Coffee and Starbucks Essay Example for Free

Coffee and Starbucks Essay Starbucks Coffee Corporation is facing some strategic decisions on its current policy with regard to partnering with NGOs. Starbucks has a long history of social involvement. â€Å"CSR originated in 1994 as the Environmental Affairs Department with a budget of $50,000; by 2002, the 14-member department had a budget of 6 million. (Austin Reavis, 2004) Recently Starbucks completed a six year, $450,000 project with Conservation International; an NGO thats mission â€Å"is to conserve the earths natural heritage and its global biodiversity, as well as to demonstrate that human societies are able to live harmoniously with nature. (Austin Reavis, 2004) At the time CI had a staff of 776, overseeing projects in more than 30 countries on four continents. Roughly two thirds of CIs staff worked in the field and 90% were citizens of those countries. (Austin Reavis, 2004) Working with CI on the Chiapas Project, dedicated to working with coffee farmers to stop the destruction of rain-forests by farming and to promote shade-grown coffee which is sustainable, Starbucks has learned that it needs a clearer policy with regards to partnering with other NGOs in the future. Several challenges arose when Starbucks was working with CI on the Chiapas Project, and they both learned valuable lessons. Starbucks needs to consider how valuable the Starbucks-CI alliance had been and what it future might be. Is the approach sustainable? What should be the ongoing strategy for shade-grown coffee? Next, how should new coffee purchasing guidelines be implemented? How should Starbucks and CI approach other roasters to adopt the sourcing guidelines? Finally, how should Starbucks address the Fair Trade movement? When CI identified coffee as an important commodity affecting biodiversity, it launched a pilot conservation coffee program in 1996 organized around three co-operatives, located in the buffer zone of the El Triunfo Reserve in Chiapas, Mexico. (Austin Reavis, 2004) CI Created this project to promote and preserve the pristine rain and cloud forests as well as shade-grown coffee. In 1997 CI convinced Starbucks that partnering with them in the Chiapas Project would not only promote conservation and shade-grown coffee, but also produce a high quality coffee bean; a bean that was shade-grown, sun-dried, and met Starbucks high quality standards. This alliance has proven to be successful. Since 1998, the coffee growing land incorporated into the project has increased by 220%, signaling that farmers had changed their practices. Starbucks was able to purchase 1. 5 million pounds of Coffee from the Chiapas cooperatives by 2002. An outside consultant doing a independent review of the CI project concluded that farmers environmental knowledge and awareness had increased significantly, as had conservation and organized farming practices (Austin Reavis, 2004) However conducive for Starbucks as a learning process and beneficial to CI and the El Triunfo Reserve, as well as the farmers and the cooperatives, the Chiapas project requires a vast infusion of capital and resources to operate. Capital in terms of time, resources, expertise, and field trainers. Austin and Reavis state,â€Å"CI had a team of 3 full-time and several part-time â€Å"extentionists† who visited every farm and monitored progress. CI provided training courses in the villages of the farmers, co-op managers, and technicians on quality control, organic farming methods, tree planting, and pulping methods. CI operates a training center and nursery where it grows a wide variety of trees that gives away free to cooperative members and coffee trees that it sold for a nominal fee. The center also produced an organic fertilizer which it sold at 1/3 the price of equivalent of chemical fertilizers. † ( 2004) with all the resources, funds, education, and time it has taken the Chiapas Project to meet Starbucks quality standards, it would seem impossible for Starbucks and Conservation International to set up projects like this in all the biodiversity hot-spots around the world. The Chiapas Project itself consumed too many resources to be sustainable elsewhere. Starbucks would have to subsidize projects in other countries and partner with other NGO’s, who may or may not share the same values and work ethic as Conservation International. Starbucks would have to set-up infrastructure, education centers, and hospitals. Starbucks would have to maintain a staff on the ground to ensure that best practices where in place. The development would occur at a slow pace. The amount of conserved land may not be a significant enough area to ensure the survival of diverse species of animals and plants. All this time and effort to produce a coffee bean that may not meet Starbucks quality standards Starbucks needs to find another strategy, one that continues to encourage conservation and farmer education, but also a strategy that would affect the industry as a whole. With this in mind Starbucks and CI decided to create coffee sourcing guidelines that would affect the suppliers of coffee. â€Å"Under Starbucks new system, introduced