I regard Starbucks' willingness to engage in discussion as a positive step. Both sides are entitled to their assertions regarding Ethiopia’s trademark initiative. Nevertheless, the matter central to the debate is left out of Starbucks’ discussion, as they do not address all of the issues raised in Dr. Holt’s commentary. I also found some of the comments made by Starbucks misleading and deceptive, if not outrageous. I have inserted my observations under each segment categorized by Starbucks as “Fiction” and “Fact.” My observations are colored darker to keep the integrity of Starbucks’ messages intact.
If you are new, start from here.
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Starbucks and Ethiopia: Fact vs. Fiction
We would like to respond to an essay by Douglas Holt, “Is Starbucks Coffee That Cares?” – which is absolutely counter to who we are and how we do business. We are very proud of the socially responsible way we have done business for over 35 years. Mr. Holt is entitled to his opinion. However, there are a number of half-truths and misrepresentations put forth by Douglas Holt in his essay and we feel compelled to address Dr. Holt’s inaccuracies, and set the record straight.
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Fiction: Starbucks does not honor its commitments to coffee farmers.
Fact: Starbucks is proud of the longstanding relationships we have with coffee farmers in more than 27 countries. We have taken a collaborative approach with coffee communities in Africa, Latin America, and Asia to empower farmers and continue to contribute to programs that enhance their economic benefit. In addition to paying premium prices for all of our coffees, we support farmers through long-term contracts and provide funding for affordable loans in coffee growing regions. We also know that communities extend beyond the coffee grower and there are many people directly and indirectly affected by coffee production. Our efforts to ensure economic benefits are complemented by investments in social development projects that support education, health, and clean water. To date, Starbucks has invested more than $4.2 million, in Africa alone, in social development projects to help African coffee farmers improve their communities.
My observation: Starbucks’ relationship with the coffee farmers has to stem from the basic business relationship: buyer vs. seller. The first question is whether Starbucks as a buyer pays the farmers a fair price for their coffee. Starbucks proudly affirms that the company’s help and contribution towards investments in social development is part of the price it pays for the coffee. This is patronizing and outrageous. Coffee farmers lead their lives without a need for custodians. The farmers we call “the poor” are only deprived of money; otherwise, they are intelligent, capable, courageous, and proud people who can – and do – manage their limited resources as well as anyone. If they are paid a fair price for their coffee – not charity – these farmers are fully capable of building the social infrastructure they need, including clinics & hospitals, clean water, roads, etc. They don’t need arrogant foreigners to tell them what to do. The people I know, Ethiopians, feel humiliated by their need to live at the mercy of guardianship. The farmers want Starbucks to pay what their coffee is worth. When we see how much Starbucks is able to charge for its coffee, and how much profit it earns, it is clear that Starbucks is taking advantage of the farmers and is not paying them what their coffee is worth, even including that little bit of charity.
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Fiction: Starbucks realizes huge profits at the expense of coffee farmers
Fact: Starbucks has a long history of developing strong relationships with coffee farmers.
There is more that goes into a cup of coffee than the price the farmer receives and the profit the coffee company makes. Of course a profit is made on the cup of coffee. We are a for-profit company. That’s how we grow. However, also included in a cup of coffee is the price it takes to select and buy the finest coffee, the price it takes to ship it, to roast it to perfection, and to package it. The price also includes the price it takes to distribute it, and put it on shelves in coffee stores and grocery stores throughout the world. And while we’re at it, the price also includes the price it takes to build the coffee stores, and pay for the rent, the electricity, and the furniture and equipment inside the store. The price also includes the wage paid to the buyer, the shipper, the roaster, and the distributor. It also includes the wage for the barista who hand crafts it to a customer’s personal desire, and the healthcare and employee benefits that are paid to those associated with bringing the coffee to market, so that they too can enjoy a sustainable livelihood. The price also includes the price of investment back into the coffee growing region. It includes the price to help pay for schools and hospitals for the farmers’ families, and the price to support farmer loans and financing, so that farmers can confidently grow their crops for years to come. This is what really goes into the price of a cup of coffee. It’s the price we’ve paid – gladly, for more than 35 years of doing business in an ethical and transparent way.
