China has quietly become a major coffee producer — mostly for export. But its people are developing a taste for the beverage as well, much to the delight of vendors like Starbucks.
PU'ER — His basket slung over his shoulder, Fu Xiufang plunges his hands into the branches. Beneath the leaves of shrubs planted on mountainsides in the middle of the tropical forest, he picks the fleshy red fruits, leaving behind those that are still too green for later. His movements are fast and relentless, repeated for hours on end.
"I can gather up to 30 kilos a day, but it's a tough job. Look how dirty and damaged my hands are," says the 42-year-old Hani peasant, one of the minorities in the Yunnan province in southwest China.
The picker's shoulder begins to bend as his basket fills with coffee cherries. Most of them will be sold to Starbucks, before being shipped to the four corners of the planet. For six years now, Fu Xiufang has been working in the plantations of the Aini agricultural company, of which the American coffee chain is a partner. And yet, his own hot beverage of choice is tea.
"I've never had coffee in my life!" he says. "I just put a few berries in the baijiu (Chinese rice alcohol) to give it a sweeter taste and a red color like wine."
For all the investment in coffee production, the region around Pu'er — a "small" town of 2.6 million inhabitants in the heart of Yunnan — is very much tea country still. Long before it became the Chinese coffee capital, the town, named after the famous fermented tea, was an important marketplace on the ancient "tea and horse route" linking Yunnan to Tibet. To this day, Pu'er still derives a large part of its worldwide activity and reputation from tea.
But over the past 30 years, coffee trees have been intruding into the landscape, between rice fields and terraced tea plantations, banana and citrus fields. Although coffee was introduced in Yunnan by a French missionary in the late 19th-century, there was not much left of it when Nestlé showed up in this poor and remote province in 1988.
In association with the World Bank and the United Nations Development Programme, "the Chinese government was looking to revive production and asked us to help," says Wouter De Smet, in charge of relations with farmers for the Swiss multinational in Asia.
After roaming the province, Nestlé chose the Pu'er region, with its mild temperatures all year round (19 °C on average), heavy rainfall (between 1,100 and 2,800 millimeters per year) and moderate altitude (between 700 and 1,700 meters). "Located just beneath the Tropic of Cancer, it has ideal conditions for arabica," the agricultural engineer explains.
For Nestlé, this demand also met a need. At the time, the food giant was looking for local suppliers for its brand new Nescafé factory near Guangzhou. Agronomists met with farmers and helped them introduce catimor, a hybrid arabica known for its resistance and high output.
Coffee trees have been intruding into the landscape.
This led some farmers to abandon other crops — sugar cane, corn, rice, oranges and even tea — and focus on the more profitable coffee shrubs. The movement gained pace in the mid-2000s, encouraged by the fall in tea prices, while the price of coffee soared to record highs. By switching from tea to coffee, farmers were able to double their income. "Coffee farmers like me were able to build a new house and buy a car," says Huang Dabao, who switched from oranges to coffee 11 years ago.
Coffee production is booming. In the past decade it quadrupled to reach 2.2 million bags in 2017. A bag, the unit of measure for coffee, weighs 60 kilos. Invisible only 20 years ago, China is now the world's 13th leading producer, with output equaling that of Costa Rica and Kenya combined. For arabica, its specialty, China is the ninth largest producer.
China is still far behind its neighbor Vietnam, the second largest coffee producer after Brazil, but can no longer be ignored by the major players. "Now every company is there: Nestlé, Starbucks and commodity traders like Ecom, Louis Dreyfus and us," says Shirley Liu, managing director of Yunnan Volcafe, a joint venture with ED&F Man.
But it's not just coffee growing that has taken off in China. More and more people are drinking it too. There have been double-digit growth levels in demand over the past two decades, according to the International Coffee Organization (ICO). Coffee has become a trendy drink for a young, urban middle class that is sensitive to Western influences. And even if China remains a nation of tea drinkers (tea consumption is still 10 times higher than coffee), coffee's growth curve makes industrialists drool. And for good reason! It is perfectly comparable to that of Japan 50 years ago.
Coffee culture is gaining ground.
With an average per capita consumption of 3.7 kilos of coffee per year, Japan maintained strong growth until the mid-2000s, becoming the world's fourth-largest coffee consumer. If China, a country of 1.4 billion potential drinkers, continues on a similar growth path, the market promises to be huge. For now, the Chinese only drink on average 100 grams of coffee (6 or 7 cups) per year.
Inevitably, all players are trying to elbow their way through to reap the benefits from this still burgeoning enthusiasm. In a market where the "3-in-1" soluble solution (coffee, milk, and sugar) is extremely popular, Nestlé largely dominates, with two-thirds of sales, according to Euromonitor. "In many cities, people still know nothing else than Nescafé," says Fu Jingya, from the China Coffee Association.
This creates a paradoxical situation, to say the least: although China consumes about as much coffee as it produces, it's not the same coffee. Robusta, widely used in instant solutions, is favored by the Chinese. But the country only produces arabica. As a result, Chinese-produced coffee is shipped West whereas coffee for the Chinese comes, in large part, from Vietnam.
Nestlé is not the only company to see China as potentially one of the world's biggest coffee consumers in the years to come. Unlike tea, coffee is consumed mainly outside the home, so coffee shops abound, even in medium-sized towns. In a country where the home is often small and uncomfortable, coffee shops are a haven where people can work or meet friends.
In China, a new Starbucks opens every 15 hours. This winter, the chain opened its largest shop yet in the heart of Shanghai. Starbucks now boasts more than 3,000 cafés in 136 cities across the country. And China could well become the company's biggest market, ahead of the U.S., within the next 10 years. Another sign that the coffee culture is gaining ground among young, well-off city dwellers is the fact that small independent shops are now challenging Starbucks, McCafé, Costa Coffee and other large chains with an emphasis on high-end beans.
It is impossible for them to earn money.
But this upmarket move is also a major challenge for Chinese producers because it depresses the price of Pu'er coffee. While there's plenty of money to be made at the consumption end, growers are struggling. Based on the New York index, the reference for the Arabica market, the price of Pu'er coffee is now just one-third of what it was five years ago.
"At current prices, it is impossible for them to earn money," laments Samuel Gurel, the American founder of Torch Coffee, which seeks to promote a so-called "specialty" coffee among producers. "Some farmers no longer even bother to pick the cherries and prefer to return to other crops."
Production costs, on the other hand, are rising. A picker in China is paid three times more than a Vietnamese. "The advantage of a high-quality coffee is not only higher prices but also more stable prices," says Gurel, one of the few Westerners based in Pu'er. And yet, for all the quality improvements, most Chinese coffee still doesn't qualify as top-grade. "Only a tiny portion of the coffee here is really fantastic," the American entreprenuer explains.
Still, Gurel remains optimistic. Falling prices can be a unique opportunity, he says, to convince producers to move upmarket. "In high-tech, China is succeeding at a phenomenal rate," he adds. "Why wouldn't it do the same in the coffee business?"