China and the changing economic geography of coffee value chains

Abstract

For the past three centuries, the economic geography of the global coffee sector has been characterised by the supply of beans from tropical countries for consumption in North America and Europe, with various modes of value chain coordination enacted by lead firms to ensure reliable and affordable supply. This pattern is now fundamentally changing, with growth in coffee consumption in emerging markets, including China, exceeding that in established markets. But China is not only a growing consumer market, it is less well known that rapidly increasing agricultural production in Yunnan province of southwest China has also inserted the country as an important source region for coffee, and this has been pivotal in facilitating the emergence of Chinese lead firms in the sector. This article presents the emergence of China, and Chinese firms, at a critical juncture for the structure and governance of the global value chain for coffee. The processes through which this is occurring are outlined, and the implications for regional development prospects across Southeast Asia are discussed. We argue that the changing economic geography of coffee value chains, and their increasing driven-ness by Chinese actors, is starting to reshape the regional coffee industry in profoundly new ways.

Full text

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China and the changing economic geography of
coffee value chains
Je f f r ey Neilson (School of Geosc i e n c e s, University of Sydn e y ) a nd Ju -Han Zoe W a ng
(C e n t r e for Contemporary Ch i n ese Studies, Asia Ins t it u t e, University of Melbo u r n e)
Abstract
For the past three centuries, the economic geography of the global coffee sector has been
characterised by the supply of beans from tropical countries for consumption in North America and
Europe, with various modes of value chain coordination enacted by lead firms to ensure reliable and
affordable supply. This pattern is now fundamentally changing, with growth in coffee consumption
in emerging markets, including China, exceeding that in established markets. But China is not only a
growing consumer market, it is less well known that rapidly increasing agricultural production in
Yunnan province of southwest China has also inserted the country as an important source region for
coffee, and this has been pivotal in facilitating the emergence of Chinese lead firms in the sector.
This article presents the emergence of China, and Chinese firms, at a critical juncture for the
structure and governance of the global value chain for coffee. The processes through which this is
occurring are outlined, and the implications for regional development prospects across Southeast
Asia are discussed. We argue that the changing economic geography of coffee value chains, and
their increasing driven-ness by Chinese actors, is starting to reshape the regional coffee industry in
profoundly new ways.
Introduction
The introduction of coffee cultivation by European colonialists to Asia at the close of the 17th
century, and then to the Americas in the 18th century, marked an initial globalising moment for
the commodity coffee. For the subsequent three centuries, coffee beans were produced and
exported from various tropical countries, often under highly coercive and exploitative colonial
regimes, to consumer markets in Europe, North America, and, during the last 50 years, Japan.
Despite the effective demise of European colonialism during the twentieth century, the
continued inequalities along the global coffee chain have been well-documented (Talbot, 2004;
Daviron & Ponte, 2005), as has the pivotal position of coffee roasters in driving and
coordinating the entire chain back to farm production (Ponte, 2002). The resulting governance
structures along the value chain have been founded on dominant consumption in the North, and
the driving role of lead firms based in those countries.
In this article, we adopt and apply a global value chain framework to examine the multi-
dimensional role of China, and Chinese firms, in the changing economic geography of coffee.
The prominence of global production and distribution systems, which bring together diverse
economic actors through a complex regime of global corporate governance, widespread
outsourcing of productive functions, and new international divisions of labour, has stimulated
the rise of corresponding conceptual models to explain these developments (Neilson et al.,
2014). Global Value Chains (GVCs) have proven to be particularly useful explanatory
frameworks for understanding the global market engagement of firms, regions and nations.
Global market engagement is reconceptualised, through GVCs, from a passive market-based
process to a set of industrial transformations actively coordinated by various economic and
non-economic actors. This has often involved the progressive outsourcing by “lead firms” in

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developed countries of lower-value, productive functions to low-cost regions, while
maintaining control of core nodes of value creation and retention in their home countries. Lead
firms, however, continue to dictate the terms and conditions of participation in chains in other
geographic regions through different types of governance that act upon participants at a
distance. Furthermore, Gereffi (1994) highlighted the increasing prominence of buyer-driven
chains in the global economy, as emblematically represented by large format retailers, who
often depended on cheap sites of manufacturing in East Asia.
The dual processes of continued high rates of consumption in the Global North and expanding
economic opportunities for value chain participation elsewhere in the world have characterised
global economic restructuring in recent decades. While the growth of broad productive
capabilities in East Asia has been well-documented, the 2008–09 global financial crisis was
widely seen as a turning point in the global economy, where demand for various finished goods
and intermediates shifted from North to South (Cattaneo et al., 2010; Fung, 2011). Indeed,
Fung (2011) believes that the organization of the global economy is entering a new phase,
where we have reached a ‘major inflection point’, with important implications for the structure
of global value chains. These developments are generally analysed in terms of ‘shifting end
markets’, with Kaplinsky and Farooki (2011) identifying the impacts of Chinese demand on
other developing country exporters. These consequences include: i) the trend toward product
differentiation is likely to be reversed as standard commodities are supplied; ii) a reduced
importance of social, environmental and quality standards (refer also to the discussion in
Bowles and MacPhail, 2014); and iii) greater competition with other developing countries for
capturing the value-added of processing of raw materials. Kaplinsky and Farooki (2011)
admitted, however, that this hypothesis required further testing.
A further apparent implication of shifting end markets for GVCs is the increased
regionalisation of value chains (identified by Kaplinsky & Farooki, 2011, Morris et al., 2011,
and Lee & Gereffi, 2015). In the African clothing complex, for example, the rise of South
African clothing manufacturers, driven by South African retailers, resulted in new
opportunities for suppliers in Lesotho and Swaziland relative to US buyer-driven chains
(Morris et al., 2011). Lee and Gereffi (2015) identified the regionalization of value chains as
being further driven by the distinct growth strategies of emerging nation lead firms, which
include pursuing low-cost innovation strategies and targeting the low and middle income
segments in emerging economies rather than competing with large multinationals active at
higher price markets. Similarly, Li and Ding (2015) examined China’s apparent new role as a
market provider for consumer goods from the region, which they suggested would involve
increased efforts to develop regional economic cooperation arrangements (discussed also by
Cai, 2017, in the context of China’s Belt and Road Initiative).
The emergence of China, and Chinese firms, as key actors within the global coffee sector has
not been hitherto discussed in the literature. While China’s surging coffee consumption
receives some attention, there has been very limited, if any, research on the status and the
implications of China’s concurrent emergence as a coffee producer. In this article we discuss
the relatively recent entry of China as a producer (emerging only in the late 2000s), and the
subsequent emergence of influential Chinese firms in the sector. As such, this paper attempts
to chart emerging industry dynamics in this sector, and to contextualise them within the broader
economic geography of the global and regional coffee industries. We argue that the
repositioning of Chinese coffee firms reflects a more widespread shift in the organisation of

