The president of the Colombia’s National Federation of Coffee Growers, Gabriel Silva, and the agriculture minister, Andrés Felipe Arias, have confirmed that the Federation will purchase between 6 and 7 per cent of Starbucks shares valued at around USD 500 million. Such a move would convert them in the biggest shareholders and allow them to have a decisive role in the business decisions of the American company. However, would this be a sound strategy especially for the coffee growers and the Colombian coffee?
According to Silva the main reason for such purchase is the influence they would have by controlling an important slice of the market demand. Starbucks is after all the largest coffee retailer with around 16,000 stores around the world. Another reason is that coffee growers would be able to share company profits. Another implicit reason would be the establishment of Colombian coffee as a premium product. These ideas make some business sense but not everyone would benefit as Mr. Silva claims.
It seems that there is much more to this business than the sole benefit of coffee growers. Firstly, there is not problem with the demand of coffee. In fact, demand is outstripping supply. There is also an incompatibility in the coffee that Starbucks serves and the type of coffee that Colombia produces. Starbucks serves the cheapest coffee which is called Robusta. In contrast, Colombia is famous for producing the best type of coffee; Arabica. Even when the coffee house does carry coffees from around the world these do not represent their core business.
Secondly, the reason that coffee growers would benefit from the company’s profits also seem far fetched. Becoming a part owner of the coffee retailer, while being an important supplier is a recipe for a catch-22. The incentives for the shareholders are to increase dividends, which are mainly achieved by decreasing costs. This is exactly the opposite incentive that coffee growers have. Besides, Starbucks has stopped paying dividends to its shareholders a few years back.
Moreover, the retailer has announced the closure of 600 stores around the world. Starbucks business needs a major restructuring, which is why the shares have drop 75 per cent in value since late 2006, although they increased 30 per cent since Mr. Silva’s pronouncement about the deal in November. The declaration did not make a very good business sense so expecting them to restructure the business appears to be a mammoth task.
Thirdly, Linking Colombian coffee to Starbucks can be considered a sacrilege for various reasons. A main reason is the quality of coffee served in Starbucks. Coffee is the last flavor that anyone can taste in their over sized, milky and multi-flavored quasi coffee products. Coffee connoisseurs would be mad to step in Starbucks, no wonder there are not Starbucks in Italy.
Another significant reason is that Starbucks’s brand is already tainted around the world. A simple Google search with the terms ‘Starbucks and globalization’ results in 291,000 hits, whereas ‘Starbucks and good coffee’ produces 554.000 hits. Globalization needless to say is not a flattering term. Just recently Starbucks had to close down its shop in Beijing’s Forbidden City, a China’s former imperial palace, due to public outcry. Even the materialistic Chinese area aware of this cultural imperialism.
Instead of investing in Starbucks the coffee federation would be wise to continue expanding its own Juan Valdez coffee shops. The current reviews of these truly Colombian shops have been exceptional. A Google search of ‘Juan Valdez and globalization’ just gives 4,590 against 27,700 when ‘good coffee’ in typed. Therefore, Colombian coffee producers would benefit by an increased exposure of Colombian coffee as a premium brand, thus boosting coffee price.
Furthermore, the image of Colombia around the world would also be greatly improved. The government spends millions of dollars in promoting “Colombia is passion” but how credible are these adverts? If people are able to taste an exceptional Colombia coffee in a Juan Valdez shop attended by a friendly Colombian people the image of Colombia could definitely change more rapidly. An experience counts more than 1,000 images.
