VALORIZATION IN BRAZIL 233 



"The Allies Wheat Commission in London do all the buying on this 

 continent, and have only one buyer on this side. Everything must pass 

 through his hands. The allies want no wheat but that which will make the 

 most loaves, and the lack of tonnage makes it imperative that they take only 

 the higher grades. 



"Thus no market is left for our grades below No. 4, and the spreads are 

 enormous between these and the higher. Even at that, many companies are 

 losing money." 



Summary on Cost of Production and Price. The present agra- 

 rian demand that price of farm products be fixed on the basis of 

 cost of production plus a reasonable profit is only in part sound; 

 it contains one element of weakness by overlooking the demand 

 side of the market. The manufacturer who knows his cost of 

 production aims to sell at a certain margin above this cost. How- 

 ever, if demand falls off he must seek to lower his cost of produc- 

 tion, stimulate the demand, or both. Inefficient manufacturers 

 are constantly failing and being weeded out ; and successful manu- 

 facturers do at times market a part of their production at less 

 than cost. The same principles hold out in agriculture. All 

 farmers ought to know their production costs so far as possible. 

 However, when consumers refuse to buy the product of the ineffi- 

 cient farmer at the cost-of-production-plus-a-profit basis, such a 

 farmer is in the same position as the inefficient manufacturer. 

 Cost of production, therefore, should be one fundamental factor 

 in price making, but not the sole factor. Otherwise an equi- 

 librium price is not established. And a surplus or a shortage 

 may result. The " cost-of -production " price always fails when 

 a surplus is produced. 



For governmental interference in price fixing in ordinary 

 times, and the results to the producer and consumer, we may 

 wisely turn to Brazil and the so-called Valorization of Coffee. 



Valorization in Brazil. Valorization is defined in our consular 

 reports as " giving by law a fictitious or artificial value above or 

 apart from the normal or ordinary market value." The valoriza- 

 tion of coffee was a plan carried out by Sao Paulo, a State in Brazil, 

 to enhance the market price of coffee. The world's coffee consump- 

 tion is about 18,000,000 bags a year. Most of this coffee comes 

 from Brazil. The United States consumes 80 per cent of the Brazil 

 crop. An extra large crop in 1901 brought disaster to many 

 planters in Sao Paulo, the principal coffee growing State in Brazil. 

 In 1906, the date the valorization scheme was developed, another 

 big crop threatened to reduce prices below cost of production. 

 The yield was 20,000,000 bags in Sao Paulo more ttian five- 

 sixths of the world's supply. Hence the plan was developed 



