Starbucks and Nestlé face scrutiny over labor practices in China

Coffee farms in Starbucks’ and Nestlé’s supply chains in China are not living up to the multinationals’ ethical standards, sometimes using children as workers, excessive hours and lax safety standards to meet their targets, according to a report by China Labor Watch, a New York-based human rights group.

The investigation, covering 26 farms that form part of the Starbucks and Nestlé supply chains, is the latest example of the challenges that big international companies face in monitoring labor standards in China.

Approached about China Labor Watch’s findings, both companies said they had strict rules to prevent the kinds of labor violations being alleged, and both companies pledged to investigate further.

China Labor Watch sent undercover researchers three times over multiple months this year to conduct dozens of interviews on farms in the lush mountains surrounding Pu’er city, traditionally a tea-producing region of southern Yunnan province that now produces about half of China’s homegrown coffee beans.

Although China accounts for less than 1% of global coffee output, Yunnan officials have been encouraging local farmers to turn from tea to coffee crops to fuel the nation’s fast-growing — and lucrative — caffeine habit.

Chinese people drink far less coffee than in other big economies — an average of 17 cups per person each year, versus around 400 in the United States.

But it is still a $40 billion industry and one that grew 17% in 2023. Starbucks alone now operates 7,600 stores across China, and Nestlé’s coffee-in-a-can drinks can be found in almost any Chinese convenience store and its Nespresso machines in a growing number of middle-class homes.

Looking into the coffee farms in the supply chains leading to Starbucks and Nestlé, China Labor Watch said it found evidence of what they called labor injustices that directly violated the companies’ claims to ensure ethical sourcing and robust health and safety standards.

China Labor Watch — founded as a nonprofit in 2000 by Li Qiang, a former Chinese factory worker turned New York-based activist — monitors working conditions at multinational companies operating in China, often covertly given Chinese authorities’ sensitivity to scrutiny. The group has been supported by the Department of State and the U.S. government-funded National Endowment for Democracy, alongside private donors, according to annual reports.

Both Starbucks and Nestlé use verification of farms to ensure workers have labor contracts and are paid above national minimum wage. Starbucks’ C.A.F.E standards also promise medical care and zero tolerance for child labor.

China Labor Watch said its investigators saw malpractice mostly on “ghost farms,” often family-run plots of land that informally supply the larger estates that have been verified by Starbucks or Nestlé. This enables the estates to meet their quotas while keeping labor violations out of sight, the group said.

Farmworkers are paid according to weight picked, meaning they often work from dawn to dusk, 7 days a week, during harvest to earn as much as possible during peak season, investigators found.

Although this is not uncommon in hardscrabble rural China, it directly violates Starbucks’ and Nestlé’s standards that limit the working week to 48 hours.

Asked about the China Labor Watch report, Starbucks said it prohibits farms from informal supply arrangements and uses regular audits by an outside verification provider to ensure its standards are met. The company is “committed to investigating thoroughly” once it receives full details of the allegations, Marc Birtel, director of international communications, said in an emailed statement.

Birtel said Starbucks’ supplier agreements “mandate that all farms maintain detailed records of their coffee production and purchases.”

Nestlé said farms must comply fully with local laws and Nestlé’s responsible sourcing requirements, as enforced by unannounced visits and third-party monitoring. “We take these allegations very seriously and have contacted our suppliers to investigate carefully and if necessary, take corrective action,” a statement sent by Claudia Afonso, senior corporate spokesperson at Nestlé, said.

Other labor-related NGOs have previously accused Starbucks of not living up to its own standards in supply chains in countries including Brazil and Kenya, while Nestlé has investigated similar accusations in Brazil and about cocoa farms in Ivory Coast.

The practice of outsourcing work to informal laborers without traceable employment documents is widespread in the Chinese labor market, said Li, China Labor Watch’s founder and executive director. “It makes violations difficult to track for consumers and obscures accountability in the supply chain,” he said.

Farmers interviewed by China Labor Watch’s investigators reported not having sick leave or paid vacations, as required by Starbucks. Many said they did not have formal employment contracts or health insurance. Protective equipment like gloves is not provided and injuries are common from the grueling work of picking coffee cherries under intense sun exposure and carrying them over the rugged hillside, the investigators found.

China Labor Watch said its researchers saw two instances of children under 16 picking coffee or helping with sorting work. Families and teachers told them it is common for family members to help during the winter break and that children over 12 often drop out of local schools to work. China Labor Watch provided photographs of the alleged children working on farms but did not supply written proof of the individuals’ ages.

An older farmer identified only by her surname, Liu, told the group’s investigators that her husband’s poor health and absent children mean she relied on her 12-year-old grandson to help with picking coffee cherries on their 12-acre plot during the harvest season.

Global coffee giants Starbucks and Nestlé were pioneers of China’s growing cafe culture, and both promise to uphold rigorous standards to ensure their coffee is sourced responsibly.

Nestlé was among the earliest international brands to try upending China’s centuries-old preference for tea.

The Swiss multinational was also among the first to start sourcing locally. It helped introduce professional coffee farming to Yunnan in the 1980s through a joint initiative with the United Nations Development Program, kick-starting the province’s ascendance as coffee-producing hub.

“We have been working with coffee farmers in China since the 1980s and our efforts to sustainably develop the coffee industry in the Yunnan province have been recognized by local governments and coffee farmers,” Nestlé’s spokesperson said.

Starbucks’ arrival in 1999 marked a turning point as China’s nouveau riche began to embrace coffee. The Seattle-based chain has been investing in coffee farms in Yunnan since 2010 with strong support from the local government.

Authorities in Yunnan seized on coffee as way to lure international investment while also creating prosperity in poor villages. In Pu’er alone, the number of coffee farmers has grown 250% in 10 years.

By 2021, there were more than 1 million farmers in the province managing about 215,000 acres (87,000 hectares) of plantations. More than 36,000 of those farmers were trained by Starbucks, which in 2022 announced a donation of $2.5 million to support the local industry.

The alleged violations of the companies’ standards in Yunnan underscore the increasing scrutiny that multinationals operating in China face to demonstrate that their local supply chains are free of labor violations and human rights abuses.

American companies have scrambled to perform due diligence on complicated supply chains after the United States in 2021 banned imports from Xinjiang, China’s biggest producer of cotton and the refined silicon that goes into solar panels.

Chinese authorities have become increasingly wary of international efforts to scrutinize suppliers, accusing the United States and Europe of using corporate social responsibility as a political tool to undercut Chinese industries.

Some multinationals, meanwhile, are reconsidering their reliance on Chinese suppliers or insisting on higher levels of transparency from local partners.

So far, Starbucks has remained committed to the Chinese market, despite fierce competition from local rivals like Luckin. It aims to reach 9,000 stores next year. Last year, the company invested $200 million to build a production and distribution center in eastern China, its first outside the United States.