Companies

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publicize the “Pu’er coffee” brand. The government of Pu’er has also released several books, guidelines and regulations for the correct cultivation, quality control and technology research for coffee. Additionally, in order to promote coffee among Chinese citizens, they released books about the fundamentals of coffee and coffee culture in the prestigious bookstore chain Xinhua (Pu’er Coffee Office, 2013b, p.4).

Noticeably, the local government of Pu’er city serves as a guiding leader and coordinator between coffee growers, producers, companies, traders, university researchers, and every person involved in the development of coffee industry in the prefecture. They are aware of all coffee-related activities taking place in Pu’er and all the actors involved. They gather, produce and issue all the data available for this practice. They provide support and training to farmers, economic incentives to companies, cooperate with universities to improve the human resources, and encourage all actors to raise quality standards to increase demand.

3.2.2. Companies

Domestic and international companies play an increasingly important role in the development of coffee industry in Pu’er. It has not been until recently, however, that these companies have grown, diversified and taken part of the leadership. The proliferation of coffee-related companies is a fairly recent phenomenon, particularly significant in the past three years. This is consistent with the boom in coffee production and sales in that same period. In 2012, there were around 70 registered companies in Pu’er (Zhu, 2012, p. 4); in the year 2013, the number of registered companies was 118, meaning an increase of 48 enterprises in little over one year (Pu’er Coffee Office, 2013, p.9). According to one of the managers in Arabicasm Coffee, this sudden increment is mainly due to the mushrooming of primary processing factories (B08).

Given that still most of the coffee produced in Yunnan is exported as green beans, the number of secondary processing factories and packaging companies remains low. Nonetheless, some argue that in the past years there has been an increasing interest in establishing domestic companies that produce coffee from growing to processing, packaging and marketing. There is an increasing entrepreneurial interest in coffee. Members of Beigui Coffee observe that

“there are more people in the coffee business, either because of the increasing economic benefits and higher prices, or because of the government focus on the industry” (B05).

Currently, coffee companies in Pu’er, especially domestic companies, are concentrated on climbing up the technology and quality ladder. This change of focus will surely lead to the

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emergence of several secondary processing factories and companies that grow, produce, and sell their own products.

In Pu’er city there are international and domestic coffee enterprises. 70 percent of those companies export their beans or finished products to other countries, especially to Europe.

For other companies, their business focus has shifted in the last few years from export to domestic-oriented. Nowadays, companies that only purchase beans, like Arabicasm, Starbucks or Nestlé, are giving way to a new wave of coffee firms that deal with all stages of production, like Aini, Beigui, or Manlao River. The latter usually own or rent a big piece of land and hire farmers to grow their coffee in it. Some companies like Manlao River even allow their farmers to sell part of that coffee to other purchasers. The majority of firms provide a steady salary to their farmers and some extra benefits according to production, sales and other factors (B03; & B10, March 24, 2014). The former are companies that do not grow coffee but instead own procurement centers where individual farmers, households or village groups go to sell their beans according to weight and quality. The rejection rate varies depending on the type of company, their standards, and the natural conditions during the growing season. For instance, Nestlé has a rather high rejection rate, particularly among newcomers. Being a company with high quality standards, Nestlé does not purchase coffee from farmers that do not meet their criteria (B06). This year’s frost and general low quality of the beans has resulted in up to a 70 percent rejection rate in the procurement center of Starbucks (B07).

Apart from economic incentives and booming sales, another reason why companies are flourishing and gaining confidence is government support. This is, nonetheless, a more recent phenomenon. Companies established in the last three to five years have received much more economic, technical and training support than those established in the mid-late 1990s. Beigui Coffee, formally established in 1998, did not receive any kind of government support because

“it was early before the coffee boom” (B05). Similarly, Arabicasm did not receive economic help or technical support from the government when the company was established in 1997.

On the contrary, companies established in the mid-2000s, like Manlao River or Aini Coffee, received some support from the government, either technical or economic, but yet not as significant as the help provided nowadays.

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The scenario is more comfortable for international firms. The government has attracted multinationals to the region with promises of lower costs and higher profitability than in other countries. But, above all, multinationals have been attracted with exclusive benefits like tax reduction. The current environment is even more positive for new settlements in the region.

The 2013 report of the government of Pu’er identifies support and assistance to companies as one of the main tasks for the future development of coffee industry. Of particular relevance is the promotion of secondary processing factories to increase product value and create leading companies, all through technical assistance and training. Additionally, the government advocates for the cooperation of all firms and universities to improve in human resources (Pu’er Coffee Office, 2013, pp. 15-17).

Multinationals

Currently in Pu’er, the main international firms are Nestlé and Starbucks. Foreign investors like the American Maxwell House, the Korean Maxim, and the Japanese UCC Ueshima have a strong presence in the region, but their contribution to the development of this industry is significant in a very small scale. They only make one big purchase of coffee beans every year.

They are not “directly involved in production processes but offer some support with planting techniques in order to meet quality standards” (Blackmore & Keeley, 2012, p. 96). On the contrary, firms like Nestlé and Starbucks play a decisive role in the coffee business in Pu’er.

Nestlé is the engine that started this industry and that continues to upgrade production in Pu’er; the introduction of Starbucks to the region symbolizes change, the modernization of coffee industry, and represents the growing coffee culture among Chinese citizens.

