Your Morning Cup o’ Joe: Yesterday’s Luxury?

Global climate change presents an imminent threat to Starbucks’ core competency: providing high quality specialty coffee to the masses

Climate Change & Your Morning Java

    Starbucks, the world’s leader in specialty coffee operating in 68 countries with net revenues of 19.2B [1], finds itself facing unknown territory: the very real threat of global climate change. With growing consensus within the scientific community that the Earth is retaining excess heat from greenhouse gas emissions [2], rising temperatures and the environmental symptoms of that warmth will have a noticeable impact on Starbucks’ existing raw materials inputs and global supply chain. Relying heavily on a global network of small-scale farmers for raw material supply, Starbucks’ bottom line is directly tied to the success of farmer output. That output is feeling the heat as changing weather patterns and increased temperatures from climate change reduce farmers’ viable coffee bean yields.[3] Climate change is infringing on Starbucks’ future ability to grow as the leader in the specialty coffee space. The next steps Starbucks takes beyond initial efforts to mitigate and adapt to climate change will determine the fate of your morning java.

Feeling the Heat: Coffee Bean Scarcity & Supply Chain Challenges

    The $100 billion world coffee market is primarily driven by the production and purchase of arabica beans and other varietals. Starbucks only buys arabica beans at the magnitude of half a billion pounds a year from a network of 300,000 small-scale growers, a majority of which are based in Latin America.[4] The issue here is that arabica yield is extremely susceptible to climate change, with little tolerance for higher temperatures and erratic rainfall. These climate change effects make coffee-growing geographies breeding grounds for coffee diseases like leaf-killing rust, and hotspots for devastating landslides. As a result, 80% of the regions where arabica coffee beans are grown – Brazil and Central America – are predicted to become unsuitable for arabica crop growth by 2050.[5] Depleted access to an affordable population of high-quality beans inherently limits the company’s ability to expand product offerings and move into international markets successfully.[6]

    As the premier roaster and seller of specialty coffee globally [7], Starbucks maintains a highly complex and networked supply chain. To that end, the UNEP asserts that extreme weather events associated with climate change directly affect food and beverage company distribution networks.[8] Starbucks is already witnessing these effects on its transportation network. In Colombia, a region where Starbucks sources arabica beans, landslides from extreme rainfall have destroyed homes and roads. Interruptions like landslides have domino effects on Starbucks’ ability to scale their supply chain infrastructure.[9] By leaving product stranded in the delivery chain from destroyed transport paths, Starbucks’ business goals to grow product offerings and expand geographically are jeopardized.

Addressing Climate Change Creates a Latte of Opportunity

    With the goals of insuring a future supply of high-quality coffee and reinforcing their industry leader position [10], Starbucks is investing in its climate change pain points, starting on the farm level.[11] Such investments have included building an agronomy center in Costa Rica to work with small-scale producers and coffee farming communities in developing sustainable farming practices.[12] Additionally, Starbucks is priming its farmers to prioritize crop development adaptation through measurement standards that reward quality and good environmental practices (e.g. shade trees, soil management).[13] Finally, Starbucks plans to invest $50M in by 2020 in a Global Farmer Fund, promoting farmer education and supply chain resilience techniques, as well as lower interest loans for farmers investing in sustainable infrastructure.[14] Here, Starbucks is generating a wealth of opportunity to establish a supply chain armed against future climate change shocks. By educating farmers about the threats of climate change and providing monetary/agronomist resources to thrive, Starbucks creates a more sustainable and less vulnerable global supply chain.

Grounds for Improving Climate Change Practices

    Starbucks definitely has climate change on mind, but there is room for growth. Development of coffee bean varietals resistant to climate change effects will be critical to Starbucks’ long-term raw material supply. Starbucks is gradually starting to experiment with developing hardier arabica strains, but are not equipped to work at the speed at which climate change is affecting small-scale farmers’ usable land. This is where World Coffee Research (WCR) comes in – a non-profit group of coffee companies, growers, and scientists presently focused on genetically sequencing Ethiopian arabica beans. WCR brings a lot to the table for Starbucks: Ethiopian arabica beans are considered to be the base genetic diversity of the arabica plant, but these beans can no longer be collected from the country. With access to this finite agricultural resource, WCR is working to reliably identify 20-30 strains resistant to rust and other climate elements while maintaining yield.[15] In research partnership with WCR, Starbucks can more effectively arm its farmer network with resilient beans, and equip itself to prevent your morning brew from becoming a luxury of the past.

