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Berners Street revisited ... an update on ICO prospects and potential developments in the next few months.

Berners Street Revisited. . .

While the ICO has turned up to be a non-forum in the past 12 months, there are still a few people for whom the letters I.C.A. stand for Indestructible Coffee Agreement, and who have kept the faith that matters will solve themselves out before time expires on the 27 months extension without economic clauses (voted by the Council in July 1989 and running until September 1991). "After all," they reason, "Producers have had a full year to realize how much they are penalized by a free market, and more than 13 months are left to negotiate."

Last month's events gave them a glimmer of hope and reasons to be satisfied as Brazil seemingly moved away from its refusal to even discuss coffee and indicated through Ambassador Lindenberg Sette's highly official voice that, maybe, one should talk and, why not, as early as possible. The typical confusion that followed, media speculation over the revival of the pact, prompted Brazilian authorities to back-off slightly, to indicate that the chosen words may have been too strong and that rejoicing over a new agreement is, by far, premature. Nevertheless, the signal has been given and remains loud and clear: Ambassador Sette, a career diplomat highly respected and expert in coffee matters (he has been Brazil's permanent representative at the ICO for years) does not choose his words carelessly and knows how to convey a message: Brazil now wants an ICA. At least some do among Brazilian authorities.

One did not have much time to wonder whether this was just a tactical ploy to move prices up or why Brazil would suddenly favor an agreement so contrary to President Collor's doctrine: Three days after the announcement, Brazil's incoming crop was put at 21.9 million bags, in a semi official estimate which was the best achievable since the IBC's closure. This is a very low figure by all accounts some 40% less than earlier fantasies of 33 million bags, and still well under more serious estimates of 24 to 27 million bags. Since quality has been reported as mediocre at best, it is only natural that Brazil should think of curtailing its competitors' selling power through pressing for a regulated market. Things are however not going to be simple: Brazil has widely proven that it can block a negotiation it does not want, but this does not mean it can impose an agreement at its Administration's whim.

Within Brazil, firstly, the old woes are back: The Government's anti-inflation plan begins to give way, internal conflicts subsist on who should have the upper hand on coffee policy, and exporters remain fiercely opposed to any international market regulation, which they see as a pretext for state involvement internally, something they want to avoid at all costs.

On the international front, secondly, we shall see a reshuffle of positions among those who favor, are indifferent to, or oppose a new coffee pact. While Colombia and large parts of Africa are likely to back most attempts to rebuild an economic ICA, Central and other South American producers will be very cautious in making up their mind.

If the small volume and mediocre quality of the Brazilian crop are confirmed, as they probably will, world prices will increase with the resorbtion stocks, the approach of the high roasting season, and an increase acknowledgement of the lack of fine coffees. Why would, in those circumstances, many producers of mild coffees accept the return of quotas when they can more than compensate slightly lower prices by much bigger volumes? And on the consumers' side, why would the U.S. Administration (we know where the trade stands. . .) resume efforts towards a solution which would not serve its proteges' purposes?

While Brazil's now understandable initiative reopens the debate (and will therefore probably increase the market's volatility) it does not automatically make it progress. A good measure of Brazil's dedication to reinstating quotas will be its efforts, during the coming months and especially during the September session of the Council, to recruit followers and allies, something it has traditionally been excellent at doing, often at the victims' expense.

Pierre Leblache has his own consulting firm, Consult Abroad Inc., and is also a trade advisor to the ICO.
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Title Annotation:International Coffee Organization
Author:Leblache, Pierre E.
Publication:Tea & Coffee Trade Journal
Date:Aug 1, 1990
Previous Article:Guatemala to pursue U.S. specialty trade.
Next Article:Springtime and congresses.

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