My observation: It is interesting that Starbucks says it does not make excessive profits yet is unwilling to reveal any of their costs. Starbucks has additional costs to be sure, but this response does not state what they are and exaggerates what they might be by offering the long list of tasks required to get coffee to market. In reality, Starbucks and all of the other coffee retailers have figured out how to ship, roast, and retail coffee very efficiently for a small price. The cost is easy to figure out. Just go to your local Walmart or Tesco and look for the basic store brand of coffee. These coffees sell for around $3 per pound in the US. The export coffee price is around $1/lb and this retail price includes a typical grocery store margin of about 20%. So this means that the cost to transport, roast and retail is around $1.40. Starbucks sells its coffees for a minimum of $10/lb and up to $26/lb, so its gross margins are likely $7.00 and up, even if they pay Ethiopian farmers $1.50/lb. Is it fair for Starbucks to make such extraordinary profits while Ethiopian farmers barely survive on their income? The cost to Starbucks of the coffee in a $3 cup is 5 cents or less. Starbucks just raised the price of its coffee by 5 cents a cup. This increase is equal to the entire cost of the coffee in that cup! This is the issue!
According to this report, Starbucks’ current fiscal-first-quarter profit increased by about 18 percent over the prior year’s first quarter: “For the 13 weeks ended Dec. 31, the world's largest specialty coffee retailer posted net earnings of $205 million, or 26 cents a share, compared with $174 million, or 22 cents a share, for the same period a year ago.”
The question is, therefore, how can Starbucks justify such record profits while the people who produce its basic raw material – coffee – are barely surviving?
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Fiction: Starbucks does not pay premium prices to Ethiopian coffee farmers:
Fact: Starbucks does pay premium prices for the coffee we buy.
In fiscal 2005, as Dr. Holt admits, we paid an average of $1.28 per pound for our coffee. We’d like to report some new figures. In fiscal year 2006, the average per pound price we paid for the 294 million pounds of our coffee we purchased was $1.42, a significant increase over 2005.
Beyond price, we also work with farmers to ensure their long-term livelihood. This includes entering long-term contracts that give farmers and their families’ economic certainty, providing access to micro-loans and other financing, and investing in farming communities through social development programs. This is important. For if we are to grow, the farmers we buy coffee from need to be able to sustainably grow coffee for years to come.
Starbucks purchases only two percent of all the coffee Ethiopia produces. We do not know what the average price per pound paid by other coffee roasters who purchased the remaining 98 percent of Ethiopia’s coffee is, but we’ll stand by our claim that the price we’ve paid and the relationships we’ve built with farmers are beneficial.
My observation: The argument is not whether Starbucks pays higher than average prices (this is how Starbucks misleadingly defines "premium" prices). Of course the company pays more than average because it buys higher grades of coffee. So do the rest of the premium roasters. Rather, the question is whether Starbucks (and other roasters) pays a price that provides a sustainable way of life for Ethiopian coffee farmers. The answer is clearly no. If Starbucks were truly interested in the well-being of the Ethiopian farmers, it would calculate whether its prices allow growers to live basic dignified lives, not whether it was paying more for coffee than does Walmart.
This brings us to the real dispute: Starbucks opposes Ethiopia’s trademark program. Through trademarks, Ethiopia hopes to develop the market leverage that will secure for its farmers some of that value that the coffee drinkers are paying for. Starbucks wants to prevent that and keep the entire benefit of the high quality of Ethiopia’s coffee for itself. That is why it opposes Ethiopia’s trademark initiative. In addition, Starbucks fears that if Ethiopia succeeds with its trademarks, other coffee producers might also demand a fair price for their premium coffees.
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Fiction: Starbucks is refusing to recognize Ethiopia’s right to own its gourmet coffee names: Sidamo, Harar, and Yigacheffe because it wishes to control the market for these coffees.
Fact: Starbucks completely supports the recognition of the source of the coffees we buy. Starbucks does not oppose Ethiopian ownership of the names themselves in a manner that is provided for by international law. We believe geographic certification is a better option. A trademark, unlike a geographic certification system, will not necessarily guarantee that a coffee is actually from the region of the trademarked name. Additionally, a trademark will not necessarily guarantee that the farmer receives the economic benefit of the name. We believe geographic certification of a specialty coffee from a particular region helps ensure that farmers in that unique region reap the benefit of increased international demand. This position is based on our desire to do what is right for coffee farmers, including those in Ethiopia, and for our company and customers.
Dr. Holt is correct in stating that Starbucks can verify the authenticity of its coffees at origin. Compared to the rest of the industry, we are unique in that we build direct relationships with our suppliers and demand economic transparency regarding prices paid to producers. Our internal systems to verify where our premium coffee is grown supports the premium prices we are able to pay. We believe certification on a larger scale would benefit more farmers than we currently buy from.
