IMPACT OF POSSIBLE US WITHDRAWAL FROM INTERNATIONAL COFFEE AGREEMENT--IMPLICATIONS FOR LATIN AMERICAN COFFEE EXPORT EARNINGS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T01058R000305070001-1
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 17
• Document Creation Date: December 22, 2016
• Document Release Date: November 13, 2009
• Sequence Number: 1
• Publication Date: September 9, 1985
• Content Type: MEMO

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Central Intelligence Agency
DIRIX.'1tRATE OF INFELLIGENCE
3 SEP 1985
MgvnjVM FCtt: Rollinde Prager
Director of Camtodity Policy
Office of the United States Trade Representative
Acting Chief, Economics Division
Office of Global Issues
SUBJECT . Impact of Possible US Withdrawal from International
Coffee Agreement--Implications for Latin American
Coffee Export Earnings
The attached analysis of the Impact of Possible US Withdrawal fran the
International Coffee Agreement--Implications for Latin American Coffee Export
Earnings, has been prepared in response to your request. I hope it proves to
be helpful. If we can be of further assistance or you have follow-up
questions, please call
Attachment:
Impact of Possible US Withdrawal fran International Coffee Agreement--
I lications for Latin American Coffee Export Earnings
GI M 85-10232, September 1985,
ON FILE Department of Agriculture RELEASE
INSTRUCTIONS APPLY
25X1
25X1
M8S-IOZ32-
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SIBJDCI: Inpact of Possible US Withdrawal from International
Coffee Agreement--Inplications for Latin American
Coffee Export Earnings
OGI /ECD/CM
Distribution:
Orig & 1 - Addressee
1
1
1
1
1
1
1
1
1
- SA/IDCI
- Executive
- IDI
- IDI /PES
- NIO/Econ
- NIO/IA
- CPAS/ISS
- D/OGI, ID/OGI
- OGI/PG/Ch
- OGI/EXS/PG
-BCD
- BCD/CM
(30 August 1985)
25X1
25X1
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Central Intelligence Agency
Washington. D. C.20505
DIMCMIIATE OF INTELLIGENCE
3 September 1985
Impact of Possible US Withdrawal from International
Coffee Agreement--Implications for Latin American
Coffee Export Earnings
Sumnary
If the US withdraws from the International Coffee Agreement, coffee
prices are likely to fall, probably to around the 90 cent-a-pound level. At
this price, we estimate that Latin American coffee export earnings could fall
by around 25 percent to approximately $5.3 billion. This decline in earnings
would hit El Salvador hardest followed by.Colathia, Nicaragua, Haiti, and
(bate ala--dampening their ability to service their debt and inport capital
goods for economic development purposes.
Chief, Economics Division,
This memorandum was prepared byl I Cannodity 25X1
Markets Branch, Office of Global Issues. The information contained herein is
updated to 3 September 1985. Ca ments may be directed to Acting 25X1
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Impact of Possible US Withdrawal from International
Coffee Agreement--Implications for Latin American
Coffee Export Earnings
Assumptions
If the US withdraws from the International Coffee Agreement (ICA), coffee
prices are likely to fall to a level sanewhere between the world quota market
price to consumer manbers--currently $1.20 per pound--and the price being paid
by non-norbers--currently 60-80 cents per pound. Under such a situation, our
best guess is that US importers would be offered coffee at a market
equilibrium price of around 90 cents per pound. Such a large price drop would
occur, in our judgment, because of the importance of the United States as a
coffee importer, accounting for almost one-third of ICA imports.
With the exact level being quite uncertain, we examined 1985/86 earnings
under three average price scenarios:
$1.20 per pound (roughly the current price)
$1.05 per pound (a high post-ICA price)
$0.90 per pound (a low post-ICA price)
The volume of exports for the individual Latin American producers was assumed
to match levels currently forecast by USIIA/FAS and include estimates of
exports to members and non-members alike. Given the well-established price
inelasticity for coffee, we assured that there would be no short-run price-
induced changes in the volume of exports.
