For more than two decades, the worldwide sale of coffee has been regulated by an international organization of producing and consuming nations that the U.S. government under the late president John F. Kennedy helped establish.
Now a sudden increase in coffee prices is threatening to pull apart the International Coffee Agreement.
Currently honored by 50 exporting states and 25 importing ones, the agreement has sought to keep world prices relatively stable through a complicated set of rules that determine how much coffee countries can sell at what price. The first such accord was drafted in 1962 to guard against sharp declines in coffee prices, on which many developing countries in Latin America and Africa depend for foreign exchange.
When world prices rise above a certain level and stay there, terms of the agreement call for suspension of export quotas, opening the way for a free-for-all. This is due to happen Feb. 19.
Coffee prices are not expected to fall immediately or sharply after that. Although more than 50 million bags of coffee are said to be stored in warehouses around the world -- Brazil alone is holding an estimated 27 million sacks -- only a few nations in addition to Brazil grow the high-quality Arabica beans most damaged by the drought.
"Even when the international agreement is suspended, there's little likelihood of prices coming down," explained Flavio Teles de Menezes, president of the Brazilian Rural Society. "Volume is not so much the problem as quality. The areas which produce the better coffee were the hardest hit by the drought. We will have more than enough bad coffee."
While the temptation to take advantage of high coffee prices is strong among producing countries with beans to spare, exporters have an even stronger long-term interest in avoiding the total collapse of their organization and a return to a boom-bust market. Mindful of this, the executive board of the International Coffee Organization decided Friday to ask producers to continue some export controls, even after quotas are lifted, to faciliate the restoration of quotas once prices fall.
"Suspension will take effect, but that doesn't mean the countries involved won't sit down and come up with another mechanism," said Luis Suplicy, a veteran coffee broker in Sao Paulo.
"Our worry is not with the consumer," said Eduardo Ferreira Fontes, vice president of the Agriculture Federation of Sao Paulo state, expressing the hope that Brazilian authorities will do what they can to maintain high world prices and Brazil's 27 percent of the export market. "Our concern is that Brazilian farmers earn enough to be able to continue producing coffee."