Fall Without Pumpkin Spice Lattes? It Could Happen

Climate change will disrupt coffee production across the world… can Starbucks survive?

Can’t function in the morning without your venti soy hazelnut macchiato?  You might want to try weaning off, as climate change could decimate the world’s supply of coffee.

Source: CBC News.

2.25 billion cups of coffee are consumed every day across the world.[1]  The majority of this coffee is grown around the equator, in countries like Brazil, Colombia, Vietnam, and Ethiopia.[2]

Coffee plants rely on a precise combination of temperatures, rainfall, and dry weather to ripen properly and maintain their taste profiles.  As climate change brings rising temperatures, changing rainfall patterns, and increasing incidence of pests and diseases to “bean belt” countries, the amount of land hospitable for coffee plants will shrink – a recent study concluded that climate change will halve the global area suitable for coffee production by 2050.[3]

Many agricultural crops will be impacted by climate change, but coffee is especially vulnerable because it has a particularly shallow gene pool.[4]  Only two species of coffee – arabica and robusta – are grown for human consumption.[5]  Arabica is the more popular and the species of choice for coffee behemoth Starbucks, which has become increasingly concerned about climate change.

Most of Starbucks’s suppliers are based in Central America, which is already experiencing changing rainfall patterns and pest infestations.  As such disruptions become more frequent, they will decrease crop yields, depress quality, drive up prices, and discourage farmers from growing coffee, jeopardizing Starbucks’s supply chain and entire business.

Plan of Attack

The coffee giant has responded to this threat by trying to reduce its own contribution to climate change.  Starbucks has had a defined climate change strategy since 2004 focused on energy conservation, renewable energy usage, and climate-smart agricultural practices, including purchasing 99% of its coffee beans from suppliers that meet sustainable sourcing standards.[6]

The company is also working with farmers to improve their ability to grow coffee in changing climates.  The company has invested $100 million to support coffee communities and improve the resilience of coffee supply chains.[7]  After farmers in Mexico lost 60% of their 2014 coffee production to a leaf rust, Starbucks distributed 20 million rust-resistant coffee plants. [8]

Source: The Climate Institute.

Starbucks helped found the Sustainable Coffee Challenge, an initiative that defines 15 practices industry players can adopt to ensure the prosperity of coffee farmers and the climate that sustains them.[9]  In 2015, Starbucks joined the Initiative for Coffee & Climate, a partnership with development NGOs that provides farmers with training and tools to better respond to climate change.[10]

Starbucks is also investing in beans that can thrive in hotter climates.  The company has helped fund research into more tenacious strains of coffee, such as Centroamerico, a new hybrid variety bred from two different strains of arabica.[11]  In 2013, the company even bought its own coffee farm in Costa Rica to experiment with developing plants that can thrive in warmer temperatures.[12]

 

Growing Pains

Adoption of more resilient crops remains a challenge, however.  Most of the world’s 25 million coffee farmers are smallholders with little capacity to adapt to a hotter world.[13]  Hybrid seeds are 2.5 times more expensive than standard seeds and few regions have the infrastructure to distribute them.[14]  Starbucks will need to take an increasingly hands-on role with its suppliers in future years and will likely need to sacrifice some of its profits in the near-term to help suppliers adopt more resilient crops.  At the same time, Starbucks should begin identifying new areas for production in regions that will become attractive for coffee crops, such as East Africa.[15]

Coffee will always remain a core component of the Starbucks brand, but the company should consider ways it can diversify its product offering to decrease its exposure to an unreliable supply chain.  In recent years, Starbucks has expanded its product line to include a variety of teas, juices, and food.  The company should continue to evaluate additional products that can bring in new revenues and customers.  For instance, the company could experiment with offering a limited selection of wines and beers at its trendy new Roastery and Reserve Bars through partnership with  organizations with similar environmental values.

Starbucks should also leverage its broad platform with the public to increase awareness about the effects of climate change.  The company could educate its customers by decorating cups with facts about climate change.  And company executives should become more vocal in pushing for productive climate change policies.

Of course, it’s worth remembering that “bean belt” farmers will wind up with the most intense caffeine headaches.  125 million people depend on the coffee supply chain for their livelihoods.[16]  Coffee is a critical industry in many producer countries – the crop accounts for 59% of export earnings in Burundi.[17]  If climate change disrupts coffee production as expected, many emerging economies will experience substantial damage.  How much do Starbucks and coffee drinkers owe the communities that have fueled our collective caffeine habit?

