The ‘Swiss Swindle’ — Does Starbucks short-change coffee-producing countries?
Front cover of CICTAR’s new report on Starbucks Coffee
While claiming 99% of its coffee beans are ‘ethically’ sourced, Starbucks’ shifts profits to Switzerland, leaving scant revenue for coffee-producing countries and perpetuating poverty in farming communities, according to this new report. The premium that Starbucks’ consumers pay for so-called ‘ethical’ sourcing has already been questioned by reports of major labour abuses in Starbucks’ supply chain and by legal challenges. Now, profit shifting from coffee-growing countries to the Swiss Alps can be added to the list of concerns.
Starbucks claims its ten Farmer Support Centers are at the heart of its ‘ethical’ sourcing. The ‘Swiss Swindle’: Does Starbucks short-change coffee-producing countries?, the new report from the Centre for International Corporate Tax Accountability & Research (CICTAR), analyses the only publicly available financial statements from Starbucks’ Farmer Support Centers – in Colombia and Tanzania – and finds negligible expenditures and limited benefits to farmers. The report concludes that the primary purpose is not to support farmers but to book profits from the purchase and sale of green coffee beans in Switzerland, at very low tax rates, and far from the reach of tax authorities in producer countries where revenue for public services, including health, education and sanitation, is urgently needed.
Since 2011, Starbucks’ Coffee Trading Company (SCTC) in Switzerland has booked an 18% mark-up on all global coffee purchases before re-selling to other Starbucks subsidiaries for roasting and retailing. CICTAR’s previous Starbucks report estimated that this scheme had shifted at least US$1.3 billion in profits into the Swiss subsidiary over the last decade, or between US$100 and $150 million per year.
““If Starbucks wants to live up to its lofty rhetoric, it should immediately stop shifting profits to Switzerland, seek to boost farmers’ incomes, and book purchases in coffee-producing countries so taxes paid on trading profits can fund sustainable and equitable development in those nations,””
The report recommends that governments in coffee-producing countries should fully explore all options under existing rules to tax the profits, currently booked in Switzerland, from the production and sale of coffee beans. This report should be read as a call to action for nations like Brazil, Vietnam, Colombia, Indonesia, Tanzania, Uganda, Ethiopia and others which rely extensively on coffee production and export. Additionally, major global tax reforms need to be pursued through the current UN Tax Convention negotiations to end the profit shifting and extraction from commodity-exporting countries.
Starbucks provides a clear example of a broader problem in the outdated global tax system which exploits producer countries in the Global South and shifts profits to tax-dodging multinational corporations in the Global North. Switzerland, as a global commodity trading hub, plays a central role in perpetuating poverty worldwide. Starbucks – with its 18% Swiss mark-up – appears to be an extreme case, but tax authorities in coffee-producing countries may have options to re-coup lost revenue.
CICTAR put a detailed list of findings to Starbucks. The company’s response can be found at the start of the report.