Starbucks and Coffee Sourcing

Executive Summary

Coffee is an extremely important commodity. It is second only to oil. In January of this year alone 6,364,083 sixty-kilogram bags were exported around the world. Top exporter Brazil provided the bulk of the coffee with 1,770,273 sixty-kilogram bags. Despite an 8.8% decrease in exports since January 2003, demand for coffee is still incredibly strong. Demand for higher quality coffee products is becoming stronger. Starbucks has stepped to the plate to meet these demands head-on, offering premium coffee using a strict selective sourcing strategy. In addition to offering premium quality coffee, Starbucks also offers premium prices that people of different financial backgrounds can all afford.

Despite the enormous demand for their product, coffee farmers have been getting very little in return. Starbucks has addressed this issue directly by sponsoring programs that provide benefits to coffee farmers. In Columbia they have been awarded distinguished honors for their role in the coffee industry and support of Columbia’s economy. Starbucks strives to better the lives of coffee farmers and their families in order to influence them to continue producing high quality coffee. In addition to social programs, Starbucks also sponsors programs that help coffee farmers learn new farming techniques that improve the quality and sustainability of their crops.

The stereotype that Starbucks is a heartless corporation is completely untrue. Activist groups have attacked the company in the past, putting them on the same level as some heinous corporations engaging in not-so-friendly social and environmental practices. However, the fact that Starbucks pays farmers almost double the market price of coffee is proof enough that they are certainly not a heartless corporation.

We believe that by outsourcing their smaller coffee lines Starbucks could save money while maintaining supplier regulations for environmentally and socially friendly practices. Additionally, outsourcing gives them an opportunity to focus more efforts on the Preferred Supplier Program.

Introduction

History

Coffee has a history going back more than 1000 years. While there are many legends surrounding the discovery of this amazing fruit, it was not used as a drink until Arab traders brought the plant back to their homeland and began to cultivate the crop themselves. They began boiling the coffee beans to create a drink called “qahwa,” which literally means “that which prevents sleep.” In the year 1453, coffee was introduced to Constantinople by Ottoman Turks. As funny as it may sound, Turkish law makes it legal for a woman to divorce her husband if he fails to provide her with her daily quota of coffee! In 1600 coffee was introduced to the west by Italian traders. Pope Clement VIII took notice of the widespread use of coffee and was advised to consider it part of the infidel threat (as it was the favorite drink of the Ottomans). However, Clement VIII decided to try this mysterious beverage before actually condemning it and it gained his approval. In 1675 Franz Georg Kolschitzky of Vienna opened Europe’s first coffee houses and began refining the coffee by filtering out the grounds and adding milk and sugar. The seafaring Dutch became the first to cultivate coffee commercially after smuggling the plant out of the Arab port of Mocha in 1690. The Dutch cultivated the plant in their East Indian colony of Java, hence the nickname “cup of java.” In 1773 the Boston tea party makes drinking coffee a patriotic duty in America to prevent consumption of highly taxed British tea imports. In the early 1900’s Hills Bros. begins packing roast coffee in vacuum tins, which would soon spell the end of local roasting shops and coffee mills. Soon after that, the first soluble instant coffee was invented by a Japanese-American chemist in Chicago. In 1903 researchers perfect the process of removing the caffeine from coffee beans without destroying the flavor; decaffeinated coffee was introduced in the United States in 1923. Not surprisingly, coffee sales skyrocket during the prohibition era of the 20’s and 30’s. By 1940 the U.S. was importing 70% of the world’s coffee crop. The espresso machine was perfected by Achilles Gaggia in Italy in 1946. Getting at the crux of the report Starbucks opens its first store in Seattle’s Pike Place public market in 1941, creating frenzy for fresh-roasted, whole bean coffee.
Virtuosity

