The MacNeil/Lehrer Report; Coffee Boycott and Prices

ROBERT MacNEIL: Good evening. The coffee boycott is spreading Last week New York City`s, Consumer. Affairs Commissioner, Airs. Elinor Guggenheimer, called on people to cut coffee consumption by half to protest against the steep rise in prices. By today the boycott had been picked up by at least three major grocery chains and by stores in Ohio, Massachusetts and upstate New York. The price of coffee has been soaring for eighteen months. In June, 1975, wholesale coffee cost $1.21 a pound; now it`s $2.32 a pound. Yesterday General Foods, the nation`s largest coffee producer, raised its ground coffee price by twenty cents a pound, and most experts say even higher prices are on the way. Tonight we examine the reasons behind these staggering increases in the price of coffee and whether the boycott will work. Jim?

JIM LEHRER: Robin, coffee is one of the big moneymakers in the international commodities market. A number-of third world countries depend upon it as their chief export, Brazil and Colombia being the big two in coffee growing. The business of growing coffee is a fairly tranquil, long- term project; it takes three years after a new coffee tree is, panted before it bears first fruit, and another two years after that before it reaches full maturity. But if the agricultural side of it is peaceful, the buying and selling is not. The coffee ring of the New York Coffee and Sugar Exchange is the place where green coffee beans translate into green money:

(Buzzer sounds.)

SELLER: All right, let me have two dollars.

BUYER: Take it!

NEXT BUYER: Two!

OTHER BUYER: Give it to me!

(General shouting of prices.)

(Buzzer sounds.)

LEHRER: Brokers buy and. sell coffee anywhere from a month to a year ahead, making what are called "green coffee contracts" on beans that haven`t been harvested yet. The whole idea is to buy now and sell your contract later at a higher price.

MacNEIL: What those men are bidding for so frantically are green coffee beans, like these. This is the state coffee is shipped in from producing countries and traded in internationally. When bought by U. S. producers the beans are eventually roasted, which produces this brown color and brings out the flavor. The most dramatic price increases have occurred in green coffee beans. George Boecklin is President of the National Coffee Association. It comprises coffee roasters, processors and green bean importers here in the United States. Mr. Boecklin, why, do you believe, coffee prices -- put as simply as you can,-- have risen so dramatically?

GEORGE BOECKLIN: First, let me say that my organization of roasters and importers actually has no control over the price of green coffee. So, starting with that, my opinion and the opinion shared by most people in the` industry is that it is one, basically, of supply and demand. Probably everyone in the country has heard of the series of `events., climatic and political, that have affected the supply of coffee for a reasonably long- term period, beginning with a civil war in Angola, then a very serious Brazil frost in the state of Parana and Sao Paulo that reduced the production of that country by about seventy percent for that particular crop year; and a series of other events that occurred of a lesser importance in other coffee producing countries. This has severely reduced the available supply and the prospects for supply for the next few years to come.

MacNEIL: Are you saying that prices are not affected by international trading practices or trading manipulations?

BOECKLIN: I like to distinguish between what you call a practice and a manipulation. I will not comment on manipulations; I don`t know anything about any...

MacNEIL: I assume there can be honest and respectable manipulations as well as others.

BOECKLIN: Well, all right, but perhaps it`s a dirty word, so I`d rather stay with practices. Why, of course; practices in trading -- that`s what trading is, and prices are influenced. It`s strictly a question of offering and buying. The producing countries, at this particular time, find that they have a much scarcer commodity than they did before the Brazil frost, and it has been reflected in the price of green coffee ever since that frost and may continue to do so for a year or two more to come.

MacNEIL: There`s been a lot of talk among producers of primary commodities which we need in the developed world of following the example of the OPEC countries, forming cartels and trying to use their power that way; has this happened in coffee as an international commodity?

BOECKLIN: Some years ago, when we were between international coffee agreements -- when there was no agreement operating -- there was an effort by some of the coffee producing countries to agree among themselves to control. the flow of coffee to the world. I would say that that never. had much effect, and to my knowledge it has not been going; on for quite a long time. In the current situation l: know of no instance where the coffee producing countries are conspiring among; themselves to exploit the price of coffee. I have no knowledge to indicate that they are.

MacNEIL: I see. And just one other very quick question. Do you believe that the U. S. coffee market -- that`s in terms of the big buyers from abroad in this country -- is truly competitive?

