Swiss food and drinks conglomerate Nestlé has announced it is expanding its operations in Yunnan with an eye toward promoting coffee consumption across China. The company has signed a memorandum of understanding (MoU) with the prefectural government pledging to invest 100 million yuan (US$16 million) to build a coffee farming institute in Pu'er.

The planned Nescafé Coffee Centre will have warehouses, laboratories and education facilities. According to a press release announcing the MoU, Nestlé plans to train 5,000 coffee farmers, agronomists and business professionals at the center each year.

Over the past several years the Nestlé has steadily increased its purchase of Yunnan coffee and last year bought more than 10,000 metric tons of beans. This accounted for 20 percent of the province's total coffee production. The company has said it has plans to double coffee procurement in Yunnan over the next two years.

The Pu'er government has actively been promoting coffee cultivation as an alternative to volatility-prone tea. Nestlé's announcement could signal the beginning of a buying war with rival Starbucks. Both companies already have large purchasing presences in Yunnan and last year Starbucks established a joint venture coffee sourcing company in Pu'er.

At the time Starbucks made the announcement, the Yunnan government set a goal of increasing Arabica bean output to 200,000 metric tons by 2015. That target has since been scaled back by half, perhaps do to a sluggish international coffee market.

Coffee is increasingly popular in China, but it is only just beginning to be drunk by Chinese. According to Chinese coffee industry statistics, the average mainlander drinks only three cups of coffee per year compared with a worldwide per capita average of 240 cups.

Such statistics, when combined with China's population of 1.35 billion, suggest that coffee consumption in China is beginning what could be a long period of sustained growth. This has major economic implications for Yunnan, which accounts for 98 percent of the country's total coffee production.

Image: Morning Whistle

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