How Can Climate Change Dramatically Change Your Mornings?
Climate change is dramatically impacting coffee crops all around the globe. However, one company is committed to changing the game…
My understanding of climate change has been heavily influenced by my upbringing in a developing country with significant natural resources at risk of being lost. Thus, on this blog post, I would like to talk about one commodity – for which my home country is the largest worldwide producer – that has been largely impacted recently and one company that is potentially the best translation of this commodity into corporate America. I will write about coffee crops and Starbucks.
Climate change is threatening crop yields in many major coffee producing regions of the world. Higher temperatures, longer droughts, more resilient pests (associated with climate change) have significantly reduced coffee supplies over recent years. Two of the top producing countries in the world – accounting together for more than 1/3 of global coffee production – exemplify well what is happening:
- In India, between 2002 and 2011, coffee production declined by approximately 30%(1).
- In my own home country, Brazil, unprecedented droughts in 2014 caused the loss of 20% of total coffee production(2) – leading to a worldwide increase in the prices of Brazilian Naturals, one of the most well-known blends of coffee.
Together, production decreases in Brazil and India alone could have driven down global production by almost 10%. Even more concerning, these changes do not seem to be punctual. The productivity of some important international growers is decreasing, in spite of all the recent technological advancements in the field of agriculture. Let’s take the Brazilian example: [Chart 1] clearly shows the continuous declines in productivity since 2012, even if local growers have heavily invested in technology. Reduced productivity can impact directly the international prices of coffee as well as the availability of high-quality varieties.
Much has been done recently to understand better the impacts of climate change on coffee crops – from academia, growers and organizations as well as relevant private players in the coffee value chain. Truth is that many companies have operational models heavily dependent on this commodity. One of such companies is Starbucks – a corporate giant with USD 19 billion revenues in 2015(4). As anyone who has been to a Starbucks store is aware, their business is heavily reliant on selling coffee – and, more importantly, high-quality coffee. Nowadays, Starbucks does not only make money with their coffee stores and the lattes their baristas prepare, but also by selling branded coffee through various retail channels (e.g., super markets, grocery stores). Given their dual nature of being a food service company and a CPG company – with a strong focus on quality and one anchor commodity – Starbucks is heavily susceptible to two potential effects of climate change on coffee crops: significant decreases on quality as well as reduced productivity in large producers (and consequently increase in prices). As the figure below, extracted from Starbucks site, clearly reveals, the company is aware of these risks and has acted to address the problem.
Since 2004, Starbucks has been implementing a climate change strategy(5) based on three pillars: maximizing use of renewable energy, minimizing energy waste and spearheading climate adaptation and mitigation efforts. In addition to internal efforts to minimize their own impact (e.g., building their stores following LEED practices, installing Energy Management Systems in almost 4,000 stores), Starbucks has worked side-by-side with Conservation International to implement climate-smart agricultural practices across several coffee growers, helping them adhere to better standards on energy conservation and driving reduced emissions. The company has also led several initiatives to spread progressive climate change policies across public entities, governments and other private players.
Even though Starbucks has been an active player on the climate change arena, I believe there is room for more targeted and actionable initiatives. Two specific examples:
- In my opinion, the company would benefit from partnering with academia to understand more concretely the impacts of climate change on coffee crops. Precisely understanding these impacts might be helpful to create scientific alternatives (e.g., design of genetically modified variations of coffee, discovery of variations of coffee more suitable to different climate conditions) that could be used if the problem persists and spreads.
- Additionally, Starbucks could leverage its size and reach across different geographies to foster climate-change consciousness among its customers. If able to convince its customers to be more mindful about how their individual actions could help avoid climate change – and even spread the word in their families, their workplace and their community – Starbucks could create a powerful “army” of evangelists for such a relevant cause.
