By Ben Packard, Director of Environmental Affairs, Starbucks Coffee
New Approach to Purchasing
After years of traveling to coffee-growing regions around the world, we have come to deeply appreciate the care that goes into producing high-quality coffee. These visits are always worthwhile, especially when we have been able to engage directly with farmers, observe their best practices, gain insight about their short- and long-term challenges and identify ways that Starbucks can contribute to the sustainability of their business and community. More important, they have helped to raise our awareness about the need for a more sustainable approach to coffee production – one that touches on every essential aspect of the supply chain – from farming to processing to exporting.
The Conservation Principles for Coffee Production, a set of multi-stakeholder criteria launched in 2001, became the original platform that Starbucks used to evolve and eventually develop a more holistic set of coffee-buying guidelines that is now known as Coffee and Farmer Equity (C.A.F.E.) Practices. These guidelines were designed to ensure the sustainable supply of high-quality coffee; achieve economic accountability; promote social responsibility within the coffee supply chain; and protect the environment.
C.A.F.E. Practices encompasses various sustainability measures that are defined by 28 criteria, extending to both the farming and processing of coffee. The criteria, which serve as the basis for a comprehensive scorecard, fall under four focus areas: product quality; economic accountability; social responsibility; and environmental leadership.
Thousands of participants – from our largest coffee suppliers to many small-holder farms and cooperatives – have applied and been approved as C.A.F.E. Practices suppliers since 2004. When suppliers apply to C.A.F.E. Practices, they must undergo a third-party evaluation to verify the degree to which their practices are aligned with the criteria.
In 2004, Starbucks opened a Farmer Support Center in Costa Rica, which has allowed us to work more closely with farmers and suppliers on their sustainability measures and coffee quality. Shortly thereafter, suppliers in that region began applying and were approved under C.A.F.E. Practices, and the number has kept growing ever since.
The coffee market has always been prone to ups and downs, mostly related to the balance between supply and demand. Back in 2001, coffee prices fell to a record low of $0.42 per pound ($0.91 per kilogram), and fluctuated near the bottom for several years. These particular market conditions created a climate of economic instability that had an impact on many farmers and their communities. Today’s market conditions are greatly improved, evident by recent prices of coffee traded on the New York “C” market (the worldwide reference used by coffee traders). In fiscal 2006, world coffee prices averaged $1.04 per pound ($2.29 per kilogram).
We believe that with any product there is an inherent link between quality and price. Through our close working relationships with coffee farmers and suppliers, we have always emphasized the importance of quality as the best, most sustainable driver of higher prices
paid. We understand that coffee farming, like any business, must be profitable to be sustainable. Furthermore, we know that when coffee farmers do not earn enough to cover their production costs and/or provide a reasonable income; they may switch to other crops or perhaps stop growing coffee altogether. In fiscal 2006, Starbucks purchased 294 million pounds (133 million kilograms) of coffee and paid an average price of $1.42 per pound ($3.12 per kilogram).
Starbucks commitment to pay premium prices for premium quality coffee has not wavered over the years. It is an approach that not only serves the short- and long-term economic interests of coffee farmers and suppliers; it also serves Starbucks interests by creating an incentive for farmers to improve quality and increase production that in turn contributes to a more sustainable supply of high-quality coffee which we depend on to support Starbucks continued growth.
To help assure that the farmer receives an equitable share of the price paid by Starbucks, a requirement for economic transparency is included in our coffee contracts, including all of our contracts with suppliers participating in C.A.F.E. Practices. This provision stipulates that our suppliers must provide credible evidence of payments, usually in the form of receipts indicating payments made at all levels along the coffee supply chain, including prices paid to farmers. In fiscal 2006, 98 percent of our coffee contracts included an economic transparency clause requesting documentation of payments made to various participants in the supply chain. In 95 percent of these contracts, economic transparency was required to the producer level.
Requiring coffee suppliers to provide evidence of payments was almost inconceivable several years ago, especially given the diffused and complex nature of the coffee supply chain and the historical lack of record keeping. However, since Starbucks instituted this requirement, a notable change has started to take place in the specialty coffee industry, with more serious attention now being focused on assuring that farmers receive an equitable share of the purchase price. We believe this ultimately benefits coffee farmers and other key suppliers who add value along the supply chain.
While we are encouraged by the progress to date, institutionalizing this new requirement has come with certain challenges:
• Standardized Economic Tracking Mechanism for Entire Coffee Industry
Currently, the coffee industry does not have a standardized mechanism in place that allows all parties across the coffee supply chain to easily submit evidence of payment in a consistent, uniform manner. We receive different forms of documentation – from a simple receipt for the coffee cherries that the farmer delivered to the mill to full purchase agreements that include more levels along the coffee supply chain. These documents not only differ in quality, they reflect variations in currency, industry standards and laws, units of measure and are prepared in many different languages.
• Continued Emphasis on Relationships, Communication and Training
As our demand for coffee grows and our already complex supplier network expands, we understand the importance of staying in touch with and training our suppliers so they understand how to complete the application forms for C.A.F.E. Practices, manage the required verification process, and adapt their practices to improve their scores. We must also seek efficiencies on our end that enable us to respond more quickly to the needs of our suppliers.
• Verifiers and Improved Systems Needed
Our plan to buy more sustainable coffee in the future can only be realized if our network of approved suppliers participating in C.A.F.E. Practices grows. The process of approving more suppliers will involve conducting a great number of inspections by third-party verifiers. At the end of fiscal 2006, we had 143 trained and approved verifiers in the field, which was 43 more than the previous year.
Going forward, we expect that more verifiers will be needed to keep pace with the increasing number of verifications that will be required. We see the need for more trained verifiers as an opportunity, and we are encouraged by the interest farmers have shown in becoming approved C.A.F.E. Practices suppliers. And because of this, verifiers will need to be responsive to the increasing demand of more inspections.
• Extending C.A.F.E. Practices to Africa and Asia Pacific
Increasing our focus on C.A.F.E. Practices in Africa and Asia Pacific has proven to be difficult, as expected. In both Africa and Asia Pacific, Starbucks has been working to introduce C.A.F.E. Practices to coffee farmers, processors and suppliers. Progress has been slowed by realities of local coffee industries, lack of financial transparency, minimal understanding of C.A.F.E. Practices among local suppliers, and too few trained verifiers.
We realize there may be a need to consider regional guidance for C.A.F.E. Practices to make the criteria more relevant to unique conditions in Africa and Asia Pacific. Also, the need for more locally based support through regional Farmer Support Centers has been confirmed. In Kenya, Starbucks has been collaborating with the African Wildlife Foundation (AWF) on various sustainability initiatives as a first step toward advancing C.A.F.E. Practices in Africa.
Given our optimistic mindset at Starbucks, we choose to view the barriers outlined above as opportunities for improvement. The amount of time, energy and resources needed to implement and manage C.A.F.E. Practices across such a complex, diverse and sprawling supply chain is considerable – and at times more than we anticipated.
When we first introduced C.A.F.E. Practices, we were inspired and motivated to help create a better future for coffee farmers and their communities, based on a shared interest to sustain the production of high-quality coffee. We did expect the process to involve challenges, but these challenges have not changed our vision. In fact, our vision – and commitment – has only deepened.
Ben Packard is Director of Environmental Affairs for Starbucks Coffee