Environmentally, coffee is extremely versatile. It protects against soil erosion and aids watershed management. It is a carbon sink, particularly with shade treas. In shaded coffee groves it provides an excellent habitat for many migrant birds and rare and endangered animals. Coffee yields something that is not perishable so it can be stored; it does not rely heavily on an efficient transport infrastructure. Smallholder coffee is especially important because it is grown mostly under shade trees and either inter-cropped or grown in a natural agro-forestry setting.
Economically, coffee provides employment and cash to rural areas. Coffee can be an important driver in sustainable development to lift farmers above subsistence agriculture and contribute to a more sustainable lifestyle. Conversely, coffee farmers are facing many difficulties including pests, diseases and quality problems due to poor processing, poor infrastructure and commercialization. These are major contributing factors toward higher production costs and lower market prices. These problems could intensify with technological advances such as mechanization and the introduction of genetically modified coffee crops.
The historically low market price of coffee is having a tremendous impact on coffee farming communities around the world. Many farmers are abandoning their plots or failing to manage their crops properly reducing the quality of their harvest "With prices below 100 cents for a long period, I very much fear for the quality. I also fear for the socio-economic future of a number of coffee producing countries if we stay at this level. It is to the advantage of nobody."
It is vital that smallholder coffee production remains profitable and environmentally sustainable. Methods of improvement include reduction of input costs, training in post-harvest processing and quality improvement, sustainable coffee production methodologies, and research to find more sustainable, environmentally friendly coffee production and crop protection technologies.

The Sustainable Commodity Initiative has outlined five principles for sustainable development in the coffee trade:
1. Producers should be paid a price/wage that covers basic production, living and environmental costs within a competitive framework and that displays a measured degree of stability.
2. Employment relationships should be maintained in accordance with core ILO conventions and local law.
3. Production practices should be environmentally sustainable.
4. Producers should have enhanced access to credit and opportunities for diversification
5. Producers should have enhanced access to trade information and trade channels.

Historically Low Prices

Coffee farmers have seen a 50% drop in global prices over the last three years. This effect is most notable in Central and South America. This crisis is key to Central America’s largely agrarian economy and is creating deep poverty and unemployment in a region already afflicted by poor social conditions and low levels of development. Coffee is the world’s second most-traded commodity after oil and these prices first began to collapse on the world market in 1998. They continued to fall due to oversupply, specifically out of Vietnam where labor costs are more inexpensive than Central America. Prices are at their lowest level in nearly a century :
Coffee prices
US cents/lb
2003 2004 2005 2006 2007 2008
Arabica(a) 64.0 62.7 62.0 62.5 63.0 65.0
Robusta(b) 36.7 34.5 34.0 33.0 32.0 35.0
(a) ICO Other Milds indicator (US cents/lb)
(b) ICO Robusta indicator (US cents/lb)
Source: Economist Intelligence Unit

In Guatemala alone, 250,000 coffee industry employees have lost their jobs in the last three years. Central American coffee is of lower quality than can be freely traded on the open market; attempts to enter into the higher-end soluble and roasted coffee markets have thus far largely failed. Where the coffee is a staple of life, particularly in Guatemala, lost wages and economic collapse have contributed to already volatile class conflicts between the rural poor and urban elite.
Starbucks Aids in Coffee Sourcing

Starbucks has played a vital role in the development and sustainability of South American coffee crops, particularly in Columbia. In early 2004, they were awarded the Columbian order of the Grand Cross Medal for their support of coffee farmers and the local economy. Starbucks has contributed to the economy of the State of Nariño in Columbia for over two decades through its purchases of high quality coffee at premium prices. Additionally, Starbucks invested in a housing renovation project that benefited 500 families last year.
It is genuinely clear that Starbucks is not the “heartless corporation” that certain activist groups make it out to be. The company wishes to be well known not only for its high quality coffee, but for its commitment to origin country farmers and their families. Their business practices are based on their longstanding guiding principles and underscore the importance of applying the highest standards to coffee purchasing, treating people with respect and dignity, and contributing positively to farming communities and the environment. Starbucks has collaborated with a number of farms on social projects that help improve the quality of life for farm workers and their local communities. Clearly, they are not an evil, heartless corporation that cares only about their profits and could care less about the well being of their coffee farmers. It is abundantly clear that they genuinely care about the well-being of their farmers and their communities.
Starbucks Sourcing Guidelines

