How fair is Starbucks?

A while back I blogged about Fairtrade; the folks who try to secure growers in less developed countries better prices (click here). I worried that, while well-meaning, ultimately, any additional money consumers paid would flow away from growers (perhaps even to the very multinationals accused of paying growers ‘unfairly’). At the moment, I have a crack team of RAs working on whether the assumptions underlying my theorising are true or not and I will report on that in due course. It turns out to be quite hard to get information from the Fairtrade folks.

Meanwhile, The Economist this week reports on a backlash against Starbucks who is one of the primary firms trying to trade fair with growers [Hat tip: Dan Drezner]. The backlash has been led by Oxfam who seem to be concerned about the ownership of certain trademarks for Ethiopian coffee.

Coffee has become a big testing ground for what it means to be an ethical consumer. The hugely successful Fair Trade brand allows many coffee addicts to get their fix with a clearer conscience, safe in the belief that no farmers have been exploited in the growing of it.So no wonder that Starbucks, an up-market global coffee chain, has reacted like a scalded barista to criticism from Oxfam, a development charity. Oxfam says that Starbucks is depriving farmers in Ethiopia of $88m a year, by opposing the Ethiopian government’s efforts to trademark three popular varieties of local coffee bean. At least 60,000 customers worldwide have contacted Starbucks with expressions of concern, prompting the company to post leaflets in its stores defending its behaviour. It accuses Oxfam of “misleading the public”, and insists that the “campaign needs to stop”….

Starbucks also has questions about the different standards of fairness applied by the Fair Trade brand custodians in different parts of the world. It doubts even that the strategy of the Fair Trade movement, to secure farmers a premium over the market price for their beans, is the best basic approach. Starbucks prefers a code known as the CAFE practices (Coffee and Farmer Equity), which aims to help coffee farmers develop sustainable businesses through a mixture of technical support, microfinance loans, and investment in infrastructure and community development where the farmers live.

So far from being a bloodthirsty exploiter happy to keep farmers in poverty, Starbucks emerges as a responsible firm approaching difficult questions in a thoughtful way. It wants to help its suppliers improve their lot. It is certainly no cheapskate. Starbucks says that last year it paid an average price of $1.28 per pound, 23% above the New York Board of Trade’s benchmark “C” price, for all its coffees.

Starbucks’s enlightened behaviour makes good business sense. The firm has positioned itself at the quality end of the market, where ethically-minded consumers are concentrated. It has absolutely no incentive to behave badly. Strikingly, another quality coffee producer, Illy Café, has similar issues with the Fair Trade movement, and also prefers to build sustainable coffee farming rather than indulge in simplistic Fair Trade posturing.

Visiting the respective organisations’ web sites and it seems that the accusations against Starbucks are overblown. The dispute is about one aspect of the whole system: specifically, whether some sort of local ownership of brand names will give growers more bargaining power. It will certainly give the brand name owners more bargaining power but who exactly are they. And do we want them to have more bargaining power relative to those who might promote the brand. After all, near as I can tell, there is a ton of good coffee brands so that any given one is probably worth little.

But the entire issue highlighted an interesting feature of the Starbucks’ approach that informs on my earlier concerns. It seems that Starbucks specifically prefers some growers over others. From their website:

he guidelines define what we believe to be the critical social, environmental, economic and quality aspects of growing, processing and selling coffee for Starbucks. To become a C.A.F.E. Practices supplier, coffee farmers, processors and exporters must meet minimum requirements and demonstrate best practices, which are subject to independent verification under the guidelines. High-scoring suppliers receive preferential buying status, higher prices and better contract terms.

Now, in many respects, this is not unlike lots of brand name producers worried about coffee. It is just here that there is a bunch of social stuff put in. My guess is that all of that is quite costly to the individual grower. Indeed, it may be that the better deals from Starbucks just compensates them for those extra costs. This means that the Starbucks’ way does not necessarily improve grower income but instead directs money to this other stuff. Now it is tough to say what all that means (here is the link with more details) but if this is the case then the multinationals are not the ones who benefit from fair prices (phew). But is Fairtrade itself doing the same?

5 thoughts on “How fair is Starbucks?”

  1. I think the whole idea of fair trade is very noble without ignoring the laws of supply and demand. When you buy eco gifts or any eco product for that matter under the terms fair trade you just ensure that a farmer gets his fair share in the deal. The cooperative may choose to put it on investments on the infrastructure of the cooperatives but in the grander scale it still trickles down to the farmer for the long term. I don’t see fair trade as driving the prices up and creating an abnormal demand for coffee or any fair trade product. Demand stays the same. The prices are up because you are not paying for higher demand on coffee but buying an added service which is responsible consumerism. I sell Fair Gift items and the Fair gift is a gift that just keeps on giving.

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