Gatt-Fly Commodity Profile

Publisher:  GATT-Fly, Toronto, Canada
Year Published:  1976
Pages:  20pp   Price:  $0.50   Resource Type:  Article
Cx Number:  CX233

A look at coffee as a commodity and the reasons for its fluctuating cost.

This profile looks at coffee from a number of different angles in order to help the reader to understand the reasons for the fluctuating costs of coffee. All 42 producing countries of the International Coffee Organization (ICO) are dependent on the export of primary commodities rather than finished products as their main source of income. In 1974, five Latin American countries were dependent on coffee exports for more than one-fifth of their foreign exchange earnings. This kind of dependency works to maintain patterns of ownership which take the form of absentee-owned plantations or subsistence holdings, both of which encourage unemployment. Brazil is the only country in Latin America that processes its own coffee; in all others Nescafe is imported back from the U.S. The Ivory Coast in Africa processes its own coffee but through foreign controlled companies. Because of the boom-and-bust cycles, which characterize coffee trade, the International Coffee Organization was set up to stabilize and regulate the market. Its history, programs, demise and most recent attempts at a new agreement within the ICO are dealt with in detail. One of its weaknesses is that voting power is controlled by the amount of coffee exported or imported, which means Brazil and the U.S. effectively dominate the ICO. Thus the U.S. has effectively resisted quotas which would induce higher prices for producing countries. As well, the U.S. (and Canada) refused compensation to coffee producers when the U.S. dollar was devalued 8.6% in 1971. The social havoc caused by this can be appreciated in light of the fact that a 1-cent change in the price of coffee means a $10 million change in foreign currency earnings. The paper points out that as long as coffee prices are determined by future markets and subject to excessive speculation, there can be no guarantee to consumers against soaring costs nor any security for producers. Suggested instead are orderly marketing arrangements of flexible quotas and indexing of coffee prices so that the burden of inflation, especially of manufactured products, is not passed on to countries dependent on the export of primary commodities.

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