Since the unit price received by individual LDCs for coffee exports
varies depending on the quality of the coffee produced, we had to determine
the price individual LDCs would receive under each price scenario. To do
GI M 85-10232
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this, we calculated unit export prices for coffee exports to the US by each
Latin American coffee producer over the period 1982-1984. The amount each LtX
received above or below the group's average was then tabulated and the price
they received in each scenario adjusted by this difference. For example, over
this period El Salvador received 3 cents more per pound for coffee exported to
the US than the average Latin American exporter. Under the $1.20 per pound
price scenario, therefore, El Salvador is assumed to receive $1.23 per pound
If prices remain at their current level of $1.20 per pound--the current
floor price of the ICA--coffee export earnings for the region for 1985/86
would reach approximately $7 billion. If, in contrast, prices fall to the 90
cent-per-pound level--which same experts predict--earnings would fall to
around $5.3 billion.' This 25 percent decline in foreign exchange earnings
would hit hardest those econanies most dependent on coffee, especially the
seven Latin American nations which depend on coffee for more than 20 percent
of their annual export earnings (Tables 1 and 2 and Figures 1-3). The
situation would be compounded by the fact that many of these countries are
also heavily dependent on sugar exports and are facing extremely low world
sugar prices--averaging under 4 cents a pound in July 1985 compared with 28
cents a pound in July 1980--and continued contraction in the volume of exports
for premium-priced (around 20 cents a pound) sugar to the US under its quota
for its coffee.
Implications
system.
1. Implicit in this analysis is our belief that the ICA would either collapse
without the US--the world's largest consumer accounting for almost one-third
of global import demand--or that a smaller organization would be less able to
defend the current price using the export quota instrument.
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The fall in export earnings from coffee would reduce the ability of these
countries to service their substantial debt and to import capital goods for
development purposes (Table 3 and Figures 4-6). El Salvador, the region's
most coffee-dependent country, would be the most adversely affected. With
coffee representing around two-thirds of El Salvador's total export earnings,
a drop in coffee prices to 90 cents a pound would translate into an earnings
loss of more than $100 million--almost equal to the country's debt-service
Colanbia's coffee growers--caught in a cost-price squeeze with rising
production costs for fertilizer and labor and declining coffee prices--could
find production of illicit crops more attractive. Earlier research by this
Office has revealed that depressed econanic conditions, among other key
factors, have contributed to the recent expansion by the drug industry in a
number of the source countries in Latin America, particularly Mexico,
obligation.
Colanbia, Peru, Bolivia, Belize, Costa Rica and Jamaica.2
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Latin America: Value of Coffee Exports
in Relation to Total Exports and Debt Service
for Selected Coffee Exporters 1980-1982
Value of C
offe
e Share
Coffee Exports
Big Three
Coffee1 o
Exports T
f Co
otal
untry's
Exports
Coffee's Rank Debt 1
Among Letding Service
as Share of
Debt Service
Exporters
(Mil $)
Per
cent
Exports (Mil $)
Percent
Brazil*
2,210
1.0.5
2nd
17,801
0.124
ColaTbia*
1,814
54.4
1st
1,358
1.336
Mexico
384
2.0
3rd
15,2116
0.253
Central America
Costa Rica*
242
23.5
1st
299
0.809
El Salvador*
442
60.0
-1st
112
3.946
Guatemala*
340
26.0
1st
170
2.000
Honduras*
177
23.6
2nd
248
0.714
Nicaragua*
147
34.8
1st
251
0.586
Caribbean &
Other So. America
Daninican Rep.*
80
8.2
3rd
371
0.216
Haiti*
49
26.5
1st
34
1.441
Ecuador*
141
5.9
3rd
1,194
0.118
Paraguay
24
7.3
1st
182
0.132
Peru*
120
3.4
9th
2,389
0.050
1. 1980-1982 average.
* Countries where sugar also is a leading export cannodity.
