HISTORICAL SB/1EW PROGRAM
3
Chief, WHD
Quateaslaa Coffss Study
will confirm our oral request for aof the Ouatenalan oof foe industry, ss set forth leion- by awaboTB of WHO snd BCD withC
c a suvois.
le requested that this study be developed alooflines of as inforual list of quoatlane eobsdtted to Qand bp codified by subsequent Meetings.
J. u. KING
j& A *
3. kt tbe Oustooalan political situation asy result ln attracting undeelred attention to our intertst in it, lt latost the Information bo gathered In asanner as is possible, in keeping with theridcr^tion of current and accurate results.
. <*
WHAV
Guatemalan coffee la one of the sdld coffees used mostly In this country to obtain oaa of the higher price blends. While change* la blend cojrpoaltlon, nocessltatod by variations In availability and price ofcoffees, have little short torn significance, except to tho merchant) over longer periods, cyclical changes In supply and prices nay Inducemodifications ln consumption. Favorable or unfavorable offsets upon the demand for one brand have United significance to the Industryhole,eneral tendency for coffee Merchants In Important consuming market* to useor poorer-quality coffees does) have aninfluence upon consumption habits, and banco, uponlntrade.
Ta practloe, the coffee merchants formula for an established brand Is never rigidly fixed. Coffsst drinkers say have preferences as to blends andbo able to dlatinquioh between Brazilian coffee and tho adlder growths froa other Latln-Aoericon countries, butgood cup of satisfying coffee can be obtained freeariety of ccaablnatlone in tho blond. Standard good brands of coffee In tholonderoent of mild Colombian or Control American coffees with good Brazilian ooffoee. Bleb quality brands are blends of mi Ids and may contain no Erasan oof fee, while the cheapest coffees may consist entirely of Host ooffso sold at retail Is Identifiedoaster's or diatrlutor's brand name, eotnsonly through tbe package or container In which tbe coffee is sold.
It is believed tbatlf largo osiers of Onstnmnlsn oof fee among tha loading brands were to be persuaded, oa patriotic gourds, to eliminate Oust sea lan coffee entirely ia their blonds, therfore, aad substitute another mild coffee. It could be done without tho consumer being any tho wiser.
Deliberate discrimination cou& WtasWio^ty'the simple explanation of Improving flavor.
Guatemalan exports of coffeeg, each}, and aboutercent of this waa marketed In. Guataaalan exports during thia period* of the uorld's total exports. Other producers of wilds were In Central Aserlca and Mexico end accounted'$. Colombia and Venezuela, other nild producers,1espectively, of the world's exports during this period. Ample supplies of sdldfl would therefore be available to merchants who would agree to switch from Guatemalan to some other mild coffee Inthelr blends for patriotic reasons.
nraarERCTCK with quality
At the receiving port, newly arrived green coffee goes Into jobber's or roaster's warehouses to await distribution to outlying markets, where It is roasted, ground, and packaged for sale to the ultimate consumer.
Coffee is not particularly subject to deterioration because ofbut is especially vulnerable to humid conditions, while storage of many tropical products Is hasardoua In producing centers, both because of weather and Inadequate storage facilities. It is especially soomrodity like coffee where, without flavor and aroma, the valuabledisappear entirely. long storage of green coffee affects first the color of the bean and later the flavor.
When weather or conditions of preparation vary enough to affect the quality of the season's output, the merchant using certain central American ooffeee may find it necessary to shiftifferent type and supply source because of the limited quantities of high quality blending coffees availablearticular season,
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Security Inpfflwnalion
Several roes tare Infairly large requlrenecte, depend entirely
upon Central American Coffees,
Tha condition of coffeerrival at it* foreign destination depends * largely upon proper stowing aboard ship. Because it la liable to sweating, care aust be taken that no aetal touches the bags. Arple sir circulation during the voyage is necessary to assure dryness of the cargo.
If the coffee beeonen wet, it aust he given special treatment at the receiving port. This adds to the cost of handling and necessitate* sellingistress" basis.
The sudden drop in temperature when the ateanshlp on which the coffee Is loaded leaves the Gulf stream, after cany days of war* weather, ray cause excessive sweating between decks.
Ship sabotage of Ouateemlsn coffee could, therefore, be accomplished b interfering with the air circulation, br breaking steam pipes that would cause humid conditions, or by opening portholes during storms that wo ;ld cause partial flooding of the cargo. Similarly, whan the coffee la la warehouses in thia country, tampering with the sprinkler system might have the same effect of spoiling the flavor or aroma of the green coffee bean. It would be difficult for shippers to get Insurance coverage for loss of flavor or aroma, yet importers could lodge claims against shippers and make deductions free- 'nvoioes for this reason.
