Arrivederci Arabica: How will Starbucks respond to a future coffee crunch?
To a coffee addict who consumes two-plus cups a day, a coffee shortage is a frightening prospect. Unfortunately, the coffee industry is extremely susceptible to changing weather patterns and rising temperatures caused by global climate change. According to recent studies, 80% of the fertile coffee-growing land in Brazil and Central America, and 50% of coffee-growing land globally, could become unsuitable by 2050 [1]. This decline is growing land will likely result in a drop in global coffee supply and a rise in coffee bean prices [2].
One of the main reasons why coffee is sensitive to climate change is that 70% of global coffee production comes from a single species: Coffea Arabica [3]. Arabica coffee is typically found in tropical highlands around the world, and requires relatively cool temperatures and high amounts of annual rainfall [4]. Brazil’s recent drought has already pushed coffee prices up, and effects are expected to worsen as temperatures continue to rise [5]. The impact of climate change will fall heavily on the millions of people around the world who make their living in the coffee trade. An estimated 25 million farmers worldwide produce 80% of the world’s coffee, and another 100 million people around the globe depend on coffee trade for subsistence [6].
Starbucks is keenly aware of the challenges climate change poses to its business model. As temperatures rise and growing land becomes unusable, the global supply of Arabica beans will shrink, and Starbucks supply costs will rise. Starbucks could be forced to source coffee from new suppliers and establish costly new supply chain routes [1]. To address this threat, Starbucks is focused on reducing its own environmental footprint while working directly with farmers to prepare for changing growing conditions.
Starbucks has been focused on renewable energy and energy conservation since 2004 [7]. Starbucks is one of the EPA’s top ten purchasers of renewable energy, purchasing Renewable Energy Certificates (RECs) equivalent to 100% of the energy used in U.S. and Canada company-owned stores [8]. Each REC helps subsidize the electricity price supplied by wind farmers to better allow the renewable source to compete with fossil fuels [8]. In addition, Starbucks installed energy management systems in 4,000 stores to better control heating and cooling costs [8]. Starbucks also builds new stores according to LEED (Leadership in Energy and Environmental Design) principles, and has more LEED-certified stores than any other retailer [9]. Finally, Starbucks is a member of the RE100, a global initiative of businesses committed to 100% renewable electricity [10].
Beyond limiting its environmental impact, Starbucks works directly with growers to assess the impact of climate change on production and experiment with novel growing techniques. These actions range from using shade and tree cover to protect crops and farmers from the sun, to more novel approaches [1]. In 2014, Starbucks sold its first batch of a special coffee variety developed with a Costa Rica growing cooperative [1]. This coffee strand, named Geisha, is more resistant to fungal infections than other species and may signal future experiments in coffee growing innovation [11]. Starbucks has historically been generous with its discoveries: in 2014 the company distributed rust-resistant coffee plants to Mexican farmers who had lost much of their annual production to seed rust, and will have donated 20 million rust-resistant seedlings by the end of 2017 [1].
Starbucks’ commitment to addressing climate change is admirable, but has at times been at odds with its business imperatives. While Starbucks is meticulous in tracking its environmental impact, it has not always been successful at reaching its emissions-reduction goals.
After setting a 25% reduction goal in 2008, Starbucks saw emissions rise in recent years, due primarily to store growth and its foray into heated food, which requires an increase in refrigeration and ovens [1] [7]. I am encouraged by the steps Starbucks has taken to date, but I am concerned as to how it will balance growth targets and pressure from shareholders with its stated desire to reduce emissions. Similarly, Starbucks seems genuinely committed to working to equip impacted farmers with the tools and knowledge needed to grow beans in changing climates. However, there is probably a limit to this investment, where Starbucks will limit innovative farming experiments and instead simply pass higher bean prices to consumers. Given the 125 million people worldwide who depend on the coffee trade for their livelihood, I would like to see Starbucks lead the effort to determine how to successfully grow beans in warmer and dryer climates. Perhaps Starbucks could partner with research universities and tech companies to produce truly innovative farming methods. Given the impending coffee crunch, a new blend of methods and company commitment will be required to address the impact of climate change.
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References
1 Byrnes, Natalia. “Starbucks Responds to Climate Change, with Mixed Results.” MIT Technology Report. https://www.technologyreview.com/s/601404/starbucks-responds-to-climate-change-with-mixed-results/. Accessed 3 Nov. 2016.
2 Chamlee, Virginia. “Coffee Market Braces for Global Warming’s Effects.” Eater. http://www.eater.com/2016/5/10/11642246/coffee-bean-global-warming-starbucks-latte Accessed 3 Nov. 2016.
3 Bunn, C., Laderach, P., Rivera, O., and Kirschke, D. “A Bitter Cup: Climate Change Profile of Global Production of Arabica and Robusta Coffee.” Climactic Change, vol. 129, no. 1, 2015, pp. 89-101, http://link.springer.com/article/10.1007/s10584-014-1306-x.
4 “Climate Change Brews Trouble for Coffee.” Clean Technica. https://cleantechnica.com/2016/10/05/climate-change-brews-trouble-coffee/. Accessed 3 Nov. 2016.
