BUSINESS

A Comprehensive Analysis of Fair Trade in the Coffee Industry and Value Chain Model of Starbucks

Executive Summary

Coffee is the second largest commodity traded on the world market, second only to oil, and has a huge impact on the lives of millions of small farmers across the world. Coffee occupies a central location in the international commodities, because of the presence of a complicated relationship between various stakeholders, geopolitical relationships, and price volatility. The principal consumers of coffee are in the developed markets while coffee production only occurs in emerging markets. Dramatically a very small percentage of the final price is derived from the cost of the beans. This presents a formidable challenge for those attempting to improve the livelihood of coffee producers by helping them to capture more of the value of their product and to be less vulnerable to the instability of the world coffee markets. Additionally, the research proposal also analyzes the value chain and fairness of the supply chain of the coffee industry. There are three essential dimensions in the value chain of the coffee industry. The first dimension reflects the economic and political situation of international coffee trade. The second dimension refers to the form of governance structure of the value chain. The third dimension concerns the institutional players and represents the power of leading firms in the market. The prime essence is to evaluate fair trade in the supply chain. Conclusively, the research proposal also discusses the Value Chain Model by Michael Porter of Starbucks.

Table of Contents

Executive Summary1

Introduction4

Research question5

Is fair trade fully fair at each supply chain stages in the coffee industry?5

Literature Review and Conceptual Framework5

Fair Trade and Cooperatives7

The international coffee trade8

Supply Chain Stages in the Coffee Industry9

Starbucks10

Porter's Value Chain Model for Starbucks11

Research Methodology15

Limitations and directions for future research16

Conclusion16

A Comprehensive Analysis of Fair Trade in the Coffee Industry and Value Chain Model of Starbucks

Introduction

The commodity, coffee is produced in over 50 countries worldwide, mainly in South America, in Africa and Southeast Asia. Currently the total production exceeds 7 million tons using the work of 17-20 million households. The produce is fragmented and 70% of world production is in fact produce in a cultivation area of less than 10 hectares. Majority of the farmers are working on small fields or plots, and sell the crop to local exporters, often with intermediation cooperatives. In this chain of production, the reduced size does not benefits small producers who have very little bargaining power with exporters and thus are not able to secure any form of leverage in terms of high volatility of the price (Yanchus and de Vanssay 2003, pp. 235-240).

Given the dismal condition of the coffee industry, it is imperative to analyze Fair Trade principles. In essence, Fair Trade efforts consist of practices pertaining to production, trade, and consumption aspects in the supply chain of the coffee industry and it seeks to create fairer relationship between consumers in the North and producers in the South. This research proposal will analysis the each supply chain stages of a company, ...