China’s southwestern Yunnan province is about the same latitude as some of the world’s top coffee-producing regions. That fact wasn’t lost on Mao-era officials, who marked out 4,000 hectares around the Simao district for coffee plantations. "They saw it as a viable cash crop for export," says Li Hongfang, head of Simao Sino Coffee, a local dealer.
However, the coffee beans weren’t up to international standards and the project was abandoned until 1986. That was when a UNDP project brought in coffee growers and processors from as far away as Brazil, the world’s number one coffee producer, to show locals how to cultivate decent beans. The locally planted coffee crop reached 8,000 hectares in 1998, but distribution has been limited due to quality concerns and poor marketing.
Kunming-based Yunnan Coffee Industrial Corporation (YCIC), a state-owned enterprise, was for a long time the sole purchaser of beans from Yunnan plantations. YCIC’s vacuum-packed 250-gramme bags – which sell for as little as RMB18 (€ 1.9) in Beijing supermarkets – don’t do much for the Yunnan brand with their dreary, unimaginative packaging. The company also sells bulk roasted coffee to the European operations of Amway, a company not known for high quality.
Low-cost is the primary reason Nescafe and Kraft-owned Maxwell House, as well as some local firms, buy Yunnan beans for their instant coffee mixes, cheap alternatives to brewed coffee. "Quality isn’t important in instant coffee; bean quantity is more important," says Simao’s Li.
And while Starbucks marked its tenth anniversary in China with the 2009 launch of a line of beans from Yunnan called "South of the Clouds", the company blends the Chinese beans with beans from Latin America and other regions in Asia. Before the first bag was sold, Starbucks spent almost three years working with local smallholders to produce beans that met its standards. Wang Jinlong, president of Starbucks Greater China, promised Yunnan officials that Starbucks would help them create a world-class coffee bean-growing and research base. The company has also promised to stock Yunnan-grown beans in US stores.
Thinking ahead
As it waits for Starbucks’ efforts to bear fruit, Yunnan’s best strategy may be focussing on producing small quantity, high quality batches of Arabica beans for a domestic market.
Already, a new brand of Yunnan coffee, Shangrila Farms, with cheerful packaging created by Yunnan artists, has pushed up against YCIC packs in Beijing supermarkets. Seven different blends priced at an average of RMB55 (€ 5.94), are being marketed as gourmet coffee. Founder Sahra Malik believes the Yunnan name and local support for organic goods will eventually pay off for Shangrila Farms.
China is still a comparably small player in terms of coffee drinking. Keiji Ohta, secretary of the All Japan Coffee Association, points out that consumption and imports levels here are very low by regional standards. Mainland China imported 392,000 bags of coffee in 2008, to feed an average per capita consumption of 22 grammes a year. Taiwan alone imports 530,000 bags for an annual per-person consumption of 560 grammes, while the Japanese drink 3,400 grammes per head every year.
Major players are betting that demand will grow. Yunnan-based Dehong Hougu Coffee hopes to raise € 324 million through an initial public offering in order to fund expansion of its production and retailing operations. China’s self-proclaimed biggest coffee grower, the company put its 2008 crop at 20,000 tonnes. Vice President Deng Gang bases his plans on growth of 20 percent in annual coffee consumption in China.
Delicate balance
There has been some question as to whether mass coffee cultivation is sustainable in Yunnan, where deforestation is already a serious problem. The province’s emergence as a coffee-growing region could spell problems for a delicate local biodiversity, says Julie Craves, a biodiversity specialist at the University of Michigan and author of the Coffee & Conservation blog. On a recent visit to Yunnan, she blamed the over-use of fertilisers and pesticides for environmental degradation.
However, it’s a good time for Yunnan to be entering the world coffee markets. International Coffee Organisation (ICO) composite prices have trebled since 2002, partly in response the growing consumer base in countries including China. The engine for growth in coffee consumption is coming from developing economies, says Robert Simmons, London-based coffee analyst at global agribusiness consultancy LMC. In addition, a drop in Brazil’s output and a bug infestation of Colombia’s coffee crop has contributed to world shortages and rising prices. Data from ICO shows exports for 2009 fell to 94.7 million (60-kilogram) bags, down from 97.7 million bags in 2008. The ICO predicts a shortfall of eight million bags this year.
Quality and positioning remain the weakest links in Yunnan coffee production. Shangrila Farms’ Malik believes some local producers suffer from buying beans from farmers who over-use fertilizer, thereby eroding the quality of the final product. "[But] there’s no reason why quality coffee can’t be produced. Yunnan is one of the top-five best places in the world, climatically, for growing coffee,"she said.