Growth in Starbucks business could lead to quality coffee shortage

SEATTLE -- The coffee urns at Starbucks Corp. aren't likely to run dry anytime soon, but the company is worried its brisk growth could create a big problem: finding enough high-quality beans to satisfy increasing demand for its lattes and macchiatos.\nThe Seattle-based coffee retailer is rapidly expanding, opening more than three stores a day and planning to more than triple the number it operates to around 25,000 worldwide.\n"Clearly we're concerned, at our company growth rate, that there's going to be enough high quality, Starbucks-quality coffee available," said Willard "Dub" Hay, the company's senior vice president for coffee.\nIt's not that Starbucks is using up all the world's coffee; the company said it only buys around 2 percent of the coffee produced. But Starbucks is a major buyer of high-quality coffee, and there is much less of that to go around.\nTo get the beans it wants, Starbucks has always been willing to pay extra -- currently, an average of $1.20 per pound. That's as much as twice the market rate, said Ted Lingle, executive director for the Specialty Coffee Association, a trade group.\nBut, as its needs increase, Starbucks is learning that paying more won't guarantee it all the beans it needs. To really solve its future supply problems, Starbucks said it needs to help farmers grow better coffee.\nSo the company has opened what it calls a farmer support office in Costa Rica, one of the world's biggest coffee producers.\n"There's a lot of specialty coffee out there," said Peter Torrebiarte, the Costa Rica office's general manager. "It's just a matter of finding it."\nBeginning with the office in Costa Rica, Starbucks hopes to eventually employ a fleet of agronomists, or specialists who deal with crop production and soil management. Armed with laptops and four-wheel drive vehicles, they will search the region for potential suppliers and help farmers who want to grow coffee for Starbucks get their crops up to par.\nStarbucks also is revamping a program called CAFE Practices that rewards coffee suppliers who make environmental improvements. The concern is the coffee farms won't be able to continue producing high-quality coffee in years to come if they don't reduce agrochemical use, conserve energy and otherwise improve how they treat the land coffee is farmed on.\nStarbucks also wants farms to treat workers better, paying them more and giving them access to housing, water and sanitary facilities and to stop using child labor.\n"You can't have a sustainable (farm) if you're mistreating workers and mistreating the environment," Hay said.\nStarbucks will pay 5 cents more per pound for one year to suppliers who meet 80 percent of its social and environmental criteria. Suppliers can receive two more one-year price increases if they make other big improvements.\nHay said the company also is leading the program because "we want Starbucks to be known for doing the right thing."\nThe company has been targeted by social and environmental activists who complain about everything from its growing worldwide pervasiveness to its coffee-buying practices. Although some activists have applauded the company's recent efforts, others still criticize the CAFE Practices program for not going far enough to help farms survive.\n"What we would like to see Starbucks do is really use its power to transform the industry," said Melissa Schweisguth of the activist group Global Exchange. It wants Starbucks to buy more coffee under what are called Fair Trade guidelines, which promote better wages and working conditions and ask buyers to pay a minimum of $1.26 per pound of coffee.\nStarbucks said it is already a large purchaser of Fair Trade coffee, but there isn't enough that meets its quality standards.\nChris Wille, chief of sustainable agriculture for the environmental group Rainforest Alliance, praised the company's effort to understand environmental concerns in coffee-growing countries, such as wildlife protection and reducing chemical use. It's an attitude he said is catching on across the coffee industry.\nKraft Foods recently started a partnership with the Rainforest Alliance, and Procter & Gamble has started selling a line of coffee that meets Fair Trade standards.\n"All the companies are waking up," Wille said. "It's a new day for coffee roasting and coffee selling, as well as coffee producing."\nSome of Starbucks' customers will certainly applaud efforts to be more environmentally or socially responsible, said Carl Sibilski, an equity analyst with Chicago-based Morningstar. But he said the biggest advantage of such programs is the farmers will grow better coffee.\n"In the end, I think what it comes down to is the supply issue," Sibilski said. "Of course it's ethical to keep your supplier in good shape, but the one that's going to benefit from this the most is Starbucks."\nStarbucks brushes off any concerns about the cost of its programs.\n"Our concern is having enough great quality coffee in the world," Hay said. "That's a bigger concern than our bottom line right now"