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Business

Nestle helps Vietnam cultivate its coffee industry

To help boost crop yield and quality, Nestle is sending experts to instruct Vietnamese coffee farmers in more efficient growing techniques.

TOKYO -- Vietnam is already the world's No. 2 exporter of coffee beans, and with help from Nestle -- which counts on the Southeast Asian country as its key supplier of beans for instant coffee -- it could soon catch up with Brazil.

Mutually beneficial

The Swiss food giant has dispatched eight experts to Vietnam's central highlands to help coffee farmers there improve the quality of their beans and the size of their yield. With the help of more than 300 local farmers who had been trained as instructors by the company, Nestle taught growing techniques to around 21,000 coffee growers last year. Support on a similar scale is planned for this year.

     "In the long term, educating farmers will benefit both them and Nestle, since it will enable us to purchase high-quality beans. At Nestle, we call it 'creating shared value,'" said Ganesan Ampalavanar, managing director of Nestle Vietnam.

     The company purchased slightly more than 20% of the 1.7 million tons of coffee beans harvested in Vietnam in 2014. Those beans were processed and exported to Nestle group factories in 22 countries.

     Vietnam is already the world's No. 1 supplier of robusta coffee beans, which is used for making instant coffee. But in terms of efficiency, the country's coffee farms have much room for improvement. Most of the 500,000 or so coffee growers in Vietnam run tiny farms of about 1 hectare each.

     They also tend to use large quantities of pesticides, fertilizers and water, resulting in lower yields and poorer bean quality. Nestle is working to address these issues to ensure it has a reliable source of quality beans.

     The company also plays the role of bridge between coffee farmers and the government.

     In April, representatives from Nestle, various fertilizer makers, the Ministry of Agriculture and Rural Development, the Bank for Investment and Development of Vietnam and the International Finance Corp. gathered in Hanoi. They were there for a meeting of the coffee subcommittee of a public-private partnership initiative that had been set up to boost the competitiveness of Vietnam's agricultural industry.

     At the meeting, it was reported that the subcommittee's efforts had enabled 3,500 farmers to boost yields by 10% while reducing pesticide use by 10%. This resulted in their revenue per hectare climbing 14% to $6,621.

Nestle buys coffee beans from Vietnamese growers and processes them at local facilities, such as this one in Dong Nai Province. The processed beans are then sent to Nestle group factories around the globe.

     The meeting also saw the proposal of a mechanism under which farmers could borrow roughly $1,000 for purchasing fertilizers, provided that they sell a certain portion of their harvests to Nestle. The BIDV is expected to implement this mechanism as early as this year.

Growing presence

The world's total coffee bean harvest in 2014 came to the equivalent of 146.26 million 60kg bags, unchanged from 2010, according to the U.S. Department of Agriculture. Harvests in Vietnam went against the overall trend, jumping 45% to 28.16 million bags, 90% of which were exported.

     Because Brazil mainly produces beans for regular coffee, Vietnam commands a significant presence in the market for beans for instant coffee. Vietnam now fills nearly 80% of the world's demand for such beans.

     Nestle has been busy bolstering its production capacity in Vietnam to increase its coffee bean exports from there.

     Its new $80 million production facility began operating this spring in the southern province of Dong Nai. By mid-July, the plant was receiving a steady stream of bags of beans, processing them to caffeine-free beans, demand for which has been growing along with the global increase in health-conscious coffee drinkers.

     "All caffeine-free beans are exported to the U.S., Europe and elsewhere," factory manager Nakhle Kattan said. "We want to more than double our output by 2018-2020."

     In addition to exporting processed beans, Nestle also produces Nescafe brand instant coffee and Milo brand beverage products at five factories in Vietnam. 

Global buzz

The International Coffee Organization forecasts worldwide coffee consumption in 2025 will be around 20% higher than the roughly 150 million bags estimated for 2015.

     Vietnam is not the only Asian country hoping to benefit from this growing demand.

     Laos, which is looking to make coffee beans one of its main exports, aims to expand the total area of its coffee farms by 70% to 130,000 hectares by 2025.

     Indonesia, the fourth-largest coffee producer in the world, is gearing up to strengthen its existing coffee brands, such as Mandheling, Java and Toraja.

     And China's Yunnan Province, an area well-known for teas, has emerged as a coffee grower in recent years.

     Because the number of coffee drinkers is increasing in emerging and developing countries, "demand for the robusta species, which is used for making low-priced instant coffee, has been growing particularly strongly," Toyohide Nishino, executive director of the All Japan Coffee Association, said.

     Rising demand for robusta beans, coupled with slowing growth of Brazil's coffee exports, means Asian producers' share of the global coffee bean market will likely increase from the current 30%.

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