The Impact of the Global Coffee Trade On Dak Lak Province, Viet Nam: Analysis and policy recommendations

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One of the negative impacts of trade liberalisation and increased dependency on exports is stronger domestic price fluctuations. When prices increase substantially, excessive production expansion may take place, which causes downward pressure on prices, ultimately putting those in the coffee industry into serious crisis. Price fluctuations increase the vulnerability of farmers as well as of people in the processing industry and some traders. Dak Lak's experience is typical of the impact of trade liberalisation on producers and traders, especially the poor. Coffee prices reached a historical high in the 1990s, precipitating overproduction and then price dampening. This has had a serious negative impact on the livelihoods of Vietnamese coffee producers, particularly in Dak Lak province, the largest coffee-producing area in Viet Nam. Given current low global coffee prices, increasing globalisation, and the continuing move toward trade liberalisation, such situations are likely to happen with greater frequency, while farmers, especially the poor, will continue to be the most vulnerable to them. The purpose of the research was to investigate: 1. Vietnamese coffee producers' living situation, desires, and reactions to the changes in their industry, and the potential for them (and in particular the poor) to improve their living situation
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    Information Centre for Agricultural Oxfam Great Britain and and Rural Development (ICARD) Oxfam Hong Kong THE IMPACT OF THE GLOBAL COFFEE TRADE ON DAK LAK PROVINCE, VIET NAM:  ANALYSIS AND POLICY RECOMMENDATIONS Final September 2002    ii Contents  Acronyms and abbreviations…………………………………………………………………….. v    Acknowledgements……………………………………………………………………………….. vi   Chapter 1 Introduction.........................................................................................................1   1.1   Justification and objectives of the research...................................................................1   1.2   Research sites...............................................................................................................1   1.3   Research methodology..................................................................................................2   1.3.1   The team............................................................................................................2   1.3.2   Qualitative research...........................................................................................2   1.3.3   Quantitative research.........................................................................................3   1.4   Limitations of the research.............................................................................................4   1.5   Structure of the report....................................................................................................4   Chapter 2 The coffee market: global to local.....................................................................5   2.1   The global coffee market...............................................................................................5   2.1.1   The coffee trade in the 20 th  century...................................................................5   2.1.2   Coffee consumption...........................................................................................6   2.1.3   Production and trade today................................................................................6   2.1.4    Attempts to stabilise the world coffee price........................................................7   2.1.5   The future...........................................................................................................8   2.2   Viet Nam and the global coffee market..........................................................................8   2.2.1    A rapid increase in coffee cultivation..................................................................8   2.2.2   Coffee: a key export...........................................................................................8   2.2.3   Low domestic consumption................................................................................9   2.2.4   Tight links with the global economy...................................................................9   2.2.5    Admission to the WTO.....................................................................................10   2.2.6   The Vietnamese coffee market and TNCs.......................................................10   2.3   Coffee production in Dak Lak province........................................................................11   2.3.1   Society, economy, and environment................................................................11   2.3.2    An increase in coffee production......................................................................12   2.3.3   Production costs...............................................................................................13   2.3.4   Processing and export of Dak Lak coffee........................................................14   Chapter 3 Stakeholders in the local coffee market.........................................................17   3.1   Households in the survey area....................................................................................17   3.2   Coffee-growing households.........................................................................................19   3.3   Ethnic minority women.................................................................................................19   3.4   Private middlemen and coffee export businesses.......................................................20   Chapter 4 The impact of coffee production and trade on Dak Lak................................22   4.1   The impact on livelihoods............................................................................................22   4.1.1   Changing living standards................................................................................22   4.1.2   Increasing population density...........................................................................22   4.1.3   Food insecurity.................................................................................................23   4.1.4   Reduced school attendance.............................................................................23   4.1.5   Changing income sources................................................................................24   4.1.6   Indebtedness....................................................................................................27   4.1.7   Insufficient capital.............................................................................................28   4.1.8   The need for cash and even lower selling prices.............................................29   4.1.9    A new need for (weak) extension services.......................................................30   4.1.10   Limited benefits from input-support programs..................................................30   4.1.11   Price information: less relevant, less accessible..............................................31   4.1.12   Deforestation....................................................................................................31   4.1.13   Land shortage..................................................................................................32   4.1.14   Water resources...............................................................................................33      iii4.2    A look at the stakeholders............................................................................................33   4.2.1   The impact on coffee monoculture households...............................................33   4.2.2   The impact on diversified households..............................................................34   4.2.3   The impact on the poor....................................................................................34   4.2.4   The impact on ethnic minorities.......................................................................35   4.3   Coping strategies.........................................................................................................36   4.3.1   Coping strategies of the rich............................................................................36   4.3.2   Coping strategies of medium-off and poor households....................................37   Chapter 5 Simulations of the impact of current and future policies on coffee production and producers in Viet Nam............................................................................39   5.1   The impact of current policies......................................................................................39   5.1.1   Increasing coffee production............................................................................39   5.1.2   Temporary storage...........................................................................................40   5.1.3   Encouraging exports........................................................................................40   5.1.4   Providing subsidies..........................................................................................41   