To throw her coffee upon Europe and the United States meant the ruin of the premier industry of Brazil. After a series of hotly debated discussions, which had begun with the menace of the big crop of 1902, the State of São Paulo, with the support of the Federal Government and in agreement with the States of Rio and Minas, decided upon the famous, greatly abused and passionately defended Valorization Plan. The methods adopted may be open to criticism, but some remedy had to be sought, and the plan had the merit of boldness as well as the sanction given by success; the fact that this success was partly adventitious would probably prevent recourse to like measures at future times. The “Taubaté Agreement” forming the base of the plan obliged the contracting states to sell their coffee at not less than a given price,[[11]] to prevent exportation of grades below Type Seven; to commence propaganda work abroad to increase coffee sales; to collect a surtax of three francs per bag on all exports; and to limit new planting of coffee. It was farther suggested that the surtax proceeds should be held by the Federal Government and used for the amortization of the loan to be made, creating a Caixa de Emissão e Conversão to deal with financial aspects of the Plan and to regulate exchange—an excellent measure which was eventually carried out.
Difficulties checked the original agreement and in the end São Paulo faced the situation alone—meanwhile the harvest was coming in, and the price of coffee dropped below thirty francs a bag—obtaining a preliminary loan of £1,000,000 on August 1, 1906, from the Brasilianische Bank für Deutschland, for a one-year term; in December £2,000,000 was obtained through J. Henry Schroeder & Company of London, and subsequently the National City Bank of New York negotiated another million sterling. The money was used to buy and store the coffee of the Brazilian plantations, and was rendered sufficient only by the co-operation of fazendeiros and exporting houses.
In June, 1907, São Paulo held 8,000,000 bags of coffee, buying only high types and through the sole agency of Theodore Wille and Company, a strong coffee exporting firm of Brazil. When Minas and Rio protested against the exclusion of their eight and nine type coffees from the stores, the Federal Government at last actively assisted, lending the State of São Paulo ten million francs for the purchase of the lower types. In July, 1907, S. Paulo stopped buying. She had acquired over 8,000,000 bags, one-third of the total purchase price of 400,000,000 francs coming from foreign loans and the remainder from advances by commission houses in Brazil on coffee consigned to their keeping. Subsequent sums for the redemption of this coffee were obtained: two million pounds sterling came from Rothschild’s through the Federal Government, and a similar sum was obtained by the lease of the (State) Sorocabana railway to the Farquhar syndicate.
With the exception of a few hundred thousand sacks all this coffee was sent to different world markets for storage until opportune sales could be made; for a whole year not one ounce of it was sold, and then, when the next Paulista harvest turned out to fill only five million bags, the preciously guarded coffee was dealt out warily to a firm market at an average price of sixty francs a bag. Without this action Brazilians say that the price must have fallen to twenty francs.
At the end of 1908 financial adjustments were made; older debts were covered by a new loan of £15,000,000 arranged with an international syndicate headed by Schroeder of London and the Société Générale of Paris. These houses took £5,000,000 each, and the remainder was distributed between Germany, Belgium and New York. The loan was guaranteed by the coffee surtax, raised to five francs a bag, and by the seven million bags remaining in international warehouses. Havre, with nearly two million bags, was the greatest holder of the valorized coffee, and it continued to be sold during the next five years only when the price offered profits.
When the European War broke out stocks of this coffee amounting to three million sacks still lay in the countries suddenly rendered belligerent—it should be mentioned here that coffee improves by careful keeping. The combined stocks in Hamburg, Bremen and Trieste totalling 1,200,000 bags were at once taken over by the Teutonic governments, and the price (about £4,500,000) paid to a Berlin bank; it got no farther because proceeds of the coffee sales being mortgaged to London bankers, transfer would “benefit the enemy.” Germany was in this case only following the same financial rules as other belligerents, but Brazil was placed in the invidious position of innocent bystander, and in 1922 was still trying a way out of the difficulty. Adding the value of the Antwerp stock also under German control (718,000 sacks) São Paulo was owed nearly seven million pounds sterling, and this sum together with the price of the Havre stock, 1,216,000 bags, was about equal to the foreign debt of S. Paulo.
Although payment for the seized coffee stocks was necessarily delayed, São Paulo was by this suddenly opened market for her coffee relieved of the anxious time that might otherwise have been hers after the 1914–15 crop was harvested. A large crop was once more the result of perfect climatic conditions following small colheitas (harvests) of one or two previous years.
Early in 1915 the Federal Government prepared to lend São Paulo one hundred and fifty thousand contos of reis with which advances were to be made to planters, enabling the retention of surplus coffee—a variant of the valorization plan which was more generally approved. But by good fortune sales of Brazilian coffee far exceeded expectation; the Scandinavian countries enormously increased their purchases and although a general idea prevailed that it was largely passed on to Germany, no objection was for a long time raised by the Allies.
| Country | 1913 | 1915 | 1920 | ||||
|---|---|---|---|---|---|---|---|
| United States | 4,914,730 | 7,061,319 | 6,248,000 | bags | of | 60 | kilos. |
| Germany | 1,865,632 | 545,000 | „ | „ | „ | „ | |
| France | 1,846,944 | 2,449,223 | 1,540,000 | „ | „ | „ | „ |
| Netherlands | 1,483,097 | 1,486,994 | 376,000 | „ | „ | „ | „ |
| Austria | 1,016,824 | 80,000 | „ | „ | „ | „ | |
| Belgium | 444,988 | 320,000 | „ | „ | „ | „ | |
| Argentina | 249,045 | 269,987 | 285,000 | „ | „ | „ | „ |
| Great Britain | 246,161 | 413,786 | 73,000 | „ | „ | „ | „ |
| Italy | 237,126 | 710,800 | 1,002,000 | „ | „ | „ | „ |
| Sweden | 212,034 | 2,333,386 | 386,000 | „ | „ | „ | „ |
| Spain | 108,928 | 106,329 | 145,000 | „ | „ | „ | „ |
| Total exports | 13,267,449 | 17,061,319 | 11,525,000 | „ | „ | „ | „ |
Prices, 1921—down to 7 m. bag; 1922 15816 m. In 1921 shipments were checked by the slump, and the Brazilian Government bought and held 4,500,000 bags. Prices, fallen to 7 milreis in 1921, recovered to over 15 milreis per 10 kilos in early 1922.