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ORIGIN EB-07
INFO OCT-01 AF-08 ARA-06 EUR-12 ISO-00 COME-00 AGR-05
AGRE-00 STR-04 CIEP-01 CEA-01 L-03 FRB-03 OMB-01
ITC-01 SP-02 USIA-06 AID-05 CIAE-00 INR-07 IO-13
LAB-04 NSAE-00 OIC-02 SIL-01 TRSE-00 EA-07 NEA-10
PA-01 PRS-01 /112 R
DRAFTED BY EB/ICD/TRP:TJO'DONNELL:BLO
APPROVED BY EB/ICD/TRP:TJO'DONNELL
--------------------- 041615
R 170256Z SEP 76
FM SECSTATE WASHDC
TO AMEMBASSY BRASILIA
INFO AMEMBASSY ABIDJAN
AMEMBASSY BOGOTA
AMEMBASSY BONN
AMEMBASSY LONDON
AMEMBASSY MEXICO
AMEMBASSY PARIS
AMCONSUL RIO DE JANEIRO
AMEMBASSY SAN SALVADOR
AMCONSUL SAO PAULO
AMEMBASSY TANANARIVE
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E.O. 11652: N/A
TAGS: ETRD, EAGR, BR
SUBJECT: BRAZIL COFFEE PURCHASES
1. FOLLOWING IS TEXT OF AIDE MEMOIRE PRESENTED TO
DESIGNATE ASSISTANT SECRETARY KATZ BY AMBASSADOR PINHEIRO
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ON SEPTEMBER 16.
BEGIN TEXT
THE BRAZILIAN GOVERNMENT DEEPLY REGRETS THAT NOTWITHSTAND-
ING THE CLARIFICATIONS SET OUT IN THE AIDE-MEMOIRE SUB-
MITTED TO THE DEPARTMENT OF STATE BY THE EMBASSY OF BRAZIL
ON JULY 28, THE GOVERNMENT OF THE UNITED STATES SHOULD STIL
ENTERTAIN DOUBTS AS TO THE BEHAVIOR OF BRAZIL IN THE INTER-
NATIONAL COFFEE MARKET, AS MAY BE INFERRED FROM THE AIDE-
MEMOIRE OF SEPTEMBER 10 OF THE DEPARTMENT OF STATE.
THE BRAZILIAN GOVERNMENT CONSIDERS IT STILL MORE SURPRISING
THAT THE UNITED STATES GOVERNMENT SHOULD INSIST ON A BI-
LATERAL TREATMENT OF THE MATTER, WHEREAS THE DEPARTMENT OF
STATE, IN ITS AIDE-MEMOIRE OF AUGUST 5, HAD DECLARED THAT
THE INTERNATIONAL COFFEE ORGANIZATION WAS THE PROPER FORUM
THE INTERNATIONAL COFFEE ORGANIZATION WAS THE PROPER FORUM
FOR THE DISCUSSION OF TRANSACTIONS BETWEEN EXPORTER MEM-
BERS, HAVING IN VIEW THAT SUCH OPERATIONS WOULD GIVE RISE
TO TECHNICAL QUESTIONS RELATING TO THE APPLICATION OF THE
SYSTEM OF CERTIFICATES OF ORIGIN WHEN QUOTAS ARE NOT IN
FORCE.
DESPITE THE SURPRISE WITH WHICH IT VIEWS THIS MANIFESTA-
TION OF DOUBTS AS TO ITS DETERMINATION TO COMPLY WITH THE
COMMITMENTS UNDERTAKEN IN THE 1976 INTERNATIONAL COFFEE
AGREEMENT, THE BRAZILIAN GOVERNMENT, REITERATING AND
COMPLEMENTING THE CLARIFICATIONS PREVIOUSLY RENDERED,
WISHES TO DRAW THE ATTENTION OF THE UNITED STATES GOVERN-
MENT TO THE FOLLOWING POINTS:
(A) UP TO LATTER PART OF AUGUST OF THE CURRENT YEAR,
BRAZIL HAD PLACED 8.7 MILLION BAGS OF COFFEE IN THE INTER-
NATIONAL MARKET. OF THIS TOTAL, A LITTLE LESS THAN 50
PER CENT - THAT IS, APPROXIMATELY 4.2 MILLION BAGS - WAS
EXPORTED DURING THE JUNE-AUGUST QUARTER, SURPASSING BY
FAR THE 1 MILLION BAGS AVERAGE SALES TARGET ESTABLISHED
BY THE BRAZILIAN COFFEE INSTITUTE FOLLOWING THE DISASTROUS
FROSTS OF 1975.
