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ASIC 2014

Finding a Path Through a Historic Maze

BY DONALD N. SCHOENHOLT

The price of coffee has been at sea for a century and more. Successes in the fight to stabilize prices have been minimal, and lost in all are the people whose lives have been raised and crushed each time coffee triumphs or fails.

Brazil emerged as the world’s sole coffee colossus during the last half of the 19th century. Soon its enormous growing output flooded the market. “Valorization”, the creation of a panicked 1906 Brazilian coffee economy, was created to stabilize the price of beans. New planting was prohibited. The government of Sao Paulo withdrew excess coffee to warehouses. The coffee was slowly released to market through 1913 without violently depressing the world market.

A disaster of overproduction was averted and replaced with a disaster of market reduction when Germany and Austria were removed from the buying pool during World War I. The U.S. and France bought in 3 million additional bags during the war to replace some of what was lost to producers selling to Germany and Austria. These purchases and a fortuitous frost saved the price of coffee, which in the early post war years was supported, though unwittingly, by Prohibition in the U.S., which created additional needed demand for coffee.

The year 1924 brought another bumper crop and a new Brazilian “Valorization” plan; this time administered by a new agency, The Instituto do Cafe. It controlled all flow of Brazil coffee, and kept secret its knowledge of just how much coffee was being warehoused. Valorization was half of a good plan to control the coffee economy. Its successes were due to Brazil’s almost total control of world prices for coffee. It managed distribution and sales but proved ineffective at controlling production, and so in the end it failed.

In Brazil coffee plantings were expanded in the face of the ban. In addition the “Valorization” stabilized coffee price created investment interest in Brazil’s Central American competitors. In 1929 the whole Brazilian scheme collapsed, and coffee prices tumbled. Within two years Brazil chose to destroy coffee to prevent it from coming to market. In 1937 Brazil destroyed over 17-million bags of coffee and still another crisis loomed. By the late 1930s Robusta beans were beginning to creep into the world cup.

History saved coffee again with the U.S. agreeing, during World War II, to import more coffee than U.S. consumption levels. This insured U.S. consumer needs would be met. At the same time coffee’s value would be supported, which helped keep the South and Central American states from considering alliances with Germany during the war years. A price ceiling was imposed on coffee to prevent a speculative run-up. In 1946 the U.S. released coffee from price controls and the value of greens doubled and continued to climb.

In 1949 Brazil’s prewar stockpiles finally ran out and the price of coffee began to move. Roasters responded by cheapening consumer blends to control costs. The percent of Robustas in the average blend increased, and wringing more cups out of every pound reduced the number of pounds needed. Higher prices also initiated yet another cycle of plantings in producing countries.

There was a severe frost during the Brazilian winter of 1953. With coffee prices rising, African Robustas began to flow freely into U.S. blends. According to Mark Pendergrast in Uncommon Grounds, “In 1951 Africa had accounted for only 4.8% of U.S. coffee imports; by 1955 the figure had risen to 11.4%.”

By 1955 the market price had turned again, do to overproduction, and the diluted U.S. cup. A quota plan was discussed between Latin American producers. A Brazilian Frost in 1956 saved the situation temporarily. The African and Latin American producers attempted a quota system again in 1959 and hoped for U.S. support for a floor under the price of coffee.

U.S. President Kennedy acknowledged the need to stabilize commodity prices as a defense against Communist infiltration in Latin America, and so the U.S. entered into an International Coffee Agreement (ICA) in an effort to stabilize coffee.

The Brazilian Black Frost of 1975 was a boom for producers but devastating to consumers. A sky-high price simply hastened coffee’s slide from grace.

Under the ICA, prices bounced around unsatisfactorily for a decade until the U.S. had had enough; there was a floor but no ceiling to prices, and a practice of producers selling coffee cheaper to non-member countries than to members. The cold war was drawing to a close, and the U.S. industry thought they could do better with no agreement to hamper a free market. The U.S. bowed out in 1989.

In the years since the failure if the ICA quota system, we have seen a free and volatile market. In 1987 coffee traded in New York above $3.00, and in 2001 below 45˘. Those who make the dangerous gamble of speculating in this market may do so at their own risk, but most of the coffee world simply has motion sickness.

What the above tells us is that innovative ideas are needed to sustain a coffee price level that aids producers and consumers. What you can’t see through the time line and the plans is the sweat of farm workers. You can’t sense the tiredness in the roasting man’s muscles pulling the last roast of the day. You can’t hear the cries and laughter of our children in two hemispheres, and the aspirations of small roasters and retailers and farmers. The backstory is a story of folks at origin and at point of sale who need each other’s sympathetic understanding and support to survive and thrive.

As SCAA meets in Anaheim, its roaster and retailer members must again face the fact that its partners at origin are in dire trouble as new sources of cheap Robusta beans are depressing world Arabica prices for yet another season. The larger coffee world appears in paralysis, unable to act in support of the grower and the future of better Arabica coffee for the U.S. consumer. What we, the little guys, can do is to find a path through the historic failures of both free and controlled markets to find new directions of common cause between grower and roaster, producer and consumer. Our best good faith efforts can sustain some specialty coffee farms that would otherwise perish. And while that may not be everything, it is something.

Donald Schoenholt is a SCAA founding father, and can be found ‘round the cupping table at Gillies Coffee Co., Brooklyn, New York.



Tea & Coffee - April/May 2002
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