January 13, Global companies including Nestle SA and Starbucks Corp. are eyeing Southwest China’s Yunnan province -- home to almost 99% of China’s coffee production volume -- as they want to gain access to prime plantations and capture market share in a country with a growing taste for coffee.

With the same latitude as some of the world’s top coffee-producing regions, Yunnan has become a key battlefield for international coffee makers, who are vying with local producers to control supply of coffee beans in the province.

Analysts said the coffee market in China has more potential than is currently being realized, and would attract fiercer competition between global giants in the future.

Under its 12th Five-Year Plan (2011-2015), which lists coffee as a key strategic industry, Yunnan’s coffee bean output will increase more than 5-fold from current levels to 200,000 tons per year by 2015.

Starbucks, Nestle

Starbucks, which has the largest number of coffee chain stores across the globe, launched Yunnan-originated coffee products in early 2009 under the name “South of the Clouds Blend.”

In November 2010, Starbucks signed an agreement with the Yunnan provincial government to establish its first-ever coffee bean farm in the province to ensure stable supply, showcasing the company’s strong commitment to building China into its second-largest market outside the U.S.

In the latter half of 2011, Starbucks acquired a 51% stake in a local coffee bean producer.

The Seattle-based coffee chain last June announced that it had signed an agreement to acquire full ownership of Starbucks stores in southern, central and western Chinese provinces from long-time joint venture partner Maxim’s Caterers Ltd.

“Full ownership of stores in southern, central and western China is part of our broader strategy to build China as our second home market outside of the U.S. and will allow us to accelerate growth as we look to achieve our goal of having 1,500 stores across the country by 2015,” said John Culver, president of Starbucks Coffee International, said at the time.

Starbuck’s president in April hailed the emergence of a “morning coffee ritual” in China.

Other companies including Nestle and Kraft Foods Inc. are all seeking such opportunities in Yunnan, according to a Jan. 12 economic news report on Central China Television.

Nestle, the Swiss food and beverages giant, dipped its toes in Yunnan as early as 1994, when it set up a coffee development program based in Pu’Er to focus on the training of farmers and providing technical assistance.

Coffee over Tea

Yunnan is home to some of the world’s most celebrated tea blends including Pu’Er, which is named after the city it comes from. The city itself is gradually acquiring a reputation as a major coffee production base thanks to heavy investment from foreign companies.

In the past 3 years, the average price of coffee beans in Pu’Er has almost doubled to RMB 34.5 ($5.46) per kilogram, while the production area has been expanded to 426,000 mu from 218,000 mu in 2009, CCTV reported, citing data from Pu’Er’s coffee industry association.

“We’ve seen a lot of locals making a bundle by planting coffee, and more are following suit,” a local farmer told the program.

Pu’Er Mayor Li Xiaoping said the city has spent no less than RMB 20 million in supporting coffee plantation each year.

“If we include every small county, the whole of Yunnan probably spends close to RMB 100 billion per year on planting coffee,” Li told the program.