BOECKLIN: Absolutely. They are not only competitive among themselves; they are competitive with coffee buyers around the world. The United States no longer is the largest consuming area for coffee. At one time we were; at one time we consumed almost fifty percent of the world`s supply of coffee. Today, it`s much more like thirty-five percent, and the buyers in the United States for the roasting companies, whether they`re large or small, have to compete with the buyers in Europe and in Japan, and in many other countries which are growing in their` ,coffee consumption.

MacNEIL: Mr. Boecklin, thank you. Jim?

LEHRER: Yes, as Mr. Boecklin just said, when supply goes down, as has happened with coffee, prices usually go up, unless demand declines; and demand is just what a number of people are aiming at. They feel coffee prices will go down if enough consumers cut back or cut out their use of it. Consumer boycotts are nothing new in the United States, but it`s a bit ironic that a nation that started on its road to-independence with a tea boycott should be kicking off its third century with a coffee boycott. The coffee boycott started last week in New York City, as Robin said, and has spread to Ohio, California and Massachusetts; some supermarkets have even. taken up the cause. Consumer reactions are-mixed. Some are buying small amounts of coffee, others are bypassing it altogether, and a few are stocking up in case the cost continues to rise. But everyone is concerned about coffee prices and aware of the boycott, whether they buy or sell.

CONSUMER: First of all, I believe that a week ago it was cheaper than $3.99. And actually, I should be returning this coffee; I shouldn`t take it.

SUPERMARKET MANAGER: Up until this week there was no decline in sale at all; but so far this week, with the boycott that we have in-the City, coffee sales are off about fifty percent.

COFFEE STORE CLERK: There`s a lot of big money interests behind this -- speculators on the commodity market; they`re out to make a dollar. Before this, there was no public outcry. This week of the boycott, now prices maybe will stop the sharp increase.

LEHRER: Elinor Guggenheimer is the person who is spearheading the coffee boycott. She is New York City`s Commissioner of Consumer Affairs. Mrs. Guggenheimer, how successful has your boycott been so far?

ELINOR GUGGENHEIMER: I think it`s evolving an astonishing amount of interest, arid frankly, it`s not merely in this country. We are getting phone calls from all across the world -- we`ve heard from Australia, we`re in constant communication now with groups up in Canada, Austria, Germany; I think that people all across the world are indignant at the increase in the cost.

LEHRER: Has there been any effect, yet, from the boycott? Have prices actually. gone down anywhere in a way that you can say, the boycott did it?

GUGGENHEIMER: We understand that the price has dropped in London. I don`t know whether that`s true or not; I need to check it out. Frankly, what worries me is that people will expect it to go down immediately -- it can`t go down `immediately. We have not yet felt at the retail level the extraordinary rise on the wholesale level, and for the next three months coffee, I think, is going to continue to rise no matter what we do; but it we don`t stop drinking it now, after that three months it will still be climbing.

LEHRER: I noticed a wire service story from London today quoting an expert in this kind of thing, and he said that it would take two to three months for a boycott and it would have to be a concerted boycott to have any effect at all on retail prices. Do you agree with that?

GUGGENHEIMER: Yes, I do. I frankly think that -- I`m glad he thought two months, because we`re saying three months; we`re saying to people, "Be patient." The price will continue to rise for the next three months because the retail markets are going to have to reflect the extraordinary green bean price; apparently they`ve been paying something like $3.20 or more dockside for green beans, now that`s going to appear on the retail markets and our supermarkets at increased cost. And when that happens, I don`t want people to be discouraged -we`ve got to stick with it.

LEHRER: Have you set some kind of goal, official or otherwise, as to how low you want coffee to go before you`ll be satisfied and call off the dogs, so to speak?

GUGGENHEIMER: I`m afraid that I haven`t got enough control to either call off or on the dogs. All I`ve done is try to alert people to what`s been happening and some of the reasons behind it; and I would hope that we would see a substantial drop in coffee before people resumed their normal coffee- drinking habits.

LEHRER: All right; what do you want people to do, as far as their normal coffee-drinking habits? Do you want them to knock it off altogether, do you want people to cut it in half, or to you want people to really change their drinking habits or just do it for a brief period of time as a protest?

GUGGENHEIMER: No, I think a boycott is too tough; we asked for a one-week boycott to make a point, and then after that, we`ve said to people, cut your consumption in 1977 by fifty percent. And I must tell you, that`s not difficult to do. -For one thing, a lot of coffee is wasted; there`s a lot of coffee that`s made in pots in offices and stands around, and then they throw it out and start a second pot: without drinking that first pot -- cups of coffee that reporters, for instance, bring to studios and allow to get cold and then throw out. (Laughing.)

