3. Results
3.4 Motivations
國
立 政 治 大 學
‧
N a tio na
l C h engchi U ni ve rs it y
Currently, economic growth is stable and Western influence is more powerful, particularly in big cities like Beijing or Shanghai. Coffee consumption is growing at rate of over 12 percent each year2. Experts argue that total consumption could reach 2.8 million bags by 2020, approximately the same amount as the United Kingdom (International Coffee Organization, 2014). Given the vast population of China and the fast growth of coffee consumption in the country, China will become a promising market for the world coffee trade. The ICO report, however, alerts that this consumption is not so significant when measured in absolute terms.
They point out that consumption will remain dependent of economic growth and available only for he urban middle class (International Coffee Organization, 2013). Chinese coffee promoters want China to experience the same development in coffee consumption as Japan.
Before the second half of the twentieth century, tea was Japan’s most popular drink.
Nowadays, Japan is the world's third largest importer of coffee and the fourth largest consumer in the world (ICO, 2014). They have developed a well-rooted coffee culture and a considerable knowledge about trade and quality standards. Japan’s consumption now is four or five times that of China. The ICO is cautious to report a booming growth of China’s coffee consumption. In Pu’er, on the contrary, expectations are high and official data is optimistic.
Pu’er government officials are confident to state that China’s consumption will soon reach the levels of Japan, becoming Asia’s main coffee consumer. They, nonetheless, admit that it is still necessary to put all efforts available on the promotion of consumption among Chinese citizens. Consumption will not increase only with economic development; authorities and coffee companies need to generate a need for coffee and create a coffee culture individual of China (G02, March 18, 2014).
3.4. Motivations
Many of the people interviewed in Pu’er were not able to provide a clear answer to why the government is making this considerable effort to develop the coffee industry. Most of them mentioned the “official” explanation: the government wants to encourage successful industries to eradicate poverty in Yunnan and improve the lives of farmers and ethnic minorities. This is in fact the most widespread explanation given to the people in Pu’er. But
2 The International Coffee Association suggests an annual growth of 12 percent. Most interviewees argue that the real growth is 20 percent. The 2013 report of the Coffee Development Office indicates that it is over 30 percent. With no data available to support these statements, this study will use the official data of the ICO.
‧ 國
立 政 治 大 學
‧
N a tio na
l C h engchi U ni ve rs it y
poverty alleviation alone does not explain the dedication of local officials to this industry.
Why is the government of Pu’er determined to develop coffee business? What kind of motivation do government, farmers, and entrepreneurs share? The existing literature does not examine these issues. Academic research only mentions the role of coffee in poverty alleviation and economic development (Li, 2009b; Wang, 2011). Nevertheless, a more varied spectrum of explanations emerged during interviews and through observation. In general, the incentives for the development of coffee industry in Pu’er can be summarized in three: focus on domestic sales, exclusivity, poverty alleviation, and environmental protection.
3.4.1. Focus on domestic sales
All three afore-mentioned strategies employed by the government to develop the industry — expansion of the area, raising quality standards, and promoting coffee— serve the main purpose of reducing exports to focus sales on the domestic market. It is explained as a “win-win” situation (G02, March 18, 2014). Coffee consumption in China is growing fast and it is predicted to develop even more. In 2012, China consumed around 60,000 tons of coffee beans, and produced roughly 36,000 tons of coffee (Pu’er Coffee Office, 2013, pp. 5, 10).
