Global Nature of The Coffee Commodity Chain

The current restructuring of the world-economy under global capitalism has further integrated international trade and production (Gereffi et el 1994:159). Globalization has broken down geographical boundaries and with improvements in transport and telecommunications, it has allowed transnational corporations (TNCs) to disperse sections of their operation across the globe. This has led to the growing importance and complexity of global commodity chains, which have been defined by Hopkins and Wallerstein as a network of labor and production processes whose end result is a finished commodity (1986:159). Each input is represented as a ‘node’ (Gereffi et al1994:159) and is linked together in networks, with each stage adding value to the commodity. This essay will explore the global nature of the coffee commodity chain, with reference to Starbucks, to highlight the global power TNCs exert over commodity chains and assess the subsequent implications on other key ‘nodes’. The importance of consumption as a driving force of the global commodity chains will also be discussed, reinforcing the interconnection between the producer and consumer which is often overlooked.

Starbucks, founded in Seattle in 1971 (Ponte 2002:1111), has become the largest chain of coffeehouses worldwide (Coe et al 2007:90), stretching across four continents. In August 2005, it had 2,783 operations dispersed across 34 countries, serving an estimated 33 million customers each week (Coe et al 2007:90) which highlights its vast global performance. The company sources its coffee beans from plantations in Latin America and Africa where they are harvested and brought from wholesalers before being transported to one of five distribution centers in the US (Starbucks 2017a). Starbucks thrives off the growing global market, opening its 1,000th stores in both China and Japan, and continues to expand with future plans to open ‘1,500 net new stores across every region’ (Starbucks2013:2) which will add to its sales success market. This reinforces how food production chains have changed in the last four decades, becoming increasingly industrialized and ‘global’ (Dicken 2015:424) through the capitalist interests of TNCs. Their ability to coordinate and control the production in more than one country, manipulating geographical differences, gives them immense control over global commodity chains (Dickens 2011:16).

One of the main advantages for Starbucks to outsource and establish operations within these export-orientated, developing countries such as Costa Rica is the cheap labor and less strict regulations which are exploited to maximize profits. The company controls several commodity chains that involve transforming the regular Arabic bean’, grown at high altitudes, into regular coffee or for the growing market of ‘specialty blends’ (Starbucks 2017a). However, Starbucks will always search for the cheapest locations, stimulated by competition. The foreign direct investment that Starbuck injects into the host country’s economy is often pivotal to its economic development; reinforced by the fact that 20% of Starbuck’s producer countries fall in the low-income category (Wachalec 2015). Therefore, Starbucks and many other TNCs have the power to play regions off from each other in a ‘race to the bottom’ to find the most economically profitable location and drive down costs of production.

The Impacts Have on Different Global Nodes of the Commodity Chain

On the other hand, TNCs global dominance can cause negative effects on other ‘nodes’ in the commodity chain, for example ‘production’ in the developing countries. Many developing countries rely on coffee for a high proportion of their export earnings. Ponte(2002:1101) argues it is TNCs priority of maximizing profits that are causing farmers to lose their source of livelihoods. TNCs influence global markets, fluctuating the prices of commodities such as coffee and invest and upgrade in their functional roles and technologies in a way ‘local’ exporters cannot compete with. Consequently, many smallholders are disappearing or are forced to align themselves with such international corporations (Ponte 2002). However, this also raises issues of dependency, as TNCs still have the ability to lock in or cut out chosen suppliers from the commodity chain; jeopardizing the economic development of the dependent developing country. This highlights the shift of power from producing countries to consuming countries, where the headquarters of TNCs are located (Ponte 2002:1107). Ponte (2002) argues this is due to a change in the coffee commodity chain which has moved from a formal and relatively stable system where producers ‘had a voice’ (1107) to an economic chain that disadvantages producer countries.

In order to resolve these imbalances of production within the global coffee chain, perhaps producer country governments should promote ‘‘conscious consumption’’, (Ponte 2002:1107) for example FairTrade. This would ensure a minimum floor price which would help local producers regain some of the total income generated in the coffee chain (Ponte 2002). Inthe case of Starbucks, it has recently achieved the milestone of 99% of its coffee is ethically sourced(Starbucks 2017b). The increase of Fair Trade within food commodity chains is reflected in the growth of ‘ethical consumption. People are becoming increasingly conscious of where their food has been sourced and willing to pay more for a commodity to ensure local producers receive a just payment; thus supporting their livelihoods (Ponte 2002:1116). It also highlights growth of transparency within commodity chains which can be seen as a positive move in revealing how the commodity has in fact been globally configured.

Furthermore, Starbucks recognizes the importance of labor as a ‘production factor’ (Dicken 2015:121) within the commodity chain and how its productivity is essential to the economic success of the company; arguably more so than the cheap labor. Productivity refers to the scale of output per worker for a given wage and is a reflection of education and training as well as capital equipment (Dicken 2015). For example, Starbucks has a number of farmer support centers in Costa Rica and Guatemala and launched C.A.F.E (Coffee and Farmer Equity) practices in 2004 to ensure fair wages and safe working conditions for its workers (Wachalec 2015). This demonstrates an active interest and investment in the well-being of its labor force, with the capitalist knows that it increases motivation and productivity in the long term which will result in larger outputs and thus profits.