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the global economy. China is reshaping its role in the global value chain of coffee in two ways.
On the one hand, large Chinese trading firms are emerging as potential global lead firms by
virtue of trading significant volumes of raw coffee globally, but they are also developing their
own brands and assuming the functions of roaster lead firms at various scales. Meanwhile,
surging domestic production in Yunnan province of southwest China has provided a platform
for the emergence of integrated Chinese coffee companies who are following an alternative
path towards lead firm status. Although these latter firms are not yet global in scope, their
operations are expanding into neighbouring regions and extending the regional influence of
some Chinese firms. In both ways, state supports are instrumental for fostering these
transitional and domestic enterprises into lead firms.
It is not entirely clear in the literature as to what exactly constitutes a “lead firm”. The term
emerged from Gereffi’s (1994) articulation of global commodity chains as being either
producer-driven or buyer-driven, which seemed to suggest that a particular “core company”
would be responsible for “governing” the entire commodity chain globally. Gereffi (1999, p.
38) then emphasises the role of “lead firms [as] the primary sources of material inputs,
technology transfer, and knowledge in these organizational networks”. The closely-aligned
literature on Global Production Networks (GPNs) is particularly forthright about requiring a
(single) global lead firm as an integral aspect of defining a GPN. According to Coe and Yeung
(2015, p.39-40, emphasis in original), “a global production network necessarily entails the
central role of one globally significant lead firm”, and that “the necessary presence of a global
lead firm differentiates a global production network from a (global) commodity chain because
the latter may not be organised around a single lead firm”. In this paper, we do not follow this
more restricted GPN definition of a globally significant lead firm, and instead use the term in
the broader sense of a firm capable of exerting governance elsewhere in the chain irrespective
of scale and geographic scope. This follows the earlier work of Fold (2002), who emphasised
how more complicated patterns of power relations can exist between (multiple) lead firms in a
single global chain, and Lee and Gereffi (2015), who highlight the emergence of bipolar or
multi-polar GVC governance, while also making an implicit distinction between “lead firms”
and “global lead firms”. We can certainly identify a set of large global lead firms (multinational
coffee manufacturers) in the GVC for coffee, each of whom could be understood to govern
their own GPN. However, large international trading firms could also be considered lead firms
in their own right, as they coordinate the actions of actors elsewhere in the chain, and indeed
they are capable of exerting a global influence. In the work of Coe and Yeung (2015), however,
these firms might be considered “specialised suppliers” to lead firms, or indeed as “relational
suppliers” by Gereffi et al. (2005). Furthermore, smaller coffee roasters located in various
consumer markets perform functionally indistinct roles to larger lead firms (value-added
manufacturing, supply chain control and coordination, marketing and branding) – albeit at a
smaller scale. Therefore, we suggest it is not always a straightforward task to identify the “lead
firm” in a GVC, or even to clearly set criteria for what constitutes a “lead firm”.
The research findings presented in this article draw upon a mixed method approach. We
conducted a series of 70 interviews with coffee industry stakeholders in Yunnan province and
4 interviews in Chongqing during November 2016, November and December 2017,
interviewing farmers, commercial estate managers, migrant labourers, government
representatives, and industry actors (small-scale roasters, traders and large corporate firms) and
operators of commodity exchanges. The interviewees also included representatives of coffee

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industries from other Asian countries in Thailand, Myanmar and Indonesia. These interviews
were complemented with a detailed analysis of trade data using the UN Comtrade database and
a review of media articles on the industry using Factiva searches in both the Chinese and
English languages.
The global value chain for coffee
Various applications of a global value chain (GVC) or global commodity chain (GCC)
approach to the coffee industry over the last few decades (inter alia Talbot, 1997; Talbot, 2002;
Ponte, 2002; Talbot, 2004; Daviron and Ponte, 2005; Neilson, 2008; Neilson and Pritchard,
2009) have consistently identified a range of characteristic chain dynamics. The fundamental
geography of coffee production and trade has, until very recently, remained largely consistent
with earlier colonial patterns. Coffee has been grown almost entirely within the less developed
regions of the tropical Global South, with five countries (Brazil, Vietnam, Colombia, Indonesia,
and Ethiopia) estimated to be responsible for 69% of global production in 2016, while the
European Union and the USA were responsible for 67% of all imports (FAO, 2017). Talbot’s
(1997) analysis of the division of total income and surplus along the coffee chain identified a
fundamental chain characteristic: producing countries capture very little of the total value-
added along the chain, and that their ability to do so has worsened over time. The Hopkins and
Wallerstein (1986) approach to commodity chains, inspired by World Systems Analysis,
interprets such uneven distribution of benefits as reflecting neo-colonial structural inequalities
between core countries (and chain nodes) and periphery countries (and nodes), although we
argue that the rise of Chinese firms is challenging the permanence of these designations.
The collapse, in 1989, of a quota system of state-regulated trade under the International Coffee
Agreements was a key moment in the evolution of the contemporary global value chain for
coffee, and indeed marked the broader end to the neo-structuralist, UNCTAD-mediated world
trade order and the ascendance of neo-liberalism. This deregulation event facilitated the rise
and consolidation of the power of transnational coffee companies – primarily coffee
manufacturers, also known as roasters - as capable of effectively governing the chain (Ponte,
2002). Panhuysen and Pierrot (2014) estimated that ten such manufacturers (Nestlé, Mondelez,
DE Master Blenders, Smuckers, Strauss, Starbucks, Tchibo, UCC Coffee, Lavazza and Keurig
GM) processed around 40% of all coffee consumed worldwide in 2014. From their
headquarters in the Global North (six of these firms are located in Europe, three in North
America, and one in Japan), these manufacturers are quintessential lead firms, ultimately
responsible for governing supply chains back to rural producers in the Global South.
Despite a reasonable degree of concentration, many smaller coffee manufacturers persist (in
specialty markets in established consuming countries and in new emerging markets), and these
could also be functionally considered lead firms in their own right due to their role in chain
governance. Manufacturers, moreover, tend to rely on large commodity traders to supply them
with green beans. Neilson (2008) observed how these commodity traders (dominated by firms
such as Neumann Kaffee Gruppe, Ecom Agroindustrial, Louis Dreyfus, and ED&F Man /
Volcafe), are increasingly active in sourcing green coffee in producing regions, and in
implementing farm-level supply chain sustainability and quality improvement programs on
behalf of manufacturers. As will be discussed below, these traditional commodity traders are
now competing with a newer global entrant - China’s COFCO.

