Foreign Relations of the United States, 1958–1960, Volume V, Microfiche Supplement, American Republics

ETA–5. Memorandum from the Deputy Under Secretary of State for Economic Affairs (Dillon) to the Secretary of State.¹

Washington, March 31, 1958

SUBJECT

• Coffee Problem

High coffee prices have stimulated production in Latin America and in other areas, particularly Africa, with the result that coffee production is rapidly outdistancing consumption. The demand for coffee is relatively inelastic and a price reduction will not stimulate consumption enough to prevent a decline in total income.

Recognizing this, the seven principal coffee producing countries of Latin America have been holding supplies off the market in a joint effort to maintain the price in a range of 50 to 60 cents a pound. The Governments of Colombia and Brazil, which produce more than half the world’s coffee, and which depend upon it for 60 and 77% respectively of their foreign exchange, are both in balance of payments difficulties which could become critical if there should be a further decline in coffee prices. The price of Colombian coffee has already fallen about 33% and Brazilian about 10% over the past year. Both governments have also shouldered a heavy fiscal burden in undertaking to finance the supplies of coffee withheld from market. African producers are not party to Latin America’s efforts to maintain prices. There is danger that the marketing agreement will collapse in the near future, and that coffee prices will decline sharply as each country tries to dispose of its own surplus carryover.

The long-term solution to the problem must be a decline in coffee prices sufficient to curb plantings and bring supply back into equilibrium with requirements. It is in the United States interest as well as that of the producing countries, however, to accomplish this objective gradually rather than through a sharp break in coffee prices which would create serious political, economic and social problems in 7 Latin American countries.

The Latin American producing countries have been urging the negotiation of an international coffee agreement as a means of stabilizing prices for the past three years. Failing to obtain support from the United States for this approach, they have recently established a World Coffee Organization primarily to stimulate consumption through a trade promotion program but also to study economic trends of the industry and to serve as a forum for discussion of coffee problems. Membership is presently limited to producing countries; however, it is understood that consumer representation would be welcomed, and that provision would be made for the admission of consuming countries on a limited basis, without obligation to finance the trade promotion activities but with full participation in the economic research and informational activities of the organization.

By indicating an interest in participating in an international coffee study group, the United States would obtain the following benefits:

1. It would reassure the coffee producing countries regarding our interest in their welfare and our willingness to discuss with them commodity problems in which we have no interest as a producer.

2. It would give the United States an opportunity to influence the producing countries to develop coffee programs which are consonant with long-term equilibrium between supply and demand.

3. It might strengthen somewhat the current marketing position of the producing countries by indicating that the world’s principal consumer is cooperating with them in devising a solution to the problem of surpluses.

It should be recognized, however, that an offer by the United States to participate in multilateral discussions would not solve the immediate problem.

It would not be the intention of the United States in such multilateral discussions to consider participating in or financing any buffer stock or retention plans which might be proposed. Similarly, we do not propose to discuss price with the Latin Americans at this time because to suggest a reduction in current high price levels would be resented especially since price decreases would largely be absorbed by governments rather than producers. On the other hand, if there should be a decline in prices below what we consider to be the danger point, it would probably be necessary for us to impose import controls to maintain prices at a level fair to the producer and consumer. Unless and until there is a price break, our intention is to resist Latin American pressure for United States import controls. In any case the imposition of United States import controls raises certain legal questions concerning the need for legislation which require further study.

Our proposal to participate in the study group raises a policy question in view of a 1955 decision of the Council on Foreign Economic Policy that we should not participate, or make any implied commitments regarding participation in an international commodity agreement “until approved at the inter-agency level within the Executive Branch.” (Tab A).² We anticipate opposition to a departure from our present policy in this regard.

A more detailed statement of the coffee problem is attached as Tab B.³

Recommendation

That you authorize the Department to propose to the CFEP United States participation in an international coffee study group, to be composed of important producing and consuming countries, on the basis described above.⁴

Concurrence

ARA—Mr. Rubottom

Approved_______________⁵

Disapproved_____________

1. Source: Department of State, Central Files, 820.2333/3–3158. Confidential. Co-drafted by Assistant Secretary Mann and Jean H. Mulliken of the Office of Inter-American Regional Economic Affairs. Assistant Secretary Rubottom and Legal Adviser Loftus E. Becker concurred in the memorandum.
2. Not printed as an attachment.
3. Not printed.
4. In a memorandum to Clarence B. Randall, Chairman of the Council on Foreign Economic Policy (CFEP), dated May 5, 1958, Douglas Dillon, Deputy Under Secretary of State for Economic Affairs, recommended that the CFEP authorize participation by the United States in an international coffee study group. (820.2333/5–558) At its meeting on May 20, the CFEP adopted action 569, authorizing the Department of State to participate in an international coffee study group, and, as an exception to general policy, to discuss an international coffee agreement, providing that it did not imply U.S. assistance in policing such an agreement. The minutes of the CFEP meeting and record of action are in Eisenhower Library, CFEF Records.
   On May 30, 1958, U.S. officials proposed informally to representatives of some of the principal coffee producing states in Latin America the formation of a Study Group on Coffee. Following a series of informal consultations, the Study Group was organized in Washington on June 23, with twenty-two members and one observer (Netherlands). (Current Economic Developments, Issue No. 549, July 8, 1958; Current Economic Developments, Lot 70 D 467)
5. Herter initialed his approval on April 9, 1958.