Tempest in a Coffee Pot

Last week Leon Henderson found that his price domain ends at the water's edge. He tried to monkey with the price of coffee, and ran into the Department of State, which is in the coffee business itself.

Defying laws of supply & demand, coffee has been moving up on all fronts at once: stocks, imports and price (see chart). So Leon Henderson called to his deskside the men who live by coffee. He knew that a number of leading operators had been wisely stocking up, while small fry, caught short, bid up the price. He proposed a Government inventory of all coffee, and even asked the big fellows to release stocks and correct the maldistribution. The meeting was unwieldy, and broke up with little done. Henderson's next step would normally be to fix all coffee prices by fiat. That might be good business, but not as the State Department understands it.

The State Department is a party to the Inter-American Coffee Agreement, by which coffee quotas were allocated among all the coffee republics last fall. The State Department in fact represents the only major coffee customer these republics have left. The original quota for U.S. consumption was set at 15.9 million bags, 2 million more than the U.S. had ever drunk in a year. The U.S. had 1.5 million bags on hand when the agreement started, and has since upped the quota by another 260,000 bags. But the inventory plight of the small U.S. buyers was Latin America's opportunity.

In Brazil, which gets 58.49% of the U.S. quota, surplus coffee is still being systematically burned (54,000 bags last month). Yet Brazil's standard grade, Santos No. 4, has nearly doubled in price since last August. Colombia (19.8% of the quota), producing valuable special grades, raised its minimum prices nine times last winter. Brazilian growers and speculators, with 2,300,000 bags of quota coffee still to ship, are holding it back, waiting for still higher prices. Meanwhile shipping space is getting scarce and ocean freight costs are mounting. Brazil is also toying with the idea of setting a coffee price (11-c-) below which it will not sell.

If Leon Henderson were to answer these Latin floors with a U.S. ceiling, Brazilians would yell. It would have a bad effect on the milreis--likewise on the good-neighborly State Department. But if shipping space gets scarcer, the price of coffee may get too high even for State. In that case some sort of import control would be necessary.

The case of coffee was merely last week's example of the conflict in policy among the Government's various arms. Many another import commodity--copper, rubber, tin. tungsten--has felt the conflict too. New Dealers figured there was only one ultimate solution: a Government import monopoly, next step toward total economic war.

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