 

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[1] Watts, Corey.  “A Brewing Storm: The Climate Change Risks to Coffee.”  The Climate Institute, Sept. 2016, http://fairtrade.com.au/~/media/fairtrade%20australasia/files/resources%20for%20pages%20-%20reports%20standards%20and%20policies/tci_a_brewing_storm_final_24082016_web.pdf.

[2] Dewey, Caitlin.  “The Race to Save Coffee.”  The Washington Post, 19 Oct. 2017, https://www.washingtonpost.com/graphics/2017/business/the-race-to-save-coffee/?utm_term=.3e9e52a32945.

[3] Bunn, Christian et al.  “A Bitter Cup: Climate Change Profile of Global Production of Arabica and Robusta Coffee.”  Climatic Change, vol. 129, issue 1-2, 2015, pp 89-101, https://link.springer.com/content/pdf/10.1007%2Fs10584-014-1306-x.pdf.

[4] Dewey, Caitlin.  “The Race to Save Coffee.”  The Washington Post, 19 Oct. 2017, https://www.washingtonpost.com/graphics/2017/business/the-race-to-save-coffee/?utm_term=.3e9e52a32945

[5] Dewey, Caitlin.  “The Race to Save Coffee.”  The Washington Post, 19 Oct. 2017, https://www.washingtonpost.com/graphics/2017/business/the-race-to-save-coffee/?utm_term=.3e9e52a32945

[6] “Climate Change,” Starbucks, https://www.starbucks.com/responsibility/environment/climate-change.  Accessed 13 Nov. 2017;  Byrnes, Nanette.  “Starbucks Responds to Climate Change, with Mixed Results.”  MIT Technology Review, 9 May 2016, https://www.technologyreview.com/s/601404/starbucks-responds-to-climate-change-with-mixed-results/.

[7] “Starbucks Coffee Company.”  Sustainable Coffee Challenge, https://www.sustainablecoffeechallenge.com/partners/starbucks/.  Accessed 13 Nov. 2017.

[8] Byrnes, Nanette.  “Starbucks Responds to Climate Change, with Mixed Results.”  MIT Technology Review, 9 May 2016, https://www.technologyreview.com/s/601404/starbucks-responds-to-climate-change-with-mixed-results/.

[9] “About Sustainable Coffee Challenge.”  Sustainable Coffee Challenge, https://www.sustainablecoffeechallenge.com/about/.  Accessed 13 Nov. 2017.

[10] “About C&C.”  Initiative for Coffee & Climate, http://www.coffeeandclimate.org/about-cc.html.  Accessed 13 Nov. 2017; “Welcome to Our Newest Partners.”  Initiative for Coffee & Climate, 2 Dec. 2015, http://www.coffeeandclimate.org/newsreader/items/welcome-to-our-newest-partners-starbucks-and-conservation-international.html.

[11] “Farming Communities.”  Starbucks, https://www.starbucks.com/responsibility/community/farmer-support; https://dailycoffeenews.com/2015/04/08/starbucks-grants-400000-to-world-coffee-research-to-assist-guatemalan-farmers/.  Accessed 13 Nov. 2017;  Dewey, Caitlin.  “The Race to Save Coffee.”  The Washington Post, 19 Oct. 2017, https://www.washingtonpost.com/graphics/2017/business/the-race-to-save-coffee/?utm_term=.3e9e52a32945.

[12] Byrnes, Nanette.  “Starbucks Responds to Climate Change, with Mixed Results.”  MIT Technology Review, 9 May 2016, https://www.technologyreview.com/s/601404/starbucks-responds-to-climate-change-with-mixed-results/.

[13] Watts, Corey.  “A Brewing Storm: The Climate Change Risks to Coffee.”  The Climate Institute, Sept. 2016, http://fairtrade.com.au/~/media/fairtrade%20australasia/files/resources%20for%20pages%20-%20reports%20standards%20and%20policies/tci_a_brewing_storm_final_24082016_web.pdf.

[14] Dewey, Caitlin.  “The Race to Save Coffee.”  The Washington Post, 19 Oct. 2017, https://www.washingtonpost.com/graphics/2017/business/the-race-to-save-coffee/?utm_term=.3e9e52a32945

[15] Bunn, Christian et al.  “A Bitter Cup: Climate Change Profile of Global Production of Arabica and Robusta Coffee.”  Climatic Change, vol. 129, issue 1-2, 2015, pp 89-101, https://link.springer.com/content/pdf/10.1007%2Fs10584-014-1306-x.pdf.

