State-managed attempts at social regulation were particularly popular and pervasive in the decades following World War II, from the 1940s to the 1970s, an era often referred to as the age of “embedded liberalism.” During this time, a rapid expansion of global trade and investment occurred alongside the emergence of an array of socially interventionist states, from Keynesian welfare states in the North, to “developmental” states in the South, to a complex range of “Communist” and socialist states. Embedded liberalism under these political conditions involved a degree of liberalized trade combined with national controls on capital flows and investment and a range of international market mechanisms designed to manage supply and prices in the interest of poorer states, farmers, and workers. Such international market mechanisms frequently emerged out of strategic statecraft, driven by the desire of Southern economic and political elites to protect or enhance agro-export and extractive industries while restraining rural protest and revolt among exploited and vulnerable rural populations. The mechanisms also developed as part of a growing internationalist movement, during a time of decolonization in much of Africa, Asia, and the Caribbean, and part and parcel of a growing movement demanding fairer global trade and aid rules at international forums like the United Nations.
Collective state-managed social regulation was especially common for primary commodities (such as coffee, tea, sugar, cotton, tin, rubber, wool, and zinc) that tended to have particularly volatile price patterns. While the exact natures of the many mechanisms put in place in the post-war era often differed, they generally were premised on regulations to restrict or manage supply to push up prices on international markets. The degree of success or failure varied widely, with several collapsing with limited or no apparent gains, others attaining mixed results, and still others achieving much greater success, funneling increased income into the hands of Southern farmers and workers and smoothing market volatility and uncertainty. One of the most successful of these agreements was the ICA, a quota system that existed from 1963 to 1989 involving all major coffee producing and consuming countries, designed to stabilize and increase coffee prices by holding a certain amount of coffee off the global market. While generally ignored or dismissed by free traders, the history of the ICA reveals that it provided higher incomes for coffee farmers in need and greater “social efficiency” than the “free trade” coffee regime that has followed in its wake. Despite its shortcomings, the ICA demonstrated both the ability of states to act collectively to attain broader social ends and the benefits of doing so.
Coffee crises and the lead up to the ICA
As discussed in chapter 1, the coffee rollercoaster, its boom and bust cycle, has always been a central feature of the coffee industry due to the specific nature of coffee production and trade. For centuries, coffee farmers have been vulnerable to the swings of the boom and bust cycle. This vulnerability, however, was greatly intensified in the nineteenth century as farmers turned increasingly away from a more diversified mixture of crops, aimed at both local use and global consumption, and toward monocrop production exclusively for sale on the market. Good crop years could bring in solid income for some, and for the largest planters substantial wealth, but bad crop years could be devastating, not just for farmers and workers but for entire national economies. This was driven home beginning in 1896 when the price of green beans on the New York exchange dropped suddenly and substantially in response to boosted production in Brazil. Prices remained depressed for over a decade, compelling major coffee producing and consuming countries to initiate a series of formal meetings to discuss possible ways to address the crisis, including the prospects of a quota system allowing states to control prices through coordinated international action.2
In the end, the meetings did not result in agreement on anything substantial, including the quota system. Such an outcome, however, was not satisfactory for Brazil and especially its major coffee state, São Paulo. On the one hand, declining coffee revenues threaten both the state’s territorial logic (with coffee providing a key source of state revenue) and capital logic (with coffee exports bound up with the interests of a powerful agrarian elite). On the other hand, Brazil was uniquely situated to respond to the crisis, given that it accounted for over half the world’s coffee beans and possessed significant economic and political weight that could be translated into effective statecraft. Consequently, in 1906 the state government of São Paulo initiated a “valorization” scheme, forming a partnership with Northern banks and coffee merchants, which began purchasing Brazilian Arabica beans to keep them off the market and raise prices. Gradually, the valorization began to have an effect on global prices, which reached 14 cents per pound in 1911 – close to where it had been in 1896. Brazil’s success met with fierce resistance in the United States, which accused Brazil of unfairly cornering the market at the expense of US consumers. Under intense pressure, Brazil agreed to sell all of its stored coffee in 1912.
To Brazilian coffee representatives and state officials, the valorization scheme had been a success, revealing the relative effectiveness of coffee statecraft in attaining higher prices.3 These higher prices also encouraged plantation owners to step up production and plant new trees, which invariably set the stage for another glut and coffee bust. When World War I (1914–18) led to a rapid drop in global demand and prices, Brazil stepped in again. This time, the federal government held the reins, heading the country’s second valorization scheme with the purchase of nearly three million bags of beans in 1917. Once again, the valorization was a success. The reopening of core markets when the war ended, combined with a Brazilian frost, initiated a major boom, and the Brazilian state was able to sell off its stored beans at a significant profit.
