I intend to highlight a number of Chinese regions and cities that stand out in the food and beverage industry. This post introduces Pu’er, Yunnan Province, that has developed from a relatively unknown agricultural town to an international centre where a number of the world’s most popular beverages join to create great synergy. Pu’er, located in the border area of southwestern China, is an oasis on the Tropic of Cancer. Biological and cultural diversity are the most vivid characteristics of the region. An interesting part of the region’s history is that there has been considerable French influence through French Indochina during the late 19th and early 20th centuries, in particular the famous Kunming – Haiphong railroad.
Pu’er is a special kind of tea grown in southern Yunnan. It is listed as a recognised protected brand name in the agreement on cooperation on, and protection of, geographical indications signed by China and the EU late 2020. It is widely believed in China that after a heavy meal, a cup of Pu’er tea will help to dissolve the grease and remove excessive fat from the body. In the Chinese imaginary, Pu’er tea often seems to be symbolic for the entire Chinese tea culture. Read more about this in my essay in Weber.
This knowledge has seeped to the West as well. The Dutch drug store chain Kruidvat (owned by Hong Kong based A.S. Watson) sells Pu’er tea in convenient tea bags as a slimming agent.
Pu’er tea is traditionally pressed into bricks. These are easy to transport and store for longer periods. In the old days, traders would sell the tea bricks in Tibet and Southeast Asia. There even was a special Tea-Horse Road, a kind of Silk Road for tea. Nowadays, Pu’er tea is exported to all continents, generating more that USD 2 million in hard currency p.a.
With an output of 114,000 mt in 2014, Pu’er tea has become such an important product for its home region in southern Yunnan province, that the local government changed its original name Simao to Pu’er a few years ago.
Over the last few decades, pu’er has gained a cult-like following, with some of the costliest tea leaves exceeding their weight in gold. At the Guangzhou International Trade Fair in 2002, a 100-gram portion of pu’er was auctioned for RMB 168,000, dethroning tieguanyin green tea as the most expensive tea in the world. In Beijing, a three-gram portion reached 32 times the price of gold in a 2004 auction. During the market’s hottest years leading up to the “Pu’er Tea Bubble” of 2007, wholesale tea markets kept desktop monitors listing the fluctuating cost-per-kilogram of pu’er, as if trading stocks or futures. Prices could rise or fall by RMB 500 in a day. Even today, Qu divulges that one kilogram of his leaves, once dried and packaged, retails for over RMB 1000.
– modern presentation
While the bricks look mysterious and attractive to certain tourists and tea lovers, they are not convenient for world wide marketing. This is why Pu’er tea has also been made available in tea bags.
Now traditional Chinese medicine company Tasly has taken the ambitious step of trying to make it “the third coffee” for people in the West.
Tasly uses modern extraction processes to make highly purified Pu’er tea extract and completely remove any possible heavy metals, pesticide residues and foreign substances.
Tasly intends to market its instant Pu’er tea as a functional supplement lowering lipid levels, helping weight loss and reducing blood pressure.
According to the general manager of Tasly Deepure Tea Technologies Co. “It has a good taste, is good for one’s health and it does not affect sleep. Some of our distributors in the United States said it would be a perfect substitute for ‘the third coffee’ in the afternoon,”
See my essay in Weber – The Contemporary West for more about Pu’er tea as a cultural symbol.
The local government has taken an even bolder step: not only marketing Pu’er tea as a substitute for coffee, but developing the real product.
Yunnan is one of China’s earliest coffee producing regions. A French priest brought a coffee sprout into what is now Zhu Ku La village, Binchuan District, Dali City, Yunnan. This small sprout rooted itself deep into the local soil, and this century old coffee tree is said to still stand tall today.
Yunnan grows a variety of coffees, including Arabica Catimor, Typica, and Bourbon. The unique combination of high elevation and differences between the temperature during the night and day creates the original character of Yunnan coffee – “Fruity fragrance, rich but not bitter, and aromatic but not overwhelming”, reflecting the beauty of the Yunnan.
The statistics from the provincial Department of Agriculture in 2012 state that the total coffee growing area is 89,333 hectares, with a total production of 82,000 mt. Yunnan is good for 98% of China’s coffee production.
The government of Pu’er has had the foresight to recognize the potential synergy that can be generated by growing both in their home region. In 2019, Pu’er had a total of 120,000 hectares planted with coffee, producing more than 150,000 mt of coffee beans. The export earnings from coffee in 2015 reached USD 400 mln. There are 70 registered businesses, and around 1 million people in Pu’er’s coffee industry. The objective is to reach 1 mln mt by 2016.
