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U.S. blamed for ICA demise.

U.S. blamed for ICA demise

Not surprisingly, the U.S. is blamed as the guilty party for the suspension of the economic provisions of the International Coffee Agreement when that Agreement was extended for two years without these provisions. It seems that Uncle Sam gets blamed too often when things go wrong, probably because it is easy to take pot shots at the "Big One." But I think it's time that the record is set straight, and the real culprits are identified. Let's look at some background and see what caused the suspension of economic provisions of the Coffee Agreement.

The Agreement began in 1962 at the United Nations with the strong support, at that time, of the Kennedy administration and the support of the U.S. coffee industry. The Agreement was really created to help the producers who, at that time, were faced with a tremendous oversupply of coffee, and possibly ruinous price levels which would have discouraged growing coffee and might have eventually led to big economic problems. Of course, no one remembers today that the U.S. was in the forefront of the creation of the Coffee Agreement. It also continued to support the Agreement through many years of sometimes smooth sailing, and sometimes critical periods.

In fact, it is well documented that of all commodity agreements that had been created since World War II, the Coffee Agreement probably worked better than any other in maintaining a price and supply demand equilibrium over a period of years, interrupted only during periods of severe crop disruptions, either by frost or drought, mainly in the Brazilian coffee areas.

During those years, the National Coffee Association, whose members generally advocate free trade, supported the Agreement believing that it served the interests of both consumers and producers by maintaining coffee prices at reasonable levels, and controlling supplies through a quota system. It also served important political objectives of the U.S. This tended to encourage continued production of coffee, and maintained price levels which did not discourage, but rather encouraged, additional consumption.

Let the record show, however, that in the long term the producing countries killed the goose that, for them, laid the golden egg. They began to get greedy and began to violate the Coffee Agreement, particularly in the early 80's. As the Coffee Agreement went along, many countries were begining to build up fairly sizable coffee surpluses and did not want to maintain such large coffee supplies, seeking to sell them to countries that were not members of the International Coffee Agreement. Soon these sales were being made at sharply discounted prices from those being paid by the members. It is a documented fact that much more coffee was sold at discount prices to nonmember countries than these countries could consume, and it can also be documented that much of this coffee found its way back into member consuming countries at prices still well below the World quota prices. In this respect, once again the U.S. was the good guy but its consumers suffered for it.

While it is true that in one or two instances during the existence of the Agreement the so-called enabling legislation in the U.S. was passed, only after some delay, so that Customs could not enforce the provisions of the Agreement until this legislation was passed. Nevertheless, it must be stated that once the legislation was in place the U.S. strictly adhered to the rules of the Coffee Agreement. No coffee that was not documented quota coffee entered the U.S. during this period. Other consumers were much more lax, and coffee was allowed to leak in by various means. The U.S. consumer paid the freight, paying higher prices than other countries of both members and nonmembers of the Agreement.

It's a little bit like being a member of a country club and paying full dues, only to find out sometime later that people are playing golf on the same course who either pay half the dues, or only token dues, and getting the same privileges that full paying members are getting.

During the 80's a new trend toward quality coffee developed on a worldwide basis, and particularly so in the U.S. The demand for certain quality coffees began to outstrip the available quota allocations, and some consumers were unable to purchase the coffee they needed for their blends because of the rigid quota system which the producers did not want to change. The U.S., for a number of years. made diligent efforts to change the situation by both trying to obtain strict rules regarding the sale of coffee to non-members at equal prices to those paid by the Agreement members, and also to begin a system of selective quotas whereby the quota system responded to demand for certain quality coffees and made them available to the consumers that needed them. Intially the Coffee Agreement has such a system, but it was negative to some of the producers who wanted to maintain a more traditional and rigid system.

It seems justified that the U.S. began to take a much harder line when it was time to renegotiate the provisions of the Agreement, as the period of expiration in September of 1989 approached. However, despite all efforts to rectify the two above mentioned problems, the producers did not yield and eventually there was no way out but to suspend the economic provisions because the U.S. just simply did not want to let its consumers down once again. It seems ludicrous to put the blame on the U.S. when it was really the producers themselves who must bear total responsibility for the failure of the quota system to be carried through.

It was quite obvious that prices would tumble sharply after the suspension of the quota system, and soon the producers began scrambling to try to get a new Agreement established. Washington was besieged with lobbyists from foreign countries, particularly the Central American, South American, and Latin American producers and, to a lesser extent, the African producers to try to get the U.S. government to come back to the table, despite the fact that the U.S. had always said that we would be willing to negotiate in good faith. For some reason, in the last several months the Bush administration has said even more than that, and apparently is now starting to spearhead and effort to go back to the negotiating table and hammer out a new Agreement with quotas and price ranges. It seems to us that the initiative should come from the producers, rather than from the U.S., and we certainly hope that U.S. consumer will not once again be sold down the river by our government, in terms of paying the freight, so that producers can take advantage of Uncle Sam's good nature.

Let's look at a few things that are happening right now. Just a couple of weeks ago the Central American producers met in Honduras to try to come up with a scheme to withhold coffee from the market in order to force prices up artificially. Most recently, a Consumer Coffee Council was formed in Washington, DC and, when one began looking closely at this newly founded organization, it became clear pretty quickly that it was being funded and supported by producer interests, and was not really a consumer chartered organization which began with consumer interests in the U.S. This group, in fact, is saying that it would be in the U.S. consumers' interest to reestablish a quota and price range system. We can't imagine the U.S. consumer joining a council which would raise coffee prices for U.S. coffee drinkers.

Finally, we believe that the position of the U.S. industry is imminently clearly stated in the resolutions on the National Coffee Association which, in essence, states that the U.S. industry prefers to work in a free market economy, but will support an Agreement if it is in the interest of U.S. politics. However, the resolution further points out that any future Agreement must be strengthened substantially in the areas of weakness that have been discussed in this article. It is to be hoped that in any future negotiation the U.S. will not weaken in its resolve to get a strong Agreement should one come into force once again, and will not sell out the American consumer at the expense of producer interests. We know that the industry will make a strong point with the government toward this effect, and we hope that 1990 will bring a resolution of these problems, whether we continue in a free market, or whether we will have a strong Coffee Agreement that will indeed properly serve both the consumer and producer interests.
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Title Annotation:International Coffee Agreement
Author:Heuman, John
Publication:Tea & Coffee Trade Journal
Date:Jan 1, 1990
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