Yunnan province is a microcosm of the intertwined natural resource challenges facing China. Dams, development, deforestation, drought, and climate change threaten China’s most biodiverse province – all while it increases its exports of agricultural products and electricity to China’s coastal provinces. These competing demands bring into question the sustainability of China’s development paradigm and the country’s environmental security.

For Yunnan, a partial solution to this knot of choke points may lie with its nascent coffee industry. Starbucks is the face of the coffee boom in Yunnan, and their Coffee and Farm Equity Practices (C.A.F.E.) could offer farmers the tools they need to adapt to changes while simultaneously reducing their own input to environmental stresses.

Yunnan’s Coffee Buzz

Although coffee cultivation is but a drop in the bucket in terms of Yunnan’s overall agricultural production, the province produces 98 percent of all Chinese coffee. Between 2008 and 2011, the land area used for coffee in Pu’er county, which produces60 percent of Yunnan’s coffee, doubled from 14,000 hectares to 28,000. That number is expected to double again by 2015.

Despite this remarkable growth, demand has outstripped supply. Over the same period, coffee bean prices have doubled, rising from 16 yuan a kilogram to 30. These high prices give farmers incentive to switch from tea to coffee cultivation and clear forested areas for new production.

While certainly good for Chinese coffee drinkers, there are questions about the environmental sustainability of Yunnan’s coffee boom. Most of the coffee grown in Yunnan is sun grown, which requires more chemical fertilizers than shade grown coffee to achieve similar yields. Coffee cultivation is also very water intensive, and Yunnan’s ongoing four-year drought could threaten future yields.

Notably, Starbucks only purchases shade-grown coffee, which underscores the potentially large environmental benefits of the company’s program to promote sustainable coffee farming in the province.

Starbucks in China

Starbucks first opened coffee houses in Mainland China in 1999, but it was not until 2006 that they considered sourcing coffee beans from China.

Since then, Starbucks has been working with local governments, firms, and the Yunnan Academy of Agricultural Science (YAAS) to expand its coffee production, increase quality, and improve sustainability.

In 2010, Starbucks signed an agreement with YAAS and the Pu’er city government to establish its first coffee bean farm in the region. In addition, the agreement included plans for a coffee development center, a farmer support center, and coffee processing centers.

In 2011, Starbucks set up a local joint venture with Ai Ni Group – an established coffee operator and agricultural company in Yunnan – to expand its coffee sourcing network in the region and to more fully implement “best practice” coffee processing methods. In December 2012, the Starbucks Farmer Support Center officially opened in Pu’er.

Water, Coffee, and C.A.F.E.

Growing and processing coffee is surprisingly water intensive. According to a study by scientists from the University of Twente, the full economic cost of an average cup of coffee in the Netherlands is 140 liters of water. Well aware of coffee’s water intensity and other problems associated with coffee cultivation in the developing world, Starbucks began implementing a set of environmental, social, and economic guidelines in 2004 to source ethically produced coffee globally. Called the Coffee and Farm Equity Practices (C.A.F.E.) and introduced in 2011, these standards include water conservation measures in growing and processing and require proper waste-water disposal techniques.

Since Starbucks began operating in Yunnan, it has been slowly encouraging its local suppliers to follow C.A.F.E. Practices and verified its first suppliers in 2011. While Starbucks has not commented on any further progress implementing C.A.F.E. Practices in Yunnan, the company has publicly stated that it hopes to source 100 percent of its coffee from C.A.F.E. verified farms by 2015.

According to Joanne Sonenshine at Conservation International, Starbucks’ partner in C.A.F.E. Practices, a consistent source of water makes it easier for farmers to stick to the standards and helps build resilience to climate change. More water means more shade trees. The trees improve soil quality, water retention, and crop yields while reducing the need for fertilizers, creating a small positive feedback loop.

One of the largest sources of water in Yunnan is the Mekong River.  According toInternational Rivers, there are 7 dams already built, 7 under construction, and at least 11 more being planned on this vital artery, including the newest (coming online justlast September), tallest, and closest to Pu’er, the Nuozhadu hydroelectric station. By 2014, Nuozhadu will produce 23.9 billion kilowatts of electricity, two-thirds of which will be routed to Guangdong province through the West-East Energy Transfer Project.

The local government has also been promoting the dam’s benefits as a source of irrigation for all types of farming in Pu’er and encouraging the people displaced by Nuozhadu’s reservoir to enter the coffee growing industry. This could be tremendous boon to a region that is now entering its fourth year of serious drought.

High and Dry

Beginning in 2009, Yunnan has seen rainfall decrease by 50 to 60 percent, and over four million people have had difficulty getting drinking water. In addition to coffee, Yunnan is a leading producer of fresh flowers, tobacco, tea, and sugar; the drought halved yields for all of these crops and also caused a 47 percent decrease in reserve hydropower capacity, undermining the investments made in Yunnan’s 21 dams, including Nuozhadu.

Nuozhadu’s reservoir may help ease the impact of the drought, but if it encourages even more agricultural production, it could also exacerbate deforestation, which has significantly reduced the region’s biodiversity and water retention and made it more prone to landslides. The largest culprit behind Yunnan’s deforestation has been the rise of eucalyptus and rubber tree cultivation in the province. Since 1976, over 67 percent of Yunnan’s rainforests have been lost due to clear-cutting for rubber plantations. Today, despite an ongoing logging ban, hillsides have been observed being cleared to make way for coffee growing too.

According to Nature, climate change has been a contributing factor in changing weather patterns, including the drought. Xu Jianchu, an ecologist at the Kunming Institute of Botany, said that the most affected areas of Yunnan are those with the fastest rate of development and the most extensive deforestation. Any change to coffee production therefore has a chance to make a large impact, both in responding to climate change and controlling water use.

A Potential Model for Broader Agricultural Reform?

Yunnan is emblematic of the massive competing demands and environmental stresses being felt across China.

Starbucks’ C.A.F.E. Practices, if they can be implemented successfully, offer farmers incentives to reduce water use, stop overuse of fertilizers and pesticides, and implement other sustainable agriculture practices. Previous assessments of C.A.F.E. Practices inGuatemala and Colombia, found that participating farmers were more likely to make investments in water quality and biodiversity.

In turn, less water for coffee could mean more water for everyone else, easing drought pains, improving resilience to climate change, and ensuring hydropower continues to flow to China’s centers of manufacturing. Reducing fertilizer and pesticide use is particularly important as agriculture is China’s largest source of water pollution. Clean water is so scarce in some regions that farmers have been forced to use polluted industrial runoff to water their crops, leading to tainted food.

These market-based incentives could provide a model for sustainable agriculture reforms in China at large. China’s leaders have been masterful in using market incentives to reform agriculture in the past – let’s hope they can do so again.

David Tyler Gibson is a research assistant for the Wilson Center’s China Environment Forum.

Sources: China Daily, China.org, A.K. Chapagain and A.Y. Hoekstra, Circle of Blue, Conservation International, The Economist, International Rivers, International Trade Center, Nature, Reuters, SCS Global Services, Starbucks.

Photo Credit: “Kuanzhai Starbucks, Chengdu,” courtesy of flickr user Navona. Map Credit: James Conkling, fellow at Amnesty International, and David Tyler Gibson.

This article was first posted on the China Environment Forum’s column on New Security Beat, the blog of the Environmental Change and Security Program.