While Brazil’s unilateral valorization was proving beneficial for its own coffee industry, it was also driving higher prices for coffee globally, which had the effect of encouraging new competitors. This eventually watered down Brazil’s unchallenged dominance of the industry. Central America and Colombia, in particular, responded to higher prices by massively increasing their own coffee production, making huge inroads into global markets and dragging prices down by the 1920s. In response, once again, Brazil conducted a third valorization scheme, purchasing millions of bags of its own coffee in 1921. A few years later, Brazil sold the beans at a substantial profit, sparking major protests from the US government and US coffee roasters. Brazil resisted these protests – pointing out that the United States took similar measures for cotton, wheat, tobacco, and other products – and proceeded to carry out a fourth valorization scheme in 1926.
This time, Brazil’s luck had run out. On October 29, 1929, the US stock market crashed, initiating the Great Depression, and leaving Brazil holding tens of millions of bags of coffee at a time of plunging prices with no immediate end in sight. Desperate, Brazil banned new coffee planting and burnt millions of bags of coffee in hopes of bolstering prices by reducing available supply, to no avail. On a global scale, the Depression had immense consequences for small and medium farmers, causing mass bankruptcy and social chaos, and for rural workers, who were either laid off or saw their wages cut and poor working conditions intensified. These outcomes led to social unrest, which threatened the territorial and capital logics of coffee-dependent states. In response, many states responded individually, often through terror and violence unleashed on the masses of rural poor by vicious dictatorships, as discussed in chapter 2. The Depression also had the effect, however, of giving a boost to serious talks about the possibility of coffee states working together to address price instability through collective action.
In 1936, Latin American coffee countries met to discuss a collective response to spiraling coffee prices. The meeting was held at the urging of Brazil, which had grown increasingly aware of the limitations of unilateral valorization and progressively frustrated at other coffee countries “free riding” on its efforts. Brazil’s valorizations had effectively propped up global prices in the short term, but also encouraged new
competitors to enter the market in the longer term. The new producers benefited from the higher prices while the Brazilian state accepted the burden of the risk – all the while sowing the seeds for an eventual glut caused by global overproduction and another bust in prices. Consequently, Brazil pushed hard for a collective resolution at the meeting, which resulted in an agreement to fund a Pan American Coffee Bureau to promote coffee consumption (discussed in chapter 2) as well as a bilateral arrangement between Brazil and Colombia, now the world’s second largest coffee exporter, to sell their beans with set minimum prices. Brazil also continued to conduct unilateral coffee statecraft, holding 70 percent of its beans off the market in 1937 and burning over 17 million bags of coffee, at a time when world consumption was only around 26 million bags.
Initial efforts at collective action met with little success. Faced with social unrest and desperate to raise small coffee farmers’ income, Colombia broke the agreement with Brazil within a year, selling its beans below the fixed limit to encourage exports. Brazil responded forcefully, calling for another conference of Latin American coffee producers and threatening to abandon its unilateral valorization efforts. When other countries attempted to call Brazil’s bluff, refusing to come to terms with a new agreement in the belief that Brazilian state officials were unable or unwilling to truly abandon valorization, Brazil proved them wrong. It abandoned efforts to hold its beans off the market and even began to encourage Brazilian exports with a new coffee tax reduction. Exports boomed, giving an initial boost to the industry, until prices rapidly collapsed. Prices for Brazilian Arabicas fell as low as 6.5 cents per pound, resulting in a situation of increased exports but declining income; according to journalist Mark Pendergrast, “In 1938 Brazil exported 300 million pounds more coffee to the United States than the previous year – but received $3.15 million less for the total than in 1937.”4
It was not until World War II (1939–45) that Brazil was able to attain a multilateral agreement regulating international coffee prices. The war greatly intensified fears of Latin American coffee countries about continued prices by closing off European markets. The war also had the unique effect of pushing the United States into a position of supporting coffee price regulation. The United States had long protested against Brazil’s valorization schemes and had been an equally staunch opponent of any proposed collective mechanisms that could hurt US corporate coffee roasters and erode the real purchasing power of US consumers. World War II, however, raised the prospect that Latin American coffee countries, especially Brazil, could be driven into the Nazi or Communist camps in response to the social and political chaos caused by the poor state of the coffee market. As a result, the United States threw its support behind an Inter-American Coffee Agreement (IACA), signed in 1940, under which it agreed to a quota of 15.9 million bags for all coffee allowed into the US market – close to one million over the estimated total US consumption at that time. This quota was then divided among Latin American coffee exporters, with Brazil and Colombia receiving the lion’s share: 60 and 20 percent of the quota respectively. Only around 2 percent of the quota was put aside for all of Asia and Africa, which were minor coffee exporters at the time. As a result of the agreement, coffee prices almost doubled by the end of 1941, causing some fear among US state officials, who unilaterally increased the quota by 20 percent and froze prices at 13.38 cents per pound from 1941 to 1946.
When the war ended, coffee prices boomed, and the IACA expired in 1948 without renewal or political contention. European markets were reopened and US demand was growing fast, due significantly to the fact that instant coffee had been part of the standard US army food ration during the war. By 1949 the price of Brazilian Arabicas had reached 80 cents per pound – compared to 6.5 cents a decade earlier. High prices encouraged coffee expansion in Brazil, which, combined with innovations in fertilizers, pesticides, and planting strategies, resulted in a major boom in production. High prices also inspired the rapid emergence of new competitors, especially those in Africa who emerged in the 1950s as the dominant exporters of Robusta beans.
