Friday, 14 December 2012

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.