The stock market crash of 1929, triggered a series of events that forced Brazil government, to have 80% of world’s coffee destroyed in a matter of months.
Many times in history coffee producers have been tempted to destroy a year’s harvest to help raise international market price. Oxfam America suggested it in 2001 and Brazilians producers suggested it again in 2019 without much support. However, it has only been done once. When within weeks 80% of the entire world coffee production was burned up, used as a source of fuel or dumped into the ocean, changing Brazilian economy forever.
The Trigger
The year was 1931, it was the beginning of the great depression, which rapidly spread throughout the world. Europe and the US were essential Brazilian coffee markets and at the same time the most affected by the crisis. The ripple effect of the “Black Tuesday” triggered contracts’ cancellation all over Brazil, and without potential buyers, coffee piled up in warehouses and price plummeted.
During the time, Brazil dominated 80% of the global coffee market and coffee represented 70% of countries’ revenue. 464 great landowners held the biggest portion of usable farming land equivalent to 270,000 km². While 464,000 small and medium-sized farms occupied only 157,000 km². This elite, known as “Café com Leite” had a significant political influence, specially over coffee policy.
To keep coffee price high and landowners satisfied, the central government regularly bought and withheld part of the year’s coffee production by taking loans from foreign banks.
After “Black Tuesday”, coffee price soon declined 90% of its value and revenue dropped from US$ 445 million in 1929 to US$ 180 million in 1930. By the end of that year the coffee sector was in bankruptcy and Brazil had no way to pay back the loans it took.
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Burn it all!!!
This crisis sparked 1930’s military revolution, coup and deposition of President Washington Luís Pereira de Sousa. The military appointed Getúlio Vargas as interim president, who immediately enacted an emergency plan aimed to save the economy called “A Defesa do café”.
Among other measures to contain the situation, the most extreme was “Quota do sacrifício”. Where the government ordered farmers to collect all coffee, pile it up and light it on fire. From 1931 to 1944, the government destroyed 40% of all Brazilian coffee production. Enough coffee to fulfill global demand for 5 full years (4.5 billion kg).
These were the darkest times in Brazilian recent history. Thousands of rural workers lost their jobs, bankrupt farmers lost their land and the few, lucky enough to stay employed. Didn’t make enough to satisfy most basic needs.
The crisis extended until the coffee demand spiked during WWII and the Interamerican Coffee Agreement, between the US and Latin American countries came into effect. The quotas system kept Brazilian coffee industry, at least momentarily away from over-production, for the first time since 1896.
Vargas’ Policy
Vargas implemented policies that supported the coffee industry while at the same time took Brazil off from its coffee dependency. He also ended the “Café com leite” elite political dominance and diversified the economy by creating the National Department of Coffee. Which immediately called for a reduction in coffee-tree planting. While at the same time increased livestock and promoted other crops, including sugar, cocoa, pineapple, oranges, rubber and mate. In a couple of years cotton production went from being only 2% of exports to 18%. Contributing significantly to the economy.
Vargas also reduced imports by 75% and established 8-hour workday, women right to vote and abolished child labor.
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The Consequences
Although the military appointed Getulio Vargas and he certainly was dictator. A vast majority of Brazilian people, still consider him the most influential president ever. He stayed in power longer than any other leader (1930–45, 1951–54), and brought social and economic changes that helped modernize the country. His influence in the economy and society are tangible even today. He managed to succeed and redirect the economy in the worst period of its modern history.
During this period Brazil suffered radical social and economic transformations. In the mid 50’s, Brazil transitioned from agriculture to an industrialized based economy. Which led national’s GDP until recent years, when service sector surpassed it. Nowadays, agriculture is no longer essential, representing only 5,5% of the economy while services and industry comprise 67% and 27,5% of the GDP respectively.
Although coffee overproduction has never been addressed. So far, neither coffee destruction nor take on financial debt have been necessary to control it anymore. Currently, Brazilian coffee surplus concerns neighbor producing nations way more than Brazil itself.
Additionally, technological advantages, modern growing and processing techniques have increased yield, reduced cost of production and price sensitivity.
Due to all these, Brazil is and will be, at least for a while, the most competitive coffee producer in the world. Not only in the commodity but in the specialty coffee market as well.