Part II of the transcript taken during the UK Members of Parliament questioning of Starbucks and others.
Part I, "Parliament Grilled Starbucks over Ethiopia's Trademark Issue" was posted here.
Part III is coming up
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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 I)
Chairman: We shall also explore your free trade credentials and how your company and Marks & Spencer can promote it. We will now move on to that.
Q55 John Battle: To broaden the question to include the representatives of both Starbucks and Marks & Spencer, Ms Taylor used the phrase "social consciousness" which is one that we ought to explore a good deal further. It may also include basic economic justice. In that spirit perhaps I need to be convinced that fair trade is not an add-on, an upmarket niche development or corporate standard in the northern world but is a consumer choice and a means of transforming mainstream business to ensure that markets are fairer, that, as the Prime Minister of Dominica suggested, farmers adopt best practices, that fair prices, terms and conditions are in operation and there is protection of the environment. We want that cluster of social and economic responsibilities to be built in all the way from the farm to the table. Is that the purpose and aim of your interest as retailers in this whole business, or are retailers and corporations simply responding to some new consumer demands when it comes to supporting ethical and fair trade production? Do you really have at heart the transformation of social and economic consciousness?
Mr Barry: That is an excellent question. Perhaps I may take the Committee on a two-minute journey to answer that question. To take the Marks & Spencer business model, we have 2,000 factories supplying us with products and 10,000 producers whom we know and with whom we work directly. But there are certain parts of our business model that use commodities such as cocoa, coffee, tea, sugar and cotton in particular where for historical reasons we have never had the level of traceability to put standards in place that we want to as in other parts of our business. For us Fairtrade brings three very clear benefits. First, it allows us to burrow deep into commodity-driven supply chains into areas where we have, to be fair, little development experience. It gives us a model to work directly with tends of thousands of primary producers in some of the poorest parts of the world. Just in terms of how we manage our business and the kind of relationship that we have with our supply chain, even before Fairtrade becomes a consumer-tracing benefit it gives us huge benefits internally. The second benefit that we have talked about all morning relates to the consumer. Today, about 80 per cent of British consumers are at some form of tipping point in terms of interest in social and environmental issues. This morning a very good question was raised about what consumers are asking for. I believe Ms Lamb said that today it is more than just price. We agree. Customers look for value for money which is a function of price, quality, trust, sustainability or whatever word we want to use to define it. Therefore, the Fairtrade mark gives consumers certainty. In a marketplace where there are lots of different brands offered to the consumer and retailers with their own standards there is one standard that everybody understands. The other benefit in that consumer space is that it becomes self-supporting. If you look at the advertisements during Fairtrade Fortnight, Sainsbury has said some very important words about Fairtrade, as has Marks & Spencer. We took a four-page ad in British newspaper yesterday to talk about our commitment. It carries the Fairtrade logo. It supports the Marks & Spencer business model and everybody else's, so Fairtrade has some huge benefits in the consumer space. The third big benefit of Fairtrade from organisations such as Marks & Spencer, which sells 35,000 different product lines, is that it makes things much more efficient for us. We as a retailer do not want to set up our own fair trade system for every single commodity that we sell. It would go mad. We would need teams of 20, 30 or 40 people doing the supply chain management, the outreach to producers, the setting of fair prices and auditing it. For us Fairtrade has huge benefits. Clearly, it is possible to do Fairtrade only when one has core standards in place across the whole of one's business.
Q56 John Battle: Marks & Spencer started off in a wheelbarrow in Leeds. There is still an argument about the quality and standards in Leeds market in terms of the conditions for the traders there now. The roof leaks and all the rest of it. In addition to sorting out prices and being responsive to consumers, do you seriously suggest that your bottom line is driven by labour standards and environmental protection?
Mr Barry: To be absolutely clear, in January our chief executive Stuart Rose stood up and committed the business to a £200 million five-year plan with 100 points on it to address these very issues. We have a strong track record of delivery in the past. We are clear that for the future that is not enough and we shall do more. Rose has clearly tied Marks & Spencer's future business prospects to the delivery of great quality products at great prices in great stores but also with sustainability and trust built into it.
Ms Taylor: At Starbucks we have had relationships with farmers for the 35 years of our existence. We have always wanted to deal direct with farmers and build long-term relationships with them. Many of these relationships preceded the establishment of the fair trade movement or system. Many of these suppliers either would not or could not qualify for fair trade because they were large farms or estates. But we believe that fair trade is a really important way to support the farmer. Primarily, we buy high quality, specialty Arabica coffee produced above 3,500 ft. We need a continuing supply of that high quality specialty coffee as we grow. Therefore, it is in our business interest for farmers to continue in business. We have a range of programmes including fair trade that helps us supply that sustainable production. We are also very much committed to the environment. Our coffee and farmer equity practices were the result of a programme we started with Conservation International. We were concerned about biodiversity hot spots. We began with a project in Chiapus, Mexico, with Conservation International and were very successful in helping farmers to provide shade, to reduce pesticide use and at the same time realise a higher value for their production on the international market. We considered trying to do that in every biodiversity hot spot of the world and felt that a more viable alternative was to develop our own coffee and farmer equity practices with a focus on economic transparency, social equity and environmental sustainability. We believe that that combination of programmes helps farmers to stay in business, makes a real contribution to communities and provides the high quality coffee that our customers expect.
