Starbucks' "Farmer Inequity" In Sidamo

Starbucks’ officials have so far been successful in concealing the company's unfair business practices under the touted Coffee and Farmers Equity (CAFÉ) Practice - a PR tool which has given the wrong impression to consumers and shareholders that the company was doing its business in a “socially responsible” manner.

In reality, while Starbucks scores record profits, the farmers are trapped in a vicious circle of poverty. Starbucks is mindful of its own profits with little regard to the people behind its brand. According to the the Wall Street Journal (subscription), Starbucks officials are satisfied with their relationship with the farmers and are thankful of the "gift":

"I looked everyone in the eye and shook their hand and said, 'Thank you for giving us this wonderful product,'" recalls Dub Hay, the Starbucks executive. "It's one of the more special things I've ever experienced."

In the report, “Starbucks vs. Ethiopia,” posted here, Fortune Magazine writer Stephan Faris reported:

”Last season, that pound of coffee fetched farmers an average price of $1.45. Figuring in the cost of generator fuel, bank interest, labor and transport across Ethiopia's dusty roads, it netted them less than $1. In the U.S., however, that same pound of coffee commands a much higher price: $26 for a bag of Starbucks' roasted Shirkina Sun-Dried Sidamo.”

The disparity exposes the modern-day colonialist exploiting Ethiopian farmers. The figures helped to compare the differences between the purchasing and selling prices but they do not present the whole picture. For instance, the quoted average price paid to the farmers is inflated, which indicates that there are still more untold stories.

As Peter van Schaick writes to Coffee Politics, the farmers were indeed paid far less than what is reported for the best coffees Starbucks sells as "Black Apron Exclusive." Schaick has just returned from a working visit to the farming communities in Fero, Ethiopia. In the following response to Faris’ report, Schaick tells the farmers’ story and offers his recommendations.
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Starbucks' "Farmer Inequity" In Sidamo
By Peter van Schaick

In 2005 & 2006, Starbucks bought 2,400 bags of sun-dried Sidamo for retail sale at $26 per pound, or $8,236,800. The Sidamo Union got paid an average of $1.38 per pound, or $436,000. The farmers who sold their coffee to the Fero Cooperative, which belongs to the Sidamo Union, got paid roughly $.57 per pound, or around $181,000. These farmers thus got 2.2% of the amount Starbucks planned to make selling their coffee.

The farmers at the Fero Cooperative cannot feed their families, clothe their children or send them to school at 2.2% of expected retail sales. Starbucks' disingenuous promise to double such unfair trades doubles this "farmer inequity." When I videotaped a Fero farmer ten days ago in Sidamo, he said that 10 Birr per kilo of Red Cherry was a fair price to start. This works out to 6% of retail sales.

Starbucks shareholders should demand that Starbucks' management lead the world coffee trade with the highest standards of farmer equity.

· Starbucks should immediately sign Ethiopia's licensing agreement for Sidamo coffee.
· Starbucks should execute long-term contracts that guarantee Fero farmers 6% of retail sales for their "Black Apron Exclusive."
· Starbucks should lead the coffee industry to promote farmer equity, thereby restoring its strategic brand advantage.

In short, shareholders should demand that Starbucks management "walk its CSR talk" to regain its credibility among customers.