Effects of the Emerging Robusta Market in Vietnam
Robust-Ahh! Coffee Farming in Vietnam
In the late 1990s Vietnam suddenly popped onto the map as the second largest coffee producing country in the world surpassing Columbia and falling second only to Brazil. While the French introduced coffee farming to Vietnam in the 1850s, it wasn’t until structural reforms in the governments started taking place in the 1980s that coffee gained farming popularity due in large part to government incentives. Vietnam’s coffee industry boomed in the 80s and 90s with such vigorous and unprecedented growth, that it was single-handedly blamed for the coffee price collapse of 2001. Coffee has been a major source of income for Vietnam since the early twentieth century. The only break in coffee farming occurred during and following the Vietnam War, but the sector recovered quickly, largely spurred by the Doi Moi economic reforms, and by 2000 an estimated 900,000 tons of coffee were being produced annually. Prior to 1945, both genetic varieties of coffee, Arabica and Robusta, were planted equally in Vietnam, however due to an outbreak of Hemileia vastatrix, the Arabica strains died out leaving Robusta as the main variety grown in Vietnam.
During the 1990s, coffee production was expanding through simultaneous growth of producing areas (21%) and yield(6% annually)(Doutriaux, Shively, and Geisler 2008). In 1998, 12% of total Vietnamese exports were solely coffee. By 2009 there was even faster growth, and the estimated production was 1.13 million tons. This made coffee the largest agricultural sector in Vietnam, second only to rice production. Coffee production was largely focused on the poor-quality Robusta beans for export as a commodity. Recently, government initiatives have focused on improving the quality of coffee exports, which includes more widespread planting of Arabica beans, the development of mixed-bean coffees, and specialty coffees. Additional policy problems have arisen in that, government incentivized movement of laborers from the coastal lowlands to the central highlands has incurred ethnic tensions and ethnic favoritism. I want this paper to tackle the different periods of land reform in Vietnam and discuss the social policy problems it incurred.
Approximately 80% of all coffee grown in Vietnam is the Robusta variety, and Vietnam also grows most of the Robusta on the world coffee market. The region most suitable for coffee farming is the Central Highland in the Dak Lak province. Growing Robusta coffee was specifically incentivized by the Vietnamese government because of crop hardiness, higher international demand due mainly to multinational corporations, and growing demand for coffee in developing countries who exhibit a preference for cheaper Robusta beans over Arabica.
Arabica, which is the other genetic variety of coffee, is the more expensive type of coffee because its genetics are more rare and found only in one wild rainforest of Ethiopia. Cultivation of Arabica is usually more finicky, as the plant takes longer to mature and can be less disease resistant than Robusta, so farming practices are more formalized and often professionally approached in order to have successful yields. Vietnam has had great success farming Robusta largely because it is much easier to cultivate. The plant takes only three years to mature and is more disease resistant, although it is characterized by higher concentrations of caffeine which, in turn, increases the acidity of the bean and results in a lower overall flavor profile. Robusta is much easier for a layman to start farming receive a high crop yield than with Arabica, which usually needs a more specialized background. Therefore the mass government incentives to fill the Central Highlands with Robusta ended up being extremely lucrative because laymen could easily migrate to the highlands, set up farms and in three years have high yielding, disease-resistant Robusta crops.
A key factor in Vietnam’s global rise as a key coffee producing nation is the economic and social reforms which the government underwent starting in the 80s, and specifically those related to land ownership and regulation. Following the Vietnam War, there were severe food shortages, which triggered a series of economic liberalization policies starting in 1986 known as the Doi Moi. The main goal of Doi Moi reforms was to gain greater economic integration with the rest of the world by shifting away from a centrally planned economy to a market oriented one and from a centralized, collective agricultural production system to a private ownership of land organization(Doutriaux, Shively, and Geisler 2008). The new Land Laws came into practice in 1988, prior to which land policies aimed to transfer land from traditional forms of tenure to government control, and after which the new policies aimed to decentralize land rights from the government and back to the individual households, as well as lessening the role of the community in land tenure and administration. This also gave each household rights to use 1000 sq. meters to support the household economy. In the case of state owned coffee farms, plots were allocated to the workers provided members in the coop convert to renter agreements responsible for the production of the land. This first wave of social liberalization reforms resulted in better farm-level prices for coffee and stimulated farmers to expand coffee cultivation.