Hogood Coffee Co., for example, has become the largest instant coffee producer in China with a capacity of 33,000 mt/p.a.. Started as a supplier to Nestlé and Starbucks in the 1990s, the company decided to promote its own brand at the turn of the century by collaborating with hundreds of thousands of farmers in the province. Hogood does not stop with coffee alone. The company’s R&D department announced that it has developed an alternative, healthier, vegetable fat: freeze dried waltnut protein, branded Waltnut 007. This could become a functional ingredient for the next generation of coffee creamers. Hogood posted a turnover of RMB 3.2 billion in 2018.
Yunnan Coffee Traders is a wholly foreign-owned enterprise operating in China’s Yunnan province.
Recently, another 611 coffee famers and coffee growing companies in Yunnan have passed international third-party verification, allowing them to sell 4C (Common Code for the Coffee Community) Compliant Coffee. This is the third batch of coffee suppliers that have passed the verification process since July 2013.
Netherlands-based UTZ is also working with tea and coffee organizations in the region. Li Gongqin, secretary general of the Coffee Association of Yunnan, says farmers are receiving more training and that working with UTZ will help them with profits and standards.
The State Quality Inspection Bureau officially opened a Coffee Inspection Lab in Pu’er in December 2014. The main task of this organisation is to ensure that coffee exported from the region is in accordance with international quality specifications.
In the course of 2015, the price of coffee has been decreasing to a level that is felt threatening my most players in Yunnan. Insiders ascribe the problem to the fact that anyone can buy coffee strait from the farmers in Yunnan, while other coffee regions in the world use a system of central purchasing and sell the coffee though the commodity exchange. The CEO of Hogood Coffee has proposed a similar system for Yunnan.
Another recent development is that the coffee industry in the Pu’er region is becoming a more and more popular holiday destination for domestic tourists; yet another way to cash in on coffee. The local coffee people have arranged for the tourists to experience ‘traditional’ ways of brewing coffee like using filters or even percolators.
The 4th Coffee Culture Festival will be held in Dehong, Yunnan, January 23 – 25, 2015. The culture week series activities will include the China final of the third Syphon Competition, the Pu’er Green Coffee Competition, the Pu’er Coffee Summit Forum and the third Pue’r Coffee Exhibition. The government of Pu’er is further organising a National Coffee Making Contest in January 2015, with regional contests in several cities and the Grand Final in Pu’er.
Coffee in Yunnan has even become an occasion to help fight drug trafficking through China, and create new business opportunities. Changshengda Investment Co. based in the Kunming Hi-Tech Zone supports its neighbor Laos to cultivate coffee instead of opium poppies, lifting more than 6000 peasant households out of poverty and contributing to the stability in borderland.
This development has caught the attention of a number of international players in the coffee business.
Starbucks that has been using Yunnan coffee in its Asian outlets for a few years. The company established a Farmer Support Centre in Pu’er in 2012. It cooperates with the Yunnan Academy of Agricultural Science.
Earlier that year, Starbucks had set up a joint venture with Yunnan based Yunnan Aini Agriculture Livestock Group (the producer of the Sunlight brand coffee) for processing up to 20,000 mt of green coffee beans p.a.
Have a look at this Aini commercial.
Since Starbucks entered Yunnan, it has been encouraging its local suppliers to follow CAFE practices. The company publicly stated in 2008 that it hoped to source 100% of its coffee through CAFE, Fairtrade or another externally audited system by 2015. In 2014, 96% of its coffee met this standard, with 95.5% through CAFE and 8.6% through Fairtrade.
Nestlé, which has been active in the region since the 1980s, has also announced it is expanding its operations in the province. The company has signed a memorandum of understanding with the prefectural government pledging to invest RMB 100 million to build a coffee farming institute in Pu’er.
The planned Nescafé Coffee Centre will have warehouses, laboratories and education facilities. According to a press release announcing the memorandum, Nestlé plans to train 5000 coffee farmers, agronomists and business professionals at the center each year.
Over the past several years the Nestlé has steadily increased its purchase of Yunnan coffee and last year bought more than 10 000 mt of beans. This accounted for 20% of the province’s total coffee production. The company has said it has plans to double coffee procurement in Yunnan over the next two years. Nestlé has made a new coffee capsule from Yunnan Arabica beans for its Dolce Gusto coffee machine. It hasn’t been on the market for long, but so far 70 countries where they sell the capsules seem to be happy with it.
Nestlé has signed an agreement with fertiliser producer China Green Agriculture to supply fertiliser to local coffee bean farmers. The company has also introduced 4C in the region.
Nestlé has set up a scholarship program in Yunnan since 2013, which is open to outstanding students from families of coffee farmers who are registered under Nestlé Agricultural Services Department. The program encourages the students to pursue a high-level professional education and also rewards farmers for their contribution in the development of the local coffee industry. All scholarships are fully funded by Nestlé, and are selected based on an open, transparent and merit-based process, under the supervision and guidance of the Puer City’s Committee for the Wellbeing of the Youth and jointly implemented by China Women’s Development Foundation, Puer City’s Women’s Development Foundation and Nestlé China.
