Starbucks global supply chain and climate change
As global temperatures warm, Starbucks must help coffee growers adapt
Coffee and Climate Change
Starbucks Corporation is an example of a company that will be impacted by climate change. Warmer temperatures and changing rainfall patterns are limiting the Starbucks supply chain at its origin: coffee farmers around the world. Coffee farmers are suffering from decreased quality and yields, as well as increased pests and disease. [[1]] For example, wetter, warmer climates are allowing Coffee Leaf Rust to survive at higher altitudes. Coffee Leaf Rust is just one of the diseases impacting the productivity of the million coffee farmers and workers composing Starbucks’ global supply chain. [[2]][[3]] The Climate Institute estimates that global area suitable for coffee growing will decrease by 50% by 2050. It is expected that coffee production will therefore shift away from the equator and to higher altitudes. [[4]] A harmful impact of this shift is that farmers will be compelled to expand into forests, contributing to deforestation and impacting the farmers’ businesses. [[5]] The changing climates are also driving significant volatility in coffee prices, which challenges smallholder farmers, many of whom do not have sufficient access to market information, credit, and risk management tools. [[6]] As one of the largest roasters and retailers of specialty coffee in the world, Starbucks has a significant opportunity to help coffee farmers adapt to climate change. And the company must help farmers adapt to ensure continued supply of coffee in decades to come.
Response from Starbucks
Starbucks is fully aware of the risks its global supply chain faces due to climate change, and is proactively responding with adaptation initiatives. For example, in 2013, Starbucks converted a 240-hectare farm in Costa Rica into a global agronomy research and development center, testing Coffee and Farming Equity practices and developing Arabica coffee varietals with increased productivity and disease resistance. [[7]][[8]] Going forward, in the short term, Starbucks aims to provide financing to its farmer partners for coffee quality, sustainability, and economic benefit projects via The Starbucks Global Farmer Fund. Since 2014, Starbucks has impacted 47,000 direct and indirect beneficiaries via this Fund, and aims to impact 250,000 by 2020. [[9]] Another short-term effort to adapt to climate change is Starbucks’ launching of eight Farmer Support Centers around the world, including centers in Indonesia, Rwanda, and Mexico. At these centers, agronomists and sustainability experts train coffee farmers in topics such as soil management techniques and new varietals of disease resistant trees. Starbucks’ goal is to train 200 thousand farmers by 2020. [[10]] As for medium term efforts to adapt to climate change, Starbucks helped to found The Sustainable Coffee Challenge, which aims to make coffee the world’s first sustainable agricultural product. A key initiative of this challenge is to collectively provide 1 billion trees to coffee farmers around the world, of which Starbucks alone is pledging 100 million by 2025. These trees replace those suffering from climate change related productivity decline. [[11]]
Additional recommendations and further questions
There are additional steps that Starbucks can take to adapt its coffee supply chain to climate change. In the short term, Starbucks should develop educational materials for farmers that can be broadly disseminated. Smallholder farmers currently exercise little knowledge sharing and are slow to adopt best practices [[12]]. Books, pamphlets, and articles on resilient production systems and shifting plantations to more favorable environments could be distributed via existing touch points between Starbucks and coffee farms, ensuring that the sharing of best practices reaches beyond the 200 thousand farmers benefitting from direct training via the eight Farmer Support Centers. Starbucks could also help establish learning groups among local farmers to facilitate knowledge sharing. In addition to this education and knowledge sharing, Starbucks should consider taking on more of the risk of the volatility of coffee prices due to climate change. By designing longer term contracts featuring stable price agreements, Starbucks can help farmers plan production despite unfavorable effects of climate change.
In the medium term, Starbucks should expand its investment in research and development of alternative methods of climate change adaptation. Potential methods to explore may include building climate controlled facilities for growing coffee, developing green technologies to deter pests and decrease disease, and genetically engineering varietals of Arabica beans.
Going forward, Starbucks may want to consider more drastic changes, perhaps even purchasing and operating its own coffee farms in more climate-favorable geographies. However, moving towards partial vertical integration certainly raises some questions – what would be the ethical and economic implications of doing so?
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[1] The Climate Institute, “A Brewing Storm: The climate change risks to coffee” (PDF file), downloaded from The Climate Institute website, http://www.climateinstitute.org.au/coffee.html, accessed November 15, 2017.
[2] “Press Release: Starbucks Is Fighting For The Future Of Coffee By Providing 100 Million Healthy Coffee Trees By 2025,”Dow Jones Industrial News, April 17th, 2017, http://www.businesswire.com/news/home/20170417005459 /en/, accessed November 2017.
