Starbucks Prepares New Guidelines for Growers

March 2004

Starbucks has drafted new guidelines for suppliers of its coffee in a continuing effort to address worker and environmental concerns. The process dates to 1994 when Starbucks responded to a campaign initiated by USLEAP (then the U.S./Guatemala Labor Education Project) and agreed to adopt a code of conduct for its suppliers. In 1997, Starbucks shifted its approach to an incentive-based system under which it paid growers an extra premium if growers took steps to improve conditions. This evolved into a comprehensive set of sourcing guidelines issued in November 2001, setting out a point system for meeting specific criteria which would qualify suppliers for an extra payment of 10 cents a pound.

In February, 2004, Starbucks invited a wide range of groups to a meeting in Seattle to provide feedback on a draft of the revised guidelines, labeled the Preferred Supplier Program (PSP). Groups represented included long-time critics and activists, including USLEAP and "fair trade" advo cates Global Exchange, TransfairUSA, and Oxfam America. The Guatemalan-based Commission for the Verification of Codes of Conduct (COVERCO), which in 2000 conducted a comprehensive survey of conditions in the Guatemalan coffee sector for Starbucks, also participated, along with Starbucks top executives, including Orin Smith, the Chief Executive Officer, and senior executives for coffee and for corporate responsibility.

Starbucks generally received positive feedback for its continuing engagement but concerns were expressed about the adequacy of the standards and verification, especially with respect to core labor rights like freedom of association, and incentives.

An Incentive-Based System
As USLEAP argued when the guidelines were first issued in 2001, a major strength of the incentive system is that it accepts a financial responsibility on the part of Starbucks to assist in the improvement of conditions. Codes of conduct and other efforts by retailers in the North usually demand that producers meet minimum conditions but the same retailers then demand the lowest bid possible, squeezing the producer.

However, Starbucks implicitly acknowledged that the incentive system has not yet led to significant improvements on the ground and that the vast majority of its coffee comes from suppliers who do not meet the guidelines. On the other hand, Starbucks has set an ambitious goal of rapidly increasing the percentage of its supply from those who meet the criteria for being included in the "Preferred Supplier Program" from a little over 10% in 2003 to the vast majority of its coffee in three or four years. Starbucks believes that its move to long-term contracts with suppliers and the relatively high price it already pays to suppliers will be sufficient to attract more suppliers to the program.

One critical issue is that the guidelines currently do not require a minimum base -level commitment from suppliers in the program, leading to the possibility that a supplier could accumulate enough points to qualify for the program even if the supplier violated national law with respect to other labor issues, including freedom of association or required health insurance. In fact, USLEAP pointed out that under the guidelines as currently written, a supplier could murder a trade unionist and still qualify as a preferred supplier.

Serious Effort
While this important deficiency needs to be addressed, the sourcing guidelines nevertheless represent a serious effort to bring corporate responsibility to a complicated supply chain, a significant change from Starbucks original position in the mid-1990s when it argued that applying a code of conduct to coffee growers was not possible, citing a diverse coffee supply chain consisting of small farmers, plantations, vendors, and exporters in which a coffee bean may be bought and sold a half dozen times before Starbucks buys it. Indeed, one concern expressed about the guidelines is that in attempting to apply responsibility up and down the chain, as well as to ensure that financial benefits are properly shared, the guidelines may be too complicated.

Starbucks' incentive system, with some important changes, could be a model that could fundamentally change the coffee industry with respect to working and environmental conditions. On the other hand, Starbucks has been engaged in this effort for ten years and so far has little to show for it in terms of improvements for workers for whom already poor working conditions are deteriorating further as a result of the coffee crisis.

Starbucks has a new set of executives and staff who are in charge of revising and implementing the company's sourcing guidelines. The key issue now is to what degree Starbucks integrates the feedback provided and how transparent the company is in the future regarding the effectiveness of the guidelines in improving working conditions and respect for basic worker rights

Coffee Crisis and Fair Trade
Starbucks acknowledged the crisis in the coffee sector stemming from over-production and low prices but noted that Starbucks buys higher-end coffee for which it pays a higher price than the average. Starbucks took some credit for what is left in the coffee industry in Antigua, Guatemala, where Starbucks says it is now the biggest buyer. While the low-land coffee production has been virtually wiped out, better quality, higher-priced coffee is still grown at the higher altitudes surrounding Antigua.

(In subsequent communications, Starbucks confirmed that it had dropped the chief representative of the Guatemalan coffee industry, ANACAFE, from its original list of independent verifiers, as proposed by USLEAP in 2001 when the initial guidelines were made public.)

Fair trade groups at the feedback session pushed for Starbucks to do more to promote fair trade. Mr. Smith, in response to a complaint that Starbucks stores do not brew a cup of fair trade upon request by a customer, said that the policy is that all stores should brew any cup, including fair trade, upon request, and that he was disappointed that some stores and barristas were unaware of this policy.