Yunnan images courtesy of Louis Dreyfus Commodities
Yunnan: Arabica Supplier to the World?
Drying coffee at Louis Dreyfus’ processing facility in Yunnan.
As the global market experiences a chronic shortage of quality arabica coffee, cultivation in southwestern China’s Yunnan province is rapidly expanding, attracting international buyers and the support of investors. But will it be enough to ease the bottle neck?
YUNNAN, China
By Thomas Schmid
Coffee plants were first introduced to China in the late 19th century but large-scale cultivation never really took off. French missionaries found the mountainous southwestern province of Yunnan’s high-altitude terrain favorable for growing coffee with its prevailing micro climate of cool nights and mild days throughout the year.
Yunnan images courtesy of Louis Dreyfus Commodities
Yunnan: Arabica Supplier to the World?
Cupping Chinese arabica at the Louis Dreyfus’ coffee facility in Yunnan.
Coffee thrived but China remained a predominantly tea-drinking nation.
It was European coffee companies that first expanded production. Today North American buyers and global traders consider Yunnan to be one of the most promising coffee growing regions in the world.
Yunnan’s coffee business could well have languished if it not for the Chinese government. In 1988, recognizing coffee’s potential as a cash crop, China initiated a project to regenerate the sector. The resulting collaboration with the World Bank and the United Nations Development Program (UNDP) gradually revived cultivation.
Initially success proved elusive but in the past two decades coffee cultivation has consistently expanded as farmers switch from other crops. Yunnan, which exclusively grows arabica varietals, currently accounts for more than 95% of China’s entire coffee output. The remaining 5% is made up of very minor arabica harvests produced elsewhere, and similarly small amounts of robusta grown in the province of Fujian and the subtropical island province of Hainan, both located along China’s southern seaboard.
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Although Chinese consumers are developing a taste for coffee (both Starbucks and Nescafé are experiencing record growth rates particularly in the larger cities such as Beijing and Shanghai), the bulk of Yunnan-grown arabica is today exported, helping to ease a chronic global shortage.
Yunnan: Arabica Supplier to the World?
A hodgepodge of players
Yunnan is now “the new kid on the block” in the arabica-hungry world attracting many of the better known multinational coffee companies and a slew of international coffee commodity traders that have established a presence in the Chinese province.
Louis Dreyfus Commodities — Founded in 1851 and now headquartered in Rotterdam (The Netherlands), Louis Dreyfus Commodities is one of the top three global coffee merchandizers. The company opened a Beijing office in 1994.
“Louis Dreyfus Commodities has been involved in the Chinese arabica market for more than five years. We believe that China’s steadily growing coffee production offers much business potential. [Yunnan’s] environment is highly suitable for coffee growing and local farming processes are improving day by day. These factors, complemented by efficient logistics services, make it attractive and rewarding for us to be engaged in the Chinese coffee market”, says Young Zhang, the company’s coffee trading manager based in Yunnan’s capital city of Kunming.
Starbucks — Starbucks China sources Yunnan coffee both for domestic consumption as well as for export to supply its operations around the world. Xinrong Wang, the company’s communications director for public affairs, said that “Starbucks has become the buyer of choice for top quality coffee in Yunnan through our support of coffee farmers and by paying premium prices. Since opening in 2012, the Starbucks Farmer Support Center in Pu’er [an administrative division of Yunnan province] has increased our support for local farmers, almost doubling the number of farms and mills participating in [Starbucks’] C.A.F.E. Practices. Starbucks agronomists are on the ground every day, collaborating with farmers, sharing technical expertise and supporting the growth of specialty coffee in Yunnan.”
Volcafe — Another major coffee merchandizer, Switzerland-based Volcafe, which is part of commodities trader ED & F Man, has been buying and exporting Chinese arabica for the past 10 years. To establish a better presence in Yunnan, the company last year formed a much talked-about joint venture with local coffee trading firm Simao Arabicasm Coffee. Volcafe declined further comment on its China operations.
Yunnan: Arabica Supplier to the World?
Nestlé — Swiss giant Nescafé has been testing Yunnan’s potential as a supplier of high quality coffee since the late 1980s. The company started buying coffee in Pu’er in 1992 and began providing technical assistance in 1994. In November 1997, the company further demonstrated Nestlé’s long-term commitment to the development of China’s coffee growing industry by opening an experimental and practical demonstration farm (ED farm) in Xishuangbanna prefecture, just due south of Pu’er. Farmers train at ED where they are encouraged to grow more coffee. By 2002, Nestlé purchased 100% of its coffee directly from farmers, effectively avoiding middlemen.
