Are Coffee Beans in Hot Water? How Starbucks can mitigate the effects of a warming world
Starbucks' pre-eminent position as purveyor of coffee makes it especially exposed to warming temperatures. How can it react to ensure it can continue to fuel our insatiable desire for caffeine?
As the largest chain of coffee shops in the world , Starbucks is a major buyer of coffee beans and thus will be heavily affected by any changes to global coffee bean production capacity. The major challenge for Starbucks will be the increase in coffee bean prices due to decreased supply.
First let us examine why coffee bean production will be impacted by climate change. Coffee bean production requires a delicate balance of rainfall and temperature to be successful, with the right range of conditions typically found in the ‘Bean Belt’ , an area bounded by the Tropic of Cancer and the Tropic of Capricorn. Global warming however is threatening the viability of the Bean Belt for future production. A report in the Climatic Change Journal predicts that the world is set to lose 50% of its coffee bean production capacity because of increases in the earth’s temperature by 2050 . This means that Starbucks can expect to face an increase in the price of coffee beans as it competes with other buyers for fewer beans in the future. The result of this increase in raw material costs will be decreased margins.
Starbucks will also be affected with regards to the quality of the beans it can buy. Rising temperatures are expected to hasten the growth of coffee bean crops after germination but the quality of the beans is expected to decline . This will reduce the supply of high quality beans further and therefore increase their prices – negatively affecting Starbucks’ margins.
Thirdly, this rise in temperature is also expected to hasten the spread of pests for the coffee bean crop further impairing yields. The spread of Coffee Leaf Rust has already been observed in mountainous regions of Colombia, areas ‘that were previously too cool for it to survive’ and in 2012-2013 ‘[coffee] crop damages amounted to $500m’ across Central America  – an important area from which Starbucks sources its global inventory.
Given Starbucks’ reliance on good quality competitively priced coffee beans, it is not surprising that the organization has already taken steps to address the threat that climate change poses to its procurement of beans (and as a result its margins).
Starbucks’ purchase of a coffee farm in Costa Rica in 2013 and subsequent construction of a laboratory to develop strains of coffee bean that can thrive in a warmer environment  demonstrates their commitment to innovation to counteract the effects of climate change. In addition, Starbucks is also working with Conservation International ‘to include climate-smart agricultural practices as part of Coffee and Farmer Equity Practices’.
The proliferation of pests, such as the Coffee Leaf Rust discussed above, is also being tackled by Starbucks head on. By the end of 2015, the company had donated 20 million Coffee Leaf Rust resistant seedlings to affected farmers in Mexico  to help them recover from the outbreak and be protected against the fungus in the future.
In working to develop new seed varieties that are more resilient to higher temperatures and pests, Starbucks has made progress in protecting its access to beans. However, there are other actions which I believe could further reduce their exposure to climate change induced reductions in bean supply.
The testing of new seed strains to identify more robust variants could be expanded further. One way Starbucks could greatly enhance their research capabilities would be to partner with an innovative microbiome firm like Indigo to explore new ways to develop crops that are resistant to the effects of climate change.
Starbucks could also distribute temperature resistant seeds more proactively (as compared to Mexico in 2014-2015 where their behavior was reactionary) to farmers in areas suffering most acutely from the effects of climate change to ensure these producers continued to deliver good yields regardless of rising temperatures.
A more radical solution but one which would secure Starbucks’ continued access to the quantity of quality beans they require would be to assist in the relocation of farmers and their plantations upslope, a solution proposed by the Australian Climate Institute . It would take several years for the new plantations to become productive  but given the scale of the challenge (50% of coffee production in jeopardy by 2050), there could be a strategic argument to be made to secure Starbucks’ future bean needs through investments in this space. Vertical integration of their supply chain though would need to be carefully considered given the capital investment it would require and long payback period.
Starbucks has already made big steps to address the impacts of climate change on its core operating model. The solutions proposed all required further investment– whether financial or scientific – but if Starbucks is to survive and thrive in an ever-warming world, I do not believe it has a choice but to continue to invest.
 International Coffee Organization, World coffee trade (1963–2013): A review of the markets challenges and opportunities facing the sector (London: International Coffee Organization, 2014).
 A bitter cup: climate change profile of global production of Arabica and Robusta coffee, Climatic Change – March 2015 – Volume 129, Issue 1 – pg 89-101
 MIT Technology Review – Starbucks Responds to Climate Change, with Mixed Results
 MIT Technology Review – Starbucks Responds to Climate Change, with Mixed Results
 The Brewing Storm: Climate Change Risks to Coffee
[Image 1] https://www.scaa.org/chronicle/2015/04/11/coffee-leaf-rust-a-new-reality-for-specialty-coffee/
[Image 2] https://www.google.com/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&ved=0ahUKEwjG-ZDwiZDQAhWFNSYKHUEUAK0QjRwIBw&url=http%3A%2F%2Fwww.welcometobenton.com%2F29d26c-malawi-coffee-quick-shopping&psig=AFQjCNE38axY2W_VibcRNhIn-3Sl3IszHA&ust=1478382416321796
Student comments on Are Coffee Beans in Hot Water? How Starbucks can mitigate the effects of a warming world
Thanks for the insight in this post! I wasn’t aware of the magnitude of climate change’s potential effects on coffee yields. You mention that Starbucks’ margins are at stake. Since coffee supply challenges would affect nearly all retailers, do you think Starbucks’ margins would take a major hit, or do you believe consumer coffee prices worldwide would increase, resulting in a new equilibrium price and demand quantity? In other words, absent an effective solution to overcome the effects of climate change on coffee yields, could the size of the industry simply shrink as a result of needing to charge higher prices, but with equivalent margins as a percent of sales?
