Tuesday, June 05, 2007

Coffee catches on in a nation of tea drinkers

Quality of the crop is improving as more Chinese get the coffee-drinking habit

Niu Shuping and Nao Nakanishi

Arabica coffee from the southern Chinese province of Yunnan is now catching the eye even of specialty roasters such as Starbucks.
CREDIT: Frederic J. Brown, AFP, Getty Images
Arabica coffee from the southern Chinese province of Yunnan is now catching the eye even of specialty roasters such as Starbucks.

HONG KONG -- Du Yansheng, a farmer on the southern Chinese island of Hainan, hasn't gone without his morning cup of coffee in five decades, not even during the Cultural Revolution -- when such "mock-Western" practices could have landed him in prison.

"People here have never stopped drinking coffee," Du told Reuters in Xinglong, the cradle of coffee culture in an otherwise tea-drinking country.

Du's father was one of China's first coffee farmers, at a time when it was considered an exotic foreign beverage.

He brought robusta beans from Indonesia in the 1950s -- decades before Nestle or Starbucks Corp. arrived on China's shores.

Today, coffee is fast catching on, especially among younger urban Chinese, and the percentage increase in demand is in the double digits -- though still less than one tenth of tea consumption.

And coffee grown in China is beginning to climb the quality ladder.

Arabica from the southern province of Yunnan is now catching the eye even of specialty roasters such as Starbucks and Italy's Illy.

"Demand for Yunnan arabica is expanding," said Tomonori Hashimoto, a trader from S. Ishimitsu Co. Ltd. in Japan, one of the world's top coffee consumers, and known for being picky.

"There are clients eager to try the new and the rare. It's mild and easy to drink," he said by telephone from Tokyo.

Official data showed Chinese coffee exports jumped 40.8 per cent to 6,484 tonnes during the first quarter of this year, with more than 4,000 tonnes headed for Germany and Japan.

It imported 4,642 tonnes in the first quarter, down 5.7 per cent year-on-year.

"When we began a coffee business here in 1998, our monthly sales were about 10 kilos.

"Now our sales are calculated in tonnes," said Zhou Zhihua, a coffee trader based in Yunnan's provincial capital, Kunming.

To be sure, the industry officials say Chinese production is still too small for some roasters to pay much attention, especially as growing domestic demand is absorbing a large chunk of it.

China has no official data for coffee production. Industry officials estimate it harvests 22,000 to 28,000 tonnes of arabica per year in Yunnan, a mountainous province the size of Japan that borders Vietnam.

That is tiny compared with some 900,000 tonnes grown in Vietnam, the world's No. 2 producer, or 400,000 tonnes in Indonesia.

And there's little scope for production increases because farmers remain keener on growing rice, rubber or other higher-priced cash crops.

"The fact is that the yuan is appreciating and other commodities, like rubber and grains, are faring well," said another senior trader from an international house.

"When you look at the demand and supply globally, we're not going into a serious deficit yet in arabica.

"And therefore I don't think prices will go up much."

Data from International Coffee Organization showed that average coffee prices had risen about seven per cent in 2006 from the year before.

That's while prices for the other commodities more than doubled partly due to strong demand from China.

And Yunnan arabica has not yet reached the rank of Indonesia's Mandehling -- regarded by many as Asia's best -- though its quality has improved, officials said, with technical assistance from Nestle and others since the early 1990s.

When grown and processed properly, Chinese coffees have a light to medium body and acidity, similar to a wet-processed South American coffee, Roast Magazine quoted Stuart Eunson from Arabica Coffee Roasters (Beijing) Co. Ltd. as saying.

So far, it's best market is at home.

Industry officials estimated Chinese coffee consumption was growing at double digits, with some putting the 2006 demand at as high as 45,000 tonnes.

Starbucks or Illy are now looking at Yunnan arabica mainly for use in China, because they are expanding their outlets in the country and import tariffs stand as high as 20 to 60 per cent.

"You will find a bottle of instant coffee almost in every family nowadays. People even like to send coffee as gifts," said Zou Lei, vice chairman for the China Coffee Association.

And soluble coffee packed with sugar and powdered milk -- known as Three-in-One -- is finding its way also into rural areas as well as cities.

Roasters are eyeing the 250 million Chinese people living in cities and coastal regions as their next market, a number a bit below the U.S. population of 300 million.

While the United States imported 1.39 million tonnes of coffee in 2005, a more realistic target for Chinese per capita consumption would be neighbouring Taiwan, which with a population of 23 million imported 32,640 tonnes in 2005.

"If you calculate in per capita consumption, there is quite a big potential for China to catch up, but the growth will be in a gradual way and you can not expect everybody to be holding a cup of coffee in one or two days," said Ji Ming, manager with the China Tea Co. Ltd.'s coffee department.

Coffee still has some distance to go before supplanting tea in Chinese homes.

China consumes 700,000 tonnes of tea per year.

"Chinese are still small coffee drinkers. One cup a day is enough for most.

"Some finish only a half," said China Coffee Association's Zou.

© The Vancouver Sun 2007