It looks
like this decade is shaping up nicely as a period of Coffee Rush in Ethiopia; of
course, with little resemblance to the California Gold Rush (1848–1855) and involving mostly
internal actors.
Reminisce the trademark dispute between
Starbucks and Ethiopia that publicly erupted six years ago.
In 2006,
Oxfam stood up, on behalf of Ethiopian farmers, and demanded Starbucks to drop
the hindrance it created against the name “Sidamo”
at the United States Patent and Trademark Office. Starbucks ultimately gave in
and even promised to open a Farmer Support Center in Addis Ababa by 2008.
Ethiopia now has the legal right to add the symbol ® next to the coffee
names Harar, Sidamo, Yirgacheffe in the United States (and some other countries)
though the Farmer Support Center is still missing. And the NGO that is behind
the project is now claiming that the farmers’ annual income has doubled to
about $278 as a result. Really?
The Ethiopian Fine Coffee Trademarking and
Licensing Initiative was advertized back then asa project with a potential of bringing
farmers an additional earning of $88 million a year – a figure later proved to
be based on hogwash. The initiative was designed by Light Years IP (LYIP) based
on the belief that Ethiopian farmers deserve better than being shortchanged by
coffee buyers, such as Starbucks, who pay dirt low prices for the finest
coffees that they buy and later sell for up to $25 per pound at the time. The
idea was that by empowering farmers with a stronger bargaining power, the
project would put them in a better position to demand higher prices.
The market
fundamentals in Ethiopia have since changed drastically. The government
controlled the coffee market and effectively ended the vertically integrated
marketing channel where direct trade between coffee growers and buyers was
possible. By tightening its grip on the market, the government also pulled the
rug out from under the presumed governance of the trademarks by a coalition of
Ethiopian stakeholders – coffee farmers, cooperatives, and exporters – because
the government is now the major stakeholder. This causes serious challenges to
establishing the trademark model as a commercial venture. It is not clear how
LYIP envisions the initiative to adapt to current circumstances. If there is
any effort underway to recalibrate the model, LYIP would not disclose. The
organization lacks transparency when it comes to sharing information on this
project. The information posted on its website is only a collection of
promotional materials.
Despite
all the moving pieces and uncertainties surrounding the initiative, LYIP is
declaring success.
According
to its website and fliers, the initiative had already “… resulted in
over $200 million in increased rural income to Ethiopia.Based on IP Value Capture, Ethiopian
coffee farmers were able to DOUBLE their share of the final retail value for
their product, which greatly impacted millions of coffee farmers.The first stage of the initiative
returned $US 101 million to African producers, astonished Africa and led
tomany requests forLight Years IP training in the method in
other countries, most recently Tanzania, whichhas adoptedit nationwide.Ethiopia now owns trademarks for several
of its distinctive coffees and has 110 licensed coffee distributors, including
Starbucks Corporation, Caribou Coffee and Green Mountain Coffee.” [1]
In other
words, LYIP claims that the farmers’ annual income has doubled to about $278
per person (assuming equal distribution among 1.5 million farmers), from $145
in prior years, because of the initiative.
The
Overseas Development Institute (ODI – a group that calls itself “Britain’s
leading independent think tank on international development and humanitarian
issues”) echoed this absurd claim, saying: “… according to the Oromia Coffee Farmers Cooperative Union, it has already
able [sic] to secure export prices of more than $2 per kg, representing an
increase of an estimated 50-100%…According to Light Years IP, as the
Ethiopian Fine Coffee brand develops its standing in consumer markets, it
should be feasible to more than triple the export price, to approximately $6-8
per kg.” [2]
That is
the height of intellectual dishonesty.
The claim
can’t stand up to the facts. First, Ethiopia’s coffee sector is still a
buyer’s market for the most part; meaning, it is still under pressure from the
international market where there are more sellers than buyers.
Second, it
is virtually impossible to determine the effects of the initiative on rural
income without a real impact evaluation or specialized survey of the situation
made before or after the registration of the trademarks. No such impact
evaluation was ever made for this project. How does mere registration of
trademarks increase farmers’ negotiating power thereby enabling them to demand
for higher prices? Are buyers and retailers now paying additional prices for
use of the trademarks (if so, who are these buyers and how much do they pay for
each brand)? Which one of the three brands (Harar, Sidamo, and Yirgacheffe) fetched
the highest additional return? Was this a onetime return observed during the
first stage of the initiative or the current price level is also attributable
to the trademark initiative? These are some of the key questions that should be
addressed in order to properly appraise the initiative.
The price
of a high quality Sidamo coffee did indeed reach
$1.54 a pound in September 2007 – an increase of around 8 cents over the same
period in the prior year. But, all the news reports and information published
at the time suggest that the price increase was not unique to Ethiopia; it was
rather in line with the upward price movement seen in the world market at the
time. Multiple news services reported in 2007/8 that international coffee price
was picking up due to anticipated shortages in the supply of Robusta coffee and
adverse weather conditions in Brazil and other major coffee producing
countries. After a brief pause later that year, prices again spiked in 2008/9
and continued to skyrocket through 2011. The rise was initially caused by
speculations as investors scrambling to find safe heavens during the peak of
the global financial crisis moved their investments to the commodities market.
