Economics Paper Example: Growing Coffee Demand Effect on Production and Export in Vietnam

Coffee is a product that is consumed all over the world, hence its production and export is very profitable for countries that have the climate that can support its production. Vietnam is one of the countries in the world that engage in the production of coffee. Coffee is a normal good which means that the rise in price would lead to reduced demand for the same. The behavior of the coffee market is similar to that of other normal goods and this means that the producers can be enticed by better prices in the market. The forces of demand and supply can in a great way shape the behavior of the various stakeholders in the market. The aim of this research paper is to evaluate the effects of growing demand for coffee on production and export of coffee in Vietnam.

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As per the forces of demand and supply, the growing demand for coffee would mean that demand is greater than supply, and this would push the prices of coffee up. The rise in price of coffee both in the local and international market would entice farmers in Vietnam to produce more since there are greater benefits of doing the same (The United States. Foreign Agricultural Service, issuing body, 5). There is a need to find out whether there was an increase in the production of coffee in Vietnam over the years, to meet the growing demand and this can be explained by the relevant statistics. The following table and chart explain the trend in Coffee production in Vietnam.

Year Total coffee produced in Thousand(60kg bag)

2012 26500

2013 29833

2014 27400

2015 28930

2016 26700

Based on the analysis, it is evident that coffee production in Vietnam fluctuated over many years. This is expected considering that the farmers increase their output when prices are high and when the output is increased, supply put pressure on prices which reduce and farmers reduce output in the future years. However, Vietnam has been facing challenges that are associated with climate change, and regardless of the growing demand for coffee, output in Vietnam has not grown because climate change has adversely affected the total output every year.

Studies have revealed that the farmers in Vietnam have increased the size of land that they farm, but output has not increased proportionately because the climate has adversely affected the output in the country. More specifically El Nino in the year 2016 has been a challenge that has led to the reduced output of coffee farms (Boselie, 2).

Export of coffee

The growing demand for coffee in the world means that the producers of coffee are expected to increase the export of the coffee that they produce. The high demand means that the prices of coffee in the global market are attractive enough to warrant an increase in production hence increase in the export of coffee. However, an increase in the local demand for coffee would also mean that less would be left for export, depending on the benefits of selling locally as compared to the benefits of exporting coffee. Coffee from Vietnam is exported in various forms, but the table below summarize the total coffee that was exported from Vietnam over the last four years;

Total exported in thousand (60kg bags)

2012 24643

2013 28289

2014 21530

2015 29500

2016 26050

The statistics still show that the export of coffee from Vietnam fluctuated from one year to the other. The following table summarize the percentage change in the coffee that was exported from Vietnam;

Total exported in thousand (60kg bags) %change

2012 24643

2013 28289 12.8884

2014 21530 -31.3934

2015 29500 27.01695

2016 26050 -13.2438

From percentage change is arrived at using the following formula;

=Qc-Qp/Qc*100

Where;

Qc= quantity exported in the current year

Qp= Quantity exported in the previous year

Based on the analysis, it is evident that the quantity that was exported in the year 2013 represented a 12.89% in the quantity of coffee exported from Vietnam. However, there was a significant drop in the quantity exported in the year 2015 (a 31.39% drop). This changed in the year 2015 where coffee exported increased by 27.02% before it dropped by 13.24% in the year 2016 (Smith and Ward, 3). The fluctuation in the quantities that were exported was mainly influenced by the drop in the coffee production in Vietnam. It is obvious that Vietnam would export more coffee whenever there was an increase in the production of coffee in the economy. This can be interpreted to mean that the high demand in the global market meant a market for Vietnam coffee as long as the country was able to increase the production capacity. While the local market consumed coffee in the years assessed, it is evident that most of the coffee in Vietnam was exported and this means that the global demand for coffee remains high.

It should be realized that there were various other factors that would influence the export of coffee from Vietnam in various years. In some cases, the standard and quality of coffee produced was low, and this meant that such quantities would not be exported. The standard for coffee production would be influenced mainly by the poor weather conditions which adversely affected the flowering of the coffee beans. The hot and dry weather which was coupled by windy days adversely affected the flowering hence the quality of the coffee that was produced in Vietnam. In other cases, the small scale farmers did not follow the required farming standards and this in a great way influenced their ability to export coffee (Verdin, 3).

