Virtual Edition
07-10/12/2021

Both domestic and foreign investments in Vietnam’s coffee processing sector eye to export opportunities

Tata Coffee’s $50-million freeze-dried coffee plant, which was inaugurated in Vietnam last month, is expected to produce at its full capacity within the first couple of years, mainly to tap opportunities from higher demand in Eastern Europe, East Asia (Japan and Korea) and EU markets. At the same time, the new plant invested by Tin Nghia Group, also applying freeze-dried coffee production system, has been running from Dec 2018, eyeing both domestic and export markets. The movements have represented for the trend towards using more advanced technologies, higher-quality products and more demanding markets as well as a new better wave of investing in Vietnam’s coffee processing sector.

“Vietnam is a compelling location, especially because it produces Robusta, the favoured variant of instant coffee. It is one of the few plants equipped with a pilot plant facility, which is a smaller operation apart from our main unit. This can be used to develop and create new blends for customers without having to run a larger batch in the main plant. This allows us to develop new blends much faster while maintaining the quality,” said Sarin. “Globally, consumer preferences are shifting from spray-dried coffee to agglomerate to freeze-dried coffee, which is a premium and most profitable instant coffee product with double-margins,” he added.

The global freeze-dried market, which stood at approximately 200,000 MT in 2017, has been growing at 1.8 per cent Y-o-Y over the past five years, and has been estimated to grow at a rate of 1.9 per cent over the next five years. Freeze-dried coffee is a more aesthetically pleasing form of coffee with larger granules and stronger aroma, and the closest to roast and ground coffee. By 2017, Vietnam had 7 coffee processing plants to produce extracts, essences and concentrates of coffee (HS code: 210111), which all were equipped by spray-dried technology. Notably, at the time, all these plants reported to run at their full capacities and new investments aimed to capture the room for growth in the context of supply-demand deficit.  By 2019, the number has been up to 9 and the two new plants built by Tata and Tin Nghia Group have been applied with freeze-dried technology, contributing to turn coffee extracts supplies from Vietnam into a new premium market segment.

Table 1: List of manufacturers to produce extracts, essences and concentrates of coffee in Vietnam by 2019

No.

Enteprises

Designed capacity (tons/year)

Location

1

Vinacafe Biên Hòa

3.200

Dong Nai

2

Nestlé Vietnam

4.200

Dong Nai

3

Trung Nguyên Group

4.000

Binh Duong

4

Ngon Coffee Vietnam

10.000

Dak Lak

5

Olam Vietnam

8.000

Long An

6

An Thai Coffee JSC

4.000

Dak Lak

7

Tin Nghia Group

3.200

Dong Nai

8

Intimex

3.000

Binh Duong

9

Tata Vietnam

5.000

Binh Duong

Source: Cafef, enterprises’ websites

Among the manufacturers, Vinacafe Biên Hòa, Nestlé and Trung Nguyên Group seems to own outstanding market strength given to their distribution networks and brandings. Their coffee extraction activities have been mainly serving their integrated production system to supply 3-in-1 coffee product lines to both domestic and export markets. Meanwhile, Olam, An Thái and Ngon have been actively supplying as wholesalers for further processing plants in Vietnam. The newbies in the segment, including Tata and Tin Nghia Group, have been eyeing both domestic and international markets, as well as their target of reaching full capacities in the medium-term.

However, Vietnam domestic market seems not able to absorb the new supplies and the producers would likely to seek market opportunities in international markets. Both Tata and Tin Nghia Group would find difficulties to approach end-consumer market segment in domestic market due to the dominance of big-three brands (Vinacafe Biên Hòa, Nestlé and Trung Nguyên Group). Hence, the current FTAs that Vietnam committed are providing chances to new investments focusing on quality to open new export markets and build up brands’ reputations. High growth in instant coffee markets in Southeast and South Asia regions, which also Vietnam signed FTAs with and enjoyed tariff concessions, transportation cost-related advantages and connections with demanding markets, like Japan, via CPTPP, would be significant factors Vietnam-based plants compared to their competitors in Brazil.