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In 2018, the institutional settings of the global value chain for coffee are characterised by very
limited state intervention, but with an expanding system of private regulation by both corporate
firms and NGOs. This is most notable through the expansion of various sustainability programs
orchestrated along the value chain between consumers and producers (Jaffee, 2014; Panhuysen
and Pierrot, 2014; Levy et al., 2016). Low world coffee prices (especially during the period
2000 to 2004) led to widespread reports of extreme poverty in coffee-growing communities
and what was identified as a ‘global coffee crisis’ (Osorio, 2002; Vega et al., 2003; Bacon,
2005; Daviron and Ponte, 2005). The fact that this occurred at the same time as consumption
was experiencing something of a renaissance in the Global North, through the growth of the
specialty coffee sector, shined a spotlight on inequalities along the value chain. Daviron and
Ponte (2005) refer to this contemporaneous boom in specialty coffee alongside a crisis in
producing countries as ‘The Coffee Paradox’, which they explain in terms of chain governance
structures that allow roasters and retailers to extract value from symbolic and in-person
attributes of quality. While global prices have recovered somewhat since 2004, it is still
reasonable to assert that today’s global value chain for coffee remains characterised by
considerable inequality between relatively impoverished growers and relatively profitable
roasters who are geographically proximate to affluent consumers. Initiatives to address this
inequality are being primarily pursued through private sector governance and the various
sustainability labels.
China’s entry into the world coffee industry
Twenty years ago, China was essentially a non-actor in global value chain for coffee. Coffee
production in China, or Yunnan province more specifically, has increased five-fold since 2001
(Figure 1), making China the 13th largest coffee producer in the world by 2016, rising from 30th
in 2006 (Table 1). Yunnan comprises 98% of all coffee production in China (Chen, 2013).
Annual production levels are difficult to determine with any certainty, but these have been
estimated between approximately 120,000 tonnes in 2014 by the International Coffee
Organisation (ICO, 2015), and up to 158,400 tonnes in 2016/2017 (by Huang et al., 2017).
Yunnan grows exclusively Arabica coffee – mainly of the Catimor variety - in four major
production areas: the prefectures of Dehong, Puer, Lincang and Baoshan (Figure 2). Yunnan
has a suitable biophysical environment for coffee production: a supportive climate, high
altitudes, and the absence of the coffee borer beetle (at least as of 2017). It has also developed
some of the most productive Arabica coffee systems in the world (reported by some producers
to be as high as three tonnes of green bean equivalent per hectare) based on high input of
fertilisers and other high-yielding technologies. Due to the relatively recent history of coffee
production in Yunnan, coffee has received much less attention from researchers compared with
other cash crops in Yunnan, such as rubber.

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Figure 1: Estimated coffee production and consumption in China (1995-2014)
1
Data sources: FAO, 2017; ICO, 2015
1
Consumption estimates for are based on preceding ICO crop years (ie. 1995 for 1994/95 crop year).

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Figure 2. Map of Yunnan coffee areas

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Table 1 China’s contribution to world coffee production (2006 and 2016) alongside other major
producing countries (Source: http://www.fao.org/faostat/)
Coffee cultivation has, at various times throughout the last century, been promoted as a
prospective cash crop in Yunnan. The earliest coffee trees are thought to have been initially
introduced to Yunnan from neighbouring colonial regimes in Vietnam in 1892, by a French
priest to a Yi village close to Dali city, and in British Burma by ethnic Jingpo (known as Kachin
in Burma) to Dehong (Hu, 2014). Coffee cultivation was also suggested as a suitable means of
rural development during the era of Republic (Chang, 1942), and during the 1950s and 1960s,
when coffee was encouraged for trade with the former Soviet Union. Despite these earlier
beginnings, the total area of land planted with coffee was never very significant, achieving a
peak of only 4000 mu (~267 hectares) in the 1960s (Hu, 2014).
Contrary to the usual speculation, the significant increase in production appear to be only
indirectly linked to growth in domestic consumption. Instead, the increase was driven by
investments made initially by export-oriented international firms, with Nestle being the major
initial actor. In 1988, Nestle established an instant coffee factory in Guangdong Province,
which was reliant on imported raw coffee beans, prompting the Chinese government to
encourage the firm to develop a local supply base. In response, and also driven by corporate
desires to diversify its supply source, Nestle established an office in Kunming, the capital of
Yunnan, in 1991. By 1997, Nestle had established agricultural assistance services across
Yunnan and provided training for more than 16000 farmers (personal communication with
company representative), and has since been the largest single buyer, performing a pivotal role
Rank Country
Production
(tonnes)
Global
Share
Country
Production
(tonnes)
Global
Share
1 Brazil 2,573,368 31.6% Brazil 3,019,051 32.7%
2 Viet Nam 985,300 12.1% Viet Nam 1,460,800 15.8%
3 Colombia 724,740 8.9% Colombia 745,084 8.1%
4 Indonesia 682,158 8.4% Indonesia 639,305 6.9%
5 Mexico 279,635 3.4% Ethiopia 469,091 5.1%
6 India 274,000 3.4% Honduras 362,367 3.9%
7 Peru 273,178 3.4% India 348,000 3.8%
8 Ethiopia 241,482 3.0% Peru 277,760 3.0%
9 Guatemala 240,331 2.9% Guatemala 236,145 2.6%
10 Honduras 213,636 2.6% Uganda 203,535 2.2%
11 Ivory Coast 187,000 2.3% Mexico 151,714 1.6%
12 Burundi 149,460 1.8% Laos 136,600 1.5%
13 Uganda 133,310 1.6% China 114,339 1.2%
14 Philippines 104,093 1.3% Nicaragua 114,307 1.2%
15 Costa Rica 101,038 1.2% Ivory Coast 102,960 1.1%
16 El Salvador 85,350 1.0% Costa Rica 87,490 0.9%
17 Venezuela 74,332 0.9% Philippines 68,823 0.7%
18 Nicaragua 70,455 0.9% Papua New Guinea 58,894 0.6%
19 Cameroon 62,300 0.8% Tanzania 52,257 0.6%
20 Madagascar 61,635 0.8% Madagascar 46,882 0.5%
30 China 25,655 0.3%
2006
2016

