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Starbucks: Why The Hate?


You can't hate Starbucks without also having a chip on your shoulder about free enterprise, entrepreneurialism and capitalism.

Do you hate Starbucks (SBUX)?

If you answered "yes," have you asked yourself why?

In a posting on, "James" from the U.K. writes that he only recently deigned to enter a Starbucks shop after years of refusing to mix with "a bunch of obnoxious-looking twenty and thirty-something white people with dreadlocks pontificating and drinking double-triple-frappy-cappy-frothy-whatever coffee drinks."

Dreadlocked Caucasians: obnoxious pontificators?

To which I say: nowhere is it written that one is obligated to be around "obnoxious-looking" white people with dreadlocks. Don't like "big-boned Samoans?" Book a trip to Iceland. Don't like horror movies? Rent a comedy.

"James" goes on to say that when he drinks coffee, he prefers it to be "a black coffee with no sugar. I don't like or need froth and sprinkles or any of that rubbish. Starbucks is even a stupid name."

To which I again say: there is nothing prohibiting anyone on God's green earth from drinking black coffee without sugar, froth, sprinkles, or any other "rubbish," for that matter. As for Starbucks being a "stupid name"? In grade school, I crossed paths with a number of other kids who thought that Justin was a "stupid name." Maybe it is. But no one's ever going to force them to name their own children Justin. Or Jason. Or anything beginning with a "J" for that matter.

You can't hate Starbucks without also having a chip on your shoulder about free enterprise, entrepreneurialism and capitalism.

Starbucks was started by two schoolteachers and a writer in 1971, with one location adjacent to a farmer's market in Seattle. They grew and prospered because, well, people preferred their coffee to what was available at IHOP (IHP), Denny's (DENN), or the local diner's cup o' joe.

The first Starbucks coffeehouse

Is it fair to begrudge Starbucks its success? Is it right to vilify them for growing? Should they limit their expansion to places without existing coffeehouses, creating, in essence, a quasi-subsidy for other businesses that could potentially lose business if consumers deem Starbucks coffee preferable?

I personally might not run my business the same way. But, just because you like math and I like science doesn't mean you're right and I'm wrong. Want to open a chain of toothbrush-repair shops? Feel free. Want to dye your hair hot pink? No problem. Want to worship a root beer can as the messiah? Go ahead. I'll be the last to stop you.

The second coming?

Before Starbucks, making coffee was something a busboy did in between clearing tables. As for the "exploitative" working conditions? Put in 20 hours a week, and you're entitled to full benefits. There's a reason why Starbucks' employee turnover is less than half that of other retailers.

Of course, there's the popular refrain that Starbucks doesn't pay enough for their coffee beans to ensure farmers a livable wage. Oxfam, an international NGO dedicated to fighting poverty, complains that the coffee Starbucks buys is purchased at market prices. Let me repeat that: Starbucks buys coffee at market prices. ExxonMobil (XOM) buys crude oil at market prices. Microsoft (MSFT) pays programmers at market prices. I buy jeans at market prices. That's just the way things work.

However, Starbucks actually buys quite a bit of coffee above prices set by the market. Their "C.A.F.E. Practices" (Coffee and Farmer Equity Practices), a set of socially responsible coffee buying guidelines, see to that. In FY '05, Starbucks paid an average of $1.28 per pound for their beans, which was 23% above the average New York "C" price during the same time period, for all of its coffees.

They are also the largest purchaser of Fair Trade-certified coffee (intended to raise the living standards of coffee farmers by guaranteeing them a "just" minimum price for their beans) in the world, and in FY '05, bought 21% of the Fair Trade coffee imported into the U.S.

Ahhh, social justice in action, making the world a happier place for all.

Or is it?

In an article in Reason Magazine last year, Kerry Howley noted that Fair Trade certification "has grown into a complex bureaucracy and an industry in itself." While proponents of free trade have always viewed Fair Trade with suspicion (their price floor of $1.26/lb is more than double the going rate), the original supporters of Fair Trade on the other end of the spectrum "point to unhappy farmers, duped consumers, an entrenched Fair Trade bureaucracy, and a grassroots campaign gone corporate."

Fair Trade also certifies only co-ops, disqualifying small, independent farmers, larger family farms, and everything in between. "It's like outlawing private enterprise," former Specialty Coffee Association of America chairman Dan Cox told Howley. "What about a medium-sized family-owned farm that's doing great, and treats their employees great? Sorry, they don't qualify."

Geoff Watts of Intelligentsia Coffee, who has spent the last nine years training coffee farmers in Africa and Central America, told Howley that, "Fair Trade does not incentivize quality. There is no reward for the guy who works harder than his neighbor." That's because, Howley writes, co-op members' beans are blended together in one batch, "masking any quality improvements one farmer may have felt motivated to implement."

Then, there's the $3,200 that governing body TransFair USA charges farming co-ops to become certified providers, plus the costs of obtaining an export contract along with the necessary financing to buy and export coffee as required by Fair Trade guidelines. Most organizations end up needing around $15,000 in financing to export one container of Fair Trade coffee.

Tim Wilson, a research fellow at Australia's Institute of Public Affairs and Sinclair Davidson, professor of institutional economics at the Royal Melbourne Institute of Technology, told The Australian, "Our primary complaint is that this is an unsustainable system. The only sustainable mechanism is through free trade. They are artificially cooking up the international coffee trade, to promote the interests of the Fair Trade brand and the people who sign up for it."

Regardless of what's in your cup, there's no denying Starbucks is a phenomenon that's not going away anytime soon. Its iconic status was cemented four years ago:

I'll take a fat-free tall.
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