Volcafe, one of the world's leading coffee merchants, is betting on Chinese coffee beans.
The Swiss-based coffee unit of major trade house ED&F Man Holdings signed a joint-venture with China's Simao Arabicasm Coffee Company this week to source, process, and transport coffee beans cultivated in China's southern Yunnan province to international clients.
"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 ED&F Man.
Volcafe's decision comes as dry spells in top grower Brazil crimp output and continued drought heightens concerns over next year's crop.
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No threat to Brazil
Limited global supplies and rising prices have drawn investment, but China is not ready to compete with Brazil as a top coffee bean producer, according to Christopher Narayanan, head of agricultural research at Societe Generale in New York.
"With Yunnan producing roughly one million bags of coffee, and responsible for 95 percent of China's output, it would be hard-pressed to rival Colombia (No. 2 producer), let alone Brazil, anytime in the near future," he said. "Coffee requires a certain tropical climate, so the amount of land that China can devote to coffee groves will be limited to the southernmost latitudes."
Currently, China contributes just over 1.2 percent of global Arabica production, and less than one percent of global coffee yield. But if its output increases, China will be better positioned to help ease the world's reliance on Brazil and Colombia, analysts said.
Yay/Nay
The response towards China's brewing coffee industry has been largely positive.
Arabica production in China appeals to commercial roasters who need bulk supplies of the comparatively rare mix for their gourmet blends, research conducted by Shanghai-based consultancy Dezan Shira & Associates shows.
In fact, in November 2010, Starbucks Corporation announced plans to build a farm in Yunnan to build out its share of China's nascent coffee market.
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A year later, Nestle SA, which has been actively training more than 8,500 farmers and building facilities for over two decades in Yunnan, jumped on the bandwagon with its ten-year, worldwide initiative program worth $367 million.
Some roasters are willing to try out the Chinese milds, Narayanan added. Coffee fans are open too.
"Chinese beans? I would give them a try. If they're good, then that's great. But of course, if they are not to my liking, there wouldn't be a second time," said 26-year old Singaporean Elfie who survives on at least four mugs of coffee each day.
From local producer to global supplier
In order to successfully develop into a global supplier coffee grove investors and coffee growers will have to work together.
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Proper production practices and investments to help growers produce consistently good quality beans will be needed to ensure viability. Global coffee production is fragmented with many small growers, so achieving economies of scale is crucial for the Chinese.
"As for projections, time will tell," Narayanan said. "There is little data readily available, so investment is key."