ECON1194 Report: Market Equilibrium Analysis of Vietnamese Coffee

This report analyzes the market equilibrium of the instant coffee market in Vietnam. It examines the rising demand for instant coffee due to changing consumer behaviors and the convenience it offers. The report highlights the increasing consumption rates and market growth forecasts, supported by data from Statista and International Comunicaffe. It discusses the shift from fresh ground coffee to instant coffee and its impact on market competition. The analysis includes predictions for increased production and the current shortage in the market. Furthermore, the report compares the original and new equilibrium, illustrating the increase in quantity and market price using a supply and demand graph. The references include sources like International Comunicaffe, Statista, and Vccinews, which provide the data and insights for this analysis.

Market Equilibrium Analysis
Name: Cao Le Linh Phuong
ID number: S3750549
Course code ECON1194
Lecturer: David Emanuel EA

Coffee market in Vietnam
In the past few years, instant coffee is becoming an attractive,
interesting product in the domestic coffee market. As the consumer’s
behaviors have changed these days, the demand for convenience
product or service, especially instant coffee in Vietnam has risen
dramatically. According to Statista, since 2010, the consumption of
Vietnamese average revenue per capita has constantly risen from
$0.20 to $0.27 per year and there is no drop. Furthermore,
International Comunicaffe said that from 2018 to 2023, the coffee
market in Vietnam is forecasted to grow at 8,2% as well as the instant
coffee mix has CAGR of 7% in retail volume growth. Therefore, the
demand for instant coffee has been increasing and is always hot as
being said by Markets & Prices VCCI.
The reason that leads to this scenario is the dramatical change in
consumers’ behaviors. According to International Comunicaffe,
customer switches from fresh ground coffee into instant coffee as
instant coffee is more convenient, suitable and more attractive with
people’s hustle lifestyle nowadays. Therefore, instant coffee has
become the first choice and become a hot market in Vietnam.
As a result, the demand for instant coffee has rocketed and it also
means there are more businesses and competitors appear to grab a
piece of the market pie. Wanting to have a good position in the
market, each competitor has to introduce and produce a product that
stronger and more suitable for the Vietnamese’s taste. Instant coffee’
total supply is predicted to increase significantly. According to
Vccinews, MARD (Ministry of Agriculture and Rural Development),
the instant coffee’s production will reach 255,000 tones per year by
2020 and in 2030, it will be 350,000 tonnes per year. On the other
hand, it is just MARD’s plan in the near future, there are only 20
factories processing this sort of coffee with a effiecency of 75,280
tones per year in Vietnam (Vccinews, 2018). However, the instant
market is facing a problem of shortage.

It is a golden chance to join the instant coffee market, thus, there
are more and more suppliers appear. Yet instant coffee’s demand has
developed so much that present production cannot catch up with the
shift. consequently, it creates a shortage because although the quantity
of supply increased, it still under the quantity of demand. The price of
soluble coffee is planned to increase since many competitors still
continued to join the competitions, and there is still a shortage but it is
smaller.

Comparing the original and new equilibrium E0 and E1, in the
graph, the quantity and domestic market price increased. At first, the
instant coffee market has a shortage which is the quantity supplied Q4
does not outrun the quantity demanded Q2 at P0. In the short term, the
shortage presses and makes the market price rise to the new
equilibrium price P1. Plus, Q2 and Q3 move towards the new
equilibrium Q4 since the quantity demanded Q2 decreases and the
quantity supplied Q3 increase at the same time following the law of
supply and demand. The market quantities increases when the market
reaches the new quilibrium E1 and the shortage becomes smaller and
then disappears.
References:
International Comunicaffe, 2018, ‘Vietnam’s coffee market expected
to grow at a Cagr of 8.2% form 2018 to 2023’, International
Comunicaffe, April 4, viewed 8 March 2019,
<https://www.comunicaffe.com/vietnams-coffee-market-expected-to-
grow-at-a-cagr-of-8-2-from-2018-to-2023/ >
Statista, 2019, ‘Instant coffee’, Statista, viewed 8 March 2019,
<https://www.statista.com/outlook/30010200/127/instant-coffee/vietn
am#market-revenue>
Vccinews, 2018, ‘Vietnam Coffee Market, Whose Opportunity?’,
Vccinews, September 19, viewed 8 March 2019, <
http://vccinews.com/news_detail.asp?news_id=36182 >