COFFEE PRICES: Can the Jumping Bean Be Tamed?

OF all the drinks consumed in the U.S., coffee is by far the most popular. Three out of four Americans drink at least one cup each day, last year downed an estimated 100 billion cups, worth more than $1.9 billion. But America's most popular drink also produces some of its biggest price headaches. Within three short months last winter, housewives found retail coffee prices suddenly shooting up from 91¢ a Ib. to an average of $1.31 (TIME, April 12). Just as suddenly last week, coffee started plummeting, with industry-wide price cuts up to 18¢ a Ib.

There is no argument about the reason for the price decline. Consumer resistance, which cut coffee consumption 15%, forced the Brazilian government to lower coffee prices in hopes of boosting sales. But as to what caused the original price rises and what will happen next, there is as much disagreement as there is coffee in Brazil.

To find the answers, President Eisenhower asked the Federal Trade Commission to investigate the entire industry both at home and abroad. FTC's conclusion: the trouble is the way coffee is marketed all along the line, from plantation to pot (TIME, Aug. 9). The No. 1 offender, said FTC in its 1,000-page report, was Brazil, the world's biggest coffee producer and biggest U.S. supplier, with exports last year of 8,970,439 bags (43% of the U.S. total) worth $628 million. In effect, FTC charged Brazil's coffee industry with manipulating the market through misleading crop forecasts, speculation and price gouging.

One of the main reasons for last winter's price boost, according to FTC, was the inaccurate forecast for Brazil's 1954-5 5 crop. A year ago, a biting frost hit Brazil's second biggest producing area in Parana, damaging nearly 250 million trees. With forecasts of a meager 13 million-bag crop, some 4,000,000 bags less than expected, a wild price spiral for coffee futures got under way. Actually, says FTC, the frost damage was relatively minor. Brazil's 1954-55 crop was less than 1,000,000 bags (8%) below the 1953 levels. But instead of a 15% or 20% price rise as might be expected in the wake of an 8% crop loss, Brazilian coffee futures climbed by 61%.

For that, FTC blamed big speculators on the New York Coffee and Sugar Exchange. Caught in the squeeze, five big U.S. roasters (General Foods, A. & P., Hills Brothers, Standard Brands, and J. A. Folger & Co.) started buying coffee to guard against future shortages and still higher prices. Result: prices soared again. The increases were rapidly passed on to U.S. housewives, and only when they rebelled did the spiral start downward.

In the face of the FTC report, the coffee industry flatly denies that it was responsible for coffee's dizzy spin. Brazilian growers argue that all early crop reports are bound to be inaccurate. To judge yesterday's estimate by today's knowledge, say the coffeemen, is both unsound and unfair. Furthermore, when viewed in terms of the expected 1954 harvest v. the actual harvest, the crop loss from frost was an estimated 2,932,700 bags, or 17%; FTC's 8% figure is based on a false comparison with 1953 production.