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Brazil flexible, can adjust coffee volume to free market demands.

Brazil flexible, can adjust coffee volume to free market demands

After the sudden suspension of the economic clauses and export quotas of the International Coffee Organization as of July 3, Brazil surprised the coffee world by reacting immediately to the challenges of a free coffee market.

In fact, the president of the Brazilian Coffee Institute (IBC), Ambassador Jorio Dauster, had the vision to foresee the possible breakdown of the agreement and conducted a series of studies with private and government coffee authorities and elaborated the plan of attack and necessary measures to be introduced in the event of a breakdown.

As a result, within a few days of the suspension of quotas, Brazil opened export registrations through December and began selling coffees in the regime of a free market.

In the following two months Brazil registered a sales total of nine million bags under the new conditions of the market.

According to the statistics and history since the founding of the Coffee Agreement in 1962, Brazil's present position in the face of the ICO is logical and sound.

Through the years, the ICO was proven incapable of disciplining the increase in plantings, which discipline was an essential item in the original constitution of the Agreement. Brazil was the only producing country that respected planting limitations and in the crop year periods between 1960-61 and 1970-71 Brazil reduced their coffee park by 48 percent from 4.3 billion trees to 2.2 billion trees. In the same period various other producing countries increased coffee plantings by a total of about 2 billion trees.

Also through the years, with the negotiation of new agreements, Brazil's export quota was reduced 11.2 percent from the original quota in comparison with an increase of 58 percent in the quota of Colombia, Brazil's principal competitor. This has meant that Brazil's participation in world markets at present represents only 24 percent of total producing country exports to ICO members and non-members, in comparison to 37 percent during the 60's.

There are other arguments to sustain Brazil's position before the ICO, and its ability to compete in a free market. Brazil is not as dependent today on income earnings from coffee exports. In the years of 1950-54, coffee represented 64 percent of Brazil's exports but with the industrialization and diversification of exports, the coffee complex (green, soluble, and roasted) corresponds today only to about seven percent of foreign income. Brazil's largest agricultural export today is the soya complex; and depending on market prices, some years the orange complex outsells coffee. This situation gives Brazil much more flexibility in a free market in comparison with countries like Colombia, where coffee represents about 40 percent of foreign trade, and Uganda, where it constitutes 70 percent.

Also supporting Brazil's free market position is its tremendous coffee production capacity and infrastructure to prepare and export coffee. Brazil today again has a coffee park of 4.3 billion trees and with favorable weather and conditions can produce a yearly crop of 40 million bags or more. Also the milling, warehousing, financing and commercialization facilities are unique in the coffee world, permitting exports of up to 3.5 million bags in one month. As a comparison, there are only 7 producing countries in the world that produce that volume in their entire crop year.

In addition, as IBC President Jorio Dauster is pleased to point out in press interviews on the subject, Brazil today can be called a coffee supermarket. The Brazil trade can offer and export washed coffee; fancy high-grown Arabicas; neutral drinking filler Arabicas; Arabicas of various drinks (Hard, Rioy, Rio), Conillon Robustas; and new crops, past crops, and old crops, plus soluble coffee in bulk or tins.

Brazil offers a complete line of coffee qualities to satisfy the blending requirements of most roasters and importing countries.

Considering these facts, it is not difficult to understand the position taken by the president of the IBC during the recent September/October meetings of the ICO in London. The Brazilian coffee authorities and the majority of the trade firmly believe that in the long run Brazil stands to win a coffee price war and recapture some of the markets and percentage of participation that were lost during the periods of the ICO export quota system.

PHOTO : At the microphone, IBC president Jorio Dauster addresses the International Coffee Organization at its recent London meeting. To his left is Rubens da Silva, president of the Santos Commercial Association; to his right, Jose Moreira, president of the Santos Exporters Department.
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Author:Jones, T.
Publication:Tea & Coffee Trade Journal
Date:Nov 1, 1989
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