A study of the instant coffee industry invietnam and related factors that haveaffected the supply and demand of thiscommodity

INTRODUCTION...3 ANALYZE CHARACTERISTICS...4 Characteristic 1: Number of brand and market share...4 Characteristic 2: Product nature...5 Characteristic 3: Barriers to entry...6 Character

M I N I S T R Y O F E D U C A T I O N A N D T R A I N I N G

N A T I O N A L E C O N O M I C S U N I V E R S I T Y

E N G L I S H B A C H E L O R O F D I G I T A L B U S I N E S S

FINAL PROJECT MICROECONOMICS

TOPIC

A STUDY OF THE INSTANT COFFEE INDUSTRY IN VIETNAM AND RELATED FACTORS THAT HAVE AFFECTED THE SUPPLY AND DEMAND OF THIS

COMMODITY.

Class : EBDB 4

Course: 64Amphitheater: A2-707

Hanoi – 06/2023

MEMBER LIST

NO FULL NAME STUDENT CODE

INTRODUCTION 3

ANALYZE CHARACTERISTICS 4

Characteristic 1: Number of brand and market share 4

Characteristic 2: Product nature 5

Characteristic 3: Barriers to entry 6

Characteristic 4: Non-price competition 7

DEMAND AND SUPPLY CURVE OF VIETNAM INSTANT COFFEE 10

1 Main factors affecting the supply of the Vietnam dairy 10

a Raw materials price 10

b Technological development 11

c Natural conditions 11

d Government policies 12

2 Main factors affecting the demand of the Vietnam instant coffee industry 15 a Product price 15

b Consumers income 15

c Business image 17

CONCLUSION 19

REFERENCES 20

The instant coffee industry in Vietnam has experienced significant growth andtransformation in recent years, making it an intriguing subject for study Vietnam,renowned for its robust coffee culture and favorable climatic conditions, hasemerged as a prominent player in the global coffee market In this study, we willdelve into the dynamics of the instant coffee industry in Vietnam, analyzing thefactors that have influenced the supply and demand of this commodity

To gain a comprehensive understanding of the industry, we will begin byexamining the market structure of the instant coffee industry in Vietnam.Specifically, we will explore whether the industry aligns closer to a state of purecompetition or a monopolistic structure By evaluating the competitive landscape,

we can better comprehend the dynamics that shape the supply and demand ofinstant coffee in Vietnam

Additionally, we will investigate the key factors that have impacted the supplyand demand of instant coffee in Vietnam over the past years These factors mayencompass a wide range of economic, social, and environmental aspects that havehad a significant influence on the industry By identifying and analyzing thesefactors, we aim to unravel the intricate relationship between supply and demandand shed light on the fluctuations and patterns observed within the instant coffeemarket in Vietnam

Through this study, we hope to provide valuable insights into the instantcoffee industry in Vietnam, elucidating the underlying factors that have shaped itssupply and demand dynamics By understanding the complexities of thiscommodity and its market, stakeholders, including coffee producers, traders, andpolicymakers, can make informed decisions and devise effective strategies tonavigate the industry's challenges and capitalize on its opportunities

ANALYZE CHARACTERISTICS

Characteristic 1: Number of brand and market share

Coffee holds a significant position among Vietnam's agricultural products,contributing to the country's GDP development in recent years Nowadays, peopletend to use more instant coffee because of its convenience Therefore, the instantcoffee market in Vietnam is experiencing significant growth and popularity inrecent times Vietnamese consumers have considered instant coffee as a convenientand accessible option for their caffeine fix As a result, the instant coffee market inVietnam is developing, presenting numerous opportunities for both established andnew players to expand their presence and capture the growing consumer base Vietnam is considered to be the second largest producing coffee in the worldbecause Vietnam has a large coffee growing area and demand of consumers ismore and more increased (Chi Nam 2018) Although this leads to many newbrands wanting to enter the Vietnam coffee market, this industry recently has toface many challenges such as climate change, irrigation water source, largeinvestment requirements and competition from other high-value crops (Chi Nam2018) Currently, the Vietnamese instant coffee market accounts for 1/3 of the totaldomestic coffee consumption Moreover, in 2022, Vinacafe is the leading instantcoffee company in Vietnam, with a market share of 45% Trung Nguyen is thesecond-largest company, with a market share of 25% Nescafe is the third-largestcompany, with a market share of 15% The remaining 15% of the market is shared

by smaller companies This shows that the coffee market has been shaped verywell, it is difficult to have opportunities for new players This means that it restrictsnew players entering the market

Instant coffee market share in Vietnam (Source: Statista)

