Coffee Trader Seeks to Shield More Vietnam Growers From Weather

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(Bloomberg) — Major coffee trader ECOM Agroindustrial Corp. is pushing for a fivefold increase in the number of growers covered by its specialty weather insurance in Vietnam, where the industry depends on thousands of smallholder farmers increasingly exposed to climate risk.

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The world’s second-biggest coffee trader is seeking to expand the coverage to 2,500 farmers this year, up from 500, said Laurent Bossolasco, Vietnam-based sustainability manager at ECOM. The company piloted the parametric insurance program five years ago, under which payouts are triggered if it rains too much or too little and farmers don’t have to provide proof of crop losses.

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Vietnam is the world’s largest producer of robusta beans, used in instant coffee and espresso blends, and most of the country’s growers farm relatively modest plots and have limited ability to absorb weather-related disruptions. As climate pressures mount and economic incentives shift, some have diversified into or replaced coffee with crops such as black pepper and durian.

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This year, farmers are facing the prospect of a strong El Niño, which is expected to bring heat and dryness to much of Southeast Asia, posing a fresh threat to coffee supplies and other crops. The latest seasonal outlooks for Vietnam point to a roughly 50% chance of below-normal rainfall in the key coffee-growing region of the Central Highlands from July through September.

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Growers with coverage stand to at least partially recoup losses from adverse weather, helping them avoid starting the next season heavily in debt — a potential “game changer for farmers,” Bossolasco said in an interview. “When we look at supply and demand, we have more demand than supply. We need to make sure that we keep as much coffee around.”

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Parametric insurance has grown in popularity in recent years as extreme weather disrupts the global economy. Not every risk is well suited for this type of product, but renewable energy firms will use it to manage swings in wind and sunshine, while other companies tap them to protect property and goods from tropical cyclones and floods that disrupt supply chains.

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The first payouts under ECOM’s program were triggered in 2024 after a season impacted by poor rainfall. The following year, growers were hit by torrential rains, and all of the farmers who purchased wet-season coverage received payouts, according to insurance brokerage WTW, which has helped to design the policies that the coffee trader is offering Vietnam’s growers.

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Vietnam’s distinct wet and dry seasons and their significant impact on the yield and quality of the country’s coffee crop present a particularly strong use case for parametric products, said Christopher Au, senior director of climate practice and alternative risk transfer solutions at WTW.

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“They are very distinct risks and they’re very closely correlated with weather,” he said. “The parametric application here is quite strong.”