Posted on 11/25/2007 11:15:53 AM PST by JACKRUSSELL
Everyone in the small, riverside village of Da Kai He appears to be busy with building a new house, new drying floor or expanding their pulping area. The investments are mostly thanks to good coffee prices in recent years.
For while the village in south-western China is surrounded by hills covered in tea bushes and strong-smelling rubber plantations, the families here rely solely on coffee for their income.
They are among hundreds of Chinese smallholders to have joined the world’s coffee growers in the last ten years. And each year their crops are being bought up by more of the leading coffee brands.
“It’s a question of the quality of Chinese coffee,” says Li Hong Fang, a coffee trader at Sinocafe, based in Simao, China’s up and coming coffee capital. His clients last year included leading names in Germany, Belgium, Switzerland, and Japan.
“It’s very similar to Colombian coffee or even better. The handpicking and processing are well done. And high quality and limited production results in very good demand.”
The story of Chinese coffee is much shorter than its several thousand-year-old tea history. Attempts to grow coffee commercially started in the 1960s when the communist country needed something to trade with the Soviet Union in exchange for weapons and other goods.
But it didn’t take long before bad management by large, state-owned companies saw production from 4,000 hectares of coffee trees dwindle to a mere few hundred tonnes of berries.
It was the arrival of Nestle, and its new Nescafe factory in the southern city of Dongguan in 1988 that got things moving again. During the 90s, the company distributed seeds, fertiliser and loans to farmers to convince them to increase the local supply of beans. They were also offered free training and consultancy on all aspects of the crop.
Record prices in 1997 gave an additional boost to China’s expanding coffee growing area. The new crop faced a setback after severe frost in 1999 but with Arabica prices once again at almost record highs, production is rising sharply, especially among smaller farmers.
“We keep seeing new villages growing coffee,” says Wouter de Smet, head of Nestle’s agriculture service. “This year we were invited to two new villages to give them training. We didn’t even know they had coffee there.”
The lanky Belgian towers over most of his suppliers but there is clear appreciation of the work being done in the area by Mr de Smet and his team.
Yunnan province, the only region where coffee is grown, produced 23,000 tonnes of Arabica last year, up from less than 2,000 tonnes in 1997. It is forecast to increase production to 30,000 tonnes by 2010, not so far off Kenya’s output of 45,000 tonnes last year. But China will not target the same markets as Kenya.
Nestle has advised farmers to remove the Bourbon and Typica varieties and replace them with Catimor, an Arabica hybrid. It is better suited to the lower altitude environment in Yunnan, which is right on the Tropic of Cancer, the border for good coffee-growing. It is also resistant to rust disease and does not have on/off seasons.
In trials at Nestle’s experimental farm, another Kenyan variety has not produced sufficient yields either. The firm has instead selected two new hybrid varieties for breeding in China that will produce higher yields, even though the cup quality is not quite so good as a pure Arabica.
Chinese coffee is nevertheless increasingly popular both domestically and in Asia and Europe. Chains like Starbucks are expanding in China and are looking to source their coffee locally.
Meanwhile big trading companies like Switzerland’s Ecom are buying more and more Chinese coffee for European customers, despite the extremely expensive freight. Nestle itself buys about 4,000 to 5,000 tonnes each year, with 2,800 tonnes going to its factory in China and the rest to Nestle Japan.
“We almost did too much of a good job,” admits Mr de Smet, who previously worked with coffee growers in Tanzania. “Now the quality is really good so there are more and more traders coming here. Competition is fierce.”
Coffee growers are also becoming more savvy about how to make money from their crop. Nestle does not draw up contracts with the farmers, instead issuing twice-weekly price announcements and inviting growers to sell their green beans at its buying station.
It accepts any quantities, ranging from 20kg (last season’s lowest) to several tonnes from bigger companies. Smallholders are paid by cheque on the same day.
“The aim of direct procurement is to cut out the middle man,” says Mr de Smet. It also means that the world’s leading coffee bean buyer can keep a close eye on quality. Samples are taken from each delivery, no matter how small, and blind-tested in the company’s lab by a team of trained coffee tasters. In the busy season, they will taste up to 50 cups a day.
But the Nestle price also drives speculation across the sector. Comparable to the world market price for Honduras coffee, Nestle’s China price is used as a reference by farmers, traders and international buyers, all hedging their bets about how much it will move in the following weeks.
“It can sometimes turn into a market out here. It seems that when one person in the village decides to sell, then everyone follows so we can end up with an entire village at our buying station on the same day.
“It takes good management to keep the smallholders in an orderly queue,” says Mr de Smet.
Nestle says around 600 growers or companies now sell to the firm through its buying station. The fledgling coffee sector is also generating incomes for those supplying the growers with key services.
Zhang Jian Xun, formerly an engineer in a government-run tea machine factory, has set up a workshop where he makes small-scale replicas of leading brand pulping and hulling machines to suit small farmers’ budgets. This helps farmers keep the profits contained in green beans rather than forcing them to sell the ripe cherries on to a larger company.
Other entrepreneurs have opened hulling factories near to Nestle’s buying station. Local women are employed in sorting the beans into different grades after the hulling. In all, Nestle claims around 14,000-16,000 people are directly impacted by its operations.
Not everyone is happy about Nestle’s presence though. Traders frequently complain that the group sets its prices too high. One such trader went as far as making his complaints heard at Nestle’s Switzerland headquarters. But they are certainly getting experience in market economy, admits the Sinocafe trader, Mr Li.
And whatever can be said about Nestle’s pricing, its influence on stimulating production cannot be denied. The firm is currently running a trial to investigate ways of reaching a higher yield per terrace, one of the unique aspects of coffee production in China with trees planted on steep hillside terraces.
Growing output will depend on how global supply and demand shapes prices, as well as domestic trends influencing labour and land costs. The government is also under increasing pressure to guarantee domestic food security. China has to feed 22 per cent of the world population on only seven per cent of the total arable land.
There are concerns about the environment too. “In China, we’re talking more and more about the environment. It’s impossible to clear forest for more land now,” explains Mr Li.
Much of the appeal of selling Chinese coffee is ironically the novelty element, says a buyer at one of the leading Swiss trading houses.
“Chinese coffee is getting a name in the world. There are more and more international consultants coming to Yunnan to see for themselves the quality here,” says Mr de Smet.
I heard that Vietnam grows mostly robusto beans for companies such as Maxwell House and Folgers. The Arabica beans don’t seem to grow well there.
At this point its next to impossible.
suddenly “leaded” or “unleaded” coffee is no longer a euphemism.
I only buy 100% Hawaiian Kona from Trader Joes.
I LOVE Kona coffee!
It’s my favorite also. Plus it only costs half as much as 100% Kona from starbucks or peets.
Just sayin'...
1) Nestlé is a Swiss company.
2) Water in the Swiss Alps is slightly purer than water anywhere in China...
Yeah, reading here there’s a broad definition of “water processing” so “swiss water processing” appears to be a safer bet:
http://www.baristaguru.com/decafcoffee.html
gee what can they mix in the coffee to make it toxic....
Thanks for the link! Usually when I tell people I like Kona, they treat me like I’m some sort of “coffee wimp.” LOL!
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