In November 2001, Starbucks released new coffee purchasing guidelines developed in partnership with The Center for Environmental Leadership in Business (division of Conservation International). The goal of these guidelines is to support their commitment to purchase coffee that has been grown and processed by suppliers who meet important environmental, social, economic and quality standards. President and CEO, Orin Smith, notes that “global coffee production can only be sustainable if it is economically viable, socially responsible, and environmentally sensitive at all levels of the supply chain.” To help initiate these guidelines, Starbucks has enlisted the support of coffee suppliers who are advocates of sustainability. They have instituted a flexible point system that rewards performance in sustainable categories. Starbucks has a longstanding practice of paying premium prices for coffee, on average at least $1.20 per pound. This is highly contrasted to the above figures of $0.64 and $0.37 per pound. Additionally, Starbucks will provide premiums of up to ten cents per pound to vendors based upon how well their coffee samples meet company standards.

The guidelines are based on the following four criteria:
1. Quality: all coffee offered by producers and suppliers must meet Starbucks quality standards in order to be considered for purchase. Maintaining the highest quality is an integral component of sustainability at all levels of the coffee supply chain.
2. Social conditions: The standards for coffee production should ensure protection from workplace hazards and conform to local laws and applicable international conventions related to employee wages and benefits, occupational health and safety, and labor and human rights.
3. Environmental concerns: Coffee growing and processing standards will contribute to conservation of soil, water, and biological diversity. By employing efficient and renewable energy technologies, minimizing or eliminating agrochemical inputs, and managing waste materials consistent with the principles of reduction suppliers can significantly contribute to the overall well-being of coffee growing environments.
4. Economic issues: coffee production and commercialization should benefit rural communities by boosting producer incomes, expanding employment and educational opportunities, and enhancing local infrastructure and public services. Vendors will be expected to provide reliable documentation regarding prices paid to their suppliers.

Buying firm: internal information

Starbucks began as a small coffee establishment in Seattle in 1971, became Starbucks Corporation in 1985, and went public on June 26, 1992. Explosive expansion in terms of new store openings and new product offerings has led many to compare Starbuck’s to McDonald’s. Starbucks has experienced unprecedented success measured by a number of indicators. Net revenues have risen significantly since $100 million in 1992 climbing steadily to $4.1 billion in fiscal year 2003. In fact, Fiscal year 2003 reflected the strongest financial performance in the Company’s history, including: $4.1 billion in total net revenues, a 24 percent year-over-year growth; $268 million in net earnings, a 26 percent year-over-year growth; and 8 percent comparable store sales growth, which represents the 12th consecutive year of 5 percent or greater comparable store sales growth.
The stock price is equally impressive with an Initial Public Offering at $17 or $1.0625, when adjusted for four two-for-one stock splits. The current closing price, listed as SBUX on NASDAQ, was $38.09 on April 19, 2004. In addition to financial success, Starbucks has been recognized in 2003 as Fortune magazine’s Best Places to Work, ranked number nine on Fortune magazine’s Most Admired Companies list, and included on the Dow Jones Sustainability Index and the annual Business Ethics list of the 100 Best Corporate Citizens.
Starbucks strategy revolves around rapid expansion and maintaining a positive public image of the Starbucks Experience. Starbucks mission statement lists six guiding principles to ensure this type of success.

1) Provide a great work environment and treat each other with respect and dignity.
2) Embrace diversity as an essential component in the way we do business.
3) Apply the highest standards of excellence to the purchasing, roasting and fresh delivery of our coffee.
4) Develop enthusiastically satisfied customers all of the time.
5) Contribute positively to our communities and our environment.
6) Recognize that profitability is essential to our future success.


Due to significant pressure from environmentalists and in keeping with Starbucks mission statement, Starbucks offers an environmental mission statement.
• Understanding of environmental issues and sharing information with our partners.
• Developing innovative and flexible solutions to bring about change.
• Striving to buy, sell and use environmentally friendly products.
• Recognizing that fiscal responsibility is essential to our environmental future.
• Instilling environmental responsibility as a corporate value.
• Measuring and monitoring our progress for each project.
• Encouraging all partners to share in our mission.

