Vietnam's Arabica sees slow but steady growth.

When Vietnam first announced plans for starting to expand the production of Arabica coffee in the late
1990s the news was received mostly as a joke in the market. But as the coffee industry at large since
then has learned not to underestimate the possibilities of Vietnam actually "walking the talk," the
production of Arabica coffee has continued to grow steadily throughout the last decade, and toward the
end of 2013 total output is seen approaching the 1 million bag figure for the first time. 

In Part 3 of Tea & Coffee's special five-part series on Vietnam we analyze the growth of Vietnam's
Arabica sector, explain why and how it has come around, and show just how much further it is expected
to expand. 

In the 1986-87 crop cycle, Vietnam entered in the annual review of German Statistician F.O. Licht for the
first time with 1,000 bags of 60 kilograms as an Arabica producer. Since then, slow but steady growth has
seen the country strengthen its status as an Arabica coffee producing country. 

Today, Vietnamese Arabica production accounts for about only 3 percent of the South East Asian giant's
total coffee output, but by the last 2011-12 crop cycle these 3 percent nevertheless placed Vietnam as the
world's 15th largest Arabica producing country with 800,000 bags, and ahead of well-established and
renowned Arabica origins such as Kenya and Tanzania. 

From steady growth of the first registered bags over two decades ago Vietnam has seen its Arabica
production increase gradually; to 33,000 bags in 1996-97, about 100,000 bags by 2001-02, to 350,000
bags by 2005-06 and 480,000 bags by 2008-09, according to figures from private trade analysts, F.O.
Licht, Hamburg, Germany, the Vietnam Coffee and Cocoa Association, Vicofa, Hanoi, and the U.S.
Department of Agriculture (USDA), Washington, D.C. 

Arabica production in the current 2012-13 harvest is projected to reach 850,000 bags, according to the
USDA's latest attache report, and by the end of the year when the 2013-14 harvest has started, the figure
is seen approaching 1 million bags and continuing to increase. 

"Arabica coffee production is forecast to increase in marketing year 2012-13 to a record 850,000 bags
(51,000 mt) as area under Arabica in North Vietnam continues to expand," stated the USDA report. 

Vietnam had by 2012 a total area of 615,000 hectares cultivated with coffee of which Arabica accounts for
40,000 hectares, or 7 percent of the total acreage, according to official Ministry of Agriculture statistics
released last December. But the target is to see both the Arabica and Robusta area reduced in the next
eight years and in order to increase crop diversification. 

"The government issued a decree on Aug 1, 2011 for the development strategy of coffee through 2020
which is going to be implemented in 2013. The plan calls for Vietnam to not have more than 500,000
hectares under coffee cultivation by 2020 of which 95 percent will be Robusta and the balance will be
Arabica," said Do Van Nam, Vietnam's Minister of Processing, Agro-Forestry and Fishery, speaking at a
recent conference in Ho Chi Minh City. 

Planting for the Future 

When the Vietnamese government initially developed the policy plan to increase Robusta coffee, not even
the government itself had believed it possible to produce the phenomenal growth that would take Vietnam
from a small grower with just over 500,000 bags on record in the mid- 1980s to become the world's
second largest producer after Brazil in the 1999-2000 crop cycle. 

The core-root of Vietnam's coffee policies has always been cited as "social development" and when the
government by 1999 officially launched the expansion plan for Arabica this was still cited as the main
reason. "The expansion of Arabica coffee into the northern provinces has been a big focus for the
government in order to help solve the socioeconomic problems of these areas as coffee was seen as a
cash crop that could help increase the living standards for the ethnic minorities there," Doan Trieu Nhan,
the chairman of Vicofa and the chief architect behind Vietnam's coffee development, told Tea & Coffee in
an interview. 

Arabica coffee is not new to Vietnam. While cultivation of this coffee species today can be found in 18 of
Vietnam's 28 coffee growing provinces, when coffee first was introduced to Vietnam, the seedlings initially
planted in the southern province of Lam Dong and central province of Quang Tri were generic Arabica
varieties such as Typica. And Arabica coffee has continued to be cultivated in these provinces ever since
it was first introduced by French colonial settlers in 1856. 

Under the administration of Vicofa, new Arabica plantings were resumed in 1989 in the remote northern
province of Son La where the initial government plan called for 100,000 hectares of land to be cultivated
with a variety of different Arabica varieties. By 2001, Arabica cultivation had been expanded to the other
northern provinces of Lai Chau, Ha Giang and Lang Son, the central provinces of Nghe An and Ha Tinh,
and the southern province of Phu Yen. 

"The natural conditions of the provinces in the northern mountain regions of Vietnam is that of being
capable of producing high yields and good cup quality while for instance, the Khe Sanh area of Quang Tri
province is an ideal Arabica growing area of 20,000 hectares of fertile land with basaltic soil, average
temperatures from 20 to 25 degrees Celsius, and total rainfall of 2,300 mm a year," said an official
Vietnamese government report on the Arabica coffee development plan. 

The initial Arabica expansion program in the Northern provinces was partially financed with a $40 million
low-interest credit program granted by the French Development Agency (AFD), which allowed for planting
of most of the 40,000 hectares cultivated with Arabica today, and which also included technical
assistance and the installation of a number of wet mills. 

