238 AGRICULTURAL PRICES AND VALORIZATION 



Paulo minister of finance, as evidenced in a communication of his 

 to the Brazilian embassy in Washington under date of April 1, 

 1909, wherein he states: 



"The taxes collected by the State were given in guaranty of the loan and 

 will be reduced, once the loan is redeemed. The tax of 20 per cent ad valorem 

 on the export beyond the amount marked by law (9,000,000, 9,500,000 and 

 10,000,000 bags for first, second and subsequent years respectively) was 

 created by exigency of the bankers, 'but the Government is negotiating with 

 them to replace it by another more acceptable to the markets." 



The artificial enhancement of price of coffee and the placing 

 of export duties on it stirred the American Congress. There was 

 even some idea of modifying the American policy of free trade 

 in coffee in retaliation. At this juncture the finance minister of 

 Sao Paulo officially disclaimed further interest in the valorization 

 operations. He said (April 1, 1909) : 



"The Government of Sao Paulo is no longer engaged in any valorization 

 operations and has ceased entirely with its intervention in the market with the 

 signing of the 15,000,000 pounds sterling loan. All the coffee 1 stock belonging to 

 the State has been delivered to the committee of bankers authorized to sell it." 



There is no doubt that the Brazilian planter, being denied the 

 privilege of increasing his acreage of coffee cultivated his crop more 

 intensively. The trees were given better attention. Not only 

 that, but the high prices stimulated planters in Java and elsewhere 

 to increase their output. In this manner valorization did lead to 

 over production. The Wall Street Journal of March 18, 1916, 

 comments as follows on the low price then prevailing: 



"Coffee prices are low, inexplicably low, to even the best trained special- 

 ists in the world's leading markets. At about 7% cents the market hangs at 

 the mercy of liberal supplies coming from producing sources . . . The price 

 depression is sufficiently explained by trade dislocation and by surplus pro- 

 duction, of which last year the world had 1,055,000 bags left over out of a 

 total supply of 19,612,000 bags . . . Last year's big crop of 19,612,000 

 included 13,816,000 bags from Brazil and 5,796,000 bags from all other sources, 

 including mild Central American and East Indian coffees. The non-Brazilian 

 coffees were 30 per cent above the average in yields, and therefore had some 

 perceptible effect in reducing the coffee prices. But Brazil's 65 per cent of 

 the world's production is still the dominating influence. Last year's supply 

 was the largest since the valorization plan helped to hold prices up. The 

 supply situation there, after several poor years intervening, is the main reason 

 for low-priced coffee." 



It is quite generally held that the cure for low prices is low 

 prices; the cure for high prices is high prices. But in applying a 

 remedy to low prices in Sao Paulo, the government applied a 

 remedy certain in the end to increase the disease. A temporary 

 gain was secured which was a pseudo gain, for the later losses and 

 expenses more than offset the temporary gain. New competitors 



