Contents May Be Hot: Can Starbucks Navigate A Changing Climate?

Climate change poses a serious threat to coffee cultivation. Will we still be able to cool off with Frappuccinos in an ever-warmer world?

Coffee: An endangered crop

Take a deep breath, caffeine addicts: your daily cup ‘o joe may be in serious danger. As the impacts of climate change continue to ripple across the planet, the agricultural sector is poised to bear the brunt of its initial effects. Coffee is a particularly sensitive crop –coffee plants require a precise temperature and moisture content for proper growth, as well as predictable and stable weather patterns. As temperatures rise and rain patterns become more intense and erratic, global crop yields could plummet; even a 0.5 degree temperature difference can significantly alter growing conditions. [1] Warming climates can also give rise to diseases such as coffee rust (a fungus), and pests like the coffee berry borer (a beetle), which have already been found to cause coffee bean yield losses tallying hundreds of millions of dollars. [2]

The overall potential impact of climate change on coffee production is profound: a landmark study in the journal Climatic Change concluded that temperature variability from climate change could reduce the global area suitable for coffee cultivation by as much as 50%. [3] Low latitude and low altitude regions are especially susceptible to these climate change effects—a problematic reality, given that the majority of the world’s coffee production derives from these regions.

Figure 1: Projected Coffee Suitability Changes by 2050 [3]

Source: Bunn et al, 2014

 

Starbucks: Skin in the game

As the world’s second-most sought-after commodity (after oil), and most frequently-consumed beverage (at an estimated 500 billion cups annually), coffee reigns supreme. [4] And in the land of coffee, Starbucks is the undisputed king, at over 25,000 locations and $21.7 Billion in sales.[5] Needless to say, as the world’s foremost purveyor of coffee, Starbucks is acutely aware of the potential climate change has to roil production of its most-prized product.

In addition to its tremendous financial stake in climate change, Starbucks has long been a leader in the realm of corporate social responsibility, with a commitment to have a “positive impact on the communities [they] serve, one person, one cup and one neighborhood at a time”.[6] Since 2004, the company has implemented a comprehensive climate change strategy, including signing the RE100, a global corporate commitment to purchase 100% renewable energy, and has building over 1000 LEED-certified stores.[7] The company additionally conducted a comprehensive inventory of its direct and indirect greenhouse gas emissions in 2015. [8]

Figure 2: Starbucks Greenhouse Gas Footprint

Source: https://www.starbucks.com/responsibility/environment/climate-change

 

Can Starbucks’ famed supply chain adapt to a new climate reality?

Starbucks’ vaunted global supply chain is a case study in what long-time CEO Howard Schultz termed “vertical integration to the extreme”. Spanning countries and continents, Starbucks exerts tremendous control over its supply chain, with direct ownership over nearly every component of the chain from roasting plants to warehouses to retail outlets, and enforcement of strict Coffee Sourcing Guidelines and social responsibility standards for all 3rd party suppliers. [9,10]

Amid mounting climate change threats, Starbucks has additionally ramped up efforts to strengthen the sustainability and adaptability of its supply chain at the level of front-line farmers. Examples of these programs include:

  • The Global Farmer Fund, a $50 million fund to finance farm renovations to help producers pursue more sustainable practices. [11]
  • Founding the “Sustainable Coffee Challenge”, a joint initiative to bring stakeholders and competitors throughout the coffee industry together to create a sustainability “roadmap” for the coffee industry. [12]
  • Implementation of “Coffee and Farmer Equity (C.A.F.E)” Practices for farmers, a set of sustainability standards including shade and tree conservation for crop protection, and pest and disease management strategies [13]
  • Purchase of a company-owned coffee farm “laboratory” in Costa Rica to pilot new coffee-growing practices and to develop coffee plants capable of withstanding harsher environmental conditions [ibid]

All told, Starbucks has invested over $100 million to support coffee growing communities through its sustainability programs [11]. Given that the vast majority of Starbucks’ suppliers reside in resource-poor nations and poor rural communities, the onus will be on the company to continue growing its material and educational support of coffee growers, to help them adapt to new climate conditions. As agronomic innovations arise, Starbucks will need to leverage its global network to rapidly disseminate and implement new growing strategies to combat changing conditions.