This means that consumption already surpassed local production. The majority of these beans that Pu’er produces are exported mainly to European countries. In 2012, Pu’er exported 24,700 tons of coffee, almost 70 percent of the total production. Only a small percentage is sold in China due to its high price for low quality. Chinese consumers will not buy a locally produced coffee that does not reach the standards of specialty coffee (Barlow, 2013c). Hence, the majority of coffee consumed in China is imported from Vietnam, Colombia, Brazil and other major producing nations. Given the increasing levels of consumption, coffee imports increased by 43 percent in the year between 2012 and 2013 (Barlow, 2013b). This data suggests that China relies heavily on coffee imports for consumption, and coffee exports for sales. If Chinese consumers substituted foreign coffee for local products, it would be beneficial for both ends of the chain: producers and consumers. Imports of foreign coffee and exports of Yunnan coffee would still be necessary, but the goal of government and companies is to find a balance between imports and exports, and to prioritize local production and national industries (G02, March 18, 2014; & S01). For a local authority, it is “absurd” that Chinese consumers do not support thriving local industries. He explains that coffee is a product strongly associated to the West, and that only high quality Chinese coffee would be acceptable for local consumers. In consequence, the government is focusing on quality
‧ 國
立 政 治 大 學
‧
N a tio na
l C h engchi U ni ve rs it y
control and promotion of Pu’er coffee as a strategy to persuade Chinese buyers. These government strategies will encourage Chinese people to buy local coffee and, over time, “the development of this industry will most certainly surpass the development of the rest of industries” (G02, March 18, 2014). Albeit early for such prediction, the combination of China’s strong nationalism and the fast development of Yunnan coffee could potentially lead to the success of this industry in the long-term.
Many local and foreign companies also see Chinese coffee consumption as a key to the development of the local industry and as the new marketing focus. Starbucks China is using locally produced Pu’er coffee as a strategy to attract more clients. A member of the Coffee Association of Yunnan in Kunming explains that the real motivation behind the joint venture with Aini is to increase domestic sales of coffee in their almost 2000 stores in China. They are playing the “emotional card”. In other words, they aim to increase sales by persuading Chinese consumers that their coffee is not foreign but grown domestically. This strategy appeals at Chinese people’s strong sense of nation and attempts to create a new notion that Starbucks is not only an American company, but a Chinese one too (B01). They believe that Chinese consumers will drink Starbucks coffee because it is locally produced and they want to contribute to the domestic economy. By doing so, the production of Starbucks in Pu’er will increase, and so will investment in the region, benefiting farmers and the regional economy (B07).
For local companies, China is not the main target market yet. Nonetheless, most of the companies interviewed admitted to have considered new marketing strategies to sell some products at home, even if it is only 3 in 1 instant coffee (B05). For Beigui and Arabica, the percentage of coffee beans or coffee derivates currently sold in China is not very significant, roughly 4 to 7 percent of their total production. However, both companies agree that the Chinese market is expanding in demand, and that the future of their companies will most likely look towards increasing domestic sales. Manlao River is also a company whose sales are more significant in the United States, Europe and Japan, but they are steadily increasing the share of coffee sold to China. The main obstacle for them is that Chinese people are not ready to pay high prices for organic certified coffees like theirs, so their market is very limited to gourmet or environmentally-concerned consumers (B03). They hope that in the next years Chinese coffee lovers will value quality, ecology and social responsibility over price.
‧ 國
立 政 治 大 學
‧
N a tio na
l C h engchi U ni ve rs it y
Aini is the only firm in Pu’er with larger national recognition and price-quality value for Chinese standards. In the coffee experience warehouse of Aini in Kunming there are on display different products that Aini is marketing for the domestic consumers. They claim to be excited about the company’s turn to a more domestic-oriented business and believe it will be successful. Thanks to publicity and awards received by international coffee experts, Aini is one of China’s best known domestic companies. They believe that the partnership with Starbucks has been very beneficial for the promotion of their brand (B02). Aini’s next step is to create a range of products that fit Chinese preferences, like drip or instant coffee, while promoting higher-quality products that Chinese consumers are not familiar with, like roasted beans or ground coffee (B02; B07; & B10, March 24, 2014). Aini aims to leave behind exports to concentrate solely on the Chinese market.
3.4.2. Exclusivity
A Pu’er businessman, owner of several KTV (karaoke establishments) in Simao, meets regularly with members of Kworlds to talk, sing, and taste different cups of Pu’er coffee.
Although not an expert, he is confident to affirm that all the coffees they brew and taste are very good because they are “originally from Pu’er”. He explains that Pu’er always produces prime quality coffee no matter which company sells it. “Only us can grow good coffee in China” (C02).
Pride of exclusivity is most likely one of the main motivations for the coffee industry in Pu’er.
Locals and entrepreneurs feel they are building a special industry, more international and sophisticated. They say the region is changing to adapt to this new agricultural product that will “soon be the new image of Pu’er, along with tea” (B04).