LEHRER: I`ve noticed that,. yes, ma`am. All right, thank you very much. Robin?

MacNEIL: Well, you yourself have gone cold turkey. I`ve read that you used to drink fourteen cups a day, and you`ve cut it out completely -- is that true?

GUGGENHEIMER: Yes, I did. My husband was horrified to learn this because I kept this a. secret from him; but it was true, I drank coffee almost all day long. I`m finding my disposition improved. I hate to say this to the coffee industry, but .I probably was drinking too much.

MacNEIL: Thank you. James Quinn has been watching the coffee industry for many years. He`s publisher of the Tea and Coffee Trade Journal. Mr. Quinn, who do you think is getting the big share of whatever profits are in the current coffee market, the producers, the traders, the importers, or who? Is that young man right, on that bit of film, that there`s sort of big money speculations behind it?

JAMPS QUINN: No, it`s not big money speculation. I think. the reasonable question there is "Where is this additional money going to?" And where the money is going to is where the additional coffee is corning from, right? There has been a great reduction in the amount of coffee that can come out of -the producing countries. Some of the producing countries have been very badly damaged by these natural disasters, some have not been affected by it at all. So that it is a reasonable answer to say that the bulk of the additional money has been going -- first of all, it`s all going, or let`s say most of it is going, to the producing countries, but largely to those producing countries where the natural disasters have not hit them at, all - - so you can say to the growers, to the -shippers., particularly in those countries where there has been no effect from these frosts, floods, and so forth, and also some portion of it has come to the importers, the green coffee importers, who are going to have to look to that day of. reckoning when there`s going to be an awful dry period to come. But the roaster is probably one of the hardest hit people by this; he is probably...

MacNEIL: That`s the big American companies who are buying these green beans and then turning them into coffee as we know it.

QUINN: That`s correct. And then the retailer, who is then selling it to you,; these two people are right under the gun. They are the closest in this pipeline to the consumer, and therefore they are the most directly under pressure; so it`s all the way on the other end of the line where the money is going.

MacNEIL: Mr. Quinn, I assume ,you`re also a student of American coffee drinking habits, since you`re an expert on the subject. Mrs. Guggenheimer referred to the London commodities market today; the coffee did drop a penny or so a pound today, and some dealers were quoted as saying, by the wire service., that they doubted U.S. Consumers would kick the habit for long, and coffee prices would start climbing again. Do you agree that this is what will happen?

QUINN: First of all, if coffee dropped. a penny a pound, this is` merely fluctuation; I wouldn`t take this to mean that the price is going down at all. A; a matter of fact, I would have to say that I was surprised at how closely Mrs. Guggenheimer`s view of what the situation is going; to be and my oval are. We, let`s say quite independently of each other, I assure ,you, came to very close conclusions as to the way the price situation would probably go; and I`m going oil the basis of having observed a number of previous coffee boycotts, some, let`s say, of a wildcat nature, some well organized. And in those cases, particularly those where you have :had a spearhead,. someone who has been controlling this, or at least pushing it, as it were -- not in the sense of-controlling, but of organizing a boycott -- what you have, if I may say, you would have three different stages of a reaction to this; and the first stage -- and I`m not sure that you have yet reached it, because as far as I can observe from seeing television and what I read in the newspapers, most consumers are not really up in arms about this at all. Very few of them are indignant about the price of coffee. Who is indignant, first of all, is our champion, the New York Consumers` number one champion, a very fine woman and, I now understand, a fourteen-cup-a-day coffee drinker. God bless you, Madam.

GUGGENHLIMER: Not anymore.

QUINN: (Laughing.) But at any rate, whenever you have had this kind of an organized promotion to boycott coffee the initial result has been that people become aware of coffee prices even though they may not have been prior to that, and they do just exactly what Mrs. Guggenheimer said some of these people are doing -- they go out and buy more coffee.

MacNEIL: But in the later stages they drift back, do they?

QUINN: Yes, but what you have, first of all, if I may, is at this first stage they go out and they buy more coffee and they push the price up. So that it`s not merely that the price does continue to go up; the boycott`s first. result is to drive the price up. And the natural. economic effect in, the second stage is that each person -- not because of. the boycott, necessarily, but in his own mind, in his own family`s opinion -- says, "When we hit X dollars and cents, I cut; it out; not because anybody told me, because I can`t go any further, I`ve cut out the coffee right there." And then, finally, as we all know, the greatest fertilizer that exists is high prices; so that coffee starts to come back onto the market, and that`s what brings the price back down.

MacNEIL: Okay. Jim?

