In 2022, the global coffee retail market was valued at over £95 billion, but Vietnam – the world's second largest producer – captured less than £2.5 billion of that value. Most Vietnamese growers export raw, unprocessed green beans, earning a fraction of the final retail price. This represents a classic primary-commodity trap where the bulk of the economic value-addition occurs in importing nations.
Vietnam currently processes and roasts only about 12% of its coffee crop domestically. Plans to scale up the domestic high-value roasting industry face severe headwinds. High-quality industrial roasting and packaging machinery is highly capital-intensive and must be imported. Furthermore, there is a logic of high-grade local packaging materials and specialised dairy inputs (like shelf-stable condensed milk). Importing these components inflates production costs and drains foreign currency reserves. Additionally, industrial roasting plants require an uninterrupted, high-voltage power supply, yet grid reliability in rural highlands remains highly volatile. While secondary products, such as coffee-peel tea, offer high profit margins, they lack the massive global market scale of premium roasted coffee.
Financing is another bottleneck. Nguyen, a local farmer looking to scale up, notes that domestic commercial banks charge interest rates between 14% and 16% for agricultural startups. "Commercial credit at 15% makes it impossible to survive the early infrastructure stage when trying to compete with established multinational brands," he explains.
But the government has pledged to address these structural issues using supply-side policies. The Ministry of Industry and Trade announced a new 'Agricultural Cluster' strategy to group processing plants close to the main growing regions. This includes offering tax exemptions and subsidized land leases in designated special economic zones to attract private investment and boost premium processed exports.
With reference to the second paragraph of Extract F, examine two likely problems for the expansion of the domestic coffee roasting industry in Vietnam.
