The media campaign spearheaded by Oxfam has sparked a widespread discussion among the public. Starbucks’ business tactics also have made their way out, through its press releases, only leaving readers perplexed. I hope the following Q&A will clarify some of the questions surrounding the trademark issues being debated throughout the past few weeks.As far as my own research goes, this Fine Coffee Trademark Licensing Initiative is part of an innovative and sophisticated strategy to claim a greater share of the export value of its products and which rightly belongs to its people. The Fine Coffee Trademark Licensing Initiative aims at securing Ethiopia’s legal ownership of its specialty coffee names through trademark registration. The project is funded in part by the UK’s Department for International Development.
According to Oxfam, “intellectual property assets such as technological know-how, patents, trademarks, brand names and copyrights increasingly make up the majority of the profits from international trade. Recent studies show that 85% of corporate assets are now “intangible”. This reflects the income generation capacity of intellectual property.
In my view, Ethiopia is a perfect candidate to pioneer the utilization of Intellectual Properties for development, because of two fundamentals: the quality of its coffee and the fact that it is a country that is stereotyped as a land of poverty and desperation. If Ethiopia takes control of the Trademarks for the Specialty coffees, which are currently sold at a price close to that for commodity coffees despite their gourmet quality, the price for these coffees will be negotiated between parties of equitable leverage – producers and the buyers.
When Ethiopia filed its request to trademark the names, Yirgachefe, Harar and Sidamo, at the US Patent and Trademark Office, Starbucks already had a conflicting trademark pending. Though Starbucks has since withdrawn its application for Shirkina Sundried Sidamo Coffee trademark, the National Coffee Association (NCA) filed a letter of protest in opposition to Ethiopia’s applications on the basis that these names are generic (meaning, the names have been un-trademarked for so long that people do not recognize these names as distinct types of coffee.)
Starbucks, the influential member of the National Coffee Association (NCA) and the Specialty Coffee Association of America (SCAA), has issued a series of press releases, forced by Oxfam’s media campaign, with two contradicting central messages: that it has never filed an opposition to Ethiopia’s application and that Geographical Indications (a.k.a. Certification in Europe), and not trademark, is what is helpful for the Ethiopian farmers.
The following Q&As will examine the underlying facts and attempt to decode some of the jargon therein.
What is a Specialty coffee?
There is an important difference between Specialty coffee and commodity coffee. Specialty coffees are fine or gourmet coffees that solidly stand out from the pack of average Arabica beans on their own discernable merits whereas commodity coffee is your literally generic run of the mill coffee that is listed as the NY "C" price.
The coffees that are in question in this debate are the Specialty coffees. These coffees are not commodity coffees. Even though several of Ethiopian coffees do command far higher retail prices at the end of the chain, Ethiopia is only trying to gain control over the Specialty coffee and some of the brand management and distribution of these fine coffees.
What is a geographical indication (GI)?
According to the World Intellectual Property Organization (WIPO), a GI is “a sign used on goods that have a specific geographical origin and possess qualities or a reputation that are due to that place of origin. Most commonly, a geographical indication consists of the name of the place of origin of the goods. Agricultural products typically have qualities that derive from their place of production and are influenced by specific local factors, such as climate and soil. Whether a sign functions as a geographical indication is a matter of national law and consumer perception. Geographical indications may be used for a wide variety of agricultural products, such as, for example, "Tuscany" for olive oil produced in a specific area of Italy, or "Roquefort" for cheese produced in France.”
What is a trademark?
The WIPO defines a trademark as “a distinctive sign which identifies certain goods or services as those produced or provided by a specific person or enterprise. Its origin dates back to ancient times, when craftsmen reproduced their signatures, or "marks" on their artistic or utilitarian products. Over the years these marks evolved into today's system of trademark registration and protection. The system helps consumers identify and purchase a product or service because its nature and quality, indicated by its unique trademark, meets their needs.”
What is the difference between a geographical indication and a trademark?
“A trademark is a sign used by an enterprise to distinguish its goods and services from those of other enterprises. It gives its owner the right to exclude others from using the trademark. A geographical indication tells consumers that a product is produced in a certain place and has certain characteristics that are due to that place of production. It may be used by all producers who make their products in the place designated by a geographical indication and whose products share typical qualities.” - WIPO
What does a trademark do?
“A trademark provides protection to the owner of the mark by ensuring the exclusive right to use it to identify goods or services, or to authorize another to use it in return for payment. The period of protection varies, but a trademark can be renewed indefinitely beyond the time limit on payment of additional fees. Trademark protection is enforced by the courts, which in most systems have the authority to block trademark infringement.
“In a larger sense, trademarks promote initiative and enterprise worldwide by rewarding the owners of trademarks with recognition and financial profit. The system enables people with skill and enterprise to produce and market goods and services in the fairest possible conditions, thereby facilitating international trade.” - WIPO
Like any name–brand product, trademarking the names Yirgachefe, Harar, and Sidamo would help Ethiopia enhance the value of its coffees by building their reputation in the market. With control of the names, Ethiopian exporters, including farmer cooperatives, could improve their negotiating power with buyers and work to capture a greater share of their coffee’s retail price. As Ethiopia uses its ownership of the coffee names to build their reputation and increase the value of the country’s coffees, companies could end up paying a few cents more to Ethiopian producers for these specialty coffees that fetch premium prices in the market. GI or certification - the toothless mark - would not do this.
