Chongqing Coffee Exchange

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Features

China’s largest commercial coffee exchange and rail hub delivers instant, roast, and green coffee to half the world

By Marjorie Perry

Chongqing is a Tier 1 city of 12 million nestled in the mountains of southwestern China. It is known for its mouth-searingly spicy cuisine and scenic rock carvings along the Yangtze River. Coffee is not top of mind.

But that is changing. The Chongqing Coffee Exchange (CQCE), opened in 2016, aspires to rival London and New York as one of the world’s preeminent coffee trading centers. Within its first 18 months of operation, the exchange reached $2 billion (RMB13 billion) in trade volume. According to a representative, the exchange now has 400 coffee trading members.

In 2018, the exchange traded 50,000 metric tons of coffee, about one-third of the 140,000 tons China produces annually. CQCE primarily trades in commercial-grade coffee, two smaller specialty coffee exchanges are located in Yunnan and Shanghai.

It’s a strategic decision to set up a coffee commodities exchange in Chongqing. On the one hand, there is an opportunity to curb the discrepancy in development between coastal cities and a landlocked, somewhat neglected interior. CQCE also positions local businessmen and bureaucrats to take advantage of the growing coffee consumption within China’s borders, which has increased by 20% per year on average. Consumption is projected to reach 300,000 metric tons and generate RMB600 billion by 2020.

Lastly, like any “One Belt, One Road” initiative, CQCE establishes a link between China and its neighbors…and its neighbor’s neighbors. CQCE ships its wares on 11,000 kilometers of rail ending in Duisberg, Germany. This drop off point is just 400 km from Hamburg, the world’s busiest transfer point for coffee.

Key location

Chongqing is ideally located for trade. It is in close proximity to established and emerging Asian coffee growing regions including Thailand and Vietnam; the latter is the second-largest coffee producer after Brazil. Vietnam is 940 km away along a route that takes it past Yunnan which grows 98% of China’s arabica.

Yunnan first started growing coffee a century ago, but on a minimal scale. In the 1980s the local government renewed its attention, encouraging farmers to produce green coffee, seeing it as more profitable than other crops. They hoped to bring the region out of long-standing poverty. In 1988 Nestlé established a presence in Pu’er, where 60% of the province’s beans are grown. Nowadays the province produces more than 120 million kilos of green coffee a year. While Yunnan is ‘coffee central’ for China, Chongqing offers infrastructure and logistics services absent in Yunnan. The Chongqing-Xinjiang-Europe International Railway has operated since 2011.

In its earliest operation, shipping containers were filled with electronics (mainly computers), but the demand for a variety of products has increased along the entire route. Compared to air and sea, the route offers a good middle option, saving money and time. It takes trains about two weeks to reach the terminal in Germany, shaving a month off the transport time typically needed for maritime shipping. Shipments by rail cost one-fifth the price of flying goods.

The German drop off point allows coffee beans to be distributed throughout the European Union, which has historically led global coffee consumption by a significant margin.

CQCE services

CQCE is a platform for multiple services, positioning itself for broad expansion into the Asian coffee trade. Reviewing the website, there are several members offering warehousing totaling 26,150 m2. Financing for members is provided by partner banks including the Bank of China and Ping An Bank. The same entities guarantee any sales conducted through the site’s e-commerce service.

There is also an online marketplace where members can buy and sell equipment like imported coffee machines. Beyond processing, trading, and shipping services, CQCE translates and posts industry reports and forecasts. On their “research reports” page, one can find several Chinese translations of annual reports from the US Department of Agriculture.

According to exchange center staff, there is no membership fee to join CQCE; companies simply undergo a review of their operations to ensure they are legitimate, and “operating at a certain level.” That is another benefit of membership, the opportunity to connect with others in the industry.

One of the most influential members on their roster is Hogood Coffee Co., China’s largest coffee producer at 33,000 metric tons of instant coffee. They own a quarter of the coffee plantations in the country and account for about half of China’s coffee exports. Clients include Maxwell House, Nestlé, and Kraft.

Hogood uses the CQCE railway to export its coffee products to Europe, setting an industry example. “It not only cuts costs but also saves time,” says Hogood founder Xiong Xiangren.

Future implications

There are now 1,700 trains providing regular service to 16 Chinese cities in the Sino-European rail network according to the China Railway Corp.

It is a prescient move for China to invest in and develop a growing domestic market and as well as exports in an industry valued at more than $100 billion globally. Beyond the services offered to CQCE members, the exchange is also keeping its eye on big data in order to be able to do predictive analysis. General manager Peng De said that the coffee exchange aims to gain pricing power on the international market.

Demand for soluble coffee is growing in eastern Europe and coffee has always been popular in Arabic countries along the One Belt, One Road corridor which now includes 5,247 miles (8,445 km) of roadway from the Yellow Sea to the Baltic.

CQCE gives China, and the Chongqing municipality, the wherewithal to generate and maintain greater profits from value-addition near origin. More than 400 members from Asia and beyond are using their myriad services, which prompts a ‘virtuous cycle.’

The more members, the greater the trade volume, increasing the size of the operation. The exchange already is making a significant contribution to the industry and will exert a growing influence in the coffee trade in Asia and beyond.