Though this mission statement is rather vague, and environmentalists have targeted Starbucks accusing it of “green-washing.” Starbucks engages in highly visible publicity events to reiterate their mission to protect the environment and the communities that grow coffee.
Branding Strategy

Starbucks success has been the result of aggressive branding and market proliferation strategies. Starbucks was the first mover in the creation of numerous premium coffee markets. Starbucks developed the market for convenient, premium coffee accompanied by the Starbucks Experience. Clever branding strategy created the idea of a Starbucks experience and added value to the coffee they sell. The brand is continuously extended to new, innovative products.

Starbucks continues to propel sales by introducing new beverage products and a dispersion of other branded products. Starbucks recently enhanced its retail store offerings “with a line of iced drinks that are hand-shaken for added flavor and, of course, theatrical effect.” The ready-too-drink espresso, Starbucks Doubleshot®, is aimed at “cutting-edge, young adults who appreciate and seek out the rich intensity of specialty coffee.” This product takes advantage of the previously established partnership with Pepsi and existing Dairy Farmers of America production facility in Springfield, MO, that already produces Frappuccino®. Frappuccino® has been a big success for years. In addition to grocery and retail store beverage items, Starbucks plans to team up with Hewlett-Packard to “…enable customers to buy full-length albums or a personalized compilation from a library of about 250,000 songs.” The program is called the Hear Music and Artists Choice CD series, which is made possible by in-store Wi-FI networks. “[Starbucks] has introduced T-Mobile HotSpot service in more than 2,700 U.S. stores.” The music is offered in a digital format and CDs are burnt in the store, powered by HP. Starbucks, in keeping with its strategy to accommodate local tastes, has also introduced a line of hot food at outlets across Japan. “The move to bolster sales with a broader product line comes after an unusually slow summer saw sales of cold drinks fall below projections across the beverage industry.” In addition to food items, Starbucks seeks to increase customer loyalty through the co-branded Starbucks card “Duetto Visa” issued by Chicago-based Bank One Corp. Starbucks hopes that it will up store traffic through “…rewards, flexibility, and convenience…. [The card] has features that can be managed and tracked online through the starbucks.com website, all aimed at generating additional traffic.” It seems that the effort may be paying off since Starbucks “Recorded nearly 100 million Starbucks Card Transactions.” Starbucks and Kraft Foods have “launched a computerized display, the Starbucks Interactive Unit, an in store touch-screen marketing tool that aims to educate and even entertain customers with info about specific bean types and packaged Starbucks blends…. The unit will be in 4,000 stores a year in 8 to 12 week rotations.”

It is evident that Starbucks is not content to just sell beans, and the sourcing has become increasingly complex. High technology devices, coffee-making machinery, food items, and commodities like sugar and milk are all sourced by Starbucks, although much of this responsibility may be passed off to their partners—being that it is not Starbucks core competency. These sourcing activities fall outside the scope of this paper.
Corporate Strategy

Starbucks divides its business into two operating segments: United States and International, each of which includes Company-operated retail stores and Specialty Operations. Instead of franchising stores, like McDonald’s, Starbucks owns and operates stores whenever possible, licensing in airports and other “desirable retail space” as well as with prominent retailers in international markets. Company-operated retail stores accounted for approximately 85% of total net revenues during fiscal 2003. There were 7,225 company-operated and licensed stores by year-end 2003. 2,679 of these stores were licensed and royalties and fees from these stores plus product sales from specialty operations accounted for the remaining 15% of net revenues. The largest market for retail store licensing was Japan with 486 licensed stores followed by China (116), Taiwan (113), and South Korea (75). International retail store licensing accounted for 39% of specialty revenues in 2003. The specialty products category is characterized by joint ventures and partnerships.