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in stimulating regional production. Yunnan produces almost exclusively Arabica coffee, whilst
instant coffee manufacturing generally relies on Robusta coffee, such that domestic coffee
consumption influenced production in Yunnan only indirectly. Another international lead firm,
Starbucks, followed Nestle by established its own sourcing operation in Yunnan in 2009,
through a joint-venture with a local agri-business company, apparently in response to similar
encouragement from the Chinese government as the firm expanded its retail presence along
China’s urbanised eastern seaboard. By 2017, many of the major international trading
companies, including Ecom Agroindustrial, Neumann (indirectly), Louis Dreyfuss, and Olam,
were actively sourcing coffee from Yunnan for export.
The sourcing strategies of these international firms are relatively similar, although the two
manufacturing firms tend to engage more intensely in farmer development initiatives. In 2016,
Nestle opened a new Nestle Coffee Centre in Puer, comprising a training centre, a green coffee
bean laboratory, a quality control lab and a modern warehouse. Strategically, it is part of a plan
to reinforce supply to two manufacturing facilities located in China, while also exporting to
facilities elsewhere in the world. In 2016-2017, Nestle operated several collection stations
across Yunnan, while Starbucks also established a smaller-scale farmer support centre in 2012.
Both companies ultimately depend upon supply from small farmers, farmers’ cooperatives and
small to medium domestic enterprises. These international firms tend to enforce relatively strict
production and supply standards that require traceability, such as the 4C Coffee code, Starbucks
CAFÉ Practices standard and the Nespresso program.
Strong international demand, and the involvement of these global lead firms in encouraging
production, has meant that coffee cultivation has exceeded government plans. The Yunnan
government planned, in 2010, to expand the plantation area to 1 million mu by 2020
(Development and Reform Committee of Yunnan Province and Department of Agriculture of
Yunnan Province, 2010), a target that was actually surpassed in 2013 (Puer City Government,
2016). Rapid expansion can be attributed to relatively high market prices for coffee from
around 2009, coinciding with a serious outbreak of leaf rust in Colombia that affected global
Arabica supply. Although fluctuating prices have since resulted in some farmers replacing
coffee with other cash crops in certain areas, the expansion of new coffee plantations has
exceeded this replacement.
Institutional support for Yunnan’s coffee industry is fragmented, and tends to be dominated by
the relationship between the state and selected firms. Compared with the provincial government,
prefectural level governments have been more active in supporting the industry, especially the
Puer Government, which welcomed Nestle’s initial investment during the 1980s. Puer also
established the first official unit (The Office of Coffee Industry) in 2012, and the ‘Bureau of
Tea Industry’ was re-structured into the ‘Bureau of Tea and Coffee’ in 2015. The Puer
government also included the coffee industry in its 5-year master plan during both 12th (2011-
2015) and 13th (2016-2020) periods, while allocating 200 million RMB (31 million USD) of
funding from various sectors (financial, agricultural, forestry, poverty alleviation and
resettlement activities) for developing coffee farms (Zheng, 2015). In contrast, Dehong and
Lincang prefecture governments have both supported single large firms to have near-monopoly
status as drivers of coffee development in their prefectures (Hogood in Dehong and Linfeng in
Lincang, respectively).

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While reliable data on domestic coffee consumption in China is difficult to obtain, the ICO
(2015) has inferred consumption from available data on production, exports and imports, which
indicate that consumption has increased nearly ten-fold between 2007 and 2014 (figure 1), but
with a still low per capita consumption of 0.08 kg per person (ICO, 2015). As is common in
many emergent coffee-drinking cultures, Chinese consumers currently prefer instant coffee,
which constitute 99% of retail sales by volume and 98% by value (ICO, 2015), and which is
most commonly produced from Robusta beans. In short, the Chinese consumer market is still
dominated by instant coffee which is supplied by imported raw materials and processed
products, while Arabica production is primarily exported as green beans, and domestic
consumption still shows significant growth potential.
Positioning China within the global value chain for coffee: a trade-based analysis
We can generate insights into China’s position within the GVC for coffee by more closely
examining international trade data. Based on the Harmonized Commodity Description and
Coding System (HS codes), the international trade in coffee can, for our purposes, be
disaggregated into: i) unprocessed green coffee beans (HS901110); ii) roasted coffee
(HS901210); and iii) coffee extracts (soluble or instant coffees, HS210112). Figure 3 shows
the growth of China’s international trade in these three coffee categories since 1998, and how
trade is dominated by movements of green beans. This is not unusual globally, as green beans
are generally processed into roasted or soluble coffee near sites of consumption, and China’s
international trade in processed coffee products is actually quite high comparatively. During
the 1990s, China developed a coffee manufacturing base, with exports primarily directed
towards Hong Kong, which has absorbed around 70 percent of China’s soluble coffee exports
since 1998. In terms of value, moreover, soluble coffee exports are more valuable than green
bean exports (table 2).

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Figure 3: China’s trade in coffee products (volume) from 1998-2015 (UN Comtrade,
2017)
Table 2: China’s 2015 coffee imports and exports (UN Comtrade, 2017)
The reason for China’s active involvement in both the import and export of coffee products
becomes evident in Figure 4, which shows how China’s trade is oriented towards very different
market segments in terms of quality and price, and Table 3, which shows the three major trading
partners for each category. China imports higher priced roasted coffees, mainly from the USA
and Italy, which generally reflects the high-quality imports demanded by China’s upper class
(ITC, 2010). Indeed, international coffee brands are well received in China, dominated by
Nestlé with a 66% retail value share in 2016, with the market slowly moving towards premium
brands (Euromonitor, 2017). China also imports higher priced soluble coffees from regional
trading partners in Indonesia, Malaysia and Korea. In terms of green beans, however, the price
level of China’s exports has been consistently higher than its imports. Figure 5, furthermore,
shows how the price of China’s green bean imports follow very closely the prevailing
international price for Robusta coffee, and it is this variety that it imports primarily from
Vietnam and Indonesia, both of which are important suppliers of low grade Robusta. China’s
green bean exports are certainly higher priced than its Robusta imports (Figure 4), but Figure

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5 shows how Chinese green bean exports are generally traded at a discount to the ‘Other Milds’1
category in the world market. China is an increasingly important source of Arabica coffee for
major buyers in North America and Europe, where it appears to enjoy a niche as a somewhat
low-cost source of commercial grade Arabica coffee. China, then, has engaged with the global
value chain for coffee in a complex myriad of ways.
Figure 4: Average prices of China’s trade in coffee products (UN Comtrade, 2017)
Imports
Exports
Green
Coffee
Roasted
Coffee
Soluble
coffee
Green
Coffee
Roasted
Coffee
Soluble
coffee
Vietnam
USA
Malaysia
Germany
Philippines
Hong Kong
Indonesia
Malaysia
Indonesia
USA
Hong Kong
Rep. Korea
Brazil
Italy
Rep. Korea
Belgium
Vietnam
Vietnam
Table 3. China’s major coffee trading partners (based on 2011-2015 average values)
Nestle’s early investment in soluble coffee manufacturing in China provided opportunities for
value adding to imported green beans, which have been sourced primarily from regional
partners in Southeast Asia. Nestlé’s model later was adopted by other Chinese companies,
including a Yunnan coffee producer, Hogood, which has become one of the three largest
1 China’s Arabica coffee production is not officially categorised as ‘Other Milds’, but this category of
Arabica is the most comparable (where categorisation is essentially based on processing method)
(ICO, 2017a).

