THE BLOG
04/17/2009 05:12 am ET | Updated May 25, 2011

Starbucks Puts Sticker Shock on Coffee in Brazil

Rio -- Brazil's president Luiz Inacio "Lula" da Silva got free coffee from President Obama at the White House Saturday. But back home he'll pay $20 for a pound of Starbucks Brazilian blend, exported, processed in the US and imported back to Brazil. The same coffee in Miami runs half that price.

What's wrong with this picture is what's wrong with Starbucks and the social responsibility marketing that passes the high cost of everything from boutique coffee to energy saving construction materials onto consumers struggling to balance fair trade with fair prices. Starbucks is helping customers by discounting some popular items in the US. But when Brazilians pay six bucks for a coffee drink that costs just four in Seattle, fair trade becomes a socially irresponsible luxury tax levied by business, not government.

Reaction to Starbucks sticker shock is not unique to Brazil. Bloomberg reports Starbucks will close over 100 stores outside the US this year. Plans to build support centers to help farmers boost coffee quality in Ethiopia and Rwanda are on hold. And the annual Starbucks social responsibility report in Portuguese, displayed at Rio's Leblon Shopping Center, hasn't been updated since 2005. At the same location, this writer, who is a big fan of Starbucks, asked for a cup of Brazilian blend with space for milk and was told by a Barista that the local coffee is not usually part of the "daily offering."

Impressive profits racked up during the Bush-Cheney years drove over-expansion and convinced customers that paying more for a cup of "ethically traded" coffee is the morally and socially responsible thing to do. But the evaporation of $50 trillion dollars in wealth from the world economy, whcih Lawrence Summers spoke about recently at The Brookings Institution, makes it more difficult for customers in the US and Brazil to subsidize Starbucks relationships with small market coffee growers.

Vietnam, which was defoliated to scorched earth with napalm and Agent Orange by Henry Kissinger and "Edsel Bob" McNamara didn't need Starbucks help to become the world's number two coffee producer ranked by the International Coffee Organization (www.ico.org).

Like many features of Brazil's multi-racial society coffee culture is inclusive. The colorful nationwide street poster campaign, um pais para todos, reminds everyone that coffee is part of the national patrimony. From Porto Alegre in the south to Manaus in the Amazon mom and pop cafés sell a fifty cent glass of espresso to anybody who puts money on the bar. You won't see many mocha mavens wearing expensive Patagonia outerwear and Columbia bush hats evangelizing the US view of sustainability in Brazil.

Where Brazilian culture differs from the United States is that the state, not Starbucks, defines the parameters for what is socially responsible; for people, for institutions, markets and culture. One reason Brazil is one of the few stable G-20 economies poised for growth; the Central Bank predicts the economy will expand 1.3 percent this year.

Last month Starbucks billionaire chairman Howard Schultz lashed out at the British economy prompting business secretary Lord Mandelson to raise the question of how Starbucks is doing. Standard & Poors has lowered its credit outlook on Starbucks to negative from stable. Jackie E. Oberoi, a S&P credit analyst said that "while Starbucks has announced cost-cutting initiatives and a further reduction of unprofitable stores we do not expect meaningful improvement in credit metrics during fiscal 2009 due to market conditions."

This scenario sets the stage for the next act in the global coffee drama. Enter Juan Valdez and his friend Gabriel Silva, CEO at Colombia's National Federation of Coffee Growers. Reuters reports that a syndicate led by Colombia growers, with Brazilian participation, has offered to invest half a billion dollars to gain controlling interest in Starbucks sometime later this year. Most of the 12 million bag annual production that makes Colombia the world's number three producer comes from socially responsible family farms. Rather than using profits to over expand and buy executive jets that are now being sold to the highest bidder the Colombians have plowed profits back into their coffee growing communities, building schools and community centers on a scale far greater than what Starbucks social responsibility marketing ever attained. If Starbucks was a German headquartered company, banks would have exercised their right to demand board and executive and policy changes long ago.

Back in Brazil, meanwhile, if Juan Valdez follows the girl from Ipanema uptown he'll get sticker shock too. A pound of Starbucks Colombian beans, exported, processed in the US and imported into Brazil, will set him back twenty skins. The folks at Amazon sell a pound of Juan's best Colombian online for just half that price. When will Starbucks wake up and smell the coffee?