Nestle brews fresh investment as world savors Pu'er coffee

Nestle SA - the world's largest food company by revenue - has announced plans to increase its investment in Pu'er, Yunnan province, in a bid to increase its cultivation of oriental coffee.

A memorandum of understanding signed by Nestle and the Pu'er government, which includes building a Nestle Coffee Farming Institute, a warehousing and testing laboratory and a Nescafe Consumer Experience Center, aims to provide training and infrastructure for local farmers and promote the region's coffee production.

"Nestle has been engaged in Yunnan since 1988," said Heiko Schipper, managing director of Nestle's food and beverage division, on Tuesday.

"As a multinational company that has a long-term commitment to the Pu'er coffee industry, Nestle relishes the kind of opportunity that Pu'er offers to create shared value - helping a local economy develop while providing Nestle with a fantastic product."

Lu Han, director of the Pu'er Coffee Industry Federation, believes the MOU is an important step toward boosting Nestle's global sourcing due to the high quality and quantity of Pu'er coffee beans.

In 2010, Starbucks Corp also signed a similar MOU with the Pu'er government to promote coffee growing in the region.

Coffee has become one of the pillar industries of Pu'er city. Peng Yuanguo, the city's vice-mayor, said Pu'er produces most of China's coffee beans. It produced 36,500 tons of coffee beans in 2012, and plans to produce 100,000 tons by 2016.

He said 80 to 90 percent of Pu'er coffee beans are exported.

During 2011 and 2012, Nestle bought more than 10,000 tons of premium Arabica coffee beans from farmers in Pu'er, a year-on-year increase of 25 percent. The company said it plans to purchase more than 70,000 tons in the 2012-13 season.

Starbucks said it has increased its coffee purchase from Yunnan by more than 20 times since 2007, when it first started purchasing the beans.

Dong Zhihua, vice-president of the Coffee Association of Yunnan, said local demand for coffee is increasing in tandem with overseas consumption.

According to research firm Mintel, the Chinese mainland market for packaged coffee products has grown at a compound annual growth rate of 18 percent a year since 2007, and could rise another 75 percent to 16 billion yuan ($2.5 billion) by 2017.

The value of coffee sales in China reached 6.25 billion yuan in 2011, up 20 percent from a year earlier, according to market research firm Euromonitor International.

Local government officials said Pu'er welcomes multinational companies, such as Nestle and Starbucks, to cultivate in the region as it helps local farmers increase their income while boosting the local government's tax revenue.

"Pu'er is the origin of the famed Pu'er tea leaves. Isn't it good that the city has gained another title as the Chinese capital of coffee beans?" said Dong.