China Coffee Story
By Simon J Hand

China may be the land where tea began, but it's a different story when it comes to coffee. The history of coffee planting in China only dates back a little over a hundred years, when a French priest successfully raised coffee plants in a valley in Yunnan province. Tea being the country's preferred drink, however, coffee growing languished for sixty years until, in the mid-sixties, in a fervor of activity, the Chinese government cultivated 4000 hectare of Arabica crops. Alas, the initial high hopes for the coffee crops dwindled almost as fast as they had been raised, and by the mid-seventies less than 7% of that land was still being used for coffee plantation.

It was more than ten years before China was to make another attempt at mass production of coffee. In 1988, a project began in Yunnan province between the Chinese government and the United Nations Development Program (UNDP) to develop the province's coffee growing area. With the help of one of the world's biggest coffee companies - Nestle - the planted area in Yunnan once again reached 4000 hectares in 1995, and had more than doubled by the end of 1998.

Dong Zhihua, General Manager of the Yunnan Coffee Processing Plant and the man charged with coordinating the UNDP development project's marketing and production through the Yunnan Coffee Industrial Corporation (YCIC), believes that the number of hectares under cultivation in Yunnan province alone could easily reach 17,000 by the end of the century, and could climb as high as 27,000 hectares by 2005, thanks to a Yunnan Provincial Government initiative that is seeking new crops to replace unprofitable rubber plantations.

But can Chinese domestic coffee consumption really support such fast growth? Yunnan has an average yield of a little more than one ton per hectare and domestic consumption stood at around 15,400 tons in 1996. No problem, says Dong Zhihua, when you consider that consumption almost trebled in a matter of twelve months leading up to the 1996 figure, and the majority - 12,200 tons - of that consumption was imported raw coffee beans. Coffee in China has finally started to happen.

One of the main reasons for this, almost overnight, swing in popularity comes as part and parcel of China's moves to reform its economic system in the eighties and to open its door to the outside world. The economic reforms have been hugely successful, with the average city worker's pay packet almost fourteen times fatter than it was twenty years ago - and exposure to western influence has given the Chinese people a new feeling towards their disposable income. With education levels also soaring dramatically in the last ten years - fifteen percent of the population gaining higher education qualifications - the country is fast developing its own chattering class of new wave intellectuals. And what better way to enjoy an in-depth discussion on the future of the Chinese political system than over a steaming cup of your favorite Java.

Although the days of Starbucks on every Shanghai street corner are still some way away, the international coffee companies, Nestle and Maxwell House, have been quick to catch the trend and were among the vanguard of Western companies to enter the newly opening market. Their heavy investment in marketing and production in the late eighties and early nineties saw an almost instant return. Five years ago, says Mr. Dong, Nescafe was the word for coffee in China.

But Yunnan is fighting back, with the help of Mr. Dong and his fifty strong team at the Yunnan Coffee Processing Plant high in the hills above Kunming. The YCIC was established in 1990 to promote Yunnan coffee and - in line with the UNDP initiative - make major improvements to the province's plantations and processing.

From working with only ten plantations in 1996, YCIC is now the sole purchaser of the output of over 100 plantations throughout Yunnan province - forty of whom are in the Simao region - China's premier growing region. The corps. is working with every one of these to make improvements to bean quality - installing quality control measures and supporting the growers with both finance and new technology. Yunnan University's Agricultural Department has also been working with growers to try to rid the country's crops of the coffee virus, Dry Leaf, and are having significant success by cross breeding local plants with disease-free imported varieties.

But, just improving the quality is only half of the battle. Right from the outset Mr. Dong and his team knew what they were up against. Beyond the internationals' high spending power and marketing prowess, the growing market of new drinkers have an ingrained admiration of foreign branded coffee - a conception born of the exotic nature of anything foreign and a general dislike of the, previously poor quality, local alternative. The only area of the market that Yunnan coffee had a hold upon was the old guard - who drank it because it was cheap. Whatever improvements YCIC managed to make to the quality of locally-grown coffee, they realized that convincing the new market would take time.

"Coffee quality has improved, and is improving, immensely," says Mr. Dong. "The coffee you drink today is different from the coffee you drink tomorrow. In time consumers will realize the benefits of cheaper, better coffee," he says, alluding to YCIC's belief that it will soon be producing better coffee than the imported competition.

Even so, the internationals are deeply entrenched in the expanding markets of Beijing, Shanghai and Guangzhou, and this has caused YCIC to postpone its plans to launch instant coffee brands on the local market. In the meantime, the corps. is concentrating on developing its filter coffee market - an area where the internationals have had far less success - and developing a sturdy export market.

Despite the home country's only mildly enthusiastic attitude towards Yunnan coffee, the export market is more than making up for it. YCIC are making major exports in Asia, to Japan, Hong Kong, Korea, Taiwan, Indonesia and Singapore, but the single biggest purchaser of Yunnan beans outside of China is Western Europe - with Germany taking the lion's share of that. YCIC alone exported over 1000 metric tons in 1997 and Mr. Dong believes they will easily double that figure by next year, thanks to the increased number of plantations.

Low prices and improvements in quality have also helped increase exports for Yunnan Import/Export Company (YIN), based in the center of Kunming. The company, which is also one of the province's biggest tea exporters, buys in green beans direct from plantations in Bausan and Simao regions, grade them at its Braun-equipped plant ten kilometers outside the city, and export an average of 2000 metric tons a year.

Both companies are importing green Robusta beans from Vietnam to blend for export, and YIEC has even taken to purchasing thirty tons per year of Laotian Lucky coffee beans for blending.

For China, the past may have been in the tea leaves, but the future definitely seems to be written in the coffee grounds. Yunnan's temperate climate, height above sea level and general geographical situation make the growing conditions comparable with both Indonesia and Colombia. Indeed, there seems to be no reason whatsoever for Yunnan not to produce some very fine, high quality coffee, especially now that the government is throwing its weight behind the venture.

Plans are already on the drawing board to build two new roasting plants in the province - one in Kunming and another in Simao. A sign of China's optimism in the future of its coffee industry is the YCIC's model factory above Kunming. With a capacity of 1000 metric tons per shift, it is far beyond the corps. present needs - but Mr. Dong has every reason to be believe that it will, one day very soon, barely suffice.



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