In 1993 a second Land Law was passed which extended the rights of individual households on the land to include the right to use and occupy land, which meant buying, selling, inheriting, mortgaging, and leasing of land all became legal. For the first time in recent history of Vietnam, not only did individuals hold land tenure security, but they were also free to make their own commercial decisions. This sudden ability to act as a free agent in a free market economy coincided with rising prices in Robusta beans, and the Vietnamese government took this opportunity to renew incentive structures which had been in place since the 1970s for lowland workers of the Vietnamese ethnic majority, Kinh, to move to the Central Highlands, acquire a farm plot, and plant Robusta coffee. IN the period from 1994-1999, coffee prices stayed consistently above the entry level and planting area increased continuously by 59% a year from 1995-2000(Luong and Tauer 2006).
The results were astonishingly fast. Only six years after the second Land Laws were implemented, in 1999, Vietnam suddenly became the second largest coffee producing country in the world. Coffee production was expanding 12 fold and an economic boom was in full swing in the Central Highlands. The benefits of the boom included new capital, more consumer goods, more employment, although the costs were steep as well, including unanticipated dislocations of people, losses of self-sufficiency in ethnic groups, vulnerability to external forces, increased social stratification, and the erosion of natural forest resources and mutual assistance.
Historically the Central Highlands of Vietnam were mainly populated by the Ede, a matrilineal and nomadic ethnic minority. Unfortunately institutional prejudices against the Ede can be traced back to the days of French colonialism, where the French viewed the Ede as “land-wasteful, unpredictable, and lazy minority” and the Kinh as “loyal and assiduous laborers” (Doutriaux, Shively, and Geisler 2008). The Kinh who are the ethnic majority and considered also the ethnicity of Vietnam, historically, populated the coastal lowlands, so when the government began incentivizing workers to move from the lowlands to the highlands, an ethnic migration of the Kinh into the Ede highlands was also induced. Due to this migration, the coffee boom also transformed lowland-highland relations but only in ways that heightened ethnic conflict. The Kinh who were a patrilineal society, had their social structures reinforced by the government via Land Laws, whereas the Ede experienced the opposite, a complete negation of their matrilineal social structure.
Land reform policies challenged the Ede social structure by changing the traditional Ede relationship with the land, which was swidden agriculture, nomadic life and subsistence agriculture, and also conflated the extended family structure of longhouses with a single nuclear household. Additionally, certification for land ownership, which was also a foreign concept to the Ede, bore senior male names and ignored the matrilineal lineage which included the tradition of wife as land-holder. The same Land Laws affected the Kinh far less severely. The Land Laws reinforced most farming and community practices among the Kinh such as arriving in nuclear families, kinship being patrilineal, and men are land-owners and land-allocators. Due to the incentives and perhaps ethnic favoritism, the Kinh presently account for ~70% of the Dak Lak province population, while the Ede and M’non, ethnic groups native to the region, only comprise 30% of the population. Additionally less than 25% of the farmers in the Central Highlands region which expands beyond the Dak Lak province belong to native ethnicities. The remaining three quarters of the population are Kinh migrants from the 80s and 90s, attracted by promised coffee production wealth, resettled through government programs, or pushed out of the rice delta by land shortages(Doutriaux, Shively, and Geisler 2008).
