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The plan for a new Brazil creates a new concept for coffee commerce.

The plan for a new Brazil creates a new concept for coffee commerce

Brazilian President Collor's Plan for a New Brazil announced on March 16th extinguished immediately many government entities including the Brazilian Coffee Institute (IBC) which consequently changed the course of coffee commerce in Brazil.

Without the IBC to issue the necessary certificates of origin and to fiscalize shipments plus the lack of substitute instructions to regulate exports, the coffee trade in Brazil came to a halt. Finally, on April 18th by Decree No. 194, the Minister of Economy, Finance and Planning, Zelia M. Cardoso Mello, issued the new resolutions for controlling coffee exports.

The measures reflect the Administration's interests for free, de-regulated markets. In essence coffee will not be treated like other Brazilian commodities, soya, orange juice, cotton etc., with a minimum of government interference and a maximum of self-regulation.

The principal items of the new resolutions are as follows:

1. Export sales will be registered according to a form (RV) obtained from the Banco do Brasil agencies in the various coffee ports.

2. Registrations must be made before the opening of the New York Futures Contract "C" for Arabica coffees and the London Terminal for Robusta/Conillon coffees, on the day following the date of sale. A copy of a telex will serve as proof of the transaction and a copy of the sale contract (buyer and seller) must be present within 30 days from date of registration.

3. Registrations must mention the full characteristics of the sale, variety, type, screen, drink and any other aspects necessary for the complete identification of the product.

4. Alterations to the registration are subject to re-examination but the original sale price cannot be reduced.

5. The non-fulfillment of all or part of the conditions of the registration will imply an investigation by the coordinator for commercial interexchange (CIC) of the Department of Foreign Commerce. The exporter will be subject to a fine of 20 percent of the value of the sale as well as suspension of future registrations.

6. Sales may be made with prices fixed or to be fixed. Registrations with fixed prices must be in accordance with the quotations of the New York and London Futures markets for the periods of indicated shipment and with the market differentials in practice for Brazilian coffee on the date of sale. Registrations with prices "to be fixed" must indicate the differential negotiated, the period of shipment and the basis month.

7. Quotations of the London Terminal market will be converted to U.S. dollars based on the close of the Chicago Exchange Market for the respective futures of the same period.

8. Sales registrations will be based on payments "at sight."

9. Export sales may be registered for periods up to 12 months from date of sale.

Export Quality Improved

10. The minimum export type was fixed at Type 7/8 or better. (Previous minimum was Type 6).

11. "Washout" operations (repurchase of contracts) will be permitted provided the result is positive in exchange terms. Telex proof of the re-negotiation must be submitted.

12. Certificates of origin will be issued by the coffee centers and associations in the ports.

13. The CIC agency of the Department of Foreign Commerce will recognize registrations made with the extinct IBC for future shipment provided the firms request the respective "Shipment Guias" by April 30/90 with the following periods of validity:

Registrations for February/March shipment-will be validated until April 30/90.

Registrations for shipment after March will be validated until June 30/90.

14. The CIC agency will issue from time to time information and statistics referring to coffee exports.

15. Samples of coffee shipments will be drawn by customs houses in the ports in accordance with norms issued by the customs authorities.

16. Quality and quantity controls will be effected by the entities indicated and empowered by the customs authorities. The examination of samples and comparison with the registrations and "Shipment Guias" will be performed sometime after shipment.

17. The contribution quota (export tax) was reduced to zero from the previous basis of six percent.

Observations

1. At first analysis it would appear that the new Brazilian coffee export resolutions will favor the large firms with offices abroad or those exporters holding the confidence of the large broker, importer, commodity houses with the agility and experience to operate in the futures markets.

2. Because of the necessity to enter and wait the approval of CIC of the sale registration, it will be difficult for most exporters to make firm offers. To avoid risks offers should be made "subject to CIC registration."

3. So far the new Administration has not been able to find an interventor to handle the liquidation of the IBC. Two Banco do Brasil officials were indicated but both after a few days studying the problems presented their resignations. Many IBC items have to be resolved such as:

* dismissal or relocation of about 1,800 employees.

* control of warehousing and expenses of the IBC stocks of about 17 million bags.

* liquidation of IBC properties, warehouses, experimental farms, office buildings, cars etc., plus other assets.

* liquidation of the Operation Patricia coffees (Brazilian intervention in the London Terminal market in 1986).

* the price guaranty system for growers which basis is essential for crop financing with the 1990/91 crop about to be harvested.

* the orientation formerly made by IBC agronomists to growers relative to crop treatment, pesticides, fertilizers etc., which most probably will be transferred to the Ministry of Agriculture.

* statics of production, number of coffee trees new and old per state, details of registrations etc., all items formerly handled by the IBC which should now be relegated to another entity.

The lowering of the minimum export type to 7/8 will probably mean a reduction in the supply of these coffees to the local roasting and soluble industries with consequent pressure on their costings.

CORRECTION: After writing Point 4 of our Observations we received advice of an alternation of Decree No. 194 correcting the original text to read that the minimum export type for Arabica was fixed at Type 6 and for Conillon at Type 7/8.

One weak point in the measures is the later examination and verification of the quality of shipments. Brazil produces Arabica and Conillon coffees with a variety of types, screens and descriptions for both species with wide market price differences. In spite of severe penalties against infractors, the system leaves room for fraudulent operations.

The new regulations contain the framework for a new Brazil. However, there are still many details to be resolved including the exchange rate. The commercial rate has moved up (presently at CR$51.50 per US$) but an internal price levels Brazil coffees are calculated to be about $10.00 to $15.00 per bag out-of-line with world prices.
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Author:Jones, T.
Publication:Tea & Coffee Trade Journal
Date:Jul 1, 1990
Words:1138
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