International Coffee Agreement Collapse

April 10, 2021 7:18 am Published by Leave your thoughts

The implementation of these agreements helped to maintain price stability between 1963 and 1972 and to stabilize production and consumption. These first two agreements have made a significant contribution to the strengthening of the economies of coffee-producing countries and to the development of international trade and international cooperation. In 1973, OPEC began to have a significant influence on the oil market. After the 1973-74 oil embargo, it quadrupled oil prices. A major loss of oil supplies during the Iranian revolution of 1979 led to a further rise in oil prices. OPEC decided to limit supply and keep prices high in the first half of the 1980s. By 1985, however, Saudi Arabia`s oil production had fallen by almost two-thirds and the country was on the verge of being ousted from the market. To regain market share, Saudi Arabia has increased its production by more than 40% in one year, causing a collapse in oil prices. After the fall in prices, OPEC members agreed to cut production again. In 1962, most coffee-producing countries and almost all developed coffee-producing countries signed the International Coffee Agreement (ICA) to stabilize world coffee prices through binding export quotas. The export quota system has stabilized coffee prices despite strong fluctuations in world coffee production. However, the pressure on the ICA increased after the emergence of new coffee reserves. As the main producers could not agree on the allocation of export quotas, the agreement was suspended in July 1989.

After the suspension, coffee prices fell by 40 per cent. Such coordinated efforts to stabilize the oil market have favoured oil markets, with prices rapidly tipping over. However, in the longer term, it is likely that the recent OPEC agreement will be subject to the same flaws that led to the decline of previous agreements – substitution and efficiency gains and the arrival of new producers operating outside the agreement. In 1989, the ICO failed to reach an agreement on new export quotas, which led to the breakdown of the 1983 ICA. [10] The disagreement was caused by the change in consumer taste towards a softer, better quality coffee. [11] With the maintenance of the quotas of the 1983 agreement, the amendment increased the value of softer coffee at the expense of more traditional varieties such as robusta. [12] In particular, Brazil – the world`s most powerful coffee producer – refused to reduce its quotas because it thought it would reduce its market share. [11] [13] U.S.-led consumers have called for better quality coffee and an end to the sale of coffee to non-members at reduced prices. [14] [15] This initial version of the agreement is considered largely symbolic, given that all provisions were voluntary and producing countries were not limited in their exports to low-consumption countries. In addition, each participating country could withdraw from the agreement with a 90-day period. Despite the weak application in this version of the agreement, the United States of America, one of the world`s leading consumers of coffee, initially hesitated to ratify the agreement. Concerned about the high price of coffee, the United States did not formally approve the agreement until February 1965, but only after export quotas had increased by another 2.3 million bags.

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