Starbucks Analysis, 1998

I. INTRODUCTION

In response to a campaign initiated by the U.S./Guatemala Labor Education Project, the Starbucks Coffee Company committed itself in February 1995 to adopting a code of conduct for its suppliers, with Guatemala as its pilot project. In October 1995, Starbucks issued its "framework for a code of conduct," entitled "Doing Our Part," representing the first effort by a U.S. commercial coffee company to set forth minimal conditions for its coffee suppliers with respect to working conditions and worker rights.

At the Starbucks February 5, 1998 shareholders meeting, the company released its 1998-99 Framework for Action for Improving the Lives of People Who Grow, Harvest and Process Coffee. This Framework for Action represents the company's progress report to date on adopting and implementing its code of conduct and describes its future plans. It also represents a significant advancement over Starbucks previous efforts, which in March 1997 prompted US/GLEP to accuse Starbucks of reneging on its commitment. While the 1998-99 action plan falls short of fully implementing a code of conduct for Starbucks suppliers, it takes major steps toward laying the groundwork for doing so in the future.

In the 1998-99 Framework for Action, Starbucks describes four major areas in which it is trying to improve the lives of coffee workers, their families, and small producers. The four areas cover large farms, industry advocacy, community development, and small producers. Starbucks also says it will support a study of coffee farms in Guatemala this year.

II. DESCRIPTION AND ANALYSIS

A. Large farms: An Incentives Project

Starbucks most concrete new initiative is an "incentives" project to pay growers an extra premium to improve working and living conditions of its workers. At its shareholders meeting, Starbucks estimated that this premium would total approximately $500,000 in the first year of the program. This pilot project has begun to provide tangible benefits to workers, primarily in the areas of education, housing and health care. The project is not limited to Guatemala but includes "incentive" arrangements with growers in several other countries in the Central American region and could become a model for Starbucks efforts in other regions.

The incentive project is a very significant step forward, and Starbucks should be congratulated for initiating it. However, US/GLEP is concerned that Starbucks has not yet designed a way to verify that the premiums are being used as promised and, perhaps more importantly from US/GLEP's view, being used by growers who are not engaged in egregious worker rights violations. It is clear that at this stage, most of the premiums will be used for health, housing, and education purposes but not, say, for increasing the wages of workers. As US/GLEP has pointed out to Starbucks, growers who provide additional education or health benefits to workers while simultaneously paying sub-minimum wages or violently intimidating workers trying to organize a union would not meet the standards set out by Starbucks in its 1995 "framework" for a code. Starbucks agrees that there is a need to resolve what is it calls the "transparency" issue, and has pledged to try to resolve this issue over the coming months. US/GLEP believes doing so is essential to the integrity of the incentives project,

Nevertheless, the incentives project represents a very significant advance in efforts to persuade U.S. coffee companies to take responsibility for the conditions under which their coffee is grown because it

(a) acknowledges that Starbucks has direct business relationships with at least some of its suppliers (a matter of some debate previously),

(b) establishes the principle of taking direct responsibility for the conditions of workers on plantations from which the company buys, and

(c) takes credible and substantial steps to concretely improve working conditions on plantations from which it buys.

These developments are important not only with respect to Starbucks own efforts but as an achievable goal that other U.S. coffee companies can and should follow.

B. Industry Advocacy

Starbucks reports it has been active in pushing the issue of treatment of coffee workers both within the Specialty Coffee Association of America (SCAA) and the National Coffee Association (NCA). The SCAA includes not only gourmet retailers but also growers (e.g. ANACAFE, the Guatemalan coffee growers and exporters association). The NCA is dominated by the large-scale coffee retailers (e.g. Folgers, Maxwell House, etc.). Starbucks Vice President Dave Olsen co-chairs the SCAA sustainability committee and worked successfully in 1997 to include respect for worker rights in the SCAA's definition of sustainability. Starbucks says it will continue to be an advocate for worker concerns within both the SCAA and NCA, and will work with groups like the Council on Economic Priorities and Business for Social Responsibility to examine how to apply codes of conduct to the agricultural commodities sector.

Starbucks argues that the company is a relatively small purchaser with limited economic clout with coffee growers but acknowledges that its high visibility in the market gives it an opportunity to provide leadership on coffee worker issues. US/GLEP essentially agrees with this analysis. The demand for gourmet coffee in particular is rising rapidly. Coffee growers in countries like Guatemala are not dependent on selling to Starbucks and have the option of rejecting any effort by Starbucks to impose a code of conduct. We are persuaded that from a commodities standpoint, Starbucks needs Guatemalan coffee growers more than they need Starbucks. However, we believe Starbucks has considerable political leverage, especially in Guatemala in this post-peace process era. Both the Guatemalan and U.S. governments would like to be able to say that Starbucks is working with coffee growers to improve conditions of workers, and neither would want to face the threat of Starbucks pulling out of Guatemala due to lack of sufficient cooperation from coffee growers.

More broadly, US/GLEP has always seen the Starbucks initiative as the first step in a very long process of bringing consumer pressure to bear on coffee retailers to adopt and enforce sourcing codes. It is absolutely essential that other coffee companies adopt and apply codes of conduct if coffee buyers are going to have any significant economic influence with producers. Consequently, we are very supportive of any advocacy work that Starbucks can do within the coffee industry to encourage other companies to begin taking responsibility. Starbucks internal advocacy, coupled with external campaigns and pressure, could prove to be the company's most important contribution to improving conditions and respect for basic rights of coffee workers.

