Starbucks' Coffee Conundrum

Starbucks’ recent offerings to the East African coffee growers - and Ethiopians in particular - are the company’s responses to its fair trade critics, not to the trademark dispute. The company has not softened its stance against Ethiopia’s trademark initiative.

The analysis by The Montley Fool explains the current development.

Starbucks' Coffee Conundrum
Alyce Lomax
February 20, 2007

Starbucks has found itself in the midst of a quandary about its dealings with Ethiopia. After a high-profile trademark dispute, the coffee giant appears to be making concessions regarding a complex issue, one it had little choice but to address.

Ethiopia, which produces high-quality coffee beans, has claimed that Starbucks has been seeking to block its attempts to trademark its coffee; it believes trademarks could get it better prices. Some claim that approximately $90 million in potential income to poor farmers has been lost because of the lack of trademarks, and that the prices Ethiopian farmers get for premium beans still leave them impoverished. Following that idea to its logical conclusion, critics point out Starbucks' robust profits, and the lofty prices it commands for selling brew made with premium beans.

Speaking of critics, last year saw the release of a scathing documentary, Black Gold: Wake Up and Smell the Coffee, describing troubling elements of the international coffee industry. The movie also delves into Fair Trade, a movement to pay better-than-market prices for commodities like coffee -- a price hike many consumers are willing to bear.

Starbucks seems to be softening its stance in the wake of the criticism. It plans to double its purchases of East African coffee from 6% to 12% by 2009, and increase purchases from Ethiopia specifically. It will also provide $1 million in microfinancing loans to poor farmers in the region, while funding farmer support centers as well. The company also pointed out that it already has its C.A.F.E. (Coffee and Farmer Equity) Practices in place to ensure socially responsible coffee buying.

Despite those efforts, it's hard to ignore the deal Starbucks rival Green Mountain Coffee Roasters recently made with Ethiopia, in which it pledged to recognize the country's coffee brands.

Starbucks had little choice but to address this thorny, high-profile issue. The company has built its brand around being a different, more socially responsible kind of company, and it seems to me that any implications to the contrary are risky for the java giant. As increasing numbers of socially aware consumers vote with their wallets these days, and Starbucks continues to court them, the coffee company has an ongoing challenge to live up to its branding. Over the long term, that commitment to fair practices should serve it well. Given Starbucks' continued growth, however, staying socially responsible probably won't get any easier from here.

Read the complete commentary, Starbucks' Coffee Conundrum by Alyce Lomax at The Montley Fool