Clearly, these two propositions are not easy to implement nor likely to produce short-term results. They are long-term efforts that require focus and diligence throughout the implementation. However, I think many companies – including Starbucks – should take a more proactive approach to solve a problem that is not only likely to disrupt their business models, but also largely affects society. (795 words)
References
(1) Union of Concerned Scientist, “Coffee and Climate: What’s Brewing with Climate Change?” (http://www.ucsusa.org/global_warming/science_and_impacts/impacts/impacts-of-climate-on-coffee.html#.WA7K9OgrK00)
(2) The Specialty Coffee Chronicle, “How Does Climate Change Affect Coffee?” (http://www.scaa.org/chronicle/2016/04/15/how-does-climate-change-affect-coffee/)
(3) Brazilian Agriculture Ministry (http://www.agricultura.gov.br/vegetal/estatisticas)
(4) Statista (https://www.statista.com/statistics/266466/net-revenue-of-the-starbucks-corporation-worldwide/)
(5) Starbucks Website (http://www.starbucks.com/responsibility/environment/climate-change)
I vastly agree with your comment, and would also be concerned if coffee supply continued to decrease, not only because of the impact on prices and availability for the company, but also because of the impacts on several families who depend on this business (planting/harvesting) to survive.
I just wonder whether Starbucks is going beyond the issues you mentioned to analyzing alternative ways of growing coffee: for instance, is there any chance coffee could be produced in large scale on a controlled environment, without raising costs significantly? Could the grain itself influence the amount of human actions needed that naturally increase emissions? Maybe genetically modified coffee could be an option to tackle this?
On a different front, Starbucks could also put efforts on dealing with other aspects of the supply chain, such as logistics. Most of the coffee needed where demand is located is imported from other regions – is transportation a priority (emissions can also be huge)? Is Starbucks also working with those players to reduce emissions across the entire chain?
In any case, Starbucks is well ahead in the game compared with other companies. Let’s just hope that it continues to lead the way and tackle such an important issue on its entirety.
Thank you ecanabarro, this was very interesting. I would like to challenge your post in terms of how do you believe Starbucks strategy is related to the problem of reducing yields in coffee crops. Do you believe that Starbucks is following the right path or it could focus more of its resources in trying to work with coffee producers in order to increase yields in affected areas?
Thanks for your post, ecanabarro! I looked at Starbucks, too, and focused on a few different steps they have taken. To Marcelo ‘s point, Starbucks has dedicated some of its funded initiatives to farmer assistance in maximizing yields. Just last year, Starbucks invested in a brand new research center for studying and developing new coffee blends, which supplements their existing program of “Farmer Support Centers.” These centers provide farmers with access to expertise in soil management and other factors that help in producing good yields. Here’s some further info:
https://news.starbucks.com/news/starbucks-expands-70-million-ethical-sourcing-program-with-new-global-agron
I really like T@HBS’s point about the transportation costs on the environment of the entire supply chain. That’s something that I haven’t thought about, and I wonder what Starbucks is doing to become more green there.
Very interesting and very worrying article! The thought that coffee may be only a memory in coming years is a tough pill to swallow. I think that you capture the threats that the industry faces and Starbucks initiatives very well, and I like the idea of using the economic weight of the company to positively impact growers while nudging consumers to adopt more sustainable habits. I also wonder if Starbucks could partner with other companies affected by the impacts of climate change to place pressure on the governments and international agencies to enact meaningful legislation to combat the drivers of climate change and provide support to farmers.
Thanks for the post! I am a huge coffee fan and have been following this concerning trend over the last few years. I recently was in Vietnam, who is the third largest coffee exporter, and they are experiencing very similar trends as Brazil. The impact that this trend is having on the local level is very concerning and it is great to see some of the steps that Starbucks is taking to try and help local farmers.
This post made me wonder if there are additional steps that Starbucks can take to help ensure the sustainability of the crops for their farmers. Given this is the new environment in which farmers need to operate in, are there new crop modifications that can help address this issue? Should Starbucks be investing in technology that can help solve this problem? I am curious if Starbucks is considering vertically integrating and actually owning coffee fields. Because the price of coffee will likely increase in the future and the supply maybe limited, Starbucks should definitely consider it if they want to better position themselves for the future.