Photo by Dan Bolton
The “big board” Internet auction platform at the Yunnan International Coffee Exchange is powered by Aucxis Online
China is the United Arab Emirate’s No. 1 trading partner. Next year, the Dubai Multi Commodities Center (DMCC) will begin trading Yunnan arabica at a modern roasting and distribution center soon under construction in the port city of Jebel Ali.
Story and Photos By Dan Bolton
PUER CITY, Yunnan, China
Landscapers were busy planting coffee in the entry garden at the beautiful new Yunnan International Coffee Exchange last October. The coffee center is a novelty in downtown Puer where tea has dominated commerce for centuries, but long before these saplings are grown the exchange will be Asia’s largest coffee trading center.
Coffee auctioned at the center is mainly washed Catimor, planted 5,000 trees per hectare, with yields averaging one metric ton per hectare. Vice manager Hai Feng Liu explains that the center, which contains a modern internet auction floor, cupping labs, classrooms and a cafeteria/coffee bar, initially will serve China’s rapidly expanding arabica farms. Standing beside a map of China’s premier coffee growing region, he explains that one day the center will support farmers in nearby Laos, Myanmar, Thailand, and Vietnam, Asia’s largest coffee producing country.
Coffee production and consumption in China has grown at double-digit rates for a decade. Between 1994 and 2004 production increased 21%, according to the International Coffee Organization (ICO). By 2007 Yunnan produced more coffee than Kenya and Tanzania combined and consumed more than Australia, according to ICO. By 2012/13 production reached 82,000 metric tons.
Last year production rose to more than 2 million 60-kilo sacks (between 130,000 and 140,000 metric tons). Puer produced at least 100,000 metric tons, up from 45,000 metric tons in 2012 and on track to reach 250,000 metric tons within five years. China is gearing up to produce 4 million 60-kilo sacks or 240,000 metric tons by 2020.
China is the 14th largest coffee producer in the world, behind Costa Rica and the world’s 7th largest arabica producer. In 2005 China ranked 30th in coffee production.
The Coffee Association of Yunnan, with assistance from Puer City, is investing $480 million including the $9 million center and industrial park; financing agricultural research centers; and expanding planting through 2025.
Southern Yunnan is by far the largest planting area, records the highest yield, and offers the best quality coffee. The planted area is expected to eventually reach 415,000 acres (167,500 ha) equal to half the land available for cultivation in the Province.
About 5% of China’s coffee is grown in Fujian and subtropical Hainan Island where robusta predominates, but not nearly enough to meet China’s thirst for soluble coffee. Vietnam today supplies 75% of China’s coffee imports which have increased 43% to 1.4 million 60-kilo sacks from 435,000 sacks imported in 2008/09. In 2016 there were 165,000 acres under coffee up from 66,000 acres in 2009.
China exported 1.2 million 60-kilo sacks in 2013/14 (up from 58,000 sacks in 1994/95) but only 4% of China’s coffee exports are processed, according to ICO. Yunnan coffee grows in the same temperate zone as Colombia and is classified as a mild. The beans, known locally as Xiaoli, are small with a hint of sweetness, with medium astringency. The coffee is primarily used in blends sold by multinationals in Europe and the US.
Germany is the largest export destination receiving 40% of the annual crop followed by the US (9%) and Belgium (9%), then Malaysia (8%), France, Japan, and South Korea. Yunnan exports 70% of its coffee, of which only a sliver is specialty grade. Inconsistency leads to prices spanning a broad range on the global market.
“Currently, the majority of Yunnan coffee is too expensive for consumption within China, but also not at a high enough quality to be considered “specialty coffee,” writes Nathan Barlow in China Briefing Magazine.
Growers there are fickle, often switching crops to meet demand. Quality control varies by grower due to a lack of standardized washing which, it turn, results in inconsistent cupping experiences. Unlike major coffee producing countries such as Colombia and Brazil where contracts are stable, Chinese growers can easily be whip-sawed, subjected to a double loss.
“This makes for difficulty in selling and buying coffee in an ‘open’ market, which leads to an unstable development of the coffee industry,” writes the exchange’s general manager Shu Yang. The exchange is part of the infrastructure necessary to protect against volatility in the international market, according to Shu.
Dubai’s internationally acclaimed commodities trading center changes the equation. In December Hong Kong-based Mega Capital Halal (MCH) signed an agreement with DMCC to process, re-export, and distribute 140,000 metric tons of arabica from the Yunnan State Farms Group.
The coffee will be processed in a 70,000 sq. ft. (6,500 m2) complex. “We are pleased to announce that we will open our DMCC coffee center next year, which will combine warehousing, processing, and packaging capabilities, along with trade financing and facilitation services,” writes Sanjeev Dutta, DMCC’s director, tea and trade flow.
