Coffee Nerves

During their winter months of June, July and August, Brazilian coffeegrowers observe a time-honored ritual: they spread rumors of crop-killing frosts in hopes of pushing up coffee prices on commodity exchanges. Hence there was nothing out of the ordinary about reports of a "White Friday" last month --except that this time the stories turned out to be true. For the first time since 1943, snow fell in the southern state of Parana, which produces half of Brazil's coffee. In neighboring Sao Paulo state, frost damaged 50% to 70% of the coffee trees. The effect on prices was instant. Within a week of the frost, coffee rose from 52-c- to 84-c- per Ib. on the London commodities market, as nervous traders rushed to snap up supplies in case of a shortage. In Rio de Janeiro, supermarkets lifted prices 53-c-, to $1.29 per Ib. And in the U.S. last week, the General Foods Corp. hiked its wholesale prices for grocery brands (including Maxwell House) by 20-c- per Ib. for ground coffee and 3-c- per oz. for freeze-dried and instant. Other wholesalers planned similar increases. Some experts fear the price of a cup of coffee in New York could double to 50-c-.

If so, it would be a triumph of panic over economic logic. The snow and frost did not change estimates that Brazil's 1975-76 coffee crop will total 21 million bags, because they damaged only the future ability of coffee trees to bear berries, not the berries hanging on the trees now. Production will indeed drop during the following two crop years; it might be cut in half during 1976-77. Still, no major shortage looks likely. Brazil has reserves of 21 million bags that could be sold to keep exports close to normal levels over the next three years, until newly planted trees yield a crop. Any slack could be taken up by other producers, primarily in Colombia, who will benefit greatly from the higher prices. Those prices may enable Brazil to earn $500 million more on coffee sales in the next twelve months than it would have if there had been no frost.

The shock of White Friday, however, could indirectly reduce Brazil's output over the longer run. The Brazilian government is eager to see coffee planting moved northward, away from the danger of frost, so it may encourage growers in Parana and Sao Paulo to switch to soybeans. But if new areas of cultivation do not open up quickly, Brazil's exportable crop, which accounted for 32% of the world coffee trade in 1974-75, could fall drastically.

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