Word Count: 787 (without citations)

[1] Starbucks Corporation, 2015 Fiscal Annual Report, pg. 1, 22, http://investor.starbucks.com/phoenix.zhtml?c=99518&p=irol-reportsAnnual, accessed October 2016.

[2] Rebecca A. Henderson et al., “Climate Change in 2016: Implications for Business,” HBS No. 2-317-032 (Boston: Harvard Business School Publishing, 2016), pg. 1-2.

[3] Bryan Gruley and Leslie Patton, “To Stop the Coffee Apocalypse, Starbucks Buys a Farm,” Bloomberg, February 13, 2014, http://www.bloomberg.com/news/articles/2014-02-13/to-stop-the-coffee-apocalypse-starbucks-buys-a-farm, accessed November 2016.

[4] Ibid.

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

[6] Starbucks Corporation, 2015 Fiscal Annual Report, pg. 1, http://investor.starbucks.com/phoenix.zhtml?c=99518&p=irol-reportsAnnual, accessed October 2016.

[7] Ibid.

[8] United Nations Environment Programme, “Geo-5 for Business: Impacts of a Changing Environment on the Corporate Sector,” 2013, p. 29-30.

[9] Jodie Thorpe and Shelly Fennell, “Climate Change Risks and Supply Chain Responsibility,” Oxfam Discussion Papers, June 2012, ABI/INFORM via ProQuest, accessed October 2016.

[10] Starbucks Corporation, 2015 Fiscal Annual Report, pg. 7, http://investor.starbucks.com/phoenix.zhtml?c=99518&p=irol-reportsAnnual, accessed October 2016.

[11] Starbucks Corporation, 2015 Global Responsibility Report, p. 1-3, http://www.starbucks.com/responsibility/global-report, accessed November 2016.

[12] “Starbucks Expands $70 Million Ethical Sourcing Program With New Global Agronomy Center,” Business Wire 2013, March 19, 2013, ABI/INFORM via ProQuest, accessed October 2016.

[13] Jodie Thorpe and Shelly Fennell, “Climate Change Risks and Supply Chain Responsibility,” Oxfam Discussion Papers, June 2012, ABI/INFORM via ProQuest, accessed October 2016.

[14] Starbucks Company (Newsroom), “Starbucks More Than Doubles Global Farmer Loan Commitment to $50 Million,” June 22, 2015, https://news.starbucks.com/news/starbucks-more-than-doubles-global-farmer-loan-commitment, accessed November 2016.

[15] Bryan Gruley and Leslie Patton, “To Stop the Coffee Apocalypse, Starbucks Buys a Farm,” Bloomberg, February 13, 2014, http://www.bloomberg.com/news/articles/2014-02-13/to-stop-the-coffee-apocalypse-starbucks-buys-a-farm, accessed November 2016.

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7 thoughts on “Your Morning Cup o’ Joe: Yesterday’s Luxury?

  1. I too am petrified by the potential scarcity of coffee. At certain times of the day, my BCC (blood coffee content, similar to BAC) is well above the legal limit.

    The partnership Phoebe proposes above is quite compelling as are the remainder of Starbucks’s efforts to secure arabica production. However, I wonder if there is a slightly different approach to consider. Although Starbucks is adamant on the sourcing of arabica, perhaps they should consider using robusta beans in certain blends and use cases. While not of the same quality, robusta is widely available, considerably cheaper, and can be grown at far higher temperatures. And, let’s be honest, Starbucks coffee is of high quality but taste is also dependent on preparation. In many cases (e.g. hotels and Spangler food court), this high-quality coffee is watery and bland. In these markets, Starbucks could certainly have success with a slightly lower quality bean and a more attractive price point.

  2. Having been a Starbucks barista in my previous life, I’m terrified by the mere prospect of losing my morning Java.

    Starbucks sets itself apart from other mass coffee brands by maintaining quality and social consciousness through sourcing its coffee from small-scale farms globally. In fact, images of sun-soaked coffee plantations and smiling local workers are scattered throughout Starbucks locations, serving as both a reminder of the company’s roots and a marketing ploy. Now that global warming is directly impacting Starbucks’ source of differentiation, the company will not only incur higher costs but potentially lose brand equity as a result.