With its well-developed and integrated supply chain and positioning as an industry leader in sustainable practices, Starbucks is well-positioned to lead the charge in sustainable coffee production. Nonetheless, difficult questions still remain: Given the potential for shifting climate patterns, should Starbucks investigate new growing locales at the expense of abandoning existing ones? Could the company do so without violating its core values of community and farmer empowerment? And fundamentally, can a company like Starbucks truly reconcile its corporate mission to increase sales with its social mission to promote environmental sustainability?

 

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References

1. Rosenthal, E. (2017). Heat Hampers Colombian Coffee Crop, Jeopardizing Supply. [online] Nytimes.com. Available at: http://www.nytimes.com/2011/03/10/science/earth/10coffee.html [Accessed 15 Nov. 2017]..

2. Bromwich, J. (2017). Climate Change Threatens World’s Coffee Supply, Report Says. [online] Nytimes.com. Available at: https://www.nytimes.com/2016/09/23/science/climate-change-threatens-worlds-coffee-supply-report-says.html?_r=0 [Accessed 15 Nov. 2017]

3. Bunn, C., Läderach, P., Ovalle Rivera, O. and Kirschke, D. (2014). A bitter cup: climate change profile of global production of Arabica and Robusta coffee. Climatic Change, 129(1-2), pp.89-101

4. Goldschein, E. (2017). 11 Incredible Facts About The Global Coffee Industry. [online] Business Insider. Available at: http://www.businessinsider.com/facts-about-the-coffee-industry-2011-11 [Accessed 15 Nov. 2017]

5. Forbes.com. (2017). Global 2000: Top Regarded Companies – Starbucks. [online] Available at: https://www.forbes.com/companies/starbucks/ [Accessed 15 Nov. 2017]

6. Starbucks Coffee Company. (2017). Corporate Social Responsibility |Starbucks Mission Statement. [online] Available at: https://www.starbucks.com/responsibility [Accessed 15 Nov. 2017].

7. Starbucks Coffee Company. (2017). LEED® Certified Stores. [online] Available at: https://www.starbucks.com/responsibility/environment/leed-certified-stores [Accessed 15 Nov. 2017].

8.  Starbucks Coffee Company. (2017). Tackling Climate Change. [online] Available at: https://www.starbucks.com/responsibility/environment/climate-change [Accessed 15 Nov. 2017].

9.  Logisticsbureau.com. (2017). Vertical Integration in the Supply Chain. [online] Available at: http://www.logisticsbureau.com/vertical-integration-supply-chain/ [Accessed 15 Nov. 2017].

10. blurGroup. (2017). What Can We Learn From Starbucks’ Supply Chain Management?. [online] Available at: https://www.blurgroup.com/blogs/supplier-diversity/starbucks-supply-chain-management/ [Accessed 15 Nov. 2017].

11. Starbucks Coffee Company. (2017). Responsibly Grown and Fair Trade Coffee. [online] Available at: https://www.starbucks.com/responsibility/sourcing/coffee [Accessed 15 Nov. 2017].

12. Medium. (2017). Here’s to One Year! – #SustainCoffee – Medium. [online] Available at: https://medium.com/@arogers_60687/heres-to-one-year-11ec0b06f754 [Accessed 15 Nov. 2017].

13. Byrnes, N. (2017). In a hotter future your Starbucks Venti Latte, iced or hot, will cost more. [online] MIT Technology Review. Available at: https://www.technologyreview.com/s/601404/starbucks-responds-to-climate-change-with-mixed-results/ [Accessed 16 Nov. 2017].

14. Starbucks Coffee Company. (2017). Global Responsibility Report Goals & Progress 2014. [online] Available at: https://www.starbucks.com/responsibility/global-report [Accessed 16 Nov. 2017].

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6 thoughts on “Contents May Be Hot: Can Starbucks Navigate A Changing Climate?

  1. Interesting article! I agree with the options that you’ve proposed for the company to take charge of controlling its raw coffee bean inputs. Another thing Starbucks can do is to become the leader in predicting where coffee beans will have the greatest yields and production by using coffee yield models on an annual basis. Similar to the crop yield modeling techniques your cited article Bunn et al. has used, predicting coffee yields requires Starbucks to have multiple data inputs (weather, agronomic, soil, past production, and yield) to determine annual harvests. If Starbucks can do this a year before the harvest, then they can get better at choosing where to invest in new coffee bean farms and de-risk its investments.