Author Sebastian Castaneda is Colombian studies psychology and political economy at the University of Hong Kong
Anonymous
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... Starbucks does NOT serve Robusta coffee in Europe or the USA. This is an easily verifiable fact. Starbucks purchases over 1% of the world's total global coffee supply, and a much larger percentage of the world's Arabica crop. |
Txirrindu
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... While I agree with the headline of your article, it is stunning the superficial knowledge you have about Starbucks and fundamental economic principles. Any aspiring journalist would do a basic research before writing something so utterly wrong. Starbucks has never bought Robusta coffee; to the contrary, the company reputation is entirely based on ethical sourcing of the best Arabica beans, including those from the Colombian state of Nariño (http://www.starbucks.com/ourco...+education ). You also mention about Starbucks stopping paying dividends a few years back; as a matter of fact the company has never paid dividends. Your article is a disservice not only to the Colombian coffee growers but also to the journalistic profession. There are outstanding Colombian journalists and writers and you have a long way to go. You should let more qualified individuals represent the best Colombia has. |
Midnight
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... It's not easy to be Paris, Ken just got home, hang on Starbucks, let him rape numbers one time. Midnight has science to do, alot of science to do right now. Michael?! Kens home, how come? You got to love this man. Michael, give it up you know I shagged him. Polygraph? It may be a court order if it happens again, it may be right now. Have a happy new year. I know I am. I'll be at the Mall not busting my bottom in my new shoes. Coffee? |
Sebastian Castaneda
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... I agree with some of the criticisms regarding some facts about Starbucks coffee purchase. The retailer does not purchase Robusta coffee; instead the company uses Arabica coffee in their coffee blends. Yet, this would support the point I make about the quality of their coffee. Starbucks is not doing any justice to Arabica beans. In fact, they have sacrificed the speed of service for quality. They have started using automatic coffee machines instead of their usual semi-automatic coffee machines. The espresso needs 22-25 seconds for a full extraction something that would be impossible using an automatic coffee machine. This proves my point where I believe that expanding Juan Valdez coffee shops would allow a better management of Colombian coffee. A vertical integration where there is full manoeuvring in terms of decision making would make better business sense. |
Txirrindu
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... Mr. Castaneda: You are absolutely wrong. It is embarrassing that you keep trying to justify a moot point in this debate. Starbucks buys only high altitude Arabica coffee (1300 ~1800m above sea level) that grows between the Tropics of Cancer and Capricorn. It is not only top quality but it is also ethically procured. I would suggest that you learn more about the company from more than 25,000 coffee masters they have in their payroll doing cuppings everyday. The coffee extraction time is determined by four fundamentals; proportion, grind, water and freshness. Semiautomatic machines started to be used to avoid carpal tunnel injuries in their baristas. Where are you getting the 22~25 seconds extraction information? Stop your litanies and recognize your ignorance |
Monito
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... @ Anonymous, your use of percentages are sloppy. If the absolute production of Robusta coffee is much higher than Arabica (which I believe it is) they still use more Robusta than Arabica in their blends. If it's so easy to verify, help us on the way with a link or show us the (verifiable) absolute quantities of coffee they use. I have trouble just taking your word for it. @ Xrririndu, the link you showed says the history of coffee goes back to ancient Arabia, it says nothing about the origin of the beans. Are you guys on the Starbucks paylist or just lack taste in good coffee? Starbucks makes crap coffee and doesn't come close to a cup of freshly grinded Juan Valdez.. |
Sebastian Castaneda
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... Txirrindu, as I have made clear in my previous post the point in this case is not whether Starbucks purchase the best Arabica beans, it is that Starbucks is not doing any justice to Arabica coffee. If they actually purchase the best Arabica then it is even worse. Dunkin Donuts has beaten Starbucks in a few blind coffee tasting already. This is surprising only because coffee is not Dunkin Donuts core business http://www.bloggingstocks.com/...offee-aga/ To your four fundamentals we also need to add the correct blend, the correct machine, and the correct barista. Automatic coffee machines do not brew a good espresso. These are a couple of links that may answer your inquiry about the time needed for extracting the best espresso. http://www.coffeeresearch.org/espresso/extraction.htm and http://www.illy.com/wps/wcm/co.../espresso/ |
nyongesa
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... Sabastien, why write about coffee when your grasp of the industry is so rudimentary. as has been pointed out, Starbucks does not sell or blend ANY Robusta into it's drip or shelf coffee's, it is only in the espresso section where Robusta is used, as that is where Robusta finds it's best usage. Therefore, Juan Valdez stores which serve espresso will also be selling Robusta based espresso drinks, it is the nature of business. As to your other points, please refute the business logic that Mr. Silva has put forth, rather than attack the company. The Juan Valdez store program is slated to go global, and essentially is mimicking the starbucks model, are Juan Valdez stores in America "colombian cultural imperialism" or just good downstream business development?. I personally think it is a good idea. Strabucks copied boyds in developing their store concept, and Colombia as grower should expand it's downstream reach towards consumers. |
