811.5017/10–1345: Telegram

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

2440. Reference Cale’s60 conversation Daniels Oct 11, Emb requested immediately sound out Brazilian authorities on following memorandum of understanding which if approved there and here would be initialled by Souza Costa and Berle:

“In view of the fact that the present world supply of coffee is believed to be adequate to meet world demand and in view of the desirability of establishing conditions such that coffee prices are determined by normal market forces as free as possible from govt controls or speculative activity, it is understood that:

The Govt of the US will take immediate steps to suspend maximum prices for green and roasted coffee.
The Govt of Brazil, immediately upon the suspension of US maximum coffee prices, will, for a period of at least one year or until such maximum coffee prices may be reinstituted,
Suspend the operation of minimum export prices on coffee;
Not increase current export taxes on coffee by more than 5 cents per bag.
Not take any action, other than that provided in paragraph 2d, to prevent coffee producers or the coffee trade from selling coffee at prices that may prevail in the market.
Use such coffee as may be owned or controlled by the Government to prevent an unwarranted price advance following the suspension of US ceiling prices.
In fulfilling its commitment under paragraph 2d, it is understood that:
The Brazilian Govt, through offering for sale coffee it may own or control, up to a total of 7,000,000 bags if necessary, will assure the sale of coffees to the US market in the following quantities and in the following manner:
One million bags for shipment from Brazilian ports each month from Nov 1945 through June 1946, inclusive;
All such coffees to be offered through the regular channels of trade;
The Brazilian Govt will stand ready to offer coffee up to a maximum of a million bags for shipment during any one month, to all buyers at prices which will permit resale in the US at prices that are not more than 3 cents per pound above the equivalent of present OPA price ceilings for the grades in question.
These sales by the Brazilian Govt will be supplementary to sales by private sources. Sales by both govt and private sources will be large enough to assure shipments of one million bags a month as specified in 1 (one) above.
The type and quality of coffee offered by the Brazilian Govt to be suitable for the US market.
The Brazilian Govt may use coffee now pledged as collateral for loans in carrying out the commitment in the foregoing numbered paragraph, it being understood that in so doing all steps necessary to protect the investors rights and interests in such collateral will be taken.
Nothing in the foregoing paragraphs shall obligate the Brazilian Govt to sell coffee at prices less than the equivalent of the present Office of Price Administration price ceilings for the relevant grades of coffee.
The Govt of Colombia will be requested by the Govt of the US to subscribe to a memorandum similar to the present memorandum, except that the provisions of paragraph 3 will be omitted. The commitments in the two memoranda will become effective as soon as they both have been signed.
The delegates of Brazil and the US will support the approval of a resolution by the Inter-American Coffee Board recommending to the producing countries that are signatories of the Agreement the adoption of a course of action similar to that contained in paragraph 2 (two) above.”

Colombian Govt has already been approached through delegate to Coffee Board regarding memorandum mentioned in paragraph 3d and its reply is awaited.

Brazilian commitment under paragraph 3, a, b and c, would mean that Govt stocks would be used only to extent necessary to assure sale and shipment from both Govt and private sources of 1,000,000 bags of Brazilian coffee monthly. Limitation to 3 cents above present ceilings would apply only to sales made by Govt but it is anticipated that [Page 696] public announcement would be made probably here that Govt was prepared to sell coffee at such prices to assure supplies.

Deptel 2321, Sept. 26.63 Reference paragraph 3b above, it is suggested that Ambassador interest himself personally in way in which Brazilian Govt proposes to release collateral coffee and product bondholders in view some doubts here. His comments to Dept would be appreciated.

Friele62 has offered to telephone Suliroz Lima, Secretary to Vargas, if you believe this would help negotiations. Please advise.

Believe foregoing proposal is eminently fair to producing countries and that consideration should be given to publicizing it in event it is rejected. Please advise.

Please report soonest possible.

  1. Edward G. Cale, Associate Chief, Commodities Division.
  2. Not printed.
  3. Berent Friele, President of American Coffee Corporation.