By Huang Jiangqin
Southwest China’s Yunnan Province witnessed historic expansion of its coffee industry in the first half of 2022. The average price of raw coffee beans soared to 30 yuan (US$4.2) per kilogram, and the price of coffee reached a historic 10-year high. Exports of raw coffee beans by Yunnan Agricultural Reclamation Coffee Co., Ltd. expanded 622.81 percent year on year, a new record. Behind the high growth is burgeoning demand in both domestic and international markets. Statistics from the London-based International Coffee Organization (IOC) showed that global coffee consumption grows at an average annual rate of 2 percent, while the growth rate in the Chinese market has reached 15 percent.
Coffee beans produced in Yunnan have gradually become known and recognized by the international community in recent years. In 2018, they were highly recommended by the Specialty Coffee Association, a global specialty coffee conglomerate organization. The IOC rated Puer coffee beans produced in Yunnan as good quality.
However, Yunnan-produced coffee beans, despite their high quality, are not yet well known in the market. Even if the market was bullish in 2022, Yunnan-produced coffee was seriously undervalued, said Yang Songquan, president of Yunnan Agricultural Reclamation Coffee Co., Ltd. The reason is that the coffee industry in Yunnan hasn’t finished structural upgrading, thus remaining at the early stage of brand building, Yang explained.
Behind Price Rise
Lujiangba in Baoshan, Yunnan, is considered the “origin of Chinese coffee beans.” Recently, local villager Duan Chunxiao’s family reduced their planting area from 1.67 hectares to 1.33 hectares. Last year, Duan’s family harvested 3,000 kilograms of coffee beans, earning 50,000 yuan (US$6,950) in sales.
The purchase price is generally set by a local market regulator, said Duan. Local coffee farmers usually sell the new harvests to cooperatives at a lower price because fresh coffee beans do not last long.
For a long time, the price of coffee beans from Yunnan was easily affected by the price of international futures. Due to low prices of coffee bean futures in trading, coffee farmers even chopped down the plants. Statistics showed that the planting area of coffee in 2020 across the province shrank to 100,000 hectares from 122,000 hectares in 2014. Thus, the yield of coffee beans has been on the decline.
“When the domestic market was small, most coffee beans from Yunnan were exported,” said Yang. “Coupled with the incentive of export tax rebate, domestically produced coffee beans were sold to international buyers at a low price. We didn’t have a say in pricing, which was associated with the futures pricing.” He said the system was good for the international market, but undervalued Yunnan’s precious coffee resources. “When Yunnan coffee beans, whose yield accounted for only 1 percent of the global total, were sold in the international market to balance production capacity, their market value was negligible,” said Yang. “We had no say in setting or negotiating the price.”
Insiders have pointed to three reasons for the rising price of coffee beans produced in Yunnan: increasing domestic demand, shrinking coffee bean production in Brazil and Vietnam among other main producers as a result of drought, and inflating international logistics costs.
Yang said the price rise is still not optimistic at face value. “Given the overall price rise in the international market, Yunnan coffee beans are actually sold for 40 percent lower than their actual value,” Yang said.
Consumption of coffee in China’s domestic market has risen steadily over the last five years, inspiring Yunnan coffee producers to expand in the domestic market. The Yunnan government also rolled out a raft of supportive policies to guide local coffee growing industry in structural upgrading.
Beyond Coffee Beans
At dawn, Duan Chunxiao’s parents were ready to set out for the coffee field. They harvest coffee beans from seven in the morning to seven in the evening. Duan’s father first filled a bamboo basket tied to his waist with coffee beans and then poured them into a fertilizer packaging bag. He then shipped the bags back home for preliminary shelling.
Duan said almost every household in Lujiangba has a shelling machine. After shelling, the coffee beans are fermented for one to three days. They are then rinsed and dried. Dried coffee beans are then shipped to the village cooperative to be sold.
Coffee beans are harvested manually. It is inefficient, but necessary because machines cannot distinguish between ripe beans and green ones, and may damage the plants, which will affect yields the next year. The local government encourages farmers to pick coffee beans by hand. “We need to protect our special coffee species,” said Duan.
There is no unified standard for the quality of coffee beans among local farmers in Lujiangba. They only know that village cooperatives will purchase newly harvested coffee beans and really like the dark red ones, which are believed to be of high quality. The premium coffee beans are made into coffee products and sold at much higher prices.