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soluble coffee manufacturers in China, and is also intimately involved in Yunnan production
sites. Strong Chinese demand for instant coffees has also provided further opportunities for
upgrading within Indonesia, Malaysia, South Korea and Vietnam, who have all increased their
sales of soluble coffee to China over the last five years. Meanwhile, China’s coffee trading
relationship with countries in North America and Western Europe has, so far, remained a
classical north-south one based on green bean exports and imported roasted products.
Figure 5. Average prices of China’s trade in green coffee relative to ICO indicator
prices (UN Comtrade, 2017; ICO, 2017b)
Sourcing strategies by downstream coffee firms
China’s emerging position as an important coffee producer, consumer, exporter and importer
is beginning to reshape global, and particularly regional, coffee value chains. As coffee
production within China develops, Chinese firms are assuming an increasingly strategic role
within Yunnan and in neighboring countries, and have begun challenging the prior dominance
of international commodity traders and roaster lead firms elsewhere. At the same time, the
Chinese state, at various levels, is actively enabling Chinese firms to play increasingly strategic
roles within coffee value chains and as a vehicle for achieving broader policy objectives related
to both agricultural modernization within China and geopolitically through regional economic
integration.
Agriculture within China has been significantly restructured over the past three decades,
accelerating rapidly since a series of policy changes under the name of “agricultural
modernization” in the early 2000s, which encouraged land consolidation and the vertical
integration of agricultural supply chains. There are many aspects associated with these changes,
including: an increase of large farms and agribusiness (Gong and Zhang, 2017, Zhang and
Donaldson, 2008, Schneider, 2017); increasingly heterogeneous land-tenure practices
(Krusekopf, 2002); complex and evolving production relations (Guo et al., 2007, Zhang and

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Donaldson, 2008); and the increasing production of cash crops for both domestic and export
markets (Lohmar et al., 2009).
“Nurturing large transnational agricultural enterprises” was one of the main tasks under
China’s National Agricultural Modernization Plan (2016-2020). This is in line with its
ambitious plans to reshape global patterns of agricultural trade and to increase its influence in
global markets (Gooch and Gale, 2018). Perhaps the most significant global player in this area
is COFCO, one of the largest state-owned enterprise (SOE) in China. Following its full
acquisition of Hong Kong based commodity trader Noble Agri in 2015 and Dutch trader Nidera
in 2016 (COFCO Agri, 2016), Saul et al (2018) suggest that COFCO’s broader strategic aim is
to challenge the global dominance of the so-called ABCD quartet of world-leading commodity
traders (Archer Daniels Midland, Bunge, Cargill and Louis Dreyfus) and to perform a strategic
role in sourcing food commodities for China. COFCO now has extensive logistical capabilities
connected with coffee value chains reaching into all major producing countries, including
Vietnam, Indonesia, India, Brazil and Colombia (COFCO Agri America, 2016). Annually,
COFCO trades a globally significant volume of coffee, with plans to trade five million bags of
coffee in 2018 (around 300 thousand tonnes), up from four million bags in 2017 (Bloomberg,
2018), an amount roughly equivalent to four percent of global production. The company also
claims to supply raw coffee to 95% of all roasters in China, but the quantity is unclear (COFCO
Coffee Weibo, 2018). COFCO, however, does not limit itself to the Chinese market, and export
data collected from Indonesia suggest that COFCO’s key market destinations (at least in 2017)
were in the USA, Thailand and the Middle East, and included global lead firm manufacturers.
While COFCO is already a globally-influential trading firm, and could be considered as a lead
firm due to this global reach and influence along various supply chains, it also holds further
ambitions to establish itself as a leading manufacturer. Such a strategy is consistent with the
company’s prior involvement in food processing and branding with products that include wines
and spirits, tea, Coca-Cola bottling, and ice cream (COFCO, 2018). It has established its own
coffee brand “Kofno”, opened a number of coffee shops under the same name in cities like
Beijing and Shanghai, and sells its product online. While the market share of Kofno is difficult
to determine, the brand is nevertheless promoted by the Chinese government, and was
designated as the “official coffee brand” for 2014 APEC Summit and 2015 World
Championships in Athletics, both held in Beijing (CCPIT, 2014). Participation in a GVC as a
“strategic supplier” to global lead firms has been demonstrated in other contexts to present a
viable upgrading pathway to higher value operations (Gereffi, 1999). Neilson et al. (2018)
further describe how the Singaporean firm, Delfi, has even abandoned its supplier role (of
intermediate chocolate products to global lead firms) to focus on becoming a global lead firm
(as a chocolate manufacturer) in its own right.
In addition to supporting large state-owned enterprises such as COFCO, the Chinese
government also attempts to scale-up and deepen processes of industrialisation of its domestic
agriculture enterprises. Since 2008, the government has been promoting New-type Agricultural
Operators (NAOs), including dragon-head enterprises (DHE), farmers’ cooperatives,
specialised large farms and family farms, to develop and modernize the rural economy. This
policy is especially pertinent to the development of China’s domestic lead firms. Modernization
is associated with larger economies of scale, and this generally requires merging and
transferring rural land use rights from individual or collectively owned farmlands to larger
entities. When use rights are transferred, the land remains collectively-owned and the contract
rights remain with the farmers. This is a departure from the earlier household responsibility

