Coffee farmers in Yunnan are being wooed by multinationals through pilot projects that assure supply. Cui Meng / China Daily

Yunnan province is home to the eponymous Pu'er tea - favored by connoisseurs around the world. But in this scenic mountain region, a quiet race is on for another less known beverage - coffee.

Yunnan has become a key Chinese battleground for the world's major coffee makers including Starbucks and Nescafe wanting to get access to the country's prime plantations.

They are vying with local producers to control the supply of coffee beans in the southwestern province to cater to a growing population of coffee drinkers in China.

"Very few places are suitable for growing coffee beans in China, only Yunnan and Hainan provinces, so whoever controls the land will control a limited supply of quality coffee beans, and stand out in the fierce competition," says Zou Lei, vice-president of the China Coffee Association.

"That's why so many coffee distributors are bidding against one another to dominate the upstream products."

Yunnan produces 30,000 tons of coffee annually, contributing about 98 percent of the country's total output.

Starbucks Corp, the world's largest coffee chain, signed an agreement in November with the Yunnan provincial government to set up its first-ever coffee bean farm in order to secure a stable supply of coffee beans.

The Seattle-based coffee company says it will also establish a coffee development center, coffee farmer support center and coffee processing facilities apart from the base farm.

The company has never grown beans on such a massive commercial scale before - currently Starbucks purchases its coffee from farmers in more than 30 different countries.

"Our efforts in Yunnan demonstrate Starbucks' ongoing commitment and investment in building China into our second home market outside the United States," says Starbucks Chief Executive Howard Schultz without giving any specific details on the investment.

"It will strengthen the foundation of Starbucks China by completing our entire value-chain - from coffee seed to the high-quality, freshly-brewed coffee."

Starbucks launched a special coffee line with whole beans grown in Yunnan last year called South of the Clouds Blend, a literal translation of Yunnan. The coffee is offered only in China, Malaysia and Singapore.

"It's a strategic move for Starbucks not only because of the growing concern about the soaring coffee price this year, but also the huge potential of China's booming market," Zou says.

China, a tea-drinking nation, is developing a thirst for coffee, mainly due to an increase of the country's young urbane drinkers who are accustomed to Western lifestyles.

Many Chinese drinkers picked up the habit while living abroad and have brought it back home with them.

"I can't do anything until I have my first coffee in the morning," says Cui Jiannan, 27, who had lived in the US for five years. "Drinking coffee in the US is just like having tea in our country. After living there for so many years, it's now a part of my life to sit in a coffee shop talking and meeting new friends."

Since opening its first store in 1999 in Beijing, Starbucks has expanded to 800 stores in China and the number will increase soon to more than 1,000, according to Schultz.

However, Starbucks is not the first company to keep its eyes on Yunnan. Other coffee giants, such as Nestle SA and Maxwell House, a unit of Kraft Foods Inc, have purchased coffee beans from Yunnan for decades.

Nestle, the world's largest food company by sales, is the first international company to establish a coffee processing plant in China.

The Swiss-based instant coffee power house dominates about 80 percent of China's coffee market after stepping into the market more than 20 years ago and developing the business, says Adrian Ho, head of the coffee and beverage business unit at Nestle (China) Ltd.

The Nestle experimental and demonstration farm was established in 1997, covering an area of 60 hectares and started direct large-scale procurement of Arabica coffee from local farmers from 2002.

So far, Nestle has invested about 50 million yuan (5.65 million euros) into training local farmers to improve the quality of Arabica coffee and the yields of their plantation.

The initiative helps the company build a strong relationship with the coffee beans suppliers, most of whom are local farmers.

"I think it's not easy for someone outside to come and buy coffee, despite the fact that the prices always do something and it could be that you offer a high price and someone will sell it to you," says Wouter De Smet, manager of Nestle Coffee Agriculture Service (NAS), who has been living in Pu'er city, Yunnan, for about six years.

"But as I said, the relationship with the suppliers cannot be built over one night. Our linkage with local farmers is very strong and it helps us get access to high quality coffee beans."

Fierce competition is brewing in China. Starbucks plans to offer its first instant coffee product, Via, which the company spent 20 years developing in China, but the coffee maker has not settled on a date, as Schultz told the Wall Street Journal earlier.

"Consumers here need to develop a better understanding of the coffee culture first," he says.

Starbucks launched Via instant coffee in September 2009 in the three test markets - Chicago, Seattle and London - but the company is now expanding its distribution in stores throughout the US and Canada.

Domestic coffee makers are also keen on getting a piece of the action.

Hogood Coffee Corp, China's largest coffee maker and supplier with an annual production of more than 5,000 tons, had provided coffee beans to the world's coffee giants including Nestle and Maxwell House for about a decade.

But the company cut the supply to Nestle in 2008, hoping to build its own instant coffee brand.

Nestle told China Daily the reduction from Hogood did not affect the company's coffee production because it accounts for less than 1 percent of the total coffee purchase in China in 2008.

Hogood Coffee has a plantation area of 8,000 hectares, about 25 percent of the total growing area in China, and plans to expand it to 20,000 hectares within three years.

The Yunnan provincial government also plans to invest 3 billion yuan in expanding coffee bean production from the current 38,000 tons to 200,000 tons by 2020. Additionally, it will increase coffee acreage from the current 26,700 hectares to 100,000 hectares within the same period.

"Multinationals have made a positive contribution to the development of the Chinese coffee industry as they help local farmers to improve planting skills and income," says Ding Qiang, an official of the department of agriculture in Yunnan.

"With decade-long promotional activities by global coffee makers, more Chinese consumers are acknowledging coffee culture."

Coffee sales in China hit $2.40 billion (1.80 billion euros) in 2006, and the number is expected to reach $3.6 billion by 2011, according to research company Euromonitor International.

China's coffee consumption is about 30,000 tons a year, a sharp contrast to the demand of more than 1.2 million tons in the US and 80,000 tons in Germany, which account for more than 30 percent of the world's total consumption.

"There is still much room for development as the coffee industry in Yunnan is expected to become a new pillar industry, creating more than 10 billion yuan of output value," says Huang Jiaxiong, a researcher from the Yunnan Academy of Agricultural Sciences.