[16] Watts, Corey.  “A Brewing Storm: The Climate Change Risks to Coffee.”  The Climate Institute, Sept. 2016, http://fairtrade.com.au/~/media/fairtrade%20australasia/files/resources%20for%20pages%20-%20reports%20standards%20and%20policies/tci_a_brewing_storm_final_24082016_web.pdf.

[17] Watts, Corey.  “A Brewing Storm: The Climate Change Risks to Coffee.”  The Climate Institute, Sept. 2016, http://fairtrade.com.au/~/media/fairtrade%20australasia/files/resources%20for%20pages%20-%20reports%20standards%20and%20policies/tci_a_brewing_storm_final_24082016_web.pdf.

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16 thoughts on “Fall Without Pumpkin Spice Lattes? It Could Happen

  1. It sounds like an upfront investment in more resilient coffee beans would be a worthwhile short-term sacrifice of profit for significant long-term benefit. Starbucks should work with Indigo Agriculture to engineer the best seeds – perhaps they could test them in various international locations and determine where they can grow them in the future. By investing in the seeds themselves, you are simultaneously investing in the farmers and their livelihoods, given that they will be more likely to retain their jobs with more resilient hybrid seeds as their source of coffee beans.

    However, if it proves impossible to design effective new seeds, the other long-term, last-ditch possibility might be to change their coffee altogether. Have farmers switch to different seeds (natural or engineered), then eliminate arabica from the Western drink menu. I guarantee people would start noticing climate change. Clearly this would affect Starbucks’ profits, but its likely their brand could withstand it – and perhaps it could have the greatest social impact of all.

  2. SEA, very well-written. This article reminded me of the cases we did on Nike and IKEA in class. In the case of Nike, they went ahead with jerseys made from recycled plastic bottles [1], whereas IKEA went with more particle boards in their furniture. As you mentioned in your article, Starbucks purchases 99% of its coffee beans from suppliers that meet sustainable sourcing standards. These three companies are clearly being part of the solution, which is great. However, I still feel that there is a severe lack of education on the part of the end-consumer.

    Few customers know that IKEA tables use particle board to reduce wood-usage, and fewer fans know that Nike jerseys are made of plastic bottles. My guess is that the majority of Starbucks customers don’t think about climate change or the sustainability of the coffee farming industry. I’d argue that the $100 million that Starbucks cumulatively invested to “support coffee communities and improve the resilience of coffee supply chains” is not enough. Companies such as Starbucks, Nike and IKEA need to take their efforts further, by focusing their vision, brand, and message on sustainability and mitigating climate change. Will taking a clear stance against climate change result in them losing some customers? Maybe, but my sense is that it will be worth it in the long run.

    Footnotes:
    [1] https://www.huffingtonpost.com/2015/04/23/nike-recycled-plastic-bottle-uniforms-uswnt_n_7122056.html

  3. This was a fascinating post and truly concerning considering how much we all rely on coffee! In addition to the challenges you mentioned, I worry that as supply dwindles, coffee bean growers will be able to increase their prices. This will certainly be stabilizing for the many people whose livelihood depends on selling coffee, but Starbucks’ costs increasing will put a strain on the company or cause them to have to pass on additional costs to the consumer. When considering these additional costs, the investment in hybrid seeds or additional R&D towards more efficient coffee growing and processing may actually be worth it long-term.

    Similar to your suggestion, Starbucks has grown its revenues quite substantially in recently years mostly as a result of increasing food sales as opposed to coffee beverages (link to a Fortune article here: http://fortune.com/2016/01/22/starbucks-food-sales-rising/). This actually reminds of the IKEA case, in which a long-term investment in reducing environmental impact is necessary for the company to continue to have its essential raw materials in the future. From that case, we learned that companies in this situation have to be innovative in how they think about product development and product mix (eg real wood versus particleboard, and in this case coffee vs other offerings).

  4. I thoroughly enjoyed this piece as I never before considered climate change’s impact on the micro-economies that support the coffee bean industry. I admire Starbucks for actively investing in its supply chain to combat the insidious effects of climate change and support these communities. Unfortunately, climate change is bigger than Starbucks and other actors outside of Starbucks’ purview are largely responsible for the damage done to coffee bean farmers in Central America. Is this too little too late?

    It is prudent for Starbucks to shift its business model to rely less on coffee products as I fear Starbucks is fighting a losing battle unless other large polluters and government bodies take up the mantle of climate change.