“Pu’er natural conditions are perfect for coffee growing”. This is the most frequent answer to the question of what makes this coffee special and why the industry is developing so fast.
Compared to the rest of coffee-growing regions in China and Yunnan, Pu’er has the most suitable natural conditions for the particular requirements of the coffee plant and trade. First of all, logistic and climate advantages put Yunnan and Pu’er at the head of all coffee-growing regions in China. Yunnan sits on a strategic location in the heart of Asia, connecting China with Southeast Asia and India. The average altitude is higher than in Hainan; rainfalls and
‧ 國
立 政 治 大 學
‧
N a tio na
l C h engchi U ni ve rs it y
temperatures are more balanced than in the region of Baoshan or Sichuan province; and humidity is not as elevated as in Xishuangbanna prefecture. These controlled conditions of elevation, soil quality, rainfall, humidity and temperature allow Arabica types of coffee to grow better in Pu’er than in other regions, where they can only successfully grow varieties of Robusta, a coffee considered of lower quality. Additionally, Pu’er has better infrastructure and roads to connect fields and villages to main procurement and trade centers.
Pu’er is also endowed with a functioning institutional and governmental coffee network that speeds up production and provides tools to face potential obstacles. Pu’er government is pioneer in enacting policies, regulations, guidelines and reports to help farmers and entrepreneurs tackle the problematic areas and encourage them to continue growing coffee (B01; B02; & B07). Moreover, the web of coffee industry development offices spread across the prefecture is an effective tool for the implementation and correct management of these policies. No other region has a system as organized and dynamic.
Pu’er has also achieved great success in attracting foreign investment and encouraging entrepreneurs to establish new coffee-related companies. Two of the major multinationals that buy coffee in Yunnan, Starbucks and Nestlé, are based in Pu’er, where many other foreign companies purchase their coffee as well. In contrast, the rest of the coffee-producing prefectures in Yunnan serve mainly as areas where coffee is grown and sold to local companies or multinationals that buy once a year; little effort has been made to attract investment permanently, at least in comparison with Pu’er.
Baoshan is the second largest producer of coffee in Yunnan and the main competitor of Pu’er.
For coffee producers in Pu’er, however, Baoshan does not represent real competition.
Virtually all interviewees used the example of Baoshan to illustrate why Pu’er is the only region where quality coffee can be grown. In general, it is argued that Baoshan’s weather conditions are more extreme than in Pu’er, and thus coffee growing is less stable. The weather is drier and temperatures are more extreme, which renders the cultivation of Arabica coffee more difficult and prone to rust leaf disease. Yunnan’s continuous droughts are severe, and underground water is scarce; they lack institutional and governmental organization, and infrastructures remain rather underdeveloped. This year’s drought has had a great impact on coffee growing in Baoshan, reducing production to half. For an expert of the Coffee Association, this not only shows Baoshan’s inadequacy to growing stable coffee but also
‧ 國
立 政 治 大 學
‧
N a tio na
l C h engchi U ni ve rs it y
evidences the lack of resource and disaster management measures. (B01). A Baoshan native that moved to Pu’er owns a coffee processing, roasting and experiencing store where he processes and sells coffee grown by friends that share his passion for coffee. For him, it is not a competition rather than two different markets. Pu’er can grow bigger amounts of coffee under more stable conditions, but the flavor is very standard. In Baoshan, unstable weather conditions make it impossible to produce larger quantities, but the coffee beans have richer flavors and higher quality. He concludes that Pu’er coffee industry is “exclusive” in terms of mass production with standard results, but not in diversity and character. Nonetheless, he believes that Baoshan needs the motivation and pride of Pu’er to succeed (B09).
Since only a few regions in China can grow quality coffee, this cash crop is considered a special agricultural product. These specialty products are fostered by the government through regulations and policies specifically designed for that industry. Policies like the 2007 “Special Agricultural Product Region Layout Plan” helped label coffee as a “specialty product” that needs to be promoted over other “regular” crops. Moreover, coffee is regarded in China as an
“exotic” product that was just recently introduced in the daily lives of Chinese citizens. This feeling of pride and uniqueness encourages government officials, entrepreneurs and the laobaixing (ordinary people) to strive for the development of Pu’er coffee.