PRICE RIfiOTMC
hort supply of mlli coffees or an abnormal demand forces tho price upward, the roaster firstlternatives in coffees of similar characteristics. Palling In this, ha must make the closest approachunder conditions of prevailing price dlfferentiala. Thisaltering tha proportion of the various cotfees^used in the blend.
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SecuriVy Information
Thus, oof foe constsaers Inar* offered sore mild coffees thanefore Curing World war II and Liked them,re-war treed which urns accelerated when Ere all's were not avails hie la adequate quantl-tloo boesns* of shipping difficulties.
Trad* demandbort periodsuch more responsive to pries change* than la consumer demand. Stocks are built up when prices are low and reduced when they are high. Abundance and low prices stimulate the trade to embark on carrpl/ao^ not merly to dispose of large stocks, but to raise tho lerel of publlo de-rand. Trade demand, over longer periods, must of coureo, reflect consumer demand.
There still seemed to hare been some lingering doubt as to theof consumer reaction* to excessively high coffee prices lnut no doubt thata=jt:or. was down lnnd thiseriod offull employment, high per capita national income, and generally stable prices for other foodstuffs.
Once consumers acquire the habit, continued use of coffee neeme to depend mre upon price than upon income, but this view le frequentlyand is practically itrpoaslbl* to prove. Both prloos and Inoone are uMcubtedly of prime Importance in affecting consumption, but are by no means the only Influences.
Except In countries imposing heavy duties and taxes on imported coffee (lt is duty fro* In thehe eoat of the raw product Is always tho largest singlen the retail price. The hi-her th* prle* of pre an eoffoe, and th* th* larger the ratio Itto the retail price, the greater the influencechange* in gremn coffee prloe*. Most of theof transportation, storage, roasting, packaging, and sealing, tend to remain more or less stable in relation to the volume of coffee handled
SEjfiiET >.
Security Information*
Ingrowers wereents per pound for coffee retailing aroundents In hey were getting overents per pound for coffee retailing aroundents per pound. The ratio of grower return to retail selling price bad increasedoo 1.
The coot of producing coffee in Guatemala7 was said to be approximatelyents per pound. Since then, production costs. Practically all costs involved In producing andcoffee have increased In tho past decade, but undoubtedly the "tabor, item is theortant In overall coats. Between the plantation and the artail distributor In tbe consuming country, many ooats and expenses are Incurred over which the producer baa essentially no control. Retail pricesde up of first costs of coffee, plus such itesrs as handling to the shipping port, export duties or taxes levied by producing countries, ocean freight and Insurance, more handling and storage at the receiving portj import duties am' othe* taxes levied b; governments of the consumingj processing, packaging, merchandising and distribution charges; and the business profits of interrediariea alone the line. Undoubtedly, all of these coats have increased over pre-war In sore degree but not to tho extent of the prime costs of production*
Depressing the price of Guatemalan coffee would, therefore, have an immediate repercussion on Guatemalan labor, necessltatiea^lower wages on tbe plantations. Lower prices could be artificially Induced' first, by reducing the supply by cornering it. The first effect of such action would bo to miss the price. er, since the milds In any blend are chiefly responsible for the bocyk flavor, and aromat la especially important to the merchant that the premium coffees be available In the Begjrod Quantities and at prjess that permit keepingbjend. costs
Security Irifo^manon
coffee vero priced oat oT* tho mrket thru speculation,would turn to other types for
their blende. Representing% of the total supply, end leesf tho supply of cllds, the effect would be core to el loins, te tho use of Cuata-alnnn1 In blends than to relsoetho prlcos of other rilda. easons crop of competing types had been rarkoted and merchants bad filled their roqulreciante with other blends, part of the cornered supply could then bo used to depreea tha market ln Guatemalans b. offering lt at deoorsllsinf* ly low prioes. The factupply of Cuatssaalan coffee hung orer the market would continue to depress th* price. Th* repercussion or returns to growers would beatioo 1.
Faced with lover prices for their product, growers would seek to reduce labor coots. Political repercussions might follow.
