Starbucks Fair Trade Case Study

Fair Trade Coffee Offers a Solution to the Coffee Crisis Essay

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Fair Trade Coffee Offers a Solution to the Coffee Crisis

When you buy a cup of coffee in Starbucks every morning to keep you awake through the day, do you ever think of the origins of these coffee beans? How much of those three dollars you pay in Starbucks goes to the Farmers? Personally, I’m not a coffee-drinker. But somehow I realize the big sign in front of Java City in the Reitz Union Food Court, which says “Certified Fair Trade Coffee.” I’m surprised how few students know what it means. Currently, farmers in Brazil and Vietnam grow the majority of coffee beans.
These farmers then sell their beans to the middlemen who pay them low prices-an average of $0.3-0.4 per pound. The farmers are earning less or even losing for growing…show more content…

As a result, wholesale coffee prices are at their lowest levels in 100 years. Back in 1997, unroasted coffee beans that had a wholesale price of $2 a pound dipped to under 50 cents a pound in 2002, a price below many farmers’ production cost. Since farmers couldn’t afford the proper working conditions, the beans would be grown using the twelve most health-threatening types of pesticide. Furthermore, “With low prices, farmers tend to reduce inputs and take less care of the trees. In some cases this means that it is easier to cut down forest for plantations rather than care for existing ones,” said Néstor Osorio, executive director of the ICO (Roach). The farmers could not afford to improve organic growing conditions and develop higher quality coffee beans. It directly reduces the range of quality and varieties of coffee we are obtaining! According to Liam Brody, a program coordinator for Oxfam America in Boston, the situation was so adverse that “hundreds of thousands of coffee farmers in Africa and Central and South America have lost their jobs as farmland is converted to other agricultural uses such as livestock grazing or the cultivation of illicit drugs”(Roach).

To alleviate the coffee crisis, Fair Trade coffee is the most appropriate action. TransFair is the only organization in the United States to determine whether or not coffee beans meet fair trade standards- “an importer must meet stringent international criteria; paying a minimum price per

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Fair trade continually interests me. It’s a great example of a development “policy” that at first glance, seems perfect. Companies (generally in foodstuffs like coffee or cocoa, but clothing and related items as well), basically agree to set the prices of the goods they purchase at a higher than market price in order to provide better lives for those who are at the origin of their supply chain. In many cases, fair trade also includes specific labor standards, training and may branch out into health care and education. I would be a monster to not support this and I do… in theory.

I wrote an article a few months back called “Is Fair Trade Really Fair?”. The goal was to show that there is a large body of conflicting evidence that fair trade is benefiting whom it is intended to benefit. However, I do not discount fair trade outright. In fact I think every company should be engaging in these practices. I mentioned the fact that Starbucks for years has been working internally and rather successfully on fair trade issues and that they had succumbed to public pressure by having some of their coffee “certified” by Transfair (you can find the Harvard Business School case study here). The crux of the study concerns how businesses and NGO’s (in this case Conservation International) can function symbiotically. Starbucks and CI have had longstanding and mutually respectful/beneficial relationship. Their interactions first with Global Exchange and then Transfair were a bit rockier.

Currently, Starbucks is the largest retailer of Fairtrade coffee in the world having purchased 110 million pounds since 2000 (not surprising since they are by far the biggest coffee retailer in general). However, it’s worth noting that the company had worked with various “fairtrade” schemes internally, well before the certification organizations came calling. The main rift between the two organizations appeared to be quality. Starbucks claims that it has very strict quality standards, while Transfair did not find the quality of the coffee to be in their interest, they simply wanted to certify as many coffee farmers as possible (in 2000 they were also making $.10/lb as a licensing fee). Starbucks on the other hand had paid some above market prices but were mainly focused on working with Conservation International and their coffee farmers to improve the quality and yield of their crop so they could purchase more and from a wider variety of farmers, whose coffee was up to their standards.

There’s a simple supply and demand issue here and clearly there’s a difference of perspective between businesses and NGO’s (although Transfair is a for-profit enterprise) on how businesses should do business. My stance is not against fair trade whatsoever, at least not in principle. However, I believe the system will only be sustainable if the companies are spearheading the effort internally and make it part of their core business. In this case, there is little reason for Starbucks to mistreat their suppliers, both for branding reasons and based on the fact that they are hoping to buy the highest quality coffee which in many instances they have demonstrated the willingness to pay a premium for.

Image Credit by crsfairtrade via Flickr under a CC license


About the Author

Jonathan Banco Jonathan has worked in both journalism and various facets of small business development over the past eight years. Most recently, he graduated from the Monterey Institute of International Studies (graduate school of Middlebury College) in 2010 with an MBA and an MA in International Development Policy. His interests include SME development and its role in economic growth, particularly in Sub-Saharan Africa as well as how CSR/Sustainability measures impact both business operations and the communities in which businesses operate. While at MIIS he worked as a summer fellow involved in small business consulting in Accra, Ghana and was an active member of the MIIS Net Impact chapter. As a life long traveler, Jonathan has been fortunate to have lived in, worked in or visited over 20 countries on 5 continents and he truly hopes that he will be able to continue this trend.

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