Union Releases "Starbucks IRRESPONSIBILITY Report"

In their report, "Justice from Bean to Cup," IWW Starbucks Workers Union ask, "Can Starbucks provide "an uplifting experience that enriches people's lives one moment, one human being, one extraordinary cup of coffee at a time" when its farmers' families are starving, and its baristas require public assistance?"

The Union and their supporter along with supporters of the Ethiopian farmers are preparing to hold protests during Starbucks Annual Meeting of Shareholders.

As part of their call for protest, Union leaders held a Press Conference at Labor Temple today.

The following is extracted from the booklet "Starbucks 2006 Corporate IRRESPONSIBILITY Report," which they say will be distributed to participants of the Annual Shareholders Meeting.

The full text (.pdf) is found here.
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Starbucks 2006 IRRESPONSIBILITY Report

JUSTICE--fairness to all parties, as dictated by reason and conscience...

Can Starbucks provide

"an uplifting experience that enriches people's lives one moment, one human being, one extraordinary cup of coffee at a time"

When its farmers' families are starving, and its baristas require public assistance?

SHIRKANA SUN-DRIED SIDAMO

The “free market” in coffee forces small farmers in the twenty-four countries that supply Starbucks to compete in a self-destructive “race to the bottom.” The law of supply and demand applies in the coffee market: as coffee supplies rise, the price of coffee drops. Starbucks takes advantage of this “free market” to divide and conquer the millions of coffee farmers. It shops among producers, paying what it calls “premium prices” for “high quality coffee,” picking and choosing supplies in relatively short-term contracts. The prices Starbucks pays are market prices that include standard increments over commodity market prices, for the quality and source of the coffee; hence Starbucks clever, but misleading marketing term “premium prices.” Starbucks offers prices based on the current market. When producers try to break out of the tyranny of benchmarking prices to the commodity markets, such as Ethiopia’s recent effort to break out by trademarking its special coffees and licensing distribution at prices “uncoupled” from commodity prices, Starbucks vigorously opposed Ethiopia’s effort to shift the balance of market power.1 Starbucks has not tripled its earnings per share in the past five years by playing fair as a purchaser in the coffee markets; it’s at least as tough a competitor as Kraft and Nestle.

In a moment of rare candor at a recent Starbucks press conference, its trade consultant said “No developing country ever worked its way out of poverty by selling primary commodities.”2 Starbucks has taken unfair advantage of producers ever since the end of the coffee quotas in 1989, by paying the low prices set in this free market for its coffee. The premium prices it pays are prices in the commodity markets, marked up for quality. Several years ago, Starbucks’ “premium prices” were at or less than the farmers’ cost of production, while coffee farmers were starving all over the world. Then and now, the company’s “premium prices” are unfairly low for farmers, who cannot provide adequate sustenance to their families on their coffee income.

To learn about Starbucks’ purchasing practices from the mouths of farmers, a delegation from the Justice from Bean to Cup campaign traveled to Ethiopia in February 2007. This JBC delegation investigated Starbucks’ Shirkana Sun-Dried Sidamo, beginning in Yirgalem, a coffee center in western Sidamo.

In the hills outside Yirgalem, along an unpaved road, lies the Fero cooperative, a primary producer of coffee, and a member of the Sidamo Union. Starbucks chose a coffee from the Fero Co-op to become one of its Black Apron Exclusives, the company’s most expensive coffee offering. Starbucks formed what they called a “partnership” with these Sidamo growers to jointly produce a coffee they called “Shirkina Sun-Dried Sidamo.” Here’s how Willard (Dub) Hay, Starbucks Senior Vice President described the arrangement: “It was a three year investment that we made with a cooperative here in Ethiopia to produce a different kind of coffee – we processed it differently and we built the name with it, and as you know it means ‘partnership.’”3 An earlier Starbucks press release elaborated: “The shirkinas -- the partnerships -- that we have with producers is a key to our success and a reason we spend so much time in coffee growing regions.4 Last year we traveled twice to Ethiopia andthe development of this coffee was a focus on each trip. Producing this coffee took a lot of training, time and commitment, and we are very excited that farmers of the Sidama Coffee Farmers Cooperative Union are now being recognized for this unique and delicious coffee through our Black Apron Exclusives(TM) Program.” The press release added that Starbucks expected to sell its new “Shirkina Sun-Dried Sidamo” for $13 a half-pound.