In 2012, Nestlé’s senior agronomist Wouter de Smet set up the first unit of local farms compliant with the 4C quality standard. Only three years later, de Smet had achieved 100% 4C compliance, incorporating all of the company’s local growers. Now led by Mexico-born agronomist Gonzalo Contreras Bautista in his capacity as coffee agricultural services manager at Nestlé GCR (Greater China Region), the Nescafé Coffee Center was constructed in 2015 and began operations in 2016 to further strengthen the company’s purchasing and exporting capacity.
“The center will continue to serve as Nestlé’s green coffee buying station to supply both local factories as well as eight Nescafé factories in Europe and Oceania. It center also comprises training facilities to educate farmers on good agricultural practices and post-harvest management, which will help to further improve crop quality,” Bautista explains, adding that a team of five agronomists are at hand on site to provide courses, monitor 4C compliance and help farmers to improve sustainable coffee growing practices.
Yunnan: Arabica Supplier to the World?
Improving quality
Yunnan arabica is typically a fully washed coffee with good screens. It has low to medium defects and low to medium body and acidity. It is classed in the milds complex — similar to the coffees grown in Central America (e.g. Honduras and Nicaragua). “But”, cautions Louis Drefus’ Zhang, “compared to other coffees, Yunnan arabica at times results in an inconsistent cupping experience due to a lack of standardized washing processes. Quality control procedures among individual growers still vary a little from farm to farm.”
Photo courtesy of Gonzalo Contreras Bautista, Nestlé China
Yunnan: Arabica Supplier to the World?
Right, Gonzalo Contreras Bautista giving advice to a coffee farmer in Pu’er.
Zhang adds that quality and consistency are improving as more companies get involved in the washing and fine-processing of the coffee. Experienced coffee professionals provide more practical guidance to farmers. Overall, Zhang is quite satisfied in terms of general quality and cup profile such as acidity and taste.
“So far we’ve seen that Yunnan coffees come in a range of qualities that are suitable for most production uses,” he says, adding that he believes “in time” quality Chinese Arabica will become more readily available at specialty coffee outlets around the world.
Nestlé’s Bautista agrees with Zhang’s observations, confirming that while China is becoming internationally known as a coffee producer country, its output still has to be regarded as standard at this moment. “But there is a high potential for Yunnan coffee to improve and eventually become clearly distinguishable from other origins,” he said.
In 2015, Bautista and his team were asked to source superior quality coffee beans for Nescafé’s premium Dolce Gusto brand.
“They released a special Yunnan edition with bright acidity, mild aroma and light body,” he said. Prior to that, in 2004, something similar was done with Nespresso, which likewise launched a special Yunnan Nespresso edition.
“These are two clear examples of the high quality potential Chinese coffee has, but there is still a long way to go to create a ‘name’ as an origin in the same way other countries like Colombia have done it,” he says.
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Photo courtesy of Gonzalo Contreras Bautista, Nestlé China
Yunnan: Arabica Supplier to the World?
A large coffee drying patio in the mist-shrouded mountains of Pu’er.
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Photo courtesy of Torch Coffee Co.
Yunnan: Arabica Supplier to the World?
Theoretical classes at Torch Coffee’s training facility, Coffee Quality Institute’s Dr. Mario Fernandez serving as guest instructor.
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Photo courtesy of Torch Coffee Co.
Yunnan: Arabica Supplier to the World?
Measuring the pH during fermentation.
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Photo courtesy of Torch Coffee Co.
Yunnan: Arabica Supplier to the World?
Students and instructors at a November 2015 Torch Coffee green bean processing course pose for a group photo.
Rapid increase in volume
Yunnan’s arabica yield has steadily expanded over the past two decades. According to the International Trade Centre, in 2009 there were 26,667 hectares of arabica coffee planted across Yunnan province. By 2015, this had increased to about 124,650 hectares, as reported by the local government that year.
In the crop year 2014/15, Louis Dreyfus alone purchased around 70,000 bags (60-kg) and projects an increase to between 90,000 and 120,000 60-kg bags for the current 2015/16 harvest. According to Zhang, this projection “captures the trade opportunities resulting from the expected growth in demand for Yunnan coffee since it is available at relatively lower prices than the Centrals for almost the same quality.”