A licensing agreement with Kraft Foods, Inc. to market and distribute Starbucks whole bean and ground coffees to the grocery store as well as in warehouse club stores. Pursuant to that agreement, Kraft manages all distribution, marketing, advertising, and promotions for Starbucks…and pays a royalty to Starbucks based on a percentage of total net sales….approximately 19,500 grocery and warehouse club accounts [accounted for] approximately 25% of specialty revenues in fiscal 2003.

Two partnerships in which the Company holds 50% equity interest: the North American Coffee Partnership with the Pepsi-Cola Company develops and distributes bottled Frappuccino® and Starbucks DoubleShot® coffee drinks; and the Starbucks Ice Cream Partnership with Dreyer’s Grand Ice Cream, Inc. develops and distributes premium ice creams. Revenues account for 1% of specialty revenues in fiscal 2003.

In fiscal 2003, Starbucks became the only premium national brand coffee actively promoted by SYSCo Corporations national broad-line distribution network. Revenues from [all] foodservice accounts comprised 27% of specialty revenues.
Market proliferation has been a cornerstone of Starbucks’ corporate strategy. “We are passionately committed to our ultimate goal to have approximately 25,000 Starbucks locations worldwide.” The following table of store openings illustrates this strategy. It appears that Starbucks has been able to keep their marketing strategy, the Starbucks Experience, intact despite licensing strategies and the use of many distribution channels. Starbucks has been able to expand rapidly into new markets without losing control over product quality. This is remarkable considering the extent of licensing internationally and the partnerships developed to produce and distribute branded specialty products.

External Market Product Information

Manufacturing Process

The life of a coffee bean begins as a bright red coffee cherry. The average period of time it takes to produce one tree of a harvestable crop is five years. Each coffee tree only produces on average about one pound of coffee per year. Most of the coffee is grown in warmer climates (approximately 52 countries down south); some examples include Brazil, Columbia, Vietnam, and the Middle East.
After the coffee cherries are picked off of the tree, there are two separate methods of processing that the cherries may undergo to prepare the dissection of the coffee bean. The first method is a natural method in which the cherries are dried out on the tree or the ground before the bean is removed. The second method is a washing method wherein the beans are immediately separated from the cherries, submerged in a large vat of water, and then dried on large patios or with modern equipment. Majority of the time the beans are then sent to the manufacturing plants for further processing.
In the next stage in the manufacturing process, the bean is received in the manufacturing plant and begins the heating process of the manufacturing stage. In this phase the green coffee beans are heated in a large rotating drum. After five to seven minutes of intense heat the moisture begins to evaporate and the bean turns a yellow color. After eight minutes of intense heat the first “pop” occurs and the bean doubles in size and turns a light brown color. With ten to eleven minutes in the roaster, the coffee bean transforms into an even browner color and oil starts to appear on the bean. At this point the full flavor potential of the bean begins to develop. The last phase of the manufacturing stage is the cooling stage, where the bean becomes a full flavor bean after its second “pop”.

There are hundreds of coffee bean manufacturers located throughout the United States. Some of the leading coffees manufacturing states include California, New York, Washington and Texas. California leads the nation with forty-four manufacturers in their state alone, while New York follows by a large distance with only fifteen coffee manufacturing establishments with in the state (appendix A). Washington trails New York with eleven establishments throughout their large state, and Texas includes ten establishments (appendix A).
Component Raw Material Situation

With more than half a billion people throughout the world are indirectly or directly dependent on coffee, coffee has become the second largest exported commodity in the world after oil. In January of 2004, the total number of sixty-kilogram bags exported totaled 6,364,083 bags. Some of the top exporting locations included Brazil, which handled 1,770,273 sixty-kilo bags, followed by Vietnam, which supplied 1,148,685 sixty-kilo bags, and Columbia, which exported 896,455 sixty-kilo bags (appendix B).