Coffee is clearly a global commodity but its production can also be seen as a ‘local process’ as its bound to specific climate, soils and often socio-cultural conditions (Dicken 2015:424). For example, four countries generate 60% of total coffee exports: Brazil, Vietnam, Columbia and Indonesia (Dicken 2015:429), showing how the food industry is literally grounded by ‘biophysical processes’(424) and making it fundamentally different from other manufacturing industries. Despite this, Starbucks is globally strategic and only operates within affluent consumer markets where the demand for coffee is high to ensure larger profits. TNCs follow capitalism in this respect. For example, Starbucks distribution is largely concentrated in Global North countries such as the UK, where disposable incomes are high and coffee has strong cultural values. As a result, there is a growing divide within the nodes of the commodity chain, the Global South is associated with production and Global North with consumption. This is reinforced by the fact that statistically, over 90% of coffee production takes place in developing countries (Ponte 2002:1101).

Consumption as a Driving Force of Global Commodity Chains

Consumption can be seen as the driving force of global commodity chains as ultimately the processes are based on the willingness and ability of a population to buy and consume the product themselves (Dicken 2011:20). In recent years consumer demands have become more complex as globalization has increased choice on the market and resulted in people having widely varying‘food agendas’ (Dicken 2015:431). Furthermore, this has been enhanced by the rise of ‘commodification’, where products are induced with ‘symbolic qualities and culturally embedded meanings’, (Dicken 2010:20) increasing the importance of consumerism. In turn, multinational firms such as Starbucks have manipulated these changing patterns through marketing strategies and highlights a direct reflection of producer’s perceived need to meet the increasing fragmented demand of a consumer (Dicken 2011:20).

For example, Starbuck’s corporate website promotes ‘specialty coffee’ and sells thirty different types of coffee and tea, describing individual coffees as ‘exotic’ and ‘earthy’ (Coe et al2007:90) which fuels ideas that coffee produced in a foreign land is more desirable. Ponte (2002:1111) argues the global coffee chain has gone through a“Latte revolution,” through the increase in the variety of beans, to the extent that Starbucks has developed a specialist ‘lifestyle’ drinks market. He refers to this as the ‘Starbucks factor’ where Starbucks has become a ‘consumption experience’ and ‘de-commodified coffee’ (1111). This capitalist technique is particularly evident buyer-driven commodity chains such as coffee, (rather than producer-driven) as product design, advertising and brand- named merchandisers are key actors to this chain(Ponte 2002:1100). It suggests that through this investment in advertising their brands, corporations such as Starbucks have managed to keep control of the coffee chain (Dijk et al 1998).

On the other hand, the global nature of commodity chains can be concealed through capitalism. Although often ignorant of the fact, UK consumers, for example, are intricately connected to laborers working on coffee plantations in Costa Rica as they both represented ‘nodes’ in the commodity’s journey. However, Coe et al (2007) argue that price tags and brand names reveals nothing of this production process or for example, the working conditions of the laborers and therefore disconnects the consumer and producer. As a result, ‘even a person drinking coffee in Starbuck makes the customer complicit’ (Coe et al 2007:90). It is therefore important to recognize the entire circuit of production, distribution, and consumption as a ‘bundle of social relations’ (Watts 1999:307) to highlight the importance of the interactions between people, despite being geographically apart.

One very important part of the coffee commodity chain that must not be overlooked is the human cost of just a single cup of coffee. The people who find themselves at the bottom of this supply chain, the farmers who are producing the coffee beans, are struggling to survive and live in major poverty. According to Alternatives Journal, “Prices of coffee have fallen by 70 percent in the last five years and many farmers are unable to afford food or medical care, according to recent research”. These farmers often have their wives and even young children help them harvest their crops in hopes that they maximize their profit. The Weather Channel investigated child labor involved with coffee production and found that the “The U.S. Labor Department, which tracks goods produced by child labor in violation of international law, cites 14 nations, including Mexico and Guatemala, for using children in the production of coffee”. If an average American knew that it was a six year old child who was the reason they were drinking their coffee, they would be appalled. Sadly, this has been ignored, and continues to worsen as price of coffee continues to drop.

Global commodity chains may be a way of charting the geographical journeys taken by commodities but they are not deterministic. TNCs are constantly manipulating and adjusting supply chains to maximize efficiency and thus profit. This is often achieved by shortening the time between production and consumption which has been enabled through improvements in ‘circulation technologies’ –transportation and communications technologies, which overcome the frictions of space and time (Dicken 2015:83). Harvey (1991) refers to this as ‘time-space compression’ and represents a capitalist approach to commodity chains through the continual attempt of driving down costs and prioritizing revenue. Starbucksechoed this approach in 2008 when it recognized ‘outsourcing had led to significant cost inflation’ (Cooke 2010) and the supply chain was struggling to keep up with demand. It regionalized its coffee production and established an extra five distribution centers across different countries to reduce transportation costs and get supplies to their stores faster (Cooke 2010).

Starbucks ensures the commodity chain is consistently simplified to avoid future errors and as a result of the corporate strategy has been able to ‘save $500 million in the last two years’ (Cooke 2010). On the other hand, this could also represent a potential risk to globalized commodity chains because as the web of connections expands, it becomes more difficult for the company to control what is happening in each ‘node’ and overall control of the chain could be compromised. Forexample, Cooke (2010) states Starbucks was arguably a ‘victim of its own success’.

In conclusion, recent transformations within the global economy have caused a massive change in the nature of production, distribution, and consumption and have globalized commodity chains. Through the analysis of Starbuck coffee as a case study, this essay has demonstrated how TNCs are able to maximize their locational flexibility and exploit geographical differences, in terms of labor and state regulations, to ensure large profits and global power (Dicken 2015:242). In turn, the global coffee commodity chain has undergone dramatic changes, arguably becoming more globally complex, despite the growth of the commodity being limited by climate.