Over 80 percent of the beans exported from Africa were Robustas, which vary from Arabicas in several ways. Robusta beans take only two years to produce their first harvest (compared to three to five years for Arabica), yield more beans per tree, are more resistant to disease, and grow at lower altitudes in warmer regions than Arabicas. Offsetting these benefits, Robusta beans contain around 50 percent more caffeine than Arabicas and as a result have generally been considered to produce a harsh taste. This historically placed significant limits on Robusta’s desirability as an export crop. Matters changed dramatically in the 1950s with the rise of instant coffee, in which bean quality was much less relevant, and with new processing methods adopted by major roasters in the North, who could now blend cheaper Robustas in with Arabica beans. By the end of the 1950s, Robusta beans accounted for nearly a quarter of world coffee exports. Today, over 38 percent of the world’s coffee beans are Robusta and are grown throughout Africa as well as by major coffee exporters like Vietnam, Indonesia, India, Brazil, and Ecuador.
The rise of African coffee countries occurred not just in response to price signals, but under the direction of a variety of state coffee agencies that emerged in the late colonial period in the 1950s and after independence. These agencies generally functioned with a state-granted monopoly of coffee exports and provided varying degrees of research and development, extension services, and credit to growers. They brought in revenues to the state by selling at world market prices beans purchased at lower internal prices. In many instances, this additional revenue was squandered by corrupt or inefficient states. At the same time, despite the difficulties, African coffee agencies did provide some services and market protection to farmers, and in general terms oversaw a major expansion of domestic coffee industries. From the 1950s to the 1970s, African countries led by Côte d’Ivoire, Angola, Cameroon, Burundi, and Tanzania became major exporters of Robusta beans to markets in the colonial and former colonial countries of Belgium, France, Portugal, and the UK. Several African countries, in particular Ethiopia, Kenya, and Rwanda, also emerged as significant exporters of higher-quality Arabica beans. By 1970, African countries had risen from being minor coffee exporters to accounting for a combined total of 32 percent of the world’s coffee exports.5
As has often been the case in the coffee world, the rapid rise of major new exporters caused crises in the global market. The boom of African exports initiated a major glut, which in turn led to new attempts to develop international agreements to collectively manage coffee prices. In 1958, Latin American countries approved their own coffee agreement, with all participants agreeing to withhold varied amounts of their crop from the market, including 40 percent for Brazil and 15 percent for Colombia. The next year, the same countries agreed to try a one-year quota system, this time with African coffee countries involved, in which everyone committed to export 10 percent less than their best year in the previous decade. While interesting enough on paper, the agreement had only lukewarm support in many of the countries involved and its terms were widely broken, even though it was renewed for a second year. All the while, overproduction continued to wreak havoc on coffee prices, with supply far outreaching demand – by the end of the 1960s, global production had reached 50 million bags compared to only 38 million bags of global consumption.6
The nature of the game finally changed in 1962, when formal talks conducted under the aegis of the United Nations successfully led to the 1963 ICA. This multilateral agreement involved the world’s most significant coffee producing and consuming countries. Unchecked overproduction and declining prices had reached severe levels, posing major threats to the territorial and capital logics of coffee producing states. Whether large or small, coffee-dependent countries faced economic and social crises, pushing millions of farmers and rural workers toward protest, rebellion, and in many instances radical or revolutionary politics against unequal landownership, terrible wages and working c
onditions, and the capitalist economy in general. The inability of the state to protect prices and income, combined with declining state revenue from coffee export tariffs and depleted foreign exchange earnings, threatened the overall stability of several coffee states; they simply could no longer afford to sit on the sidelines or strategically avoid meaningful collective action of the sort long pushed for by Brazil and, by this time, Colombia as well.7
In the North, support for the ICA among consuming countries harkened back to earlier agreement to regulate coffee prices during World War II for fear that Latin American countries would be driven into the Communist or Nazi camps. The United States in particular was driven by its own capitalist logic, and the fear that low prices would radicalize coffee countries and lead them to adopting socialist, Communist, or economic nationalist development models at odds with the world capitalist system and the interests of Northern capitalists. The signing of the ICA occurred in the wake of both the Cuban Revolution in 1959, which intensified US fears of the spread of Communism, and US President John F. Kennedy’s launching of the “Alliance for Progress” in 1961, designed to counter this spread with increased aid and economic cooperation to the South. US government support for the ICA was also combined with growing support from large US roasters. These corporations had historically seen price controls as a threat to their profit margins. Intense pressure from Brazil and Colombia, however, which typically offered the largest roasters special deals for very large contracts, convinced the corporations of the necessity of supporting the ICA and its possible benefits, including leveling both the highs and lows of the coffee cycle and encouraging a stable and reliable supply of beans.
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