Brazil Says It May Pull Out of Coffee Cartel

Brazil, the world’s largest coffee producer, has threatened to pull out of the International Coffee Agreement if its export quotas are reduced.

With world coffee prices nearly double last year’s because of heavy drought damage to Brazil’s crop, other coffee producers, led by Colombia, are seizing the opportunity to push for larger quotas.

However, Paulo Graciano, president of the Brazilian Coffee Institute, rejected such a quota redistribution at a meeting Monday in London of the governing council of the coffee cartel, which includes producing and consuming nations, among them the United States.

“Those who are asking for higher quotas now, because they have some stocks accumulated, will be unable to cover them later when Brazil’s production is normal. We will not accept any quota reduction,” Graciano told the council.

All coffee producers are selling this year’s output without any quota restrictions at prices that are far above the agreement’s “stabilization” level of $1.35 a pound.

New Quota Allocations

The attempt by other producers to redistribute the quotas looks to the future, when supplies normalize. The United States supports new quota allocations that would reduce Brazil’s dominant position and spread market share more evenly among producers.

Since the International Coffee Agreement was established in 1960 to stabilize the commodity’s price, Brazil’s export quota has declined to 30% from nearly 33% of world trade in coffee.

Because of a severe drought in Brazil’s major producing regions last year, this season’s crop fell to 16 million bags of green coffee from the normal production of about 28 million bags.

Brazil’s government-regulated coffee industry is trying to offset its lower production by obtaining higher prices for its exported coffee. But export volume has dropped 40% this month from last month because Brazil’s registered export price has consistently been higher than the more than $2 a pound that the market is willing to pay.