The company’s approximate trade value for Yunnan coffee is anticipated to grow by 10-20% in coming years. Despite this impressive growth, arabica volumes are merely a drop in the ocean considering Louis Dreyfus’ global coffee trading volume. “Yunnan arabica currently has a share of slightly more than 1% of the company’s total arabica coffee trade in 2015/16. This share is projected to grow to close to 2% with our efforts to increase our Yunnan coffee trade volume in 2016 and beyond,” Zhang elaborates.
Nestlé purchased 10,962 metric tons of 4C-compliant green coffee in 2014/15. Of this volume, only 1,163 tons was sent to the Nescafé factory in Dongguan to produce “Nescafe 2+1” for local consumption. The rest was exported. The company’s purchasing target for the current crop year 2015/16 is 11,948 tons, of which 1,910 tons are earmarked for delivery to the Dongguan facility and 10,038 tons for export.
Photo courtesy of Torch Coffee Co.
Yunnan: Arabica Supplier to the World?
Olfactory testing at Torch Coffee’s training facility.
“Our target for the upcoming years is to reach 15,000 tons purchased directly from farmers. All this coffee must be 4C-compliant, so our efforts are now to keep working with our suppliers to increase yields and quality alike. Around 80% of that projected volume will be exported,” explains Contreras.
Murky data
Figures from reputable traders like Louis Dreyfus and Nestlé are reliable but researching China’s burgeoning coffee-growing industry is hampered by difficult-to-obtain statistical data. Attempts by STiR Tea & Coffee to obtain relevant statistics from the Pu’er Coffee Association, the Yunnan Coffee Association, and the Yunnan Agricultural Bureau, were ignored.
A summary of Yunnan coffee production and exports for the years 2000 to 2015 was available from the International Coffee Organization (ICO), released last year.
The precise numbers may be unknown but coffee production in China has indeed escalated rapidly during the past 20 years. This assumption is further reinforced by figures provided by the United Nations’ Food and Agriculture Organization (FAO) for the crop year 2013/14, which suggest a total harvest of around 1.9 million bags. If correct, this would effectively make China the world’s 14th largest producer of coffee. It occupied the 30th rank a mere 10 years ago.
Challenges aplenty
Although Yunnan’s outlook is decidedly good, certain challenges must be addressed. One concern for international traders like Louis Dreyfus Commodities is the price risk as a result of market competition. There are also quality risks due to poor harvests, crop disasters or water shortages that frequently afflict even relatively lush and fertile Yunnan. “However, as a well-established global company, we have in place quality control and financial structures to manage and mitigate these risks,” assures Young Zhang.
Another concern is the threat of spreading coffee plant pests and diseases. The most popular arabica varietals currently cultivated in China are Catimors, which were first promoted by Nestlé back in the late 1980s due to their high yield, their suitability for the agro-ecological conditions of Yunnan and because they are coffee leaf rust resistant. “Let’s keep in mind that a few years ago Colombian, Central American, and Mexican coffee areas were dramatically damaged by coffee leaf rust,” says Bautista. Apart from the fact that Catimors are resistant to this disastrous fungus, one advantage in Yunnan is the fortunate lack of the coffee berry borer, a beetle that wreaks havoc on plantations.
That doesn’t mean that the province’s valuable coffee crops are immune to pests, the region harbors the coffee berry borer’s equally nasty cousin, the stem borer. The stem borer is the main pest afflicting the plants in this region.
“At this moment it is still under control and our suggestions [to farmers to contain it] are manual catching, impregnating stems with wood vinegar or burning affected trees,” Bautista explains. “But we do not encourage usage of [chemical] pesticides.”
Will Yunnan ease a global shortage?
Yunnan’s limited production will help mitigate arabica shortage in the global market but it will not have a major impact. Nevertheless, Louis Dreyfus is confident that the region has at least “an important role to play in contributing to the variety of quality coffee available in the market” and that its global clout as a major supplier can be further developed.
That is why the company will continue to invest in washing, milling and blending facilities in Yunnan to further enhance its quality control standards. The company will also “endorse Yunnan coffee with the well-established Louis Dreyfus name for both quality and performance.”
Nestlé’s Bautista also believes in Yunnan’s potential. “The region’s coffee farmers are starting to pay more attention to quality and to reach niche markets. It’s quite probable that this will result in increasing availability of coffee for medium to high quality in the upcoming years,” he asserts.
Zhang also believes there are good opportunities for potential investors. He cautions that rising farming costs in Yunnan could pose a challenge by making the Chinese province’s coffee less competitive in the global market but “as the quality of coffee improves, supported by the positive growing and trading environment, it should offer reasonable returns to investors,” he said.