3 a Cup?

Over the city of Sao Paulo, Brazil for six years has hung a continual pall of acrid smoke. Meanwhile, the sky above Medellin, Colombia has been clear. Last week this fact was responsible for the death of a crop control program far older and far bigger than any ever attempted by the New Deal. With a suddenness which upset coffee cups all over the world the Brazilian Government announced that it would abandon its 31-year attempt to limit coffee production, would adopt instead a policy of open competition.

On the rolling plateau of Brazil during bumper years more coffee berries are grown than the whole world could consume even if it stopped buying from all other coffee-growing nations in South America, Africa and the East Indies. The world annually consumes some 21,000,000 132.2-Ib. bags. For the past six years Brazil alone has grown an average of 20,000,000. This overproduction was a Brazilian headache as long ago as 1870. That year the Government bought coffee to use in paying foreign balances, lost heavily. In 1906 the Government began a valorization, scheme (buying coffee at artificial prices, during fat years, storing it for resale during lean) which lasted until the War. It was semi-successful. A second valorization program, started in 1924, proved a vast failure when there were four bumper crops in succession. Result was the 1930 Brazilian Revolution and the creation of the Departamento Nacional do Cafe, which has been grappling with the problem ever since.

The D. N. C. inaugurated a program of destroying coffee bought from growers with the proceeds of a $2.40 per bag export tax on coffee.* Familiar sights in Brazil ever since have been huge grey-green piles of coffee beans smouldering slowly away under great smoke plumes, barges lumbering out to sea to dump coffee overboard, workmen mixing coffee and tar into briquets for building. Since 1931 these activities have destroyed 52,547,493 bags of coffee (almost 7,000,000,000 lb.), worth at last week's price of 9 1/8per lb. some $638,750,000, and sufficient to supply every man, woman and child in the U. S. with enough coffee for a couple of baths apiece.

To finance this huge waste has been a great burden to Brazilian farmers and to the D.N.C. which now has a $72,000,000 deficit. Meanwhile, world coffee prices have notably failed to rise. From 20-c- a lb. in 1929, coffee fell to 7-c- in 1933. Highest level since has been 11 1/2 touched early this year following a conference in Bogota which seemed to promise that Brazil might finally get some cooperation from other coffee producing nations. For that is the crux of the problem. While Brazil has rigorously and painfully sliced away at her own surplus, necessarily sacrificing some part of her share of the world market, rival nations, notably Colombia, have greedily continued to grow and sell more & more coffee. In the crop year ended June 30, Brazilian coffee exports were off 12%, those of rival nations up 11%. During the first four months of the current crop year, Brazil shipped 18% less coffee to world markets than in the corresponding period of 1936. Meanwhile shipments from other nations increased 19%.

Lately Brazilian exchange has weakened sharply, the milreis falling to 17.7 on the dollar last week. Observers have suggested that this was done deliberately by the Brazilian Government as an attempt to stabilize internal coffee prices and lower world prices. As recently as last fortnight Fernando Costa, rich Sao Paulo planter who is currently president of D. N. C. declared that D. N. C.'s crop control would continue. Last week, however, the Brazilian Government tired of playing Santa Claus, announced not only that production will no longer be limited but that the Brazilian coffee export tax will be cut some 75%. Said Finance Minister Arthur de Souza Costa: "It would be neither possible nor just that on Brazil only should fall the entire weight of its policy favoring all."

To prevent speculation, all Brazilian coffee exchanges were last week ordered closed. In Bogota, the Exchange Control Board of Colombia tightened up on foreign exchange and coffee exchanges buzzed. In the U. S., world's greatest coffee drinking nation, the New Orleans Exchange closed its doors and prices broke the full 1-c- daily limit on the New York Coffee & Sugar Exchange. By week's end December coffee options were down to 7-c-per lb. U. S. retail coffee prices remained unchanged, however, because it takes about a month for Brazilian coffee to reach the U. S. and not until that time will U. S. retailers have sold off their current stocks, Whether coffee will ever sell for 3-c- a cup in the U. S. instead of today's 5-c- remains doubtful, for coffee dealers last week generally expected that some sort of compromise would be reached between Brazil and Colombia to forestall the devastating price war which is the only alternative.

-Current tax rate: $2.70.

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