Category — Opinion

The Starbucks/Ethiopia trademark debate has just taken a potentially disturbing turn:

Starbucks to Open Regional Farmer Support Center in Rwanda

(press release)

“We are very excited to have a regional Starbucks Farmer Support Center here in Rwanda. We look forward to working with Starbucks to offer additional support to the coffee farming community here and in the neighboring countries,” said Paul Kagame, President of the Republic of Rwanda. This center will offer many new opportunities to enhance our methods and produce even greater volumes of our high quality specialty coffees.” Starbucks (Nasdaq: SBUX) chairman Howard Schultz announced today that the company will open a regional Starbucks Farmer Support Center in Rwanda. The facility will provide an opportunity for Starbucks to collaborate with farmers in Rwanda and in the East Africa region, and demonstrates the company’s continued support for their efforts to expand the availability of their high quality, specialty coffee worldwide.

Sounds great possibly? Uh-uh. As Addis Fortune reporter Shlomo Bachrach observed in his recent article “A Support Centre–An Agreement in a Black Box“:

What has it now agreed to? What is the practical effect of Starbucks’ acknowledgment of Ethiopia’s ownership of the names Yirgacheffe, Harar and Sidamo? Does it involve any payments to Ethiopia? How firm and substantial a commitment has Starbucks made to marketing Ethiopian coffee? What rights did Ethiopia grant to Starbucks? What does Ethiopia gain in exchange?

Essentially, things are rockier than they look: Starbucks kicked off recent negotiations with Ethiopia’s government by benevolently agreeing to not do something it shouldn’t have been doing anyway–claiming that it “owns” the name of another country. In return for offering to be marginally less unethical, it is asking for future partnerships with unspecified terms in Ethiopia’s fledgling tea industry, among other things. It has also offered to build a support center for Ethiopian agribusiness, but in return it gets first crack at a high-demand crop:

Starbucks has made a welcome announcement, which can, if it is more than a token gesture, have a positive impact. Such a centre will, of course, do at least as much good for Starbucks as for Ethiopia, since it gives them better access to premium quality coffee at a time when demand is growing and a shortage is on the horizon.

So essentially Starbucks builds a kiosk with brochures on irrigation in it in Addis Ababa and in return they get the potential to corner the market on one of the world’s most valued coffee sources, and get in on the ground floor if Ethiopia’s tea gamble takes off.

Oxfam congratulated themselves quite a bit when Starbucks signed a toothless licensing agreement last October; it seemed premature then, and even moreso now. (Again, I support Oxfam’s aims, I just think they’ve been a bit blind lately.)

It was only a matter of time, but McDonald’s has finally jumped with both feet into the coffeehouse fray, announcing that they are planning on retrofitting many of their stores to accommodate espresso machines and beverage equipment. That’s right: you’re going to see McMochas soon. About 18 months ago, McDonald’s introduced their “premium” coffees in select stores, and apparently met with enough success that they are planning on pushing a full line of coffee beverages to stores nationwide.

Interestingly, the major resistance to this idea isn’t coming from specialty coffee drinkers, independent roasteries, or even Starbucks–it’s coming from McDonald’s’ own franchisees.

To add espresso beverages to current stores will require about $100,000 in retrofitting and equipment purchases for each individual store. That’s a lot of coin to drop to sell coffee drinks, and many franchise owners are worried they won’t make their investment back. It’s not an unreasonable fear, as even purveyors of poor mass-market coffee like Starbucks factor a certain ambiance into the price of their lattes. Take away the neutral colors and quiet jazz, add in harried crowds and beeping fry machines, and it’s going to occur to someone much quicker that they just paid $4.00 for a terrible cup of coffee.

One bright side of this is that dedicated specialty coffee drinkers may not feel much impact; McDonald’s ability to truly compete in the specialty coffee market is in doubt even amongst its own people, and it’s much more likely that the only other company who should feel threatened by McDonald’s move is Starbucks. Starbucks is already starting to really feel the backlash of overexpansion, with hiking dairy costs and slimming margins on the beans (thanks to recovery of worldwide coffee prices after a 30-year low). If Micky D’s taking of a few points of market share means a few less Starbucks on my local street corners, I can’t say that hurts my feelings much.

