The new settlers were encouraged to grow export crops, including coffee, tea, and rubber. Initially, these commodities were used in exchanges between the Vietnamese state and Soviet Bloc allies for industrial products and technological support. Coffee emerged as the dominant export crop, gaining increasing attention and support from the state. During the late 1970s, the national state encouraged coffee cultivation by offering preferential credit to growers and traders, coffee export bonuses, and a range of government programs to facilitate land access in the Highlands areas. Provincially, state farms provided a variety of technology and extension services for coffee farmers. As Vietnam began increasingly to tap into global markets in the 1980s, these policies were stepped up, offering existing and potential coffee farmers access to preferential loans, subsidized inputs, low-cost land, extension packages with seedlings and chemical fertilizer, and support for irrigation and intensive farming techniques. The state also imposed various controls on domestic food prices, which had the effect of facilitating urban industrialization (by ensuring cheap food for urban workers) while also encouraging farmers to switch to export crops in hopes of attaining a higher income.
By the mid-1980s, the state had successfully laid the groundwork for a substantial and growing coffee industry in Dak Lak. The state no longer had to directly promote migration to the region, which was spurred on by income and job growth. As part of general economic reforms associated with Doi Moi, coffee farmers were gradually allowed more control over their land and the selling of their products, and the government reduced various restrictions on the import of chemical fertilizers. The state, however, continued to directly and indirectly manage the coffee economy in the interests of statecraft, even during the 1990s when economic reforms were intensified.
One important area where the state has maintained involvement in the coffee industry has been through SOEs. These enterprises have had wide mandates, well beyond those of private firms, providing public services, building infrastructure (such as schools, roads, and health clinics), and offering agronomic and technical support to communities. Throughout the coffee region, state-owned plantations played a key role in providing technology and extension services to all farmers (those within and outside of state farms) from the 1970s to the 1990s. Their numbers have declined since then, due to the gradual dismantling or privatizing of SOEs. In the 2000s, state farms only controlled around 5 percent of Vietnam’s coffee lands. They continued, however, to account for 15 percent of the country’s coffee production and to exercise considerable influence over the industry.
In other areas, SOEs have retained more influence, with state processing and trading companies accounting for around 40 percent of all Vietnamese coffee exports. The most significant state-owned coffee enterprise is the Vietnam Coffee Corporation (Vinacafe), which was created in 1995, as economic reforms were picking up pace. Vinacafe was designed to take control of a wide range of activities previ-ously run directly by the state, including coffee growing, research, processing, and the provision of credit, fertilizer, and irrigation. It is one of the country’s largest SOEs, running dozens of state subsidiaries (40 of which are state farms and 27 of which are coffee processors, traders, and service providers), employing 27,000 people (with an additional 300,000 seasonal workers), and managing substantial industries. Vinacafe owns one of only two instant coffee facilities in Vietnam (the other is owned by a subsidiary of Nestlé), and one of its trading subsidiaries is one of the largest single coffee exporting companies in the world, regularly exporting over three million coffee bags per year, well above the national production of the majority of coffee countries. Through Vinacafe, the Vietnamese state has maintained control of an institution of great economic and geostrategic weight.
The state has also continued to manage the coffee industry through its control of a range of incentive mechanisms, subsidies, and credit. Of these, credit perhaps stands out the most, with Vietnam recognized as having among the most reasonable and extensive credit offerings to its rural sector of any developing country in the world.5 Most rural credit comes from the state-owned Vietnamese Bank of Agriculture and Rural Development (VBARD), which has around 1,600 rural branches and controls 75 percent of the credit to the country’s coffee farmers. For the smallest farmers, there exists a micro-lending institution, the Vietnam Bank for Social Policy (VBSP), which, while nominally independent, is underwritten by the state and funded predominantly from compulsory contributions from state-owned banks. Through its relatively substantial credit offerings, the state has been able to promote the expansion of coffee production while maintaining a degree of control over individual farm decisions through the terms and conditions that accompany loans.
Beyond state enterprises, the Vietnamese state has also maintained control over direct tools of statecraft in a manner that has diverged somewhat from the dominant consensus around neoliberal reforms and “free trade.” Whereas most coffee states in Latin America and Africa in the 1980s and 1990s focused on attaining competitive advantage through rapid market liberalization and the privatization of state institutions, Vietnam instead pursued a more gradual, piecemeal liberalization and privatization, combined with a relatively robust role for state management. In the mid-1990s, when coffee prices were good, Vietnam mandated that exporters pay fees to contribute to a government-run price stabilization fund, designed to offer support to farmers if prices fell below the costs of production. (In the end, the fund was primarily used to pay for subsidized credit programs.) When the global coffee crisis began in 1998, the state eliminated the fees associated with the fund to lessen the burden on coffee exporters; directed state-run enterprises to store coffee beans in hopes of reducing supply and boosting prices; and, in 2001, ordered banks to freeze loan repayments for coffee growers for up to three years to prevent general default.
