Shilling for Starbucks: How I learned to make peace with coffee and a corporation

By Hal Brill
(originally published in the Natural Investing News, Spring 2007)

I brewed myself a cup of coffee today. No big deal, except that until a few weeks ago I had never done that. Coffee occupied a blurry place in my psyche – I liked it but also feared the bean. One too many jittery, heart-racing experiences had taught my body to minimize consumption, and I figured if I didn’t know how to make it myself I would only be exposed when I went out to eat.

The blend I had this afternoon was some fresh Starbucks beans that arrived recently via UPS, a gift from the company after our recent tour. It achieved exactly what they hoped, sealing my fate. I’ve become not only a coffee drinker, but a convert Starbucks fan. YIKES! How can this be? Is there something in the brew that has weakened my innate mistrust of anything corporate?

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My tale begins in January, 2007, when my buddy Cliff Feigenbaum of the GreenMoney Journal forwarded me an email from Starbucks. He was invited to join a group of journalists in Costa Rica to tour Starbucks sustainable coffee operations. All expenses paid! Fortunately for me, Cliff couldn’t clear his schedule so he offered me the Allison and I have wanted to visit Costa Rica (who wouldn’t?), so it was easy to say yes.

In March we flew to San Jose and were whisked to a modest hotel where we met up with our hosts and fellow journalists. The balmy air was welcome change from the Colorado winter, and after gorging on tropical fruit for breakfast we headed to the Starbucks Farmer Support Center. There we met the agronomists and support staff who work with coffee farmers throughout Latin America. We settled in to laboratory-type room and after a short lecture we got to the main event… a “cupping”.

Unbeknownst to me, coffee drinking is more than gulping down rocket fuel…much more. The closest thing I could compare to cupping is wine tasting. We were taught to bring the cup close to our noses to detect hidden scents, then to take a spoon and slurp vigorously so that coffee droplets spray evenly throughout the mouth. A few rolls around the tongue, then a graceful exit into generous spittoons (even hard core cuppers don’t want to swallow these extra-strength samples).

This gave us an experiential lesson about why Starbucks has made such a major commitment to sustainability. We always work with environmental, social and economic sustainability, but Starbucks has an overarching requirement that impacts all of these: Quality. These folks relentlessly comb the tropics for coffee beans that satisfy their refined palettes. Only a small fraction of the world’s coffee could ever end up in a Starbucks restaurant. Combined with the fact that Starbucks is growing at a torrential pace (more on that later) it becomes clear that their entire business model is dependent on helping farmers achieve financial, social and environmental sustainability by grow- ing some of the world’s best coffee.

From our 2-day immersion it certainly seems that Starbucks is making a positive impact in the lives of their suppliers. One farm, La Candelilla, we met with some of the 9 siblings who manage the family enterprise. They were very proud of the “Black Apron” award that Starbucks had awarded them; a soccer ball signed by the Starbucks staff was displayed on the altar next to a photo of their grandfather who started the farm. The award included a cash gift of $15,000 that helped the family purchase computers for their children and send some of them to college.

Growing coffee brings up many complex environmental issues. Of course Allison and I are big fans of organic agriculture, and although Starbucks does purchase a large amount of organic coffee, we wanted to know why this is still only a fraction of their total coffee purchases. Their agronomists told us that converting to organic is a dicey proposition for the farmer. Unfortunately, yields generally decrease on organic coffee farms, and there is a several year lag-period before a farm can be certified. During this time the farmer cannot receive the premium that organic beans earn, so the prospect of lower earnings is a real hindrance. In addition, there are pests and diseases that can take a toll on coffee trees. While supporting organic growers, Starbucks primarily helps farmers utilize “integrated pest management”. These methods are mostly organic except when there is a severe infestation.

Fair trade is another hot button for coffee activists. Despite the fact that Starbucks is the largest purchaser of Fair Trade CertifiedTM coffee in North America, they have been criticized for not doing more. What we didn’t know is that the fair trade system certifies only cooperatives of small-scale, family-owned coffee farms. Currently, the fair trade system includes approximately three percent of the world’s coffee farmers.

One thing I came away with was the fact that “organic” is strictly limited to environmental concerns, while “fair trade” focuses on economic justice. Starbucks could not possibly buy all the coffee they need with these two labels, so in 2001, in conjunction with Conservation International, Starbucks developed socially responsible coffee buying guidelines called C.A.F.E. Practices (Coffee and Farmer Equity Practices). These guidelines are designed to promote equitable relationships with farmers, workers and communities, as well as protect the environment. The guidelines contain 28 specific indicators that fall under four focus areas: product quality, economic accountability (transparency), social responsibility, and environmental leadership. Independent verification is the key to making this a reputable standard that socially responsible investors can have confidence in.

In between farms we had time to learn a lot more about Starbucks. I knew that they regularly rank high on Fortune’s “Best Companies to Work for” list, but wasn’t aware that they offered full benefits – including health and dental care and vacation time – to part-time employees who work at least 20 hours a week. This generous program benefits the company through lower employee turnover. Although Starbucks restaurants are not locally owned, their stock option plan (Bean Stock) helps employees earn an ownership position in the company. They are developing paper cups with recycled content that will hold hot beverages (which required a lot of r&d), and are on their way to implementing a ban on milk products from cows that are contaminated with the rBGH growth hormone.

As I delved into research following the trip, it’s interesting to see how a company like Starbucks will always garner a certain amount of controversy. Lately they’ve been in the news with questions about their actions in Ethiopia and some complaints from labor activists in New York. Clearly it is impossible in this imperfect world for a corporation to comply with everyone’s wish list. But the sense I came away with is a company that does not profess to be perfect, but one that does solicit feedback and is thoughtful about its impact.

Finally, one can’t discuss Starbucks without pondering a question asked in a recent Wall Street Journal article: “Why did Starbucks cross the street? Answer: To get the customers on the other side.” Although it seems absurd to open 2 or 3 Starbucks at a single intersection, the company’s research showed that customers will not walk more than a few minutes to get a cup of coffee. Having restaurants on opposite sides of the street brings in people coming from different directions. In the next four years, the company plans to open 10 thousand(!) stores around the world – almost 7 per day. Still, the company says the demand for premium coffee can not possibly be met by them and all their competitors combined.

There’s much more to say but the coffee is wearing off. There’s tons of information about many other SRI issues – from their use of green power to international grants and microfinance – at the starbuck.com website in their Corporate Responsibility section.

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Hal Brill

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