* Foreign firms say export market share falls to around 20
* European coffee body taking the issue seriously
By Sarah McFarlane and Ho Binh Minh
LONDON/HANOI, May 9 Some local dealers are using
a tax dodge to buy up much of the coffee in Vietnam, the world's
top producer of the robusta variety used for instant coffee,
slashing the market share of international traders.
The dealers take advantage of loopholes in Vietnam's system
governing value-added-tax payments and refunds for exportable
goods, using some of the resulting price advantage to outbid
competitors in buying coffee from farmers, traders said.
The coffee is then being sold on to exporters, but leaving a
murky paperwork trail.
European Coffee Federation (ECF) secretary general Roel
Vaessen said the body, representing major international trade
houses and roasters, was concerned about the issue.
"It has been drawn to our attention, we do take it
seriously, and we have had internal consultations with our
members on how best to address the issue," Vaessen said,
declining to comment further.
According to the organisation's website, ECF members include
companies such as Louis Dreyfus, Volcafe, Bernhard
Rothfos and Nestle.
Vietnam's total export volumes, worth roughly $3 billion a
year, are unlikely to be much affected and consumers worldwide
will therefore feel little impact on price, while coffee farmers
are getting a bit more for their beans.
The harm arising from the VAT dodge is felt by Vietnam's
state coffers, for which coffee provides a major revenue stream,
and by companies that pay taxes. Efforts to increase the
traceability and transparency of coffee origins are also being
"This tax dodging has made it difficult for legitimate
companies to buy coffee locally," said an executive of a
Vietnamese export firm based in Ho Chi Minh City, who asked not
to be identified.
International traders estimate their market share of exports
has fallen to around 20 percent in the current season from
around 35 percent in 2011/12, mostly due to this tax issue.
Foreign firms say it may also have a longer-term impact on
foreign direct investment in Vietnam, although the country's
dominance in robusta coffee is assured for now.
"Trading companies with expansion plans will put them on
ice," said a trader at an international firm, adding that future
projects could be shifted to rival robusta coffee producers in
South East Asia, including Indonesia and Laos.
The dealers avoiding VAT can gain a competitive advantage of
up to $70 per tonne of coffee they buy from farmers - amounting
to around four percent of the total, making it difficult for
international traders to compete, traders said.
Liffe robusta coffee futures were at $2,004 per
tonne shortly after 1100 GMT on Thursday.
Asked to comment on the tax issue, the chairman of the
Vietnam Coffee and Cocoa Association (Vicofa), Luong Van Tu,
said: "There are several small businesses that have been dodging
the tax, while most others follow government rules properly."
The local authority of the country's largest coffee growing
province, Daklak, said it knows of the practice and has set up
checkpoints to inspect coffee cargoes for proper invoicing.
Vietnam exported 24.4 million 60-kg bags of coffee in
2011/12, according to the U.S. Department of Agriculture. World
2011/12 coffee exports were estimated by the USDA at around
114.4 million bags.
Its May coffee export volume is forecast to fall to around
100,000 tonnes, from an estimated 110,000 tonnes loaded in
April, due to slowing trade and difficulties in buying beans
locally, traders said.
The tax issue is creating problems with traceability, as
invoices can help provide transparency along the supply chain,
aiding sustainability certification schemes such as Rainforest
Alliance and 4C certified coffee.
"A lot of companies invested serious efforts in building up
these sustainably sourced coffee flows and then because of the
tax situation and the way coffee is being channelled locally
that is lost," said an industry source.