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Latin America: Value of Coffee Exports by Country
1975 - 1982
(million US Dollars)
Big 3 Exporters
Brazil
Coffee Exports
Total Exports
Coffee % of Total
Colanbia
Coffee Exports
Total Exports
Coffee % of Total
Mexico
Coffee Exports
Total Exports
Coffee % of Total
Central America
Costa Rica
Coffee Exports
Total Exports
Coffee % of Total
El Salvador
Coffee Exports
Total Exports
Coffee % of Total
Guatemala
Coffee Exports
Total Exports
Coffee % of Total
Honduras
Coffee Exports
Total Exports
Coffee % of Total
1975 1976 1977 1978 1979 1980 1981 1982
934 2,398 2,613 2,294 2,326 2,771 1,727 2,133
8,670 10,128 12,050 12,527 15,244 20,180 22,743 20,190
10.8 23.7 21.7 18.3 15.3 13.7 7.6 10.6
744 1,023 1,561 2,137 2,204 2,417 1,446 1,578
1,465 1,745 2,443 3,003 3,300 3,945 2,956 3,095
50.8 58.8 63.9 70.3 66.8 61.3 49.4 57.0
190 413 512 422 606 463 339 350
2,992 3,361 4,286 5,899 8,818 15,301 20,041 21,006
6.3 12.3 11.9 7.2 6.9 3.0 1.7 1.7
97 159 342 310 318 247 239 239
493 593 828 865 934 1,002 1,209 872
19.7 26.9 41.2 35.9 34.1 24.6 19.7 27.4
230 404 790 469 635 620 322 384
513 721 973 631 1,032 720 792 696
44.7 56.0 81.2 74.4 61.5 86.1 40.7 55.1
159 289 541 461 483 332 324 364
641 760 1,160 1,089 1,241 1,520 1,226 1,173
24.8 38.1 46.1 42.4 38.9 21.8 26.4 31.0
57 101 169 212 197 204 173 153
303 392 519 613 734 829 760 660
18.8 25.7 32.6 34.5 26.8 24.6 22.7 23.1
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Table 2
(Cont'd
)
1975
1976
1977
1978
1979
1980
1981
1982
Nicaragua
Coffee Exports
55
110
194
196
157
178
134
130
Total Exports
375
542
639
646
567
448
420
400
Coffee % of Total
14.8
20.4
30.4
30.3
27.7
39.7
32.0
32.4
Pane=
Coffee Exports
2
3
4
9
10
10
11
13
Total Exports
280
238
243
247
295
351
315
309
Coffee % of Total
0.8
1.2
1.8
3.5
3.3
2.8
3.7
4.3
Caribbean
Daninican Rep.
Coffee Exports
44
101
185
98
158
73
75
93
Total Exports
894
716
781
676
869
962
1,188
768
Coffee % of Total
4.9
14.1
23.7
14.5
18.1
7.5
6.3
12.1
Haiti
Coffee Exports
23
51
70
49
74
60
31
57
Total Exports
81
125
143
159
148
226
160
170
Coffee % of Total
27.9
40.6
49.1
31.0
50.1
26.3
19.6
33.4
Jamaica
Coffee Exports
4
5
5
3
4
5
5
8
Total Exports
759
633
768
788
817
965
974
820
Coffee % of Total
0.5
0.7
0.7
0.3
0.5
0.5
0.5
0.9
Trinidad/
Tobago
Coffee Exports
4
4
6
7
7
7
5
4
Total Exports
1,754
2,189
2,180
2,040
2,610
4,077
3,725
3
072
Coffee % of Total
0.2
0.2
0.3
0.3
0.3
0.2
0.1
,
0.1.