The other factor that shapes the output of coffee in Vietnam hence the quantities that are exported is the cost of production. For some farmers, shortage of rain influenced the level of their output, but others resorted to irrigation where they would use even underground water to ensure that coffee plant received the right quantities of water. However, this is expensive and influenced the size of land that would be farmed in a given year. Resorting to irrigation was thus not effective in increasing output for coffee because it was an expensive activity (Vietnam Briefing, 1).

The cost of fertilizers is an important another cost factor that influenced the production of coffee. Some farmers could not afford fertilizers in the recommended quantities to farm large tracks of land. They decided to reduce the quantity of land that they used to produce coffee, and this reduced the coffee output in some of the years.

Size of land use to farm coffee in Vietnam

The expectations are that with the growing demand for coffee, the farmers in Vietnam would increase the size of land that they planted coffee so that they would increase output hence generate greater revenues. The following is the summary of the size of land that was used for farming of coffee in the last three years;

Coffee Area in Vietnam (in hectares) %change

2014 665009

2015 662250 -0.41488

2016 668200 0.898452

As per the analysis, the size of land used in coffee farming fluctuated in the three years, though in the year 2016, the size of land used was the highest. This shows that the farmers responded to the growing market demand for coffee by increasing the size of land that they use to farm coffee. Regardless of the large size of land that was used in farming coffee in the year 2016, the quantity produced and exported was lower than the statistics in the previous year when a smaller size of land was used (Smith and Ward, 4). This shows that apart from the size of land, there are other factors that influence the production of coffee. More specifically, it is evident that the farmers are interested in raising the output of coffee so that they can benefit from the high prices in the local and international market, but the issue of climate is a great challenge for the industry. Poor productivity of land has resulted from the low rainfall levels in Vietnam as compared to the rainfall in the previous years.

Conclusion

In conclusion, the demand for coffee in the world market has been on the rise because of the growing population and the income of the people in the society has also been increasing meaning that coffee business has been good because of the high demand. Vietnam is a major producer and exporter of Coffee, and the analysis shows that the production of coffee has fluctuated over the years, including the quantities that are exported. When there is an increase in quantities produced, then more is exported to the global world. Farmers have been interested in achieving higher output, and this is why the size of land they have been farming has grown to the highest levels in the year 2016. However, this has not resulted in the increased output of coffee especially for the year 2016. The reason for this is that climate change has adversely affected the productivity of the land. There are other factors that also influence the output of coffee and include the cost of fertilizer in the country (Minh, 1). It is recommendable that the government supports the coffee farmers if greater benefits are to be achieved. This is by ensuring that fertilizers are subsidized, and farmers can access the product in the right quantities. Additionally, it would be important to irrigate land so that when there is a shortage of rainfall, the farmers can still water their plants and realize the maximum output from each piece of land. By this, it is possible to achieve greater output hence meet the increasing demand for coffee in the Vietnam local and international market. Currently, trying to meet the growing demand may not be achievable because of some constraints that are beyond the control of the farmers.

Works Cited

Boselie D. The True Price of Coffee from Vietnam. Joint report by IDH and True Price, 2016. trueprice.org/wp-content/uploads/2016/04/TP-Coffee.pdf.

Minh B. "As Vietnam's rains begin, coffee farmers eye drought damage| Reuters." 2016, www.reuters.com/article/us-vietnam-coffee-drought-idUSKCN0YG0KB.Smith G., and M. Ward. THIS REPORT CONTAINS ASSESSMENTS OF COMMODITY AND TRADE ISSUES MADE BY USDA STAFF AND NOT NECESSARILY STATEMENTS OF OFFICIAL U.S. GOVERNMENT POLICY. Coffee Annual, 2016. gain.fas.usda.gov/Recent%20GAIN%20Publications/Coffee%20Annual_Hanoi_Vietnam_6-1-2016.pdf.

United States. Foreign Agricultural Service, issuing body. Coffee: World markets and trade. United States. Foreign Agricultural Service, issuing body, 2016. apps.fas.usda.gov/psdonline/circulars/coffee.pdf.

Verdin M. "Agrimoney.com | Vietnamese coffee output in long-term decline, top exporter warns." 2016, www.agrimoney.com/news/vietnam-coffee-output-in-long-term-decline-top-exporter-warns--9955.html.Vietnam Briefing. "Vietnam Coffee Production to Decline in 2015 - Vietnam Briefing News." 2016, www.vietnam-briefing.com/news/vietnam-coffee-production-decline-2015.html/.