Certification marks have been used successfully since 1958, representing the quality and tradition of some of the most prized regional products in the world. Florida Oranges, Swiss Chocolate, Roquefort Cheese and Idaho Potatoes are just a few examples. Certified coffees include Kona, Colombia, and Guatemala. Certification guarantees regional names can only be used by products from that region. The premium quality of these geographically certified products can demand a premium price in the marketplace, a premium price that benefits to the farmer.
Contrary to Dr. Holt’s claim, Starbucks can neither grant nor deny Ethiopia’s trademark application. This is a decision that is made by the U.S. Patent Trademark Office.
My observation: This is a patronizing and disingenuous position. It is not Starbucks' role to decide what intellectual property protection the Ethiopian coffee producers should use in international markets. Nobody tells Starbucks how to trademark. Ethiopian coffee producers have decided to pursue trademarks based upon their best business judgment. Whether this is the right way to go is their decision. Second, Starbucks continues to suggest that trademarks are against the law when clearly this is not true. Yirgacheffe is already registered in the US so the USPTO clearly believed that the trademarks are viable in this case. The reason that Sidamo and Harrar trademarks have not been registered is because Starbucks led the charge against the application, as Holt describes. Holt does not claim that Starbucks can grant trademarks! Rather he says that Starbucks used their lobbying group, the NCA, to file oppositions to the trademarks. Holt tells us that Starbucks VP Dub Hay chairs the committee that submitted the protest to the USPTO. Does Starbucks deny that it played a significant role in the NCA's filing against the trademarks? We wouldn't know because their response dodges the question by misconstruing what Holt has written in his challenging paper.
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Fiction: If Ethiopia insists on pursuing trade marking agreement, Starbucks will stop buying Ethiopia’s coffee.
Fact: Starbucks is firmly committed to Ethiopia and our customers love and demand Ethiopian coffees.
Between 2002 and 2006 Starbucks increased its Ethiopian coffee purchases by nearly 400 percent which translates into incomes and jobs for farmers and their families. Over the years, we have built strong relationships with farmers and leaders in the coffee sector. We are optimistic about our future engagement with Ethiopian and East African farmers as a source of fine coffee and a leading development partner.
My observation: This is another very misleading statement. Holt never said that Starbucks will stop buying Ethiopian coffee. Just the opposite. He quotes Starbucks' arguments against the trademarks published on its website (Starbucks.com) which claimed that the trademarks would price Ethiopian coffee out of the market. Holt says that this is a poor argument. Apparently Starbucks now agrees.
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Fiction: Starbucks is the most influential National Coffee Association member and has shaped the industry trade organizations response to Ethiopia’s trademark application.
Fact: Starbucks purchases only two percent of the world’s coffee, and is therefore not the largest corporate member of NCA.
Starbucks purchases only two percent of all the coffee Ethiopia produces. As the industry’s trade organization, NCA comprises 275 member firms and represents the entire coffee sector, just as any trade organization would.
My observation: Starbucks’ selective quotation from the paper distorted the point. The paper quoted referred to specialty coffee, not all coffee companies, as misrepresented here. The correct quotation from Doug Holt’s paper is “…Starbucks is far and away the most influential NCA member when it comes to specialty coffee issues,”
Besides, the comment fails to acknowledge the fact that NCA’s Government Relations Committee is headed by Dub Hay, Starbucks Senior Vice President.
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Fiction: Starbucks has only recently become a champion of social and economic causes as a marketing strategy to appeal to its customers.
Fact: Since its start in 1971, social consciousness has been core to Starbucks business approach.
Starbucks has never wavered from this way of doing business and has led the industry in embracing more sustainable business practices benefiting the social, environmental and the economic impacts of our farming communities.
Our socially-conscious approach shows in many ways – from voluntarily deciding to pay farmers premium prices, to partnering with nonprofit organizations to invest millions of dollars in health, education and other social development programs.
