Wednesday, March 21, 2007

The Great Starbucks Debate!

In February, Starbucks officials said they wouldn't oppose efforts of Ethiopian farmers to trademark their coffees.

Oxfam later said, "Starbucks has balked at signing a voluntary licensing agreement and has refused to engage in good-faith discussions with Ethiopia about the trademarking initiative."

Frankly, I don't know what to think about the whole Starbucks dust-up. I've followed it closely. It seems to be this: Starbucks holds copyright on some "brands" of Ethiopian coffee beans (Ethiopia being the birthplace of coffee.) Oxfam is a British-based non-profit that is helping to organize collectives for "fair trade" -- the selling of goods at above-market prices. People who dig the free market feel this is tantamount to socialist-style price fixing. Other people (including the humanitarian arm of the Catholic and Lutheran churches), feel it is protecting the dignity of farmers and helping to strengthen democracy.

Currently, Oxfam is supporting the Ethiopian government's attempt to copyright four "brands" of beans, based on where they are grown, (the same way that the Champagne area of France has a copyright on their "brand" of sparking wine).

Starbucks, a company that tries to have a very "responsible" corporate identity, was accused of using back-channel pressure to prevent this from happening. They denied it, but always added that they felt their corporate attempts at educating farmers on better growing practices would be better for the farmers than these Oxfam-style collectives and that they paid above-market for their beans, anyway. Sincere or corporate smokescreen - anybody know?

Finally, Starbucks vowed publicly that they wouldn't interfere (don't know if they ever admitted that they HAD interfered...?)


Starbucks targeted by Boston nonprofit
New Mexico Business Weekly - 2:31 PM MDT Wednesday, March 21, 2007

On the day of its annual shareholders meeting in Seattle, Starbucks Corp. has been targeted by a Boston-based nonprofit that's working to help Ethiopian coffee farmers trademark their coffees.

In full-page ads Wednesday in The Seattle Times and the Seattle Post-Intelligencer, Oxfam America of Boston said Seattle coffee giant Starbucks (NASDAQ: SBUX) "refuses to sign an agreement recognizing Ethiopia's ownership of the trademarks of the country's coffees."

Oxfam says it's working with the farmers to obtain trademarks of famous Ethiopian coffees, including Sidamo, Harar and Yirgacheffe.

Obtaining the trademarks, Oxfam officials said, would give "farmers a greater share of the retail value of their coffees."

"If Starbucks is seriously committed to humanity, it needs to change its position and agree to negotiate a licensing agreement with Ethiopia that respects its ownership of its unique coffee trademarks," said Seth Petchers of Oxfam, in a statement.

In February, Starbucks officials said they wouldn't oppose efforts of Ethiopian farmers to trademark their coffees.

Oxfam later said, "Starbucks has balked at signing a voluntary licensing agreement and has refused to engage in good-faith discussions with Ethiopia about the trademarking initiative."

This story was first reported by the Puget Sound Business Journal, an affiliated publication.


Owlhaven said...

Great blog you have here! I added you to mine.


Large Hamster said...

Ethiopia is pursuing a novel proposal created by Lightyears IP ( ) in which the government of Ethiopia would trademark geographic names. These being the Sidamo, Harar, and Yirgacheffe coffee growing regions. After doing so, the government of Ethiopia would set up a global network of licensed distributors. The licensed distributors working with the government would then help determine the retail price of Ethiopian coffee and direct some portion of their proceeds to advertise and market the superiority of Ethiopian coffee versus say Colombian coffee. The goal of all of this being higher prices for coffee and happier, healthier coffee farmers.

I believe this novel approach, which is strongly supported by OxFam, is unworkable and that it will have the unintended consequence of harming the Ethiopian coffee industry, reducing demand for Ethiopian coffee, and thus hurt already poor coffee farmers and their families. The road to hell is paved with good intentions.

Geographic names are not trademarked. In fact it is not typically even possible to do so. We squeeze Florida oranges not Florida™ oranges and drink Burgundy not Burgundy™. NYC Mayor Bloomberg should move quickly to trademark “Brooklyn” to prevent Domino’s from further disparaging its fine history with their horrid new pizza. But, he won’t because the idea is absurd. Alas, the whole world is free to make New York cheesecake.

The government of Ethiopia has not succeeded at providing running water in more than 50% of its villages nor at paving many roads nor at much of anything actually. The country is a basket case, a disaster. It is laughable to suggest that this government is now ready to take on the task of setting up and managing a worldwide network of anything. In any event, it has more pressing issues that it should be focused on.

The government of Ethiopia is good at buying weapons including tanks and fighter jets.

It is also good at jailing, torturing and killing its opponents. It is corrupt and perhaps very, very corrupt.

This corrupt government will now be managing coffee export and distribution. It is not hard to imagine that some of these coffee earnings could then be converted into more tanks, bullets, and bombs. Given the long history of corruption and theft in Ethiopia and most of Africa (see Nigeria), it is much harder to imagine any of the additional coffee earnings actually making their way to poor farmers. It would be extremely naïve to believe this.

OxFam and LightyearsIP must have this all figured out? Well, call me a pessimist but I don’t see a bunch of well armed military guys taking orders from some grad students at OxFam, 5,000 miles away. Does OxFam have a Mig or tanks?

The Lightyears/Oxfam scheme also injects another layer of cost and overhead into Ethiopia’s coffee sales. Costs that will need to be recouped before farmers even have the potential to benefit.

From a coffee buyer’s perspective, the plan makes Ethiopian coffee more difficult to purchase and sell than other coffees. Buyers are asked to sign a lengthy, onerous trademark licensing agreement. This makes buying other coffee easier and more attractive. This places Ethiopia at a disadvantage in the marketplace which is likely to lead to lower demand and lower prices. Not a good outcome for farmers.

Instead of the complex, unworkable and potentially lethal Oxfam/Lightyears scheme, I think Ethiopia should follow the tested and traditional approach of geographic certification. Florida oranges, Burgundy wines, Napa Valley wines, and Colombian coffee all have producers’ co-operatives that insure these products actually are grown and produced in their stated geographies. The co-operatives then pool some of their resources to promote their products to try and increase demand and thus prices. Juan Valdez, the Colombian coffee dude, and his burro are the creation of one of these co-operatives. Oxfam is essentially saying that all of these large, well established, proven co-operatives are wrong. I say their sales and the demand for these products prove they are right. The livelihood of Ethiopian farmers will hang on the outcome of this bet.

Creating new customers for Ethiopian coffee rather than attacking existing customers is likely to generate incremental demand and higher prices. Neither McDonald’s, Proctor and Gamble, Dunkin Donuts nor Kraft purchase any coffee from Ethiopia. They could. However, if you are the CEO of McDonald’s and you see the no win situation that Starbucks now has with Ethiopia are you really going to want to leap into the fray? This dispute is repelling demand. That is not good for farmers.

But hey Bush and Cheney are lovin’ it. OxFam is promoting a scheme that will in effect funnel money to a Bush ally in the horn of Africa with the funds coming from well intentioned liberal do-gooders while simultaneously attacking one of the most liberal companies in America and harming a major contributor to the Democrats.

When the brilliant "attack the customers" plan fails to increase demand and farmers starve, Oxfam will no doubt blame Starbucks and other multinationals then move on to the next victime of its good intentions.

Steve said...

Bottom line:
Starbucks is making a fortune on the backs of the Ethiopian poor. What Oxfam appears to be asking for is for Starbucks to just play fair and share a bit more to help these people pull themselves up out of poverty. A penny or two per pound of coffee back to the growers/farmers can mean a world of difference...way more than it would mean in Starbucks' corporate coffers.