Growing the Chinese market

In 2012, mainland China was listed by the International Coffee Organization (ICO) as the sixth-largest consumer of coffee in East and Southeast Asia, getting through more than 1 million 60-kilogram bags. As in many other Asian countries, coffee in China is mainly consumed in soluble forms, followed by ready-to-drink coffee beverages. Roasted and ground coffee is mostly used in coffee houses, while single-serve products such as pre-portioned drip coffee and coffee capsules are more common for in-home consumption. If coffee consumption continues to grow at 12.8 per cent per annum, as predicted by the ICO, China’s total coffee consumption will reach 2.8 million 60-kilogram bags by 2020. Nevertheless, there is still a long way to go before there is a significant increase in the per capita consumption of coffee among China’s 1.3 billion people. While the growing popularity of coffee in China is not all that new, it may surprise some people to learn that neither is coffee production. People have been growing coffee in China for around 130 years, with the first coffee tree planted successfully in Taiwan in 1884 during Qing Dynasty However, mainland China did not start growing coffee until 1893, when a Swedish missionary named Ola Hanson brought coffee seeds from Myanmar to Jingpo in the Dehong Autonomous Prefecture of Yunnan. In 1904, a French missionary called Tian Deneng brought a coffee seedling from Vietnam to a small village named Zhugula in Yunnan. It was reported that this very seedling was the offspring of the coffee seedling that Louis XIV received from the mayor of Amsterdam in 1715. Although that very coffee tree died in 1997 at the age of 95, the seeds falling from it were able to germinate and grow, creating the oldest coffee forest in China, with 1,134 coffee trees, of which just 24 were planted between 1908 and 1912 and the rest planted in 1948.  However, large-scale coffee plantation did not commence in China until 1956. By 2013, after 57 years’ development, there were about 122,623 hectares of coffee, most of which are Arabica, grown in China, with Yunnan being the biggest producing region. Most Yunnan coffee today is washed and falls into the varietal of Catimor 7963. Due to the investment of the Chinese Government and large multinational companies, such as Starbucks and Nestlé, coffee output in China has increased massively over the past 15 years, from 100,000 60-kilogram bags in 1998 to 1.5 million bags in 2013, with an average yearly growth rate of 19.4 per cent. The main markets for all forms of coffee produced in China during this period were Germany (36.8 per cent), Japan (11.6 per cent), the US (9.5 per cent), Belgium (8.15 per cent), and Saudi Arabia (3.9 per cent). According to the International Coffee Organization (ICO), over this time an average volume of 369,000 bags were sent out per year, with a yearly increase of 15.8 per cent. While the extent of China’s coffee production may come as a surprise to most, what is even more surprising is the fact that more than 400 Q Grader Certificates (CQI website) and 137 AST (Authorised Specialty Coffee Association of Europe Trainer) Certificates were issued in China in the last three years. Starting from the field level, coffee training in China goes all the way down to the cup level, enabling farmers to improve agricultural practice and processing techniques to produce higher quality coffee and allowing end consumers to better appreciate the coffee and the hard work behind it. Together with the blossoming of coffee education, more coffee competitions and events are now being held in China, such as the Yunnan Coffee Cup China Brewers Championship, the Pu’er Coffee Cup World Syphon Championship, and the Toper Cup Roast Master Championship. Most notable among these is the Third Pu’er Green Coffee Competition and 2015 China Specialty Coffee Auction. Aimed at seeking good beans and facilitating the improvement of coffee quality and brand promotion of Yunnan Specialty Coffee, this year’s competition and auction featured 21 Q Graders, including the world specialty coffee authority Ted Lingle, to cup 62 samples from Pu’er region using SCAA cupping protocol. Some 1,100 kilograms of green coffee were sold to coffee experts, amateurs, and insiders with a total transaction value of US$70,000 during the live auction. The first prize green coffee was sold at more than US$400 per kilogram, breaking the world coffee live auction record. Although China’s coffee industry is advancing rapidly, it is still in its infancy with respect to cultivation and processing technology, product structure, marketing abilities, and overall competitiveness. The Chinese industry is still struggling to gain global acceptance due to a lack of quality and consistency in its overall output. One of the challenges for Chinese coffee growers is simply variety. Most of the coffee grown in Yunnan is Catimor 7963, which has an inherent grassy, or herbal, off-note. Despite some efforts to bring training on cultivation and processing techniques to farmers and factories, they are not carried out on a regular basis. In addition, few farmers know how to cup the coffee that they produce, let alone to change agronomic practices and processing methods to improve the quality according to cupping results. Knowing little about the true value of their products, many farmers mix their beans of different qualities and sell them to large coffee buyers, whose purchasing prices are normally 10-20 cents lower than the New York “C” price. Therefore, most growers in China have no price-setting power and are vulnerable to coffee price fluctuation. However, there is now one company that is working to educate farmers about cultivar selection and long-term cultivation, processing and cupping training to produce consistently high quality coffee. With its headquarters in the coffee capital of China – Pu’er, one delivery house in Kunming, three collecting centres in Lincang, Baoshan and Dehong, Yunnan Coffee Exchange (YCE) seeks to promote the welfare of coffee producers and the quality of their coffee. To help farmers sell their coffee at a reasonable high price and help buyers have easier access to high quality coffee, YCE has established a third-party online transaction system. All items online need to go through two rounds of quality inspection, done by YCE’s QI staff and a third-party QI team, respectively, to ensure quality. Qualified products are mainly traded in the form of auction to get the highest possible price. Apart from spot transactions, YCE provides financial services including warehouse receipt financing, equity investment, and equipment leasing and financing to help accelerate the cash flow of coffee enterprises. Furthermore, YCE is constructing the Yunnan Specialty Coffee Industrial Park, consisting of experimental farm for cultivar selection, processing plants, and warehouses for coffee products and experiencing and exhibition centre for visitors. In November 2015, YCE officially became the in-country partner of the Coffee Quality Institute. A strategic partnership agreement was also signed between the two parties to cooperate on long-term technical training, quality certification, and international promotions and marketing. It is safe to assume that, considering its economic and technological development, supportive policies to coffee industry, and international collaboration with greater coffee community, China will play a more important role in the world of coffee both as a producer and a consumer in the next few decades. GCR