234 AGRICULTURAL PRICES AND VALORIZATION 



and carried out for having Sao Paulo enter the market, buy up 

 enough coffee to secure a partial corner of the market, and 

 thus enhance the price. At the same time an effort was made 

 to prevent over-production in the next few years by keeping 

 down any increase in acreage. A heavy tax was levied on new 

 acreage. In this manner, both the supply and demand factors 

 were to be regulated. 



Past experience had taught that a big coffee crop was usually 

 followed by a series of short crops. Coffee is not a perishable 

 product, but, like wheat, may be carried over for several years. 

 Hence, a surplus bought by the State could be gradually worked 

 off in succeeding years without disturbing prices. Thus it came 

 about that Sao Paulo borrowed the funds ; entered the coffee 

 market as a buyer, and bought 10,000,000 bags, aiming by this 

 partial corner to maintain the domestic market price at a minimum 

 of 7.9 cents per pound. Before putting the scheme into operation, 

 the minimum price was set at 13.2 cents. Such a gigantic scheme 

 as this required many tens of millions of dollars to finance it. 

 How was this venture financed? How was this State coffee mar- 

 keted? What were the effects, beneficial and otherwise, of valor- 

 ization? These three questions need answering. 



Sao Paulo experienced considerable difficulty in securing the 

 necessary funds to buy and hold the coffee. Temporary credits 

 were used at first. An arrangement was made with the Brazilian 

 Bank for Germany for the discount of 81,000. Next a loan of 

 3,000,000 was made through J. Henry Schroeder, of London, and 

 the National City Bank of New York. A loan of 3,000,000 was 

 made by the federal government of Brazil, under contract with 

 N. M. Rothschild & Sons, through the agency of Eugene J. J. 

 Hollender, Jr. It soon became necessary for Sao Paulo to call 

 upon a syndicate of bankers to take charge of the transaction and 

 hold the coffee off the market. It was also necessary to have the 

 Republic of Brazil guarantee the loan. In this manner 15,000,000 

 was borrowed from the bankers. These powerful financiers de- 

 manded certain liberal terms for themselves, both in regard to 

 financing the plan and in the marketing of the coffee. This loan 

 was to run 10 years (to January 1, 1919), and to be used, "For the 

 completion of the measures necessary for the defense of coffee, 

 and for the conversion into a consolidated debt of the various 

 temporary operations undertaken with the same object in view." 

 It is interesting to note that in the preliminary arrangements con- 

 cerning the first 3,000,000 loan the National City Bank of New 