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(B) DURING THE FIRST SEVEN WORKING DAYS OF THE CURRENT
MONTH, SALES OF APPROXIMATELY 800 THOUSAND BAGS WERE RE-
CORDED, AND ON SEPTEMBER 10 ALONE - THE DATE OF THE LAST
AIDE-MEMOIRE OF THE DEPARTMENT OF STATE - SALES AMOUNTED
TO 288 THOUSAND BAGS, A RECORD FIGURE FOR THE CURRENT
PERIOD.
(C) THE MINIMUM REGISTERED PRICE OF THE BCI IS FIXED AT
PRESENT AT US DOLLARS 1.34 PER LB. WEIGHT, A QUOTATION
FAR LOWER THAN THE FOB PRICE OF SANTOS 4 COFFEES, TODAY
AROUND US DOLS 1.48 PER LB.
(D) ACCORDING TO THE LATEST ESTIMATES, THE PRESENT
BRAZILIAN CROP SHOULD REACH AROUND 6 MILLION BAGS, WHICH
CORRESPONDS TO THE YEARLY DOMESTIC CONSUMPTION AND IT IS
SIGNIFICANTLY LOWER THAN THE ESTIMATE OF 9 MILLION BAGS
AS RELEASED BY THE UNITED STATES DEPARTMENT OF AGRICULTURE
THESE FIGURES, IN THE OPINION OF THE BRAZILIAN GOVERNMENT,
CONSTITUTE AN OBJECTIVE AND UNCONTRADICTABLE TESTIMONY OF
THE CORRECTNESS OF THE BRAZILIAN BEHAVIOR IN THE INTERNA-
TIONAL MARKET AND OF ITS COMPLIANCE WITH THE PRINCIPLES
THAT GUIDED THE NEGOTIATION OF THE NEW INTERNATIONAL AGREE
MENT. THEY REFUTE, THUS, ANY INTERPRETATION THAT WOULD
SHOW BRAZIL AS TRYING TO TAKE ADVANTAGE OF THE VULNERABILI
TY OF THE IMPORTING COUNTRIES DURING THE CURRENT PHASE OF
SCARCITY - WHICH COULD BE DONE THROUGH MANIPULATION OF
REGISTERED PRICES OF BRAZILIAN EXPORTS OR RESTRAINT OF
SALES ABROAD. IT IS WORTH NOTING THAT AFTER AN EXTREMELY
BRIEF INTERRUPTION FOLLOWING THE FROSTS, THE SALES REGIS-
TRATION OF THE BIC WAS OPENED AND SO IT CONTINUES TO DATE.
THE INSTALLED CAPACITY OF THE "FREEZE-DRIED" INSTANT
COFFEE INDUSTRY IN BRAZIL IS 579 THOUSAND BAGS PER YEAR.
OF THIS TOTAL, INSTALLATIONS WITH CAPACITY TO PROCESS
129 THOUSAND BAGS PER YEAR ARE CURRENTLY PARALYZED. THERE
IS UNDER STUDY, IN SUDENE, A PROJECT FOR THE INSTALLATION
OF "FREEZE-DRIED" FACILITIES WITH A CAPACITY OF 200,000
BAGS PER YEAR. THE "SPRAY-DRIED" INSTANT COFFEE INDUSTRY
HAS A MUCH HIGHER CAPACITY, AS IT IS WELL KNOWN. IT CAN
BE SEEN FROM THESE FIGURES THAT BRAZIL HAS AMPLE CONDI-
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TIONS FOR THE INDUSTRIALIZATION OF SUBSTANTIAL IMPORT
QUANTITIES, THROUGH OPERATIONS THAT ARE FULLY JUSTIFIED
FROM THE COMMERCIAL VIEWPOINT.