Vinacafe is a state-owned company that has been in operation since 1973 It

is the largest coffee producer in Vietnam, and it also exports coffee to over 60countries Trung Nguyen is a privately owned company that was founded in 1996

It is the second-largest coffee producer in Vietnam, and it is also known for itschain of coffee shops Nescafe is a subsidiary of Nestle, the world's largest foodand beverage company It has been operating in Vietnam since 1993, and it is theleading foreign coffee brand in the country

Characteristic 2: Product nature

Instant coffee products are popular with a benefit to boost energy levels andgive different experiences in drinking coffee In these products, coffee beans arethe main ingredients However, each firm has their own different combinationbetween coffee beans and other ingredients such as milk, sugar, milk powder, e.gand other factors such as quality and technology to make different tastes Withtheir own combinations, firms continue developing from origin products to maketheir products become more diverse on the market and different from their rivals

In conclusion, though instant coffee products are similar, they have some slightdifferences, especially differences in taste, technology, and benefits of products

(G7 3 in 1) (Vinacafe original Buon Me Thuot 3 in 1)

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Dự báo kinh tế xã hội

Example 2:

Trung Nguyen Coffee and Néscafe always diversify their products byproducing or developing more products based on the origin products to meet themarket demand and increase their proportion of the market share

(Coffee products of Néscafe)

(Coffee products of Trung Nguyen)

Characteristic 3: Barriers to entry

The instant coffee industry in Vietnam is a challenging market for newentrants, as they face several barriers to entry that give an advantage to the existingplayers Some of these barriers are:

Bài-tập-lớn-môn-dự-báo nhóm-3

28

 The high competition from both local and international brands, such asTrung Nguyen, Vinacafe, Nescafe, and Starbucks, which have a strongpresence and reputation in the market.

 The low domestic demand for instant coffee compared to traditional coffee,which is preferred by many Vietnamese consumers for its taste and aroma.According to a survey, only 24% of urban consumers and 16% of ruralconsumers used instant coffee in 2021

 The high production costs and taxes for instant coffee, which make it lessprofitable than exporting raw coffee beans Vietnam is the second-largestcoffee producer in the world, with a volume of 29 million 60 kg bags in

2020, but most of its coffee exports are unprocessed or semi-processed.Besides, according to the Ministry of Agriculture and Rural Development ofVietnam, there were over 660 coffee processing factories in the country as of

2020, indicating a highly competitive landscape (Vietnam Briefing, 2021)

 The strict regulations and standards for food safety and quality, whichrequire instant coffee producers to comply with various certifications andinspections Vietnam has adopted the ASEAN Harmonized TariffNomenclature (AHTN) and the ASEAN Common Effective PreferentialTariff (CEPT) scheme, which impose tariffs and non-tariff barriers onimported and exported goods

 Access to high-quality coffee beans can be a challenge for new entrants, asestablished brands often have established relationships with coffee farmersand suppliers These barriers, coupled with intense competition and capitalrequirements, create obstacles for new companies seeking to enter theinstant coffee market in Vietnam

Characteristic 4: Non-price competition

Besides sale strategies with competitive prices, large enterprises also spend aconsiderable amount of money on advertising activities to increase brandawareness, product promotion, thereby increasing their sales

(Trung Nguyen’s G7 advertising)

(Nestle’s Nescafe advertising)

(Vinacafe advertising)

In conclusion, with the factor analyzed above, we can determine that the

Vietnamese instant coffee market has almost sufficient characteristics that are close

to the monopoly market, especially OLIGOPOLY.

→ Oligopoly curve diagram:

For example:

Brand Price

(2019)

Price (2020)

Price (2021)

Price (2022)

Based on the provided data, it is evident that the instant coffee industry can

be categorized as an oligopoly An oligopoly refers to a market structure where asmall number of dominant firms control the industry In this case, the datashowcases three major brands in the instant coffee market: Nestlé, Trung Nguyen,and Vinacafe These brands exhibit a considerable level of control and influenceover the market due to their pricing behavior The data indicates that all threebrands consistently increased their prices over the years, demonstrating asynchronized pattern of price adjustments This suggests a high level ofinterdependence and mutual awareness among these firms, as they strategicallyrespond to each other's pricing actions Additionally, the data also reveals thepresence of a balanced supply and demand for each brand, indicating a concertedeffort to maintain market equilibrium The fact that all three brands have varying

levels of supply and demand further highlights their ability to control marketdynamics Consequently, based on the pricing behavior, interdependence, andcontrol demonstrated by Nestlé, Trung Nguyen, and Vinacafe, it can be concludedthat the instant coffee industry in question operates as an oligopoly.

