Vietnamese Coffee Industry suffers because Communist Vietnam puts People before Profits

Posted by PITHOCRATES - August 17th, 2013

Week in Review

The American left wants more government intervention into the free market.  Because they hate and don’t trust corporations.  Because they are motivated by profit.  Even putting profits before people.  Whereas government puts people before profits.  So everything is better when government intervenes.  Which is why the left loved Hugo Chávez in Venezuela.  They love Cuba.  They loved the former Soviet Union.  Because they were all socialist utopias.  Where they put people before profits.  Of course, people are robbing women of their hair in Venezuelan streets.  Cubans have risked their lives crossing the ocean to reach Florida on just about anything that floats.  And the Soviet Union is no more.  Because they couldn’t provide for their people.  Despite putting their people before profits.

Another communist country the left likes is Vietnam.  Especially since the communists got the Americans to give up and go home.  Vietnam is still communist.  But like China they add a sprinkling of capitalism to the communist stew.  A sort of state-capitalism.  Capitalism with the heavy hand of the government involved.  The way the American left likes it.  And how are things there?  Well, they are having quite the problem in their coffee industry (see Crippling debts brew a coffee crisis in Vietnam by Nguyen Phuong Linh, Ho Binh Minh and Lewa Pardomuan posted 8/15/2013 on The Globe and Mail).

But its coffee industry is now in crisis, plagued by tax evasion, mismanagement, insolvency, high interest rates and a credit squeeze. Many coffee operators are trapped with crippling debt and banks are reluctant to lend them more money.

Vietnam’s credit crunch is blamed largely on state-owned enterprises that borrowed big during the economic boom of the past decade and squandered cash on failed investments, which has left banks crippled by one of Asia’s highest bad-debt ratios…

Few coffee exporters are willing to talk about their financial problems. In communist Vietnam, people are often reluctant to speak publicly about politics and business, especially to foreign media…

Vietnam’s 2013-2014 coffee crop is forecast to be a bumper harvest, around 17 million to 29.5 million 60-kg bags, based on a Reuters poll. This will add to a global oversupply and pressure coffee prices which have lost about 10 per cent since October…

A government assessment of the coffee industry paints a bleak picture. The value of non-performing loans or debts in the sector likely to go unpaid stands at 8 trillion dong ($379-million), or 60 per cent of all coffee industry loans, said a July circular signed by the Deputy Agriculture Minister Vu Van Tam…

Unscrupulous middlemen have also played a part in the crisis, cheating exporters by selling them weighted coffee bags and inferior beans which are difficult to sell or fetch lower prices.

“What I found out is the market there is quite dirty. Middlemen often sell poor beans to exporters. They even put metal bolts in the bags to outweigh them,” said Joyce Liu, an investment analyst at Phillip Futures in Singapore.

You don’t have middlemen putting bolts into bags to make them heavier in free market capitalism.  For any inferior product in a free market doesn’t remain long in a free market.  As people will simply stop buying an inferior product.  And it could take years for a company to rebuild its tarnished image.  If they ever can.  This is what happens when you put profits before people.  People win.

So who caused the credit crunch?  State-owned enterprises.  As people in government are horrible at business.  For if they were good at it they would be in it.  But they’re not so they regulate it.  Or run a state-owned business.  Not because of their business acumen.  But because they had friends in higher places in government than anyone else.

Loans are important in any agricultural business.  Because all of your expenses come long before you can sell anything.  So they take on big debts at the beginning of the season.  That they plan on repaying after the harvest.  As long as prices don’t fall because there is a bumper crop.  But if they do they may not be able to earn enough to repay their bank loans.  Which is why 60% of all coffee industry loans will likely go unpaid.  And why bankers don’t want to loan them any more money.  Or charge a really high interest rate when they do.  For if a banker knows that every other loan he or she writes will never be repaid it makes a banker very reluctant to loan any money.  And what they do loan has to have such high interest rates to cover the loans that are never paid back.

This is why governments should not interfere with free markets.  For when they do they just make everything worse.  Because they’re just not good at it.  Unlike oppressing their people.  That they’re very good at.  Which is why people are “reluctant to speak publicly about politics and business, especially to foreign media.”  Something unheard of in free market economies.  But quite common in these socialist utopias.  Yet the left still favors them over free market capitalism.  Go figure.

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