Members of Parliament Ask, "What Does Starbucks Think?"

Part IV of the transcript taken during the UK Members of Parliament questioning of Starbucks and others. This is the final part in the series.

Preceding posts:

Part I, "Parliament Grilled Starbucks over Ethiopia's Trademark Issue"
Part II, "MPs Explore Starbucks' Fair Trade® Credentials"
Part III, "MPs Stumble On The Hot Spot: How Fair Is Starbucks?"

Starbucks senior VP, Sandra Taylor did not respond to my request for an interview with follow-up questions.

I approached the Green Mountain Coffee Roasters (GMCR) with similar questions. The company responded with detailed explanation of their Fair Trade practices and longstanding relationships with coffee farmers. GMCR is one the US companies that have recognized Ethiopia’s ownership of her coffee marks. Recently, GMCR signed a Letter of Intent with the Government of Ethiopia to support this country's efforts to bring better value to its coffee and better income to its coffee farmers and their families. GMCR’s response will be posted soon.

I asked Transfair USA to comment on the Fair Trade portion of the Q&A. Their responses will hopefully help explain what differentiates the Fair Trade Certification from, say, Starbucks’ C.A.F.E. Practices.
---------------

UK Members of Parliament on Starbucks and Fair Trade

UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 356-i

House of COMMONS

MINUTES OF EVIDENCE

TAKEN BEFORE

INTERNATIONAL DEVELOPMENT COMMITTEE

FAIR TRADE AND DEVELOPMENT

Tuesday 27 February 2007

MS SANDRA TAYLOR, MR CLIFF BURROWS and MR MIKE BARRY

Evidence heard in Public Questions 1 - 82

Oral Evidence Taken before the International Development Committee on Tuesday 27 February 2007

Members present
Malcolm Bruce, in the Chair
John Barrett
John Battle
John Bercow
Richard Burden
James Duddridge
Ann McKechin
Joan Ruddock
Mr Marsha Singh

Examination of Witnesses

Witnesses: Ms Sandra Taylor, Senior Vice President, Corporate Social Responsibility, Starbucks Coffee Company, Mr Cliff Burrows, Senior Vice President and President of Starbucks Coffee Company, Europe, Middle East and Africa, and Mr Mike Barry, Head of Corporate Social Responsibility, Marks & Spencer, gave evidence.

(Continued from Part III)

Q77 John Barrett: I want to move from coffee to cotton. Mr Barry, you said that this was an area in which Marks & Spencer was involved. I think that the plan is to purchase one third of the world's current supply of fair trade cotton. Can you explain how it will work? You will buy cotton and then make a Marks & Spencer cotton shirt. How will you know through the supply chain exactly what has happened at different stages, and how can you guarantee that the cotton you have purchased under this label and the product that ends up on your shelves is the result of fair trade right through the supply chain?

Mr Barry: Cotton is a great example of an industry which cries out for fair trade. It involves millions of small producers across the world and it has some major social and environmental challenges. Cotton is the most heavily used fibre for clothing production round the world. About 50 per cent of clothing is made from cotton. For many years we have been trying to work out how we can drive better standards and understanding of our cotton supply chain. Frankly, we struggled. We are the biggest clothing retailer in the UK and we use about 60,000 tonnes of cotton. We were banging our heads against a brick wall. Along came Fairtrade which has given us a route to build that traceability down through our supply chain. One must understand that in clothing production there are probably six or seven steps between the producer of the cotton and the shop floor on which it is sold. Marks & Spencer as a big clothing retailer is almost unique in understanding not only the garment factories that make the finished product but the mill that makes the fibre that is used and the dye house that puts the colour into the garment. We can go back three steps into the supply chain. Even we struggled to get back to the cotton field. What Fairtrade has done is help us to bridge the gap from the fibre mill back into the field. It has forced us to put into place certification and traceability systems such that there is in effect a passport that follows a batch of cotton through the supply chain. That was one of the main reasons why we had additional cost in the first range of Fairtrade cotton garments that we launched last year. It cost about £1 more. That £1 represented the social premium in terms of the Fairtrade price and also the audit systems and, to be fair, big inefficiencies in the supply chain in order to maintain traceability. A small example of that is that the huge cotton mills round the world operate 24 hours a day and process hundreds of thousands of metres of cloth each day. Every time a Fairtrade batch comes through one has to stop the mill, take out the main production and put that production through in order to maintain traceability and then start up the mill again. It is very inefficient for a volume operation. Last year we used about 100 tonnes of cotton in that way. We shall be using 7,000 tonnes over the next 12 to 18 months. Again, that is built upon traceability audited at each step of the supply chain to make sure it is done properly right down to the cotton field where the Fairtrade mark is concentrated. To go back to some earlier questioning about how all these different standards fit together, I turn your attention to the ethical trading initiative. It has been funded by DFID and it is a very similar organisation but involves different stakeholders. That is focused on the factory that makes the garment or finished product that we as retailers sell. They are driving better labour standards. That is not a mark that we talk about to the consumer; it is a supply chain tracing tool to demonstrate that we are managing our supply chain well. We are driving the disciplines of the ETI down each stage of the supply chain to meet the Fairtrade Foundation coming the other way, which is about making sure the cotton producer is well looked after. That is how cotton is working. As to where it will end up, in the next 12 months we shall be converting the entire range of our £5 tee-shirts to 100 Fairtrade cotton and keep it at that price. We will not change that price. As to scale, that represents 12 million garments. Putting that in context, we sell about 270 million garments a year, so that is a heartland, mass market product that can go Fairtrade, but it has been a challenge and we will have challenges in the future to maintain traceability.