15
system (HRS) policy in the 1980s, under which land transfer remained illegal, ownership
remained with collectives, and use rights were allocated to households (Ye, 2015). Since 2008,
state policies have institutionalised and significantly accelerated the practice. While small
farmers have been the most significant producers of coffee in Yunnan, large integrated
companies are rapidly catching up and starting to compete directly with the dominant
international firms. Not coincidently, these recent policy shifts correspond to the rise of two
large domestic coffee companies in Yunnan, Hogood and Linfeng, both of whom have obtained
access to large swathes of agricultural land for coffee.
Smallholder production dominates in the two prefectures (Baoshan and Puer) where coffee
production was first established in Yunnan, with supply chain still predominately linked to the
major international firms. In contrast, Hogood and Linfeng dominate production landscapes in
Dehong and Lincang prefectures respectively. These firms are seen to be handmaidens for
modernisation. The domestic firms tend to operate under the model of ‘firm + production base
+ farmer’, a model heavily promoted by all levels of government in China as part of an
agricultural industrialization agenda. This model refers to the cooperation between company
and rural households for agricultural production combined with processing, sales and exporting.
The ‘firm’ can be a private business, a danwei (state-associated work units) or a farmers’
cooperative, which often provides finance, technology and inputs, while recruiting famers into
production. The term ‘production base’ is somewhat unclear, but generally refers to the land
that may be leased or transferred to the firm, in which case it is called a self-owned base. In
other cases, there is no contractual arrangement for the land, and the ‘base’ symbolizes
cooperation between farmers and firm. As this model is encouraged by government, a lot of
small and medium companies are adopting it for development. Because the concept of ‘base’
is often symbolic, many companies tend to exaggerate the extent of their bases (often for the
purpose of accessing government subsidies), and a lot of bases may be overlapping with each
other.
In providing a framework for these approaches, Table 4 presents a practical typology, modified
from Zhang and Donaldson (2008), to summarize the observed coffee production relations in
Yunnan, presented with decreasing agency for labour.
Type
Labour type
Operation
Note
Example of coffee
company
A
Independent
farmers
Have no obligation to
sell to particular
buyers.
1. Farmers may also rent
land from fellow
villagers.
Nestle, Starbucks,
international traders
B
Contract farmers
Famers enter
contracting
relationship with
agribusiness.
1. In the Yunnan coffee
industry, the contract is
rarely maintained, if it
is not established based
on land ownership (see
type C).
Seesaw
C
‘Contracting
household’
(chengbaohu) are
farmers who
The company leases
collective or
household-contracted
land and then re-
This is the most
common case across
Yunnan, operating at
various scales.
Hogood, Linfeng

16
contract a plot of
land from firms.
allocates plots to
farmers to work.
D
Labourers
working on a
plantation
The firm leases land
and hires labour
(smaller independent
farmers also
frequently hire
labourers, especially
during harvest
season).
This labour may be
local, from other
regions of Yunnan,
China or
internationally.
Hogood, Beigui
E
Cross-border
production
The company leases
land across
international borders
and hire local workers.
This model moves
beyond Chinese labour
and land supplies.
Hogood, Manxieba
Table 4. Typology of labour and its relationship with coffee companies in China
Nestle reported that nearly 90% of their registered suppliers were small farmers cultivating less
than 5 hectares (75 mu), but small firms (and cooperatives) comprise 73% of their supply by
volume. Individual landholding sizes range from a dozen to several dozen mu of land, which
is larger than average landholdings across rural China (less than 10 mu, according to Huang et
al. 2012). For type A farmers, Nestle and other international firms have been the most important
buyers, and tend to be more active in implementing supply chain sustainability programs, and
are able to exert some level of control over otherwise independent farmers through market
mechanisms. While formal contracts (Type B) are rare, a domestic coffee chain store based in
Shanghai (Seesaw) was piloting its “commitment purchase” for a second year in 2018, with a
dozen co-operatives and small companies following the processing methods requested by this
company. The widespread reallocation model (type C) allows a more direct degree of control
by firms over production since they can reallocate production rights from the leased land to
more productive or malleable ‘contracting households’, or chengbaohu. Smaller firms (mostly
in Puer and Baoshan) may lease dozens of hectares of plantation from fellow villagers or village
groups, while large companies (e.g. Hogood or Linfeng) often have formalised land rights
transferred to the companies, which eventually control more than 6000 hectares. As land use
rights belong to the firms, the harvest must be sold to them, while the chengbaohu receives
production-based profits. Conventional plantations with labour entirely removed from the
means of production (Type D) have also been established, but are less widespread. Some firms
have also leased land across international borders into Myanmar, Vietnam and Laos, although
the extent of Chinese involvement and the modes of production in these areas is poorly
documented.
International coffee firms, then, are largely restricted to relationships with independent farmers
(Type A), or through small firms that contract land through Type C arrangements, while larger
domestic firms prioritise having their own controlled production base, where land use rights

17
belong to the business (type C and D). State support for this mode of operation is a crucial
factor reshaping supply chain relations within Yunnan, as exemplified through the operations
of Hogood, a national-level dragon-head enterprise (DHE).
Dragon-Head Enterprises in the coffee sector
The role of DHEs is crucial to understanding the rising influence of domestic Chinese coffee
firms. The discursive framing of DHEs was established by former Premier Wen Jiabao, who
stated that “supporting DHE is supporting agriculture and supporting farmers” (Xinhua News,
2000). These are agribusinesses with strong capacity for processing and marketing, and who
the state considers likely to contribute to regional economic development. The status of a DHE
is officially bestowed by different levels of government, ranging from national to county levels.
In the coffee sector, Hogood is a national-level DHE and Linfeng is a provincial level DHE.
Both companies receive significant policy and financial support which enables land transfers,
a crucial factor to build its massive production base, alongside access to capital from state-
owned financial institutions. These advantages are enabling the DHEs to become potential lead
firms as further opportunities emerge in the growing Chinese coffee market.
DHEs receive direct support in the forms of finance and tax benefits, with state-owned banks
required to cap interest rates for DHEs (Ministry of Agriculture, 2000) and even provide zero
interest loans. Moreover, financial supports from central and local governments are allocated
to DHEs to establish their production base (including for land leases). The criteria for a
national-level DHE includes the scale of operation, the ability to work across the entire value
chain, and their competitive market advantage, but criteria can vary geographically. In a
western province like Yunnan, it must own assets over 20 million RMB, generate over 50
million RMB revenue per year, and have a debt ratio less than 60% (Ministry of Agriculture,
2001). The company should also own its own production base, and be equipped with a complete
supply chain including production, processing and marketing, with a stable and strong market
share. DHEs have been promoted as key agents for vertical integration in order to achieve the
agricultural modernization agenda promoted by the state (Zhang & Donaldson, 2008), while
also facilitating competitive roles in higher value nodes of the value chain.
Hogood was founded in 1994 and supplied coffee to Nestle prior to 2007, suggesting a familiar
upgrading pathway for Chinese manufacturing firms, whereby access to markets and
knowledge was attained through an initial relationship with a global lead firm. Knowledge
transfer is critical. Soon after Linfeng secured crucial investment from a Yunnan-based SOE
in 2017, Linfeng recruited Nestle’s most senior employee, who has worked for Nestle for more
than twenty years, to source coffee bean in Yunnan. A similar strategy was adopted by COFCO,
who had earlier recruited a chief procurement officer from global beverage giant Mars Inc, to
head up their coffee division in 2017 (Reuters, 2018).
Hogood’s production now covers an area of 18,000 ha and involves approximately 60,000
households (Hogood Coffee, 2016a). Unlike international companies who mostly purchase
green beans, Hogood generally buys cherries directly from households. While much of its
production is currently for export as green beans, Hogood has ambitions to become not only
China’s largest but also the “world’s largest soluble coffee enterprise” (Hogood Coffee, 2016a).
Currently, Hogood is one of the three largest soluble coffee manufacturers in China, alongside
two foreign-owned firms: Nestle and Jiangsu Acesfoods (which belongs to Universal Robina
Corporation, a Philippine company (COFCO Coffee Weibo, 2018)). The current processing