  5. SEA, you pose an interesting suggestion about Starbucks diversifying their beverage portfolio. I agree that Starbucks’ profits may suffer in the near term as they identify either more resilient strains of coffee beans or new areas with ideal climates for growing coffee based on shifting weather patterns. Adding new beverage options or expanding the selection of teas could be a great way to ensure revenue during this transition and dip in coffee profitability.

    Therefore, I was confused to see that Starbucks recently sold their Tazo tea business to Unilver (https://www.forbes.com/sites/ronaldholden/2017/11/02/starbucks-unloads-tazo-will-concentrate-on-teavana/#463cc3e747ba). However, it appears Starbucks has made this move to concentrate their efforts on their Teavana brand, partnering with Anheuser-Busch InBev to produce ready to drink options. I’m interested to see where this journey takes Starbucks. Will they decide to shift a focus from developing sustainable coffee beans if their tea business continues to grow? As a pumpkin spice latte lover, I hope not!

  6. Very much agree with the comments above – as an avid and daily Starbucks coffee drinker, I had never considered the effects of climate change on coffee beans. I think the actions Starbucks has taken will absolutely help, but I also wonder how we can sustain coffee bean supply in the long term. Outside of efforts to reduce climate change in and of itself, as well as to produce more resilient crops, I have to wonder if there’s an opportunity for genetically modified coffee beans that could help mitigate the impact of climate change. It looks like there may be already some progress (see this article: https://www.washingtonpost.com/news/speaking-of-science/wp/2014/09/04/genetically-modified-coffee-could-be-just-around-the-corner/?utm_term=.e958f5c95ce8), but I wonder if this could be a longer term solution nuanced to the hybrid seeds you mentioned earlier.

    If Starbucks wants to put an emphasis on energy conservation, I think there’s also more they can do within their existing operations to support this effort – things like bigger incentives to use reusable cups. If we think about how many paper cups daily coffee drinkers go through and the energy required to dispose of these, it’s a crazy high amount – and if everyone put more effort into being sustainable coffee drinkers we could potentially substantially increase the life of our precious coffee.

  7. Thanks for the very interesting article – I believe the most powerful solutions to environmental challenges lie not on changing ingrained customer behavior but rather on leveraging on new technologies to avoid the impact. One promising development in the field has been the industry of vertical farming, where crops are grown under very tightly controlled conditions. Because of that high level of control, it is possible to run a multitude of experiments on optimal soil composition, amount of irrigation and light exposure. [1]

    [1] Frazier, I. (2017), “The Vertical Farm: Growing crops in the city, without soil or natural light”. The New Yorker. Available at https://www.newyorker.com/magazine/2017/01/09/the-vertical-farm (Accessed: 30 November 2017).

  8. Thanks for the great article on the coffee supply chain and the effect climate change has had on it. One of the other interesting programs that Starbucks has invested in in order to insure that their supply chain is sustainable is to provide 100 Million trees to farmers by 2025, of which they have already provided 35 million through 2016 (1). Astoundingly, the rate of coffee consumption is expected to increase to 160 million 60kg bags by 2020 (2).

    (1) https://www.starbucks.com/responsibility/community/farmer-support/social-development-investments
    (2) https://www.theatlas.com/charts/Bk9obKfkl

  9. Although a serious threat, I believe coffee growers will be able to whether the climate change storm. Given the introduction of CRISPR gene editing technology and further advancements in genomics, I believe coffee growers will be able to modify the DNA of coffee plants to thrive and produce high yields in more extreme climates. I believe Starbucks’s initial investments in new strains for hotter climates, like Centroamerico, are a good start, but much more innovation is to come.

  10. Interesting post – I found it particularly interesting that Starbucks is doing so much in trying to ensure the long-term sustainability of growing coffee in changing climates. I didn’t realize that they were investing so much capital into various programs and farms. One idea that crossed my mind as I read your post was the viability of genetically modified coffee beans. It seems like there have been efforts to develop genetically modified coffee plants but there is still a long way to go (https://dailycoffeenews.com/2017/03/08/column-what-we-know-about-gmos-and-specialty-coffee/). I’d be curious to see how this idea develops over the next 5-10 years from both the supply and demand side. More specifically, from the supply side – will the coffee taste the same? How will this change effect pricing? How will this change time to market and supply fluctuations? Additionally, the major question from the demand side is will people be willing to drink genetically modified coffee?