DEMAND AND SUPPLY CURVE OF VIETNAM

INSTANT COFFEE

1 Main factors affecting the supply of the Vietnam dairy

a Raw materials price

The primary raw material to produce instant coffee is Robusta coffee beans.However, the price of coffee beans in Vietnam has reached a record high in 2023.Domestic coffee price rose by 25% compared to Q4 in 2022 and by 17% compared

to the same quarter in 2022, reaching 48.600 - 49.000 VND/kg This upsurge is thefirst time in history the price of Vietnamese coffee has surpassed this mark andsometimes has reached VND 64,000/kg

According to the US Department of Agriculture's forecast, Vietnam's coffeeproduction in the 2022/2023 crop year will decrease by 6% to 29.75 million bags.According to Vietnam Coffee and Cocoa Association (Vicofa), Vietnam's coffeeproduction in the 2022/2023 crop year is predicted to drop by 10 - 15% compared

to the previous crop year and hit 1,47 million tonnes Therefore, when Vietnam'scoffee production declines, it will affect the supply, demand, and internationalcoffee prices This substantial rise in price has a great influence on the output ofcoffee in Vietnam

Example: Looking at the chart, we can see that at a price of $1,800 per ton,the supply of instant coffee in Vietnam was 100,000 tons in 2022 However, at thesame price in 2023, the supply has been cut to 80,000 tons due to high rawmaterials prices (Robusta coffee beans) (Source: SSI Research, 2023)

Qs (2022) (2023)

100,000 80,000

1800

Q (tons)

P ($)

Therefore, the supply of Robusta beans would decrease during this period.Since Robusta beans is the main raw material to produce instant, the supply ofinstant coffee in Vietnam, in turn, also declined.

includes: Netafim drip irrigation method combines water fertilization with coffee plant fertilization; WeGAP; Nitrogen-fixing crops.

Combating the risk of groundwater depletion and reducing energy outputs helps

to produce coffee at low costs Improved efficiency within smallholder farmsmeans less waste as well This would positively affect the supply of instant coffee

in Vietnam

In Vietnam, there are 7 instant coffee processing factories with a capacity of 52tons/year There are a few enterprises that have invested in the deep processingindustry such as Vinacafe, Trung Nguyen, and Nescafe Brands producing roastedand ground coffee products such as Dac Ha (Kon Tum), Thu Ha (Gia Lai),Vinacafe, Trung Nguyen

Take a closer look at the leading instant coffee enterprise - Trung Nguyenwhich now has the world's leading technology Trung Nguyen Coffee Group hasordered the world's leading companies from Japan, Germany such as FAE,NEUHAU NEOTEC designs its own technology Trung Nguyen coffee processingfactory is invested with a total investment capital of more than 40 million USD,built on an area of 27,000m2 Trung Nguyen's new factory will have a Germangreen coffee steaming and vacuum drying line to help increase the quality andvalue of Vietnamese Robusta coffee before being processed domestically orexported, with the largest capacity in Asia of 20,000 tons/year Along with a closedroasting-grinding-packing line by German technology, Trung Nguyen haspioneered in investing in an instant coffee production line with modern cold-dryingtechnology - this is the most advanced technology in the world With such dramaticdevelopment in technology, Trung Nguyen is able to stack up their instant coffeeproduction while delivering 100% coffee’s pure flavor, round and fresh

frequent floods, and severe outbreaks of pests and diseases that result in reducedproductivity In addition, there has been a scarcity in water sources for coffeefarming due to climate change

More specifically, Dak Lak is facing a shortage of water to irrigate crops duringthe dry season from March to June According to the Dak Lak Irrigation Sub-Department, the amount of surface water in rivers, streams and in 848 irrigationworks began to run out Major streams in the area such as Ea H'leo, Cu M'gar,Krong Buk, Krong Nang, Krong Ana, Cu Kuin, Krong Pac, Buon Don and Buon

Ho town has run out of water since the beginning of March 2023

In the 2021/22 production period, Vietnam produced 30.48 million 60-kilogrambags of Robusta coffee The volume of Robusta produced in Vietnam had beenincreasing steadily year on year from 2016 to 2020 However, it was slightly lowerfor 2020/21, at 28.05 tones due to unfavorable weather and reduced coffee-growing area by some farmers

Total Robusta coffee production volume in Vietnam from 2014 to 2021 with

(in million bags) (Source: Statista 2022)

There are concerns that this year, the complicated climate change and heavyprocessing activities during harvest time will be more difficult, affecting coffeeoutput and quality Coffee production decreased by 10% compared to last year toabout 1.7 million tons,” according to Vicofa’s representative

d Government policies

Vietnam’s officials have implemented long-term industrial reforms In 2014, thegovernment unveiled a plan for sustainable coffee development through 2020 and a