832.61333/10–1245: Telegram

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

3121. Re Embassy’s telegram 3026 of October 2, 4 p.m. Souza Costa this morning asked Daniels to come to his office to discuss coffee. He said that basic idea of releasing Government-controlled coffee stocks simultaneously with removal ceiling prices presented possibilities, but that to offer stocks for sale at existing ceiling prices would be politically unacceptable if not impossible. He referred to Brazil’s present and prospective stock position which, together with favorable crop forecasts, indicated that Brazil would be confronted with a surplus next year with consequent market uncertainties. In such conditions sale by Government of existing Government-controlled stocks would gravely complicate matters and expose Brazilian Government to serious criticism for undertaking such commitment and also US Government for forcing it on Brazil. He said that he recognized desire to avoid too abrupt and steep price advance upon removal ceilings but felt sale of government stocks at reasonable price in advance of existing ceilings would be fair compromise. Daniels said that while sale of stocks at existing ceilings would be more readily acceptable in Washington, he would transmit such proposal contemplating sale of stocks at a price 2 or 3 cents above existing ceilings.

Souza Costa said he would consult confidentially a few representatives of São Paulo growers this afternoon and after having ascertained their reaction would converse further with Daniels Monday morning. Daniels asked that possibility of sale of Government coffee above ceiling price be not disclosed to these persons in order to avoid [Page 694] further speculative activity and Souza Costa agreed. Undoubtedly, however, growers will inquire regarding this possibility, affording Souza Costa opportunity to ascertain whether 3 cents above ceiling would be acceptable.

In sum, proposal now under consideration contemplates sale through private exporters of 5 million bags of government-controlled “bankers’” coffee at a price to be agreed upon, such sales to cease automatically whenever market drops below that price, with commitment to last until 5 million bags have been sold but in no case longer than 2 years; bondholders’ rights to be fully protected; no increase in minimum export price or taxes on coffee.

In event Souza Costa finds it possible to conclude agreement on this basis at price 3 cents in advance existing ceiling, it would be helpful to Embassy to be authorized to conclude agreement next Monday if Department approves. Recommend Department telegraph at once exact phraseology acceptable to it for such an agreement which could be used as basis for final settlement.