18
capacity of Hogood’s factory is 13,000 tonnes/year, with an additional 20,000 tonnes to come
online in the next few years (Hogood Coffee, 2016b).
Hogood’s arrangement of capital, land and labour is complex. 80% of their production area is
a ‘self-owned base’, corresponding to types C and D, and land transfer is encouraged by the
Yunnan government, with specific reference to coffee production (Development and Reform
Committee of Yunnan Province and Department of Agriculture of Yunnan Province, 2010).
Land is usually transferred collectively from village groups, although the land transfer contracts
are diverse, with periods ranging from 30 to 70 years. In some instances, we were told of one-
off payments for the entire lease, while elsewhere an initial payment was made for the first 10
years, with a promise of a second payment after that. The size of contracted area from Hogood
to chengbaohu (type C household) varies, with a typical household without hired labour usually
managing an area of 1 to 2 hectares. Hogood would provide inputs (seedlings, and agro-
chemicals) and monthly management fees in the form of a loan, while the households are
responsible for their own labour and receive income from cherry sales. Hogood is able to
discipline households with a minimum production of 800kg/mu required to maintain contracted
status. The protected price offered by Hogood is adjusted every a few years according to market
signals: in 2016/2017, the price was 2.5 RMB/kg which was slightly lower than the market
average. Labourers are hired either by chengbaohu (for type C operation), or directly by
Hogood (for type D), and were being paid at a rate of 60-70 RMB per day in 2017, with board
provided. The other 20% production base is a ‘symbolized’ base, where Type A farmers
cooperate with Hogood in a loose relationship, tending towards a Type B contract. This occurs
when land is limited or too highly fragmented to transfer. Since Hogood is the monopoly buyer
in Dehong, the majority of such coffee farmers in the prefecture tend to sell their product to the
firm. In reality, the state (often local governments) gives DHEs much more than what is
stipulated in formal regulations. They provide permits for opening village-owned forest,
mobilize farmers into contracting relationships, and facilitate land transfers (in some cases
using coercive measures, (see Luo et al. (2017), Gong and Zhang (2017)). In the cases of
Hogood and Linfeng, it seems likely that both prefectural governments have been actively
mobilizing land transfer from farmers, considering the unusually large areas of land transferred,
whilst transfer rates in Yunnan are reportedly much lower (18.8%) than the national average
of (35%) (Yunnan Agriculture Department, 2017). Indeed, land transfer targets are set by the
central government to encourage cooperation between local governments and agribusiness to
establish production bases, while the ability to have extensive areas of land transferred has
become a criterion for a company to be granted DHE status.
DHEs attract funding from State-Owned Enterprises (SOEs) as a form of indirect ‘assistance’
from the state, and both Hogood and Linfeng have had significant investment from SOEs. For
example, Chongqing Energy Investment Consortium, with 10 billion RMB of registered capital,
became a major investor in Hogood in 2016, and Yunnan State-Owned Capital Operation is
slated to be the largest shareholder of Linfeng, when we conducted interviews in 2017. In 2012,
Hogood announced that COFCO would become a major investor and, although the deal does
not seem to have since come into effect, it nevertheless signalled the opportunities for Chinese
DHEs to develop value chain opportunities through lead firms like COFCO.
High levels of state support for DHEs was exemplified by an event held subsequent to the 2016
Association of Science and Information on Coffee (ASIC) Conference in Kunming, which
itself was strongly supported by the Chinese government. After the conference, hundreds of

19
international participants were transported by complimentary flights to Hogood’s base in
Mangshi city for a 2-day Asia Coffee Annual Conference (ACAC), an event hosted by Hogood.
The meeting was held in the ‘Hogood Conference Centre’, purposely built for the occasion,
and well attended by prefecture government officials, including party leaders and more than
200 officials from various departments, extolling the need for China to lead the global coffee
industry. The event promoted the idea that Hogood would be ‘the glory of China’ by becoming
the world’s largest coffee company. The ‘glory of China’ narrative ensures that it is
discursively imperative for the government and the public to support the company in order to
glorify the country. A second ACAC was subsequently held in 2017, during which an ‘Asia
Coffee Association’ was formed, with Hogood’s owner elected chairman, and a new Certificate
for Asian high-altitude coffee bean, ‘Abody’, was announced. Regardless of the practical
impacts of these initiatives to date, they demonstrate the ambitions of Chinese firms, and the
Chinese government, to lead regional coffee supply chains. While the DHE policy is
formulated by the central government, local governments are instrumental in making necessary
conditions for Chinese lead coffee firms like Hogood to integrate vertically and to develop as
a ‘national brand’ (minzu pingpai). Policy supporting agricultural modernization is providing
Chinese DHEs, like Hogood and Linfeng, with access to essential assets like capital, land and
labour. In addition, the policies are also helping the DHEs to compete with the international
lead firms such as Nestle and Starbucks.
Internationalisation through cross-border trade
State support for Chinese agribusiness is also helping to expand China’s influence on the coffee
value chain into neighbouring countries through cross-border trade and investment into
Myanmar, Laos and Vietnam. This is occurring at a time when China has been actively
enrolling these countries through the Belt and Road Initiative (BRI), a geopolitical agenda
pursued primarily through economic partnerships. Cai (2017, p. 5), however, explains how the
BRI should also be understood as an attempt to “create a regional production chain, within
which China would be a centre of advanced manufacturing and innovation, and the standard
setter”. Enterprises like Hogood, which displays a BRI map at the entrance of its factory, tend
to connect with this agenda explicitly in order to benefit from government support.
The extension of coffee supply chains through Chinese capital into Southeast Asia (particularly
Vietnam and Indonesia) is already well established with COFCO’s recent acquisitions, and
cross-border trade in and out of Yunnan appears to be gaining pace with a number of Chinese
firms active in cross-border coffee production. Although these operations remain relatively
small-scale at present, they are supported by host governments who grant land concessions.
Laos is a key target for coffee investment and, according to data presented by the Food and
Agricultural Organisation in Table 1, coffee production in Laos has actually increased at a rate
similar to that in Yunnan over the last decade, apparently stimulated by Chinese interest. One
Yunnan-based company has been investing in coffee production in northern Laos since 2011,
ostensibly to eliminate opium production (Zhao, 2017), with plans to establish a total of 12,000
hectares of coffee plantation in Phongsali Province (CSD Coffee, 2018). The company claims
that if the entire proposed area is in production, the total output from the company could reach
to 160% of the entire country’s current coffee production (ibid). While this scale of production
has yet to be reached (less than 25% of the proposed area had been developed by 2017), the
ambitious plan and its political agenda has put the company in the spotlight. In 2017, the
company not only won recognition from the central government as one of “China’s top 100

