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