“There is no other way,” said Duan. Because the price is volatile and there is no other channel for marketing, the safest way is to sell coffee beans to cooperatives, Duan said.
Poor management and low added value are the main reasons why coffee beans produced in Yunnan have suffered from low market recognition. Although the concept of “boutique coffee” has been bouncing around for years, it hasn’t become a reality. Technologies for making concentrated liquid and freeze-dried coffee products are mainly found in the Yangtze River Delta region. The coffee industry in Yunnan is still at the preliminary stage of raw material growth.
“Most farmers tend to rely on township government support, but lack the ability to make some changes on their own,” said Amy, a manager of Xiaowazi Coffee Manor in Puer. “We also lack professional coffee brokers.” She said improvements will happen by mobilizing individual coffee farmers to follow scientific methods and grow higher-quality coffee beans.
In recent years, the Yunnan provincial government has been increasing support for the coffee industry with an aim to transform it into an industry underpinned by sales of quality coffee products as consumer goods rather than exports of raw coffee beans. This will enable Yunnan’s coffee industry to break the shackles of the international market, set focus on the domestic market, and gain equal footing.
Path to Industrial Upgrading
Xiaowazi Coffee Manor in Puer provides reference for the transformation of the coffee industry in Yunnan.
Located next to the Nandao River, 17 kilometers from downtown Puer, the hoof-shaped coffee manor occupies an area of 20 hectaresand is home to more than 40 coffee species. After 20 years of development since its founding, the coffee manor has emerged as a destination offering an immersive coffee and camping experience. It attracts thousands of coffee enthusiasts every year to experience coffee harvesting, making, and brewing.
“Yunnan coffee is not popular among consumers,” Amy said. No baristas would write Yunnan coffee on the specials board to attract consumers because most consumers regard Yunnan coffee as low quality and poor flavor.
Through trial and error, Yunnan has made remarkable progress in the fermentation process and coffee seed breeding over recent years. Market recognition has also greatly increased. On April 13, 2022, Xiaowazi Coffee Manor was authorized to use the geographical indication of “Puer Coffee” on its products. The manor became one of the first businesses authorized to legally use the trademark “Puer Coffee.” This recognition has encouraged Xiaowazi to work harder and further improve the quality of its coffee products.
Alongside the business model like Xiaowazi’s, many other players have made attempts to build a standardized coffee industry that produces premium coffee products in Yunnan. They include the Yunnan Agricultural Reclamation Coffee Co., Ltd., which has worked to standardize the procedure for preliminary processing of coffee beans, the Puer Coffee Trading Center, which has organized coffee bean competition and auction events, and the trade association established by coffee growers in Menglian, Puer.
The key to building a homegrown brand is to ensure stable output, improve quality, and foster a culture valuing premium coffee, noted Yang Songquan. He suggested that producing premium coffee start from coffee seed breeding and selection. Efforts should be made to modernize the deep processing of coffee beans and realize mass production of high-quality coffee products. He also emphasized cultivation of talent and usage of digital technology to promote the upgrading of the coffee industry.
Yunnan coffee brands have gained more opportunities to be known by consumers thanks to flourishing e-commerce. In 2020, sales of Yunnan coffee on Tmall.com, a leading online marketplace in China founded by Alibaba Group, hit 245 million yuan (US$34 million), and the number of Yunnan coffee brands selling products on the marketplace rose by 80 percent. Growing online sales is indicative of rising recognition of Yunnan coffee brands among consumers.
Today, coffee beans produced in Yunnan can be found in international chains like Starbucks and Luckin, boutique brands including Manner and Seesaw, and a variety of local coffee shops worldwide. At the 2021 China Barista Championship, an exclusive professional competition authorized by World Coffee Events, Pan Wei won the first prize with a cup of coffee brewed from beans produced in Yunnan. In Pan’s eyes, Yunnan coffee beans, boasting high quality and rich flavors, are gaining widespread popularity among consumers.
However, Amy noted that consumers tend to favor Yunnan coffee sold in stores of established brands like Luckin, Manner, and Starbucks, but show less interest in those offered by niche brands and coffee shops without brands. It seems that Yunnan coffee beans are gaining popularity over the years, but a key factor has been reduced imports due to COVID-19 restrictions. When the restrictions are lifted, the current craze for Yunnan coffee beans might cool down.
Yunnan still has a long way to go before brands with high market recognition are built for Yunnan coffee beans. More concerted efforts should be made by the government, businesses, and coffee farmers.
China Report ASEAN 