Then in 2010, prices continued to rise and ultimately hit a 14-year high of
$3.089 a pound in May 2011, largely because of adverse weather conditions in
major coffee growing regions affecting the supply of coffee. Therefore, the
increased export revenue that coffee growing countries have seen over the past
few years is mainly driven by global phenomena. And Ethiopia’s situation was no
different.
On the
flip side, higher coffee price means the share of the cost of green coffee
beans used to make a cup of coffee also increases compared to the final retail
price of brewed cup of coffee, assuming all other factors to remain the same,
unless retailers increase their prices.
It is thus
dishonest for LYIP – and ODI – to suggest that ownership of the trademarks was
a factor that led or contributed to the increased value of Ethiopia’s coffee and
increased the farmers’ share of the final retail value for their product.
True,
Ethiopia’s ownership of the brands is a victory. But, that ownership does not
automatically translate into enhanced bargaining power. It should also be noted
that the aftermath of the dispute with Starbucks was a loss to Ethiopia in
that, the disputed brands which used to be abundantly available throughout Starbucks’
ubiquitous stores are now like snow birds. The company abandoned the coffee
brands immediately after signing the agreement and, for the past five years,
has been buying Ethiopia’s coffee only for use in anonymous blends, brewed
servings, and occasional featuring.[3]
Besides,
Starbucks’ position on trademarking still remains unchanged. The reason
Starbucks signed the agreement was to thwart the anti-Starbucks public
relations campaign waged by Oxfam. A diplomatic cable that was leaked by WikiLeaks reveals the company’s position in no uncertain
terms.[4]
According
to the cable, Starbucks decided to end its opposition in the “hopes of
recasting the issue as a government-to-government policy matter rather than a
commercial dispute.”The
company hopes the US government “would take up the fight to enforce
USPTO’s position against geographic trademarking.”And, the then US ambassador recommended
US Government’s “technical assistance or other guidance” to convince
Ethiopia reverse course and seek geographic certification rather than
trademarking.
Perhaps
arguably, the only tangible outcome of the project so far (in addition to the
trademark registration) is the publicity that LYIP received during the public
campaign. The organization now enjoys more than a boost in name recognition and
brand visibility. Its annual gross income has more than doubled in the years
following the campaign first to $423,000 in 2009 and then to $751,000 in 2010,
due to increase in grants. Initially, the Ethiopian Fine Coffee Trademarking
and Licensing project was funded by the UK Department for International
Development (DFID) in the amount of £375,000 ($578,288
in today’s value) between 2006 and 2007. That is at least $1,752,288 and
counting.
Ironically,
it was on Ethiopia’s side that the project was not taken seriously. The sad
state of the initiative is candidly described by the former US Ambassador in
another leaked cable:
“Although
the established trademarks for Ethiopian coffee (Sidamo, Yiragchefe and Harar
coffees) have been a victory for the GoE and the
coffee sector in Ethiopia, unfortunately, the major budgeting and regulatory
functions for the coffee sector have been underfunded and ill-managed.In addition, the coffee sector suffered
from severe information asymmetries among farmers, suppliers and exporters,
resulting in poor pricing schemes and limited profitability for farmers along
the supply chain.”[5]
The
“owner” of the project was GetachewMengistie, former Director of the Ethiopia Intellectual Property
Office (EIPO). Getachew left his position a few weeks
after the signing of the marketing and licensing agreement with Starbucks. He
now works for LYIP.
In 2009,
barely two years after it signed the agreement with Starbucks, the government
passed that coffee law that required Ethiopia Commodity Exchange (ECX) to
control the coffee export and prices. In direct opposition to the aspirations
of the trademarking initiative, the government decided to dampen the
distinctiveness of Ethiopia’s finest coffees by bundling all coffees as
commodities and thereby ending the farmers’ comparative advantages in the world
market.
This indicates
that the trademark project was never a priority for the government. Meanwhile,
the government’s focus right now is on controlling the domestic coffee market.
The policymakers, some of whom have vested interests in maximizing the profits
for the ruling party owned Guna Trading House, Plc.
and government owned Ethiopia Grain Trade Enterprise (EGTE) – both engaged in coffee
export business – talk of increasing the farmers’ share in the final export
price, but they end up hurting farmers.
Therefore,
it is only fair to state that farmers have not been impacted by the trademark’s
outcome. They are still onlookers when the ‘coffee rush’ has unleashed a
massive clampdown by the government, mushrooming “development”
projects, and new private and party affiliated coffee traders. If they had
their voices, the farmers would demand 1) an end to the economic exploitation; 2)
LYIP back up its claims with facts; and 3) Starbucks fulfill its promises by
establishing the Farmer Support Center in Addis Ababa.