[3] “Starbucks Strengthens Global Specialty Coffee Supply: Openly Shares More Than a Decade of Research, Verifies 99% of Coffee Ethically Sourced,” Business Wire, April 9, 2015, http://www.businesswire.com/news/home/20150409005213/en/Starbucks-Strengthens-Global-Specialty-Coffee-Supply-Openly, accessed November 2017.
[4] The Climate Institute, “A Brewing Storm.”
[5] “Press Release: Starbucks Is Fighting For The Future Of Coffee,” Dow Jones Industrial News.
[6] The Climate Institute, “A Brewing Storm.”
[7] “Starbucks expands $70 million ethical sourcing program with new global agronomy center,” Business Wire, March 19, 2013, http://www.businesswire.com/multimedia/home/20130318006738/en/, accessed November 2017.
[8] “Starbucks Strengthens Global Specialty Coffee Supply” Business Wire.
[9] Starbucks Corporation, “2016 Global Social Impact Performance” (PDF file), downloaded from Starbucks website, https://www.starbucks.com/responsibility/global-report, accessed November 15, 2017.
[10] Starbucks Corporation, “2016 Global Social Impact Performance.”
[11] Starbucks Corporation, “2016 Global Social Impact Performance.”
[12] The Climate Institute, “A Brewing Storm.”
This paper walks through a number of issues climate change poses to Starbucks’ long-term viability and offers several opportunities for short-, mid- and long-term solutions to adapt to the risks climate change will provide to the business. Most of their current initiatives focus on adaptive responses, which left me to consider: what could Starbucks be doing today or differently in the future to better mitigate the risks of climate change in the first place? Their website’s sustainability page indicates awareness of their contribution to climate change through greenhouse gas emissions, and notes a specific focus on energy conservation and purchase of renewable energy given that over 80% of their GHG emissions are attributable to energy use in their stores, offices, and manufacturing plants. That said, their total emissions increased from 2013 to 2015, with the proportion of its footprint attributable to direct emissions staying flat at around 25%. Their “Energy” page indicates attempts to invest in renewable energy and energy conservation, however I am not convinced that there is real meat behind these words. If they are going to take the future of their business – and our planet – seriously, they will need to do more to convince the public that they are not only adapting to climate change but making attempts to mitigate its impact on earth.
Excellent post! Agree with Katie – most of Starbucks current initiatives seem to be adaptive, and more could be done to mitigate further climate change. Few companies touch as many consumers on a daily basis as Starbucks, and one could argue that Starbucks is uniquely positioned to educate the public (e.g. through campaigns) about climate change and how to reduce emissions in our everyday life. Furthermore, as Katie highlights above, Starbucks own emissions have increased over the past years: according to an article in the MIT Technology Review (https://www.technologyreview.com/s/601404/starbucks-responds-to-climate-change-with-mixed-results/), this is partly caused by Starbucks adding heated food (requiring refrigeration and ovens) to the menu to further grow sales and profits (Starbucks’ share price has more than doubled over last 5 years). To me, this casts some doubts over Starbucks’ commitment to mitigate climate change.
Also, the same article in the MIT Technology Review also highlights that the Costa Rican farm used by Starbucks to develop coffee varietals with increased productivity and disease resistance has so far had some success: small batches of varietals more resistant to infections have been developed (but these are also slower-growing and lower-yielding). I remain optimistic about Starbucks’ efforts to adapt to climate change, but think they could do more to mitigate it.
Really excellent post on a fascinating topic, Julio! And I think the topics and questions that you raise are very relevant ones. Specifically, I’d like to dig deeper into the economic ramifications of these sustainability efforts. We’ve learned through some in-class cases that doing the morally “right” thing may not be equivalent to performing the action that’s best for profitability and for shareholders. In situations where the two forces are at odds, I’d be very interested to learn how stockholders would respond. As of last year, Starbucks asked investors for almost half a billion dollars (around $496 million) worth of bonds to fund its new sustainability efforts [1]. Insofar as both bond investors and shareholders are concerned with maximizing economic value, I’d imagine that they would want some financial benefit from Starbuck’s sustainability efforts.
As Starbucks moves toward new agricultural techniques and partial vertical integration, it will almost inevitably suffer some growing pains in the process of building unfamiliar skills. Even long term, it is uncertain whether sustainable farming will achieve the same level of output as achieved by earlier methods. In the event that output decreases, will the positive externalities suffice to convince shareholders to stay, or will they demand change in the opposite direction?
[1] https://www.huffingtonpost.com/entry/starbucks-sustainability-bonds_us_5735e64fe4b077d4d6f2d612