China’s Coffee Growers Survive a Difficult Year

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By Dan Bolton

Freezing temperatures destroyed 3,300 hectares of ripe cherry and lowered yields on 20,000 hectares, but growers in Yunnan were optimistic in December as coffee prices rose to a two-year high. Yunnan arabica can be superb, but a combination of logistics and inconsistency forces growers to sell their crop at 15-25% below commodity rates published daily on the Intercontinental Exchange (ICE).

At $1.35 per pound, growers envisioned a fair profit after a drought in 2019 and several years when the cost of production roughly equaled returns. Prosperity has been elusive for China’s coffee growers. Domestic consumption will reach 80,718 metric tons this year, generating $1.35 billion (RMB9.45 billion), according to Euromonitor International. But not much of that bounty reaches growers.

On Feb. 15 Nestle was offering $1.05 per pound (RMB16.44/kilo)for grade 1 arabica, down from $1.29 per pound (RMB20.03/kilo) two months prior. “It is very hard for Yunnan farmers to cover their cost for any coffee they produce, and that does indeed cause a fast increasing number of farmers to cut down their coffee trees and plant a different cash crop in their place,” writes Eric Baden, one of the founders of the Coffee Commune in Pu’er and a China resident since 1998.

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In 2010 economists tasked with improving the quality of living in China’s rural provinces predicted five-fold growth from 40,000 to 200,000 metric tons of quality arabica by 2015. Government incentives, state-funded grants, and training programs for family farmers followed, quickly boosting yields.

A joint venture with Starbucks in 2012 led to the construction of several dry mills. Production increased to 141,352 metric tons on 125,000 hectares by 2015, earning growers $472 million (CNY3.25 billion), mostly from green coffee exports to Germany and the US. Sales of roast and soluble coffee increased eight-fold.

Since then, the harvest has increased to 200,000 metric tons, but coffee growers complain the effort has not resulted in wealth or global acclaim.

One-two punch

The next sign of trouble was in January when arabica prices that had hovered around $1.20 per pound fell to $0.98 on the ICE futures exchange. March contracts for May delivery are priced at $1.03 per pound and remain in a trough.

The blow that followed was unprecedented. Curfews imposed in Wuhan earlier that month led to a January 23 lockdown of 54 million residents in Hubei province. “The coronavirus virus has been a tragedy for China and specifically for the coffee producers,” writes Thomas J. Mitchell, president of Strategic Coffee Concepts, organizers of the China International Specialty Coffee Forum and Expo sponsored annually by the Yunnan Coffee Exchange (YCE).

“January and February are typically at the center of the harvest. The low altitude coffee harvest pauses for Chinese New Year (January 25). The premium, high-altitude coffee [1,500 meters and above] is then harvested. The coronavirus extended Chinese New Year for many additional weeks. With a less than perfect weather pattern negatively affecting the crop, this extended period of reduced harvesting will have a negative impact on the Yunnan coffee crop this year,” writes Mitchell, adding the coffee expo scheduled for March was canceled “but as soon as the event can be re-scheduled safely, YCE will set a new date and announcements will be forthcoming.”

There are 222,914 coffee outlets in China, with 2,500 in Wuhan, a city of 11 million. A March survey of 2,000 small- and medium-sized coffee shops by the Kamen Institute revealed 85% were shuttered at the height of the epidemic. Two-thirds reported no income for 60 days, with an additional 20% reporting sales declines of 50% to 80%. Starbucks closed more than 2,000 outlets in China to help stem the spread of the coronavirus.

In Yunnan, growers suddenly confronted a mid-harvest lockdown that limited transport to processing facilities. Since medical care was uncertain, the government isolated entire villages behind roadblocks. Strict traffic controls led to labor shortages. Workers were issued masks, told to keep six feet apart, and periodically examined for signs of fever. Local officials urged them to step up production and processing and minimize losses. Their orders were to pick and process fruit the same day, harvesting only fully ripe cherry.

Li Shaoquan, with the “High-Altitude” coffee project in Mang county, Dehong, Yunnan, said that: “Down the coffee value chain, cafés could switch gears turning towards online marketing and sales as a solution, but coffee farms, located at the origin of the chain, did not have any way out.”

Due to labor shortages, transport restrictions, and segregation, the last harvest had to be abandoned, resulting this year’s berry quantity is about one-third of average,” he said, adding the batch harvest that was abandoned was his premium grade.

The Pu’er Tea and Coffee Development Center circulated directives such as this: “During the epidemic period, if the coffee products are not delivered in time due to traffic control, scientific storage should be performed, moisture monitoring and mildew and moisture prevention work should be done to ensure the quality of coffee and achieve maximum benefits.”

Small business loans, tax relief, and technical support were made available.

The Yunnan Coffee Exchange (YCE) notified growers that the PICC (China Insurance Company) will compensate them “for market price fluctuations and losses caused when the market price of coffee and raw beans is lower than the established price; rewards will be awarded for actual transaction prices higher than the target price.” The result: YCE estimates the 2019-20 harvest will be at least 10,000 metric tons below 2018-19. A final tally was not available at press time.