The Vietnamese state has also taken a somewhat different path in relation to dominant trends in the coffee world and beyond at a global scale, taking part in international forums and initiatives, but with less enthusiasm or limited involvement. Coffee statecraft on an international level has increasingly been aimed at aggressively pushing for market liberalization, through institutions like the World Trade Organization (WTO), to pry open rapidly growing new coffee markets, like Russia, and to facilitate the smooth shipment of coffee beans. Coffee statecraft has also increasingly been aimed at promoting “sustainable coffee,” the stated goal of the two new “International Coffee Agreements” in 2001 and 2007 (discussed in chapter 3). This essentially involves efforts to promote quality and various symbolic attributes to gain higher prices through the support of international non-state certification initiatives and consumer movements (such as fair trade, the subject of chapter 5). Overall, Vietnam has been less enthusiastic about these trends, somewhat reluctantly joining the WTO in 2006, 12 years after its creation and after Vietnam had become firmly established as global coffee leader, and preferring to construct its comparative advantage not through “sustainable” coffee, but around chemical-intensive production, beating out competitors by producing huge volumes of coffee beans sold at low prices. By one estimate, only 10 percent of Vietnam’s coffee beans can be considered “sustainable,” involving some sort of certification, compared to 75 percent in Latin America.6
Vietnam’s unique form of coffee statecraft set the stage for the rapid growth of its coffee industry in the 1980s and 1990s. As this summary makes clear, it is a misnomer to depict Vietnam’s rapid entry into the coffee market, or the global crisis it contributed to, as events that were primarily market-driven. While market dynamics drove the crisis as it occurred, the conditions that set the stage for the crisis to happen were to a significant extent formed by the state and coffee statecraft.
Assessing Vietnam’s coffee “gamble”
It is no easy task to assess the successes and failures of Vietnamese coffee statecraft and its impact since the 1980s. As Peter Gowan has observed, economic statecraft is never a simple matter with a straightforward r
ecipe for success, but often a risky “gamble.”7 There are many players involved, both domestically and internationally; the capitalist economy is intensely competitive and uneven; the outcomes are uncertain or unclear; and global market, political, and environmental events and patterns are highly unpredictable. It was within this context that Vietnam, burdened by the weight of decades of colonialism and the devastation wrought by the Vietnam War, had to find ways to construct its own comparative advantage against rich and powerful states, including new emerging Southern giants, like Brazil, China, and India. There was no guaranteed road to success and no assurances that a viable new export industry could be constructed in global markets dominated by established players – certainly, a great many poorer Southern countries have tried and failed to do so. It was from this position that Vietnam gambled on coffee as part of a broader, complex and contradictory, process of economic reforms.
One issue that is beyond dispute is that Vietnam’s coffee statecraft successfully launched it up the coffee pyramid with historically unprecedented speed in a way that few had predicted, and in a manner that still surprises many today, who do not know that Vietnam accounts for nearly a quarter of all global coffee exports. Employing intensive, high-input production based on the widespread use of chemical fertilizers and irrigation, Vietnam came to have some of the highest coffee yields in the world – the average coffee yield in Brazil in 2013 was around 1,200 kg/ha, compared to 2,000 kg/ha in Vietnam.8 This allowed it to surpass long-time coffee export leaders, inadvertently driving a global crisis. When the worst years of the crisis passed, Vietnam remained at the top of the volume chain, continuing to expand production and firmly established as the world’s number one exporter of Robusta beans and number two exporter of coffee beans overall. In 2012, Vietnam exported well over three times as much coffee as Colombia and had moved astonishingly close to the export levels of Brazil, which has been the world’s number one exporter for well over a century: in 2012, Brazil accounted for 25 percent and Vietnam 23 percent of the world’s coffee exports.
Within Vietnam, the province of Dak Lak had been forever changed, with coffee fuelled growth facilitating a major increase in population, from 35,000 people in 1975 to over two million by 2003. On a national scale, coffee had become Vietnam’s second most valuable export crop, after rice, covering 4.16 percent of the country’s agricultural land, and providing employment for 3 percent of Vietnam’s rural labor force. Vietnam’s coffee farmers and workers combined number around 2.6 million today. To put this in perspective, it is over three and a half times the number of certified fair trade coffee farmers in the world. In short, Vietnamese coffee statecraft has succeeded in making Vietnam a world leader in coffee exports and in making coffee a major source of income, employment, and foreign exchange earnings for the country.
Importantly, Vietnam has not been alone in using statecraft to carefully manage the expansion of its coffee industry in recent decades. India, which has been involved in coffee exporting since the nineteenth century, has successfully employed the tools of statecraft to improve its position in the global industry. Even while carrying out relatively extensive neoliberal reforms on a national scale throughout the 1990s, which included removing the state-mandated monopoly held by the Coffee Board, the state continued to provide an array of extension services and market information to small farmers, while promoting coffee quality and consumption. The Indian state has been particularly devoted to research and development, and is considered “to be a world leader in coffee science.”9 As a result, India has successfully climbed the coffee ladder while others have fallen, rising from being the world’s tenth largest coffee exporter in 1990 to the world’s fifth by 2011 (see figure 4.1). As with Vietnam, India’s position in the global coffee industry improved during the years of the coffee crisis. This has been true in general for Asian coffee exporters, who combined now constitute the world’s number two coffee region, exporting three and a half times as much coffee as Africa. Vietnam alone exported over twice as much coffee in 2012 as the combined total of all African coffee exporting countries.
