Last week I went on a Saturday morning in district 7 of Ho Chi Minh City to a coffee shop that was opened only three weeks before. It was 9 o’clock in the morning, and the place was packed. If this were the only coffee shop in the neighborhood, I wouldn’t have been surprised, but this place was maybe number 11 within two or three hundred meters. Vietnamese do love coffee. That might be clear by now. And a lot of Vietnamese now can afford to spend 40,000 till 60,000 Dong ($1.80 – $2.60) on a cup of the addictive brew. Twenty years ago, however, this was would have been an entirely different story.
Did you know that 60% of the population was living under the poverty line in 1994? And that today, 20 years later, this number has dropped to below 10%? China is a powerhouse when it comes to creating better living standards but Vietnam for sure is an economic miracle as well.
Vietnam, the country that defeated the biggest army in the world in 1975, and therefore was punished for twenty years by the USA and the UN, who tried to keep the borders of Vietnam destabilized by supporting the destructive Khmer Rouge until the elections in Cambodia in 1993. Yes, the USA played a dirty role, sacrificing the beautiful Kingdom of Wonder and its people just to frustrate the Vietnamese. During the Vietnam war, America also destroyed more than half of the Vietnamese forests and jungles by bombing, burning or spraying chemicals in a sick attempt to remove the cover of the Vietcong. Some 3.1 million Vietnamese citizens and soldiers died during the Vietnamese war. Ok, not all of them were directly the result of the American intervention. There were of course also South-Vietnamese fighting against North-Vietnamese but looking at all these devastating results it wouldn’t surprise me if the Americans were hated big time. But nothing is further from the truth. In the Land of the Ascending Dragon, they have better things to do than to get stuck with negative emotions. They rather look forward and see what they can do to improve their lives. And Vietnamese are very pragmatic too. So, when Bill Clinton announced in 1995 to finally normalize the diplomatic relations between the two countries, Vietnam embraced this opportunity and used it to increase their exports. Almost a quarter of all export nowadays goes to the USA (and only 12% to China). And one of the biggest export products is coffee.
Coffee, these beans were playing a marginal role in Indochina until the 80’s. Vietnamese preferred to drink tea, so there was also no stimulans by the domestic market. After 1975, the Communist Party tried to copy the idea of the Soviet Union of collective farms. A decade with embarrassing results and a soaring inflation of 700% followed until the country leaders ordered economic reforms (Doi Moi). Privately owned enterprises became possible again. And coffee could start her successful march. Many small-scale farmers grabbed the opportunity to start with coffee. The margins were very attractive. Farmers suddenly got a chance to earn much more money than they were used to. But also, new companies stood up. Companies like Trung Nguyên and Highlands Coffee, who nowadays dominate the Vietnamese coffee export but also the coffee shop market with numerous outlets.
Coffee became so successful in Vietnam that this dragon country is now the second largest producer of coffee with 1.3 million tons after Brazil with 2.7 million tons. Together they produce almost half of the world’s coffee. Vietnam mainly provides the Robusta coffee beans which sometimes contain twice as much caffeine than the Arabica beans but also make the taste a bit more bitter.
The communist party tried to pull off the same trick at the beginning of the 21st century with cacao by pushing farmers with incentives such as free seedlings to start with cacao as well. However when cacao prices suddenly dropped for almost a year between 2012 and 2013 a lot of farmers cut the trees and changed it again for coffee or pepper. At this moment, Vietnam produces less than one ‰ of the world’s cacao production. And it doesn’t seem to change unless the price of cacao will rise considerably.
One thing that will seriously threaten Vietnam’s coffee production has nothing to do with the economy but all with climate change: water shortages. This year we all experience the effect of El Nino, which disrupts the whole environment in South East Asia resulting in exceptional droughts. But some experts predict that the ground water levels will drop further in the next two decades forcing coffee plantations to stop. There is a report from a Belgian professor which suggest that 50% of the coffee farms in Vietnam must change their crop in the next ten years for a less water-intensive agricultural product like cashew nut.
In the meantime new coffee shops are still opened in Saigon, the old name of Ho Chi Minh and still with reasonable success. Because the middle class in Vietnam is quadrupling between 2010 and 2020, and all those people like to gather in coffee houses, sipping and gossiping.
Stefan Struik 