The “free market” in coffee forces small farmers in the twenty-four countries that supply Starbucks to compete in a “race to the bottom.”

Our JBC delegation wanted to learn about how much of the profits of this business venture Starbucks shared with its new partners. Inquiring into the details, we learned that during the 2005 and 2006 growing seasons, Starbucks bought five shipments of “Shirkina Sidamo” coffee, totaling 2,400 bags, for retail sale at $26 per pound, or $8,236,800.5 The farmers who sold their coffee to the Fero Cooperative, which belongs to the Sidamo Union, were paid less than $3 Birr per kilo with a dividend of $.2 Birr per kilo expected at the end of the season. Thus, the farmers were paid at most $.57 per pound, or around $181,000 for the coffee that Starbucks priced for sale for $8,236,800 retail. These farmers were paid 2.2% of the projected retail price.

CHILD LABOR ON SIDAMO COFFEE FARMS

Sidamo is extremely poor. Only 2.7% of households around Sidamo have running water.6 Literacy is low: of males over nine years old, only 25.5% are can read and write; for females the rate is 13.6%.7 Only 33.6% of children attend school.8

The low prices paid by Starbucks and other coffee buyers forces coffee farmers to put their children to work on their family farms. 49% of Sidamo parents whose children are working would prefer, instead, that their children were able to delay entering the workforce until after they had completed their schooling.9 Unfortunately, the low prices Starbucks and other buyers pay for their coffee force farmers to put their children to work. Coffee is grown on small family plots; when coffee prices are low, child labor helps Sidamo’s families reduce their malnutrition.10

As a result, over two million children in the Sidamo area, aged 5 through 17, are working: 92% are working in agriculture, 94% are unpaid family workers, and 90% are working to support their families. On the average, they work 29.9 hours per week. Child labor is a significant part of the agricultural economy. Yet this is not a world their parents want.

With Starbucks paying only 2.2% of retail to these “partners,” these Sidamo farmers are unable to earn a living wage and will remain in poverty. Starbucks understands this reality, yet continues to exploit its market power over such small farmers. As Starbucks’ Trade Consultant, Rosa Whitaker, candidly put it: “the reason why farmers remain poor, is because [sic.] I’ve never seen any country in the world where people have moved out of poverty exporting primary raw products.”11 Starbucks relies on the tyranny of the commodity coffee market to keep coffee prices low, and knowingly perpetuates the poverty of its farmers by paying market prices in short-term contracts.12 Paying “premium prices” for coffee that is priced so low that farmers cannot feed their families is socially irresponsible purchasing.

In Sidamo, over half of children between the ages of 5 and 17 work 30 hours a week on their families’ farms.

A FAIR PRICE FOR SIDAMO FARMERS

To learn more about Starbucks’ “partnership” with the farmers of the Fero cooperative, we spoke to Tadesse, a farmer who sold coffee that Fero shipped to Starbucks for its Black Apron Exclusive “Shirkina Sidamo.”

When told that Starbucks sells his Shirkina Sun-Dried Sidamo for $26 a pound, Tadesse launched into the following speech without missing a beat.

Tadesse pleas for a fair price for Sidamo coffee

The cooperative wants to flourish; the workers want to flourish; the office workers want to flourish; the farmers want to flourish. We did not get what we expected; we did not get the fruits of our labor. You see—the farmers worked hard—labored hard, but did not get their sweat’s worth. Again—what the farmer expected to get—he didn’t get. In return to our labor, the returns are far less. The farmer expects to flourish and to change his life. They keep telling us “we’re going to help you flourish.” They keep coming to record our opinions and to give us endless promises.

