Insights

Transparency at Starbucks?

Posted on 6th Apr 2015 05:08:45 in Transparency

A 2013 Roast Magazine story that discusses transparency in the specialty coffee market briefly mentions Starbucks:

"For coffee verified to meet their Coffee and Farmer Equity (C.A.F.E.) Practices standards, the company says financial transparency "down to the farmworker level" is a must ... [however], the furthest Starbucks goes in disclosing financial information is to give an average purchase price for their green coffee ($2.38 per pound in 2011); they don't report about individual purchases.

 

This inconsistency compelled us to look more closely at Starbucks' sourcing practices. According to Starbucks, transparency is guided by its Coffee and Farmer Equity (C.A.F.E.) program, which "ensures coffee quality while promoting social, economic and environmental standards." Under this model, "economic transparency is required. Suppliers must submit evidence of payments made throughout the coffee supply chain to demonstrate how much of the price that we pay for green coffee gets to the farmer."

 

This in-house certification program yielded the following summary of their 2014 performance:

Although this suggests a small improvement between 2013 and 2014, it does not reveal how much Starbucks pays for its green coffee. For this, you have to dig a little deeper to learn that "Starbucks paid an average price of $1.72 per pound in 2014." According to previous reports, Starbucks paid an average of $1.92 per pound in 2013, and $2.56 per pound in 2012. These three numbers, combined with historical information about what Starbucks charged its (on-line) customers for its French, Verona, Sumatra and Pike Place coffees in 2012, 2013 and 2014, generate the following graph:

The effective share of roasted coffee prices that went to purchasing green beans -- which probably includes the (unreported) amount that went to middlemen -- dropped from 23.7% in 2012 to 15.9% in 2014. Given the total volume of coffee purchased by Starbucks in 2014 (a reported 461 million pounds), and this two-year green price reduction of 84 cents per pound, Starbucks seems to have removed more than $387 million from coffee-growing countries over a two year period (unless the reported green price reduction came from squeezing the middlemen).


We recognize these numbers and calculations might be incomplete because we do not know how much of the money that Starbucks spends on green coffee actually goes to growers. This is unfortunate because the claims associated with the C.A.F.E. program suggest that these numbers are made available by Starbucks' suppliers -- and, we would argue, should be disclosed to consumers -- for 96% of the green coffee purchased in 2014.

We also recognize that the price paid for green beans is not the only way that roasters support coffee farmers. For example, Starbucks contributed $16.3 million in 2014 to support loans to farmers through Root Capital (and other partners). However, we should consider that the economic value of pre-harvest financing to a farmer is increasing in the price that he or she gets when the coffee is sold. Thus, to get a complete picture of these other farm-based programs, we must see the more detailed price numbers (and must see them trending in the right direction).


Share on your favorite social media!