All About Coffee

by William H. Ukers

The commissioner was dismayed. His government had already promised to take coffee from the planters at about a cent a pound above the market, and the market then stood at nearly eight cents. The government would have to dig to make up the difference. Hermann Sielcken's terms were the best that could be got, however, and the commissioner accepted them.

From that time forth Hermann Sielcken was the head of the movement. He approached a few large coffee merchants, including his former rivals, Arbuckle Brothers, and drew up a contract. The merchants agreed to advance eighty percent of the sum required to buy two million bags of coffee at seven cents a pound. If the market went above seven cents, the government was to make no purchases. If it fell below seven cents, the government was to make good the difference to the merchants by cable.

Before the season was well advanced the unexpected happened. Brazil was reaping the largest coffee harvest in the history of the world. The two million bags of coffee purchased by the government were as a drop in a bucket. Financed by Hermann Sielcken, Schroeder, the great London banker, and a few prominent European merchants, the government was forced to buy almost nine million bags. Toward the end of 1907, the government had lifted half of the world's visible supply of coffee, but the market stood only a trifle above six cents a pound. The government was practically bankrupt.

Hermann Sielcken now enlisted the Rothschilds on his side, and shifted the financial burden from the shoulders of the coffee merchants to those of the Paris bankers and their American associates. Then the Rothschilds imposed their conditions on the government of Brazil. A national law was passed determining a heavy penalty for any one who planted a new coffee tree in Brazil. The government guaranteed that not more than mine million bags of the next coffee crop and not more than ten million bags of any succeeding crop should be exported.

By the end of 1911, the coffee market stood well above thirteen cents. Here was a rise of more than one hundred percent in two years, more than sixty percent in six months. Evidently, valorization coffee in the hands of the bankers' committee had become a gilt-edged security. But how?

During the five crop years since the "plan" was launched on the heights above Baden, nearly 90,000,000 bags of coffee had been raised in the world. The bankers' committee still held 5,108,000 bags of this. At the highest estimate, consumption had exceeded production by only 4,000,000 bags. Here was a shortage of only a little more than ten percent in supply as against demand, so far as crops go. Yet there had been a rise of more than one hundred percent in two years in the price of coffee on the New York Coffee Exchange.... Upon the merchant's ability to deliver coffee on the New York Coffee Exchange depends the price of coffee in the world. That explains why the bankers' committee from the beginning refused absolutely to sell valorization coffee on the public exchanges of the world. In Europe, they put it up at auction; and when it didn't go, it was bought in for them. In America, they announced in a printed circular that valorization coffee would be sold only on condition that the purchaser would not deliver it on the New York Coffee Exchange.

Hermann Sielcken absolutely refused to sell coffee to the merchants on the Exchange. Arbuckle Brothers kept on buying coffee heavily, as if they would corner the market. They resold the coffee, however, at private sales, exacting a written contract from the buyer that he would not deliver the coffee on the New York Coffee Exchange, or resell it to any one that would so deliver it. The Coffee Exchange began an investigation, but nothing ever came of it.

Shortly after the valorization committee had apparently cleared up $25,000,000 in one year, the restriction as to the delivery of valorization coffee on the New York Coffee Exchange was officially removed. Yet neither from Hermann Sielcken nor from Arbuckle Brothers, it is charged, could one buy any coffee to deliver for that purpose. In 1911, coffee rose to sixteen cents per pound.

At the end, it was found that the committee's holdings had been marketed at the various sales on a basis, for Santos 4s, from eight and five-eighths cents minimum, to the final sale here forced by the United States government, at which time the price realized was sixteen and three-quarter cents for Santos 4s, and fourteen cents for Rio 7s.

The one fly in the valorization ointment was Senator G.W. Norris, of Nebraska, who early in 1911 called for a congressional investigation of the operations of the valorization syndicate, which he said was costing the American people $35,000,000 a year. The attorney-general was instructed to report as to whether or not there was a coffee trust. It was a leisurely investigation, which encountered many snags placed in its way by those who believed it would be against international policy to question too closely the participation of the Brazil government in the enterprise. Politics played no inconsiderable part in the investigation, which dragged along until May 18, 1912, when an action was begun in the Federal District Court for the southern district of New York, alleging conspiracy in restraint of trade on the part of Hermann Sielcken; Bruno Schroeder, of J. Henry Schroeder & Co.; Edouard Bunge; the Vicomte des Touches; Dr. Paulo da Silva Prado; Theodor Wille; the Société Generale; and the New York Dock Co.; also praying for injunction and receivership of the valorization coffee then stored in the United States, and amounting to 746,539 bags. The injunction was denied.