{"id":13601,"date":"2016-11-04T17:50:52","date_gmt":"2016-11-04T21:50:52","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/are-coffee-beans-in-hot-water-how-starbucks-can-mitigate-the-effects-of-a-warming-world\/"},"modified":"2016-11-04T17:50:52","modified_gmt":"2016-11-04T21:50:52","slug":"are-coffee-beans-in-hot-water-how-starbucks-can-mitigate-the-effects-of-a-warming-world","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/are-coffee-beans-in-hot-water-how-starbucks-can-mitigate-the-effects-of-a-warming-world\/","title":{"rendered":"Are Coffee Beans in Hot Water? How Starbucks can mitigate the effects of a warming world"},"content":{"rendered":"

 <\/p>\n

As the largest chain of coffee shops in the world [1], Starbucks is a major buyer of coffee beans and thus will be heavily affected by any changes to global coffee bean production capacity. The major challenge for Starbucks will be the increase in coffee bean prices due to decreased supply.<\/p>\n

First let us examine why coffee bean production will be impacted by climate change. Coffee bean production requires a delicate balance of rainfall and temperature to be successful, with the right range of conditions typically found in the \u2018Bean Belt\u2019 [3], an area bounded by the Tropic of Cancer and the Tropic of Capricorn. Global warming however is threatening the viability of the Bean Belt for future production. A report in the Climatic Change Journal predicts that the<\/strong> world is set to lose 50% of its coffee bean production capacity because of increases in the earth\u2019s temperature by 2050<\/strong> [4]. This means that Starbucks can expect to face an increase in the price of coffee beans as it competes with other buyers for fewer beans in the future<\/strong>. The result of this increase in raw material costs will be decreased margins.<\/p>\n

Starbucks will also be affected with regards to the quality of the beans it can buy. Rising temperatures are expected to hasten the growth of coffee bean crops after germination but the quality of the beans is expected to decline<\/strong> [5]. This will reduce the supply of high quality beans further and therefore increase their prices <\/strong>\u2013 negatively affecting Starbucks\u2019 margins.<\/p>\n

Thirdly, this rise in temperature is also expected to hasten the spread of pests for the coffee bean crop further impairing yields. <\/strong>\u00a0The spread of Coffee Leaf Rust has already been observed in mountainous regions of Colombia, areas \u2018that were previously too cool for it to survive\u2019 and in 2012-2013 \u2018[coffee] crop damages amounted to $500m\u2019 across Central America [6] – an important area from which Starbucks sources its global inventory.<\/p>\n

 <\/p>\n

\"A<\/a>
A coffee bean plant affected by Coffee Leaf Rust<\/figcaption><\/figure>\n

Given Starbucks\u2019 reliance on good quality competitively priced coffee beans, it is not surprising that the organization has already taken steps to address the threat that climate change poses to its procurement of beans (and as a result its margins).<\/p>\n

Starbucks\u2019 purchase of a coffee farm in Costa Rica in 2013 and subsequent construction of a laboratory to develop strains of coffee bean that can thrive in a warmer environment <\/strong>[7] demonstrates their commitment to innovation to counteract the effects of climate change. In addition, Starbucks is also working with Conservation International \u2018to include climate-smart agricultural practices as part of Coffee and Farmer Equity Practices\u2019[8].<\/p>\n

The proliferation of pests, such as the Coffee Leaf Rust discussed above, is also being tackled by Starbucks head on. By the end of 2015, the company had donated 20 million Coffee Leaf Rust resistant seedlings to affected farmers<\/strong> in Mexico [9] to help them recover from the outbreak and be protected against the fungus in the future.<\/p>\n

In working to develop new seed varieties that are more resilient to higher temperatures and pests, Starbucks has made progress in protecting its access to beans. However, there are other actions which I believe could further reduce their exposure to climate change induced reductions in bean supply.<\/p>\n

The testing of new seed strains to identify more robust variants could be expanded further. \u00a0One way Starbucks could greatly enhance their research capabilities would be to partner with an innovative microbiome firm like Indigo to explore new ways to develop crops that are resistant to the effects of climate change. <\/strong><\/p>\n

Starbucks could also distribute temperature resistant seeds more proactively<\/strong> (as compared to Mexico in 2014-2015 where their behavior was reactionary) to farmers in areas suffering most acutely from the effects of climate change to ensure these producers continued to deliver good yields regardless of rising temperatures.<\/strong><\/p>\n

