How Brazil and Vietnam are tightening their grip on the world’s coffee

Thai Anh Tuan (L) a manager of Simexco Dak Lak Limited coffee company tastes coffee at his office in the town of Di An in Binh Duong province, Vietnam. (Reuters)
Updated 22 August 2019
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How Brazil and Vietnam are tightening their grip on the world’s coffee

  • A plunge in global coffee prices in recent months, to their lowest levels in 13 years, has begun to trigger a massive shake-out in the market in which only the most efficient producers will thrive

SAO JOAO DA BOA VISTA, Brazil: A towering machine rumbles through the fields of Julio Rinco’s farm in the Brazilian state of Sao Paulo, engulfing whole coffee trees and shaking free beans that are collected by conveyor belts in its depths.
This automatic harvester is one of several innovations that have cut Rinco’s production costs to a level that few who use traditional, labor-intensive methods can match.
With increasing use of mechanization and other new technologies, the world’s top two coffee producers, Brazil and Vietnam, are achieving productivity growth that outstrips rivals in places such as Colombia, Central America and Africa.
They are set to tighten their grip.
A plunge in global coffee prices in recent months, to their lowest levels in 13 years, has begun to trigger a massive shake-out in the market in which only the most efficient producers will thrive, according to coffee traders and analysts.
Rival producers elsewhere in the world are increasingly likely to be driven to the margins, unable to make money from a crop they have grown for generations. Some are already turning to alternative crops while others are abandoning their farms completely.
Such shifts are almost irreversible for perennial crops like coffee, as the decision to abandon or cut down trees can hit production for several years.
“Brazil and Vietnam have had consistent increases in productivity, other countries have not,” said Jeffrey Sachs, director of the Center for Sustainable Development at Columbia University, citing advances in mechanization, selective crop breeding techniques and irrigation technology.
In Colombia and Central America, coffee is typically grown on hillsides where mechanization is more difficult, and hand-picking cherries has kept production costs relatively high. The African sector, meanwhile, is dominated by small-scale farmers often unable to raise the capital needed for new techniques.
Rinco bought his harvesting machine for around 600,000 reais ($155,600) and is paying the agricultural supplies company with coffee, delivering 400 bags a year over four years. This kind of bartering is common in Brazilian farming.
One such machine in Brazil replaces dozens of people in the field. Even with financing and fuel bills, farmers and machine manufacturers say there is a reduction of 40% to 60% on harvesting costs.
“Beyond the lower costs, it made my life less complicated,” said Rinco, relieved at no longer having the gruelling task of hiring suitable pickers every year for the harvest at his farm in the Sao Joao da Boa Vista area.
“People don’t want to pick coffee anymore, they go to town to find something else to do.”
Brazil and Vietnam now produce more than half the world’s coffee, up from less than a third 20 years ago, and the proportion is rising, US Department of Agriculture estimates show.
Leading producer Brazil alone accounts for over a third of global supply. In a clear sign of increased efficiency, it reported a record crop of 62 million bags last year and is expected to produce another record in 2020, the next on-year in the country’s biennial production cycle — despite the fact the coffee-planting area has been falling for the last six years.
Vietnam is also regularly setting production records while, by contrast, in Colombia the largest ever crop was harvested in the early 1990s and in Guatemala nearly two decades ago, USDA data shows.
In countries such as Guatemala and Honduras, growers who are increasingly abandoning farms are swelling the ranks of migrants trying to enter the United States.
Average yields in Brazil have risen sharply over the last decade with figures from the UN Food and Agriculture Organization showing an increase of more than 40% to about 1.5 tons per hectare. Vietnam has also seen yields rise from already strong levels, climbing about 18% to around 2.5 tons.
Colombia did show some growth, about 12%, but remains well behind at about 1 ton per hectare while in Central America there was a decline of around 3% to a meagre 0.6 tons.
Businessman Alexandre Gobbi and two partners decided to enter coffee farming in Brazil four years ago. They bought an area in Sao Sebastião do Paraíso, in the main producing belt in Minas Gerais state, and sought out state-of-the-art tech.