THE BRAZILIAN GOVERNMENT HAS NO INTENTION TO RAISE ARTI-
FICIALLY THE INTERNATIONAL PRICES OF COFFEE, TO THE
DETRIMENT OF THE PURPOSES EXPRESSED IN ARTICLE 2(2) OF
THE AGREEMENT. NEVERTHELESS, IT IS CONVINCED THAT THE
INTERESTS OF THE PRODUCERS WOULD NOT BE SERVED, SHOULD
QUOTATIONS FAIL TO REFLECT THE REAL STATISTICAL SITUATION
OF THE MARKET.
IN THIS SENSE, THE BRAZILIAN GOVERNMENT HAS BEEN WATCHING
WITH GROWING CONCERN THE EVENTS OCCURING IN THE NEW YORK
COFFEE AND SUGAR EXCHANGE. IT OBSERVES, WITH APPREHEN-
SION, THAT NO STEPS HAVE BEEN TAKEN, WHETHER BY THE EX-
CHANGE ITSELF, WHETHER BY THE COMMODITIES FUTURE TRADING
COMMISSION, TO HALT THE MANIPULATIONS OF SPECULATORS THAT
LED LAST JULY TO AN ABRUPT AND SUBSTANTIAL FALL IN QUOTA-
TIONS. THUS, BETWEEN JUNE 8 AND JULY 20, THE SEPTEMBER
POSITION OF CONTRACT "C" FELL FROM 157.3 CENTS TO 120.35,
WITHOUT ANY ALTERATION WHATSOEVER OCCURING IN THE WORLD
SUPPLY AND DEMAND PICTURE. IN CONTRAST WITH THE PASSIVE-
NESS SHOWN AT THE TIME, THE EXCHANGE CONTROL COMMISSION,
DURING THE PAST FEW WEEKS, HAS BEEN TAKING MEASURES TO
CURTAIL OPERATION OF CONTRACT "C" IN THE SEPTEMBER POSI-
TIONS, THUS CLEARLY INTERVENING INTO THE MARKET FORCES.
AT THE RECENT SESSION OF THE EXECUTIVE BOARD OF THE INTER
NATIONAL COFFEE ORGANIZATION, THE TRANSACTIONS BETWEEN
EXPORTER MEMBERS WERE SUBJECTED TO A PRELIMINARY EXAMINA-
TION, THERE BEING NO RECORD OF ANY DELEGATION, INCLUDING
THE AMERICAN, HAVING PROPOSALS TO SUBMIT. DESPITE THIS
FACT, AND IN THE LIGHT OF THE SPIRIT OF COOPERATION WHICH
HAS GUIDED THE RELATIONS BETWEEN BRAZIL AND THE UNITED
STATES OF AMERICA IN MATTERS RELATING TO COFFEE, THE
REPRESENTATIVE OF BRAZIL TO THE OIC WAS SOON THEREAFTER
INSTRUCTED TO SEEK A PRIOR UNDERSTANDING WITH HIS AMERICA
COLLEAGUE IN REGARD TO THE TECHNICAL PROBLEMS ARISING OUT
FROM TRANSACTIONS OF THIS NATURE TOUCHING THE SYSTEMS OF
CONTROL OF EXPORTS. ON THE 8TH OF THE CURRENT MONTH, AT
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THE AMERICAN EMBASSY IN LONDON, THE FIRST CONTACT TOOK
PLACE ON THE MATTER, IN WHICH OCCASION THE BRAZILIAN
REPRESENTATIVE PRESENTED A PROPOSAL WHEREBY BRAZIL WOULD
DEDUCT FROM ITS TOTAL SALES THE QUANTITIES IMPORTED FROM
OTHER EXPORTER MEMBERS. THE BRAZILIAN GOVERNMENT DESIRED
TO FOLLOWUP THE UNDERSTANDING BETWEEN THE REPRESENTATIVES
OF BOTH COUNTRIES IN THE ORGANIZATION, IN ORDER THAT AT
THE NEXT MEETING OF THE COUNCIL THEY MAY ALREADY BE ABLE
TO PRESENT A FORMAL PROPOSAL TOWARDS SOLUTION OF THE
OPEN TECHNICAL QUESTIONS. END TEXT.
2. THE ABOVE IS AN UNOFFICIAL TRANSLATION SUPPLIED BY THE
EMBASSY OF BRAZIL. HABIB
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