3.4.3. Poverty Alleviation
Except for short periods of booming prices, coffee growing is not considered an agricultural activity that strongly contributes to poverty alleviation. The case in Yunnan is not far from different. Farmers that want to grow coffee are faced with a substantial initial investment and the uncertainty of a new crop that does not have a long history in the region. More work and economic investment is needed in the first years, and profits do not come until three years later. It is a risky investment. For farmers that already grow coffee, profits from this crop can be very unevenly distributed; some seasons can provide large amounts of income, while bad seasons drop coffee prices and leave farmers in a more precarious situation.
Interestingly, farmers in Pu’er are encouraged to grow coffee to shake off poverty and improve their living conditions. Most actors in the coffee industry in Pu’er explain that escaping poverty is the main motivation behind the fast development of coffee production in the region. They agree that the goal of the government is to eradicate poverty among farmers
‧ 國
立 政 治 大 學
‧
N a tio na
l C h engchi U ni ve rs it y
through the cultivation of coffee and, preferably, diversification of crops. As the main promoter of coffee growing, the government helps farmers on their introduction to the coffee business by providing free coffee seeds, plants, training and other technologies.
Poverty alleviation is more than a motivation. It can be considered an “official speech”, a clichéd term used by entrepreneurs, citizens and officials to explain the main driving forces behind the development of the coffee industry. Many of the interviewees offered a very similar story used to illustrate the benefits of coffee growing on the improvement of farmers’
lives. It is the story of a farmer who only had a piece of land cultivated for years with little profit. He decided to grow coffee instead, and now he owns a small car and a cell phone, he has fixed his house, and expects his children to go to university one day (B01; B05; G01, March 18, 2014; & B10, March 24, 2014). Telling this kind of success story shows the pride of being part of the industry that is contributing to the development of the province and the improvement of farmers’ living standards.
The community of ethnic minority farmers has benefited the most from the development of coffee cultivation. In Pu’er, ethnic minorities account for 61 percent of the total population.
Most of them come from poor backgrounds with low levels of education and training. For most companies, the majority of their workers are poor farmers from minority ethnic groups that do not own land and are hired by companies as external labor force. Thanks to higher prices and the support of most of the companies, the lives of minority farmers have improved significantly since entering the coffee business. Some companies, like Aini or Manlao, help them with accommodation or the education of their children. According to an interviewee of Aini, these farmers used to live in underdeveloped communities and had no money to buy basic necessities. They grew crops for own consumption, “avoiding interaction with others”
(B10, March 24, 2014). Before growing coffee, their incomes hardly reached a few hundred Yuan a month. Now, farmers working for Aini perceive a monthly base salary of CNY 800 complemented with the money they earn from selling the coffee they grow. The average income rises up to around CNY 3,000 every month.
For the government, coffee growing represents an opportunity to meet annual poverty reduction goals by developing local agricultural industries. This type of strategy is based on similar development models designed by organizations like the United Nations Development Program (UNDP) or the World Bank. The China Agriculture Special Task Force of the UNDP
‧ 國
立 政 治 大 學
‧
N a tio na
l C h engchi U ni ve rs it y
suggests local development agricultural innovations “to achieve sustainable and equitable development, especially when these innovations are driven by national and local governments and actors” (UNDP, 2011, p.2). For companies, poverty alleviation is not only a motivator, but also a marketing strategy. Companies like Aini or Manlao River work closely with coffee growers to empower them, provide a more stable source of income, and help reduce poverty levels and increase education. This strategy, similar to fair trade certification standards, attracts consumers that care about social fairness and business ethics.
Poverty alleviation is a powerful motivator for all actors involved in coffee growing in Pu’er.
Nonetheless, coffee prices are fairly unstable, and relying solely on coffee farming can be risky. The government of Pu’er and some companies like Manlao River, Beigui and Aini are increasingly encouraging farmers to engage in types of farming that provide a more stable
Nonetheless, coffee prices are fairly unstable, and relying solely on coffee farming can be risky. The government of Pu’er and some companies like Manlao River, Beigui and Aini are increasingly encouraging farmers to engage in types of farming that provide a more stable