C. Guatemala Survey

Not surprisingly, Guatemalan coffee growers are the most resistant ones in Central America to the idea of improving conditions for their workers, to the concept of a code of conduct, and to any independent monitoring of conditions on plantations. Starbucks argues that it will take time to move forward in Guatemala, although a number of Guatemala growers have signed on to the incentives project. As an additional step, Starbucks will provide support for a study this year of coffee farms in a region from which it currently buys coffee. The purpose of the study is to document working conditions and the status of worker rights, to develop ways to obtain sensitive and often controversial information about conditions on farms, and to use the findings to help Starbucks move forward on further implementation of a code of conduct and to encourage other members of the coffee industry to take positive steps.

US/GLEP's view is that no one needs to do a study to know that working conditions are abysmal and that rights are constantly violated on most Guatemalan coffee plantations. However, it is true that there are no solid, "scientific" studies of conditions on coffee plantations and consequently one is always encountering the response from Guatemalan growers and the government that descriptions of poor conditions are merely anecdotes, not representative of the coffee sector. Were a study the only thing Starbucks was doing in Guatemala, it would obviously not be a sufficient response to our concerns. However, as part of an overall strategy, and as long as it is clear that this study is not intended to gather dust on a shelf or be a delaying tactic, we are supportive. Critical to our support for study is the fact that we expect it to be contracted with non-governmental organizations in Guatemala in whom we have confidence and trust.

D. Small Producers

As announced shortly before last year's shareholders meeting, Starbucks is providing financial assistance to a project by Appropriate Technology International (ATI) to assist small producers grow and market gourmet coffee. Starbucks report says that two new processing facilities have been built in Jalapa, Guatemala for use by 200 small coffee farmers. Starbucks says a similar project in El Salvador increased family incomes by 40%. US/GLEP is certainly supportive of efforts to improve incomes of small coffee producers, and especially welcomes Starbucks pledge "to investigate fair trade cooperatives as potential suppliers." However, the vast majority of coffee workers in Guatemala labor on large and medium-sized coffee farms. As US/GLEP argued last year, helping small producers in Guatemala grow gourmet coffee does not fulfill Starbucks pledge to hold suppliers accountable for their treatment of workers.

E. Community Development

Starbucks has long been a major contributor to CARE, and in recent years the largest corporate giver to CARE. Previously, CARE projects supported by Starbucks were not necessarily directed at coffee workers but rural development more broadly. In 1998-99 Starbucks will work with CARE to develop a new project that directly benefits families of coffee workers. US/GLEP's position is that soundly-designed development projects can be quite important but if workers were paid a living wage, there wouldn't be near as much need for aid projects.

F. Consultative Process

Starbucks reports that it has established a working relationship with representatives of Guatemalan non-governmental organizations and that in the coming year it will meet regularly with human rights organizations to review Starbucks plans and maintain regular communication with individuals and organizations concerned about Starbucks buying practices. One of US/GLEP's criticisms in the past has been that Starbucks had failed to take advantage of offers by the Catholic Church and others in Guatemala to work with them in implementing a code of conduct. Starbucks is now working and consulting with leading religious and human rights organizations in Guatemala. US/GLEP's recent experience is that Starbucks has been committed to dialogue and problem-solving in a way that does not characterize the behavior of most corporations, and encourages Starbucks to continue and deepen these efforts.

III. OVERALL ASSESSMENT

An overall assessment of Starbucks current plans depends a great deal on one's perspective. From the point of view of coffee plantation owners like most of those in Guatemala, Starbucks initiatives are no doubt viewed with some apprehension and some opposition (and perhaps laughter at Starbucks "naivete").

From the point of view of coffee workers, only some are beginning to reap any concrete benefits. Most problematically, Starbucks has not yet taken any steps that ensure that the workers on large and medium-sized farms from which Starbucks buys are paid even the legal minimum wage (let alone a living wage) or that their basic rights, especially the right to organize, are respected. These are the fundamental goals of US/GLEP's coffee worker economic justice initiative, and have not been met.

US/GLEP also has significant concerns with Starbucks 1998-99 plan, most especially the need to monitor its incentive program to ensure that some minimal standards are being met across the board. Finally, the pace of progress is agonizingly slow. If Starbucks were moving on its code of conduct half as fast as it is expanding it business ventures and opening new stores, the company would be much further along (although it is no doubt true that it is easier to open new stores than apply a code of conduct to Guatemalan coffee growers).

On the other hand, Starbucks is far ahead of other commercial coffee companies in taking responsibility for the conditions of coffee workers abroad. It is also far ahead of most U.S. apparel companies that have much more detailed codes of conduct but have done virtually nothing to implement them.

Starbucks has made a 150 or 160 degree turn from where it was a year ago, when its only plan was limited to working with CARE and supporting the ATI project to enable small producers grow and market gourmet coffee. US/GLEP is persuaded that Starbucks is now seriously engaged in the issue and has begun to commit significant resources to moving forward in developing and implementing a code of conduct.

We therefore applaud and vigorously support Starbucks current directions, with some important caveats, and believe that the basic message to the company should be strongly affirmative but conditional. The company should be encouraged to deal with the concerns outlined above and to move faster. We recognize that others may take a more critical view but US/GLEP currently has no plans to resume its Starbucks campaign work and will not as long as we are persuaded that the company is continuing to move forward in a significant way towards fully implementing a code of conduct.

Overall, US/GLEP believes that corporate responsibility advocacy in the coffee industry can be more effectively used at this point to persuade other coffee companies to follow the lead Starbucks has taken.

IV. NEXT STEPS

US/GLEP will begin to explore which other coffee companies to approach in an effort to develop and implement a code of conduct for coffee growers. We will also seek to ensure that Starbucks resolves the "transparency" issue with respect to its incentives project.