LEHRER: Yes, Robin. The high price of coffee has not gone unnoticed here in Washington, particularly in Congress; and the man who`s noticed it more vocally than others is Fred Richmond, who is a Democrat who represents New York`s fourteenth district. He serves on the House Agriculture Committee and participated in that Committee`s Domestic Market and Consumer Relations Subcommittee hearings an coffee prices last March. Congressman, how do you see this? Has this high price, this incredible jump in coffer, prices, been caused by an accidental situation such as the weather, or is there some kind of international conspiracy afoot here?

Rep. FRED RICHMOND: Jim, first of all, I think we have to agree that the weather dial cause the beginning of this crisis. The world has twenty-five percent less coffee today than it did before the Brazilian frosts and the Colombian rains and the Guatemala earthquake and the Angola war. So we do have a world shortage of.. roughly twenty-five percent of our coffee crop. But I do believe there`s a de facto cartel that exists in the world among the coffee producing countries that have forced the prices of coffee up-. Now, I know for. a fact that Brazil, which is our main supplier here in the United States, charge: an export tax of one hundred dollars a bag which comes to eighty-five cents a pound on this coffee. Now, they say they`re charging that export tax in order to help the farmers rebuild their...

LEHRER: That`s a tax that`s gone up since the earthquake, mean, since the problems. Not the earthquake, the frost.

RICHMOND: Right. Since the frost they say they`re adding this eighty-five cents a pound tax in order to help the farmers move their crops farther up north. Now, I don`t believe they`re actually giving the farmers that much money. Colombia, which really didn`t have too much trouble -- just had a little too much rain, but had a reasonable crop -- is charging $1.17 a pound for each pound of coffee that they export; now, I think that`s a disgrace. I believe our State Department should do something about it.

LEHRER: Well, that`s my next question. What can the U.S. government do about this? They can`t tell another government not to levy a tax, can they?

RICHMOND: First of all, our State Department has been woefully lax about, keeping track of this entire situation. There are forty-three coffee producing countries -- this is not like an OPEC -- there are forty-three different countries, many of them third world countries that need the revenue, that produce coffee. Now, I believe our State Department long ago should have been working closely with other countries and opened up other sources of supply. Right now the United States is almost totally dependent on Brazil, Mexico, Colombia and El Salvador for all of our coffee; we could get it from many, many other places. We`re not, because our State Department really hasn`t developed those markets for us. Secondly, I believe our State Department should work towards getting rid of these absolutely outrageous taxes that vie consumers have to pay.

LEHRER: Do you think, then, that the blame, as you would say -= taking the first thing, the natural calamities caused the initial problem -- but then all of these countries then got together in a consortium or in a cartel...

RICHMOND: Absolutely.

LEHRER: ...and said, "Okay, let`s make the best of a bad deal," and they`re making; the best of it?

RICHMOND: They`re making much the best of it, and they`re costing the American consumer this year two billion dollars -- two billion dollars of money that we`re spending, extra money that we`re spending on coffee.

LEHRER: But Congressman, I really don`t understand. Let me just ask the question again. What, say, can the United States government -- let`s say Congress -- what can you all do about this? I mean, what can you really do to Colombia or Brazil, or these forty-three countries?

RICHMOND: One thing that`s pretty obvious that we can do is certainly put ad valorem taxes on objects that, we export to Brazil and to Colombia; we certainly shouldn`t sit supinely back and allow Colombia to charge us $1.47 a pound in taxes on a product that has an average price -- the average pride of coffee over the last ten years, on the docks, has been fifty cents a pound; and can you imagine, right now Colombia is charging us $1.47 in taxes alone? The average cost of production is between sixty and seventy- two cents a pound to the farmer. I believe these three countries are gouging us unnecessarily, and I believe it`s going to redound to no one`s benefit, because obviously what`s going to happen is, you`re going to find consumer boycotts and consumer abstinence.

LEHRER: And then they will do away with the market, or lose the market.

RICHMOND: Well, they`re going to lose their market; they`ve already lost the teenage market. You know, the consumption of coffee in the United States has been going down for the last twelve years. Right now the average coffee drinker is forty years old; now, the average person in the United States is only twenty-eight. Coffee is really not used very much by teenagers, and if the coffee producing countries don`t reduce their prices and make coffee more available for everybody they`re going -to produce an entire generation of people who just are not used to drinking coffee the way, perhaps, you and I are.

LEHRER: Sure. Robin?

MacNEIL: Yeah, Mr. Boecklin, how do you react to what the Congressman`s saying?

