Trademarking Coffee: Starbucks Cuts Ethiopia deal

By Anton Foek, CorpWatch. Posted May 16, 2007.

Starbucks, the world's largest coffee shop chain, and the Ethiopian government are on the verge of unveiling a deal that the company hopes will end attacks on the company's carefully constructed ethical image.

Starbucks spokesperson Bridget Baker said that "a licensing, distribution and marketing" agreement for three of Ethiopia's specialty coffees would be announced later this month.

If the company recognizes Ethiopia's decision to trademark the three coffees, it would represent a significant climb-down for the multinational corporation that claims to sell "Coffee that Cares."

Starbucks change of mind would also represent success for an international campaign by Oxfam, a British-based not-for-profit organization. More than 93,000 people signed on to its call for Starbucks to complete an agreement with Ethiopia.

An academic at the University of Oxford's Saïd Business School joined the attack with a stinging criticism of the company's stand, accusing it of hypocrisy and questioning its much-proclaimed social responsibility policies. Starbucks executives -- running an ambitious global expansion plan that aims to increase the number of the company's coffee houses from 13,700 in 39 countries to 40,000 globally -- were also aware that other companies, such as Green Mountain Coffee Roasters ("Fair Trade and Organic"), were cooperating with the Ethiopian initiative and winning praise for "exemplary" behavior.

What the Ethiopians have demanded is Starbucks' support for the country's innovative plan to trademark three of its coffees -- Harar, Sidamo and Yirgacheffe. Until now, the world's largest specialty coffee retailer has resisted the move, arguing instead for certification of bean names. Trademarking, say critics, would give power to growers; certification, they argue, is toothless.

The dispute sounds technical, but at root the controversy is about trying to close the gap between the $4 a Western consumer may pay for a cappuccino and the 50 cents a day earned by a laborer on an Ethiopian coffee farm (or on farms elsewhere in the world: see Brazil box).

Every penny counts, for individuals (an estimated 11 million Ethiopians, about one-fifth of the population, depend on coffee for their livelihoods) and for the nation (coffee provides two-thirds of the country's export earnings).

"Coffee is part of our culture", says Ato Getachew Mengistie, director general of the Ethiopian Intellectual Property Office and the driving force behind the trademarking and licensing initiative. He is not exaggerating: coffee probably originated in Ethiopia (though Yemen claims it, too) and the traditional coffee ceremony is a respected ritual steeped in symbolism.

But as U.S.-based human rights organization Global Exchange points out, despite coffee's ranking as the world's most valuable traded commodity after oil (about 500 billion cups drunk a year), many small coffee farmers toil in "sweatshops in the fields", earning less than the costs of production, forced into a cycle of poverty and debt.

The underlying problem in recent years has been an excess of global production over consumption which has depressed prices (although there are fluctuations). For example Brazilian farmers got $1.51 a pound in 1997 but by 2006 this had dropped to 79 cents, while Ethiopia went from 99 cents a pound in 1997 to 61 cents in 2006 (in between they dropped even lower). By contrast Indonesian coffee has gone from 85 cents a pound in 1997 to $1.23 in 2006 while growers in Mexico went up from 81 cents a pound in 1997to $1.42 last year.

But, as with most commodities, the big profits accrue to the retailers and traders, not to the farmers. In the words of coffee economist Stefano Ponte in a BBC World Service program this week, "Coffee itself is only a small ingredient in the price of a cappuccino. We're also buying the cup, the comfortable chair, the background music, the magazines: the total coffee drinking experience."

What's missing from the equation is "the total coffee farming experience". Two developments are trying to rectify the omission: the "fair trade" movement and specialty coffees. The former sets out to give farmers a higher, guaranteed price for their products; the latter earn a premium for quality and distinctive taste.

Enter Starbucks, founded in 1971 by two teachers, Jerry Baldwin and Zev Siegel, and writer Gordon Bowker. They modeled it on a little espresso bar in Berkeley, northern California, named Peet's Coffee and Tea, founded by the son of a Dutch coffee dealer who had migrated to the U.S.

The migrant's bar has become a global force. In April the company announced a 20 per cent increase in revenue for the latest quarter to $2.26 billion (with a similar increase forecast for fiscal 2007), and an 18 per cent increase in profit for the second quarter of the year, to $151 million.

Its brand has been built not simply by chairs, music and magazines, but by providing a feel-good factor for consumers through its Fair Trade associations, its own C.A.F.E. (Coffee and Farmer Equity) guidelines "to evaluate, recognize, and reward producers of high-quality sustainably grown coffee", and even by acquiring Ethos water ("helping children around the world get clean water and raising awareness of the World Water Crisis".)

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