El Paso herald. (El Paso, Tex.) 1901-1931, 1912-06-21

the Brazilian government for the pur-
pose of maintaining a constant equi-
librium in the coffee market and
therefore a constant price level, is rep
resented perhaps 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, II Is certain
that Brazil has gone TO unusual lengths
to keep its coffee at a higher price
level than natural conditions would
make possible. The story of how all
this came about, and what the real
meaning of "TalOriza ton" is, cOnSti-
tutes a remarkable chapter in the his
tory of finance. 1t 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-American war all
of Sac PaulOs millions Of trees had
come into bearing and its coffee began
to flood the markets of the world
This drove the price down from II
cents a pound to seven cents, and some
four years later it 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.
5000 bags produced in 1899. there
were 90 OOO, 600 bags in 1906.
Try to Curb Production.
The coffee business got into bad
way. 1t was costing as much to pro-
duce a pound of coffee as 1t could be
sold for. The Sac PaulO government
decided to try to stop the tremendous
growth of the industry by putting
heavy tax on every newly planted tree
But the coffee growers continued TO
expand their business and finally
things reached such state that bank
ruptcy threatened the planters every
where. Mortgages were being fore
closed, and Sac PaulOs coffee fincas
began to fall into the hands of foreign
ers. The planters demanded relief,
with a revolution as the probable alter
native.
At this juncture the state decided to
come to the rescue of the planters. It
decided that the world would pay
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 PABLO would corner the market on
coffee. 1t promptly went into the
market as a coffee buyer 1t agreed
to pay a cent above the market price
for coffee, raising its funds from treas
ury bills with the stored coffee as col
lateral, and thus the necessary funds
were secured from European and Amer
lean banking houses
Corner Proves a Failure.
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 it reached about six
cents a pound. With bankruptcy star
ing it in the face. Sac PaulO appealed to
the Brazilian government. After sac
PaulO had surreptitiously sold 1900, 600
bags of coffee which had been pledged
L. 10
ers, there still remained 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 a ValOTlZatlOn
scheme backed by the Brazilian govern
ment, provided that the cOftee to con-
stitute the principal security therefor
could be stored in warehouses outside
of South America and under their gen
eral custody for safe keeping and sub
seQuent disposal
RothsehIId's scheme Works
They wanted Brazil to pass law i'm
posing heavy penalty on any one Tho
would plant a new coffee tree. and ere
ating inspectors to 20 about tearing up
any new coffee trees they found Then
they wanted Sac Paulo to guarantee
that at no time after 1910 should the
total coffee exported amount to more
than 10000. 600 bags, a prOhibltye tax
to be levied against all coffee still in
the market after that limit had been
reached. Brazil readily agreed to the
demands of the bankers. and in short
time Sac PaulO has S75,0OO,OOO with
which to satisfy the creditors on &C
count of its attempts at bullinS the
market and even after all debts were
satisfied there was still nice httie
margin for future operations.
civ hon inc r
the deal, and each of them. according
TO previous agreement appointed rep
resentative to look after their interests
in board OF seven-the other member
being 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 eacn
year. A committee of three bankers
also was named to be responsible Tor
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
Withdrawn from the market coffee did
not tend at all to hold down the price
Gradually this accumulation mas been
turned into the market. but always IN
such limited amounts as to prevent
downward movement OF prices In the
two years from December 81. 1908 to
December 81, 1910, the price OF cottee
rose from six and half cents to Is Il
cents Inc pEOLlL Oh LlAc NoAAOC put III
warehouses under the valorizatiOn
scheme was a great one, but nothing
as compared with th,' huge streams of
additional gold that flowed into the
pockets Of Brazilian coffee growers.
BY the simple expedient of holding out
a little more than 10 percent OF the
coffee from the ordinary channels of
trade, the price increased more than
100 percent The Sac Paulo people at
one time sought to accomplish this
same result by dumping every
tenth bag Of coffee produced into the
sea. but the storm OF opposition the
suggestion aroused prevented that pur-
pose from being carried out
Bars New York Exchange.
The vaIOrization scheme included the
idea that none of the valOrization cof-
fee should be sold on the New York
Coffee exchange. That organization
fixes the price of coffee every day
There are nine grades of coffee coming
into the New York market, all coffee
being graded by a set of experts, ac-
cording to standardized samples. The
basis price is on what is known as No.
Z coffee all the other percentages be
ing reckoned from that. But the prices
fixed by the exchange committee are
said the Maine senator. "The Demo-
cratic party owes him nothing. and