“Leveraging the UAE’s strategic geographic advantage, the coffee center will introduce world-class facilities and international best practices, with ready access to emerging markets across the region and beyond from Dubai,” he said.
He added that services will be across the industry’s value chain. “The center will include roasting, processing, and storage capabilities for multi-origin green coffee beans, with requisite office facilities and a dedicated center of excellence to benchmark and ensure the highest quality standards for the coffee trade,” writes Dutta.
Dubai will add significant value to China’s coffee, enhance its reputation and make it much more economical to import coffee from Africa and India for blending.
One belt, one road
Last June China Daily reported a second coffee trade center had opened in Chongquing.
“Within two weeks, the center inked deals with more than 200 domestic and foreign companies, including Louis Dreyfus of France,” according to the news report.
“Chongqing is not a coffee production base and has very limited coffee consumption, but it is close to China’s biggest coffee production base in Yunnan,” said Sun Zheng, a manager at the Chongquing center. “With the China-Europe railway, we can not only export Yunnan coffee to Europe, but also become a transport hub for coffee from Southeast Asia to Europe,” Zheng told the newspaper.
The municipal government has plans to make Chongqing China’s biggest, and the world’s third biggest, coffee trade center, with trade expected to exceed $14 billion.
Last summer the mayor of Hamburg, Germany welcomed the first weekly scheduled train from China and now receives five trains a week, including three from Chongqing. Rail is more costly than sea routes but ideal for goods with a short shelf life. Trains can traverse 600 miles daily along the 7,000-mile route saving at least 30 days compared to shipping goods by sea.
Transit is 11-13 days due to a break-of-gauge in Khzakistan but in time rolling stock will be standardized and the Silk Road economic belt will be flanked by highways, pipelines, and electrical transmission lines that more closely tie China to Europe.
At a few yuan per kilo (a composite of domestic and export pricing) the current market value of Yunnan green coffee is well below its potential. Coffee sells for as little as $1.97 a pound with better grades earning $3.29 to $3.96 a pound ($7.25 to $8.72 per kilo).
Catimor is hardy and growing coffee in full sun increases yield, but it does not command top dollar. Producing low-quality arabica results in such small margins ($0.15 per kilo) that at times farmers find it more economical to avoid harvest costs and simply leave their cherry on the trees.
Individual smallholders have little bargaining power which is why cooperatives like Eden Coffee are thriving. Farms like Ani Ni are able to achieve a level of quality that meets Starbucks Coffee and Farmer Equity (CAFE) standards. Selling direct is more lucrative when the coffee achieves SCAA cupping scores as high as 86.
Starbucks has certified 1,200 farms, 576 last year alone. The company has also trained growers since 2012 and is experimenting with high-value varietals at its 1,600 acres (650 ha) farm support center. Starbucks predicts China will be its largest market by 2019 after opening 1,400 new shops.
In 2014 Volcafe, one of the world’s largest coffee traders, signed a deal with Simao Arabicas Coffee Co. to form Yunnan Volcafe, Ltd. which now supplies Europe with its specialty grade coffee.
In January 2015 a Yunnan lot earned a record $189.32 per pound on a bid from a domestic buyer at a Coffee Quality Institute (CQI) auction. Silent bids followed a cupping competition where 24 licensed Q-graders scored 62 coffees submitted by 51 producers. Half the sampled coffees scored 80+ on the SCAA scale. The winner scored 84+.
That same month the coffee exchange signed a multi-year contract with Ted Lingle, who was named a senior advisor, according to Hai Feng Liu. Lingle is well known for his work as executive director of SCAA and CQI.
Starbucks has marketed a blend for years but in January it introduced in China its first single-origin specialty coffee from Yunnan.
According to general manager Shu, “The Yunnan Coffee Exchange is committed to building the largest brand promotion platform, the largest global purchasing and supply platform in Asia, and to the formation of a state-of-the-art information center, settlement center, warehousing and logistics center, exhibition center, extension detection evaluation center, training certification center, and credit evaluation center for coffee trading.”
The exchange is modern, efficient, and so are the coffee processing facilities, with small roasteries springing up in Puer. At the exchange, the baristas in training were excited to serve the pride of their homegrown harvest. Q-Grade cuppers gave it an 84+.
The taste of success is very, very good.
The Chinese consumed an estimated 1.9 million 60-kilo bags in 2016, equivalent to drinking 4 cups of coffee per year on average. The per capita estimate is 83 grams vs 4.4 kilos (363 cups) in the US. Consumption is growing at a rate of 16% per year, doubling during the years 2012-2016.
Currently, 99% of what they drink is instant but a fresh-brewed coffee at $10 per cup is popular in urban areas like Hong Kong where annual consumption rises to 2 kilos (150 cups) per person. At that rate, with a population of 1.4 billion, if China follows a trajectory similar to Japan (which was not a coffee drinking market until consumption spiked the 1980s) it will become the biggest coffee market in the world.