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International Coffee Agreement: rest in peace.

My former boss at the Colombian Coffee Federation, Gustavo de los Rios, used to talk about something he called, "the unwinding of the coffee economy." We've lived through many ups and downs, even the freeze of 1975 and its after-effects. But never have we seen anything close to what we are experiencing today in our coffee world. "La Destorcida" in Spanish or this unwinding that we have been living since the summer of 1989 is what I suppose he had in mind with this expression. A relentless downward spiral, which makes the joke heard at Boca Raton earlier this year seem possible: a producer and exporter from Latin America asks a New York green coffee trader, "How low do you think prices will fall?" And the trader answers, "How do you feel about zero minus the freight?"

These lines are written in early April as the working group is recommending to the Council to adopt a strong political posture. Unfortunately for them and for all involved in the business of coffee, politics will not solve anything. One of the many ills of this business can be directly attributed to the ICA, in the promotion of inefficient farming and cheating in stocks and marketing.

There is no doubt in anyone's mind as to the damaging effect on the economies of coffee producing and most of all on the countries which are highly dependent on foreign exchange earnings from coffee. This might explain why Brazil waited three years to say what they are saying now. Maybe it is because coffee is a small item in their export picture accounting for only 6-7% of their total exports versus 30% for Colombia and in the case of some Central American countries more than 60%. With this in mind, it is clear that Brazil is three years late and does not deserve to be the leader of the coffee producing community. The country does not go out of its way for the coffee industry except to maintain its own interest.

It is too late to try to fix the damage done in three years of ruinous activity. If the Brazilians wanted a pact, they should have said so clearly three years ago. The opportunity existed then and such conditions do not exist now.

As far as consuming countries go, there has been no real increase in consumption due to lower prices of the raw material. Consumption trends remain flat overall and the only noticeable growth is in categories that had already taken off with an ICA in place, quotas and all. I am referring to categories such as the specialty or gourmet segments and others such as the flavored instant coffees, canned and bottled coffees, decaffeinated coffees, to name a few.

The story in producing countries is not exactly "Gourmet." It is the farmers on whose shoulders fall the realities of coffee-based economies. They have no way to speculate, hedge or simply take cover. They have taken the full blow and have been systematically reduced to even greater poverty and ruin by the gyrations, speculation and other centrifugal forces set in motion by the very people who are supposed to be defending their interests and are in charge of the world coffee economy. In the case of the farmers, a continued free market will be the equivalent of a compassionate death in this business and any kind of artificial or political agreement will only prolong their agony. Those who can, must change to other crops.

The coffee world, just as most other sectors of our world economy are now paying hard and high for the excesses and mistakes of the '80's, the rush to free markets, deregulation and other socio-economic experiments; the sum of which have us all living through the longest and deepest recession in our times, just short of a depression.

Since everybody seems to be entitled to speculate, I will speculate in this column that possibly the best thing that can happen to the world coffee economy is precisely what is happening now. For us, coffee people, it will be the equivalent of the events and scandals which have rocked the very foundations of our society and which will hopefully cleanse this business and allow for a fresh new start.
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Title Annotation:economic forces have eroded power of agreement in industry, particularly in Central and South America
Author:Zarate, Nestor
Publication:Tea & Coffee Trade Journal
Date:May 1, 1992
Previous Article:Coffea Canephora: the "R" word.
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