China’s coffee industry is in a key stage of development after trying to crack the global industry chain for the past two decades

Yunnan coffee industry in key stage of development

Staff Reporter

2013-03-11

China’s coffee industry is in a key stage of development after trying to crack the global industry chain for the past two decades, reports the Guangzhou-based 21st Century Business Herald. One of the landmark developments in China’s coffee industry took place in the southwestern province of Yunnan, which produces 98% of all coffee beans in the country, when coffee chain Starbucks opened its third international Farmer Support Center in the area, the magazine said. Starbucks has also set up a joint venture with a local company to establish bean processing facilities in Yunnan. However, local industry leader Dehong Hogood Coffee Co has been undergoing turmoil as a result of a dispute between the company’s founder and private equity investors. Though it was resolved at the end of 2012, the dispute caused serious damage to the company’s operations. Dehong Hogood’s rapid expansion by boosting the scale of the coffee farms it owns, and efforts to develop its own brand by building the country’s largest instant coffee production line, resulted in a tight funding situation that forced it to bring in outside investors.

Local growers shifting from tea to coffee after the Pu-erh tea price bubble burst in 2008, had also expanded the scale of coffee farms from around 64,000 acres to 165,000 acres, the magazine said. The expansion dragged down local coffee prices last year, which more than halved from peak prices. According to the magazine, because of the focus on instant coffee products, Yunnan has not grown high-quality coffee varieties on a large scale, even though the plateau environment in the subtropical region is ideal for such planting. In addition, tea is still the dominant drink in China, despite the country’s growing consumption of coffee, which has resulted in a large number of local coffee outlets being sold mainly to overseas buyers.Swiss food giant Nestle, the largest buyer of Yunnan coffee, has also been offering plants, training and incentives to Chinese coffee growers. But since Nestle purchases the beans at prices fixed according to those quoted at the futures market in New York, local coffee growers have also adopted speculative practices and track the futures market and foreign exchange rates closely. Apart from quality issues, the local coffee industry should also improve its growing and processing technology, as well as the business model of sourcing beans from growers, the magazine said.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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