As Vietnam's rains begin, coffee farmers eye drought damage

HANOI (Reuters) - As rain returns to Vietnam’s parched coffee growing region after the worst drought in 30 years, it will be too late for some farmers with nearly a fifth of coffee trees either dead or damaged.

Coffee beans are dried on the ground of a family in Son La, northwest of Hanoi, Vietnam October 13, 2015. REUTERS/Kham/File Photo

The dry weather that has gripped the country’s Central Highlands coffee belt is set to cut this year’s harvest in the world’s biggest producer of robusta - used mainly for instant coffee - by up to 30 percent.

But the effects will also be felt in future seasons as farmers wait for replanted stock to bear fruit, while the drought is turning more growers to plant pepper, which offers higher returns and uses less water, traders and analysts said.

“The drought impact is not only on this crop year. The trees which have died or been sick means the next crop will also be affected,” said Luong Van Tu, chairman of the Vietnam Coffee and Cocoa Association (Vicofa).

Analysts have already scaled back projections of a global coffee surplus in 2016/17 to a more balanced market, pushing depressed robusta prices up around 20 percent since late February.

Vietnam accounts for about 20 percent of global coffee output. Small farmers, with plots as little as a hectare or less, make up around 80 percent of its plantations which cover some 650,000 hectares (1.6 million acres).

The El Nino inspired drought will leave about 18 percent of coffee trees dead or severely damaged, according to government figures, while the area planted to coffee could fall to around 600,000 hectares next year due to drought and crop switching, traders said.

Vicofa has forecast the coming 2016/17 harvest due to start in October could fall by up to 30 percent from 1.63 million tonnes in 2015/16, while Fitch Group’s BMI Research put the decline at 8 percent and independent analyst Nguyen Quang Binh at 10 percent.

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Vietnam has already been pushing farmers to replant low-yielding coffee trees older than 20 years - about a third of its total stock - fearing a steep decline in output in coming years.

Many have resisted due to the loss of income as replanting can mean up to three years without a crop, but drought damage is forcing farmers to act.

In the main coffee province of Daklak, farmer Le Huu Tan said fewer growers were willing to stick to coffee, particularly after an extended decline in the price of robusta.

“The soil has poor quality now, water supply is bad and prices are not profitable so farmers here have changed, turning to growing pepper and avocado,” Tan told Reuters.

Vietnam is already the world’s top producer and exporter of black pepper. Despite the recent rise in robusta prices, farmers can earn up to 178,000 dong ($8) for a kilogram of pepper, compared with around 36,000 dong for a kilogram of robusta, which more than makes up for pepper’s slightly lower yields per hectare.

Vietnam Pepper Association chairman Do Ha Nam said coffee farmers have already started replacing trees killed by the drought with pepper.

The area planted to the spice could jump 20 percent this year to 120,000 hectares, he said, with the pace of the crop shift picking up after a 17 percent expansion in 2015, according to government data.

“This crop switching is an inevitable trend and also a protection for farmers,” said Bach Thanh Tuan, head of the Daklak-based Community Development Center, which helps farmers with sustainable production.

In Daklak, plant nurseries which had been selling young coffee trees and pepper vines, now only stocked pepper, said a trader at a foreign firm after a recent visit to the area.

“Pepper prices have been very attractive, so farmers decided to make a switch,” Nam said.

Reporting by Ho Binh Minh; Additional reporting by Marcy Nicholson in NEW YORK; Editing by Richard Pullin