as a two year pilot program, suppliers of any size or location could earn up to 100 points for performance in three sustainability categories†¦if the suppliers me all the criteria, that is ,scored 100 points, it would become a preferred supplier and its coffee would receive priority in Starbucks’ purchasing queue. A producer’s performance had to be verified by an acceptable independent third party, although Starbucks was flexible on whom the verifiers would be. † (Austin Reavis, 2004) Mecklenburg, head of CSR at Starbucks describes her reaction to the guidelines, â€Å"While the Chiapas project is totally amazing and beyond what any of us could have imagined, it pales in comparison to what we’ve done with the sourcing guidelines. What we wanted to do with these guidelines is really define what sustainable coffee is. † (Austin Reavis, 2004) What Starbucks is essentially doing with the creation of these sustainable sourcing guidelines, was shifting the burden of responsibility from itself to the industry as a whole. If the suppliers adopted these sourcing guidelines then the industry would determine who developed the most sustainable coffee and change would occur much faster. There would also be incentive for coffee growers to choose organic farming over chemical pesticides and shade grown coffee production, because these sourcing guidelines would have them in preferential buying order. Starbucks challenge now was to get the rest of the industry to adopt their sourcing guidelines. If Starbucks is able to accomplish this, then the coffee industry will have change, it will be a dramatic beneficial change for the future. Other companies have had success leading industry wide changes. One Such company, Merck, has great success eradicating river blindness in Africa; a disease cause by onchocerciasis, a parasitic disease. In early 1975 Merck discovered a possible cure for the disease, Mectizan, and by 1980 the disease was ready for human trial. There was great pressure both internally and externally to produce the drug. Merck had to make a decision to either charge for Mectizan or donate it. The challenge as it relates to this case was once Merck decided to donate the drug how where they going to distribute it; Merck is in the drug creation business not the drug distribution business Professors James Austin and Diana Barrett discuss Merck’s challenges in a case study they prepared for the Harvard Business School. Austin and Barret state, â€Å"Most of those infected lived in areas accessible only by navigating poor roads or traveling on foot for several days. Neither was there a health-care infrastructure in many areas to administer the drugs – few doctors and no pharmacies. † (2001) Merck was in no position to handle this distribution problem on its own. Much like Starbucks trying to affect industry wide change to sourcing practices, Merck had to outline a strategy to deliver this drug to the people that needed them the most. Merck decided to create a committee to examine the problem. â€Å"In 1998 Merck created the Mectizan Expert Committee (MEC) to address the Distribution issue. † (Austin Barrett 2001) Ultimately what the MEC decided was to create a distribution model that called for other organizations interested in the drug to contact the company and apply to receive it. After the NGOs were properly vetted (they where looked at for ability to supply and monitor the drug), Merck would ship the drug directly to the specific countries. The key lesson to take away from Merck’s challenge is that the company could not distribute the drug on their own. Merck had to partner with other organizations in order to affect industry wide change. Starbucks is attempting to dramatically change the way suppliers source coffee. These new guidelines will be beneficial to the coffee growers, who will be forced to learn new methodology, but will receive higher income and higher buying priority in return. These sourcing guidelines will be beneficial to the environment, requiring sustainable practices, such as organic farming and shade-grown coffee, which will conserve land, present less danger to animals, and promote biodiversity. These guidelines will benefit suppliers trying to buy better tasting and more sustainable coffee in larger amounts for comparable prices to industry farming techniques. And finally, these guidelines will benefit the companies whose customers demand a more sustainable flavorful coffee product. Starbucks purchases about 1% of the global coffee supply in 2001. (Starbucks CSR annual Report 2001) World coffee production is estimated at 6. 