Chinese Coffee

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At the beginning of Chinese New Year – otherwise known as Lunar New Year or the Spring Festival – I thought I would have a brief look at coffee in China and Chinese Coffee.

China is obviously known as the origin of tea. The Chinese people and many others around the globe love their ‘cuppa cha’. By-the-way, the word ‘cha’, which originated in China, has an interesting history and its derivatives chai, te or teh are used in many countries.

For example, one of Malaysians’ favorite drinks is Teh Tarik which is a very sweet white tea. I can also remember hearing the word ‘cha’ as in ‘cuppa cha’ quite often in England when I was there as a young lad.

Given China’s history and affection for tea, you may think that coffee wouldn’t have much of a chance to influence Chinese culture. However, you would be mistaken.

China is becoming one of the World’s largest coffee consumers and producers. Coffebi reported that the:

“…growth rate of coffee consumption in China is around 20% annually, more than 2% above the global growth rate. Experts believe that the Chinese coffee consumption market could reach thousands of billions of yuan within 10 years.”

Statistica also reported that:

“Revenue in the Coffee segment amounts to US$9,307m in 2020.

The coffee market is expected to grow annually by 10.7% (CAGR 2020-2023).

The market’s largest segment is the segment Instant Coffee with a market volume of US$8,479m in 2020.

In relation to total population figures, per person revenues of US$6.43 are generated in 2020.

The average per capita consumption stands at 0.08 kg in 2020.”

It seems that a lot of the coffee consumed in China is instant coffee but the Chinese are also developing a taste for specialty coffee. And they want more.

The cost of a coffee in China is relatively more expensive. UBS reported, in 2018, that Shanghai was the sixth most expensive city in the world to buy coffee at about US$4.60 per cup. Beijing was also reported as being the seventh most expensive city in the world at about US$4.42. Just for interest the most expensive city in the world to buy coffee was Doha at a whopping US$6.40.

However, the cost of a coffee does depend on where you are drinking. It would be more expensive in up-town areas but in other areas, a cup of Americano may cost only $3.13.

Price of Coffee Around the World. Source:UBS

Why the increase in coffee consumption in China?

One potential reason is that drinking coffee is a sign of affluence or a status symbol. This is understandable given that it is relatively expensive to buy coffee.

Other potential reasons for the growth of coffee include:

Young Chinese professionals seem to have taken a liking to coffee

  • A better standard of living means people, especially the ‘middle class’, have more disposable income to try out new things
  • Some Chinese like to experience the ‘western culture’
  • Hundreds of new coffee stores are opening all around China and especially in the cities.
  • People like to experience the service, professionalism, and ambiance of a coffee shop

(Partly sourced from CoffeBi)

Among the new coffee shops starting up in China, Starbucks currently leads the way (but probably not for long). According to a 2017 news item by CNBC Starbucks was opening up a new store in China every 15 hours.  As of 2019, Starbucks reported that it had 4,100 stores in 168 Chinese cities.  Costa Coffee which we have reviewed as a ‘good coffee place‘ is also planning to grow to about 1200 stores in China by the end of 2022.

Investopedia reported that Starbucks was planning to expand to over 6,000 new stores by 2022. That is about 633 new stores every year until the end of 2022. Quite an expansion plan and Starbucks wouldn’t do it if they didn’t know it was going to be worth it.

Chinese businessmen have also caught on to the rise of coffee consumption in China. In particular, Luckin Coffee is giving Starbucks a run for its money and is rapidly expanding. Luckin Coffee started in Beijing in 2017 and had about 2000 stores at the beginning of 2019 and is expected to have about 4500 stores by early 2020.

CNBC reported that Luckin Coffee may be a stronger growth stock compared with Starbucks. Luckin Coffee was publicly listed on the NY Stock Exchange in May 2019 and is valued at about $11 billion. CNBC reported that the share price has rallied about 141% over the last six months of 2019 and crushed Starbucks and Dunkin (with gained only about 3% and 2.5% respectively).

Starbucks, Costa Coffee, and others have a bit of competition from Luckin Coffee in China. The intense competition, and the opening of hundreds of new coffee shops, just confirms the growth of coffee in China.

Chinese Coffee Production

China also seems to have aspirations to become one of the World’s largest coffee producers.

China is about 13th in the list of top coffee producers in the world and this is only after starting production in 2013.

Miaomiao Wan from Coffebi cited that the coffee cultivation area in China exceeded 1.2 billion square meters (about 296,526 acres) and produced about 140,000 tons of coffee. This was about 1.5% of the World Coffee production in 2016.

According to Statistica, as of June of the coffee crop year 2018/19, China produced around 2.2 million 60-kilogram bags of coffee (about 145,500 tons). This was more growth than the previous three years.

About 98% of China’s coffee comes from the province of Yunnan. Yunnan is in a subtropical area of South China (see map) with rich red soil, mild temperatures, and an altitude of about 1700 m. The Yunnan province mainly grows the catimor variety of Arabica coffee beans.

Provinces in China

Provinces of China. Source: China Discovery

The meteoric rise of China as a coffee-producing country has been recognized by the Specialty Coffee Association who, in 2018, selected China as a ‘portrait country’ for producing specialty grade coffee.

What does Chinese Coffee Taste Like?

The roasted coffee from Yunnan is supposed to be light to medium body with a relatively mild acidity, clean taste and sweet. I say, ‘supposed to be’ because I haven’t tasted any Chinese produced coffee – yet! Perhaps you can try some of the coffee beans shown below and let us know what you think?

Not Enough Coffee to Go Around

Unfortunately, domestic coffee production is not enough to satisfy the current high demand for coffee in China. Consequently, China is importing coffee from other coffee-producing countries. Vietnam is the top supplier, with about 86% of gross imports of green coffee.

About 59.2 thousand tons of coffee beans were imported in 2015, with an average annual growth of 13.7%, and worth about US$302 million.

‘There’s ‘gold’ in them thar beans’.

How about Coffee Roasting In China?

Surprisingly, not much coffee is roasted locally in China. Most of the coffee from Yunnan and other regions of China is exported. Hence, China imports most of its coffee as roasted coffee. Perfect Daily Grind reports that one of the reasons for this is that most of the coffee consumed in China is instant coffee.

Nestle has a fairly long and successful history in China and claims to be the first company to have introduced instant coffee into China.  Nestle had over 80% of the instant coffee market in 2010. The Nescafe brand, in particular, seemed to be a favorite with Chinese youngsters in 2011 and its popularity even exceeded that of Coca-Cola.

The Future of Chinese Coffee?

What does the future hold for coffee in China and for Chinese coffee?

Well, the battle between the coffee giants Starbucks and Luckin will be interesting to watch (provided you are not a shareholder in either company).

It is likely that China will begin to take more interest in roasting its own coffee and using it domestically or for export.

It is also likely that China will ramp up coffee production in Yunnan and other provinces.

The 80stonecoffeeroasters in the UK made an interesting statement on the potential effect of Chinese coffee:

“If China reaches a point where it is drinking half as much coffee per capita as the USA, we would see a massive global supply squeeze for Arabica. Prices for the top 1% of Arabica beans would rise and competition for the best lots from top producing countries would increase as well.”

Mandarin Oranges and Kumquats are traditional Chinese symbols of luck and prosperity for the New Lunar Year.

Maybe coffee beans will become a new symbol of prosperity for China?

We will wait and see. 拭目以待

Happy Chinese New Year!  新年快乐 / 新年快樂

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