  2. Great read – I could feel the caffeine headaches kicking in as my body imagined a world without coffee. I never internalized the tension that Starbucks faces between their record of protecting and supporting farmers and ensuring a sustainable, stable supply of beans.

    You mentioned in your article that Starbucks is making significant investments in research to empower its farmers to implement sustainable practices. I wonder if there is room for the company to take things one step further and begin to take a more proactive approach in farmers’ operations. While I appreciate a hesitation to fully vertically integrate and take over operations of facilities, is there ever a time when it makes sense for Starbucks to make capital investments in farm technology / infrastructure to ensure supply stability?

  3. Enjoyed this take! I’m interested how climate change will affect the very high end of the market as well. For example, Blue Bottle’s $16 cup of coffee (!) is sourced from Yemen, one country whose coffee production is expected to drastically impacted by climate change. The high price today is driven in part because of the difficulty of sourcing the beans given the internal political conflict and poor infrastructure. When we add climate change to the mix as well, sourcing will only become more difficult, likely driving up the cost of goods and by extension price even further. If the impact of climate change is drastic enough, in Yemen and elsewhere, these sourcing challenges will become widespread and coffee could become a exclusively a luxury good that only some can afford. Starbucks would need to drastically change their customer promise and experience to respond to this new reality.

  4. Really enjoyed reading about a subject that comes close to heart, being myself from a country famed for its coffee production and having seen some of the early impacts of climate change on crop yield. Drawing upon some of the other essays written on the subject of climate change, I would suggest that going forward, Starbucks also explores options to include another key component of its production process into its conservation efforts, namely water. We saw in the other essays some of the actions that water-intensive companies are working on, with aims towards being capable of renewing its water intake each year. If Starbucks were to include this additional resource, it could really present a robust, comprehensive program, that might help mitigate some of the questioning around the “true nature” of its corporate responsibility efforts.

    On the second question of your essay, I agree that in this case it is highly unlikely consumers will move away from an age-old beverage that fuels our daily lives. Given that, it falls on the companies and in society in general to move towards sustainable practices that ensure we can, as you mention, get our frappuccinos to cool off during these raising temperatures! Really like your point on how the resource-constrained communities and countries from which the company sources its coffee beans are not readily able to join in the sustainability efforts; however going forward it would also be nice to see Starbucks helping entire countries that make their living on coffee exports, do it so in a sustainable way.

  5. No, the world needs more coffee not less! I believe the efforts you mentioned are pretty impressive, specially when compared to other companies who are taking a less passive approach to the world’s problems. But I believe there’s room for more, specially for a company with a lion share on a global scale.
    1. They are directly investing vertically across the chain, but what are they doing to influence the operations of such companies? Such loss in yield needs radical intervention!
    2. Another dimension that you mentioned, but Starbucks is not not tackling is the pest management and disease control that will follow as a result of the climate change, these are two big issues that also need to be tackled.
    3. Not one will climate change affect the yield, but it will also affect quality in the shorter run (http://www.cnn.com/2017/06/21/world/coffee-climate-change-trnd/index.html). Unlike the bigger issue at hand which can be bucketed under CSR, this is a dimension of the problem will be recognized by consumers and can affect demand in the coming years. To tackle this, proper forecast and planning are required. And this needs to be coupled with a very high flexibility in their supply chain. The question is: can a giant like Starbucks act with a start-up spirit and change its operations accordingly?

  6. And fundamentally, can a company like Starbucks truly reconcile its corporate mission to increase sales with its social mission to promote environmental sustainability?

    I addressed this topic on another comment / company and was pretty pessimistic about that company’s ability to promote sustainability and increase sales/remain profitable. But Starbucks is one company I am not worried about on this front because they sell a premium product. I think Starbucks has some room to experiment with their cost structure as they try to find new farms and production methods. While a segment of their customers are price sensitive, other segments aren’t. Starbucks also has experience with lowering prices of some drinks to offset increases in others [1], a complicated pricing strategy. This experience coupled with the makeup of their customer base sets them up well to make progress on both the business and societal responsibility fronts.

    [1] http://www.nytimes.com/2009/08/21/business/21sbux.html

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