The insufferable hypocrisy of Starbucks

The giant global coffee company, Starbucks Corporation, has recently been in the news for all the wrong reasons. With over 20,000 odd stores in over 60 countries from Aruba to Wales, the  Starbucks stores are ubiquitous  in high street locations, serving up all kinds of brews and blends – from coffee sourced from Ethiopia to Hawaii. Starbucks now joins the infamous rank of companies that avoid paying tax. A recent Reuters investigation found that the company reportedly paid hardly any tax in UK, despite generating over £3bn in sales over 14 years, but had paid less than 1% in corporation tax. Worse still, Starbucks often reported a loss in its UK business, yet consistently told shareholders that Starbucks was profitable. In 2011, their total annual revenue was $11.7 billion on which they hardly paid tax. Britons are now raving mad that in 2011, Starbucks did not pay a penny by way of corporate tax , despite sales of $640 million. In an attempt to regain its credibility and public image, Starbucks has now promised a £20m corporate tax pledge. But this is too little, too late.

For any business it is perfectly legitimate to make profits and therefore perfectly legitimate to pay taxes. While Starbucks may have not done anything " illegal ", to me it reeks of nothing less than rapaciousness and corporate greed - finding complex tax schemes,creating international subsidiaries, finding ways of moving money to low rate regimes, to avoid paying tax on their profits. According to Forbes,Starbucks CEO ,Mr. Howard Schultz , personal net worth is  $1.5billion.

It is estimated that 1.6 billion cups of coffee are drunk worldwide everyday. Coffee is a $80 billion business today  and it is often said that  it is the most valuable trading commodity in the world after oil. However, the share of the coffee trade enjoyed by the actual coffee grower  has fallen by two-thirds,whilst transnational coffee companies have reaped huge profits from the low price they pay to the producer.According to Anthony Wild, the average price paid to coffee producers internationally has fallen 80% since their last high in 1997. The widening gap between the have and the have-nots are illustrated in the growing inequalities of the coffee trade.Most of the coffee growers are small producers and this is specially true of Ethiopia where some of the finest coffees are produced - the coffee farmer can own as few as 20 plants. The story is no different in India - where 98.5% of coffee farmers are small holders. Since they are at the mercy of the global coffee trade which squeezes them for their own profits, coffee farmers are being forced to abandon their holdings and move to cities seeking a different  and often uncertain future.

The boom in coffee consumption means next to nothing for the coffee producer .That Starbucks creates new markets in different countries does not help the producer. Today the coffee farmer is being battered by climate change on one side and speculative trading on the other - the small farmer in the Western Ghats of South India , or in the Sidamo Province of Ethiopia faces unpredictable weather patterns,unseasonal rain, rising temperatures , periods of drought followed by periods of flooding ,is desperate to save his crop  and   his livelihood so as to provide for his family .But sadly, a  trader sitting in London or New York will  decide the price of the coffee to be paid to the farmer and the coffee farmer is lucky, if in the end ,he even gets 10% of what you just paid to Starbucks Corporation  for your Latte.

So for a company that says they strive to "strike a balance between profitability and social conscience," they have a long way to go.

After Revathi, Rohini did not come

After Revathi, the monsoon laden Rohini did not come as she usually does.
Her arrival in June after the Indian summer is life line for all those living in the Malnad and for 150,000 coffee farmers.  The warm Indian summer dries up tanks and springs, but when Rohini arrives, life is back. Springs are activated, tanks are recharged and rivers start to flow.

But this year, Rohini arrived late.Like Rohini, the other rains also arrived late  - Bharini, Kritika, Pushya . They were all late.. Not only were they late, they were not  accompanied by the usual strong winds  -the rains did not get distributed evenly and some  parts of the Malnad received very heavy rains and their were unseasonal downpours. The rains and winds are all changing  in their  patterns. In fact, the beauty of the monsoon pattern  in the shade growing coffee regions is in  its distribution, according to Dr Anand Pereira, an eco friendly coffee planter in Sakleshpur.

