Miss Lovasy, Assistant Chief of the Special Studies Division, was formerly with the Economic and Financial Department of the League of Nations. She is the author of a memorandum on “International Cartels,” published by the United Nations, and of several articles in economic journals.
Consumption in importing countries over the last 70 years has risen fourfold. It was found that shortfalls from trend (five-year working average), with the two war periods excluded, amounted on the average to less than 2.5 per cent and that the maximum shortfall was about 7 per cent.
This has applied, until recently, to the type of tree grown in Western Hemisphere countries, but in the last few years new strains have been developed which begin to bear in two years. Coffee trees of the “robusta” type grown in Africa have a gestation period of some two to three years and are less sensitive to the vagaries of the weather than the “arabica” varieties of the Western Hemisphere. Coffee from the latter, however, is preferred by most consuming countries and sells at higher prices than robusta types.
The term “production” or “output” throughout this paper refers to “exportable production,” i.e., total production minus domestic consumption in the exporting countries. “Demand” and “consumption” refer to import demand and to consumption in the importing countries.
Action taken by Brazil to support world prices of coffee has a long history. Brazil succeeded in maintaining prices for a few years before World War I and again in the mid-twenties after production had more than caught up with demand. Through most of the thirties, it continued to stockpile and to destroy coffee on a large scale, but could not prevent the heavy and sustained price decline experienced in those years. The considerable expansion of output in other regions, first in other countries in the Western Hemisphere and later in Africa, and the gradual decline in Brazil’s share in total exports—from some 70 per cent before World War I to some 40 per cent in the fifties—have been attributed, in part, to Brazil’s policy of price support.
These regulations were based on a free rate of 265-276 cruzeiros per U.S. dollar and the contribution to the defense fund “will be adjusted, if necessary, to offset any harmful influence of exchange rate variations over coffee prices.” (George Gordon Paton & Co., Coffee Intelligence, June 1, 1961.)
The price for inferior coffee, originally set at 1,600-1,700 cruzeiros per bag of 60 kilograms, has since been raised to 2,700 cruzeiros (some 7 cents per pound). Inasmuch as inferior coffee is sold in carloads at points in the interior, the price is not strictly comparable with the export price, which applies to bagged coffee f.o.b. seaports.
Though no official estimates are available, discussions with experts indicate that the figure of 60 million probably underestimates, rather than overestimates, average output over the next five to six years. Large-scale destruction of trees, if carried through, could, however, change the prospects.
These values (taken from an unpublished memorandum by the author) were derived on the basis of demand elasticities for the United States and a number of European importing countries. The two figures of —0.2 and —0.3 resulted from using two alternative values for the elasticity of demand in the United States. Recent developments suggest that the lower of the two values is the more realistic.
Annual per caput consumption of green coffee in the United States was as follows, in pounds: 1956, 16.0; 1957, 15.7; 1958, 15.6; 1959, 15.9; and 1960, 15.8.
Food and Agriculture Organization, “Coffee Taxes and Consumption in Importing Countries,” Monthly Bulletin of Agricultural Economics and Statistics, September 1960, pp. 8-13.
The results are based on least squares regression analysis, relating per; caput net imports of green coffee to retail prices of roasted coffee and per caput income. Prewar and postwar data (up to 1958) were used; compared with net imports in 1958, the increase in imports stimulated by a complete abolition of fiscal charges would amount to some 14 per cent. The authors point out, however, that their results are subject to a number of qualifications and should be considered as no more than a rough indication of the order of magnitude involved.
By the same token, the stability of import demand for coffee reduces the significance of importers’ guarantees to purchase a certain minimum quantity.
Such a limitation is provided under the terms of the International Sugar Agreement: the quantities which may be imported from nonmembers are limited to those actually purchased in an agreed base period.
Neither of these provisions is new to quota agreements. The Sugar Agreement calls for the regulation of production in such a way as to limit stocks in producing countries to agreed levels.