The Coffee War: Ethiopia and the Starbucks Story
Some of the world’s finest coffees originate in Ethiopia (Photo: WIPO/RES/DEV/GE/09/WWW)
The Ethiopian economy is heavily dependent on the trade of its primary products. Among the country’s limited tradable goods, coffee alone generates about 60 percent of Ethiopia’s total export earnings. Indeed, coffee is closely tied to the culture and society of Ethiopia and an estimated 15 million people are directly or indirectly involved in the Ethiopian coffee industry.
Some of the world’s finest coffees, such as Harrar®, Sidamo® and Yirgacheffee®, originate in Ethiopia. These coffees have a unique flavor and aroma that distinguish them from coffees of other countries or even from other coffees of Ethiopia. This African nation enjoys a strong reputation for its heritage coffees which command a very high retail price in the international market. However, only 5 to 10 percent of the retail price actually goes back to Ethiopia; most of the profit is shared by distributors and middlemen in the marketing sector. In wealthy countries, a cup of cappuccino may be sold at US$ 4, but many coffee growers in Ethiopia and other developing countries earn less than a dollar a day. There are instances where farmers abandoned coffee production due to low returns and engaged in growing more profitable narcotic plants.
Seeking to narrow down this gap between the retail price and the return to the producers, the Ethiopian government is trying to use a range of intellectual property rights (IPRs) to differentiate their coffee in the market place and achieve higher returns. In 2004, the government launched the Ethiopian Coffee Trademarking and Licensing Initiative (the Initiative) to provide a practical solution to overcome the longstanding divide between what coffee farmers receive for a sack of their beans and what retailers charge for that coffee when they sell it in retail outlets in different countries.
The Initiative is organized and run by the Ethiopian Fine Coffee Stakeholder Committee (the Stakeholder Committee) – a consortium comprising cooperatives, private exporters and the Ethiopian Intellectual Property Office (EIPO) as well as other concerned government bodies.
“People used to ask: Oh, does Ethiopia produce coffee?” Getachew Mengistie outlines Ethiopia’s Fine Coffee Trademarking and Licensing Initiative at WIPO’s 2007 GI Symposium.
The EIPO took the leadership of the Initiative and began working on identifying a mechanism which would lead to a greater share for the country’s coffee growers. The Initiative also intended to generate high retail prices for Harrar, Sidamo and Yirgacheffe – the three most famous coffee brands of Ethiopia. “The theory is: make the pie bigger. Let the market pay,” explained Mr. Getachew Mengistie, former Director General of the EIPO. “Rather than focusing on short term gain, this way we can enlist the big companies to do what we don’t have the skills or financial means for – that is, building recognition of our brands in international markets and so increasing long term demand for them.”
The key strategy, the Stakeholder Committee agreed, was to achieve wider recognition of the distinctive qualities of Ethiopian coffees as brands and so position them strategically in the expanding specialty coffee market; while at the same time to protect Ethiopia’s ownership of the names so as to prevent their misappropriation. This would lead to a greater share of the high retail price Ethiopian coffees demand going straight to rural producers.
The Ethiopian government had to make a decision on how to best use IPRs to obtain exclusive ownership of Ethiopian coffee names, achieve wider international recognition and maximize returns. At first glance, registration of each Ethiopian coffee as a geographical indication (GI) might seem to be the best course of action. After all, the coffees are made in Ethiopia and named after the regions that made them famous. However, there are many unique circumstances surrounding specialty coffee production in Ethiopia that actually make GI registrations less suitable than other forms of intellectual property (IP) protection. As Mr. Mengistie explained, “setting up a certification system would have been impracticable and too expensive.”
Used to indicate the regional origin of a particular product, a GI registration must demonstrate a link between a characteristic of the product and the region where it is produced. If each Ethiopian specialty coffee were registered as a GI it would have to be produced in a specific area of the country under specific circumstances. For example, a GI for Sidamo coffee would require every bag of Sidamo to be produced, processed or prepared in the Sidamo region and have a special quality that is directly dependent on the unique properties of the region. A GI also requires that the government oversee producers and distributors to guarantee that the coffees sold belong to a particular style or region, such as Sidamo.
However, this is not a practical solution for Ethiopia. Specialty coffee in Ethiopia is grown on over four million small plots of land by an estimated 600,000 independent farmers spread throughout the country in remote areas. Although Ethiopian coffees such as Sidamo and Harrar are named after specific regions, all of it is not produced in the same region under the same circumstances. Distribution is also a problem, as it is predominately done informally by hauling bags of coffee on foot for many kilometers. Government oversight of coffee producers is therefore nearly impossible. Farmers would be required to pay a surcharge for government oversight, and this would only be an additional burden on them, many of who are already living below the subsistence level. Therefore the very nature of coffee production in Ethiopia makes GI certification difficult and impractical.