5 Perez, Marvin G. “Coffee-Loving Millennials Push Demand to a Record.” Bloomberg. http://www.bloomberg.com/news/articles/2016-10-30/millennial-hunt-for-caffeine-fix-propels-coffee-demand-to-record. Accessed 3 Nov. 2016.
6 “Coffee Farmers.” Fairtrade Foundation. http://www.fairtrade.org.uk/en/farmers-and-workers/coffee. Accessed 3 Nov. 2016.
7 “Climate Change.” Starbucks. http://www.starbucks.com/responsibility/environment/climate-change. Accessed 3 Nov. 2016.
8 “Water and Energy Conservation.” Starbucks. http://www.starbucks.com/responsibility/environment/climate-change. Accessed 3 Nov. 2016.
9 “LEED® Certified Stores.” Starbucks. http://www.starbucks.com/responsibility/environment/leed-certified-stores. Accessed 3 Nov. 2016.
10 “RE100.” The RE100. http://there100.org/re100. Accessed 3 Nov. 2016.
11 “Six Years in the Making, Starbucks Reserve Costa Rica Geisha La Ines Honors Agronomists and Farmers.” Starbucks Newsroom. https://news.starbucks.com/news/six-years-in-the-making-starbucks-reserve-costa-rica-geisha-la-ines. Accessed 3 Nov. 2016.
I think that it is admirable that Starbucks has renewable energy targets, but I am most curious about the climate change impact of transporting massive volumes of coffee beans around the world. Transportation accounts more more than 25% of American’s energy use, and the vast majority of transportation is fueled by petroleum (LLNL 2015). I would curious to know if the bar chart above addresses emissions from transportation. Furthermore, i would be surprised is Starbucks offsets 100% of its transportation GHG emissions with RECs. I think that this is an important next step for Starbucks to address.
In addition, deforestation causes significant GHG emissions. It is important to note that Starbucks is committed to ethically sourcing coffee. Part of their ethical sourcing commitment is to ensure that coffee growing does not result in clear cutting forest lands.
(Lawrence Livermore National Lab (LLNL) 2015. Energy flow charts. Available online at: https://flowcharts.llnl.gov/commodities/energy)
Very interesting and thought provoking post, Mike. I always think of Starbucks as a company on the cutting edge of all types of double bottom line initiatives and this post confirmed that intuition. I think the tension that you describe in your post, between Starbucks desire to address climate change versus its obligation to growing its business and producing shareholder returns, is really the key question almost all companies are facing as it pertains to environmentally sustainable operations. I think Starbucks is well positioned, though, given the nature of its business and its customers. I think many Starbucks customers are willing to pay a premium, not only for the coffee but also because they know Starbucks is a multi-mission company. I think this will likely give Starbucks some necessary air cover as it will likely need to pass through price increases to its customers in order to address some of the issues you mention above. Additionally, I think what Starbucks is doing with regard to helping farmers develop tools and knowledge to adapt to changing climates is critical and smart. Many companies simply seek to reduce their own carbon footprints as a way to address sustainability without trying to come up with solutions to address the potential negative impacts that climate change will have on their operations.
Interesting post that is exceedingly relevant to our current lives. Somewhat reminds me of the dilemma that Ikea faces. I wonder if Starbucks has been considering purchasing desirable growing land (similar to Ikea purchasing forest acres).
For such a large company with a massive supply chain and sustained growth, there are a lot of tensions with reducing emissions footprint (as you have pointed out). I too commend Starbucks for their commitment to working with and helping farmers, as well as sourcing “ethically” grown coffee. You mentioned that you would like to see them invest a lot in R&D to find ways to grow coffee in dryer and warmer clients, and you mentioned some of the innovation they are already pursuing with novel growing techniques. I wonder what (if any) impact of these modified crops could have? Are there any potential externalities to producing fungal-resistant crops or crops that can grow outside of their natural climate?
One other thing Starbucks could consider is synthetic alternatives to coffee altogether. I assume this would receive hefty opposition across the board (myself included), but Starbucks has the wallet and the brand equity to at least explore this option… and they shouldn’t take anything off the table.
Many studies have shown coffee to have positive health benefits (including this recent Harvard one) –>
https://www.hsph.harvard.edu/news/press-releases/moderate-coffee-drinking-may-lower-risk-of-premature-death/
And I think most people consider coffee to be favorable to any non-natural caffeine alternative. That said, caffeine is the focal point of people’s decision to drink coffee. If it no longer becomes economical to supply caffeine naturally, other alternatives may become more attractive.
Super interesting, Mike! Hits a little too close to home. I was really fascinated by the info you provided on new growing techniques and varieties. I think that could be really promising, particularly the shade grown coffee (I’ve had a lot of shade grown coffees that are really awesome). Have you (or Starbucks) given any thought to the possibility of expanding growing areas into new regions (further north in the northern hemisphere and south in the southern hemisphere), or higher up in altitude on both sides of the world? I know a lot of wine producers, particularly in northern Europe, are beginning to prepare for how they can grow in different places (and planting grapes both as experiments and to ensure that there are vines in place when the temperatures are right for the kinds of wine they’re trying to produce). I’m curious whether coffee is similar, though I would assume the marginal gains might be less because coffee is probably less temperature-sensitive/finicky than wine grapes (despite the disease susceptibility). Regardless, I’m hoping none of this happens and nothing gets in the way of our coffee supply.