The Ambassador in Brazil (Berle) to the Secretary of State
[Received February 1—2:47 p.m.]
326. Immediately after presenting my credentials, we tackled the matter of securing the 1 million bags of coffee for the Army with Souza Costa. We made it clear that it was utterly impossible to expect to [a?] change in the ceiling prices and I let him read relevant parts of the Department’s instruction (your 145, January 15, 9 p.m.51) in that regard. I said that rationing might well be imminent unless something were done. Souza Costa agreed to call a meeting of the coffee suppliers and said that he thought that on February 5 he could give us assurances that the coffee would be forthcoming.
He then explained with some care the difficulties of the coffee growers. I told him we had not any interest in the speculative holders of coffee and particularly not in operations like those conducted by Sampaio Vidal who has been putting out reports of his intention to take up the coffee price question with this Embassy and his hopes [Page 690] of getting action, thereby getting publicity which has caused prices to rise. Souza Costa fully agreed. But he said in coffee as in other things, the volume of production goes down as the unit cost goes up; and for the last couple of years drought and weather conditions have severely limited the crops. Present indications are that the present crops will likewise be short. Under these circumstances, he said it is largely true that the ceiling price is lower than the cost of production; and the question is of how to induce the growers to release their holdings. Those growers he said who were unable to hold because of their loans simply sold to Santos speculators who could hold relying on the unfavorable statistical position of coffee. I said that I did not want to hold out any hope of relief action and particularly none as to ceiling prices since it was clear that the American Government would hold that price under any circumstances. But I said I should be glad if he would let me have for my personal use actual cost of production figures of the coffee crop or crops so that we could adequately appraise the situation. I said that under no circumstance would we want to do any thing but, of course, a method would have to be found by which the coffee growers themselves could recover their cost of production. I further stated that I wished him to keep this entirely secret since I did not want to inspire hopes that might not be fulfilled and certainly none which would lead coffee growers to withhold their crops from the market.
Souza Costa said that no coffee grower who could be found doing so to release it at a profit, would release it at a loss and to secure the million bags the Army wished he would have to offer to finance the new crop on longer terms and probably at an amount per bag greater than the ceiling price—this being in effect a kind of credit subsidy.
My impression is that the Army can count on its coffee since I am inclined to take Souza Costa’s assurances at face value.
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