The government of Ethiopia decided that instead of trying to protect Ethiopian coffee’s geographical origin, it would be better to protect its commercial origin, which it would do through registering trademarks. This was seen as a more direct route of protection because it would grant the government of Ethiopia the legal right to exploit, license and use the trademarked names in relation to coffee goods to the exclusion of all other traders. Unlike a GI, a trademark registration does not require a specific coffee to be produced in a specific region or have a particular quality in connection with that region. Using trademark registrations, the government of Ethiopia could then produce greater quantities of specialty coffees from all over the country. Rural producers outside the Sidamo region could grow Sidamo coffee, as it would not need to have a characteristic that is unique to the Sidamo region. The Stakeholder Committee therefore opted for a trademark-based solution, with the Ethiopian government as the owner of these marks. This strategy gave the Ethiopian government greater and more effective control over the distribution of its product, which ultimately increases revenue by exporting more goods, enabling a rise in prices and benefits to farmers.
The EIPO began filing applications to register the names Harrar/Harar, Sidamo and Yirgacheffe as trademarks in key markets. In the United States, Yirgacheffe was the first to obtain registration; Sidamo andHarrar/ Harar were granted registration at a later time. Trademarks for Ethiopian coffees are also registered in the European Union and Canada. In Japan, registration certificates have been secured for two of the coffees (Yirgacheffe and Sidamo). The EIPO has filed applications for trademark registrations of these three coffees in a number of other countries including Australia, Brazil, China, Saudi Arabia and South Africa.
The umbrella brand for Ethiopian coffee
IP Dispute Resolution
The trademark strategy for Ethiopian coffee faced a major difficulty in 2006. The United States Patent and Trademark Office (USPTO) had approved the application to register Yirgacheffe. But the National Coffee Association (NCA), representing coffee roasters of the United States, objected to the EIPO’s applications to trademark first Harrar, then Sidamo. The grounds for opposition in both cases were that the names had become too generic a description of coffee, and as such were not eligible for registration under United States trademark law. The USPTO turned down the application for Harrar in 2005 and for Sidamo in 2006.
The American coffee chain Starbucks Coffee Corporation, which was widely reported in the media to have been a driving force behind the NCA objection, publicly offered to assist the EIPO in setting up a national system of certification marks to enable the farmers to protect and market their coffee as “robust” geographical indications. “These systems are far more effective than registering trademarks for geographically descriptive terms, which is actually contrary to general trademark law and customs,” said the company in a statement. But the EIPO and its advisors disagreed. The designations, they argued, referred not to geographical locations but to distinctive coffee types. Moreover, appropriate intellectual property (IP) tools had to be chosen to meet specific needs and situations. “You have to understand the situation in Ethiopia,” Mr. Mengistie of EIPO explained. “Our coffee is grown on four million very small plots of land. Setting up a certification system would have been impracticable and too expensive. Trademarking was more appropriate to our needs. It was a more direct route offering more control.”
The EIPO filed rebuttals against the USPTO decisions with supporting evidence to demonstrate that the terms Harrar and Sidamo had acquired distinctiveness. Meanwhile, both Starbucks and the Ethiopian government were keen to resolve their differences quickly and find a flexible way forward. Their joint efforts led to an announcement in 2006 that they had reached a mutually satisfactory agreement regarding the distribution, marketing and licensing of Ethiopia’s specialty coffee designations, which provided a framework for cooperation to promote recognition of Harrar, Sidamo and Yirgacheffe.
Starbucks agreed to sign voluntary trademark licensing agreements which immediately acknowledge Ethiopia’s ownership of the Harrar, Sidamo and Yirgacheffe names, regardless of whether or not a trademark registration has been granted. Legal commentators have honed in on the use of the term “designation” in the agreement as a means of circumventing the obstacle caused by the status of the Harrar and Sidamo applications. “Yes,” acknowledges Mr. Mengistie, “designation is used here as a broader term than trademark, to encompass some of the trademarks that are still pending registration. It is not related to certification.”
In August 2006, the USPTO informed the EIPO that their rebuttal in the case of Harar had been successful. A trademark for Sidamo was also granted in February 2008.