We want to earn more money! We want to fulfill our children’s needs. We basically get what we’ve always been paid, which is money to cover our expenses during the coffee season only. During the coffee season, we look fine, like we have money, but after we pay our expenses, we go right back to poverty.

They deceive us by telling us that they’re going to help us grow, but they are the one that is growing.

If there is a solution to this, we want it. We would like to sell to those who can help us flourish and improve our conditions. If we could find someone to create a relationship with us, and buy directly from us for a better price, we would have no problem. We would like you to tell our story to those who would listen.

A fair price for our coffee is $10 birr for a kilo of Red Cherry

Tadessa’s concept of partnership is closer to the concept in common usage. Partners share profits; they don’t inflict market rates on their partners. The fair price Tadessa suggests, $10 birr for a kilo of Red Cherry is equivalent to $1.54 a pound,13 which is roughly triple what farmers currently receive.

WOULD PAYING COFFEE FARMERS FAIR PRICES HURT STARBUCKS’ BOTTOM LINE?

If all of the farmers supplying Starbucks, in all twenty-four of its supplying countries, were paid the price increase suggested by Tadessa, but all other costs remained the same,14 then in 2006, instead of paying an average of $3.12 per kilo, Starbucks would have paid perhaps $5.32 per kilo. This would increase Starbucks’ cost of coffee from 5.3% of its total revenue, to roughly 9.1%. This 3.8% increase roughly estimates the cost of social fairness to the farmers in the twenty-four countries that supply Starbucks with its coffee.

Can Starbucks afford such a significant increase in the cost of its coffee? Apparently yes. In the past five years, the price of coffee in the world commodity markets doubled, rising from $0.60-0.70 a pound for mild arabicas in 2002, up to $1.10-1.20 a pound in 2006. Yet in that same five year interval, Starbucks enjoyed a dramatic improvement in its finances—the doubling of the world price of coffee didn’t make a difference.

In 2002, its earnings per share were $.26; by 2006 they had almost tripled to $.71 a share. In 2002, its free cash flow was $478M; by 2006, it had more than doubled to $1,132M. Finally, in 2002, Starbucks’ return on equity was 13.87%; by 2006, it had risen to almost twice that rate, 26.06%. Starbucks earnings per share, free cash flow and return on equity all doubled with the doubling of coffee prices.

In sum, Starbucks can and must pay farmers fair prices for growing the “high quality” coffee it buys. Starbucks should support the upcoming International Coffee Agreements to restore the production controls.17 Taking such a position, instead of continuing the embarrassing delay tactics recently revealed in its squabble with the Ethiopian government, is the right thing to do.18 Further, Starbucks must embrace transparency by disclosing the locations of all its coffee farms and submit to independent monitoring.

Omitted Section on Unfair Labor Practices Against Baristas

Appendix 1:

Note on Starbucks Failure to Comply With Current Global Reporting Initiative Guidelines

Effective Corporate Social Responsibility requires putting stakeholders in a position where they can influence corporate management. Unfortunately, Starbucks top management remains uncommitted to self-regulation. For instance, Starbucks’ Social Accountability Auditor clearly states in the 2006 report “ we have not performed an audit in accordance with the International Standards on Auditing. Accordingly, we do not express such an opinion.”

As to the global standard in sustainability reporting, the Global Reporting Initiative’s guidelines, Starbucks is at the bottom of the class. A quick look at the GRI website, http://www.globalreporting.org/, shows that the 2002 Sustainability Reporting Guidelines were superceded by the G3 guidelines. A search of the GRI G3 compliance database quickly reveals the names of dozens of international corporations that are adhering to the new G3 Sustainability Reporting Guidelines; Starbucks’ name is conspicuously absent.