Despite the fact that coffee is the second largest exported commodity in the world after oil, the market is on the verge of crisis. The coffee market is the recent decades have experienced a demand for a higher, more gourmet coffee. With the distributors of ground coffee experiencing these higher demands, they begin to place a higher quality demand on their suppliers for beans that meet these gourmet market demands. World exports totaled 6.36 million bags in January 2004, which is a decrease of 8.8% compared with the volume recorded in January 2003. Total exports in the first four months of the coffee year 2003/2004 (from October 2003 to January 2004) fell by 10.6% compared to the same period 12 months ago and accumulated exports in the twelve months ending January 2004 dropped by 3.9%. These recent decreases have lead the coffee market to develop more low-cost processing methods, which will be discussed later in this section.

Economies of Substitution

Competition in the coffee market has changed as the demand for higher quality gourmet coffee blends has increased. As more suppliers have moved toward the trend of ensuring quality beans for this special high quality coffee, more of these have become available. As companies realized the demand was for there, many have jumped on the bandwagon of making lattes and espressos instead of just plain coffee. Starbucks lead the charge with “premium” coffee for “premium prices” with high prices that people of all ages, backgrounds, and financial standings could not get enough of it. Other companies are joining the trend and offering the same products at lower prices to try and capture some of Starbucks market. The company leading the race is Dunkin Donuts that is offering similar drinks that cost at least twenty percent less than what Starbucks sells them for. They are trying to capture the market of ordinary people that enjoys coffee drinks sold at outlets like Starbucks but would prefer paying less. They scheme is keeping it simple using simple sizes for all people to understand unlike Starbucks classy “tall,” “grande,” and “venti,” they use the traditional small, medium, and large. As more firms join the market prices should continue to drop in the future as more alternatives become readily available.
Pricing Methods and Trends

In the first months of 2002, the coffee markets witnessed a one hundred year low in pricing (calculated with inflation).

Such factors that resulted in this decrease in price of coffee include new technology and roaster and traders of coffee. A new technology of steaming the coffee bean has developed, which enabled the roasters to now accept coffee of a lower quality in the processing. The roasters and traders of coffee have concentrated into larger corporations, which increased market power on the demand side.
Another factor affecting the decrease in price of coffee has been the considerable price premium to the farmer that sustainable coffee gives them. The willingness of the consumer to pay extra for products that are produced in an environmentally and/or socially sustainable way is transferred to a premium for the producer.
Cost Structure

The cost structure of coffee beans can be complicated with many different purchasers and middlemen peddling coffee to the large end buyer. This process, unfortunately, shows little money to the actual farmers whose physical labor goes into the growth of these high quality beans. For decades supply and prices of coffee were carefully regulated by an international agreement, however in 1989 the United States pulled out of the agreement and it caused a free for all of new acreage and a significant oversupply of coffee. This brought the prices down and led to a large decrease in the money that goes to these producing nations. An example of this is, “Ten years; ago countries such as Mexico got about a third of every dollar spent on coffee. Now they get less than ten cents” (Roosevelt 2). In the past few years many different activist groups have brought to the publics attention what they felt was unfair pricing methods by many United States coffee buyers. Fair Trade has begun to gain momentum in the United States and most large buyers have entered in the market. Depending on how companies feel about the fair trade issue and the quality of the beans the cost they pay per pound varies. Starbucks pays a respectable $1.20 per pound that is well above industry average (Roosevelt 3). The majority of that money however goes to multinational exporters. These exporters then buy coffee from middlemen in the coffee regions who purchase it from the coffee growers themselves. This in turns leaves very little money for the actual farmer of the beans who usually struggle to get by and usually lives in extreme poverty. The Fair Trade market is working to help these farmers and improve their ways of life but still has a long way to go.
Trends

Major issues have been raised in recent years dealing with coffee prices and what many consumer groups felt were, what they called, “sweatshop” prices for pounds of quality coffee. So many people came together to establish a Fair Trade market for coffee, to try and ensure that fair prices were being paid for coffee. This is to help the poverty stricken farmer that does the actual labor to get these high quality beans and to establish standards for what the companies were buying. So they knew if they paid a fair price they would get good quality coffee. With other activists joining the fight against firms not paying reasonable prices “politically correct labels are becoming a brand attribute no different from price, performance, or advertising” (Roosevelt 3). This seems to be a trend that is here to stay as it becomes more popular and with an increasingly number of firms joining the fight against unfair practices in purchasing their coffee.