My observation: Starbucks again twists Holt's argument to dodge the issue on the table. Holt's argument is not about "social and economic causes" in general, but about poor people in the less developed world in particular. He says that Starbucks has become committed to these issues--and used these issues to build their brand--in this decade. All of the programs that Holt references have happened in this time period--from C.A.F.E. to fair trade coffee to Ethos water to "Coffee That Cares" brochures. If this isn't marketing, what is it? Ms. Taylor says that Starbucks has lived by these principles for 35 years. Yet Holt notes that founder Howard Shultz did not think that poor coffee farmers were important enough to even mention in his book about Starbucks' values published in the late 1990s. So where is the evidence for Starbucks' long-term concern for the poor coffee farmer? Starbucks claims this is not a "new brand positioning." But Holt has provided plenty of evidence that the management is aggressively marketing Starbucks of late as a company that has an ethical relationship to its poor producers. In my view, the onus is on Starbucks to provide evidence that this is not the case rather than just ask us to believe it is so.
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Dr. Holt is a learned and knowledgeable man regarding brands. However, we question his expertise in the coffee industry and its particular supply chain. As a brand expert, he should know that the responsible and ethical way Starbucks has conducted business for over 35 years is not some “new brand positioning” as he incorrectly states. We are not perfect, but we have always done business in a manner in which we are proud, partnering with the farmers who grow our coffee in a way that pays them a premium price, improves their communities, and helps ensure their long term success. This is core to who we are. This is what we believe. These are the principles we live by.
Sincerely,
Sandra Taylor
Senior vice president, CSR
Starbucks Coffee Company
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The original message can be found at the rumor section of Starbucks' website.
YES, STARBUCKS CARES
ReplyDeleteWe have read the essay posted by Professor B. Holt on January 26th 2007, titled Is Starbucks “Coffee That Cares”. After doing so, we felt compelled to describe a very different Starbucks, completely opposite to the image portrayed in such document.
Our group consists of all the major Cooperatives, Millers and Exporters of Costa Rica. The following text was drafted by : the FENAC-CAFÉ R.L. (Federación Nacional de Cooperativas de Café, grouping all the major coffee Farmer Cooperatives in Costa Rica), the CNC (Cámara Nacional de Cafetaleros, grouping all the major coffee Millers of Costa Rica), the CNEC (Cámara Nacional de Exportadores de Café, grouping all the major coffee Exporters of Costa Rica), and the SCACR (Specialty Coffee Association of Costa Rica, a trade organization devoted to promotion of quality coffee in Costa Rica).
Costa Rica is a small country, but we pride ourselves in producing some of the best coffees in the world. Our local legislation (and culture) is also very advanced in terms of social and ecologic policies. Such strict policies make coffee growing/milling/exporting an expensive affair. Therefore Costa Rica has a very hard time competing with other mass producing nations.
The Starbucks WE KNOW was the first company to ever pay prices for coffee significantly above world market levels. This mode of buying started in the late 1990´s coming to the turn of the century. As far as we know there is no prior record of any company adopting this practice (for large volumes) in coffee history. Before Starbucks began paying such premiums, most of our good coffees were part of the “commodity basket” trading at price levels very close to lesser quality coffees. Even when world market prices hit the lowest levels in recent history, Starbuck stuck to their principles and paid almost twice as much for their coffee.
In those days Starbucks explained their concern for the wellbeing of coffee producers. They recognized the threat that low market prices represented to the sustainable production of good coffees. While their concern may have been in some ways self motivated (i.e. guaranteeing long term supply of the coffee they needed), their actions reflected a desire for partnership, working together with producers, helping them in these desperate times. We think this “everyone wins” mentality is much more productive than mere charity.
Already in 2001, Starbucks buying behavior had caused a revolution in our day-to-day trading. A two-tier market was born; the “normal market” and the “Starbucks quality market”. The price difference between these two was very significant. This came to be known internally as the Starbucks effect”. It meant that every area reached by Starbucks became protected in a sort of price-bubble. Production in these “protected” areas is still stable or even rising to this day. On the other hand, the areas that they could not reach have shown dramatic production losses in the last few years, and may even face partial or total eradication of coffee plants.
During all this time, Starbucks has never attempted to monopolize the use of names relating to geographic regions or special production processes in Costa Rica. Starbucks has always looked at the intrinsic value of the coffee, how it tastes on the cup. It is based on samples and compliance to their CAFÉ PRACTICES program that Starbucks chooses their suppliers.
The Starbucks we know is not a cold self-serving multinational. Their name and green logo have become household images in Costa Rica. Not because Costa Ricans drink lattes. There are no Starbucks coffee houses operating in our country. Their name is known because people, government, and the coffee community in general recognize what they have meant for us during the last 7 years: a solid ethical partner, a defense against market forces, a standard for promotion of good growing practices, and a trampoline for promotion of our name in the market place .