Looking backwards to the 2002 Sustainability Reporting Guidelines, Starbucks does not fare much better. The 2002 GRI standards established several degrees of “adherence to” the 2002 standards. First, adherence can be verified three ways: 1) verification by GRI auditors; 2) verification by other external auditors; and the weakest form, 3) a self-declaration of compliance. Starbucks does not even pretend to a self-declaration of compliance. Instead, a glance at Starbucks’ careful verbiage in its GRI statement,45 reveals that Starbucks only claims to have been “influenced by” the 2002 Guidelines. To declare adherence to the 2002 Guidelines, Starbucks’ CEO would have had to make a sustainability declaration analogous to that required by the Sarbanes Oxley Act for financial disclosures:

This report has been prepared in accordance with the 2002 GRI Guidelines. It represents a balanced and reasonable presentation of our organization’s economic, environmental, and social performance.

Starbucks’ CEO Jim Donald chose to avoid this level of accountability, strongly indicating that Starbucks’ top management remains uncommitted to genuine corporate social responsibility.

Starbucks has thus far profited handsomely from a socially responsible image. However, as more facts emerge, the socially responsible veneer is quickly deteriorating. Until Starbucks’ senior executives commit themselves to move beyond rhetoric and make their commitments real, going forward the company can expect vigorous resistance from a variety of stakeholders.
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Footnotes

1 See, e.g., Stephan Faris, Starbucks v. Ethiopia: The country that gave the world the coffee bean and the company that invented the $4 latte are fighting over a trademark, Fortune, February 26, 2007.
2 Rosa Whitaker, Trade Consultant to Starbucks, speaking at Starbucks press conference in Addis Ababa in February 2007.
3 Starbucks Press Conference, Addis Ababa, February 2007.
4 Starbucks Press Release of October 3, 2005.
5 Starbucks’ lack of full transparency about the farmer equity makes it impossible for us to estimate its production costs up the entire supply chain. Starbucks hides the facts about its profitability by failing to upgrade its CSR reporting to comply with the GRI G3 standard, and by failing to fully disclose each element of its costs up and down its supply chain.
6 In 2001, the International Labor Organization, the Central Statistical Authority, and the Ministry of Labour and Social Affairs of the Ethiopian government conducted a survey of child labor in Ethiopia. The survey targeted 43,995 households, of which 5,447 were in the rural areas in and near Sidamo. Table 3.9.
7 Table 3.4.
8 Table 3.12.
9 Table 15.8
10 Despite this, over half of the children in Sidamo remain malnourished.
11 Starbucks Press Conference, Addis Ababa, February 2007.
12 Starbucks enters into some longer-term contracts with producers, but as this years annual report makes clear, as the price of coffee rises, it will increasingly resort to short contracts to reduce its overall cost of coffee, and help drive down prices. The implication is that it only uses long-term contracts to lock-in relatively low prices in a rising market. Paying a fair price to farmers is not mentioned anywhere in its “Product Supply” strategy. 2006 Form 10K at page 11 of 156.
13 $10 Birr per kilo of red cherry is equivalent to $30 Birr per kilo of green bean, which equals $13.6 Birr per pound, which exchanged at $8.86 Birr to the $USD, equals $1.54 a pound, to the farmer.
14 In 2006, farmers received at most $.57 of the $1.38 that Starbucks paid for its Shirkana Sidamo; the balance of $.87 paid for processing the cherry into green beans, bagging, storing, transporting and administering the supply chain from the farmer to the port in Djibuti.
15 ICO website, www.ico.org/historical.asp.
16 Various financial figures taken from Morningstar website, http://www.morningstar.com/.
17 Production controls and price supports kept coffee prices at livable levels for farmers from 1962 through 1989. The ICA is due for renewal in September 2007.
18 Chairman Schultz voiced these concerns in a memo leaked to the press in February 2007. Professor Holt of Oxford, in his essay “Brand Suicide” anticipated the Chairman’s concerns.
Footnotes 19-44 pertained to Omitted Section on unfair labor practices against Baristas.
45 2006 Abridged CSR Report at page 5 of 28.
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IWW Starbucks Workers Union

Daniel Gross, Organizer: dgross@iww.org
Tomer Malchi, Organizer: tomer.iww@gmail.com

Justice from Bean to Cup

Sarah Bender, Organizer: bender.sarah@gmail.com
Peter van Schaick, Advisor: peter.van.schaick@gmail.com