How does the trademark work? How is the $88 million increase in the project revenue calculated?
This campaign hopes to urge Starbucks to sign a royalty free license acknowledging Ethiopia’s claim to its specialty coffee names. With owner ship of its coffee names, Ethiopia could preserve the integrity of its ‘brands’ through control of their use in the market (for example, prevent misuse and increase brand value through marketing strategies). Owning the trademark could also empower Ethiopian exporters (including the coops) by setting terms of trade for companies licensed to use the names (for example,. setting a slowly-increasing minimum export price,, allowing a more equitable distribution of the retail value associated with the names and reputations of the coffees)
Oxfam assumed that this project could eventually help increase the export price of these coffees from an average price of $1.20 to about $2.00 per pound. Based on the total exports of Ethiopian specialty coffees amounting to 110 million pounds in 2005,it is estimated that the project revenue could increase to $88 million a year. Starbucks has sold some of Ethiopia’s best coffees for $26 per pound. The ability to raise the export price of the coffees will be generated over time with an incentive to further build their reputation. As the reputation of the coffees increase, so will their value and the profits for farmers.
Will the farmers get the money this project will be generating? What if the government takes the money?
Since the inception of this project, stakeholders including the farmer cooperatives that Oxfam works with have been consulted. The project calls for a continuous role played by all of these groups in how the project is shaped and implemented and Oxfam is committed to helping the cooperatives that they work with to participate and play a strong role.
In designing the licensing agreement that Ethiopia is asking Starbucks and other companies to sign, Ethiopia chose not to collect a royalty from companies who sign the agreement. The licensing agreement states that Ethiopia’s goal is “to maximize the benefits to farmers” and that the control of the names is “for the benefit of, and in collaboration with, up to 4 million Ethiopians engaged in production and supply of coffees”.
Under the current coffee marketing system in Ethiopia, producers sell the coffee to traders directly or to commercial exporters through the auction. Foreign buyers can't buy coffee directly at the auction but only through licensed exporters. Farmer cooperatives can sell coffee directly to overseas buyers and thereby avoid the auction. Meanwhile, the party who sells to a an importer licensed to use the trade marked names will be the one with the negotiation power. My understanding is that the government is not a party in these private transactions, so it should not handle the money. However, the government is the owner of the trademark with the authority to issue the licenses to importers. This prompts important questions.
Given the current government's repeated violation of law and order even in terms of the constitution it wrote and its tarnished human rights records, the role it plays in such initiatives is rightly questionable. Also, the marketing system is skewed towards favoring middlemen and exporters more than the poor farmers. But are these Starbucks’ business? Starbucks is not genuinely concerned about these problems other than using them as a coating for its business tactic. My upcoming posts will discuss this topic in further depth and attempt to explain or suggest systems that will reinforce the farmers' opportunity to directly benefit from this and other projects.
Starbucks says that they pay more than fair trade prices. It is all over the company’s reports and press releases. How do you see it?
Starbucks has sold Ethiopian Sidamo coffee for as much as $26 per pound. Yet farmers typically receive just 5-10% of the retail value of the coffees. The company boasts that it pays Ethiopian farmers for their coffees a price better than the price for Fair Trade certified coffees. This statement is misleading because it is comparing the price Starbucks paid for the specialty coffees with that price for commodity coffees sold as Fair Trade Certified™. The Fair Trade market system aims at ensuring a fair price for coffees produced by farmers’ cooperatives. The Fair Trade Certified™ label guarantees a fair price (minimum of $1.26/lp), quality products and care for the environment. This process is monitored by independent, third-party certifier of Fair Trade products. To the contrary, Starbucks, through its purchasing program – a process that is not verified by independent parties - buys the specialty coffees from exporters, not directly from the farmers, at a price level of its choice. Specialty coffees command a higher retail price than commodity coffees. Starbucks is comparing prices of two coffees of different quality standards. In reality, the income realized by the farmers from their coffees sold to Starbucks does not even cover their costs of production.
Ethiopia’s project is aimed at increasing the percentage of the retail secured by the Ethiopian coffee sector, including small farmers, which is now captured by others. With control of the names, Ethiopian exporters, including farmer cooperatives, could improve their negotiating power with buyers and work to capture a greater share of their coffee’s retail price.
What if Starbucks decides not to buy its coffee from Ethiopia?
Indeed, Starbucks has issued a statement threatening that roasters may decide not to buy Ethiopian coffees if the country trademarks its names. For a company that prides itself in its social responsibility practices, this statement is uncalled for. Whether Starbucks is really going to stop buying coffee on which their profit margin has dropped by 88 cents per pound remains to be seen. But these coffees being fine coffees and thus are not substitutable with other commodity coffees, it is unlikely that companies addicted to gourmet coffees will stop requesting the best coffee in the world and start settling for low grade, flat brands.
By the way, Starbucks buys less than 5% of its coffees from Africa (purchases from Ethiopia and all other coffee growers in the continent added together.) Only early this year did the company announce that it was gong to increase the quantity by 400%, which will have increased the volume of its coffee purchase from Ethiopia to about 2% of its total purchases.
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