Today, his farm has equipment including an underground dripping irrigation system with artificial intelligence, considered the world’s most advanced.
“It does almost everything by itself. Reads humidity levels, tells me when to add water and fertilizer and by how much,” he told Reuters, pointing to the digital panels in his control room.
With the system, plus other equipment including harvesters, he has doubled average yields to around 60 bags per hectare, and can make a profit even with current low prices.
Arabica coffee futures on ICE Futures US, the most widely used global benchmark for coffee prices, fell in May to 87.60 cents per lb, the weakest level since September 2005.
Prices have since recovered slightly but remain at a level where few producers outside Brazil and Vietnam can make money.
Arabica beans, which provide a smoother and sweeter taste, constitute nearly two-thirds of the world’s coffee. More bitter and stronger robusta beans largely make up the rest of global supply, much of them hailing from Vietnam.
A warehouse owned by Vietnamese coffee exporter Simexco Dak Lak Ltd. in the town of Di An, near Ho Chi Minh City, illustrates the scale of Vietnam’s coffee operation.
Coffee is stacked in neat piles several meters high, awaiting export to Europe. The warehouse has enough capacity to store 20,000 tons during the harvest season.
“At the height of the harvest, having enough space to create an aisle to walk through the warehouse becomes a luxury,” said Thai Anh Tuan, who manages one of three warehouses for Simexco, which exports over 80,000 tons of robusta a year.
“Every tiny bit of space will be taken up by these little beans,” Tuan added. “We have to hire additional warehouses nearby for extra storage.”
Tuan also credited the steady increase of Vietnamese coffee exports over the last four to five years to an increase in innovative farming techniques, including intercropping — growing different crops together — and the use of better technology in irrigation and cultivation.
Coffee is still the key cash crop for Dak Lak, Vietnam’s largest coffee-producing province, although durians, jack fruit, mangoes and avocado trees have all been intercropped with coffee trees to maximize income in recent years, farmers told Reuters.
Ksor Tung, a coffee grower with a 10-hectare farm, said intercropping coffee with durian trees resulted in better protection from direct sunlight and pests.
“Farmers here have experimented with intercropping for nearly a decade,” Tung told Reuters.
“Peppers used to be the most popular tree when it comes to intercropping but for the past three years, with the prices falling, almost all farmers have turned to fruit trees instead,” said Tung, adding that farmers who intercrop can triple their income per hectare.
Farmers in Colombia face a far different future.
Battered by low prices and high costs, some are contemplating switching to other crops or selling up, despite tens of millions of dollars in government aid.
Jose Eliecer Sierra, 53, has farmed coffee for three decades but low prices have forced him to look at alternatives — Hass avocados and cattle among them.
“Avocados are in high demand abroad and it’s one of the options,” he said, standing amid some of his 41,000 coffee trees on a mist-shrouded mountainside near Pueblorrico, in Antioquia province.
“Another very tempting option that people are thinking about is cattle — knocking down coffee trees and planting grass for cows,” said Sierra.
It is not the first time Colombian coffee growers have looked to other crops for a better living. Many in the south — sometimes under pressure from armed groups — abandoned it for the more lucrative coca, the raw ingredient in cocaine, though coffee has since rebounded.
For some growers, even switching crops may not save them.
Uriel Posada, who worked for more than 30 years as a house painter in the United States, dreamed of coming home to Colombia to grow coffee. Now his land is up for sale.
“I’m up to my neck in debt,” the 52-year-old said, gazing up the steep hill where his 30,000 coffee trees are planted.
“Brazil has a huge advantage over us — the land is flat and they have machinery,” Posada said. “Here I have to pay a human being to go tree by tree, branch by branch and pick the red berries.”
Avocados and cattle are good alternatives, Posada said, but require start-up funds and transition time that many local growers do not have.
“I’ll sell, pay what I owe and go. End my Colombian dream.”


SFD, AfDB sign deal to finance development initiatives in Africa 

Updated 21 min 46 sec ago
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SFD, AfDB sign deal to finance development initiatives in Africa 

RIYADH: Developing African countries are poised to receive a funding boost for growth initiatives following a deal with the Saudi Fund for Development, aiming to foster sustainable progress. 

