811.5017/12–2644: Telegram
The Chargé in Brazil (Donnelly) to the Secretary of State
[Received 11:28 p.m.]
4534. Department’s circular December 21, 10 p.m. In commenting to me today on the decision not to increase coffee price ceilings in the United States, Souza Costa said, “I am faced with a very difficult situation in Brazil and I must do something at once to protect the coffee interests”. He expressed the opinion that for political and economic reasons it would be necessary for the government to finance coffee in Brazil which he said might have the effect of withholding coffee from the market for an indefinite period of time and added, [Page 169] “I realize that this would ultimately result in rationing in the United States”. Souza Costa is greatly concerned over the political aspects of the coffee situation as well as the financial position of the banks that have been financing coffee especially those in the state of São Paulo. He expressed regret that our Government had not agreed to an increase of from 2 to 3 cents per pound and added “I am sorry that I did not spend more time in the United States to discuss this matter with the authorities of your Government. I felt at that time that upon completing the memorandum of understanding the interested government agencies in Washington would not oppose Brazil’s application for an increase in coffee price ceilings before the end of this year.” Souza Costa then indicated that it might be advisable for him to visit Washington now with a view to negotiating an increase in prices. I discouraged him from doing so and again reminded him of the decision as reported in the Department’s circular telegram under reference.
With respect to the DNC furnishing additional quantities of coffee to the trade for export to the United States within the coffee price ceilings Souza Costa said that with the sale of the 4 million bags the stocks of the DNC will be reduced to small quantities of inferior types and that disposal of any part of the bankers’ stocks would require the prior approval of the bankers but indicated that something might be done about it.
Souza Costa is at a loss to understand the reasons that prompt Penteado to continue to send him optimistic telegrams over the prospects of obtaining an increase in price ceilings.
On my leaving Souza Costa again inquired as to the possibility of obtaining higher prices and I again reminded him of the terms of the telegram under reference. He said he would like to see me on Thursday50 when the new president of the National Coffee Department51 will take office.