No joke

An anecdote making the rounds on a few coffee industry websites recently concerns a Mexican coffee farmer's son who gave his dad the bad news that Starbucks, their primary purchaser, was partly cutting its order in favor of beans from China.

The father smiled wryly and said, "Coffee beans from China? What is that, some kind of joke son?"

It's not exactly a laughing matter though, because last week the American-based coffee chain giant announced its first bean-purchasing base in Yunnan province. The move is expected to help Starbucks reduce its raw material transportation prices in China.

The story of coffee is also one of globalization. But it shows a new trend:increasingly many multinational coffee companies are turning to localization to better run their businesses in China.

The move seems smart for Starbucks, but it's a latecomer to Yunnan province's coffee plantations. In 1989 the Swiss food giant Nestle began making significant inroads there to develop its Nescafe instant coffee business and helping local farmers plant coffee beans.

Since then, Yunnan has also been working in partnership with the four other of the world's leading coffee groups, Maxwell House, Kraft Foods and German-based Tchibo Corp for high standard beans.

Why Yunnan? A report from International Coffee Organization helps explain: "the quality of the granule Yunnan coffee bean is very similar to the world's top standard Columbia coffee bean. High altitude, great temperature difference and the affluent rainfall give the region an inherent advantage in the quality of coffee products."

Statistics from the Ministry of Agriculture in Yunnan province show: around 98 percent of China's coffee beans are grown in Yunnan province. And the total output of coffee beans in Yunnan province will be over 28,000 tons this year.

To date, coffee has become one of the most dominant agricultural products in Yunnan, just following tobacco.

Yunnan has grown to be the largest coffee exporting base in China. Annually, it exports over 15,000 tons of coffee beans, representing around 60 percent of the region's export earnings.

In the past 19 years Nestle alone purchased more than 4,000 tons of fresh coffee beans a year on average from Yunnan province. The province better guarantees the company's low-priced raw materials and helps expand larger market shares, says Patrice Bula, chairman and CEO of Nestle China.

More remarkable, after marketing diversified tastes of instant coffee in China, such as Nescafe 1+2, Nescafe Rich, and ice coffee, Nescafe produced Nescafe Yunnan in 2004 and it has grown to be one of the top Nestle coffees on the mainland.

"Coffee will also play significant roll in our business in China's market in the coming future," Bula tells China Business Weekly during a recent interview.

Nestle's role in Yunnan not only helps the overseas food maker benefit from the fast-growing Chinese economy, but it also spurs the coffee processing and planting industry there.

From the very beginning, the Swiss coffee processor says it concentrated on partnerships with local farms as an important strategy for Nestle to expand its local market for the long term, says the CEO.

So since 1989, Nestle has operated a coffee planting education and fertilizer supply station in Yunnan for local farmers.

"It is helpful for improving the quality of our coffee products, as well, it is helpful for the long term development of the regional agriculture industry," says Bula.

It has also meant better living conditions for over 100,000 local farmers in recent years.

"The average income of local coffee farmers was around 50,000 yuan last year," Lin Yuanlong, a local official told China Business Weekly in a recent phone interview.

But this year, especially the price of purchasing a ton of coffee beans keeps growing, the price of purchasing coffee beans is 19 yuan a kilogram, 7 yuan higher than last year, according to Lin.

Hougu Coffee Processing Company is the most remarkable success story among the 200 domestic coffee makers located in Yunnan province. After more than 10 years of providing fresh coffee beans for Nestle, the company - which makes more than 20 percent of China's coffee powder - has grown to be the largest domestic coffee processor, which holds over 30,000 local coffee farmers.

Besides providing raw materials (coffee beans and powders) to multinational coffee giants, since early this century, Yunnan's Hougu has been expanding its self-manufacturing capability, it invested 75 million yuan to build up a coffee processing line that can handle 3,000 tons of instant coffee annually.

By 2011, Hougu is forecast to become the world's six leading coffee maker, together with the likes of Nestle, Maxwell, according to Xiong Xiangru, general manager of Hougu.

With Hougu's success and the other 200 or so coffee producers in the province, perhaps in the near future a cup of Yunnan coffee will take its place next to the likes of premium beans such as Aribca, Jamaican Blue Mountain and Columbia's finest.

(China Daily 11/10/2008 page10)