20
agriculture enterprises for international collaboration”, but China’s national TV station also
features the company’s project as the story exemplifies China’s BRI success (CNTV, 2017).
The expansion of coffee into the neighbouring region appears to be following a similar pattern
to earlier waves of commodity expansion across these same borders. The development of the
rubber industry in recent decades, for example, provides a template for such expansion, and
one that has had significant impacts on regional economies, local livelihoods and ecosystems
(Ahrends et al., 2015). During the 1980s, rubber plantations in Yunnan were initiated and
heavily supported by the state in the form of state farms, and were subsequently adopted by
Yunnanese farmers. This rubber boom then cascaded across national borders into areas such as
northern Laos and Kachin state of Myanmar under the influence of Chinese capital and
knowledge (Fox and Castella, 2013). In these areas, Chinese rubber enterprises often
established contract farming or gained state concessions, and both practices are currently being
pioneered by Chinese actors in the coffee industry. While the expansion of rubber from Yunnan
occurred more or less autonomously, the current expansion of the Chinese coffee industry is
taking place in an environment of much stronger state support for nascent lead firms. The
platform of an earlier coffee production base in Yunnan appears to have provided an important
arena for skill and knowledge development amongst Chinese entrepreneurs that we expect will
result in further enrolment of these neighbouring countries into a Chinese-oriented set of coffee
value chains. It seems likely that this mode of cross-border internationalisation will ensure a
pivotal role for Chinese firms in regional coffee chains irrespective of the extent of continued
agricultural production within China’s borders.
Conclusion: The rise of Chinese lead firms and implications for regional development
Our study of recent developments in the Chinese coffee sector has generated insights into
processes reshaping the governance of contemporary global value chains. Chinese firms are
emerging to perform a number of functions in the contemporary global value chain for coffee.
We have examined the rise of Chinese lead firms in global value chain contexts where their
presence was previously muted, and identified processes through which the Chinese state has
facilitated the emergence of these firms, where the state has attempted to reorient value chain
governance structures by reshaping the institutional environment both within China and abroad.
Shifting end markets towards China are clearly an important factor facilitating the rise of
Chinese lead firms. However, in the case of coffee, this process has been further assisted by
the concurrent emergence of a substantial agricultural production base within Yunnan, where
the state is able to intervene to support the rise of lead firms, especially in the form of Dragon
Head Enterprises (DHEs). This suggests a more complicated set of upgrading pathways than
is usually considered in the literature.
The early entry of foreign lead firms (particularly Nestle) in both manufacturing and supply
chain development in China was instrumental in establishing the industry, and facilitated later
firm upgrading, but it may eventually be eclipsed by the prominent role being played by the
DHEs (at least in terms of influence on agricultural production in Yunnan if not in terms of
consumer market share) and abroad by COFCO. Chinese lead firms are provided with
preferential access to agricultural production bases within Yunnan, providing an important
platform for the reliable supply of raw materials from which they are then able to upgrade to
more profitable chain nodes. The active support of the state has encouraged the expansion of
Chinese capital into supply chains and production systems by further favouring large
agribusinesses over smallholders, or more commonly the hybrid Type C model described in
this article. This is having significant implications for the way land is being assembled as a

21
resource in rural Yunnan, although the environmental and social consequences of this process
remain unclear. Similar models of land assemblage are now being pursued through cross-
border investments, particularly in Laos.
The dominant role played by the Chinese state in the coffee sector is a departure from post-
1989 global trends, whereby the value chain for coffee has been deregulated and then
effectively re-regulated through private sector governance, including the introduction of
sustainability standards. The commitment of Chinese coffee firms to these same sustainability
standards is unclear at this stage, although it seems likely (drawing from Cai, 2017) that the
state is likely to use standards, including new Chinese-authored standards, as a key vehicle to
establish chain governance. A recent sustainability report published by COFCO (2018b), for
example, indicates a broad commitment to sustainability, but favours in-house verification
codes over existing third party schemes.
The varied supply chain relationships between agribusiness and coffee farmers in Yunnan
indicate some of the diverse pathways through which land and labour is being mobilised for
accumulation within modern China. The discursive power of state narratives, with respect to
agricultural modernization, which effectively limit the possibility of alternative modes of living
in rural spaces, has ensured that large areas of land have been assembled for commodity
production. Although the specific land tenure and state support structures are peculiar to China,
the very forthright involvement in agricultural production by downstream capital appears to
reflect a process of rural development that may have implications elsewhere as Chinese agri-
capital becomes more influential abroad, as discursively supported by the BRI. Further research,
however, is required to examine the specific modes of value chain governance enacted by rising
global lead firms such as COFCO, as well as smaller firms active in the cross-border trade, to
determine the likely effects on processes of rural development in the region.
China’s increased coffee consumption and subsequent import demand has already provided
upgrading opportunities not only for firms within China, but also for other regional actors.
Chinese roasted and soluble coffee imports have rapidly increased, both in absolute terms and
as a proportion of total import volume. To date, Malaysia and Vietnam have been key
beneficiaries, where the former relies itself on imports of green beans from Vietnam and
Indonesia, while Vietnam is a major producer itself. As a result, the concern that Chinese
demand would result in increased competition for manufacturers across the region, and even
deindustrialisation, has not yet played out in the coffee sector. Indeed, Cai (2017) emphasised
how the Chinese Government wants to use BRI as a platform to address the country’s chronic
excess manufacturing capacity by migrating surplus factories abroad. This may then create
further industrial upgrading opportunities in the region. Since soluble products for the Chinese
market tend to rely on Robusta beans, which are not currently grown in China at any
meaningful scale, these opportunities are expected to persist for some time, or at least until
China’s ambitions to become the largest instant coffee manufacturer in the world are realized.
The increasing volume of green bean imports into China is also changing the structure of value
chains extending back into key regional producers, such as Indonesia and Vietnam. The
emergence of lead coffee firms from China (including both roasters and trading companies
such as COFCO) is likely to drive new modes of value chain governance back to sites of
production, perhaps favouring models similar to those described in Yunnan rather than the
certified supply chain model currently preferred by established lead firms from the West. The
regionalization of value chains, led by Chinese firms, is likely to offer new opportunities for
both regional processors and green bean suppliers across Southeast Asia in particular, although

22
the implications for both livelihoods and natural landscapes of emergent Chinese sourcing
practices require further research.
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