A more radical solution but one which would secure Starbucks\u2019 continued access to the quantity of quality beans they require would be to assist in the relocation of farmers and their plantations upslope<\/strong>, a solution proposed by the Australian Climate Institute [10]. It would take several years for the new plantations to become productive [11] but given the scale of the challenge (50% of coffee production in jeopardy by 2050), there could be a strategic argument to be made to secure Starbucks\u2019 future bean needs through investments in this space. Vertical integration of their supply chain though would need to be carefully considered given the capital investment it would require and long payback period.<\/p>\n

 <\/p>\n

\"Perhaps<\/a>
Perhaps how one of Starbucks’ suppliers may feel if new climate change resistant varieties continue to be developed and introduced<\/figcaption><\/figure>\n

Starbucks has already made big steps to address the impacts of climate change on its core operating model. The solutions proposed all required further investment\u2013 whether financial or scientific – but if Starbucks is to survive and thrive in an ever-warming world, I do not believe it has a choice but to continue to invest.<\/p>\n

 <\/p>\n

(795 words)<\/p>\n

 <\/p>\n

Sources:\u00a0<\/strong><\/p>\n

[1] https:\/\/www.statista.com\/statistics\/272900\/coffee-house-chains-ranked-by-number-of-stores-worldwide\/<\/a><\/p>\n

[3] International Coffee Organization, World coffee trade (1963\u20132013): A review of the markets challenges and opportunities facing the sector<\/strong> (London: International Coffee Organization, 2014).<\/p>\n

[4] A bitter cup: climate change profile of global production of Arabica and Robusta coffee, Climatic Change <\/strong>\u2013 March 2015 \u2013 Volume 129, Issue 1 \u2013 pg 89-101<\/p>\n

http:\/\/link.springer.com\/article\/10.1007\/s10584-014-1306-x<\/a><\/em><\/p>\n

[5] ibid<\/em><\/p>\n

[6] ibid<\/em><\/p>\n

[7] MIT Technology Review – Starbucks Responds to Climate Change, with Mixed Results<\/strong><\/p>\n

https:\/\/www.technologyreview.com\/s\/601404\/starbucks-responds-to-climate-change-with-mixed-results\/<\/a><\/p>\n

[8] http:\/\/www.starbucks.com\/responsibility\/environment\/climate-change<\/a><\/p>\n

[9] MIT Technology Review – Starbucks Responds to Climate Change, with Mixed Results<\/strong><\/p>\n

https:\/\/www.technologyreview.com\/s\/601404\/starbucks-responds-to-climate-change-with-mixed-results\/<\/a><\/p>\n

[10] The Brewing Storm: Climate Change Risks to Coffee<\/strong><\/p>\n

http:\/\/fairtrade.com.au\/~\/media\/fairtrade%20australasia\/files\/resources%20for%20pages%20-%20reports%20standards%20and%20policies\/tci_a_brewing_storm_final_24082016_web.pdf<\/a><\/p>\n

[11] ibid<\/em><\/p>\n

[Image 1]\u00a0https:\/\/www.scaa.org\/chronicle\/2015\/04\/11\/coffee-leaf-rust-a-new-reality-for-specialty-coffee\/<\/p>\n

[Image 2] https:\/\/www.google.com\/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&ved=0ahUKEwjG-ZDwiZDQAhWFNSYKHUEUAK0QjRwIBw&url=http%3A%2F%2Fwww.welcometobenton.com%2F29d26c-malawi-coffee-quick-shopping&psig=AFQjCNE38axY2W_VibcRNhIn-3Sl3IszHA&ust=1478382416321796<\/p>\n","protected":false},"excerpt":{"rendered":"

Starbucks' pre-eminent position as purveyor of coffee makes it especially exposed to warming temperatures. How can it react to ensure it can continue to fuel our insatiable desire for caffeine?<\/p>\n","protected":false},"author":2480,"featured_media":13602,"comment_status":"open","ping_status":"closed","template":"","categories":[1911,1218,614,615],"class_list":["post-13601","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-agriculture-technology","category-climate-change","category-coffee","category-starbucks-coffee"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/climate-change-challenge-2016\/","yoast_head":"\nAre Coffee Beans in Hot Water? 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