Other South America
Bolivia
Coffee Exports
7
14
20
17
25
14
14
18
Total Exports
445
566
634
635
754
927
893
832
Coffee % of Total
1.6
2.5
3.1
2.7
3.4
1.5
1.6
2.1
Ecuador
Coffee Exports
67
207
180
263
273
139
122
163
Total Exports
897
1,258
1,436
1,494
2,013
2,481
2,542
2
139
Coffee % of Total
7.5
16.5
12.5
17.6
13.6
5.6
4.8
,
7.6
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Table 2 (Cont'd)
1975
1976
1977
1978
1979
1980
1981
1982
Paraguay
Coffee Exports
9
6
9
15
6
17
28
26
Total Exports
177
181
279
257
305
310
296
378
Coffee % of Total
4.9
3.3
3.3
5.9
2.1
5.4
9.3
6.9
Peru
Coffee Exports
53
101
198
168
245
141
106
113
Total Exports
1,291
1,360
1,726
1,941
3,491
3,898
3,255
3,300
Coffee % of Total
4.1
7.4
11.5
8.7
7.0
3.6
3.3
3.4
Venezuela
Coffee Exports
4
4
6
7
7
6
5
4
Total Exports
1,754
2,189
2,180
2,040
2,610
4,077
3,725
3,072
Coffee % of Total
0.2
0.4
0.5
0.5
0.2
--
--
--
Total
Latin America
Coffee Exports
2,683
5,393
7,405
7,137
7,735
7,704
5,106
5,830
Sources: UNCI'AD Handbook of International Trade and Development Statistics,
1983, International Financial Statistics, International Coffee
Organization
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CHART 1: HISTORICAL IMPORTANCE OF COFFEE EXPORTS:
BRAZIL, COLOMBIA AND MEXICO
(1980-1982 AVERAGES)
Ea COFFEE EXPORTS
to NON-COFFEE EXPORTS
- DEBT SERVICE
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CHART 2: HISTORICAL IMPORTANCE OF COFFEE EXPORTS:
CENTRAL AMERICA
(1980-1982 AVERAGES)
m COFFEE EXPORTS
? NON-COFFEE EXPORTS
- DEBT SERVICE
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CHART 3: HISTORICAL IMPORTANCE OF COFFEE EXPORTS:
CARIBBEAN AND OTHER SOUTH AMERICA
(1980-1982 AVERAGES)
m COFFEE EXPORTS
m NON-COFFEE EXPORTS
? Oor SERVICE
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Big Three Exporters
Export Volume'
(1,000 60 kg bag)
Latin America: Coffee Export Earning Scenarios Compared
With Debt Service For Selected Exporting Countries
Price Adjust- Price and Earnings Price and Earnings Price and Earnings
ment Factor at $1.20 per pound at $1.05 per pound at $0.90 per pound
(4 per lb) Adj. Earnings Adj. Price Earnings Adj. Price Earnings
1984
Debt
Service
( per lb) (Mil
$) ( per lb)
(Mil $) (
per lb)
(Mil $)
(Mil $)
Brazil
19,000
-0.01
1.19 3,
001
1.04
2,624
0.89
2,247
15,561
Colombia
10,000
+0.05
1.25 1,
651
1,10
1,453
0.95
1,254
1,855
Mexico
2,650
+0.07
1.27
444
1.12
391
0.97
339
11,741
Central America2
Costa Rica
1,802
+0.01
1.21
289
1.06
'253
0.91
217
396
El Salvador
2,800
+0.03
1.23
455
1.08
399
0.93
344
130
Guatemala
2,100
+0.00
1.20
333
1.05
292
0.90
250
269
Honduras
1,300
-0.06
1.14
197
0.99
171
0.84
145
243
Nicaragua
725
+0.03
1.23
118
1.08
104
0.93
89
215
Caribbean &
Other So. America
Dominican Rep.
530
-0.03
1.17
82
1.02
71
0.87
61
410
Haiti
420
-0.11
1.09
60
0.94
52
0.79
44
43
Ecuador
1,500
-0.12
1.08
214
0.93
184
0.78
155
798
Paraguay
260
-0.13
1.07
37
0.92
32
0.77
27
208
Peru
1,000
-0.07
1.13
150
0.98
130
0.83
110
1,592
Total
44,087
7,0
31
6,156
282
5
461
33
,
,
1 Export volume data based on latest USDA estimates for 1985/86 (Oct/Sept)
coffee year.
2 Excludes minor Latin American coffee exporters Panama, Jamaica, Trinidad to
Tobago, Bolivia and Venezuela
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CHART 4: COFFEE EARNINGS SCENARIO FOR 1985/86
WITH 1984 DEBT SERVICE
BRAZIL, COLOMBIA AND MEXICO
20$1.20
? $1.05
m $0.90
DEBT SERVICE
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CHART 5: COFFEE EARNINGS SCENARIO FOR 1985/86
WITH 1984 DEBT SERVICE
CENTRAL AMERICA
? $1.20
? $1.05
m $0.90
= DEBT SERVICE
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CHART 6: COFFEE EARNINGS SCENARIO FOR 1985/86
WITH 1984 DEBT SERVICE
CARIBBEAN AND OTHER SOUTH AMERICA
? $1.20
? $1.05
m $0.90
= DEBT SERVICE
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