Starbucks Issues New Sourcing Guidelines

December 2001 

Starbucks has released new guidelines for sourcing its coffee. While USLEAP has a number of serious concerns about the new guidelines, issued in November 2001, they represent in some key areas an important advance over Starbucks "Framework for a Code of Conduct," issued in 1995 after a campaign initiated by USLEAP (then known as the U.S./Guatemala Labor Education Project). With its 1995 code of conduct, Starbucks became the first commercial coffee company to accept the principle that it has responsibility for the wages, working conditions and the basic rights of coffee workers on plantations from which it buys.

(Last year, after a campaign led by Global Exchange, Starbucks also agreed to take steps to benefit small farmers by agreeing to purchase and market a limited amount of "fair trade" coffee. Under "fair trade," small farmers are guaranteed a minimum price sufficient to cover costs, especially important in today's over-saturated coffee market where coffee prices have sunk to historic lows.)

The new guidelines, which will be tested during a two-year pilot project, is an incentive-based system that commits Starbucks to reward its' "preferred suppliers" financially if they meet key "sustainability" criteria developed by Starbucks. The guidelines put forth four criteria: quality, social conditions, environmental and economic.

First, all coffee purchased must meet Starbucks criteria for quality standards. Points are then awarded for achieving standards within each of the other three criteria, with a maximum of 100 points. If a supplier achieves the maximum of 100 points, Star-bucks will pay an extra 10 cents per pound of coffee purchased. Starbucks says it traditionally has paid an average of $1.20 per pound.

Of the 100 points, 50 are allocated to environmental issues (e.g., 5 points each for soil management, waste management, a water buffer zone, water reduction, etc.) and 20 points to "economic transparency." Only 30 points are allocated to social issues, which are divided into three subcategories of 10 points each for health and safety, living conditions, and wages, benefits and basic rights. USLEAP has expressed its concerns to Starbucks that allocating 10 points (10% of the total of 100 points) to one subcategory containing wages, benefits and basic rights is inadequate from a worker standpoint.

The new guidelines were developed in consultation with The Center for Environmental Leadership in Business but no labor organizations were consulted nor were key groups active in this area, including USLEAP, the Interfaith Center for Corporate Responsibility, and the International Labor Rights Fund. Perhaps as a result, the guidelines reflect a heavier emphasis and value on environmental concerns than social and labor concerns.

Key Difference with Codes

The fundamental difference between this financial incentive approach and a code of conduct for suppliers approach is that the incentive approach does not require suppliers to abide by minimum standards. Since the vast majority of coffee producers in countries like Guatemala fail to meet code of conduct standards, a coffee retailer that sought to strictly enforce the "stick" of its code approach would end up with few suppliers from which to buy. It remains to be seen whether the incentive approach proves to be more effective in transforming the coffee industry. A key measure will be what percentage of Starbucks suppliers opt to participate in the "carrot" approach and whether the financial incentives are sufficient.

The guidelines represent an extension of a pilot project Starbucks began in 1997 after USLEAP initiated a second campaign charging Starbucks with reneging on its original promises. The 1997 pilot project also represented an incentive-based approach in which Starbucks agreed to pay suppliers an extra premium for taking steps towards meeting criteria in Starbucks code. Star-bucks announced that $500,000 would be set aside for this project and subsequently reported that it had been successful in financing the building of schools and health clinics, among other things. However, the 1997 project did not provide for any third-party verification as to whether suppliers were meeting other aspects of the code. Consequently, a grower could have been paying workers less than the legal minimum wage and denying workers their right to organize while still getting credit from Starbucks for building a new school with Starbucks' premium.

Independent Verification?

The new guidelines do provide for "third-party, independent verification" but allows the supplier to select the organization to undertake the verification. Starbucks does retain the option of hiring an independent auditor as a back-up system and has argued that the prospect of financial rewards should help ensure some honesty in the system.

However, the initial list of organizations with verification expertise is disturbing because for Guatemala it includes ANACAFE, the National Association of Coffee Exporters, but does not include COVERCO, the Commission for the Verification of Codes of Conduct. ANACAFE has generally denied that there are any labor problems in the Guatemalan coffee sector, and rejected out of hand the most comprehensive study ever done of working conditions in the sector, a study conducted by COVERCO and financed by Starbucks that found extensive labor violations. ANACAFE has also rejected the notion of independent third-party monitoring while COVERCO has been unable to get permission from coffee growers in Guatemala to undertake verification. Star-bucks says the list is only preliminary but even in its preliminary stage it raises serious questions about the integrity of the verification process.

The guidelines could also open Star-bucks up to renewed criticism for the slow pace at which it has been moving to take concrete steps that make a real difference in the lives of coffee workers. Starbucks had agreed to a pilot project for Guatemala in 1995 but very little has been achieved, and now the company is launching a new pilot project for which there has been no consultation with worker rights groups.

Advances

On the other hand, the new sourcing guidelines represent two major advances in the effort to bring effective corporate responsibility to the coffee sector. First, Star-bucks is no longer putting forth their long-held "technical" argument that the company doesn't know where its coffee comes from since there are often several layers of sellers and buyers between Starbucks and the original grower. USLEAP, however, has maintained that Starbucks does know where some of its coffee comes from and has had the capacity to determine where the rest of it comes from if it chooses to do so. Now, Starbucks has apparently agreed; in the new guidelines, 20 points are set aside for "economic transparency" that requires suppliers to supply documentation to ensure that the entire supply chain, including the grower at the end of the chain, benefits from the "preferred supplier program."

The other major advance with Star-bucks' new sourcing guidelines is that it accepts the principle that retailers have a financial responsibility to suppliers who pay their workers the legal minimum wage (as inadequate as it may be), provide legal benefits, meet health and safety standards and provide adequate living conditions. This principle has not yet been accepted in the apparel sector, for instance.

The issue of retailer financial responsibility is a key one in efforts to improve wages and working conditions of workers in the South who supply major retailers in the North, no matter what the sector. In its effort to undersell its competitors, Wal-Mart sets the industry tone for seeking to drive down the prices paid to suppliers, who are increasingly caught in a financial squeeze that makes it difficult to provide wage increases even if the supplier were so inclined.

The USLEAP board of directors will be reviewing the new sourcing guidelines to determine what steps to take with respect to some of the concerns addressed above.