Nestlé entered Yunnan 25 years ago, and they have trained farmers and worked with the local authorities ever since to improve and promote local coffee. They are the most successful multinational in the region. They do not own land, but instead engage in contract farming with growers that, due to the training and support provided by Nestlé and the high prices offered in return, remain loyal suppliers to the company. The Swiss have buying stations for the direct supply of coffee, and an experimental and demonstration farm that helps farmers and producers improve their skills. In 2013, Nestlé signed a memorandum of understanding with the government of Pu’er to invest in a Nescafé Coffee Centre in the region that will include a coffee farming institute and a consumer experience centre. Nestlé’s monopoly in Pu’er has substantially decreased in the past years (S01). Nonetheless, they remain the main coffee purchaser and the most influential multinational in the region (B06). Nowadays there

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are more local and international companies competing against Nestlé. However, employees in Nestlé maintain that it is a healthy and necessary competition that does not worry them because “there is enough coffee for everybody” (B06).

Contrasting the veteran Nestlé is Starbucks, a company that formally established in Pu’er only two years ago after purchasing coffee beans for a few years. In 2010, the Seattle-based coffee giant, in collaboration with the government of Pu’er city and the Yunnan Academy of Agricultural Sciences, signed two memoranda of understanding to invest in high-quality coffee in Yunnan. The agreement included the opening of the first Asia-based Starbucks Farmer Support Center, the management of a base farm to grow coffee, the creation of a demo farm for training on better farming practices, and education on Starbucks’s certification scheme C.A.F.E. Practices. In 2012, Starbucks and Aini Group announced the establishment of Starbucks Aini Coffee (Yunnan) Co. Ltd. This joint venture company was designed to increase Starbucks coffee-sourcing presence in China and use Pu’er coffee for the company’s global blends. According to members of both companies, the nature of this partnership is rather symbolic, since it was mostly perceived as a way to introduce Starbucks in the local production system. They insist that the two are completely independent companies (B02; B07;

& B10, March 24, 2014). When Starbucks purchased 51 percent of Aini, the resulting joint venture was formed as a company independent from Aini Coffee. Starbucks borrows facilities, equipment and personnel in exchange for training courses, technology development and the use of the Starbucks Support Center, which completely belongs to Starbucks. At times, Starbucks buys coffee beans grown by Aini farmers, though they normally have a steady supply of farmers that drive to the procurement centre to sell their beans directly to them.

Domestic enterprises

Domestically, there are two main types of coffee companies in Pu’er: trading companies, and companies that grow, process and sell coffee under their own brand. Three of the companies interviewed, Manlao River, Aini and Beigui, now produce their own coffee. Not so long ago, however, they belonged to the category of companies that, like Arabicasm, only purchase large amounts of green beans and export the coffee to other producers.

Aini is undoubtedly the main domestic company in Yunnan and the flagship of local coffee firms in Pu’er. Their area of cultivation is the same as the farms of Beigui and Manlao River

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put together, and their annual average production is around seven times larger than theirs. 96 percent of the coffee produced by Beigui is exported to countries like Singapore, Switzerland or the United States. Manlao’s sells are both domestic and international, but their production is intentionally restricted to “maintain quality, higher prices and comply with goals of poverty alleviation and environmental protection” (B03). Aini’s booming sales abroad made them the number one selling coffee company in Yunnan. They have succeeded in the expansion of production and raising quality standards, gaining international and domestic recognition. As a result, the company is now focused on shifting their sales to the flourishing domestic market.

They aim to reach the new Chinese consumer by combining the notions of high-quality coffee and national sentiment all in one product. Their international sales have drastically reduced in a short period of time, and already in 2014 only coffee from the joint venture with Starbuck is being exported. The totality of coffee grown and processed by Aini is now sold in the domestic market. Furthermore, starting in 2013 Aini is opening coffee stores throughout Yunnan, to help create a coffee culture and transform the concept of coffee as an instant

“quick fix”. On May this year, the office of Aini in Pu’er announced that they will soon be opening a new store in Shenzhen, Guangdong province (B10, May 12, 2014). For a Yunnanese coffee company, this is a clear sign of success.

Members of Kworlds and Aini met recently in a coffee competition. The media company had been hired by the Coffee Office of Pu’er to publicize and record the event. Aini was one of the companies entering the competition. In Pu’er it is frequent that the government and local companies organize cupping competitions and other events. Aini is the main company that cooperates with them for these coffee promotion activities. Whether it is at the office of the Coffee Association or the Coffee Office, Aini is present in most of their advertisement posters and coffee display stands. Their close connection and cooperation is manifest, not only in the government’s support to the company, but also in common projects developed by Aini, the government and, sometimes, the universities. For instance, the government offers economic subsidies to Aini farmers that have lost their crops due to natural disasters. They also invite Aini representatives to relevant meetings to provide input on the state of coffee industry in Pu’er. Aini, in return, employs graduate students from public local universities and provides internships in the company. Aini representatives and local authorities deny that this support is due to participation of the government in the company. They emphasize the private nature of the firm and argue that the government provides this type of support to all local enterprises (B10, May 5, 2014; & G02, May 12, 2014). The government simply provides strong support

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and promotion for “leading coffee companies that have proven to be successful” (B10, May 5, 2014).