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China to gain a taste for coffee exports

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China is, in agricultural commodities, best known as a major importer.

But for coffee, that may be about to change.

Volcafe has set up a joint venture with China's Simao Arabicasm Coffee Company to source, process and ship Chinese coffee beans, tapping into a growing supply which has already attracted the likes of Nestle and Starbucks.

"China is on a lot of radars," said Mark Furniss, Asian business development director for Volcafe, which with Neumann and Ecom is one of the world's top three-coffee traders, each with volumes of some 12m-14m bags a year, out of total world output of 140m-150m bags.

'China strategy'

Indeed, it is "unusual" that the roasters such as Nestle got into China first.

"Usually it is the other way round", Mr Furniss said, although this was likely part of the groups' "China strategy", for entering a market with huge promise in terms of coffee consumption too.

Despite the country's huge population, its coffee demand is relatively small, at 1.65m bags in 2013-14, according to the US Department of Agriculture, well below that of Switzerland or South Korea, and less than 7% of US consumption.

However, Chinese coffee drinking is growing fast, and expected to hit 1.80m bags this season.

Robusta vs arabica

That might appear to bode ill for its coffee exports, given that China's latest coffee crop came in at about 1.2m bags, albeit after frost damage lowered its potential.

While Mr Furniss foresees China longer term producing 2m bags – more than Costa Rica or Nicaragua, but half the output of Mexico or Uganda - that might look like giving little hope of an exportable surplus.

The quirk is that Chinese drinkers prefer robusta beans - shipped in largely from neighbouring Vietnam, the top producer of the variety – rather than the arabica coffee its producers grow, and which the likes of Nestle ship to drinkers elsewhere.

"China has tropical highlands, at an altitude of 1,200m or so, perfect for arabica production," Mr Furniss told Agrimoney.com.

"In fact, there is not of lot around suitable for robusta production," with small amounts of robusta grown in Hainan province, while arabica output is centred on Yunnan.

Gaining a premium

That leaves Chinese arabica supplies sold onto the international market, where Volcafe has been buying it purely on a ready-to-be-shipped basis, for use as a "bulk filler" in coffee sold in markets such as France, Germany and Spain.

Chinese arabica is a "decent alternative" to the supplies shipped from Central American countries such as Honduras.

One benefit Volcafe is planning to achieve through the joint venture, named Yunnan Volcafe, is to grade Chinese coffee such that beans can be better graded, allowing better-quality supplies to realise a premium above that expected for bulk filler.

"We have our own factory, our own warehouse, we will do our own processing in China," Mr Furniss said.

"We will be looking at identifying the better-quality beans and taking them to other markets."

By Agrimoney.com

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