Analysis: Despite Starbucks-bashing, global coffee industry has China firmly in its sights

Overpaying for foreign goods is nothing new for mainland Chinese. Since China joined the WTO in 2002, a “luxury tax” has been applied to everything from jewellery, to cars and to dishwashers. Now Starbucks lattés can be added to this list of luxury scams -- at least according to official Chinese media including CCTV, the state broadcaster, who accused the American coffee chain of "profiteering" in China last month. 

The non-specific "investment" Shultz explained probably referred to the politics of joint ventures. Foreign companies require Chinese partners to do business in the mainland, and therefore must split profits. This is essentially the reason why a latté in Shanghai costs more than in New York or Paris. Shultz phrased this in his interview by saying, “Chinese understand why we charge more,” a comment that triggered an immediate backlash online from Chinese consumers.

The partner of Starbucks in China is Yunnan’s Ai Ni Company, which this year helped open the first Starbucks Farmer Support Centre in Yunnan’s Puer city. Yunnan province has no free-trade zones, but there is plenty of fertile soil and experienced farm workers. Western China is the new frontier for coffee growth. Puer’s soil was virgin to coffee five years ago, but in 2011 the Yunnan provincial government invested 3 billion yuan in coffee production for the province, according to a China Daily report.

By 2020, China is expected to surpass the US and Brazil as the world’s largest coffee consumer according to ICO, an agriculture and commodity research group. Starbucks and Nestle are head-to-head in the race for China’s instant coffee distribution. Though coffee is still a luxury-based commodity, fewer mainland Chinese adults abide by tea drinking. China has seen an annual 15-20 per cent growth in coffee consumption since the turn of the century, driving demand for imports.

Starbucks clones continue to sprout in China’s second and third tier cities, where one fancy espresso drink will retail for between 30 to 40 yuan. Though Starbucks may seem to be gaining more than their fair market share, China’s counterfeit culture gets the last laugh.