The memorandum of understanding, signed with the African Development Bank Group, aims to promote mutual objectives and activities for sustainable international development between the two parties, the Saudi Press Agency reported. 

This initiative aligns with SFD’s objective to enhance both social and economic growth by creating diverse opportunities.  

Moreover, the newly signed agreement aims to facilitate the exchange of knowledge and experiences while advocating for optimal co-financing strategies. It will also support the attainment of sustainable development goals and optimize the impact of these initiatives. 

Additionally, the MoU also aims to enhance collaboration in pursuit of shared goals that promote the expansion of crucial opportunities in diverse beneficiary African nations, ultimately contributing to global prosperity for the most impoverished and least developed communities. 


Saudi Central Bank and BIS co-host meeting on reserve management in Riyadh

Updated 29 min 12 sec ago
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Saudi Central Bank and BIS co-host meeting on reserve management in Riyadh

RIYADH: The evolving global landscape presents new challenges and opportunities for central bank reserve managers, the governor of Saudi Arabia’s apex financial institution explained at a high-level meeting.

Speaking at an event in Riyadh which was attended by the Bank for International Settlements, Ayman Al-Sayari set out his view on the complexities of the current macro-financial environment.

The two-day gathering, which began on April 28, brought together reserve managers and experts from central banks in the Middle East and North Africa region, as well as participants from other apex financial institutions, to discuss the latest trends in managing foreign exchange reserves. 

The event served as a platform for participants to exchange insights, perspectives and expertise on the most critical aspects of reserve management through a series of panel discussions and keynote speeches.

In March, SAMA’s monthly statistics bulletin revealed that foreign assets of Saudi Arabia’s commercial banks surged by 22 percent in February, reaching a total of SR347.63 billion ($92.7 billion) compared to the same month of the previous year.

This rise reflects a significant expansion in the commercial institutions’ international holdings and investments. 

The central bank added that its net foreign assets reached SR1.55 trillion in February. 

Central banks’ foreign holdings are primarily for reserve management and monetary policy purposes, while commercial banks’ foreign assets are for business operations, customer services, and investment activities.

The report added that Saudi Arabia’s total reserve holdings amounted to SR1.62 trillion, representing a five percent decline compared to the same month of 2023.


DIFC records $2.6bn in gross written premiums, highest figure in its 20-year history 

Updated 49 min 51 sec ago
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DIFC records $2.6bn in gross written premiums, highest figure in its 20-year history 

RIYADH: Dubai International Financial Centre recorded its highest gross written premiums in its 20-year history, amounting to $2.6 billion in 2023, marking a 23 percent increase from the previous year. 

DIFC, a global financial center in the Middle East, Africa, and South Asia region, connects the fast-growing markets of the region with global economies and offers dining, retail, and living amenities, according to its website. 

The center also recorded a 20 percent increase in the registration of insurance and reinsurance firms, including the first move of a Guernsey-based captive. 

The Emirates News Agency reported that DIFC “has consolidated its position as the principal hub for the (re)insurance industry,” adding  that DIFC’s appeal for managing general agents, representing 43 percent of new registrations, is a major factor shaping its insurance landscape.

This is credited to the center’s well-established regulatory framework, facilitating partnerships with cedants and brokers. 

The influx of global insurers, reinsurers, and brokers, as well as captives, MGAs, and other industry stakeholders into DIFC, is driven by several factors. These include buoyant oil prices and increased infrastructure spending, as well as a focus on sustainable projects and low insurance penetration in the region. 

Among the notable entities to join DIFC’s insurance sector in the past year are Alif Limited, Arc Insurance and Reinsurance Limited, and Barents Risk Management Limited. Joining them are BharatRe Global Ltd. and many more, it added. 

Arif Amiri, CEO of DIFC Authority, emphasized the center’s role as a global industry hub, hosting over 120 registered insurers, reinsurers, captives, MGAs, and related entities. 