Q78 John Barrett: What would be the price differential for cotton producers under the Fairtrade system? You said that you were able to produce an end product that is kept at the same price, but is there a certain percentage increase applicable to the cotton producer, as we talked about earlier in relation to bananas, or is it sustainability of the market or something else that attracts the producer?

Mr Barry: Obviously, we leave it to the Fairtrade Foundation to work out what the market price for fair trade should be, but typically it is 15 to 25 per cent in the case of the cotton industry. As volumes increase it will probably come down a little. Typically, it is at least 15 per cent.

Q79 Richard Burden: In addition to ensuring traceability, obviously in view of the approach of Marks & Spencer there is investment in various community projects, paying a social premium for social projects and so on. In a way, that presents you with other challenges, does it not? In one sense you can become another major international donor essentially; looked at another way you can just be involved in a philanthropic charitable transfer. There is nothing wrong with that, but in development terms it is fairly old thinking. How do you come to a decision as to what projects you invest in, with whom you engage and how you ensure that maybe the more marginal communities are involved?

Mr Barry: Clearly, we are a retailer or shop-keeper; that is what we know best, and we shall never lose sight of that. We are a shop-keeper that wants to use our everyday selling business model and align it so it makes a difference. Clearly, Fairtrade allows us to do that. Rather than Marks & Spencer developing its own model to help communities round the world, Fairtrade helps us do it. We get professionals from the Fairtrade Foundation involved. How do we identify which products to go with? That is a complex discussion with the Fairtrade Foundation and producer groups back down the supply chain to suppliers as to what can be done. When we looked at the £5 tee-shirt that we were converting we wanted a simple range that every consumer would buy - it would have mass market consumer appeal - and that we would buy in a steady way, in that we would sell the £5 tee-shirt every year. We worked with suppliers that we had had relationships with for many years in producing those tee-shirts. They are trusted suppliers that meet all of the ethical standards that we require of them. In addition, these are supply chains that go back in directions that work for us: India and West Africa. There is no point in having a supply chain that produces cotton in one part of the world and you do not have access to that. For all those reasons, we identified cotton as the product that we wanted to work on next after coffee and tea. There are many conversations but, as the Prime Minister said earlier, we believe that trade can be a real driver for social development provided it lines up everybody: the consumer, the retailer, the supply chain, the producer and aid agencies and donors such as the Government, DFID and other organisations like that. Perhaps I may paint a little picture about our experience here. Over the past two or three years we have worked with a donor organisation called the Shell Foundation. That foundation has been investing money in our supply chain and helping producers meet the standard required so they can head towards fair trade production. It has done a very good job, but it has been very hard work. We do not want to get into a situation where we become a development agency. Marks & Spencer wants professional organisations such as the Fairtrade Foundation all the way down the supply chain to make sure that everybody's interests are lined up with the marketplace.

Q80 Chairman: One matter that we are trying to get to the bottom of is the extent to which this expanding market - everybody who has spoken to us says and the figures bear out that the consumer is responding - is nevertheless a niche market and it is one which makes a significant but small number of people feel better, or can it really make a contribution to redressing the balance? The Prime Minister of Dominica made a passionate plea at the end of his evidence for a fair development-oriented trade deal which this Committee endorses, but can fair trade really make a significant difference to the balance? Can it help to iron out the inequalities of the trade system? Is it a way to give poor people in poor countries a real opportunity to take control of markets in a way which helps them get out of poverty?

Mr Barry: We believe that it is. If you look at the work that Sainsbury and Waitrose have done with bananas and M&S with coffee, tea and cotton it can be shown that in a very competitive marketplace it can become mainstream. These are huge parts of our business. The sale of 12 million tee-shirts at £5 each is a £60 million business. I am sure that Sainsbury's banana business is equally large, if not larger. These are decisions taken by businesses that are under tremendous commercial pressure. We believe that it is the right thing to do. Will it happen with every single range we sell? It will not because we do not buy all our raw materials from the developing world. We need models by which we work with British farmers, as we have; we need models by which we can source other material such as wood and fish where predominantly the issues are to do with the environment rather than social matters. But in terms of addressing the crucial raw materials in retail products that come from the developing world we believe there is nothing to stop the fair trade market expanding very significantly in future.

Q81 Chairman: We produced a report on private sector development and we were scratching our heads as to how we could kick start it. Maybe this is the best way to do it. DFID did not seem to know how to do that, but maybe it could do more here. What does Starbucks think?

Ms Taylor: Starbucks believes that fair trade is making and can make a significant contribution to poverty reduction. For Starbucks it is part of an integrated approach. We are also investing in loans that are made available to farmers and suppliers to invest in equipment and make it from one harvest to the next so they are not forced to sell their produce in advance at a lower price. It is also part of our social investment in schools and community programmes in addition to the work that we are doing in capacity-building to help our suppliers and farmers improve quality so their products get a higher price in the marketplace. This goes beyond small producers and includes large producers as well. We believe that this integrated approach will make a major difference to the alleviation of poverty in communities where we buy coffee.

Q82 Joan Ruddock: Does Marks & Spencer make any purchases in China?

Mr Barry: We cannot get fair trade from China, although obviously we buy lots of product from that country. But all the factories there are covered by the ethical trading initiative, so it is a different tool to solve a different challenge where the Fairtrade Foundation cannot necessarily go at this time.

Chairman: I thank both sets of witnesses. Given that this is Fairtrade Fortnight and the first evidence session we have had on the topic, you have given us some very positive messages both about what is happening and what the potential is. I hope that as we proceed with our inquiry we are able to build on those. This Committee is interested in what works to reduce poverty and clearly if this works we should do more of it. Thank you very much for coming along.
--------------

End