Starbucks Signs Ethiopian Licensing Agreement, Nothing Changes

After public pressure, Starbucks has finally agreed to enter into a licensing agreement with Ethiopia’s government that covers the use of Ethiopian varietal names. Lots of people are celebrating over the “historic” agreement. No one louder than Starbucks, and why not? They’ve won a PR coup, and nothing has changed.

In an unorthodox move, Ethiopia recently applied for trademarks on its Harrar, Sidamo, and Yirgacheffe names in order to control how the coffee is marketed in the US and, downstream, increase its profits based on the prestige of its coffees. Normally, coffee-producing countries use what’s called “geographic certification” to prove the accurate sourcing of their beans. But third-party certification is costly, and would actually drive up the production costs of coffee in Ethiopia’s already-depressed economy. Applying for US trademarks would allow Ethiopia more control over the costs and marketing of its coffee without an increase in production costs.

The process has been delayed, as Starbucks had already applied for its own trademarks for Ethiopian varietal names. You read that right–they want to own the name of a region of Ethiopia. That application must be arbited before Ethiopia’s application can be considered, and in the interim a few nonprofits have taken up Ethiopia’s cause, perhaps most notably Oxfam, who started petitions and attempted to raise awareness of the issue.

Starbucks voluntarily opened talks with Ethiopia and signed a licensing agreement, giving Ethiopia a say in how its coffee is presented. Ethiopia’s requirements of the agreement are pretty anemic, basically boiling down to making sure the region name is prominently displayed on the packaging and that the beans are what they say they are. Considering this is something Starbucks theoretically already does, signing the agreement was a no-brainer–especially because the agreement would preclude any further restrictions or royalty requests Ethiopia could impose if their trademark application is approved.

So Oxfam celebrates, taking credit for the “historic” agreement, and claiming that this “could bring millions more in annual revenues” to Ethiopian coffee farmers. Oxfam is chock full of good intentions, and I’m glad they exist, but they are completely wrongheaded here. Here’s why:

1) The agreement has no money in it. Understand that this agreement only concerns the circumstances of marketing Ethiopian varietal names in the stores of a single (though admittedly large) company. There is nothing in it whatsoever about higher export prices, trade practices, or revenue distribution.

2) Farmers are not in the equation. 98% of Ethiopia’s coffee is produced by farmers who own less than a hectare of land. All of that coffee goes to a single warehouse in Addis Ababa, where it is processed, graded, and exported. That warehouse is owned by the government, which owns the entirety of the Ethiopian coffee export business. Any potential extra revenue resulting from this agreement will go to the government, not to farmers. That in itself isn’t specifically bad, but nonetheless farmers have no access to any part of the licensing agreement or revenue generated from it.

3) Starbucks sources less than 2% of its beans from Ethiopia. The agreement affects a very, very tiny sliver of Starbucks’ overall business, such that Starbucks can afford to be magnanimous. Most of the chain’s coffee actually comes from junk arabica grown in Brazil and Vietnam–poor quality, low-grown beans that have to be nearly carbonized during roasting to erase their taste flaws. Monetarily, the worst thing that could happen to Starbucks as a result of this agreement is that it sees a single-digit-percent cost increase on less than 2% of its total crop purchases, so it loses nothing by signing the agreement–and it also gives nothing.

So all the brochure pictures of grinning Ethiopians don’t change the fact that Starbucks scores a PR coup while giving nothing away, and farmers don’t see an extra dime. Why are we celebrating again?