ETHIOPIA AND STARBUCKS REACH COFFEE AGREEMENT

6 July 2007

ETHIOPIA AND STARBUCKS REACH COFFEE AGREEMENT

The government of Ethiopia and Starbucks -- a key buyer of Ethiopian coffee -- recently reached an agreement that respects Ethiopia's right to use the intellectual property system to seek to increase its revenues from coffee. The two parties will work together to strengthen the brand associated with three premium-quality Ethiopian coffees: Harar, Sidamo and Yirgacheffe.

On 21 June, Ethiopia and Starbucks announced that they had reached a licensing agreement covering distribution and marketing of Harar, Sidamo and Yirgacheffe coffee. The agreement acknowledges Ethiopia's ownership of the three coffee names, although Starbucks will not be required to pay royalties for using them.

Through the agreement with Starbucks, Ethiopia is hoping that its specialty coffees will become more widely recognised and appreciated, which would prop up the price.

"We believe, and Ethiopia believes, that having a greater ability to control distribution of the coffee and having these kinds of licensing agreements will over time lead to stronger demand and better pricing for their specialty coffees," said Sandra Taylor, Starbucks' senior vice president of corporate social responsibility. "And that, of course, is going to be good for coffee farmers and their communities," she added.

"This agreement marks an important milestone in our efforts to promote and protect Ethiopia's speciality coffee designations," said Getachew Mengistie, director general of the Ethiopian Intellectual Property Office.

Specialty coffees are selling at premium prices. Meanwhile, coffee farmers remain poor, capturing little of the benefits. Ethiopia has launched a strategy to retain more of these benefits by registering its specialty coffees as trademarks. It moved to trademark Harar, Sidamo and Yirgacheffe in 2005. The trademarks have now been successfully registered in the EU, Japan and Canada. In the US, only Yirgacheffe has been approved as a trademark so far, and the trademarks are pending in China, Brazil and India.

According to Oxfam America, "The Ethiopians' strategy on coffee is particularly noteworthy because they are seeking to use trademarks - a part of the modern intellectual property system - to benefit poor farmers."

Trademarks or GIs?

Starbucks initially questioned Ethiopia's strategy to register trademarks, declining to sign a voluntary licensing agreement recognising Ethiopia's rights to the Harar, Sidamo and Yirgacheffe names even in countries where they were not trademarked. According to Starbucks, going for trademarks would be legally complicated and might price Ethiopian coffee out of the market. Reportedly, Starbucks suggested other avenues for protecting the Ethiopian coffee names based on a certification trademark (certifying origin/quality), which is directly linked to the region of production and compliance with established quality standards. Under this system, the US recognises names such as Washington apples and Hawaiian Kona coffee. Another option for Ethiopia could have been to register its coffee names as Geographic Indications (GIs) in other importing countries. The EU is a strong supporter of GIs -- protecting own names such as Champagne and Feta cheese.

Filing trademarks is generally a more rapid process than filing GIs, and in some cases developing countries have simply sought to use the most efficient avenue with regard to intellectual property protection in order to avoid biopiracy, or the misappropriation of names, to take place. Starbucks had already filed for intellectual property protection for a coffee name derived from Sidamo. While Starbucks ended up withdrawing this bid in 2006, the US National Coffee Association (NCA) opposed the Ethiopian trademark bid in the country. Development charity Oxfam accused Starbucks of having pressured the NCA into taking this position, something Starbucks denied.

Oxfam then initiated a campaign to influence Starbucks on the issue, and close to 100,000 people petitioned Starbucks to treat Ethiopia fairly. Under the new licensing agreement with Starbucks, the company will respect Ethiopia's right to the three coffee names both in countries where the trademarks have been registered, and where they have not.

Boosting incomes for small farmers?

In its strategy to seek the trademarks, Ethiopia is hoping to boost the price it gets for coffee, in order to be able to improve the livelihoods of the coffee farmers. The idea is to move from pure commodity exports to exports of niche market products -- and to prices based on quality, not quantity -- using intellectual property tools such as trademarks. Over time, the country counts on being in a position to negotiate better deals with coffee roasters or retailers that want to use its trademarked names. In terms of figures, Ethiopia hopes to increase its coffee export earnings by 25 percent, or US$ 80 million per year.

Raymond C. Offenheiser, president of Oxfam America, lauded the agreement, saying that "Harnessing market forces and allowing poor countries to benefit from intellectual property rights are keys to creating fairer and more equitable trade. With this agreement, Ethiopians can build the value of their coffees and farmers can capture a greater share of the retail price. This should help improve the lives of millions of poor farmers, allowing them to send their children to school and access health care."

Other countries are reportedly looking to the Ethiopian example, to see if they could use similar tactics to raise the value of their coffee exports by differentiating them from the mass. Other African countries in particular may follow suit at a time when coffee prices are on the rise and demand for specialty and quality coffees growing.

Some observers have, however, noted that Ethiopian farmers still capture a much smaller share of the export price of coffee than farmers in many other coffee-producing countries, and are dependent on middlemen that take much of the value. In addition, concerns have been raised as to whether it makes sense for the central government, rather than regions or farmers' cooperatives, to hold the right to the trademarks.

Background

Ethiopia is Africa's largest coffee producer. Around 25 percent of Ethiopia's 80 million population lives off the coffee farming industry, and 40 to 60 percent of the country's export earnings are derived from coffee.

Starbuck's annual net revenue in 2006 was close to US$8 billion -- which amounts to 75 percent of Ethiopia's GDP in the same year. The average annual income in Ethiopia lies at around US$1,000.

Ethiopian coffee is produced predominantly by small-scale farmers and in high-altitude regions, assuring a premium quality. "Ethiopia is recognised as the historic birthplace of coffee and the source of some of the finest coffee in the world," noted Howard Schultz, Starbucks chairman, in conjunction with the new deal between Starbucks and Ethiopia.

ICTSD reporting; "Starbucks, Ethiopia Reach Trademark Deal," AP, 20 June 2007; "Starbucks and Ethiopia thrash out agreement," GUARDIAN UNLIMITED, 21 June 2007; "Starbucks in Ethiopia coffee vow," BBC, 21 June 2007; "Starbucks, Ethiopia Agree on Licensing," WALL STREET JOURNAL, 21 June 2007; "Oxfam Celebrates Win-Win Outcome for Ethiopian Coffee Farmers and Starbucks," OXFAM AMERICA, 20 June 2007; "Starbucks, Ethiopia settle licensing dispute," REUTERS, 21 June 2007; "Hot Cup of Money: Starbucks, Ethiopia, and the Coffee Branding Wars," DER SPIEGEL, 16 November 2007.

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