China is now one of the world’s top arabica producing nations
By Dan Bolton
China is capable of growing and processing enough commercial and specialty grade coffee to rank among the world’s top five producing and consuming markets. The massive country of 1.38 billion people can comfortably rely on a single southwestern province (Yunnan) to meet rapidly rising domestic demand that exceeded 3.2 million 60-kilo bags last year. This is because today Chinese drink very little coffee — but that is quickly changing. Canada, with a population of 37 million, will consume 4.87 million bags in 2018 (enough to make 100 liters per person) and the US, the world’s largest coffee consuming nation, drank the equivalent of 25,780 60-kilo bags last year, according to the International Coffee Organization (ICO).
While China ranks 12th overall in production and is the world’s seventh largest arabica grower, exports are minimal and will remain so unless prices rise and the country expands its coffee processing capabilities to add value.
Will China become a coffee producer to rival Ethiopia, or Honduras, or someday even Colombia?
Debutante ball
China takes this year’s highly visible “portrait country” sponsorship at SCA’s 2018 convention in Seattle. There will be more than 50 Chinese government and company executives at the Yunnan International Coffee Exchange (YCE) booth during the show with as many as 250 Chinese nationals attending. In preparation for their debut, YCE and provincial officials in January hosted the 1st Puer International Specialty Coffee Forum.
The forum, trade exposition, cuppings, and farm tours drew influential coffee professionals from around the world. Truthful, informative, and data-rich presentations made it a “tremendous success,” according to Ted Lingle, an SCA founder and senior advisor to YCE whose three-year contract was recently renewed. Lingle calls 2018 “the pivotal year for coffee farmers in Yunnan.”
“Coffee production in Yunnan will begin the transition from commercial to specialty grades, a path followed by producing countries in Central America, South America, and East Africa during past decades, resulting in a continued decrease in the amount of coffee sold at commercial prices and a continued increase in the amount of coffee sold at premium prices,” he said.
The forum “is the signal that there will be many great things to happen in the future that will significantly benefit Yunnan’s coffee farmers,” he said.
A successful debut at SCA that results in a measurable increase in signed contracts leading to profitable exports is a critical test of China’s investment in coffee.
China’s choice
Of the 10 highest earning coffee exporters only half grow coffee. Brazil is a true powerhouse due to its massive production (one-third of the world’s coffee is grown there) and its domestic market. In 2016 Brazil generated $4.9 billion from exports, a sum representing 15.9% of global value. Vietnam was second at $3.2 billion (10.5% of world exports) but revenue was almost entirely from the sale of huge quantities of low-value green coffee. Colombia ranked third, earning $2.5 billion (8% of total coffee exports by value) followed by Germany (7.6%), Switzerland (6.7%), Italy, Indonesia, Belgium, the United States, and Honduras (2.8%).
If the sector shows profits, investment will follow and China could soon be among the world’s top 10 coffee exporters. It ranked 17th among the 70 countries exporting significant amounts of coffee in 2016 with an estimated $528.5 million in sales, about 1.7% of the world’s total coffee exports. These numbers are estimates from the US Department of Agriculture and the World Factbook’s exports because China is not a member of the ICO.
ALSO: See Why is China Not a Member of ICO
Value addition
The half billion dollars China received for coffee sent overseas is a rounding error for a country where exports exceed $2 trillion but new jobs (financed by middle-class consumers) that enrich rural communities is a national mandate.
The pathway to prosperity is crystal clear, explains Lingle: “Improved wet mill operations; the introduction of new varietals; and greater market transparency as China joins ICO.”
Doing Business in China
Once considered the world’s factory, China is pursuing self-sufficiency and a consumer-driven economy.
It will be the investment of personal assets that trigger the next round of growth in several next-generation industries identified in the government’s latest five-year plan. The plan is tellingly labeled: Made in China 2025.
China’s first phase of economic reform, ending in 2012, promoted small-scale, local family enterprises that include tea growing and, more recently, coffee manufacturing.
In early 2013 a new economic model was adopted. The emphasis shifted to increasing domestic consumption rather than exports. The ambitious were encouraged to leave government service (xiahai) and state-owned enterprises to venture into the world (zouchuqu). The emphasis is on small- and medium-sized enterprises (SMEs) because it is the private sector, not state-owned enterprises (SOEs) that has led to job creation.
In 2017 an astounding average of 12,000 startups registered daily.
Rural prosperity and employment are important goals. In Yunnan Province alone there are 250,000 coffee farms and 450,000 farmers, a number that increases by the day. The Yunnan Coffee Exchange is the ideal go-between as staff are trained to appreciate quality coffee and know the ways of navigating China’s rules and customs.
Basics
The first point of contact is generally a sales representative, possibly a senior sales executive if that person is fluent in English. In many instances refreshments (generally tea and a light snack) are followed by a video that presents the organization in the best light.
The Chinese excel at hospitality and putting their best foot forward. Westerners often want to “get down to business” but to ensure a stable and long-term relationship enjoy this welcome, advises Gordon Dumoulin in “China 101.” Do not present a long list of questions; two or three are considered polite. Make them specific and give some thought to how your questions will be viewed by a delegation focused on making a good impression, he writes.
Introductions often do not include the key decision-makers in daily operations and management. To meet these people, ask questions during a tour. Prepare in advance so that you know the corporate structure and basic operations, products, and services. Ask specific questions to gain insights, no commentary is required. Open-ended questions can be intimidating and yield overly general responses.
If you do not see a good fit, don’t express feelings of disappointment, writes Dumoulin. If the initial signs are not promising, show your appreciation for their effort. They likely sense the same mismatch. Disengage with grace. The Chinese have a saying: Just let the candle burn down.