ManLao River Agricultural Co. Ltd. Is a Sino-American venture in Pu’er. The partners are:
- KunMing Jiesi Trade Co., Ltd., in Kunming (the capital of Yunnan) – exclusive distributor and exporter of ManLao River coffee.
- JS Catalyst, Inc. , DBA ManLao River Coffee Company USA – exclusive US distributor.
- Yunnan Pu’er ManLao River Agricultural Development Co., Ltd – the original ManLao River plantation continuing the initiatives of poverty alleviation and organic/sustainable farming.
The company provides educational, sales and facilities support to its 3,000 employed farmers. ManLao River produces roughly 500 mt of coffee annually, a number that is not intended to grow significantly over the next five years as it looks to increase quality over quantity.
At a signing ceremony in Pu’er on 22 October 2014, Volcafe and Simao Arabicasm Coffee Company (SACCO) signed an agreement to establish a joint venture to be called Yunnan Volcafe Ltd. The new company will be majority owned by Volcafe. It will procure and process green beans from the expanding Chinese coffee-producing region of Yunnan, for export to Volcafe’s worldwide client base. “Chinese mild Arabica is still relatively new to the world coffee scene, but its improving consistency means it is rapidly growing in acceptance with global roasters,” said Jan Kees van der Wild, Global Head of Commodities at Volcafe’s parent company ED&F Man. “The new company will harness Volcafe’s expertise in managing sustainable supply chains and improving quality control and post-harvest practices. Simao Arabicasm Coffee Company has been active in coffee export from the region for over a decade, and its operating activities include coffee cultivation, processing, procurement, sales and export. Currently, the company has established a production line with annual processing capacity of 10,000 mt of green coffee in Pu’er Industrial Zone. Presently, SACCO has been consistently ranked as the top 5 exporters in Pu’er, and has been recognized as one of the leading enterprises in Yunnan coffee industry.
Train to Europe
Pu’er has recently started to export coffee to Europe by train via the Chongqing Commodity Exchange. A major problem for Yunnan’s foreign trade is that it is a land-locked region. By first transporting the coffee to Chongqing, it can use the so called New Eurasia Land Bridge, a rail link between the Chinese east coast and major industrial centres in Europe. This also fits in with the recent ‘One Belt and One Road’ initiative of the Chinese government for international economic development. Pu’er expects to dispatch 30,000 – 50,000 mt of coffee this way within 2015. This volume may grow to 100,00 – 150,000 mt in 2016, and 230,000 – 250,000 mt in 2017.
Yunnan has realised that to establish a coffee reputation, it must improve the quality of its beans and plant in an environmentally sustainable way, rather than follow the mass market’s demand for quantity over quality. The local authorities want to develop speciality coffee which gives the farmers the power to set the price themselves. By 2020, Yunnan plans to have more than 4,600 hectares of organic coffee farms using only organic fertiliser and bio-pesticide, and with more shade trees to improve soil quality and water retention. It also aims to have more than 3,000 hectares of coffee certified by the Rainforest Alliance (RA), a non-profit organisation that promotes sustainability in agriculture and forestry. Yunnan plans to achieve these goals through efforts including government investment in training farmers and building dozens of “demonstration farms”.
Yet another way in which the city government is trying to diversify the local economy based on the traditional Pu’er tea is linking it with Bordeaux wine.
The City of Pu’er has signed a trade agreement with the city of Libourne in Bordeaux to promote each other’s products in 2012. Libourne is the closest city to the Pomerol and Saint Emilion vineyards. Two Chinese delegations have visited Libourne since the accord was signed, while the mayor of Libourne and the presidents of the local wine syndicates have been to Yunnan to learn about tea culture. The related Press Release confirms that this marriage between tea and wine is taken seriously.
There are many similarities between the two products. Pu’er tea is harvested by hand each year, is labelled with a vintage, and can be aged for up to 50 years. The finest teas can reach prices as high as the best wines of Pomerol and Saint Emilion.
Its taste is affected by the soil it is grown in, and the weather conditions during the year of harvest. Tea can also be fermented, with bacteria converting bitter tastes to softer, rounder flavours, a process similar to malolactic fermentation in wine.
Pu’er tea is rich in polyphenols, and is said to have health benefits in much the same way as the French Paradox is linked to polyphenols in wine.
Foie gras, not Pu’er but close enough
This post started as one specifically about Pu’er, but it is gradually expanding to Yunnan province and the revival of its old French connection. The company Mountain Valley Technology in Kunming has imported lande geese from French to set up production of foie gras and goose fat. The company reported a capacity of 400 mt of foie gras and 700 mt of goose fat p.a. late 2020.
Eurasia Consult Consulting can help you embed your business in Chinese society.
Peter Peverelli is active in and with China since 1975 and regularly travels to the remotest corners of that vast nation. He is a co-author of a major book introducing the cultural drivers behind China’s economic success.