5.1.5   Extension policy...............................................................................................41   5.2   Potential impact of future policies................................................................................42   5.2.1   Reducing area planted to coffee......................................................................42   5.2.2   Increasing farm gate prices..............................................................................43   5.2.3   Increasing productivity.....................................................................................43   5.2.4   Foreign exchange policy..................................................................................44   5.2.5   Narrowing the price gap between Viet Nam and other countries.....................44   Chapter 6 Conclusions and Recommendations..............................................................45   6.1   Conclusions.................................................................................................................45   6.2   Recommendations.......................................................................................................46   6.2.1   Key policy recommendations...........................................................................46   6.2.2   Strengthening support to farmers.....................................................................48   6.2.3   Improving competitiveness...............................................................................49   6.2.4   Strengthening poverty reduction......................................................................50   References…………………………………………………………………………………………. 52    Annex 1: Research sites………………………………………………………………………… 53    Annex 2: PAM Framework………………………………………………………………………. 56    Annex 3: Econometric Models…………………………………………………………………. 59   Tables Table 1 Transnational coffee companies and their affiliates..................................................11   Table 2 Increasing yield, area and output of Dak Lak coffee, 1990-2000.............................13   Table 3 Average production costs and DRC index for Dak Lak coffee, 1994-1999..............13   Table 4 Coffee transportation costs, 2001.............................................................................15   Table 5 Comparison of wellbeing ranking characteristics by district.....................................17   Table 6 Gender divisions in work and decision-making in ethnic minority families...............20   Table 7 Ownership of various assets by district (%)..............................................................22   Table 8 Difficulties of households by district (%)...................................................................22   Table 9 Differences between food-shortage and food-sufficient households........................23   Table 10 Income from coffee and as a percentage of total household income by district and household type, 2001 (VND million)..........................................................................25   Table 11 Agricultural land use by district (ha/household)......................................................25   Table 12 Other income sources of coffee producers.............................................................25   Table 13 Debt by household type and source (VND million).................................................27   Table 14 Average selling price of coffee by household type, 2001 (VND/kg)........................30   Table 15 Coffee purchasers by household type, 2001 (%)....................................................30   Table 16 Average area and age of coffee trees by district and household type (ha and years)...................................................................................................................................35      ivTable 17 Values of some variables measuring subsidy policy impact...................................41   Table 18 Export price (US$/ton) of Vietnamese coffee as a function of changes in coffee output of Viet Nam and Brazil....................................................................................42   Table 19 Impact of improving productivity on profit and cost.................................................43   Table 20 Impact of reducing irrigation time on profit and cost...............................................43   Table 21 Impact of exchange rate adjustments on profit and price.......................................44   Table 22 Impact on profit and price of narrowing the gap between Viet Nam’s export price and the world price.....................................................................................................44   Table 23 The poverty situation by district..............................................................................53   Table 24 Causes of poverty by district and province-wide (number of households).............53   Table 25 Table 1 The Policy Analysis Matrix.........................................................................56   Table 26 Coffee Production & Export of Vietnam and Brazil................................................59   Figures Figure 1 Sustainable livelihoods framework............................................................................2   Figure 2 World coffee price fluctuations, 1982-2002...............................................................5   Figure 3 World coffee output and exports................................................................................6   Figure 4 Coffee output of five countries, 2001 (million tons)...................................................6   Figure 5 Market share of major coffee producers, 2001..........................................................9   Figure 6 Main importers of Vietnamese coffee, 2001..............................................................9   Figure 7 Domestic, export and world coffee prices,1990–2001 (US$/ton)............................10   Figure 8 Market share of green coffee by TNC, 1998...........................................................10   Figure 9 Market share of roasted and instant coffee by TNC companies (1998)..................11   Figure 10 Coffee-growing area by region..............................................................................12   Figure 11 Coffee output by region.........................................................................................12   Figure 12 Coffee processing..................................................................................................14   Figure 13 The coffee chain in Dak Lak 2001: from producers to exporters...........................15   Figure 14 The wet processing coffee chain in Dak Lak.........................................................16   Figure 15 Migration to Dak Lak, 1976-2000..........................................................................23   Figure 16 Comparison of average debt of food-shortage versus food-sufficient households29   Figure 17 Differences in land area between food-shortage and food- sufficient households ....32   Figure 18 Drop in investment for fertiliser..............................................................................36   Figure 19 Vietnamese coffee export volumes and prices, 1990-2001...................................39   Figure 20 Export revenue and elasticity of demand..............................................................40   Figure 21 Storage policy holds back the speed of price reduction rather than increasing coffee prices...............................................................................................................41   Figure 22 Helping farmers diversify production.....................................................................48   Boxes Box 1 No money for shoes....................................................................................................24   Box 2 Banks are also in trouble.............................................................................................27   Box 3 Using a loan for a non-productive purpose makes repayment difficult........................28   Box 4 Middlemen with non-performing loans are also in a precarious position.....................29   Box 5 No money to apply extension lessons.........................................................................30   Box 6 Lower access to in-kind loans for the poor..................................................................31   Box 7 The “perennially poor lack land..................................................................................32   Box 8 No buyers for the farm!................................................................................................33   Box 9 Poor monoculture households suffer...........................................................................34   Box 10 The better-off are not very affected by low coffee prices...........................................34   Box 11 A poor ethnic minority household follows extensive cultivation.................................35   Box 12 Richer households keep their trees and hope...........................................................36   Box 13 The poor still rely on coffee and cling to the hope of a better life..............................37   Box 14 Cotton—a way out for coffee producers?..................................................................38  
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