Starbucks-Show Me the Money!

This is a little coffee tale about fudging the truth with statistics. Or maybe it's that the largest specialty coffee company in the world simply made a little inadvertent mistake. You be the judge. As people learn more about the long-term crisis in coffee pricing, they are wanting to know what their favorite coffee company is paying its farmers.

As a 100% Fair Trade company, our answer is easy - we pay $1.41/lb at a minimum to the farmer cooperatives for all of our coffees. To this we add a Social Equity Premium of five cents and a Cooperative Development Premium of one cent. (For all you liberal arts majors, that means we pay $1.47/lb). At a recent international coffee conference I was listening to Starbucks talking about their pricing policies. They said they pay an average of $1.20/lb for their coffees, which "compares favorably to the Fair Trade minimum of $1.26". Sounds good, doesn't it? But it's apples and oranges (regular and decaf?). Here's why: First of all, Starbucks is not an importer. They buy their coffee through importers, exporters, processors or other middlemen. The $1.20 is the average price they pay to the middleman, not the farmer. When you subtract out all the middleman fees, the figure is more likely about .80 cents, although when I asked the speaker for that figure, he said he didn't actually know it. But it's that $.80 that should be compared to the Fair Trade minimum of $1.26. The $1.20 is also an average of all Starbuck's purchases - conventional and organic; whereas Fair Trade minimums are $1.26 for conventional and $1.41 for organics. Further, if you really wanted an apples to apples comparison of landed costs at this end (which is the Starbucks $1.20), by adding importing and transportation costs, our landed cost would be $1.86.

To their credit, the Starbucks representative admitted that their $1.20 figure didn't actually represent what it looked like it represented - how much they actually pay to the farmers. Having said that, I have seen Starbucks advertisements since the conference that still crow that $1.20. Let's keep an eye on those guys and see if they'll ever come clean. If telling the world that they pay the farmers more than they actually pay for coffee was a mistake or a misunderstanding, they should be big enough to just admit it and move on. If it was a marketing move calculated to blunt criticism of its possibly rapacious buying practices and to mislead the public...well, that's another story, isn't it? O.K., Howard and Orin, show me the money!

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