476 AGRICULTURAL ECONOMICS 



were to be provided for by a surtax on coffee exports of 3 francs 

 per bag. 



Difficulties immediately appeared. Capital was loath to back 

 the scheme, and the loan could not be placed without federal guaranty, 

 and this the federal government declined to give. Sao Paulo's two 

 co-operating states grew timid and withdrew. The plan must be 

 abandoned or Sao Paulo must act alone. 



This the state decided to do. It began operation by the issue of 

 treasury bills for 1,000,000. With the proceeds it purchased coffee 

 and used this as the basis for loans the service of which was to be met 

 by the surtax of 3 francs per bag. Rio de Janeiro and Minas Geraes 

 supported the plan to the extent of imposing a similar tax, but they 

 apparently took no part hi the coffee purchases. 



Sao Paulo also succeeded in placing loans of 1,000,000 with the 

 Brasilianische Bank fiir Deutschland (soon afterward redeemed, how- 

 ever), 3,000,000 with the federal government, and later 3,000,000 

 with Schroeder & Co. of London, and the National City Bank of 

 New York. 



By the end of 1907 Sao Paulo had borrowed some $88,400,000, 

 and had purchased, at rates about $1.22 per bag (of 132 pounds) 

 above the market price, 8,357,500 bags of coffee. But prices failed 

 to rise. In fact, they fell slightly. The existence of the huge govern- 

 ment stock induced conservatism among dealers. Possibly, too, there 

 were thrown on the market stocks which had been previously hoarded 

 in anticipation of valorization. The proceeds -of the surtax were 

 insufficient to provide safely for interest, storage, commissions, amor- 

 tization, etc. Attempts to dispose of portions of government holdings 

 threatened further to demoralize the market. Creditors grew nervous 

 and began to demand their money. Sao Paulo found itself unable 

 to raise further funds on coffee collateral. Purchases had to be sus- 

 pended, and valorization may be said to have come to an end by the 

 beginning of 1908. 



* The results of the experiment were yet to be faced, however. Sao 

 Paulo had incurred a heavy debt in the interest of the plan, and the 

 state found itself the possessor of a huge stock of coffee for which it 

 had paid at rates considerably above the market. World supplies 

 continued to be about equal to world demand, in spite of a decline 

 in the Brazilian crop to more normal proportions. Creditors were 

 clamoring for liquidation. 