Financing and Partnerships
The Initiative secured financial support from the Department for International Development (DFID) of the United Kingdom, technical advice from a Washington-based non-governmental organization (NGO), Light Years IP, and legal assistance from an American law firm, Arnold and Porter.
The high cost of legal services for foreign trademark registration created some initial difficulties. Ethiopia, moreover, is not a member of the Madrid system for the international registration of marks. This was overcome by support from law firms which agreed to provide their services pro bono.
Artistically-designed logos of different types of Ethiopian Fine Coffee
After acquiring the trademarks, Ethiopia initiated a royalty-free licensing scheme. The purpose of licensing, according to Mr. Mengistie, is “to secure recognition from the coffee distribution industry that Ethiopia owns and controls the use of trademarks, thereby building the reputation and good will of its specialty coffees around the trademarks.” The government of Ethiopia wanted its coffee to have more market visibility so that the export premium for Ethiopian specialty coffee could be raised. The adopted strategy offered royalty-free license agreements and required the licensee to sell the specialty coffees using the registered trademarks (free of charge) on any product that consists wholly of Ethiopian specialty coffees and to promote Ethiopian fine coffee by educating their customers. The licensing strategy is expected to boost consumer recognition of Ethiopian coffee trademarks and facilitate the growth of the demand for Ethiopian fine coffees. This strategy will ensure that Ethiopian farmers and small businessmen secure a reasonable return from the sale of their coffees. Information on the Initiative as well as licensing is made publicly available through a dedicated website.
By mid-2009, almost one hundred license agreements have been concluded with coffee importing, roasting and distributing companies in North America, Europe, Japan and South Africa. Within the country, some forty seven private coffee exporters and three coffee producer cooperative unions in Ethiopia have also signed the agreement.
The high profile dispute with Starbucks increased the popularity of Ethiopian coffee. The media coverage had the effect of greatly increasing public knowledge of, and interest in, Ethiopia’s coffees. “Partly because of this recognition, we have begun to see increases in their price,” says Mr. Mengistie. “I learned from the coffee farmers’ cooperatives and exporters just three months ago that the price of Yirgacheffe had already increased by $ 0.60 cents to $ 2 a pound.”
Immediately after the resolution of the dispute, the stakeholders of Ethiopian coffee focused their attention on the need for a marketing strategy. They opted for a well-organized branding instrument. A United Kingdom-based company was given the responsibility of the brand promotion of Ethiopian coffee. The company worked together with the stakeholders and developed the brands and brand guidelines which were approved in July 2008. Under this approach, a total of four brands were created: an umbrella brand with the name “Ethiopian Fine Coffee” and three individual brands entitled “Harar Ethiopian Fine Coffee,” “Yirgacheffe Ethiopian Fine Coffee” and “Sidamo Ethiopian Fine Coffee”. Artistically-designed logos for each of the brand names were also created.
Some 15 million people in Ethiopia depend on the coffee sector, which generates 60 percent of the country’s wealth. (Photo: courtesy EIPO)
The Initiative has helped Ethiopia to differentiate Ethiopian coffees from coffees of other countries, which strengthened the confidence and bargaining position of the coffee growers and exporters of the country. There is an increasing demand for Ethiopian fine coffee in the world market. The novelty of the Initiative is that it enabled the growers and producers to become part of price setters instead of being price takers.
These changes have had marked positive results in terms of increased income and improved living standards of the coffee producers. Prior to the IP protection initiative, Ethiopia was receiving a scanty 6 percent of the final retail price for its coffees. Against the average final retail price ranging from US$ 20 to 28 per kilogram, the farmers were receiving as little as US$ 1 per kilogram. The trademarking and licensing scheme immensely helped improve the situation: Yirgacheffe farmers’ income doubled in 2007 in comparison with their income in 2006, with estimation that over the years the producers could secure their income at around US $6-8 per kilogram. Overall, Ethiopia’s total coffee exports are expected to reach the level of US $1.2-1.6 billion as opposed to a meager US $400 million prior to the Initiative.
Impacts of the Ethiopian Initiative
The Ethiopian Coffee Trademarking and Licensing Initiative set a new dimension in the buyer-seller relationship. The significance of the Initiative is likely to go not only beyond the coffee trade, but also beyond the borders of Ethiopia. Producers of primary goods in many developing countries often receive only marginal returns. The Initiative has created the momentum for change and bears the potential to offer more feasible ways to improve the commercial prospects and financial returns for marginal producers of coffee or other similar commodities. For developing countries, a new frontier is set to leverage benefits from their IP assets.