We have come to know Starbuck’s executives very closely. We have seen their CEO Jim Donald having a simple lunch at the house of a small producer, sharing with the producer’s family and later attending large producer-group meetings, extending all sort of courtesies. We saw the birth of CAFÉ PRACTICES, a program that was the first of its kind, announced right here during a Sintercafe convention in San José. We also witnessed the opening of their farm-support center in San José, an office entirely devoted to facilitating the implementation of CAFÉ PRACTICES in Latin America.
YES, WE THINK STARBUCKS CARES. We have seen it with our own eyes. While we cannot refer to the specifics of the Ethiopian issue, we think it is unfair to simply ignore the track record and proper behavior of this company, consistent for so many years. It is wrong to form an opinion without looking at the entire picture. Starbuck’s actions through the years deserve that people pay attention to their arguments. We think they have earned such right for credibility. They have certainly walked the walk.
Costa Rica is a blessed coffee nation. It is a place where good quality, social consciousness and genuine care for nature (finally) meet. We have no doubt that this is still a reality thanks to Starbucks’ behavior during the last 7 years.
Hi Gabriela Lobo:
ReplyDeleteIt’s great to hear that farmers in that beautiful country earn the money they deserve for their quality coffee. I am impressed with how well the major coops are working together in favor of the farmers.
That said, while I respect the coop’s views and also appreciate the positive steps Starbucks has taken in that region, I think your response to the following questions might help us understand the situation better:
1. What is the price the farmers are paid per pound which is “significantly above world market levels?”
2. I’m sure the advanced local legislation (and culture) entails added costs to the FOB price of a pound of coffee. But what is the average profit margin that the cooperatives are able to secure?
Thanks and greetings to the nice people who took the time to take part in this important debate.
Can people consider this reaction as a positive step as you wrote, sincerely I doubt about this. As you have brilliantly demonstrated, some of the arguments are based on blatant distortions off the initial essay. Which shows that we are far from being in an honest discussion here, but in a desperate effort to make anything possible to counter the advancement of the opposition and contestation (exactly the same techniques that made starbucks pay pages of advertisement to propagate lies).
ReplyDeleteIn some way what I feel positive with all this reactions of Starbucks, is that it proves that they are aware that something important is being played on this affair, in Oxfam campaign, in Douglas B Holt articles, on this blog.
Zheim,
ReplyDeleteYou clearly made your case.
Though I see your points, what this statement says is that Starbucks has done good to the farmers in Costa Rica and I think that is a positive side and I do appreciate that.
In fact, Starbucks does good things though not across the board. As a Seattle resident, I know that Starbucks does give back to communities. For example, the $1M donation the company made to Seattle parks just last year is one big step. The company is the pillar of our local economy with notable impacts on the overall economy. These are all impressive.
The issue is that Starbucks fails to see where the balance lies when it comes to a responsible business ethics. I disagree with their proud banner of “touching millions of lives” while the very farmers who grow their coffees are starving; I do not buy into their touted environmental stewardship when in realty the decorative grasses here in Seattle do not make up for the natural flora and fauna being destroyed in Ethiopia and elsewhere because the farmers are resorting to deforestation for lack of a fair pay for their labor. I disagree with such a business strategy.
Starbucks can help farmers in Ethiopia dig themselves out of the vicious circle of poverty. They can do so by increasing their purchases and pay a fair price for the coffee they buy. If that is not ok, then Starbucks can help them help themselves by supporting their business strategies. Starbucks balks when it faces these real choices.
Obviously, neither the farmers nor Starbucks (and others) can survive without one another; they need each other if they were to make their livings on coffee. The problem is that Starbucks is not getting it; they are acting like the super-man when the Ethiopian farmers ask for a support to do away with poverty using their own resources. To me, it sounds as though those resources do not belong to the farmers; they have to have the blessings of Starbucks before utilizing an inch of it.
As you said, the answer is in the hands of consumers - not in Starbucks - because the (Ethiopian) farmers are already over-matched.
Now, this question has to be addressed both separately and in the context of the global trade. The expressed satisfaction by Costa Rican farmers (and what Starbucks had done to that effect) is indeed a positive step but not representative of the global situations. Neither is it a representative of Starbucks’ behaviors.
Thanks for writing; do come back.
After read the debate, I have agree with Prof. Holt arguments.
ReplyDelete