BOECKLIN: I react to Congressman Richmond as well as to Mrs. Guggenheimer, but perhaps I should speak to Mr.... First, I do not agree at all -- and I think Congressman Richmond is misled if he said, and I think .I heard him say, that we are almost totally dependent upon a very small number, of Latin American coffee growing countries for almost all our supplies; now,, that is absolutely not so. The United States has, for a long period of time now, been buying a good share of its coffee supplies from the African continent; there are many African coffee producing countries, and we are -- I haven`t looked at the most recent; figures for `76, but I would say -- somewhere in the neighborhood of thirty percent of our imports are from Africa., from a. great number of countries in Africa. So that statement , I respectfully submit, is not true.

MacNEIL: Do you agree with him, that these countries which do supply, nevertheless, large amounts of coffee to us - and he mentioned Brazil and Colombia, a couple of others -- are gouging us deliberately?

BOECKLIN: No, I don`t subscribe to that language at all. I don`t know; I`m not here to defend the coffee producing countries, I think they`re big enough and strong enough to defend themselves. However, just one word about the so-called export tax -- it has been the custom of many coffee producing countries over the years to generate their foreign exchange from taxing the raw commodities that they sell to the world. This is not something that has just-, been invented because the price has been going up; -the Brazil coffee tax has been in effect as one percentage or another of the selling; price for much longer than I`ve been in the coffee business, and that`s over twenty-two years.

MacNEIL: Mrs. Guggenheimer.

GUGGENHEIMER: I have a number of things I`d like to say quite quickly. In the first place, when the frost hit on July 16 in 1975, that crop had already been harvested. 11hat happened was that they were predicting a shortage one year off. At that time the Brazilian production was twenty- three million bags; they had thirty million bags in stock, and they cut off exports of those bags on July 18. On July 22, Colombia began to raise its prices. That has to smack at least of -- okay, it`s a market reaction, but it`s a profiteering reaction that took place. Also, one thing about the African countries: the third largest coffee producer, although it`s much less than Brazil, is the Ivory Coast. The Ivory Coast has a very good crop this ,year. There are ways in which some of that shortage is being made up; and I also think we do not at all have a clear picture of just how bad the situation is in Brazil.

MacNEIL: You tend to agree with the Congressman, to-some extent, do you?

GUGGENHEIMER: I`m saying that we don`t have a terribly clear picture of what the situation is In Brazil., and I also am inclined to believe, from everything we`ve been able to find out, that the world`s stock of coffee, the inventory of coffee, is sufficient right now to meet world demand.

MacNEIL: Yeah. Mr. Quinn, do you have an opinion on all this?

QUINN: As you said, this is the way a market operates, and it Is quite possible that at any given moment there is an adequate supply to moot the demand of that moment;. And I think it would be most injudicious of the producing countries -- and I`m not sure that, this is their policy, but I assume -- that they do not run out every last bag acid then hope that they`re going to be able to replace it. They work from their inventory, their inventory workoff, and then they are constantly replacing it as quickly as they can. But I see nothing there that suggests to me that this is an irregular or an unusual procedure.

GUGGENREIMER: Thirty million bags in inventory at the time of the frost?

QUINN: This would not be in one...

LEHRER: One final. question. What effect do all of you think the boycott is actually going to have on this situation? Congressman, in a word.

RICHMOND: I think it`s going; to cause the coffee suppliers of the world to lose a very, very important market unless they rectify this de facto cartel.

LEHRER: You mean you think it is going to have an effect and lower the price?

RICHMOND: Absolutely. I believe it`s going to cause them to lose a large segment of their market, and eventually will not only lower. the price: but will lose an awful lot of their business, which they need very badly.

LEHRER: Mr. Boecklin, hour about that? Do you agree with the Congressman?

BOECKLIN: No, I do not. I don`t totally disagree; if everything that he says happens, I would say that, yes, the coffee producing countries may stand to lose a very lucrative market in the consuming countries.

LEHRER: Is your industry concerned that this boycott and this high-price situation could create this generation of non-coffee drinkers that the Congressman is talking. about?

BOECKLIN: I don`t really believe so. In other countries, where coffee is selling for four and five dollars a pound, such as Germany and Japan, there is no indication of a fall-off of consumption.

MacNEIL: We`re out of time, Jim.

LEHRER: Okay. Thank you, Robin.

MacNEIL: Thanks very much. Thank: you, Congressman, and thank you all here. Those are some of the mysteries behind your newly expensive cup of coffee. Jim Lehrer and I will be back tomorrow night. I`m Robert MacNeil. Good night.