COFFEE & CONSERVATION: MAKING THE CONNECTION

Justin Ward, Conservation InternationalPeter Torrebiarte, Starbucks Coffee, Costa

RicaDennis Macray, Starbucks Coffee, Seattle

CONSERVATION INTERNATIONAL

Conservation International (CI) protects the Earth’s living heritage, our global biodiversity, and demonstrates that human societies and nature can live harmoniously

PARTNERSHIPS WITH BUSINESS

o The Center for Environmental Leadership in Business engages the private sector as a force for conservation

o Solutions create environmental and business benefits

o Launched in partnership with Ford Motor Company

o Partners include: BP, ChevronTexaco, Citigroup, International Paper, McDonald’s, Office Depot, Royal Caribbean, Shell, Starbucks, and others

STARBUCKS & CI

“Starbucks is introducing [Shade Grown Mexico] overseas and to institutional customers. It has increased its order for Mexican shade-grown beans tenfold since the program began in 1998. . .” The New York Times, Sept. 9, 2001

STARBUCKS & CI

Major Partnership Elements

o At Origin – Conservation Coffee field projects in Mexico, Colombia, Costa Rica, Peru, Panama and Indonesia

o In the Supply Chain -- C.A.F.E. Practices implementation

o With Customers – efforts to increase awareness of the connection between coffee production and biodiversity conservation

o Affordable Credit for Farmers -- Starbucks $2.5 million loan to CI’s Verde Ventures Fund

ORIGINS OF C.A.F.E. PRACTICESo Conservation Principles for Coffee Production- CI,

Rainforest Alliance and Smithsonian Migratory Bird Center (April 2001)

o Starbucks Launches Green Coffee Purchasing Guidelines and Preferred Supplier Pilot Program (November 2001)

o Program Objectives:• Build environmental, social and economic transparency

criteria into Starbucks high quality standards for coffee• Promote conservation in Starbucks coffee sourcing

regions• Develop long-term relationships with preferred suppliers• Create incentives for sustainable practices in coffee

production and processing• Provide an industry leadership example

PILOT PROGRAM ACTIVITIES & RESULTSo Field testing of purchasing

guidelines and point rating systemo Independent verification process

designo Suppliers and verifiers workshopso Stakeholder consultationso Engagement of Scientific

Certification Systems for revision of program guidelines and procedures, based on pilot results and stakeholder input

o Development of long-range targets for coffee sourced by Starbucks that meets preferred supplier criteria

BROAD INFLUENCE OF STARBUCKS LEADERSHIP

The Starbucks – CI partnership and the C.A.F.E. Practices program have catalyzed important public and private sector developments including:o Sustainable coffee policy directive

from the Costa Rican government (2002)

o Formation of the Conservation Coffee Alliance bringing together USAID, Starbucks and CI to promote improved farmer livelihoods and biodiversity protection in Mexico and Central America (2004)

Introduction to Starbucks and and Specialty Coffee Industry

Company overview

North America

Latin America•Mexico

•Puerto Rico

•Peru

•Chile

Asia Pacific

•Singapore •Malaysia •Philippines

•China •Taiwan •S. Korea

•Thailand •Australia

•New Zealand

•Indonesia

Starbucks Around the World

Europe, Middle East, Africa

•Austria

•Switzerland

•Germany

•Spain

•Greece

•Turkey

•Cyprus

•France

•Bahrain

•Kuwait

•Lebanon

•Oman

•Qatar

•Saudi Arabia

•UAE

Total Store Count (company-operated and licensed)

Starbucks Global Locations

*Year-to-date as of February, 2005*Year-to-date as of February, 2005

•Provide a great work environment and treat each other with Provide a great work environment and treat each other with respect and dignityrespect and dignity

•Embrace diversity as an essential component in the way we do Embrace diversity as an essential component in the way we do businessbusiness

•Apply the highest standards of excellence to the Apply the highest standards of excellence to the purchasing, roasting and fresh delivery of our coffeepurchasing, roasting and fresh delivery of our coffee..

•Develop enthusiastically satisfied customers all of the timeDevelop enthusiastically satisfied customers all of the time.

•Contribute positively to our communities and our Contribute positively to our communities and our environment.environment.

•Recognize that profitability is essential to our future successRecognize that profitability is essential to our future success

Our six guiding principlesOur six guiding principles

Starbucks Coffee

Environmental Footprint

The Coffee Industry

The World’s Best Coffee

About Coffee

• Coffee is the second most heavily traded commodity

• Coffee farming affects the lives of more than 25 million people

• 50% of coffee is grown on small-scale farms

• 80% of coffee is grown in Latin America

The Coffee Commodity Market

Source: NY Board of Trade

NY Board of Trade Daily Close

$1.50

$3.50

$0.00

$0.50

$1.00

$2.00

$2.50

$3.00

1/89 5/049/90 5/92 2/94 10/95 7/97 3/99 11/00 8/02

Collapse of ICO Quota System

Double Frost in Brazil

Speculative BuyingDue to Global Deficit

Three Small

Frosts in Brazil

Global Oversupply of Coffee

2/05

• Ensure future quality green coffee supply in our high growth business

• Help ensure sustainability of producers

• Demonstrate leadership in the industry

• Enable consumers to make a difference through Starbucks

Importance of Promoting Sustainability

Why?