nyongesa
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... The larger point you seem to have completely missed, is that Mr. Silva and the federation are grasping at straws with the whole starbucks investment concept, which i think is a lousy idea, for solid business reasons. The investment is too small to be anything other than a portfolio investment, and they wont be able to influence management, schultz has said so categorically. BUT, back to the larger issue, in Colombian coffee circles, for which you should try and cultivate some sources, rather than lazy "google reporting", there is much talk about reforming the Juan Valdez brand machine, as it has effectively hemmed in Colombian coffee's into three narrow blends, leaving Colombia vulnerable to competitors pushing the Appalachian model. Starbucks, which is a follower not a leader in the current industry, sells only one colombian appalachian. Others are targeting multiple Colombian Appalachians, that are trapped in the big blends..supremo, excelsio, what is in that. |
nyongesa
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... These do no justice to Colombia's high altitude coffee's. If you do some real research, you can get to the heart of the story here which is much larger than you think. Many coffee industry people think that the federation is considering a power play through starebucks to launch a breakout of it's appalachians to the world. the current Juan Valdez blends are sold in petrol stations here in the U.S., Starbucks will never sell them as is, and Starbucks has a direct purchase/estate branding program in Columbia, So what is the federations goals!!!. Mary petite, the creator of the juan valdez branding program for the federation, at a panel discussion, during last years SCAA conference stated that Colombia was thinking hard about breaking out of the juan valdez straightjacket and allowing it's superb coffee's to shine. There is plenty of federation politics at play in this strabucks story. |
Txirrindu
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... I continue to be surprised by the stubbornness and ignorance of Mr. Castaneda as a “Google Reporter” You continue to disservice the Colombian farmers who are the ones we should try to protect and support. Since you brought up the issue with Dunkin Donuts, I wonder if your “investigative research” tells you how much Dunkin has done for the coffee farmers in Colombia or anywhere else. How many coffee samples from the Quindio State or any other well known Colombian coffee regions they taste everyday? You should also ask them if they provide Health Care and stock options to their part time employees. |
Txirrindu
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... Juan Valdes brand has put Colombian coffee at the place it deserves in the global coffee industry. However, the Juan Valdes branded stores the Federation opened in major capitals offer at most a mediocre customer experience. I have seen their stores in Tokyo, Seattle and other major cities. Even in Seattle, where Starbucks is based, they serve stale coffee and customers are dissatisfied. It is sad to see this when they just need to go to a Starbucks store across the street and do a little bit better to gain customers. The politics of the Federation egos and disingenuous “Google Reporters” Mr. Castaneda are not helping the hard working Colombian coffee farmers. It is a shame that hypocritical "experts" pretend to be doing so but the truth is that they only want to satisfy their egos and appalling ignorance. |
Juan Mora
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... Guys, I can agree to most of the statements, one point is probably missed here, Coffe Farmers, does someone know about how they live and how the coffe farmers survive, I think we all who like coffe, must give a second tought to these people way of life and the poverty levels of their existence. Does it make any sense for all of you that a pound of 100% Colombian Coffe Organic pays somewhere around 1.30 to 1.40 while 9 cups of coffe sells from the same pound and charge over 2.90 each. Does it make any sense to all of us to help the Colombian Coffe growers and farmers to move ahead of the poverty on the Colombian Country Side. I am not a Coffe expert like all of you are, your technical skills and knowledge are so important for my education, you guys are real scholars on all of that, while then The colombian efforts to get into Starbucks are probably a signal of Colombia looking for help to move ahead of the troubles and situations that poverty and low income brought to us |
Kozmic
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... As a long time Juan Valdez coffee drinker (what else is there here other than Oma - also bad) and a coffee grower in Boquete Panama (which is too soft - I grow it but don't like it), I can honesty tell you Mr Sebastian Castaneda doesn't have a clue about what he is writing. Colombian coffee ranks among the worst but cheapest coffee in the world. Juan Valdez expresso is among the worst tasting coffee in existence. Kenyan or Ethiopian coffee rank among the best. Colombian coffee is "production" grown small plant coffee and is no longer "typica" which is entirely different. On the subject of buying 7% of Starbucks - that is downright stupid and gains nothing. As Mr Ican will tell you, owning such a small position will gain you nothing in the world of corporate governance. Wake up Mr Castaneda |
gringo michae
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... This is surprising only because coffee is not Dunkin Donuts core business sorry but I have to disagree with you on that is it a major part of the core business here in the USA ,as for blind taste test , I think they are useless and marketing gimmick. I not a DD fan , but have enjoyed a nice cup of coffe from Starbucks more so then the times I have had DD coffe. I have yet to try Juan Valdas, I have heard nix coments on them, my Colombia freinds tend to love them and my non Colombia friends love Satrbucks more. |
