Market Reports

China’s coffee revolution

When China signals its intention to become a world player in a new industry, it pays to take notice. Now it is the turn of the international coffee trade to focus its attention on the emerging superpower – not as the ripening consumer market that we have seen coming for some years now, but as a significant coffee producer in its own right. While coffee cultivation in China goes back to the late 19th century, little of its coffee is consumed outside of Asia. With reliable information on coffee production out of China very hard to come by, estimates on output vary from 30,000 to 60,000 tonnes in the 2012-13 coffee year. There is a general consensus, that it could rise to as much as 200,000 tonnes by 2019-20. Despite this, Chinese coffee is still a relative unknown on the world stage. The first coffee trees in China were planted on Hainan Island, where the country’s tiny output of Robusta still comes from today. But it is the Arabica grown in Yunnan province that is drawing international attention. Arabica is grown mainly in the Baoshan and Pu’er regions of Yunnan, which is in Southern China, bordering Burma, Vietnam and Laos. Pu’er is of course famous for its production of another hot beverage – the tea from the region is one of the most precious varieties in the world.  While exporters are just now starting to take notice of China as a serious producer of coffee, Jesse Ping Zhang, Managing Director of the Shanghai Fuda Industrial Company, an agent for Probat, anticipates the most fruitful market being much closer to home. “The greatest potential for the development of Yunnan coffee lies in the 1.3 billion population of China,” she says. “At present, most green coffee in Yunnan is for export. However Chinese dietary culture is changing and coffee is a big growth area.” Rising to meet this demand is another question, one that Zhang says will need to be addressed by the development of processing capabilities, with a shift from hand to machine-driven processes. Independent consultant in coffee quality and sourcing Genevieve Kappler was recently in Yunnan. While she was excited by some of the flavours she discovered, she also has some misgivings about the rapid growth of China’s coffee production. “After driving through plantation after plantation in Pu’er for over three hours, I began to get concerned,” she says. “In five to 10 years, China will inundate the world with a huge amount of coffee, and I worry what effect this will have on the world coffee price.” Being a true coffee lover, however, Kappler’s concern is overwhelmed by the excitement at discovering the unique flavours of Yunnan coffee. Vivacious, clean, citrusy, delicate, floral and substantial are just some of the words she uses to describe the coffees she tasted there, some of which she sourced  in a custom-processed lot for what is now being sold as the US-based Roasting Plant’s first Chinese blend. Kappler also sees environmental sustainability being a major challenge for the future of the Chinese industry. With the main growers another year away from full production, she is hopeful there will be time to implement appropriate processes to manage the disposal of waste materials. “I can see water will be a tremendous issue in many many places there as there is no planning whatsoever to handle the highly polluting waste water that will come out from the wet processing,” she says. “There are always solutions, but protecting the environment is a must for this new Chinese coffee venture to be sustainable. Any way around would be short sighted and leading to serious expenses to correct mistakes down the road.”
Andrew Ford, President of green bean traders MTC Group, has recently started to pay attention to Yunnan, attracted in large part by the region’s unique geography. Ford is less concerned than Kappler about the potential for distortion on the world market.
“As I understand it, the forecast consumption is going to be about 200,000 tonnes by 2015, and it’s currently about 30,000 – 40,000 tonnes. So it would seem that whatever is being produced is going to easily be swallowed up internally,” he says.
Ford anticipates the real challenge will be in developing the capacity for moving this new mountain of coffee to the growing number of consumers.
However he is also concerned that with such an ample supply of new coffee to meet the rising demand, there will be a limited focus on quality. This, he fears, could do serious, long-term damage to the Yunnan brand on the international market. In fact, Ford says, this is already a problem.
“Within our networks – our buyers globally and our relationships inside China – all see Yunnan as low quality coffee, however with suitable intrigue about the potential,” he says, adding that this does not mean the reputation of Yunnan coffee is irretrievable, but it will take some work.
Ford signals the involvement of global giant Starbucks in the region as signs that, in the future, there will be at least some drivers for quality in the region.
In December last year, Starbucks opened up its first Asia-based Starbucks Farmer Support Center in Pu’er. Starbucks is working directly with the farmers there to help reduce the environmental impact of the region’s coffee-growing activities. They are also trialling four locally grown varietals, which they intend to plant commercially in 2015.
He also still sees some potential for specialty coffee traders such as himself to foster a culture of quality production in the region.
“I’m very pro Yunnan as a coffee region,” he says. “Geographically it’s unique – it’s a long way north of the tropics, so it’s outside of the typical growing areas.”
While the strong history of tea farming in the region bodes well for the cultivation side of the process, Ford says the real challenge is ensuring the post-harvest handling of the coffee  is good enough to realise its full potential.
However, so long as the demand meets, or exceeds, supply, it will be hard to encourage change. But Ford is undeterred, and feels sure there will always be at least some people there who are willing to do that.
“I think that over the next few years we’ll continue to find agents and representatives who want to push for quality and if we’re there working closely with them, the opportunities will present more and more,” he says.

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