Q57 Chairman: How does it compare with the principles applied by the Fairtrade Foundation? Do you compare notes or are you on a separate track?
Mr Burrows: I believe that there are lots of similarities with the Fairtrade Foundation. We would certainly applaud what has been done particularly in the UK to raise awareness of Fairtrade with a capital "F" or fair trade with lower case "f" and "t". For all of the coffee that we purchase we look to many of the same elements of the Fairtrade Foundation. Today, fair trade in the world accounts for about two per cent of the coffee, and we purchase about 14 per cent of that. We have seen that grow year on year. As my colleague has said, we apply many of the same principles to existing farmers with whom we have had relationships for 35 years across the globe in some 60 countries. There has been investment to help them grow better quality coffee, build long-term contracts and give social awards back to those communities. Indeed, work has been done with those communities to invest either in washing stations, which improve the price that the product can attract, or social and educational facilities similar to those referred to by Ms Lamb earlier today. For us it is not a case of either/or; they are very much complementary programmes.
Q58 Mr Singh: Mr Barry, Marks & Spencer has just decided to convert its whole tea and coffee business to Fairtrade. I believe that only those products will be sold in your in-house stores. A number of questions arise from that. Why have you done it? Does it imply that when you were buying non-Fairtrade products you were dealing unfairly with those producers? Has there been an economic impact on Marks & Spencer as a result of doing it and, if so, how is that being absorbed?
Mr Barry: As a point of clarification, we use coffee and tea in three ways. In our 500 food stores we sell about 38 different lines of coffee and tea. We serve it in our 200-odd cafes - our Café Revive operation - and serve it to 65,000 employees in our offices and stores. Every single cup is Fairtrade coffee or tea today. That is a conversation which has taken place over the past 18 months. I think that we have provided 430 million cups of coffee and tea over the past 12 to 18 months. Why did we do it? We thought long and hard about whether we wanted to do Fairtrade two or three years ago. Once we decided that it was the right thing to do, for the reasons I have outlined, we had to work out where to start it. We decided to start with coffee and tea for a few reasons. First, when we looked at the supply chain we found that the suppliers already met many of the attributes of Fairtrade. There were bits and pieces that did not, but it was a supply chain within touching distance of being Fairtrade, so it was a good place to start. Second, we wanted to look at ourselves in the marketplace. Our sales of coffee and tea were declining. We did not have the significant point of difference that we wanted, so we decided that Fairtrade which was very popular with consumers might be something that we wanted to do. We launched this piece of work and it took about two years, and it started from a supply chain that was in a fairly good situation. One of our big concerns was quality. We literally put all our eggs in the Fairtrade basket. We do not sell anybody else's coffee or tea. If we had got it wrong we would have got it very badly wrong. We had to make absolutely sure that quality did not suffer. It did not. As a consequence of that, long term we have seen an uplift of sales of six per cent, which was exactly what we were looking for as a business. For us it has been a very good learning experience; it has given us the confidence to turn to much more challenging areas, such as cotton production.
Q59 Mr Singh: What has been the economic impact on Marks & Spencer?
Mr Barry: I think that in the current very competitive marketplace we are very pleased with a six per cent uplift in sales.
Q60 Chairman: What is the general market trend in relation to those products? Are they static, declining or rising?
Mr Barry: In the marketplace overall it is level or declining. It is a very difficult marketplace, so our commercial teams were very pleased with a six per cent uplift in sales.
Q61 Mr Singh: Did you just jettison the other producers with whom you dealt?
Mr Barry: Very few of the producers with whom we have dealt historically have left our supply chain because of this shift. One is talking of a few large coffee plantations, but they are negligible in number. The vast majority of the producers we worked with have stayed with us.
Q62 Ann McKechin: I should like to clarify with the witnesses from Starbucks whether the coffee and farmer equity practice scheme applies only to the company, or is it a type of scheme used elsewhere in America? Obviously, it is based on an American scheme.
Ms Taylor: So far these are purchasing guidelines that only Starbucks has used. It is not proprietary. We have talked about it to others in the industry. We believe that it is an ethical purchasing programme that can easily apply to other coffee companies. We launched it about three years ago, and last year we met our goal of increasing our purchases under the programme by 100 per cent. Therefore, it is about £155 million primarily in Latin America and some in Asia. We have just started to introduce this in East Africa.
Q63 Ann McKechin: Obviously, the Fairtrade mark is well known here in the United Kingdom and there are similar schemes in other parts of Europe. Is there something of a similar nature already in existence in North America, or is your scheme unique among coffee retailers?
Ms Taylor: Certainly, fair trade is well established in the United States and obviously we are a partner with TransFair USA. We have fair trade licences in 22 countries. There are a number of other coffee schemes, for example Rainforest Alliance, but CAFÉ practices is one that we have talked a lot about to other companies.
Q64 Ann McKechin: Earlier today we took evidence from the Fairtrade Foundation. We were told that when it gave the mark it went really to small-scale operatives and not large-scale plantations. Does your scheme apply to large plantations?
Ms Taylor: It applies to all producers and it is a verified scheme. Farmers have to meet fairly stringent criteria. There is an independent certification process. Verifiers verify farms, but it applies to all sizes.
Q65 Ann McKechin: Would it include, for example, ILO recognised standards on employee organisation?
Ms Taylor: The social equity criteria - there is a checklist - include ILO standards for child labour and worker rights and provisions.
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To be continued in Part III
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