Finally, I thought it was interesting that the MIT article you cited (https://www.technologyreview.com/s/601404/starbucks-responds-to-climate-change-with-mixed-results/) noted that Starbucks is (perhaps quite admirably) openly sharing its formula for breeding the rust-resistant coffee plants. Do you think there is a risk to Starbucks that it could make major investments in coffee growing technology (e.g., these plants, the heat-resistant beans, etc.) while other players freeride on its work? Should it look to patent any of its protectable intellectual property, or is sharing the right thing to do?
Thanks for your post! It’s really exciting to hear about Starbucks working now to tackle challenges that will come into play over the next few decades. Their attempts to develop strains of coffee plants that are more resilient in the face of changing climate and pest conditions are really interesting, but make me worried about potential backlash from consumers and regulators who are fearful of genetic modification of food. I know that developing a new strain doesn’t necessarily imply genetic modification–it can encompass everything from Gregor Mendel to, as you mentioned, Indigo Agriculture. But would this be an option for Starbucks? To what extent will large, multi-national food and beverage companies take on policy advocacy roles to normalize the concept of genetically modified food?
I also wonder about the effects of competition among Starbucks and other large coffee purchasers (Lavazza, Illy, etc.). Would it be possible for firms to collaborate and pool resources to address the effects of climate change on their crops, or will they continue to pursue individual solutions? If Starbucks is helping its farmers by giving them access to Coffee Leaf Rust resistant seedlings, it seems likely that these farmers could share later seeds with their community. Depending on how discretely organized farming communities are as suppliers, this could mean that the resistant seedlings Starbucks develops end up benefitting their competition. I wonder how Starbucks accounts for this as they think about their strain development costs.
Thanks for your post! Time to go drink another cup of coffee, while I still can…
Despite the efforts put in by Starbucks, I am still skeptical and scared about the future of coffee and my productivity.
Even though Starbucks is trying to tackle coffee production across all angles – Procuring its own farms, spending on research in finding heat-resistant strains of coffee, and educating farmers to follow sustainable standards, I’m not sure if all of this is enough to prevent possible 50% reduction in coffee availability by 2050. 1) Starbucks should also think about preventing Deforestation, which is a long-term benefit for farmers. 2) With its increasing growth in retail outlets, it also needs to look at imposing tight goals in reducing emissions due to refrigeration and transportation, reduction in electricity consumption, etc. 3) Lastly, it needs to think about diversifying across other products within the industry and reduce the short-term pressure on coffee, eg – recent acquisition of Teavana.
I hope as an industry leader, Starbucks can be a ray of hope for coffee enthusiasts like myself and my future generations.
Thanks for writing this post! It really caught my attention when browsing throught the rest. It seems that Starbucks still has a long way to go. It’s interesting how the company is thinking about they way to tackle the supply difficulties that will arise in the following years. The ressemblance with the IKEA case is amazing, in the sense that they have decided to integrate vertically and lease land to grow their own trees and keep a supply of wood. I was intriged to know more about the specific actions that can be taken in more tropical countries. There’s still a lot of room for discussion in that area!
Coffee is an extremely important contributor to my quality of life – your post is a major concern for my future happiness! I think one of the biggest concerns for Starbucks is the extent to which it is exposed to this issue due to its scale. Many of the coffee companies I love are small, with fewer than 5 stores and small-batch output. They focus more on the higher-end of the market, often charging more for their beans than Starbucks does. As supply dwindles, these smaller players may actually win out, given they don’t need the vast quantities of beans that Starbucks does and their customers are already more accustomed to paying higher prices. Given Starbucks’ high level of exposure to this risk, they will need to invest a significant amount to ensure their scale remains viable as the supply of coffee shrinks.
Very cool post – I had no idea Starbucks was under so much pressure! From your research, how successful was Starbuck’s venture further upstream with its purchase of the coffee farm? Do you think they will pursue further vertical integration? To your point, given its market position and relatively simple raw material requirements, it seems as if Starbucks is extremely well-positioned to transform its operating model – will be interesting to monitor going forward!
Very interesting article! Does the rust resistant coffee taste the same and have the same properties as traditional coffee? In other words is it something that consumers will accept, or is it likely to lead to dissatisfaction and potential consumer churn? If it’s the latter, what steps can Starbucks take to be sustainable but also maintain the product quality users expect?