CHINA'S southern province of Yunnan, known as the home of pu'er tea, is now carving out its place in the world coffee market. The provincial government will inject 3 billion yuan (US$473 million) into the coffee industry over five years, increasing production fivefold by 2020.
The cyclical changes in tea production have led more farmers in Yunnan to start growing coffee beans to diversify their crops, shielding them from the risks of only producing one crop.
Several leading international food and coffee companies have long invested in Yunnan. Nestle was a pioneer among global coffee giants, and first came to Yunnan in 1988 to start a test production project.
The group has since invested more than 50 million yuan (US$7.9 million) to support the local coffee industry and has trained more than 5,100 coffee growers.
Roland Decorvet, chairman and CEO of Nestle's greater China region, signed an agreement with the Pu'er city government Nov. 21 to provide training and technical support for farmers as well as expand cooperation on building brands and coffee cultural development.
Nestle uses Yunnan coffee beans for the Chinese market and ships surpluses to overseas markets.
Decorvet said Nestle purchased about 8,000 metric tons of coffee beans from Pu'er in 2010 and he expects the amount to double in coming years.
Ten day ago, Starbucks chairman and CEO Howard Schultz inked an agreement with the Yunnan Academy of Agricultural Sciences and Pu'er city to develop a coffee production base for his group.
Securing steady supply
Other international coffee giants that have started similar projects or made regular procurements from Yunnan include Maxwell House of the US and UCC Ueshima Coffee, based in Kobe, Japan.
Chinese farmers have grown tea for centuries, but often have limited knowledge about coffee beans. A farmer described coffee as something that "neither men nor animals want to drink."
Tea's popularity in China can mean big profits for farmers, but prices can be unstable. More farmers starting to grow coffee in order to avoid putting all of their eggs in one basket.
Vice Mayor Yang Weidong of Pu'er told the China Economic Weekly that the city government started encouraging tea farmers to grow also coffee in the early 1990s to create extra income and hedge against possible risks of relying only on tea production.
The land that produces Yunnan's traditional pu'er tea has turned out to be suitable for growing high-quality coffee.
Over the next five years, the Yunnan provincial government will invest 3 billion yuan (US$473 million) to expand coffee plantations to 100,000 hectares from 27,000 hectares and quadruple annual production to 200,000 tons of coffee beans from the current level of 38,000 tons.
Top supplier
Yunnan already accounts for 99.3% of coffee production areas in China, and with a climate like Colombia of South America, Yunnan has now become the top supplier of high-quality coffee Arabica in Asia.
In Pu'er, the coffee-growing area spreads over 425,000 acres, accounting for 65.6% of the total coffee farmland in China. The estimated output of coffee is 28,500 tons, constituting 57.5% of national production, and carries a market value of 855 million yuan (US$135 million).
In addition to Pu'er, the areas of Xishuangbanna and Dehong have also cultivated their coffee industries. The growing areas sell their coffee beans as raw materials with almost no added value.
An official at the agricultural bureau said that coffee beans can easily find buyers, but processed products from local brands are another story.
He said the government has definite plans to build an integrated industrial chain to cover all segments from raw materials to processing and brand marketing for higher incomes. It will take a long time to accomplish the goals, he said.
Most coffee growers know how to find international market prices on the internet and use them to negotiate with buyers.
The fluctuations in coffee beans prices — the world's second largest commodity after crude oil — have driven multinational corporations to Yunnan to set up their own growing operations or secure long-term supply contracts with growers.
Up to 70% of the coffee beans grown in Yunnan are purchased up by industry leaders Nestle, Maxwell House and Starbucks. Other buyers come from Japan, Germany and Denmark.
Investors from Taiwan have also made investments Yunnan's coffee industry.
Yunnan brands
Industry leaders have started promoting Yunnan coffee. Nestle has rolled out a Yunnan Royalty gift pack and Starbucks has put a Chinese brew called Phoenix Dancing in Auspicious Clouds.
International analysts predict that coffee prices will remain firm for at least another ten years due to the rise of the middle class — who are avid coffee drinkers — in developing nations.
Local brands have also stared budding among Yunnan suppliers. They include Hogood, Jinlan and Songlight.