The saga of the Starbucks-Ethiopia affair – By Wondwossen Mezlekia
“When two elephants fight, it is the grass that suffers. When the same two elephants make love, the grass still suffers.” – derivative of an old African saying (more…)
“When two elephants fight, it is the grass that suffers. When the same two elephants make love, the grass still suffers.” – derivative of an old African saying
The coffee trademark dispute between Starbucks and Ethiopia officially ended exactly three years ago. In June 2007, the giant coffee chain and the government of Ethiopia declared their agreement “to work together to license, distribute and market Ethiopia’s specialty coffees.” Starbucks further promised, as part of the dispute resolution, to buy its aprons from textile factories in Ethiopia, open a Farmer Support Center in Addis Ababa, and promote the coffee brands in its stores. The company had also previously donated $500,000 to CARE, a US based international humanitarian and development organization, “to help fund a three-year program that will improve economic and educational prospects for more than 6,000 people in rural Ethiopia’s coffee growing regions.” Today, three years later, most of Starbucks stores do not carry the disputed Ethiopian coffee brands, the Farmer Support Center has not materialized, the trademark project is stalled, and some farmers continue to replace coffee trees with other cash crops.
The Ethiopian Embassy in Washington DC did not respond to the email and telephone inquiries to comment on this assessment of the situation, but Ron Layton, Founder & CEO of Light Years IP (LYIP), the nonprofit organization that advises Ethiopia on the Coffee Trademarking & Licensing Initiative, quickly dismisses it. “Your information is wrong in several ways,” said Layton, “for example, neither the farmer support center nor aprons from textile factories were part of the 2007 agreement between Starbucks and Ethiopia.”
The response from Starbucks is more direct albeit confined to the agreement: “In November 2008 we purchased 26,000 black aprons from a supplier in the Tigray region of Ethiopia. While we currently have sufficient supply of aprons, we hope to find more opportunities to work with the Ethiopian manufacturer in the future,” said the company PR representative in an email response.
The said supplier is Almeda Textile Factory, one of the companies of the EFFORT Group (Endowment Fund for Rehabilitation of Tigray), which is owned by the ruling party, TPLF (Tigray People Liberation Front). Starbucks executives’ negotiation with Almeda took place during their visit to Addis Ababa to meet with Prime Minister Meles Zenawi in November 2007.
On the Farmer Support Center, Starbucks said: “While we had originally planned for the Ethiopian branch to open soon after [the opening of the Starbucks East Africa Regional Farmer Support Center in Kigali, Rwanda], delays opening the regional center and global economic factors have led to a longer delay than we had hoped. We remain committed to establishing an Ethiopian Farmer Support Center in Addis in the near future.”
“The agreement we signed with the Ethiopian government in April 2007 addressed how we could best work with the Ethiopian government and coffee industry to license, distribute and market Ethiopia’s specialty coffees. … Since signing the agreement, we have intensified our support of the Ethiopian coffee industry’s efforts to increase Ethiopia’s share in the global specialty coffee market.”
The company provided a detailed account of the activities that it undertook during the past three years including:
* Sponsored Ethiopia Conference Dinner in Washington DC (2007, 2008, 2009)
* Co-sponsored Ethiopia as the Portrait Country at the 2008 Specially Coffee Association of America (SCAA) Conference
* Hosted a delegation of Ethiopian farmers to travel to corporate buying offices in Switzerland for coffee quality training (2009)
* Participated in the Ethiopia Coffee Exchange Specialty Coffee Conference in Addis Ababa (2009)
While this shows Starbucks’ commendable readiness to support Ethiopia in ways that are asked for by the government, the above mentioned activities have not generated any tangible benefits for the farmers. Perhaps the most meaningful activity was the one in which the company offered a portfolio of Ethiopian coffees as blends and single origin coffees, such as “Sundried Ethiopian Black Apron Exclusive,” “Ethiopia Yirgacheffe,” and “Ethiopia Sidamo.”
“Because Ethiopia is an important source of high quality East African coffee, our customers expect to find it both in our stores as well as in grocery stores,” said Starbucks’ representative.
But this has changed recently. In a cursory survey conducted for this story, it was noticed that no single origin Ethiopian coffee could be found in a number of stores that are known for their year-round supply of these coffees. Starbucks confirmed this observation and pointed at the supply issues in Ethiopia.
“We – along with other coffee companies – have recently experienced a temporary shortage of Ethiopian coffees due to supply issues,” said the company PR representative.
This relates to the problems created in the coffee sector when the Ethiopia Commodity Exchange (ECX) took over the coffee auction. In 2008, the government abolished the vertically integrated marketing system and routed the trade to the ECX. Unfortunately, the ECX Warehouse Receipt System that was designed for trading grain and pulses does not work for the Specialty Coffee trade, which relies heavily on direct trade and long-term supplier-buyer relationships in order to maintain the quality and traceability of coffees. As a result, the Specialty Coffee trade in Ethiopia suffered immensely.
Dr. Eleni Gabre-Madhin, CEO of the ECX said she is aware of Starbucks’ complaints but does not agree that there are supply issues. In an email she said, “When we heard [that they say they are running out of single origin Yirgacheffe and Sidama] back in February, we immediately connected them with the two Coop Unions (Yirgacheffe and Sidama) who told them they had previously obtained CAFE Practice verification and had been trying to sell their coffee directly to Starbucks for the past year without success. This is a puzzle which I cannot explain, when the supply is there, why Starbucks did not take it up.”
