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Coffee from Shangri-La

December 9, 2009

In my article “The Nine Nations of China” in The Atlantic, I briefly mentioned coffee among the untapped resources of the region I call “Shangri-La,” in the rugged hills and valleys of southwest China.  Up till now, China has not had any coffee-growing industry to speak of.  But a report today on Chinese web portal Sohu.com suggests that top players in the global coffee business are eyeing major investments in the region, to realize that potential:

Wang Jinlong, president of Starbucks Greater China, who has recently conducted a study tour on the coffee industry in Yunnan, says Starbucks will partner with Yunnan to build a world-class coffee bean growing and research base. He says the company hopes to cooperate with Yunnan to put coffee from China on the shelves of Starbucks chain stores in 49 countries around the world. In recent years, the exchange between Starbucks and the Yunnan government has been frequent. In Oct. 2008, Wang Jinlong said during his meeting with Yunnan Deputy Governor Kong Chuizhu that he hoped to establish a strategic partnership with Yunnan. At the end of Oct. 2009, in Kunming, Wang Jinlong and relevant government officials confirmed the desire to grow coffee beans in Yunnan. Recently, Starbucks Vice Presidents of Coffee Acquisition, Dub Hay and Wang Jinlong, came to Baoshan, Yunnan again on a study tour. They said many times that they would like to make Baoshan the company’s first coffee bean growing base in China and the company would like to build a world-class coffee research base in Baoshan. In addition to Starbucks, Nestle and Maxwell also favor coffee beans from Yunnan and will also establish raw material bases in Yunnan.

Baoshan is located in the farthest western part of “Shangri-La,” in a valley connecting the narrow gorges of the upper Salween and Mekong Rivers, near China’s border with Myanmar (Burma).  This is the part of the world where the tea plant most likely originated, and still grows wild in some places.

Plans to introduce coffee-growing on a large scale bear watching closely.  Shangri-La borders on Vietnam, which in recent years emerged from almost nowhere to become a giant force in the global coffee trade.  Although the French introduced the crop to the country’s fertile highlands as early as the 1850s, Vietnam produced only small amounts until the mid-1990s.  When the U.S. lifted trade sanctions on Vietnam in 1995, however, production boomed, especially in the lower-end robusta variety that forms the foundation for many blends.  Vietnam’s impact on global supply sent the price of rubusta plummeting, from $0.54/lb. in 2000 to $0.31/lb. in May 2001.  In 2007, Vietnam ranked second only to Brazil in coffee production, bagging 961,200 tons (compared to #3 Columbia at 697,377 tons and #4 Indonesia at 676,475 tons).

One can easily see how a similar development just across the border in southwest China — even one limited to the lower end of the market — could have a dramatic effect on world coffee prices and the complexion of the entire industry.  For all its market heft, Vietnam may not be a household name associated with coffee, but as far as branding goes, I could easily see beans from “Shangri-La” giving Java a run for its money.

The challenge facing Shangri-La, as always, is transportation.  At present, there is no railway line that reaches Baoshan, and production on any sizeable scale would require a rail connection to bring the crop to the coast for export.  The highway here — the famous “Burma Road” that served as China’s tenuous supply line during World War II — is slow, dangerous, and often blocked completely by rockslides.  Myanmar recently announced plans to construct a cross-border railroad, which presumably could set the stage for China to build a connecting line that would pass through Baoshan on its way from the nearest Chinese railhead, 196 km away at Dali.  But actually completing these rail lines, across some of the toughest mountain terrain in the world, could take many years.

6 Comments leave one →
  1. DikaiosLogos permalink
    December 9, 2009 10:50 pm

    Do you know anything about the planned scale of the new growth? I think China was previously in the range of 15,000 tons of production, all for domestic consumption.

    I do think Chinese coffee will find some receptive audiances. Though my experience is that it Yunnan coffee is kind of intense, I don’t know if that would fit with the Shangri-La label.

    And lastly Patrick, did you ever hit up that cafe in Kunming, I think on Dong Fong Dong Lu, in the mid-1990s that a vertical monopoly, both in coffee and bread? The owners were refugees from the 1979 Vietnamese War. The bread and coffee were both heavy and the coffee was served up in a massive mug with a chopstick to stir it. I thought it presaged a lot of what has become trendy in the West with careful sourcing of ingredients. It also seemed to be about the exact opposite of Starbucks! Good stuff.

  2. semuren permalink
    December 10, 2009 12:04 am

    The new highway from Baoshan to Dali (and Kunming and beyond) is every bit as good as US interstates. I was last on it about a two months ago. So I think saying that it is “is slow, dangerous, and often blocked completely by rockslides” is a bit off. From Baoshan (保山) to Tengchong(腾冲) is quite another story but that segment is now under construction and even the road used now is much better than the old route used up until a few years ago.

    Also, in spite of the report cited, my understanding is that China is the financial backer of the Lashio-Muse rail line (I saw presentation from a Chinese academic on this topic). And if it is ever to get completed that might be a good thing. But even with China as a financial backer any project in Myanmar can take longer than one might imagine and might never come about.

    • prchovanec permalink*
      December 10, 2009 11:26 am

      Thanks for the more up-to-date, on-the-ground report. You’re right, the status of infrastructure in this area can change dramatically from one year to the next. My only concern, going forward, is whether the new highway will be adequately maintained. It will require a massive, sustained effort, and China has proven itself better at building new facilities than maintaining existing ones. But the new highway may go a long way to explain the interest Starbucks and others have started to take.

  3. Bcavallo permalink
    December 10, 2009 6:08 am

    Thank you for writing such an article. I had no idea that this was happening.

  4. Peter KT Chew permalink
    December 12, 2009 12:05 pm

    I hope this is not going to affect tea production in the region. Yunnan’s Pur Erh is world famous. Does coffee grow on a different elevation?

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  1. Devastating Drought in Shangri-La « Patrick Chovanec

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