How Domestic Demand Drives Coffee Export-Basket Upgrading: Pathways to Agri-Food System Transformation

The coffee industry in developing countries has long been locked into the lower end of the global value chain, and external governance mechanisms such as fair trade have struggled to fundamentally reverse this situation. This study adopts a mixed-methods research design, using the coffee industry in Yunnan, China, as a case study to reveal the micro-level mechanisms by which domestic demand drives industrial upgrading. Building on these case-derived mechanisms, it then uses panel data from 96 major coffee-producing and coffee-consuming economies from 2012 to 2024 to examine their macro-level implications, including national-level relationships, nonlinear patterns, and cross-country heterogeneity. The study shows that both factors generally drive export upgrading and exhibit a “promotion—inhibition—re-promotion” pattern characterized by a dual-threshold nonlinearity. The case study reveals that the inhibition phase stems from a mismatch between market expansion and demand structure upgrading, where homogeneous capacity growth temporarily offsets the effects of quality upgrading. Heterogeneity manifests in three distinct patterns: producing countries exhibit only a significant domestic market absorption effect; traditional consuming countries are primarily characterized by path dependence; and emerging consuming countries achieve dual-driven growth in both scale and quality. By bridging macroeconomic effects and microeconomic logic, this study clarifies the conditions under which domestic demand drives product-end upgrading along the value chain, providing a reference for different economies to formulate differentiated upgrading strategies.