C.A.F.E. Practices (Coffee and Farmer Equity) is Starbucks’ internal ethical sourcing program that uses a set of environmental and social guidelines in combination with a long term supplier-buyer relationship and financial incentives to score and award suppliers. Qualifying suppliers receive higher prices for their coffee and earn Starbucks’ preferential buying status.
Dr. Eleni also wonders why Starbucks did not want to buy through the Direct Specialty Trade (DST) that ECX launched earlier this year.
“We have also repeatedly asked Starbucks to participate in the DST where these coops have excellent quality single origin coffees, which can be exported to Starbucks via an established export service provider, but no participation from them either directly or through their usual importers, yet,” she said.
Actually, Starbucks would not need to participate in the DST if it wanted to buy coffee from the coops, because coops are exempt from the ECX system and can directly negotiate with their buyers.
DST is a new platform that ECX developed with support from the SCAA and funded by the USAID (via Fintrac, Inc.) in response to the Specialty Coffee trade crisis that occurred in the country. It was designed to play a role of matchmaking between suppliers and buyers of Specialty Coffee. But, the suppliers, i.e. coops and large-scale commercial growers, are already exempt from ECX; therefore, DST is essentially redundant. The suppliers at times need help in selling certain coffee types and stocks that they could not find buyers for, but that is a function of effective sales and marketing efforts – services that are beyond the realm of the ECX. The USAID fund poured into DST would have been better spent on reinforcing the Coop Unions’ capacity and in organizing the rest (about 90%) of the farmers under coops.
At any rate, Starbucks’ abandonment of the farmers that are organized under coops is, at the very least, not consistent with the company’s stated principles and the promises it made.
The Ethiopian Specialty Coffee sector is in a sad state of affairs. The government is in constant competition with the strong domestic consumption that continues to grow with population. Because it depends on the crop for the lion’s share of its foreign exchange earnings, the government prohibits growers and traders from selling export-grade coffees in domestic markets even though the price in domestic markets is often higher than export prices, which are indexed to the New York Commodity (NY “C”) prices. Unlike Brazil, Costa Rica, Columbia, and other nations in similar situations, the government of Ethiopia never compensates coffee growers and traders for the income they forego by exporting. Those who delay the export in anticipation of better prices go out of business. The Ethiopia Grain Trade Enterprise and Guna Trading House, another member company of the EFFORT Group, recently took over the roles of the private exporters whose licenses were revoked for allegedly attempting to sidestep the rule. The parastatals are now the major players in the market. The lack of incentives has, for decades, been a major factor responsible for the coffee sector’s low productivity and low efficiency. The current government’s total control of the marketing chain may worsen the already dismal state of the sector.
In the absence of the political will to liberalize the market, there was hope that projects such as the trademark initiative might help farmers indirectly by increasing their share of the value of their intangible assets and through brand promotion & improved distribution networks. Some of the coffee names are now registered in major markets, a list of businesses have signed a licensing agreement, and there is even a logo developed for each name. But, as the Starbucks-Ethiopia agreement is due to expire in two years, the initiative, which sparked the dispute between the two parties, is imperceptible. The latest information on the project’s website dates back to 2008. The project owner, the Ethiopian Intellectual Property Office (EIPO), and its advisor, LYIP, are reportedly in contact but the coordination is not adequate. Many small roasters and buyers who signed the licensing agreement feel abandoned as apparently no one is working with them. For instance, many in the coffee community are not aware that the famous coffee name “SIDAMO” has been changed to “SIDAMA” since some of them had signed the licensing agreement. After briefly threatening to withhold funds last year, the World Bank resumed funding for the registration of additional coffee names, LIMU and LEKEMPTE. Yet, the outcome of the project remains to be seen.
On the other hand, those farmers whose names and pictures are used to help raise funds in the international development arena continue to uproot coffee trees and replace them with other cash crops that are not regulated by the government. This month, the Irish Independent News recounted the shocking experience of David McKernan of the coffee chain Java Republic in the remote region of Harar, the region known for one of the world’s best coffees:
“… his beloved coffee region had changed beyond recognition. The endless fields of coffee plantations he remembered had been almost entirely replaced by acre after acre of a shrub that produces Chat [or khat], a high-inducing amphetamine and cathine that’s illegal in many developed countries.”
So much for internationally funded development projects, governance, and accountability in Ethiopia. Will Starbucks live up to its commitment and responsibilities? The farmers look up to those at the top of the value chain. The opportunity for Starbucks to do its part presents itself in the form of opening the Farmer Support Center which, according to the company, could provide local farmers, like in Costa Rica and Rwanda, “with resources and expertise to help lower the cost of production, reduce fungus infections, improve coffee quality and increase the production of premium coffee.”
Global expansion comes with social responsibilities that sometimes require transcending the boundaries of politics and interest groups, so here is a chance for Starbucks to lead.
 Starbucks Press Release, 2007, ‘Starbucks Funds New Community Development Programs in Ethiopia with $500,000 Contribution to CARE’ (February 08, 2007)
 The Reporter, 2007, ‘Starbucks to Buy Aprons From Almeda’ (December 1, 2007)
 Ethiopian Coffee Network, www.ethiopiancoffeenetwork.com (accessed May 27, 2010)
 Kummo, Wolassa L, 2008, ‘Ethiopia Establishes National Commodity Exchange: Sidama Coffee Regains its True Identity’, American Chronicle (December 08, 2008)
 Independent.ie, 2010, ‘Why my compassion for Ethiopia turned to anger’ (May 11, 2010)