Starbucks sees strong growth for own "fair" coffee

Senior vice president of procurement Dub Hay said supplies of coffee that meet the company's in-house quality, environmental and social certification standard are growing.

He did not say what proportion those beans would make up of Starbucks overall coffee purchases.

For Starbucks' 2007 fiscal year, which runs from October to September, Hay projected the company would buy 225 million pounds (roughly 1.7 million 60-kg bags) of "Cafe Practices" coffee, up from 150 million pounds (1.14 million bags) in fiscal year 2006.

Starbucks accounts for roughly two percent of the global coffee market. World coffee production in the 2005/06 export cycle is expected to be around 108 million bags.

Hay said the premiums Starbucks paid for coffees that meet its Cafe Practices standards would remain at current levels of 5 cents to 15 cents per pound, depending on the level of compliance with the standard.

"We are quite certain we are paying significant premiums to get the quality coffee," he said.

Starbucks has made changes to the scheme though, and now gives origin nation exporters the option of settling on a fixed price or settling on a pre-determined premium above the New York Board of Trade "C" contract floor price with the exporters holding the option on when to fix the price.

The company has stated its goal is to eventually secure all of its supply from certified farms.

Farmers who want the "Cafe Practices" certification must meet a series of criteria, including labor practices and what the company considers to be superior quality standards.

In many cases, obtaining the certification entails investment by farmers and Hay said the company is in "the final stages" of negotiations to have an unnamed non-governmental organization conduct a comprehensive cost-benefit analysis of the certifying process.

With its rapid expansion, Starbucks has found itself pressed to tap supplies of coffee that meet its standards to keep pace with growing demand.

That has forced the company to seek out new supply sources like Bolivia's renascent industry and sign long-term contracts with suppliers, a novelty in the global coffee business.

That later practice has come under fire from activists who note that many of the three to five-year contracts were signed at the depths of the coffee price depression at the beginning of the decade.

The contracts locked growers into a price that at the time was much higher than the market price but, following a bull run on coffee futures earlier this year, now may not be as lucrative for farmers as the open market.

He also said the company would soon open a second quality control laboratory, this one likely in Asia, to complement the one it opened in Costa Rica two years ago.

He said the Costa Rica laboratory was a key element in the company's efforts to find new supply sources and help their current supply origins increase their output of coffee that meets the company's quality requirements.