Pepper lures Vietnamese farmers as coffee goes from bull to bear

[HANOI] Coffee farmer Bui Van Trong is planning to switch as much as 15 per cent of his five-acre farm to pepper after prices more than tripled in five years.

"When I have profit from it, I'll be less worried by wild fluctuations in the coffee market," said Mr Trong, 51, whose farm is in the central Dak Lak province bordering Cambodia.

Vietnam is the world's biggest producer of pepper as well as the largest supplier of robusta beans. As coffee swung from a bull to bear market in the past 14 months, more farmers planted pepper as an alternative source of income. The expansion could pose a threat to robusta production, said Le Tien Hung, who exports the beans from the Central Highlands.

"Farmers are planting pepper vines to replace old trees," said Mr Hung, the general director at Sept 2nd Import-Export Co. or Simexco, the country's second-largest shipper. "Coffee production may even stop growing and decline in the long run," he said by phone April 21.

The "Doi Moi" reforms of the 1980s gave farmers access to global markets and they responded by planting more of everything. Robusta output expanded eightfold in two decades. Pepper production has climbed 36 per cent in the past five years and the country now supplies about half of global exports. Vietnam also ships rice, tea and rubber.

Black-pepper prices in Vietnam have more than tripled in the past five years to $8,565 a metric ton in March, according to the Spices Board in India. Robusta added 28 percent to $1,729 a ton on the ICE Futures Europe market in London.

The price of pepper rose every year but one since 2009, while coffee has swung between gains and losses. Robusta has also been more volatile, jumping 52 percent in the four months to March 2014 before dropping 22 per cent in the following year.

That's spurred pepper planting, with the cultivated area increasing to 83,800 hectares (207,000 acres) in 2014, from 55,500 hectares in 2011, according to agriculture ministry data. Coffee plantations expanded 9.5 per cent to 641,700 hectares in the same period, the data show.

A collapse in coffee output in Vietnam is unlikely any time soon. Yields are increasing and global demand for robusta is rising, according to Carlos Mera, a commodities analyst at Rabobank International in London. Robusta is typically used in soluble drinks and espresso blends.

"Farmers are not going to uproot a significant proportion of coffee trees to plant pepper," Mr Mera wrote in an e-mail April 13. Vietnam's harvest will probably increase to 29.4 million 132-pound bags in the 12 months from October, from 27.2 million bags this year, he estimates.

Pepper vines are also more vulnerable to disease and cost more to cultivate, said Truong Hong, deputy director at the Western Highlands Agriculture & Forestry Science Institute. A disease called quick wilt can kill plants in a month or two, he said from Dak Lak. The initial investment is about 800 million dong ($37,000) a hectare, 16 times greater than coffee, and costs during the season are twice as much, he said.

Higher prices may help farmers recoup the expenses. Pepper in Dak Lak fetched 177,000 dong a kilogram on May 5, four times more than coffee, Trade & Tourism Center data show. The country produced 147,400 tons last year.

World pepper consumption is growing at an annual rate of 2 per cent to 3 per cent, and the ratio of inventories to usage is very low by historical standards, Greg Estep, the global head of spices and vegetable ingredients at Olam International Ltd, wrote in an e-mail April 24.

More coffee trees will be removed to make room for pepper vines if prices keep rising, said Mr Hung at Simexco.

"I'm taking my chance with pepper," said Tran Van Chau, a 43-year-old farmer in Dak Lak. "I don't have any plan to expand my coffee areas."

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