Coffee gains foothold in tea-drinking China

By Niu Shuping and Nao Nakanishi

XINGLONG, China/HONG KONG (Reuters) - Du Yansheng, a farmer on the southern Chinese island of Hainan, hasn't gone without his morning cup of coffee in five decades, not even during the Cultural Revolution -- when such "mock-Western" practices could have landed him in prison.

"People here have never stopped drinking coffee," Du told Reuters in Xinglong, the cradle of coffee culture in an otherwise tea-drinking country.

Du's father was one of China's first coffee farmers, at a time when it was considered an exotic foreign beverage. He brought robusta beans from Indonesia in the 1950s -- decades before Nestle or Starbucks Corp. arrived on China's shores.

Today, coffee is fast catching on, especially among younger urban Chinese, and the percentage increase in demand is in the double digits -- though still less than one tenth of tea consumption.

And coffee grown in China is beginning to climb the quality ladder. Arabica from the southern province of Yunnan is now catching the eye even of specialty roasters such as Starbucks and Italy's Illy.

"Demand for Yunnan arabica is expanding," said Tomonori Hashimoto, a trader from S. Ishimitsu Co. Ltd. in Japan, one of the world's top coffee consumers, and known for being picky.

"There are clients eager to try the new and the rare. It's mild and easy to drink," he said by telephone from Tokyo.

Official data showed Chinese coffee exports jumped 40.8 percent to 6,484 tonnes during the first quarter of this year, with more than 4,000 tonnes headed for Germany and Japan.

It imported 4,642 tonnes in the first quarter, down 5.7 percent year-on-year.

"When we began a coffee business here in 1998, our monthly sales were about 10 kilos. Now our sales are calculated in tonnes," said Zhou Zhihua, a coffee trader based in Yunnan's provincial capital, Kunming.

UPSTART BREW

To be sure, the industry officials say Chinese production is still too small for some roasters to pay much attention, especially as growing domestic demand is absorbing a large chunk of it.

China has no official data for coffee production. Industry officials estimate it harvests 22,000 to 28,000 tonnes of arabica per year in Yunnan, a mountainous province the size of Japan that borders Vietnam.

That is tiny compared with some 900,000 tonnes grown in Vietnam, the world's No. 2 producer, or 400,000 tonnes in Indonesia. And there's little scope for production increases because farmers remain keener on growing rice, rubber or other higher-priced cash crops.

"The fact is that the yuan is appreciating and other commodities, like rubber and grains, are faring well," said another senior trader from an international house.