Supplier Specific Information

Starbucks is known for sourcing the highest quality coffees available throughout the world. Currently, Starbucks purchases a majority of its coffee beans directly from small farming areas in various parts of Africa, Southeast Asia, and the Americas. Even though Starbucks deals with numerous suppliers, they are extremely particular of the type of supplier that they are willing to work with.
It is because of their very specific needs that Starbucks created the Preferred Supplier Program. The ultimate goal of this program is to “create a fully sustainable coffee production supply chain”. By developing a “sustainable model”, Starbucks hopes to create an economically viable mold that addresses the social and environmental needs of all the participants in the coffee supply chain from producer to consumer.

Quality Criteria

First of all, Starbucks is only willing to accept arabica varieties of coffee from its suppliers. Arabica coffee is known as the only gourmet coffee because of its more refined flavor. Robusta coffee, although it produces a higher yield per plant, is considered far more inferior tasting beverage due to its harsher flavor characteristics.

Second, every coffee bean purchased by Starbucks is expected to represent the flavor character unique to the country or area of origin. African beans are known for their powerful berry or floral aromas and flavors of berries, citrus fruits, cocoa, and spice, while, Latin American coffees are prized for their sharp brightness and consistent quality. Indonesian coffees are on the opposite end of the flavor range from the Latin American coffees. They are characteristically smooth, earthy, and sporadically feature hints of herbal flavor.

Third, Starbucks requires defect-free beans. This means that all coffee beans need to have no imperfections in density, which must be of at least a Good Hardbean or better density. The higher altitude a coffee plant is grown in, the denser the bean is going to be. Also, color must be consistent throughout the beans, as well as the size of the beans.

Environmental Impacts

Arabica coffee thrives in higher altitudes; however, there are numerous environmental issues that coincide with the growth of this particular type of bean. Therefore, Starbucks is extremely adamant about ensuring that its suppliers are constantly limiting the ecological impact of coffee growing process.
Farmers are encouraged to employ methods that will effectively control soil erosion, as well as improve soil composition and richness. Therefore, Starbucks pushes the use of organic management techniques. Organic management techniques do not utilize harsh agrochemicals, pesticides, and consistently uses organic fertilizers, cover crops, mulch, and compost. Farmers are mandated to eventually become a certified organic grower which, in the end, creates a more flavorful coffee bean.

Other than just ensuring organic growth, Starbucks also promotes maintaining clean water, using renewable resources, and minimizing waste products. Energy should be used efficiently throughout the coffee growing, processing and drying. Farmers are expected to eliminate the use of precious firewood in the drying process and utilizing patio or solar drying where applicable.

The use of shade, in areas where appropriate, is vital to the coffee growing process. Growth under shade trees slows maturation, allowing for the bean to develop more natural sugar, less caffeine, and superior aroma. In addition, shade growth conserves the biodiversity of the local region, therefore, ensuring the survival of hundreds of thousands of different species of wildlife and vegetation. The Chiapas Coffee Project is just one of numerous programs that Starbucks has used to create environmental friendly coffee to co-exist with the needs of the Preferred Supplier Program.

Social Conditions

Starbucks is also concerned about the people that are employed by their suppliers. Coffee production systems should be created to ensure that workers are protected from workplace hazards. Therefore, all suppliers are required to meet or exceed all applicable regulations in regards to building and maintaining a safe workplace. Suppliers are also mandated to ensure that all workers and their families have adequate housing, education and health services.

Another important social condition is workers’ wages. Again, suppliers are directed to conform to local laws and meet or exceed the minimum requirements. However, they must also continually work towards improving wages and benefits offered to employees. Suppliers are also instructed to allow workers rights to organize and freely negotiate with their employer. Starbucks is aware that these employees indirectly work for the Starbucks Corporation, so it is extremely important that they and their families are taken care of accordingly.

