“It felt like the natural step to do something that involved all these cool people we had met and focused all the sustainable agriculture practices we were seeing,” says Safi, who was still in full time education when the company was founded, but was keen to get involved with his sister’s project. That year, he spent his summer vacation pitching to potential clients, and when he graduated from the University of British Columbia he headed back to China to help out.
As for Alia, she started to get interested in the work of some natural beauty product makers in China at the same time as Sahra began to get involved with the coffee producers in Yunnan. The two realized how similar their projects were and decided to work together. Now, Safi and his two sisters have all joined forces, and they maintain a working relationship with the YMHF, which receives funding from their profits.
Creating a Reliable Brand
As yet, there isn’t much of a market for coffee beans in China, where per capita coffee consumption is a mere eight cups every year. China’s emerging middle classes have yet to develop a culture of grinding coffee beans at home, preferring to brew cheap, instant coffee instead. But consumption habits develop quickly. “It’s changing for us a lot with the Chinese market,” says Sahra. “We started with what we knew – the expat market – but in the last year we’ve entered into the Chinese market proper.”
Last year, they sold over 10 tons of coffee. They project that this year’s figure will be in the region of 20 to 30 tons. Sales are growing even faster than the already breakneck rise of coffee consumption in China – over 10 percent per year. Their company’s growth has been greatly helped by their participation in daytime television shows, which took an interest in the company due to their fair trade practices that bring higher incomes to small farmers, as well an in their YMHF charity work. Sales have also been helped by the growing market for organic and natural produce following a spate of health and safety scandals in the past few years that have brought food safety to the forefront of Chinese people’s concerns.
At Shangri-La Farms, they are just beginning to tap into increasing demand for organic produce. For the Maliks, success is a long-term project and all about building a brand that people trust. “We really want Shangri-La Farms to be a reliable brand – for people to buy it and know they’re getting a natural, high quality product,” says Sahra, the oldest of the siblings.
Finding organic farms with which to work and ensuring they are “truly orga-nic” is a difficult task to achieve in a country where the organics market is relatively undeveloped. In the early days they relied heavily on government-sanctioned areas for produce. “Typically what we were doing before was only working with groups that were producing on nature reserves or ecological zones that were sanctioned by the government,” explains Safi, the youngest of the three. “The officially recognized credentials ensure that they’re working on a certain quality of soil and also guarantees that they’re not using pesticides or chemicals.”
Though their flagship product is coffee, Shangri-La Farms find that their most popular product is actually organic honey. It’s a hit with Chinese consumers and is sold on China’s equivalent to ebay, taobao. The family has also expanded operations to produce natural beauty products, which use mainly imported ingredients but are processed in workshops in China. “We have about 80 different types of beauty products,” says Sahra. “All are natural, hand made from very good ingredients, and contain no preservatives or additives.” Their best selling beauty product is a soap. “It’s very lovely,” Sahra says proudly, as she explains the manufacturing process.
Now, the company is expanding and taking on more suppliers, including ones outside government-sanctioned areas. This means guaranteeing the organic status of their products is harder, but the need for more coffee to sell necessitates the move. The situation is complicated by the fact that the high cost of organic certification eats away at the farmer’s potential profits. But Shangri-La’s business model ensures that the participating farmers’ cut is much higher than the norm, as they are encouraged to process and package the company’s products on farms themselves.
Making Coffee a Real Cash Crop for Farmers
Coffee has been grown in Yunnan since 1892, when it was introduced by a French missionary. The province’s mountainous, subtropical conditions make it perfect for coffee plantations, which produce a mild, refined bean that is popular in the international market. Today, almost all coffee produced in China comes from Yunnan.
In Shangri-La, the Malik family were not the first foreigners to get directly involved with small coffee producers. Back in the 1980s, the UNDP ran a rural development program in the area, improving the local coffee trade by linking farmers up with global exporters. The locally grown beans were exported, but mainly to Europe where it would end up being used as a cheap ingredient in products such as pharmaceuticals and skin care. It was not sold directly to consumers as the high quality coffee it was.
Though the UNDP’s project brought positive effects to farmers through trade, the product they sold to the global market was very low on the value chain, being just raw green beans. This is where Shangri-La has made a difference. Farmers now process their beans onsite. “One thing we’ve manage to do is bring up sales, which is obviously important, and we’re buying at fair trade value. But our real social impact is that we bring farmers further up the value chain by keeping them involved in processing, right up to the packaging. They hull the beans, sort them, roast them, then package them to create the final product,” says Safi.
This is a far cry from the way most other coffee companies operate. It is typical to buy the coffee as green beans, then dry, hull and roast and package them in their own facilities before distributing the final product. Under this system, generally only about two to seven percent of the price you pay for your coffee makes it back to bean growers. But with Shangri-La’s model, that figure is 22-24 percent.
At the moment Shangri-La deals mainly in wholesale. They sell their coffee to catering companies, businesses, including Nokia and General Motors; international schools, specialist food shops, and Pacific Coffee in Hong Kong. “As a small company, it was very difficult to get the big contracts,” explains Safi. “We had to really prove we were competent before we could supply any larger organizations.”
The next big step for the company is to open their own coffee shops and retail points in major cities in China and establish a well-known brand. “We don’t plan to compete with Starbucks or Costa,” says Sahra. “Our idea is to have homey coffee shops that have the flavor of Yunnan in the interior.”
The Maliks say that by opening their own shops they can cut out even more middlemen in their business. “We want to stay true to the fact that we’re helping the farmers. We want to up the percentage of the profits that go to farmers, so it’s important for us to control the selling place.”
For the Malik siblings, the farmers with whom they work are not just suppliers, but are the reason they are involved in organic coffee in the first place. Indeed, it was a local farmer who first inspired their passion for Yunnan’s organic industry, and it’s to him they owe their success today.
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