UK Minister of State Alan Duncan opens an innovative coffee processing facility in Dak Lak province, Vietnam

The first smallholder-owned and operated coffee washing station in Vietnam was opened today by UK Minister of State, Department for International Development, The Right Honourable Alan Duncan.

Mr. Duncan opened the facility, which is the result of a highly innovative business project co-funded by the Vietnam Challenge Fund.  It is being implemented by Dak Man Vietnam, in collaboration with a coffee-growing cooperative in the Ea Kiet commune of Dak Lak province.

Although Vietnam has become the world’s second largest producer and exporter of coffee in the world, the majority of its output is natural robusta (with relatively minimal processing), typically grown by smallholder farms. The resulting problem of quality inconsistency and minimal processing limits the price at which Vietnamese-grown coffee – which is mostly treated as a bulk low value product – trades in the international market.  And this in turn constrains the incomes of smallholder coffee farmers.

While this dilemma has been widely recognized for some time, a solution has proved elusive, at least until now. This innovative facility is the first smallholder-owned and operated coffee washing station in Vietnam, and the coffee it will process is also Fair Trade certified.

“It is key that Vietnam’s coffee farmers get the proper value from the coffee they produce. At this DFID-funded coffee project, farmers are adding value to the beans they grow, through sorting, washing and drying. And in so doing, improving the livelihoods of their families. I hope that this project can be an example to other coffee growers in Vietnam, and that it will serve as a model,” said Mr. Alan Duncan.

The facility aims to produce 350 tons of Fairtrade semi-washed coffee by the end of 2011. If successful, this project could play a leading role in the development of a significant new market segment for value added Vietnamese coffee in the international market.

“We see this as an important new step for the coffee industry in Vietnam,” noted Jonathan Clark, Managing Director of Dak Man. “Our hope is that this project will herald a new niche for Vietnamese coffee in the international market,” said Mr Clark, “and that both our company and the commune members will mutually benefit.”

“We are extremely excited by this project,” said Buddhika Samarasinghe, Team Leader of M4P2.  “For a relatively modest amount of money, the Vietnam Challenge Fund is helping to catalyse a major change in the way coffee is processed and traded in Vietnam.  If the project proves to be a success, we envisage it being replicated in many other areas of the country, and thus have a significant impact on the rural poor”, he added.

More than 550,000 households derive their living from coffee growing in Vietnam, and the lives of around two million Vietnamese are dependent on coffee. Approximately 95% of the coffee grown in Vietnam is exported, and was valued at roughly US$1.7bn in 2010.

This coffee project is one of the 11 projects being supported by the Vietnam Challenge Fund (VCF), a component of Making Markets Work Better for the Poor, Phase 2 (M4P2). M4P2 is a project managed by ADB and funded by UK’s Department for International Development.  Launched in late 2009, the Vietnam Challenge Fund provides co-financing grants to innovative business projects that seek to catalyse systemic change in the way agri-business is conducted in Vietnam, so as to raise the incomes of the country’s rural poor.