If that happens, which at this point is maybe a 50/50 chance, there’s another upside, in that local shops could get more frontage. McDonald’s wants to become a “beverage destination”, but it will occur inside already-existing stores. Aside from a few “New!” signs in the windows, the topography of your local street corner won’t change much as a result. Now imagine standing on said street corner with a craving for coffee. Knowing what’s available between McDonald’s and the local coffeehouse next door, do you want to stand in line for ten minutes and pay four bucks for something you know you aren’t going to like? In the actual experience, McDonald’s won’t get you your latte faster or cheaper or better-tasting than local competition, and in fact will likely be worse in all areas. Which, in absence of a Starbucks next door, could mean more business for nearby independents.

That’s a scenario hefty on “what ifs”, but the point is that where there was once a time I might have worried about McDonald’s jumping into the coffee business, now I don’t consider it much cause for alarm. After all, it’s not the first bad idea they’ve had.

(This is part three of a three-part series addressing the debate of Fair Trade vs. direct trade, their political ramifications, and why I prefer direct trade. Read Part 1 here, and Part 2 here.)

In Part 2 I discussed why I don’t think Fair Trade is the best option for getting the best beans at fair prices to everyone involved. But in fact, I didn’t even touch on my single biggest reservation about TransFair: It’s one company.

TransFair has spent years building the Fair Trade brand and getting people to associate their logo with social consciousness–but what happens if TransFair one day dissolves? Another nonprofit will have to start all the way over with a new logo, losing hundreds of thousands of dollars in marketing for years until people mentally latch on to it. Fair Trade has set itself up as the single lynchpin in the marketplace that defines fair practices in the coffee industry, but coffee is a gigantic global industry. A single nonprofit, no matter how big, can’t be everywhere at once and as a result many of the small and poor growers who really need the help end up falling through the cracks.

So there must be a better option, one that’s scalable and supports the two most important roles in the coffee chain: the small grower, and the specialty roaster. Direct trade is that option.

In direct trade, the roastery develops relationships with individual farms, cooperatives, and growing associations. The relationships largely develop in an “old-school” way; word of mouth, personal visits to the farm, and sitting down with the farmers and cupping the coffees themselves. Each roastery and farm must decide the terms of the working relationship, from working conditions, pesticide usage, and revenue distribution. In other words, you’ve got to do your homework, and that could understandably be considered a downside to direct trade.

The upside of course is that the roastery hand-picks the best of the best coffee varietals and can personally vouch for its quality and social consciousness all the way through the chain. In addition, direct trade is more flexible, so if an estate such as Selva Negra hires temporary labor during harvest months but pays them fairly, they’re not automatically excluded. It allows a wider variety of coffees from which to choose when the grower’s size or organizational structure isn’t an issue.

Ultimately direct trade allows social consciousness to work with the free market instead of trying ineffectually to grapple with or control it. Coffee consumers have already proven that they can and will vote with their dollars, which is the one thing Fair Trade has really gotten right. But direct trade allows everyone in the chain to vote with their dollars, and doesn’t require a single and financially-weighty worldwide watchdog agency to administrate it (and absorb money from small farmers while doing so).

Where can you get direct trade coffees? Direct trade is growing rapidly but is still a relatively new movement, so unfortunately you can’t expect to walk into just any shop and expect to find some; also, some regions of the world such as Ethiopia simply can’t offer direct trade coffees because the government controls the trade and auctions all the beans. Maybe the biggest stride was recently taken by Intelligentsia Coffee Roasters, a Chicago-based mid-sized roaster and wholesaler who recently took the step of deciding to offer only direct trade coffees. (I applaud that, but I find their recent trademarking of “Intelligentsia Direct Trade”–with the attendant implication that they somehow invented the direct trade model–unnecessary at best and somewhat sinister at worst.) More and more coffee shops are starting to advertise direct trade, and you can even find them online at places like Stumptown Roasters and RareCoffee.com. They’re often mixed in with Fair Trade coffees, so be sure to ask. Remember, with direct trade the growers get more of the profit than with Fair Trade, so be clear that it’s direct trade coffees you’re after.

Because of the constraints of the blog format, I’ve only really touched briefly on the differences between Fair Trade and direct trade. If you’d like to know more, here are some great resources:

• Reason Magazine: “Absolution in Your Cup” (thanks to Roger for this one)
• The Stranger: “Direct Challenge”
• Intelligentsia explains their direct trade model
• EthicalCoffee.net