These statistics outline a classic case of development-induced displacement(DID), which is human dislocation due to major infrastructural adjustments or land-use interventions. Kinh migration to the Central Highlands, which was supported and encouraged by the government, displaced the Ede from their native region. According to Ha and Shively, this migration suited colonial and post-colonial designs for regional integration, which is to say the government wanted the Ede to clear out so the “more-productive” Kinh could farm the land and generate coffee revenues for the country. This reduced the Ede to lower levels of education and poverty, while Kinh began gaining income and education from the high yield of their coffee farms.
Simultaneous to the displacement of the Ede, the Vietnamese currency was devaluing and the world coffee price was fluctuating. It was a combination of rising stocks, inelastic demand, a global shift in preference toward low-cost Robusta and Vietnam’s sudden entry an flood of the marked that incurred a 30 year low in the price of coffee in late 2001. The price of Robusta dropped to $0.40/lb in 2001. Commodity price fluctuations of crops are indicative of key factors on the supply side because in the cases where many countries rely heavily on just a few primary commodities, including the agro-industrial crops for export earnings, this means that price fluctuations lead directly to fluctuations in incomes and account balances. This severe drop in price reversed the fortunes for many small-holding farmers and acutely affected the Dak Lak province. At these low prices, producer prices were insufficient to cover the variable costs of coffee production(Ha and Shively 2008, Garcia and Shively 2011). In 2000-2002, the coffee price fell back into the inactive zone and was near the exit level, but exiting did not occur, and coffee area increased 3400 hectares in 2001(Luong and Tauer 2006). As a result food security problems became a big problem for Dak Lak farmers and Doutriaux, Shively and Geisler found that at the time, 45% of coffee-growing households lacked adequate nourishment, 66% had bank debts and ~50% had replaced self-employment and subsistence farming with wage labor work.
These austere conditions sparked major protests between the ethnic groups of the Kinh and Ede because the Ede were being subject to even worse poverty. The situation was handled very poorly by the Vietnamese government who began targeting activists and torturing them, which only spurred more social unrest in the region(Stein 2002, Sands 2001). One article published by The Weekend Australian in March 2001 summed up the rebellion as a response to religious intolerance, local government corruption, and deepening economic crisis by ethnic minorities, but the deeper cause of the conflicts was the DID(Watkin 2001).
Another major concern brought on by the coffee boom are environmental concerns. Because coffee production grew at an annual rate of 26% between 1990 and 2001, the physical, social and economic landscape of the Central Highlands are completely transformed. This region has gone through intense deforestation and defoliation, chemical applications and landmines, erosion, acidification of soil, loss of biodiversity and rapid population growth, all of which lead to severe environmental stress. Deforestation is considered by many Vietnamese to be the most serious environmental problem facing the nation (Ha and Shively 2008). Dak Lak province rapidly changed from 6,000 hectares of coffee in 1975 to 130,000 hectare by 1997. By 2001, the total coffee area of Vietnam was 566,800 hectares of which the Central Highlands accounted for 476,800 hectares and Dak Lak province accounted for 256,100 hectares. Dak Lak was producing roughly 50% of total national coffee output at the time. Coffee is both a labor and water-intensive crop which requires more intensive irrigation of the land and exposes the land to higher concentrations of chemicals.
The current state of Vietnam’s Central Highlands include heightened DID of the Ede ethnic minority, overproduction of coffee so revenues are lower than optimal for the farmers, and environmental degradation has cleared out most of the natural forest. Therefore policy concerns need to address these three main ongoing problems.
Firstly to deal with the DID, land policy ought to be restructured in a way that is comprehensive of the Ede social structure and seeks to increase land tenure for the native ethnic group. Additional policies ought to be put in place to help the Ede like education awareness for both farming and children’s education, also programs providing farm aid would help mitigate the poverty currently faced by the Ede. The objective of these policies needs to be stopping the displacement of the native ethnic group from the Central Highlands, but should also seek to reverse the institutional prejudice and stereotype again the Ede. Also policies promoting religious tolerance between the Christians, Buddhists, and Ede could help mitigate ethnic tensions and prevent future protests.
