832.61333/959: Telegram

The Ambassador in Brazil (Caffery) to the Secretary of State

1224. The Minister of Finance and Guedes have long since realized that coffee quotas will be increased and there has been no thought at [Page 624] any time that the Department would oppose such action in exchange for Brazil’s agreement to terminate the coffee agreement. In accordance with the Department’s instruction (Department’s 1004, March 28, 9 p.m.) the Embassy has made the foregoing clear in a memorandum to the Minister.

Souza Costa is taking the position that it would be politically inexpedient to terminate the agreement now and states that President Vargas and Aranha share this view. He will defer a decision on the agreement until after the Easter holidays. (He will be absent from Rio de Janeiro next week).

The Embassy suggests that the Minister might agree to cancellation of the agreement at the expiration of 6 months on September 30 on the condition that we purchase a maximum of 350,000 bags of Victoria coffee during that period. This would relieve us of the obligation to buy over 3,500,000 bags under the terms of the Agreement.

Reports are circulating in Santos that a motion to request an increase of 2 cents per pound in the United States ceilings will be approved at the forthcoming meeting of the Inter-American Coffee Board. In addition São Paulo coffee interests are today petitioning President Vargas to improve coffee prices either by means of an increase in ceilings in the United States or a reduction in the export tax in Brazil. Coffee exporters in Santos feel we need their coffee and that if they hold out long enough we will be forced to raise prices.

Souza Costa is perplexed over reports which the Embassy has confirmed that some of the leading exporters including the Simonsen group and American coffee corporation are buying coffee at prices in excess of our ceilings, this despite the fact that stocks in Santos now exceed 3,000,000 bags and the recent official statement by the OPA89 that ceiling prices will be maintained. He assumes that they are in possession of “inside information” and is investigating the situation.

  1. Office of Price Administration.