According to India Meteorological Department (IMD) data, monsoon rains from June to August 8, 2012 have been deficient in North Interior Karnataka by 33 % , South Interior Karnataka by 34%  and in Malnad it has been upto 44% . For a crop that is so dependant on the monsoon and for the 100,000  coffee farmers in Karnataka, mostly small holders , this spells disaster. What is often not known is that most of the coffee farmers are small farmers. According to India's Coffee Board 98.8% of the farmers are small holders - this is the story of coffee cultivation - not just in India but globally, from Africa to the Americas - coffee is produced by  small farmers - some who own hardly 20 to 30 coffee plants. One drought, or one season of incessant rain can wipe them out. And unlike tea, the countries that produce coffee, are countries often too poor to drink it - with the exception of Brazil that consumes 40% of what is produces. The flow of coffee is from developing countries to developed countires - where coffee is produced at the lowest possible  price .The top producers are Brazil, Vietnam, Colombia ,Mexico and the top consumers are  United States, Germany, Japan, France.India is about 5th/6th in coffee production .

So while our farmers who wait and pray for rain, who invoke the rain Gods so that their crops survive  and they get a good harvest, so they can send their kids to school, urban India  awaits the arrival of  its first Starbucks store.

And Revathi did not come

Summer has descended upon the subcontinent .
The cities, towns, plains, and the once salubrious hill stations are heating up.
The days are hot, the nights are still. There is no escape.
It is immutable.Everyone waits for  rain. The Malnad is ready to receive her.

Even the beautiful Coffea Arabica  bud is ready. It awaits Revathi ,the pre-monsoon shower.  Revathi, the giver of life, the nurturer.In the wilderness of the Malnad will Revathi keep her date ? But this year she is late again. Her timely arrival is important. For some its life .For some its business as usual. Her arrival announces that the South West Monsoon is on its way.Her drizzle enhances the coffee bloom .The coffee farmer waits in anticipation.  She brings the Malnad back to life.

This year the temperatures in the Malnad touched 36 degrees  against a normal temperature  of 33-34 degrees Celsius. Apart from this higher than normal temperature, there has been a dry spell of  nearly 5 months in the coffee growing areas that is affecting coffee production. But Revathi did not come.

The  dry spell  and the high temperatures are worrying the farmers, specially in the areas that lack irrigation facilities. Coffee production in India is about 300 years old and largely occurs on small, family-owned farms - majority being up to 2.5 acres. The occurrence of irregular and unseasonal rain,  extreme weather events - have started to take its toll on India's coffee.The hard ,dark brown coffee bean belies the fact that the coffee crop is acutely sensitive and like most crops is sensitive to rain. A long-term increase in the number of extreme and unseasonal rainfall events has lowered crop yields, threatening the livelihood of those dependant on this sector .Coffee has seen a decline in its productions in the last couple of years. In fact the magnitude of this decline is quite astounding .Yields have declined almost 10% since 2000.

In the year 2009  both Arabica and Robusta suffered losses due to unseasonal heavy rains.Likewise, heavy rains during the blossoming delayed the harvest and lowered crop quality in 2010. There have been periods of drought  In 2002, Karnataka experienced a severe drought for three consecutive years (2001-02, 2002-03 and 2003-04). The IPCC on Climate Change predicts that yields from rain-dependant agriculture could be down by 50% by 2020 . In the Coorg region, some areas have already seen rainfall drop by one-third – from 106 inches per year to 70 inches.

The problem with today’s economy is that we have become obsessed by  the idea of "GDP growth” - which seems to be the single most important measure for success. A green economy is the only sustaining economy - it put values on natural resources, it uses resources sparingly, makes use of its natural capital rather than wasting it and stands committed to environmental protection.Our current GDP models do not recognise the role of natural capital.There is a lot that needs to change. Unless the economic importance of biodiversity and ecosystems, of ecology and forests, not just among economists, but at the level of policy makers, administrators, businesses and the public is understood,the wait for Revathi will get longer.

Whose Money Is It Anyway ?

I am not an economist.
Neither do I subscribe to The Financial Times nor to The Economist. Nor do I care to seriously read  any of the salmon colored newspapers.

 Despite all of this, I am amazed at how, in the very recent past, there has been a flood of articles, op-eds, stories, blog posts, tweets and re-tweets on the rise in income inequality.  Outrage seems to be on how we have allowed capitalism to grow into the form that it is today - which is killing equality, destroying the world’s ecology  and causing severe environmental degradation .The manner in which there is an overzealousness in  natural resource exploitation , one would imagine that  our natural capital is here for us to last till perpetuity.
The rise of disparity of incomes is not limited to countries such as India, where there has been a history of  stark inequality, but the rise of income inequality is growing notoriously in developed countries such as the US and UK. A recent study done in the US showed that the top 1% households' income grew by 275% - this is just one revealing statistics – there is a lot  more data out there to show that more wealth is shifting to fewer  people, with few bankers having a disproportionate control  over the economy.  As a recent New York Times article puts it – it has been the era of the rise of the super rich. If not the ultra-rich.