STTWrLAYlOBB
GuatsnUan coffee production: representsf the totalof wilds capable of being substituted for Guatemalan coffee by blenders. Coffeeelatively Inelastic deraad. But since final processing of raw coffee does not occur until it begins to pov* intochannels, the coffee Importer has nore flexibility in timing hla purchases and often canavorable market. However, if the supplyiven type of coffee was held off the xerket, the Importer mustturn to substitutes. Once substitution wore rade, competingwould draw oa interior stocks to fill tho de-end. The Cole-Man Federation of Coffee Growers was thought to hold oubetatlal stocksillion in resources. It was reported7 to bef all the new crop coffee to support the market. Market development of th* next few years, which was favorable to producers, permitted this secl-
goveiTOental agency to liquidate Its temporary holdings advantageously, usually, out of an exportable production ofill ion bags of interior-bold coffee stocks, stocks In port and afloat and other visible stocks amount tof the annual production.
ftff"TrK0
Tbe Agrarian Reform lav was conceived partly to deal with the problem of tbe FIKCAS RATIONALES (re. tbe expropriated German flncas) to avoid having to return them to their former owners, even though they have >eento deteriorate and in some caaea to lie fallow. The Germantaken over by the Government and admin! stored by otto Carbello of of Offioano Central, are commenting to deteriorate. Such plantations were formerly show places and accounted forri of all Guatemalan coffee production. They are now improperly adsinild treea are notand production has dropped considerabl|r. However, they are earning0 niUlon annually for tho Guatemalan Govt, an" their loss woulderious blow to Government revenuec.
Whan the discuseionersan peace treaty arose, Cuateraola? being Inr. sphere of Influence, felt that she would be placed on the spot In regard to the disposition of these flneaa. The Agrarian Reform
Law was drawn up partly, at least, to transfer these German holdings to pemanant Guatemalan ownership. It una also, partly ofolitical move. The Roform Law would require domestic disposal of the flncas and therefore will probably not be implemented but will be kept as an excuse to prohibit return to German ownership.
The flnpuaros. In feneral, are not particularly concerned about the Agrarian Reform Law. Cultivated land is exempt and the definition oflandIs very broad. It includes all crop and pasture land, only sterile ground IsS&vated^
Security Information
Generally nwakloc, local capitalists in Latin Ame-lea ham never hadconfidence in "feelr ovn fOvorrr-entB to be willing toational fiscal policy. Their 'ntsrssta lay In quick profita that could later be converted to eone fora of "sheltered" investment. The bulk of tbe export bualneaa in the principal coffee producing countrlea tenda to be concentrated In the ban da of relatively few fima.
Theationonferences, earlylaced European coffoo requirementsillion bags annuallyonsumption rate about AOJt greater than then current, fiat coffee producers wanted dollar* and auropean countries were alreedjconserving their dwindling foldollar reserves for rore essential purchasea. If latin American producers would not accept inconvertible currencies| aarket contraction, accumulation of stocks and preasura on ooffee prices were inevitable. Producers saw In the Marshall Plan the opportunity toontlnualtion of high coffee prices. If European deand could be -ade "effective" b* virtus of the fact that. supplied the dollars, producers would be able to rain tain tkelr superior bargaln-*ng position in Sealing with the all important Jrerleaa market. The ERF involved the help of Latin Aaerlcan countrlee as suppliers, aad hence the bargain'ng power was eubatatntlally lncreaaadlsw when it seemed to be in the decline. Although, perhaps, notplanned!. efforta to bolster Eupopean economies indirectly benefited Latin America. With ooffee, the increased purchased by Ruropean countries waa enough to tip the scales an* create conditions In tho OVS. aarket that the producers had long soupht. Pyith thefamineheir most extravagant hopes had been realised.
After the spectacular run-up in priceshe Rational Coffee association seeded eoaevhat less confident that demand vas not restricted Bv high prices* Tho offsets on coffee consumption. vex*to appraise butboobs to agree that high prices aread effect on consumption of coffee ln Prasll. Some eetlsates on this reduction go as hi ftags1'. Tbe Rational Coffee association la the leaning coffee trad* organization inncluding brokers, Importers, and roasters ln Its tpowber-hlp. It soaatlres Joins with the Pan American Coffee Bureau ln coffee promotion ca-palgna. Thebedatin American producers1 agency for prooo-
tlnf consumption and advising its merbere oa current market developments. Ast was supported by Brasil, Colombia, Cost* Pica, El Salvador,
Cuatanmla, Hondurae, Mexico,uMiij, and Venes/iola.
Snail cofee plantation owners in Ounterela have recently beenely reslss In shipments. Purchase* ere tied ur> for aVoorual lenrth* of tl-e. This poor trade conduct cf U* small plantation owner" le caused by the Influence of communiet groups to. trad* and the si-all owners ere an. most susceptlbl* to such overture?.
Under these conditions ltn difficult to apply any artificial reotrlcutloQB on the marketing of Ouotemalan Coffee In, Coffeeerehants and bankers dislike the leftist poverurent. ftit they lack the intelligence and courage to curb its excesses. Vcet of them have atempera-out and ere too JndfvJduallstlo to act together. The Cormuniet^ who are larpely in co--end of the agrarian pro/ran are eald to be arming the stcII fercers, who have Venn the chief reneflelarles of that program.
Original document.
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