Starbucks Coffee Purchasing

• In 2004, Starbucks purchased:

299 million pounds of arabica coffee

2.2% of world coffee production

• In 2004, Starbucks paid:

Average of $1.20 per pound

This was 74% higher than “C” market prices

Sustainability: Our Integrated Approach

• Premium Prices • Certified and

Conservation Coffees• Access to Credit• Social Development

Projects• Farmer Support

Center, Costa Rica• C.A.F.E. Practices

Premium Prices

• In 2004, Starbucks paid, on average, $1.20 per pound for high-quality coffee beans

• This was 74% higher than the commodity market’s price that year

Certified and Conservation Coffee

• Purchased over 10 million lbs. of certified and conservation coffees in 2004 including:– Fair Trade Certified™: 4.8 million lbs.– Certified organic: 5.7 million lbs.– Conservation (shade grown): 2.1

million lbs.

Access to Credit

• Provided $6 million in loan funds to several loan programs through 2005

• These loans allow tens of thousands of coffee farmers access to affordable credit

• Without these loans small-scale farmers may:

– Be forced to sell their crops prior to harvest at lower prices

– Turn to local money lenders, who often charge high interest rates

La Florida Cooperative coffee farmer

Social Development Projects

• In 2004, Starbucks contributed nearly $1.8 million to 35 social projects in coffee communities,

such as:

– Housing project in Colombia, benefiting 2,300 people since 1999

– Health clinic and a Kindergarten in Ayarza, Guatemala, serving 50 people daily and 80 children respectively

Panabaj School in Atitlán, Guatemala

Farmer Support Center

• Develops sustainable best practices for growing quality coffee

• Implements and administers C.A.F.E. Practices

• Implements social projects

• Manages farmer relationships directly

C.A.F.E. Practices = Coffee and Farmer Equity PracticesWHAT:• C.A.F.E. Practices is an incentive based performance

system that provides purchasing preference to coffee suppliers that provide green coffee grown, processed and traded in an environmentally, socially and economically responsible way

WHO:• Supplier Networks• Estates, producer associations & processors (including

their supplier farms)

Starbucks Integrated Approach to Coffee Sustainability

C.A.F.E. Practices Overview

1. Applicants must first meet coffee quality requirements and have a history of successfully delivering green coffee to Starbucks

2. Applicant must complete the self-evaluation document

3. Applicant submits completed C.A.F.E. Practices Supplier Application Form to Starbucks

4. Applicant must request verification by an Approved Verifier

5. Preferential status granted based on independently verified score

C.A.F.E. Practices: HOW

C.A.F.E. Practices: Implementation

Development

Auditing

Verification, i.e.

C.A.F.E. PracticesEvaluation Criteria

http://www.scscertified.com/starbucks

• Social Responsibility• Environmental Leadership

– coffee growing leadership– coffee processing leadership

Prerequisite Criteria: • Coffee Quality• Economic transparency

C.A.F.E. Practices pilotverification of farms in Guatemala

Independently Verifiedand Scored Criteria:

C.A.F.E. Practices: Criteria

• Coffee Quality:Historical basis of our business

– Origin visits– Investing in agronomy office– Intensive quality check– Contractual requirement– Preferred supplier requirement

• Economic Transparency:Suppliers provide transparency through supply chain

– Contractual requirement– Preferred supplier requirement

Prerequisite Criteria

Independently Verified & Scored Criteria

Social Responsibility Workplace conditions Health & Safety

Environmental Leadership: - Coffee Growing

Independently Verified & Scored Criteria

Independently Verified & Scored Criteria

• Environmental Leadership: Coffee Processing– Dry milling– Wet milling

Applications

Independent 3rd Party Verification

Scoring Process

Sample based scoring (weighted average)

C.A.F.E. Practices: Tools Available

•SCS Certification Website

•C.A.F.E. Practices Overview

•Evaluation Guidelines

•Supplier Application Forms

•Verification Manual

•Verifier Approval Procedure

•Self-Evaluation Handbook

•Regional Guidance Documents

•Small-holder supplement

C.A.F.E. Practices: Applicants

C.A.F.E. Practices: Lessons Learned

•Feedback from suppliers, stakeholders, and NGOs

•Training for verification organizations

•Economic transparency challenges

•Evolving standards and guidelines

•Unknown costs

C.A.F.E. Practices: Update/Status

•Applications from 85 suppliers and more than 1300 farms

•Over 100 inspectors trained

•April 2005 – Transfer to Starbucks Coffee Agronomy Company

•Regional Guidance

and Small-holder

supplements

Projected C.A.F.E. Practices Purchases

3.513.5 30

43

75

150

225

0

50

100

150

200

250

MM

of l

bs.

FY'03 FY'04 FY'05 FY'06 FY'07

PSP Goal PSP Actual C.A.F.E. Goal

Thank You!

www.scscertified.com/starbucks

www.starbucks.com/csrannualreport