Or, yes Virginia, there are mutual gains from exchange.
I am away at the Southern Economic Association meetings and staying at the Marriott in New Orleans. They have a Starbucks on the first floor and they are serving complimentary Starbucks at the conference. The cups have the following printed:
WE'RE HONORED TO SERVE THIS COFFEE because Starbucks pays premium prices that help farmers support their families and improve their farms. In turn, this helps those farmers grow better coffee for you to enjoy.
I don't know for sure, but it appears as if these cups are produced by Starbucks, not Marriott, and thus the decision to print this passage on the cup is a result of a marketing strategy that Starbucks is following. Like Ben and Jerry's or Tom's of Maine, obviously, Starbucks wants to communicate to customers that they are concerned with the welfare of the farmers who they purchase their coffeee beans from, and thus they are a compassionate as well as high quality provider of coffee products. But isn't the content of the above message really just ECON 101?
Starbucks buy direct from the farmers?
Posted by: Rafe Champion | November 19, 2007 at 07:11 PM
They are trying to justify why they are making a profit. The fact that it's ECON 101 is really not the problem as I see it. They are marketing to a base consumer, and here I am making a generalization, that may have learned it, but may not believe it. That's really the sad part. Those who enjoy Starbuck's coffee don't understand how those prices and the entrepreneur bring them something that helps to satisfy their needs. It's close to Leonard Read's "I, Pencil" on a coffee cup, in a shorten form.
Posted by: Matt C. | November 19, 2007 at 07:15 PM
Sure, it's good economics to show that you care provided consumers are willing to pay extra for that (after all, the social responsibility of business is to increase its profits...), however, if an ECON 101 student told me that what Starbucks is doing has the effect they claim, I wouldn't hesitate in failing them.
First, this "fair trade" coffee business is mostly a response to the huge drop in wholesale coffee prices between 1997 and 2004, where prices dropped by about 66%. According to ECON 101, some curve probably shifted. In this case, it was the supply curve, as Vietnam entered the coffee market with surprising efficiency, meaning existing, higher cost producers were pushed out of the industry. So fair trade is little more than subsidizing inefficient producers. Fair trade coffee is about as good an idea as trade protection for the sake of saving jobs in a country that is an inefficient producer, and what grade do you give a ECON 101 student who advocates that?.
Furthermore, Starbucks is choosing to essentially separate the producers into two groups--those who receive above-market prices for their products and those who don't. As any good ECON 101 student will know, this is a rent, and in a market, rents tend to get dissipated. In this case, they get dissipated in the process of attempting to become a fair trade producer, as producers spend their money to gain access to the fair trade brand name. In the limit, of course, all the fair trade profits will be competed away, and your social conscience will be paying for piles of paperwork and armies of bureaucrats...and if anyone doesn't deserve to make a "fair" wage, it's those pesky bureaucrats!
Oh, and by the way, there is anecdotal evidence that the fair trade claim of workers making a "decent wage" is untrue...Financial Times (http://www.ft.com/cms/s/2/46cd2578-3f5a-11db-a37c-0000779e2340.html) sent a team of reporters to Peru to check things out in a number of fair trade coffee farms. In 4 of the 5 farms they visited, the workers were making less than the Peruvian minimum wage.
In the end, it is the ECON 101 student who tells me this is a good marketing ploy that plays upon both the misguided social conscience and the economic illiteracy of the masses is the one that gets the good grade.
Posted by: Matt Dobra | November 19, 2007 at 10:31 PM
Hmm...my link didn't quite work right. My apologies. If you google the terms "peru fair trade minimum wage financial times" or something like that you should have no problem finding the article in question.
Posted by: Matt Dobra | November 20, 2007 at 12:15 AM
Matt D-
What exactly is a "decent wage"? Is the minimum wage a "decent wage"? Obviously those workers who aren't making the legal minimum feel that they are getting the most money for their labor. Or it would seem that you would prefer that they not have any wage since they probably wouldn't be paid at all.
Posted by: Matt C. | November 20, 2007 at 10:45 AM
Maybe Game Theory 101. Starbucks as a popularity based brand name suffers from a coordination problem: a person will consume it the more others do. The communication is to create common knowledge not merely to transmit a message. The message is successful to assure that I know, I know you know, I know you know that I know, etc. Brand logos in repetition with feel-good messages assist general agreement to generate positive network externalities. Simple design and a singular message are easily cognizant in contemporary "save the world" QUICKLY attitudes: really, who does not like premium prices,helping farmers, supporting families, improving farms, and better coffee? A plus is that coffee consumption is generally a social activity and more importantly a morning ritual quipped as "America's cup of cocaine" (its instrumental stimulus is a bonus). A person consumes this good, is happy about it, and creates more shops. It can coordinate on a focal point, create a collective identity (you know, those 'starbucks' types), and even become a status: no freeriders, no sanctioning, no P.D.
Does it need this now? I mean its Starbucks, no? I recently read that Starbucks had to close shops recently in of all places Seattle...
[see becker-advertising, chwe-rational rituals, lewis-conventions, hume-row boats, rousseau-the stag-hunt"]
Posted by: ryan m. daza | November 20, 2007 at 12:13 PM
Matt C. - I don't think you and Matt Dobra are actually in disagreement. He has the term "decent wage" in quotation marks because it's the way that proponents argue, not as a result of his own normative judgment on the issue (or at least as I read it). Instead, he is pointing out that the "decent wage" line is, well, not really quite true...
The "fair trade" idea boils down to providing farmers with a greater recompense than market values, under a notion that the market-based results are insufficient for farmers and that consumers should be willing voluntarily to bear higher prices to "correct" this. Thus, it basically amounts to a transfer between some consumers (those who believe this argument and thus purchase "fair trade" products) and some farmers (those working on "fair trade" farms), and the brands and farms signify in some way that they are qualified and capable third parties which will complete the transfer. The scam part of it is, as the article would appear to point out, that some of these companies/farms simply take the transfer for themselves while trying to convince the consumers that they really did pass along the extra money directly to farmers. Instead, the farmers would make just as much as with non-"fair trade" products, thereby defeating the entire purpose.
Posted by: Kevin Feasel | November 20, 2007 at 07:11 PM
Is there a retail entrance to this Starbucks such that you do not have to go through the hotel to get to it? Also, are there any Marriott advertisements on the coffee cups?
I think I need a little more evidence than a catchy statement on some recycled cardboard to convince me that the situation laid out on the cups is actually occurring. The thought is nice however.
Here is what the Coffee Growers put on each bean sold to Starbucks:
We are honored to buy a lot of money from Starbucks with our premium coffee. We hope that Starbucks can use our premium coffee to make tasty beverages for you to enjoy.
PS, that burnt taste is all in your head.
Posted by: Chris Jeffords | November 20, 2007 at 09:04 PM