Economic Issues

Starbucks hopes that the Preferred Supplier Program will enable them to create long-term relationships with their suppliers. Incentives are offered through purchasing and pricing policies to those suppliers that chose to participate in Starbucks’ Preferred Supplier Program. Therefore, the rural communities of Africa, Southeast Asia and Latin America will be able to depend on the increased incomes to create more jobs, educational opportunities and improve public services. Thereby, providing the customer with a quality cup of coffee, and at the same time, guaranteeing suppliers will remain environmentally and socially conscience.

Future Opportunities

Due to the success of the Preferred Supplier Program, Starbucks is looking towards further tuning their purchasing plan. In the end of March 2004, Starbucks released the new specifications for their Coffee and Farmer Equity (CAFE) Practices. These guidelines are intended to work with their current Preferred Supplier Program, but are more geared towards evaluating the entire supply chain. “CAFE Practices represent a profound step forward in evaluating sustainable green coffee production and rewarding those who strive for continuous improvement in the way they grow, process and trade coffee.”

Recommendations

Currently, Starbucks is responsible for finding, procuring and maintaining suppliers from the beginning of the coffee growing process until the final cups of coffee are made. With so many suppliers, it can become difficult to monitor the increasingly high quality of coffee beans that Starbucks requires. Even with the help of their Preferred Supplier Program and the new CAFE Practices, independent third-parties are required for the extensive verification process. Therefore, it could be extremely beneficial to outsource smaller coffee lines to another coffee supplier.

Coffeeco, a wholesale coffee supplier that specializes in Costa Rica beans, fulfills Starbucks Preferred Supplier Program needs. Their beans are only arabrica beans grown in high altitudes which are rich volcanic soils. Starbucks currently receives coffee beans from two areas located in Costa Rica, Icafe and Cicafe. Coffeeco is also willing to work with their buyers to produce a custom coffee bean roast. Therefore, Starbucks could specify the type of density, acidity and the type of aroma needed to satisfy their customers’ needs.

By outsourcing smaller lines, not only could Starbucks save on the cost associated with their extensive sourcing procedures, but they would be able to work more closely with those suppliers that make a majority of their prime coffee lines. The Preferred Supplier Program is still in its infancy and without the proper monitoring, it could potentially fail. Therefore, it would be beneficial for Starbucks to consider outsourcing smaller coffee lines to Coffeeco in order to spend more time, money and resources on its Preferred Supplier Program and CAFE Practices.

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Williams, Mary and Marc Schonland. Starbucks Green Coffee Purchasing Program: Pilot Program for Preferred Suppliers. 12 Nov. 2001 http://www.starbucks.com/shop/preferred_supplier.pdf
Williams, Mary and Marc Schonland. Starbucks Green Coffee Purchasing Program: Pilot Program for Preferred Suppliers. 12 Nov. 2001 http://www.starbucks.com/shop/preferred_supplier.pdf
Maldonado, Lisa. What Makes Good Gourmet Coffee? http://www.earthfoot.org/lit_zone/
coffee.htm
Starbucks Corporation. The Chiapas Coffee Project. 2004 http://www.starbucks.com/aboutus/ chiapas.asp
Williams, Mary and Marc Schonland. Starbucks Green Coffee Purchasing Program: Pilot Program for Preferred Suppliers. 12 Nov. 2001 http://www.starbucks.com/shop/preferred_supplier.pdf
Williams, Mary and Marc Schonland. Starbucks Green Coffee Purchasing Program: Pilot Program for Preferred Suppliers. 12 Nov. 2001 http://www.starbucks.com/shop/preferred_supplier.pdf
Starbucks Corporation. CAFÉ Practices Program Introduction: Starbucks Coffee Company Preferred Supplier Program. 29 Mar. 2004 http://www.scscertified.com/csrpurchasing/docs/ CAFEPracticesIntroduction032904FINAL.pdf
Coffeeco, Inc. About Our Costa Rica Coffee Bean. 2003 http://www.coffeeco.biz/About_
Coffeeco_Costa_Rica_Coffee.htm

There should be something in this space.

But there isn't. Does this void bother you?

I like this block here on the side, it's very web 2.0.