Coffee in Paradise

By staff reporter MATHILDE NEILSEN-EARLE

TO most people, Shangri-La, a place name introduced to the world by British author James Hilton in his novel Lost Horizon, represents paradise, longevity, and a kind of natural purity rarely found in this day and age. It thus seems fitting that Shangri-La Farms, a natural products company, takes its name from the legendary city in northwestern Yunnan, from where it also sources most of its produce.

The company was founded by the Malik family. The epitome of globalization, their origins lie in the U.S. and Pakistan and their work has taken them all over the world. It is China, however, where the youngest generation of the family has chosen to settle down.

When the Maliks first came to Yunnan almost a decade ago, they fell in love with the provinces idyllic landscape – and its organic producers. The familys three children decided to start a business there to bring its produce to the rest of China in a way that benefited the farmers around Shangri-La.

Growing Roots, and Coffee

If the Malik children say they are from anywhere in particular they say they are from New York, but in reality they spent their childhood living in countries all over the world. Their father is Pakistani but moved to the U.S. Their mother is American, but grew up in India. With no real roots in any individual country, they could have ended up leading their lives anywhere, but fate led them to China.

Sahra, Alia and Safi first came to China because of their father, who had taken the position of resident coordinator of the UN in China. Safi, still a teenager, attended an international school in Beijing. Sahra and Alia had already finished school and moved out of the family home, but were encouraged by their father to join the family as it moved to the East. “Come to China and see how you like it,” he said to Sahra. She followed his advice, and it was here that she got her first job.

Soon after they arrived, their mother moved to Shangri-La and established an NGO called the Yunnan Mountain Heritage Foundation (YMHF), which aims to protect and promote cultural heritage, handicrafts and sustainable tourism in the area. It was through the NGO that the younger Maliks became well acquainted with Yunnan and its people. To this day, the YMHF runs the Yunnan Mountain Heritage and Handicraft Center in Diqing Prefrecture, where it works with the community to promote local cultural heritage, handicrafts, and eco-tourism.

The family enjoyed traveling in the area, and came across a coffee shop that sold remarkably good coffee. They inquired about the coffee and, by chance, the head farmer of the cooperative responsible for growing it happened to be there. They immediately arranged a visit to his farm, and were impressed with the organic credentials of the operation. After several visits, they became good friends with the farmer. He bemoaned the fact that profits were small – the cooperative lacked sales channels through which they could sell processed drinking coffee to the rest of China.

Later, Sahra, who was working as a senior art director at an advertising firm, helped design packaging for the coffee so that it could be sold to raise money for YMHF. This put an idea in her head: selling the organic, “ethical” coffee of Shangri-La Farms to the Chinese market would be a great way to bolster the profits of local farmers. “I thought I should put my skills to good use,” she says. “I quit my job and started doing this full time.”

“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 sisters 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 isnt much of a market for coffee beans in China, where per capita coffee consumption is a mere eight cups every year. Chinas 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. “Its 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 weve entered into the Chinese market proper.”

Last year, they sold over 10 tons of coffee. They project that this years 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 companys 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 peoples 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 theyre 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 organic” 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 theyre working on a certain quality of soil and also guarantees that theyre not using pesticides or chemicals.”

Though their flagship product is coffee, Shangri-La Farms find that their most popular product isactually organic honey. Its a hit with Chinese consumers and is sold on Chinas equivalent to ebay, taobao. The family has also expanded operations to produce natural beauty products, which use mainly imported in- gredients 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. “Its 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 farmers potential profits. But Shangri-Las business model ensures that the participating farmers cut is much higher than the norm, as they are encouraged to process and package the companys 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 provinces 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 UNDPs 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 weve manage to do is bring up sales, which is obviously important, and were 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 ShangriLas 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 dont 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 were helping the farmers. We want to up the percentage of the profits that go to farmers, so its 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 Yunnans organic industry, and its to him they owe their success today.