In the shopping malls and office complexes of the major Chinese cities a boom in new coffee houses is raging. However, few benefits are flowing through to the country's growers thousands of kilometres away in the main producing region.
The packing floor of the Yunnan Baoshan No. 1 Coffee Factory is a world away from the plush velvet armchairs and stencilled glass of the three new Starbucks outlets in Beijing. Five workers in white lab-oratory coats sit around a wooden basin spooning ground coffee, sugar and milk powder into little red packets. Behind them, washing, grinding and roasting equipment, looking like leftovers from a former industrial revolution, lies idle while the workers plod their way through a backlog of produce.
Ideal growing conditions
Baoshan, which lies 45 minutes by air due west of Yunnan's capital of Kunming and just 90 km east of the Burmese border, is one of China's premier coffee-growing regions. Though the local population's taste for tea is undiminished, the gently sloping hills of the area are being planted with coffee bushes at the behest of the provincial government.
The bulk of China's annual output of almost 5,000 tonnes of coffee beans is grown in Yunnan province. The provincial authorities are pursuing ambitious plans to more than triple output in the next three years despite a sharp slump in the price that growers are paid and the relatively slack demand for Chinese beans.
Natural conditions in Yunnan are ideal for growing coffee. The temperate climate and rich soil of the province currently produces coffee beans, of both arabica and robusta varieties, of a quality that is as high as the beans grown in rival plantations in Vietnam and Indonesia.
The Yunnan government has long recognised its natural advantages and has included the industry among a total of 18 sectors entitled to preferential treatment from government departments and state-run banks. Planted acreage in Yunnan is forecast to rise to 16,666 hectares by 2001, on completion of a three-year programme in which 3,133 hectares are to be added annually to the coffee-growing area.
The net result of the expansion in output, including productivity gains, should be to boost production from 3,500 tonnes of coffee beans in 1998 to just under 15,000 tonnes of beans in 2001.
But while the government in Kunming has its gaze fixed firmly on the horizon, the experience of Yunnan coffee producers up until now suggests that the market will be tougher than the central planners hope.
In order to improve the company's performance, Xiong plans to expand into tourism, another of the local government's favoured sectors. Patting the wall of what is now a three-storey workers' dormitory, Xiong Deyong, the general manager of Yunnan Baoshan, outlines his plans to raze the building and in its place construct the Coffee Hotel.
Low profit levels
While growth in revenue from tourism and hospitality is likely to be faster than that from coffee processing and distribution, Xiong says banks will only lend on tangible assets such as a coffee factory. It is not, he explains, that the coffee business is unprofitable, but growth is slow and prices are weak.
"There are only two areas of the country where demand is hot – that's Shanghai and Beijing," he says. "The rest of the country doesn't like to drink coffee."
While some farmers have recently switched out of coffee growing into pepper production, the rapid rise in planted acreage will continue for the foreseeable future, says Zhao Qinghuang, the sales manager of the provincial government-controlled Yunnan Coffee Processing Plant.
"According to the government plan there will be 250,000 mu planted with coffee by the end of 2001 – by the end of last year the area planted was already 240,000 mu. By 2003, the area allotted to coffee producers will rise to 300,000 mu," he says. Fifteen mu is the equivalent of one hectare.
For those who choose or who are obliged to remain in the industry, times are tough but not unprofitable. Farmers are currently earning just over Yn10 for each kilogram of coffee beans they produce, Wang says. As recently as 1997, however, local growers could expect to earn as much as Yn25 per kilogram.
Industry analysts point out that the domestic Chinese coffee industry remains positioned at the least profitable end of the coffee spectrum.
Wang says that about 80 percent of Yunnan Baoshan's revenue is generated by sales of green coffee beans for export. The company is currently able to charge about Yn 13 per kilo-gram for exports to Canada, Japan and Indonesia. Three-in-one packaged coffee and other forms of instant coffee make up the bulk of the company's other sales, Wang explains.
It is a picture that is confirmed by Zhao of the Yunnan Coffee Processing Plant, which owns two brands of roasted ground arabica coffee – Leshou and Golden Valley – both of which are sold nationwide. Yunnan Coffee was established with the help of the United Nations through the World Food Programme in a project which ended in 1992.
A recent survey by a Hong Kong-based market research company found that more than 90 percent of the coffee sold nationwide is instant, with the remaining 10 percent being roasted coffee.
Asa result, the boom in high-end coffee shops is bypassing Yunnan producers. The flavour of the beans grown and roasted in Yunnan does not conform to that of the Java and arabica beans which are imported by Starbucks and its local competitors such as Arabica Roasters. Xiong says that most of the additional out-put grown in Yunnan will be sold in raw bean form to Maxwell and Nestle. Both these groups have signed contracts with Yunnan growers to provide them with thousands of tonnes of beans starting from next year.
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