Forbes annually tallies the fortunes of the world’s billionaires. The world’s 1,210 current billionaires, Forbes reported in March 2011, hold a combined wealth that equals over half the total wealth of the 3.01 billion adults around the world.  Something is seriously going wrong. Despite India s economy growing anywhere between 7% and 8 % in the last few years, income inequality has doubled in 20 years. Surely, GDP growth cannot be the only measure of development and progress or for that matter prosperity.
Nevertheless, why is all this happening? What are we missing that is driving this rapaciousness? Is it because of our inability to perceive the difference between public benefits and private profits?

I have come to see this polarisation more acutely and closely over the last 12 months in my work with the Karnataka Growers Federation.   I have been working extensively with the small to medium-sized coffee farmer in the southern state of Karnataka. Coffee is now big business in India.  According to India’s Coffee Board, domestic consumption has been witnessing a steady growth of five to six per cent in the last five years. And we can see this – almost all of urban India today is dotted with coffee bars. Coffee is the preferred choice for the upwardly mobile and uber cool. With the ubiquitous Café Coffee Day, Baristas, Costa Coffee, and the much awaited entry of the more expensive Starbucks into India, the latte and cappuccino are here to stay.

The world has been gulping down so much coffee that  it is now the second most globally traded commodity after oil.  But coffee is one of the few internationally traded commodities that is still mainly produced not on large estates or plantations but on small holdings. The economies of the some of the poorest countries are highly dependent on trade in coffee –in some African countries like Ethiopia and Burundi -but the producer today hardly makes a living from his or her coffee bean, given their small holdings – the majority being anywhere between 2.5 acres  to10 acres.

 The story is no different in India.
Contrary to popular perception, 98.5% of coffee growers in India are small farmers. Today India produces 4.5% of the world’s coffee. This is good news – to some.

The bad news is that coffee is produced by 90 countries globally but consumed by just 40 countries. The global coffee trade today is close to USD 96 billion. Of this USD 96 billion trade, a meagre USD 8 billion comes back to coffee-producing countries. There is not a chance in hell that the farmer, who produces coffee on say a  10 acre holding, has any control on the market prices or access to any share of this mega profit. The producer s share of this profit is unusually low while the usual suspects in between and at the end, laugh all the way to bank. The world’s big four coffee roasters  also have big coffee brands – and therefore enjoy huge margins - while the producer benefits the least. Squeezing the small farmer for the lowest possible price – in the long run is a bad business idea – it will drive the coffee farmer out of business.

Coupled with no control over prices, there is another challenge facing the farmer today – that of unseasonal rain and unpredictable weather patterns. Whilst climate change is just one of numerous factors that may affect global coffee production, the International Coffee Organization considers it will likely be one of the most important ones with smallholders (who produce the majority of the world's coffee) the most vulnerable group.  In Karnataka, the state that produces about 70% of India’s coffee, there were 3 years of continuous drought during the coffee season from 2002 to 2005 followed by heavy rainfall in 2006 and 2007. This lead to severe infestation of pest and disease, like stem borer and leaf rust, which resulted in huge crop loss.  For the first time we heard of suicides among coffee farmers.

When it comes to coffee, India is unique. It is the only country on the world map that grows  all its coffee in the shade. Indian coffee is  grown in forest like conditions –verdant and rich in biodiversity. India also grows both the varieties of coffee – Arabica (Coffea Arabica) and Robusta(Coffea robusta). Arabica is high-end coffee – it is rich and yet delicate in flavour and therefore  commands a higher price.  Robusta is the low-end variety – it  is hardier but commands a lower price. One would think that Indian farmers would want to grow Arabica and get a higher price for their coffee bean. But sadly the trend is the reverse. Arabica-growing farmers instead are opting out of this highly-flavoured cherry to grow the Robusta variety (which requires less care), partly because the Arabica plant cannot stand up to climate variability and unpredictable weather patterns.  And this is the other thing – we are now drinking more and more coffee but of less and less quality.  
So whether Arabica survives or not, or whether farmers only grow Robusta because they have to, I know that if Baba Budan were around today, he would have probably been a very rich man.