    As Phoebe so eloquently describes, Starbucks is targeting the root of the problem by educating farmers directly on the impacts of climate change, insulating its supply chain, and providing monetary and agronomist resources; however, to challenge the argument further, climate change is an issue targeting the entire coffee industry. How are competitors such as Peet’s Coffee or Dunkin’ Donuts responding? As the industry leader, does Starbucks have a responsibility to leverage its brand name to influence the industry to adapt these preventative measures or will being the only mover give Starbucks a competitive advantage?

  3. Phoebe, I really appreciate the article on the thing that helps me actually converse during discussion group at 8am. Like the posters above me, I can’t imagine a world where everyone is in permanent caffeine withdrawal.

    I really love Starbuck’s approach to this problem. Similar to Chipotle, which I posted about, they are going direct to the source to educate their farmers on how to be more sustainable. Not only does this help Starbucks ensure their supply chain, it also helps develop small farmers who might be struggling in up-and-coming economies. Being the CSR-lover that I am, I feel like this could be a good marketing message as well.

    I think if Starbucks is able to maintain their signature taste that their customers love (i.e. slightly burnt, but that’s just my opinion), they’ll be able to be successful by pursuing a GMO strategy.

  4. This post strikes very near and dear to my heart! As someone who has had a grande soy vanilla latte (double espresso on some days…) every day for the last 5 years, I would be devastated and incredibly cranky from withdrawal if I couldn’t get my java exactly how Starbucks makes it for me. This makes climate change, something I’ve always known was a problem but never thought much about because the consequences were so distant and removed from my daily life, an urgent issue for me.

    Similar to the luxury goods industry, the coffee industry is struggling to maintain quality and quantity in raw materials due to the effects of climate change. I thought Phoebe’s analysis of Starbucks’ efforts to buffer its supply chain from global warming’s detrimental effects very convincing, but I am wondering what Starbucks is doing to combat climate change. It seems that Starbucks is dedicated for good reason to protect itself and its product from climate change, but what is it doing as a business to educate the world about these problems? How is the business changing its processes to mitigate its own contributions to global warming?

    1. I just want to add one more thing that partially answers my own question above. One of the things that Starbucks is doing to engage more of society in this fight against climate change is through financial instruments! Specifically, in May 2016, Starbucks issued $500mm of its first U.S Corporate Sustainability Bond, and it plans to use these proceeds to enhance its sustainability programs around coffee supply chain management. I think this is brilliant! Whether we like it or not, money makes the world go ’round, and engaging the investor landscape in this sustainability initiative is (to me) a great leap forward. [1]

      [1] https://news.starbucks.com/news/starbucks-issues-the-first-u.s.-corporate-sustainability-bond

  5. haha so many coffee lovers in the comments <3 While I am not as dedicated to my daily coffee fix, it does terrify me to think that climate change can take away so much of what we hold as staples in our daily lives. Not knowing much about the industry, can Starbucks start focusing in other regions of the world outside of Costa Rica and invest more in the growing process in order mitigate the issues seen here? It's awesome that Starbucks is working directly with the growers and with the strains of coffee to change the entire story around the hot beverage to be something new and sustainable. Is there more that can be done at the grower level? I feel like more research needs to be done into actually technology and perhaps agricultural genetics because they have the best chance of creating large impact as they are at the beginning of the long chain that is between bean to drink. Education for farmers to manage the scarce resources as well as creating more robust coffee varietals will be key in changing the conversation and starting investments by other industries or players in the coffee sector to create progress. It's crazy to me that Starbucks is so vulnerable to climate change!

  6. Another coffee addict reporting in. I’m sitting here, wishing I had a coffee in hand, thinking about what Starbucks can do to change their supply chain to reduce the amount of stress it puts on the environment. I was talking with Professor Shih about how the shipping industry contributes significantly to GHG and pollution in general and now I find myself thinking about the quantity of beans Starbucks transports.

    If they were able to transport their beans in a more environmentally friendly manner, it would help them avoid worsening the current disaster they face. This is also an area in which they could attempt to make improvement. Perhaps, they could experiment with offering higher value contracts to those shippers who have better practices.

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