Source: ICO statistical database (http://www.ico.org), accessed July 30, 2013.
Figure 4.1 World’s top coffee exporters, 1990 and 2011.
Beyond Vietnam’s achievements in expanding its coffee industry, assessing the developmental impact, and the human and environmental costs and benefits, can be much trickier. The growth of the coffee industry did help Vietnam diversify its economy, an important factor in limiting its dependence on a limited range of exports and promoting a more resilient national economy. Vietnam’s relative success in areas outside of agriculture meant that by the 2000s the country’s economic growth was driven predominantly by industry and services, which combined accounted for 78 percent of the country’s GDP, compared to 22 percent for agriculture. The rural population, however, remained high and agriculture continued to be the largest employer, accounting for 65 percent of the workforce. Vietnamese farmers, moreover, have been comparatively poor and in possession of smaller plots of land in global terms; around 85 percent of Vietnam’s farmers control land smaller than 2 hectares, and only 1 percent control plots above 5 hectares. Finding a substantial new avenue for agricultural exports with coffee has been of key importance for the Vietnamese state to slow the flow of rural-to-urban migration, to promote political stability in rural areas, to buffer the legitimacy of the state and state agencies, and to provide income for small farmers, rural workers, and the state.
Income and employment alone, of course, are not worth that much if they are insufficient to meet human needs and fight poverty. During the early boom years of Vietnamese coffee prior to the global crisis, the World Bank records generally improved living standards throughout Dak Lak, measured by growth in household incomes and decline in poverty rates. These initial gains were then significantly tempered by the coffee crisis, which devastated incomes and sparked unemployment in Vietnam as much as anywhere in the world. The crisis also weakened the capacities of the state. Burdened by declining revenues and increased debt – due in part to the state-mandated freeze on loan repayments and strategic tax deductions to prop up the industry – the state eliminated or reduced a number of health and education services, exacerbating social crises throughout the coffee regions. After a decade of steadily improving social indicators, the Central Highlands experienced no significant improvement from 1999 to 2003. The World Bank notes that this differed substantially from the rest of Vietnam, where the national poverty rate declined from 37 percent in 1998 to 29 percent in 2002. In the Central Highlands, poverty remained high at 50 percent, with 30 percent experiencing hunger and malnutrition.10
Global coffee prices did eventually begin to recover, however, and along with them so did the Vietnamese coffee sector. The coffee indicator price climbed over $1 per pound in 2007 for the first time in nearly a decade. Global market forces then triggered a boom in 2011, leading coffee farmers around the world to plant new trees and step up the use of fertilizer and new technologies to boost production. Seeking to address its vulnerabilities to the coffee cycle, the Vietnamese state has taken measures to promote diversification within the industry, offering free land, cheap loans, and technical support to farmers to encourage them to grow higher-quality, and higher-priced, Arabica beans. So far, these initiatives have attained only modest success, with Arabica representing only around 3 percent of the country’s beans. It is in Robusta production that Vietnam has constructed its comparative advantage, and it is with Robustas that Vietnam continues to find itself well situated. Robusta exports are growing more rapidly than Arabica each year, and Vietnam is exceptionally well positioned to gain advantage from one of the fastest growing Robusta coffee markets in the world, China – in 2011, Vietnam supplied 75 percent of all Chinese coffee imports. As a result, coffee continues to be a key export for Vietnam and a major rural income generator, with the average Vietnamese coffee farmer in 2012 earning more than the national per capita income of $1,300 per year
.11
The relative income gains associated with Vietnamese coffee expansion are not without important shortcomings. First, as is generally the case with export-led growth in the commodity sector, the Vietnamese industry remains highly vulnerable to the ups and downs of the volatile coffee rollercoaster. By the end of 2013, global bean prices declined once again, in response to slowing economic growth in major coffee markets, with the composite indicator price dropping to its lowest value in several years. This raised the prospect of another crisis in the industry, leading for calls from within Vietnam for the state to stockpile as much as one-fifth of its production to prop up prices.12 These fears were then temporarily allayed by another boom in prices in 2014 caused by a drought in Brazil, the long-term outcome of which remains uncertain. Second, the economic gains from coffee have been distributed unequally and often unjustly. During the initial phase of coffee expansion, indigenous groups in Dak Lak were forced off of their land, displaced by the state as part of the transition toward state and semi-private landholdings. Today, ethnic minorities continue to have lower incomes and higher poverty rates as a result of discrimination in granting access to quality land and agricultural supports.
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