  11. This is a really interesting take on some of the climate challenges facing Starbucks’ long term operations. You noted several areas where Starbucks is already working with its suppliers to mitigate the impact of climate change, and other areas where there is room for improvement. However, I wonder whether Starbucks should take a greater role working directly with the governments of the countries supplying its coffee beans to help mitigate the impact of climate change on the small and local farmers who are responsible for much of Starbucks’ coffee bean supply. For example, Mars Inc. is partnering with governments of key cocoa supplying countries to help fund necessary improvements to local cocoa production by small farmers [1]. It will be interesting to see the extent to which Starbucks emphasizes production through owned supply vs. independent suppliers going forward.

    [1] http://www.mars.com/docs/default-source/default-document-library/farmer-income-lab_press-release_0710201734e2a95e0e2967c1ba01ff19007138ba.pdf?sfvrsn=0

  12. This was a great read! In going through this, I couldn’t help but think that no matter what Starbucks itself does to curb climate change, the effects will not be felt on the ground unless there is a global, multi-industry shift towards sustainable production practices. To this effect, what if big hitting companies with a strong sustainability agenda (for example, Nike, IKEA and Starbucks) formed some type of corporate-led sustainability “league” in which they used their combined size and reputation to affect more widespread change by putting pressure on governments, creating more consumer awareness, sharing best practices, pooling R&D resources etc. Given the lethargy of most governments on these issues, I think “enlightened capitalism” may be the answer. Just a thought…

  13. Interesting post — it makes sense that climate change is having an impact on this much-loved beverage but in a modern economy we really don’t seem to notice until it hits availability or price. I agree with Ali that Starbucks and the coffee growing countries and communities will weather the storm in the foreseeable future. They have the advantage of time when adjusting the genetic make-up of the beans and the exploring how technological innovation can improve yield in a changing ecosystem.

  14. SEA – as a lover of pumpkin spice lattes, this post really jumped out at me! Some great insights here. I really appreciate that Starbucks is not just being reactionary to the impacts of climate change, but is actually taking a stance and trying to slow climate change by reducing its own impacts on the climate.

    In terms of what else Starbucks can do to protect its business, developing technologies and working with farmers to develop ways to grow coffee in more extreme climates is definitely a big part of the solution. In addition to helping Starbucks secure coffee for customers, this type of work can help coffee farmers maintain their jobs… something that’s critical for the people and economies of “bean belt” as you mention towards the end of your post.

    Finally, I appreciate your innovative idea for Starbucks to decorate cups with facts about climate change and ways consumers can help slow the process. While I’m skeptical of how much it would move the needle in the fight against climate change, since Starbucks already does print words / images on their cups, I see this coming at a very low cost to the company. And at this rate, any bit of improvement is positive!

  15. SEA,

    This post gave me a lot of anxiety – I cannot imagine a world without Starbucks coffee! Kidding aside, climate change is a topic that consistently frustrates me, as it is something that should absolutely be more proactively dealt with than it is today. Although you have listed many ways in which Starbucks is “collaborating” with its supply chain to deal with the potential side effects of climate change, I think these changes are still more PR-related than actually being effective for long-term success. If Starbucks was serious about mitigating the risks of climate change to its business (in addition to just being a responsible corporation), it should continue investing in new strains of coffee that are more weather resistant. It should consider buying out current farmers who are less sophisticated in their coffee production capabilities than Starbucks would be with its resources and use their land to grow these new strains of coffee using environmentally friendly processes. It should also collaborate with other coffee companies to create industry standards that everyone must adhere to.

  16. SEA this is a well-researched and articulated article! I think this is especially important for Starbucks as they brand themselves as a fair-trade coffee bean chain. This is now part of their customer promise. This creates operational constraints as they have a more limited network of suppliers (that are certified fair-trade) in their supply chain compared to other coffee retailers. [1]

    I believe this mean they need to focus even more on how to navigate climate change given their more limited supply chain flexibility. It’ll be important for them to proactively work with the coffee bean farmers to mitigate the impacts of climate change and potentially even help them migrate to a better location.

    PS I drink about one latte a year and it’s the Starbucks Pumpkin Spice Latte (decaf!) so I really hope they can sustain their supply chain!
    [1] Macdonald, Kate. 2007. “Globalising Justice Within Coffee Supply Chains? Fair Trade, Starbucks And The Transformation Of Supply Chain Governance”. Third World Quarterly 28 (4): 793-812. doi:10.1080/01436590701336663.

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