Coffee, Butter, and Politics

February 22, 1954

Others—The Wall Street Journal and economist Sumner Slichter, for example—have already pointed to the striking contrast between the attitude of some of our congressmen toward coffee prices on the one hand and butter prices on the other. But the contrast will bear further emphasis.

Some of our congressmen have been furiously indignant about the high price of coffee. As the gentleman from Iowa or New York orders another Martini at 75 cents a throw, he tells us what an outrage it is that his coffee at home now averages him about 3 cents a cup. The price of butter is also high; but in reply to this his only comment is that it isn’t high enough. Could it be that this strange contrast has anything to do with the fact that coffee growers don’t vote in his district, while dairy farmers do?

The chief reason for the recent rise in coffee prices has been a shortage in the supply. For the past seven years the world has been drinking more coffee than it has been producing. This has worked down the carryover. And in the last crop year drought and frost in Brazil killed millions of coffee trees. As people in the trade have pointed out, no Congressional investigation will increase the world’s supply of coffee by a single pound.

But the price of coffee, we are told by some of our Washington solons, has been pushed up by “speculation” and “manipulation.” In a free market economy, of course, speculation enters into the price of practically everything. And it usually confers a benefit on society by doing so. If speculators bid up the price of coffee, for example, because they correctly anticipate or recognize the existence of a shortage, they help to prevent the shortage from becoming as bad as it otherwise might. For the high price not only discourages wasteful consumption, but encourages increased production.

The chief reason why coffee is subject to comparatively violent fluctuations in price is not speculation (which actually tends to mitigate fluctuations) but a fact of nature. It takes about five years for a new coffee tree to start bearing in commercial amounts. After it does start bearing it usually continues to do so for ten to twenty years. So no matter what happens to the price, it normally takes a few years for supply to adjust itself. To force the price down artificially, however, would only further prolong the period of adjustment.

It may be that the Senatorial sleuths will find some real “manipulation” of the price of coffee. But suppose they do? Will it even begin to compare with the open manipulation by our own government of the price of butter? Not to speak of cheese, dried milk, wheat, cotton? Our government is running a gigantic butter cartel which is at this moment holding off the market 264 million pounds of butter in order to force American working families to pay more for it. From this comparison we may judge the hypocrisy of the Congressional outcries against the high price of coffee.

I do not mean to imply that Brazil has always been guiltless of any attempt to manipulate coffee prices. On the contrary, in its efforts to force up coffee prices, the Brazilian Government for years burned coffee or dumped it into the sea. During 1931 to 1934, for example, the government burned 27 million bags of coffee as locomotive fuel.

This was the same kind of beggar-my-neighbor policy that our own government is trying to follow today with our own farm exports. Instead of hypocritically denouncing the immorality of such policies when pursued by others, our congressmen and our own farmers might more profitably study their consequences. Insofar as Brazil’s coffee-burning had any effect in holding up prices, it merely encouraged Colombia and other Latin American countries to increase their own plantings. The result was that Brazil, which in the 1920s supplied two thirds of the outside world’s coffee, supplies less than half today.

So Brazil’s destruction of coffee in the end hurt the very producers it was intended to benefit. This is the real lesson for our farm price support pressure groups to ponder, as tons of butter turn rancid in storage while oleomargarine consumption grows.