them into their business practices. This lack of both awareness and technical understanding will need to be improved as domestic traders turn into international traders.

Transportation and Distribution channel:
This requires trader to have certain facilities for stocking and processing in order to optimize customers demands and satisfaction. Traders must possess the ability to provide spot coffee as well as selling forward. The oversea activities must be organized in way of providing the right quality, with the right quantity within the contractual schedule. This procedure requires a very good arrangement and planning in terms of cost management, risk management and service delivery.
Traders must be able to support and supervise their buyers with documentations as well as in import-exports procedures, customs clearances.

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