Yorkville enquirer. [volume] (Yorkville, S.C.) 1855-2006, 1912-07-12
Mistellaneous Reaaina.
THE COFFEE CONTROVERSY
Valorization Scheme of Brazil Very
Successful.

Valorization Scheme Of Brazil Yer,
Successful.
| The determination Of the department
Of justice to press a suit in the FEEDER
al courts against what Is popularly de-
nominated "the coffee trust" and
which in reality is a combination au-
thorized by the authority Of the Bra
lillian government for the purpose OF
maintaining constant equilibrium In
the coffee market, and, therefore, q
constant price level, perhaps repre-
sents the first instance where a foreign
government has been charged with
violating the Sherman antitrust law.
Whatever may be the outcome of
the litigation in the courts, 1t is GER
tain that Brazil has gone to unusual
lengths to keep its coffee at higher
price level than natural conditions
would make possible The story Of how
all this came about, and what the real
meaning Of "valorization" Is, consti-
tutes a remarkable chapter in the his
tory Of finance. It was brought about
by the Brazilian state of Sac Paulo.
Prior to 1890 this state produced COM
paratively little coffee. But the price
of coffee had been increasing and soon
every one Of the 100000 souls Of that
state began to live, move and have his
being in the coffee business. BY the
time of the Spanish war all
Of Sac Paulo's millions Of trees had
come into bearing and its coffee began
to food the markets Of the world. This
drove the price down from seventeen
cents pound to seven cents, and some
four years later 1t went as low as five
cents. Meanwhile the worlds produc-
ton Of the fragrant bean was expand
ing with far more rapidity than the
consumption. Where there were g.
10000 bags produced in 1899 there
were 100000 bags in 1906.
The coffee business got into bad
way. 1t was costing as much to pro-
duce pound Of coffee az 1t could be
sold for. The Sac Paulo government
decided to try to stop the tremendous
growth Of the industry by putting a
heavy tax on every newly planted
tree But the coffee growers continu-
ed to expand their business, and final
ly things reached such state that
bankruptcy threatened the planters
everywhere. Mortgages were being
foreclosed, and Sac Paulos coffee f.
nances began to fall into the hands Of
foreigners. The planters demanded re-
lief, with a revolution as the probable
alternative.
At this juncture the state decided to
come to the rescue Of the planters. 1t
decided that the world would pay a
good price for 100000 bags of coffee
and no more, and that by regulating its
own supply it could hold the worlds
supply at that notch. In other words,
Sac Paulo would corner the market on
coffee. 1t promptly went into the mar
ket as coffee buyer. 1t agreed to pay
cent above the market price for cof-
fee, raising it's funds from treasury
bills with the stored coffee as collater-
al, and thus the necessary funds were
secured from European and American
banking houses.
Sac Paulo bought coffee and more
coffee, but the planters kept increasing
their production, and the coffee that
Sac Paulo was able to buy was not
enough to force up the worlds price
levels. Rather, the price continued to
come down until 1t reached six cents
pound. With bankruptcy staring 1t In
the face, Sac Paulo appealed to the
Brazilian Federal government. After
Sac Paulo had surreptitiously sold l.
100000 bags Of coffee which had been
pledged as security for loans to foreign
bankers there still remained over T.
100000 bags as security for the loans
that had been made.
Acting in behalf of Brazil, Hermann
Sielcken, a German American with
large interests in that country, went to
the Rothschilds and sought to interest
them. They agreed that they would
put up the money for valorization
scheme backed by the Brazilian gov
ernment, provided that the coffee to
constitute the principal security there
for could be stored in warehouses out
side Of South America and under their
general custody for safe-keeping and
subsequent disposal.
They wanted Brazil to pass a law
imposing a heavy penalty on any one
who would plant a new coffee tree, and
creating inspectors to go about tearing
up any new coffee trees they found
Then they wanted Sac Paulo to guar
antee that at no time after 1910
should the total coffee exported amount
to more than 100000 bags, a prohib-
tive tax to be levied against all cof-
fee still in the market after that limit
had been reached. Brazil readily
agreed to the demands Of the bankers,
and in a short time Sac Paulo had
s75,0O0,O0O with which to satisfy the
creditors on account or It's attempt al
bulling the market, and even after all
debts were satisfied there was still a
nice little margin for future opera
tions.
There were six banking houses In
on the deal, and each of them, accord
ing to previous agreement, appointed
board of seven-the other member be-
ing a representative of the state of Sac
Paulo, whose duty it became to control
the stored coffee, and to sell not less
than a stated amount each year. A
committee of three bankers also was
named to be responsible for the coffee
as trustees.
The valorization scheme worked this
time. The price of coffee began to rise
and contrary to all experience, the
presence of this great supply of with
drawn from the market coffee did not
tend at all to hold down the price
L. L., LOT