Driving through Vietnam's Arabica regions will take visitors through some of the most spectacular
landscapes of natural beauty. From the infinite number ofshades of green in the rice fields planted in
terraces through all the northern-most provinces of Vietnam to the deep smoky blue colors of the mystical
rugged mountains in Son La and Lai Chau. From the misty and green hilly forests of central Quang Tri to
the wide sunny mountain plateaus in southern Da Lat, home to Vietnam's first coffee growing region in
Lam Dong where Arabica was introduced over 150 years ago at altitudes of 1,400 meters. 

The Arabica coffee in Son La, located about 320 km northwest of Hanoi and with a population of about
900,000 people, has average rainfall of 1,500 mm per year which mostly fall during June, July and
August, and slightly cooler temperatures than elsewhere in the north of between 20 and 22 degrees
Celsius. Average altitudes here are between 600 and 700 meters, but thanks to Vietnam's latitude is
equivalent to a much higher altitude comparative to at least 1,100 meters in Central America, coffee
scientists say. 

The provinces of Son La and Lai Chau, located in Vietnam's northwestern most corner between China to
the North and Laos to the West, were identified as a priority region from the beginning due to the
combination of available agricultural land suitable for Arabica coffee, the altitude, the climate and the high
concentration of ethnic communities. 

"Son La has all the right conditions to develop coffee, and the state has determined the coffee could be
one of the main crops of the province," said Nguyen Van Lap, director of the Son La Coffee and Fruit
Crops Company, Son La, which was set up by the government in 1988 to take control of the organization
and management of the coffee development plan in the province. 
"Arabica coffee was first developed in Son La province in an experimental period from 1988 through
1992, where we undertook projects with both Bourbon and Typica varieties. Up until 1992, the coffee was
grown in household plots of between 1.0 and 2.0 hectares," said Van Lap. 

Improving the Quality of Its Arabica 

While industry officials like Nhan openly recognizes that Vietnam's Arabica growers "still need a lot more
training and more equipment and machinery" in order to improve the quality, Vietnamese producers and
traders are growing increasingly confident of the untapped potential the country's Arabica beans hold in
store for the market. 

"Vietnam has very good potential for Arabica coffee, even though the overall quality of our Arabica coffee
is still quite poor and the farmers still need to learn a lot about the cultivation and processing practices of
Arabica, we will no doubt see the quality start to improve in the next few years," said Duong Quoc Hung,
in charge of 4C relations with the traders and exporters Intimex, which buys from producers across the
Dak Lak and Lam Dong provinces. 

"In the Lam Dong area we have some very good Arabica coffee, the soils are good and the altitude is
very good for Arabica, and all the farmers there have now started to process it semi-washed so the quality
there has picked up quickly," said Hung, himself a producer. 

Both local and foreign traders in Vietnam agree, recognizing that while Vietnam early on in its rapid
growth curve in Robusta was known to be home to some of the lowest grades for this type of beans, from
producers to exporters, from picking and drying to processing standards, all have made significant gains
during the last decade. 

"About 40 to 45 percent of the Arabica coffee from Vietnam today comes from Lam Dong and the balance
is primarily being met by Son La and a little from Khe Sanh in Quang Tri. Areas for Arabica have been
increasing constantly in the last three years when the prices were near $3 per pound and even if prices
have come down since then, Arabica coffee is still a good crop to Vietnamese coffee farmers," said a
trader with leading coffee buyer Singapore-based Olam International, which in recent years has become
known in the local market as one of the main buyers of Vietnamese Arabica coffee production. 

Some initiatives are already underway to speed up the quality development. The new development plan
for Vietnam's coffee sector continues to call for "encouraging farmers to expand Arabica coffee areas
where appropriate." And through the local extension services provided by the government-run National
Agricultural Extension Center is in the process of setting up a "training and demonstration" 90 hectare
"model Arabica farm" in Lam Dong province, from which the coffee is targeted for third party sustainable
certified coffee. 

So how much more can Vietnam's Arabica production continue to grow? From local industry officials to
the USDA, from traders to the government, the issue and potential of Arabica continues to be largely
disputed. 

"According to some local coffee experts, Arabica production in Vietnam will be negatively affected due to
climate change in the future," said the USDA attache report, adding that it did not expect Arabica
production "to surpass 5 percent of total production in the next three years." 

While there has been no confirmation as to this statement, the Vietnamese government is supporting
policy incentives for Arabica to account for at least 5 percent of the country's total production. Many
analysts and industry officials agree that the share of the market realistically will fall on the lower side of
that figure but then again, with Vietnam seen headed for total production of at least 28-30 million bags in
the next 5 to 10 years a mere 5 percent would translate into at least 1.4 million bags. 

These are figures that even conservative traders views as "interesting volume" and analysts have no
doubt that this coffee easily will find its way to the market. 

"It is my belief that we will see more than a million bags of Arabica coffees coming out of Viemam in the
near future and this is all coffee that will absolutely be needed by the market," said Marco Ruttimann,
international analyst and a partner in the Miami-based brokerage Coffee-Link International. 

Maja Wallengren first visited Vietnam in 1993 and has written about the Vietnamese rise in coffee since
then through 17 trips across the South East Asian grower. She can be reached at:
mwallengren@hotmail.com.