The Coffee Clash

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The big guns are stepping in not merely because they pity poor farmers but because they sense a competitive edge. Ahold's Stop & Shop competes in the Northeast against Shaw's Supermarkets, which already offers Fair Trade. "We want our consumers to have choices," says Ahold vice president Tom Smith. Wild Oats Markets offers Fair Trade coffee to distinguish itself from Whole Foods Market, which does not. And in January Wild Oats became the first chain to offer Fair Trade bananas. "They can't compete with Wal-Mart on conventional prices," notes Rice. "Fair Trade gives added value — and gets them out of the race to the bottom."

Likewise, Dunkin' Donuts wants to make its new drinks not only cheaper than Starbucks' but also more virtuous. Says Mark Inman, a roaster who attended a session of Dunkin' franchisees: "They [Dunkin' Donuts] saw Starbucks waffling on Fair Trade, and they seized the leadership role by saying 'Yes, we care.'"

Starbucks only grudgingly entered the Fair Trade market four years ago after protesters scheduled rallies against its "sweatshop coffee." Today activist groups such as the Global Exchange in San Francisco are demanding that it hike Fair Trade purchases from about 1% to at least 5% of its coffee. The $4 billion Seattle behemoth offers only one Fair Trade variety (at $11.45 lb.) out of 20-plus types of whole beans and serves Fair Trade brew in its 3,900 U.S. shops only one day a month. Says Anthony Sprauve, vice president for worldwide public affairs: "The demand is not there."

Starbucks' reluctance has less to do with the cost of beans than with the hassle of rejiggering its supply chain. The company is no Scrooge. It pays on average $1.20 per lb. for its high-quality beans, well above average. But most of that money goes to multinational exporters, who buy from middlemen in coffee regions. The giant traders pool beans from small plots and big estates. The anonymous farmer earns a sliver of what Starbucks pays. But Fair Trade's 346 struggling farmer-owned co-ops might need hands-on training and investment to meet Starbucks' specs, an investment the company might find expensive. Indeed, to improve Huatusco Java, Green Mountain had to computerize quality control and bring Mexican farmers to Vermont for technical workshops. "With Fair Trade," Bolger acknowledges, "you have to walk the talk."

So far, the major roasters have been dragging their feet. Nestle and Kraft, unwilling to jack up costs, do zero Fair Trade business. They are taking a page from an old Nike playbook, which could be risky in today's politically charged market. When the shoemaker originally balked at changing work conditions at its contracted factories, a consumer backlash damaged the company's reputation and sales. Humanitarian groups such as Oxfam and Co-op America are now asking big wholesalers to switch at least 2% of their purchases to Fair Trade. And last November, Catholic Relief Services launched an effort to persuade the nation's 65 million Catholics "to live out their faith" by drinking Fair Trade brew. They are joining Lutheran, Methodist and Presbyterian groups organized by Equal Exchange, a Massachusetts company that sells Fair Trade products to 19,000 parishes.

Activists have managed to push two major wholesalers into Fair Trade. Sara Lee began offering Fair Trade coffee after institutional clients — hospitals and universities — demanded it. Meanwhile, groups led by Domini Social Investments, which manages $1.8 billion, jolted P&G, the nation's biggest coffee company, with a shareholder resolution demanding that it consider Fair Trade. After protest rallies and a grass-roots campaign, P&G last September launched a Fair Trade line under its gourmet Millstone brand. So far, it is sold only by mail order, but P&G signed an agreement with activists to begin offering it in thousands of supermarkets. Says P&G spokeswoman Tonia Hyatt: "We have a goal of being a leading Fair Trade seller."

Whatever the politics of coffee, there is little dispute that a worldwide glut has had severe consequences for producing nations. Ten years ago, countries such as Mexico got about a third of every dollar spent on coffee. Now they get less than 10. An estimated 600,000 Central American coffee workers have lost their jobs. Congress, citing concerns that Colombian farmers are switching to coca (for cocaine) and opium poppies, passed a resolution in 2002 calling for "a global strategy to respond to the coffee crisis."

To critics, coffee is a paradigm of globalization gone amuck. For decades, supply and prices were regulated by an international agreement. Freezes, droughts and market speculation caused occasional price spikes. After the U.S. pulled out of the coffee agreement in 1989, the resulting free-for-all led to an explosion of new acreage.