Can the Jumping Bean Be Tamed?

OF all the drinks consumed in the U.S., coffee is by far the most popular. Three out of four Americans drink at least one cup each day, last year downed an estimated 100 billion cups, worth more than $1.9 billion. But America's most popular drink also produces some of its biggest price headaches. Within three short months last winter, housewives found retail coffee prices suddenly shooting up from 91-c- a Ib. to an average of $1.31 (TIME, April 12). Just as suddenly last week, coffee started plummeting, with industry-wide price cuts up to 18-c- a Ib.

There is no argument about the reason for the price decline. Consumer resistance, which cut coffee consumption 15%, forced the Brazilian government to lower coffee prices in hopes of boosting sales. But as to what caused the original price rises and what will happen next, there is as much disagreement as there is coffee in Brazil.

To find the answers, President Eisenhower asked the Federal Trade Commission to investigate the entire industry both at home and abroad. FTC's conclusion: the trouble is the way coffee is marketed all along the line, from plantation to pot (TIME, Aug. 9). The No. 1 offender, said FTC in its 1,000-page report, was Brazil, the world's biggest coffee producer and biggest U.S. supplier, with exports last year of 8,970,439 bags (43% of the U.S. total) worth $628 million. In effect, FTC charged Brazil's coffee industry with manipulating the market through misleading crop forecasts, speculation and price gouging.

One of the main reasons for last winter's price boost, according to FTC, was the inaccurate forecast for Brazil's 1954-5 5 crop. A year ago, a biting frost hit Brazil's second biggest producing area in Parana, damaging nearly 250 million trees. With forecasts of a meager 13 million-bag crop, some 4,000,000 bags less than expected, a wild price spiral for coffee futures got under way. Actually, says FTC, the frost damage was relatively minor. Brazil's 1954-55 crop was less than 1,000,000 bags (8%) below the 1953 levels. But instead of a 15% or 20% price rise as might be expected in the wake of an 8% crop loss, Brazilian coffee futures climbed by 61%.

For that, FTC blamed big speculators on the New York Coffee and Sugar Exchange. Caught in the squeeze, five big U.S. roasters (General Foods, A. & P., Hills Brothers, Standard Brands, and J. A. Folger & Co.) started buying coffee to guard against future shortages and still higher prices. Result: prices soared again. The increases were rapidly passed on to U.S. housewives, and only when they rebelled did the spiral start downward.

In the face of the FTC report, the coffee industry flatly denies that it was responsible for coffee's dizzy spin. Brazilian growers argue that all early crop reports are bound to be inaccurate. To judge yesterday's estimate by today's knowledge, say the coffeemen, is both unsound and unfair. Furthermore, when viewed in terms of the expected 1954 harvest v. the actual harvest, the crop loss from frost was an estimated 2,932,700 bags, or 17%; FTC's 8% figure is based on a false comparison with 1953 production.

East Coast coffee traders are just as adamant that speculation on the New York exchange had little to do with coffee's rise. Speculation, say the traders, was no greater than normal. They also dispute FTC's contention that exchange rules that restrict trading to Santos coffee only--about 10% of U.S. annual consumption--result in a narrow, rapidly fluctuating market. The fact is, according to coffeemen, that about 40% of all U.S. coffee is traded on the exchange. The price rise, they insist, was simply due to heavy demand coupled with the fear of a low, frost-bitten supply. Says Gustavo Lobo Jr., president of the New York exchange: "If speculation occurred, it was within permissible limits. If we are going to curb speculation entirely, we will have to do away with free markets of every kind."

Nobody knows the whole truth of the coffee situation; undoubtedly, both Brazil's crop-reporting system and the New York Coffee and Sugar Exchange could stand better regulation. FTC is thinking of asking Congress to police the coffee exchange more closely, possibly by putting it under the Commodity Exchange Authority, which could keep an eye on excess speculation. FTC also hopes to improve crop reporting by increasing U.S. agriculture attache staffs in Brazil, which check up on local forecasts with estimates of their own.

But before any such program can work, the U.S. and Brazil must first agree on a good forecast system, and the two are still far apart. Finally, Congress may be asked to approve a long-range plan for the U.S. to help develop other nations as prime coffee suppliers and reduce U.S. dependence on Brazil. But the fact is that no legislation can be as effective in keeping coffee beans from bouncing as the one weapon that has worked: the U.S. consumer's pocketbook.

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