Famous4 Blog
2007 Issue 2 - Storm Brewing in Starbucks' Coffee Cup
Ethiopian prime minister, Meles Zanawi, has been drawing up his defences in a battle that has occupied the country for the past two years - a fight with Starbucks over the impoverished country's famous coffee on that most modern of battlegrounds - the video website YouTube. Starbucks's critics are branding the coffee chain as a modern-day colonialist exploiting Ethiopia's 1,000-year-old coffee culture.
Coffee is Ethiopia's largest export, and the country produces some of the finest beans in the world. The growing global demand means quality beans are attracting premium prices. To secure its slice of the action, in 2005 Ethiopia's government launched an application to trademark the country's gourmet coffee beans in the US.
The Ethiopian government argues that trademarks would protect the country's millions of coffee farmers and give them a greater say on prices. Oxfam has estimated that trademarks would add £47m a year to the Ethiopian economy.
The most high-profile objector to this rebranding exercise has been the biggest coffee brand in the world. This brings into question Starbucks' reputation and brand value of ethical trading in a classic David and Goliath tale where it is seen as acting tough with one of the world's poorest countries.
Douglas Holt, the L'Oréal professor of marketing at Oxford University's Said Business School, has said the company is "playing Russian roulette" with its brand especially when considering how the row is potentially damaging for both Starbucks's image and Ethiopia's economy. The company's annual sales of $7.78 billion (£4 billion) are equal to more than three-quarters of Ethiopia's entire gross domestic product, which was $9.78 billion in 2006.
At the heart of the dispute is Ethiopia's desire to trademark some of its most famous coffees. Coffea arabica, parent plant to the coffee bean, is indigenous to Ethiopia and is believed to have been cultivated there for more than 1,000 years. The word coffee itself is thought to be derived from the name of the place from which coffee originated, Kaffa in Ethiopia.
And the quality beans produced by Ethiopia attract premium prices - but not for the country's farmers. According to Oxfam, Ethiopian growers selling to Starbucks earned between 75 cents and $1.60 a pound on beans that Starbucks then sold for up to $26 a pound.
Speciality coffees in other regions of the world can get up to 45% of the retail price, compared with the 5% to 10% Ethiopians are currently receiving, Oxfam said.
Premium coffee is a growing market, and to benefit from the rising demand the Ethiopian government set out to trademark three regions of the country associated with its finest beans - Sidamo, Harar and Yirgacheffe.
The government then asked Starbucks and other coffee companies to sign a licensing agreement recognising the brands. One large US coffee company, Green Mountain, has already done so.
Starbucks objected to the trademarks. Last December, Dub Hay, head of Starbucks's coffee team, released a video on YouTube stating that Ethiopia's position - trademarking geographic areas - was "against the law". He said "certification" was a better approach for the country - similar to Jamaican Blue Mountain coffee or Florida orange juice. The video has now been watched almost 30,000 times.
Ethiopia wants to protect a valuable commodity and build up its intellectual property assets but has not always been in a position to do it. Now it is and has every right to do it. In building and protecting its brands, Ethiopia was simply employing the same tactics used by Starbucks itself.
One of the trademarks - Yirgacheffe - has been passed by the US authorities. Under US law there are legal arguments against the trademarking of regions - although there are also exceptions. There have been claims the US authorities did not understand that Yirgacheffe was a region.
But Starbucks's involvement in the trademark row sparked a furious reaction from Oxfam and other critics. Hay has now apologised for saying the application was illegal.
In a note added to the YouTube video last week, Starbucks said: "Since this video was posted, a lot has happened. When we posted this video, we felt the information was correct and since we've learnt a lot and realised the information about the legality of the trademark was not accurate.
To redress the situation, in February, senior Starbucks executives met Ethiopian officials in Addis Ababa after Hay apologised for his YouTube posting.
The company also said it would double its coffee buying in the region by 2009, and would extend the schemes it has successfully used in South America to give farmers greater access to agricultural support and credit. In addition, Starbucks promised to drop its objections to Ethiopia's trademarks.
But critics say the moves fell a long way short of a resolution.
The trademark objections have now been taken up by the lobby group National Coffee Association, a move made at Starbucks's behest, claim Oxfam, Layton and other critics. Nor has Starbucks said it will sign a licensing agreement with the Ethiopians if they successfully register their brands.
However, there seem to be a lot of people saying some agreement has been reached, but , this has not happened. Ethiopia's representatives are accusing the Seattle-based coffee chain of spin. Prime Minister Meles is expected to issue a statement this week underlining the fact that no agreement has been reached. This has left Starbucks' reputation severely dented.