7 million tones (Hoyt McMillan 2004) Starbucks purchases 67,000 tones of coffee annually. Although this is a lot of coffee it is only a small percentage of the global total. Starbucks is not going to be able to affect the suppliers by themselves; they just do not command enough of the global market to force their sourcing guidelines on suppliers. Like Merck, Starbucks must partner with other companies if they want to see their sourcing guidelines accepted industry wide. In order to align themselves with competitors, Starbucks must generate enthusiasm for its sourcing guidelines among the competitor’s customers, other NGOs, Coffee buyers, coffee suppliers, and competitors themselves. Although a herculean task, Starbucks is a behemoth of a company quite capable of through its weight around. Starbucks must show that their guidelines are more attractive than other sustainable coffee standards such as the fair trade movement. The Fair trade movement started in the Netherlands in the late 1980’s as a way to organize small farmers producing various commodities into cooperatives and to improve their incomes by pressuring buyers to pay guaranteed minimum prices (Austin Barrett 14) The Fair Trade movement seems poised for explosive growth. The world market for fair trade goods is currently valued at $400 million. (Raynolds 2002) Though this only represents a minor share of the international market, sales of Fair Trade commodities have boomed in recent years, with sales rising at close to 30 percent per year. (Raynolds 2002) Coffee forms the core of fair trade networks and is the most widely consumed Fair Trade product in the movements European home and in rapidly expanding North American markets (Raynolds 2002), Starbucks has encountered problems with the fair trade movement. Mecklenburg sums up Starbucks interaction with the Fair trade movements activist NGOs up till now, â€Å"It wasnt that we hadnt been in the cross-hairs of other advocacy groups before but this was much more aggressive. It was difficult to have rational communications There was a lot of pressure to sell Fair Trade Coffee. Ultimately it was up to the CEO. (Austin and Reavis 2004) Starbucks challenges with the Fair Trade movement arises from three points. Firstly the Fair Trade movement originated in Europe where Starbucks is not always regarded favorably. Although there are many Starbucks in Europe, there is simmering resentment at the American company for displacing European coffeehouses. Secondly, Starbucks buying and sourcing practices are not in-line with the Fair Trade Movement. Starbucks buys its coffee From high quality sellers, that sell only Arabica beans. Starbucks also seeks to, when it can, purchase shade grown organic coffee from farmers that are paid better than market price. The Fair Trade movement is basically a labeling movement. They do promote organic cooperative farming techniques and better wages for farmers in order to obtain the Fair Trade seal. However, the Fair Trade auditors do nothing to ensure the quality of the beans and do not have third party verification. Also farmers must pay to have their farms and cooperatives auditing which is a practice that Starbucks does not agree with. Finally, the Fair Trade movement is a supply side movement advocating on behalf of rural workers. They have no experience partnering with large companies, whom they view with mild distrust, only persuading companies to buy Fair Trade and selling Fair Trade commodities. In April 2000, Starbucks signed an agreement with TransFair to buy Fair Trade-certified coffee that met its quality standards up to amount that met customer demand (Austin Reavis 2002) Although often the quality of the purchased Fair Trade coffee did not meet Starbucks quality standards and therefore was unusable, Starbucks made a wise decision to purchase Fair Trade coffee to be sold through its stores. The Fair Trade movement is a popular movement, especially in urban neighborhoods. Starbucks needs to continue to work with the Fair Trade movement, educating the suppliers of its quality standards so that they can buy more of the Fair Trade coffee. Ultimately Starbucks has a proven track record of being socially responsible. Starbucks, along with Conservation International, created and nourished The Chiapas Project which conserved biologically sensitive land, educated farmers, encouraged organic farming, and promoted shade-grown coffee growing. This project was cost and time intensive, so Starbucks and CI went further to create sourcing guidelines. Guidelines that would affect the entire coffee industry as a whole. Starbucks also dealt well with another movement that threated to undermine the effectiveness of the newly created guidelines. Change comes slow to a behemoth like the coffee industry and Starbucks understands that if it continues to promote social responsibility as a strategic business practice, it will be rewarded by customers and eventually change the coffee industry for the better. References Austin, James , and Cate Reavis. Starbucks and Conservation International. Harvard Business School 9-303-055 (2002): 1-28. Print Hoyt, D. , McMillan, J. (2004). The Global Coffee Trade. Stanford Graduate School of Business, IB-53, 1-54. Retrieved July 26, 2010, from http://www. probeinternational. org/files/The%20Global%20Coffee%20Trade. pdf Raynolds, Laura. Consumer/Producer links in Fair Trade Coffee Networks. Sociologia Ruralis 42. 4 (2002): 404-424. Print. Starbucks Annual CSR Report 2001. (2002, February 15). 2001 Report Untitled. Retrieved July 25, 2010, from assets. starbucks. com/assets/csr-fy01-ar. pdf TransFair USA | About Us. TransFair USA | Home. N. p. , n. d. Web. 22 July 2010.