In D.C. Visit, Starbucks Tries to Brew a Good-Guy Aroma

By Thomas Omestad
Nation & World
March 16, 2007

It's not a position that a star of 21st-century retailing admired for its social good works–Starbucks Coffee Co.–is accustomed to being in. But this week, two executives from the Seattle-based caffeine giant came to Washington, in part, to defend their coffee-buying practices in Ethiopia and elsewhere and to reinforce the message that Starbucks is supporting poor farmers, who in any case receive a relatively small share of what consumers ultimately spend on their cuppa joe.

The executives met with lawmakers on Capitol Hill and senior officials at the State Department and the Office of the U.S. Trade Representative, along with some in Washington's large community of Ethiopian-Americans. The company has been uncommonly stung by criticism from nongovernmental groups as well as some Ethiopians that it had earlier tried to discourage Ethiopia from trademarking some of its regional coffees–and that it was still refusing to sign a licensing agreement with Ethiopia for marketing its brews.

"It's about the farmer," Dub Hay, Starbucks senior vice president of coffee purchasing, countered in an interview with U.S. News. "Our goal is to get wealth down to the farmer."

Sandra Taylor, Starbucks's senior vice president of corporate social responsibility, added that the Washington foray was "really to describe our Africa strategy.... We see great opportunity for growth of African coffees."

The Ethiopia controversy comes at a sensitive time for Starbucks. It is planning to step up its already rapid-fire growth from more than 13,000 stores to some 40,000, half outside the United States. But competition from fast-food outlets offering premium coffees is on the rise.

And Starbucks's zeal to expand has weakened "the Starbucks experience," company Chairman Howard Schultz recently worried in an internal memo that was leaked. He wondered whether the use of automatic espresso machines and the introduction of other efficiencies were "watering down" the feeling of "romance and theater" conveyed in earlier years. Starbucks's stock price apparently slid after news of the memo.

Suggestions that Starbucks is acting in ways that deprive impoverished farmers of a better living also hit at the company's carefully tended image. High on the Washington agenda of the two executives this week: touting Starbucks's considerable philanthropic support for coffee-growing communities in the developing world. Starbucks has backed CARE since 1991 on health, nutrition, and water sanitation projects in Costa Rica, Guatemala, Indonesia, and Ethiopia. It has also supported efforts by groups working on wildlife and environmental conservation in Africa, sustainable development for women, and low-interest loans meant to tide over farmers, whose major expenses generally precede their income from coffee crops.

Starbucks is expanding its participation in a program called "Coffee and Farmer Equity Practices," which lays out guidelines for sourcing and purchasing coffee intended to bring environmental and economic benefits to farmers. Last year, more than half of Starbucks coffee was purchased under those guidelines.

That attentiveness to social issues has generally won plaudits for Starbucks in the NGO community. But in Ethiopia, an underdeveloped East African land that considers itself the birthplace of coffee, tensions have arisen. The aid agency Oxfam complained that Starbucks was making it difficult for Ethiopia to trademark its coffees from the Sidamo and Harar areas. (Ethiopia did receive a U.S. trademark last year for its Yirgacheffe coffee.) Starbucks replied that it wasn't blocking Ethiopia but did advise that it would be likelier to succeed in obtaining "certification" that verifies the area of origin for those coffees.

In February, Starbucks publicly accepted Ethiopia's right to seek trademarks. It also announced that it planned to double coffee purchases from East Africa and would open a new development center to help farmers in the region.

But Starbucks has resisted Ethiopian requests to sign a licensing agreement for the coffees. Starbucks's position, Hay tells U.S. News, is that it would be premature to seek a license from Ethiopia in order to market the coffees in question before the country has secured a trademark. Hay says the proposed licensing contract would also put Starbucks in the position of having "to defend their trademark anywhere in the world."

The goal of getting more money into farmers' hands, adds Hay, is hampered by the market structure by which coffee is sold in East Africa. By tradition, the coffee is sold at auction, with farmers "about five levels" removed from those sales. Middlemen pocket much of the proceeds, with farmers receiving less than "a fair price," says Hay.

"The auction system doesn't permit that," he says.

Still, on the legal front, the Ethiopians now seem to be playing down the controversy with Starbucks, predicting that they will win more coffee trademarks. "I don't think there will be any problems," the country's president, Girma Woldegiorgis, told Reuters this week.

More focus on coffee pleasures and less on coffee politics would, presumably, suit Starbucks just fine.