The Secret Formula Behind Vietnam's Coffee Success
Since the turn of the 20th century, Vietnam has undergone a remarkable, major change. It has transitioned from a divided post-war region that was isolated from the rest of the world into one that is globally integrated. The nation is becoming industrialized and has growing exports to show for it.
One particularly well-known export is coffee. Vietnam is the world’s second largest exporter of this cash crop, second only to Brazil (1). It would be interesting to find out exactly how Vietnam rose to this globally impressive position in just two decades. What can we learn to help other nations with the potential for a strong coffee sector?
1. GOVERNMENT PARTICIPATION ON THE DOMESTIC AND INTERNATIONAL STAGE
In 2013, Vietnam’s Ministry of Agricultural and Rural Development (MARD) in coordination with the Global Coffee Platform established the Vietnam Coffee Coordination Board (VCCB). The creation of VCCB reveals the importance of success in this sector for the government. Besides helping in formalizing policies, the VCCB has also created a platform which serves as a resource and guide for sustainable practices for the country’s coffee sector in a world with climate instability; for instance, the VCCB facilitated supervision of pesticide usage, optimization of water resources, proper use of agrochemicals and adaptation to climate change (2). This is particularly important because most governments are slow to react to the effects of climate change on coffee even though it is known that good coffee will become increasingly harder to grow and expensive to buy, which is why multi-faceted knowledge transfer to growers is crucial (3).
The country’s knowledge transfer has not stayed only within the country; in fact, knowledge exchange went to greater global platforms. The MARD took their knowledge to the international stage at the 2013 World Economic Forum (WEF) in Davos and shared their insights about how the establishment of public-private partnerships (PPP) was critical to six agricultural sectors, including coffee (4). This notable international platform helped the MARD command the attention of the rest of the world, which, in turn, has spurred more foreign interest in solving complex challenges faced by the coffee sector, such as verification or climate change research dissemination.
2. FOREIGN PRIVATE SECTOR INVESTMENT IN ASSETS AND TECHNOLOGY
Even before the Vietnamese government’s PPP-related presentations at the WEF, it was evident that there had been significant private sector investments in Vietnam’s coffee sector, particularly from foreign investors.
In fact, Nestle has increased its investments considerably in the last two decades. Though Nestle has been present in the country since the early 1900s, it only built its first factory in 1995 in Dong Nai province. The subsequent expansion has been rapid. It has built five additional processing factories and two distribution centers in the last 20 years which averages to an impressive volume of approximately seven USD 40M asset investments every three years (5).
However, Nestle is not the sole source of foreign technology. Advanced processing technologies, mostly from Germany, have been widely applied in processing instant coffee for major brands such as Olam, Trung Nguyen and Vinacafe. The international recognition that this has brought to Vietnamese coffee has turned the country into a regional coffee processing powerhouse. Neighboring countries, such as Indonesia and Laos, have started exporting their beans to Vietnam to be processed (6).
In essence, foreign private sector investment has gone beyond basic farmer training, product storage, product export and corporate social responsibility. It has turned the country into a processing powerhouse with factories that have remaining capacity.
3. EQUAL GENDER PARTICIPATION GROUNDS THE ECONOMY
Vietnam can boast of high gender-equality, with 85 percent of men and 85 percent of women engaged in economic activity, which is unusual for most countries of its economic and development status (7). In trying to pinpoint Vietnam’s success in the coffee sector, the role of gender cannot be ignored.
Women have an increased role in household decision-making and income generation as compared to other coffee-producing nations. There is a higher tendency for women to own farms and shops because of their increased ability to make their own decisions even about financing. This contributes to a population that is involved not only as farm laborers but also as farm owners and supply chain entrepreneurs. Most importantly, there is faster business decision-making at various links of the supply chain because there is no “bottleneck”: Women do not have to go to the male head of the household to ask for permission before making a decision.
Increased female gender participation can be attributable mainly to cultural issues rather than a gender-focused donor aid program or private sector corporate social responsibility initiative, which is commonly seen in other countries of similar or lower economic status. Unfortunately, the circumstances that have resulted in this gender-equal environment may take generations to implement in other coffee-producing countries.
Though programs in coffee-producing nations tend to be large-scale, there is strong indication that change starts from the top (government) and with technology asset investment. Taking into consideration the insights obtained from Vietnam, how would you change the way you allocate funds to PPP, government activities and private sector lobbying in your next coffee program?
Many thanks go to Enveritas and IDH for their input.