This paper analyzes case details and the current situation of coffee production under processor vertical integration in China by examining two case studies of the raw material procurement, processor Y in Baoshan and G in Dehong, both of Yunnan Province, the main coffee production district in China. Coffee production in China started under national control, but which changed after foreign-affiliated firms like Nestle began to participate. Thereafter, domestic coffee processors came to play an important role. In China, most farmers plant coffee under a contract with coffee processors who provide materials such as seedings or machines. Until now, research has shown that this vertical integration of coffee processors not only successfully controlled the raw material source, but also brought positive economic effect to farmers' income. However, farmer autonomy and independence was seen to decrease. The case study suggests that processors not only built self-owned farms, but also made contracts actively with farmers. The extent of integration increases when the large processors develop new contracts with non-experienced farmers, which can be seen as a trend of coffee industry in China for the next few years. In this, these farmers are strongly effected by processors' strategies. It is very likely that the processor would transfer the majority of risk to farmer while a market failure occurs. As a threat to the sustainable development of coffee agriculture and industry of China, this predicts an important issue.
