Yunnan: Coffee Crisis As Nescafe Bid Hits Five Year Low

Kang Xiaxiao of the Morning Whistle reports that “Nestle provided a purchase price of 17.9 yuan per kilo for coffee beans produced in Yunnan over the 2012 to 2013 purchasing season on Nov. 20, which is the lowest bid in the past five years.” That’s about $1.30 a pound, which according to Xiaxiao, “is very close to the break-even point for coffee farmers, estimated at about 15 to 16 yuan per kilo.”

Though the price will float in the following months according to the price offered on the New York coffee futures trading market, local coffee planters have begun worrying about their future.

Yunnan is the largest coffee producer in China, where the annual output is about 26,000 tons, accounting for 90 percent of the total coffee production in China. Despite the decreasing purchasing price, the planted area in Yunnan Province is expanding.

Nestle CEO Paul Bulcke (File Photo)

For a little background on coffee production in Yunnan, we turn now to an Economist write-up from earlier this year:

Nestlé, along with the Chinese government and the United Nations Development Programme, helped jump-start coffee production in the area in the late 1980s. Yunnan’s first coffee growers, 19th-century European missionaries, found a suitable climate for their bitter juice, but little native interest in drinking it. Now Yunnan accounts for almost all the coffee grown in China. Other buyers have followed Nestlé in recent years, and demand has outstripped supply. Beans are sold at the global price, which last year briefly topped 40 yuan ($6.30) a kilo, and is now about 30 yuan. Three years ago, the price was only 16 yuan a kilo.

An industry analyst told Sprudge.com, “Some would argue that a company like Nescafe owes it to their shareholders to buy their raw material as cheaply as possible.” One could also argue that a parent company like Nestle owes it to their shareholders to use Penelope Cruz in their latest ad campaign for Nespresso:

You don’t wanna know what they paid Clooney. (Of course you do.)