To tackle environmental concerns, the government needs to impose regulations on farming practices like how to irrigate in a less environmentally harmful way, issuing a list of approved fertilizers and regulating how much of it is being used. Because the farms are so small, typically 1-2 hectares, and are each individually run, it is much more difficult to audit widespread practices, but in order to improve environmental conditions, it is what needs to be done. Also the government should protect what forest is left from further development. Another tool to mitigate environmental degradation is crop diversification. The Vietnamese government incentivized growing Robusta for so long that it is the only crop grown in the highlands, even though the land is also suitable for crops like cocoa, rubber, pepper, and cashew (Ha and Shively 2005). Switching out crops keep the strain on the soil lower because rotating the crops will draw certain nutrients out while replenishing others. It also helps fight against erosion because there is a constant switch between fresh and strong root system which hold the soil in place, as well as fresh topsoil being continually replenished. The Vietnamese government needs to back off the Robusta incentives and start pushing incentives to farm other crops. If they decide to do this, they should also implement an education policy with whatever new crops they are incentivizing to help farmers adapt to the different practices needed for each crop.
An interesting point I noticed while conducting my research for this paper is that there are primarily two economic experts on the state of the coffee industry in Vietnam, Ha and Shively. All six of the main economic papers I used in writing this paper were written or contributed to by Ha and or Shively in some way. Also the same data set for Dak Lak province was used in four of the articles to look at different issues like crop competition, ethnic struggles and DID, boom and bust cycle, farm infrastructure efficiency, and shadow price effect on coffee. The only supplement to my research made outside of Ha and Shively’s contributions were made by The Economist, which has kept a good track on coffee farming in Vietnam starting with its sudden appearance as a world coffee player in 1999. I don’t think my research suffered for this lack of diversity because I definitely got a good send of what the coffee industry in Vietnam is like, but some fresh academic voices would have added a nice difference in perspective.
Overall the coffee industry in Vietnam is still booming due to the increasing demand for Robusta, especially as developing countries are gaining a taste for coffee(2013). However persistent social and environmental problems need to be addressed and coffee farming in general ought to be cut back in favor of more diverse crops. Vietnam is geographically surrounded by very poor countries facing similar ethnic problems, and has only escaped abject poverty through the market liberalizations and the incentives to farm coffee, which have really paid off the country as a whole. This indicates that a strong agriculture sector is in Vietnam’s best interest, but in order to maintain strength in agriculture the environment needs to be invested in and protected.
2013. "Coffee Prices: Brewed Awakening." The Economist.
Doutriaux, Sylvie, Gerald Shively, and Charles Geisler. 2008. "Competing for Coffee Space: Development-Induced Displacement in the Central Highlands of Vietnam." Rural sociology 73 (4):528-554.
Garcia, Andres F., and Gerald E. Shively. 2011. "How Might Shadow Price Restrictions Reduce Technical Efficiency? Evidence from a Restricted DEA Analysis of Coffee Farms in Vietnam." Journal of Agricultural Economics 62 (1):47-58. doi: http://www3.interscience.wiley.com/journal/120775364/grouphome/home.html.
Ha, D. T., and G. Shively. 2005. "Coffee vs. Cacao: A case study from the Vietnamese Central Highlands." Journal of natural resources and life sciences education 34:107-111. doi: http://www.jnrlse.org/.
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Luong, Quoc V., and Loren W. Tauer. 2006. "A Real Options Analysis of Coffee Planting in Vietnam." Agricultural Economics 35 (1):49-57. doi: http://www.blackwellpublishing.com/journal.asp?ref=0169-5150&site=1.
Sands, David R. 2001. "Leaders Struggling to Quell Highland Unrest." The Washington Times.
Stein, Nicholas. 2002. "The Vietnamese Crisis in Your Coffee Cup." The Business.
Watkin, Huw. 2001. "Land Shortage Brings Vietnam to the Boil." The Weekend Australian.