The significance of DIFC’s stature in the insurance domain is further underscored by its co-hosting of the Dubai World Insurance Congress, featuring discussions on key themes reshaping the industry’s future, including innovation, capital attraction, and talent development. 

In 2023, a survey conducted at DWIC revealed an 87 percent confidence in the Middle East, Africa, and Southern Asia market’s strategic opportunities. Property, health, energy, cyber, and liability lines of business were identified as holding the most potential. The survey also highlighted an 85 percent confidence rate in renewals and client retention. 

Over two decades, DIFC has fostered the growth of the insurance and reinsurance industry, attracting talent and expertise to access key markets in the Middle East, Asia, and Africa.  

The center hosts major insurance brokers, five of which are top ranked by the specialized insurance credit rating agency, AM Best. This has contributed to a significant 61 percent increase in brokered premiums compared to 2022, surpassing the $2 billion mark and solidifying DIFC’s position as a global market for insurance and reinsurance placements. 


Dubai Real Estate Brokers Program attracts 25 strategic partnerships

Updated 29 April 2024
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Dubai Real Estate Brokers Program attracts 25 strategic partnerships

RIYADH: Dubai’s property market is set to grow, with the Real Estate Brokers Program securing 25 partnerships with brokerage companies and developers in the private sector. 

According to a press statement, the first phase of the program, launched in mid-March and headed by the Dubai Land Department, also received over 1,000 registrations from Emirati citizens. 

Dubai Real Estate Brokers Program aims to increase the proportion of citizen brokers from 5 percent to 15 percent over the next three years to enhance the participation of young citizens in the Emirate’s developmental initiatives across various key sectors. 

“This reflects the early positive impact of the program, showcasing citizens’ aspirations and eagerness to engage as real estate brokers and acknowledging the pivotal role of Dubai’s real estate sector locally and globally,” said Marwan bin Ghalita, acting director general of Dubai Land Department. 

The initiative also aligns with Dubai Social Agenda 33, which seeks to triple the number of Emiratis working in the private sector.

Ghalita added that the program will help young talents in the nation enhance their productivity, therefore contributing to Dubai’s economic growth. 

“Dubai consistently offers outstanding examples of collaboration and synergy between the private and public sectors,” said Ghalita. 

He added: “With the program’s enrollment exceeding 1,000 citizens and real estate companies continuing to join the strategic alliance within a short period, we are diligently working toward achieving all the ambitious goals of the Dubai Real Estate Brokers Programme. In particular, Emirati real estate brokers will increase from 5 percent to 15 percent over the next three years.” 

The program also encompasses additional initiatives, including Emirati real estate broker licensing, encouraging property developers to allocate a portion of their sales to local agents, and empowering citizens in the property sector. 

Under the partnership with the private sector, citizen participants will receive various support packages to enhance the competitive edge of UAE people and enable them to take up roles in the real estate sector. 

The press statement added that efforts would also be made to allocate 10 percent to 15 percent of the development company’s sales to be marketed by Emirati real estate brokers, therefore contributing to the empowerment of national citizens by offering them employment opportunities in the property market. 


Dubai ruler approves new $35bn airport terminal

Updated 29 April 2024
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Dubai ruler approves new $35bn airport terminal

CAIRO: Dubai’s ruler Sheikh Mohammed bin Rashid Al-Maktoum approved a new passenger terminal in Al Maktoum International airport worth 128 billion dirhams ($34.85 billion), he said on Sunday in a post on X.

The Al Maktoum International Airport will be the largest in the world with a capacity of up to 260 million passengers, and five times the size of Dubai International Airport, he added, saying that all operations at Dubai airport would be transferred to Al Maktoum in the coming years.

The Al Maktoum airport will also include 400 terminal gates and five runways, he said.

The airport will be the new home of flagship carrier Emirates and its sister low-cost airline Flydubai along with all airline partners connecting the world to and from Dubai, Dubai state-owned airline Emirates chairman Sheikh Ahmed bin Saeed Al-Maktoum said.

The move “further solidifies Dubai’s position as a leading aviation hub on the world stage,” the CEO of Dubai Airports, Paul Griffiths, was quoted as saying by the Dubai Media Office.