Uncommon Grounds: The History of Coffee and How It Transformed Our World

by Mark Pendergrast

  He . . . forced his way through the great crowds until he reached the floor of the Exchange. Around the coffee pit pandemonium reigned. It was the centre, the vortex, of a seething maelstrom of passion. One sale succeeded another, and the market was going down. Down, down, down! . . .

  Screaming men were frantically shaking their nervous hands aloft before Drewitt, the junior partner of Cutter, Drewitt & Co., who was selling as imperturbably as he had bought. The Exchange was in a perfect roar. . . . Clothes were torn, a man fell and was trampled by the maddened crowd. . . . Coffee fell 20 cents a pound in two hours.

  Eventually, by the turn of the century, it became more and more difficult to manipulate the overwhelming volume of beans that flooded the market. The crops of 1901-1902 came in at 15 million bags—much bigger than anyone predicted—and demoralized the coffee market throughout the world. “The position of the coffee-producing countries was pitiful,” Wakeman wrote. “Many were ruined. This was especially so in the mild coffee districts, located at great distances from the ports of shipment.”

  The Great Coffee-Sugar War

  As the nineteenth century roared to its climactic end, business titans John Arbuckle and H. O. Havemeyer clashed. Arbuckle used an enormous amount of refined sugar for his coffee glaze. At first he simply ordered most of it from the American Sugar Refining Company, owned by H. O. Havemeyer, the king of the sugar trust. Then Arbuckle decided to diversify from coffee into sugar. Why not package sugar in one-pound packages, just as he did his coffee?

  Known as a predatory businessman, Havemeyer already had driven most competitors out of business. Outspoken, gruff, and dictatorial, Havemeyer saw nothing wrong in predatory pricing to drive out competition, but he was of course happy to allow Arbuckle to sell sugar, as long as the coffee magnate bought his product.

  Arbuckle, who had always sought vertical integration (control of a business at every stage of production), decided to build his own sugar refinery and go into competition with Havemeyer. Late in 1896 Havemeyer summoned coffee broker Hermann Sielcken. “He asked me in which way he could do a large business in roasted coffee,” Sielcken recalled later. “I told him that the brand had to be known, principally to the women, who are usually the buyers of coffee.” He suggested buying the Lion brand, owned by Ohio-based Woolson Spice Company, which had been paying 100 percent dividends per year.

  Havemeyer said he had heard rumors that Arbuckle was going into the sugar business, and that he would not wait for that to happen. “If Arbuckle Brothers had the intention of going into the sugar business,” Sielcken said, “he would go into the coffee business.” Sielcken traveled secretly to Toledo, Ohio, where he purchased 1,100 out of 1,800 outstanding shares of the company for Havemeyer, then made a second trip, where he purchased all but 61 shares that the owners refused to sell.

  Just as Havemeyer got into the coffee game, overproduction hit and prices slid. Determined to drive Arbuckle under by slashing prices, Havemeyer directed Sielcken to buy the cheapest Brazilian beans and to undercut Arbuckle’s prices, even at the risk of losing money.

  It became clear to John Arbuckle by the beginning of 1897 that “no matter at what price we might put our coffee they would put a lower price; they intended to drive us out of the market.” He added, “If we would say today that we would stop building our [sugar] refinery, I think they would stop roasting coffee.” Arbuckle had no intention of backing down, however, and a battle of mammoth proportions commenced.

  Cutting the Thing Wide Open

  H. O. Havemeyer sent word that he wanted to see Arbuckle. They met at Havemeyer’s New York home. Havemeyer told him, “I want to buy 51 percent of your [sugar] refinery.” Arbuckle shot back, “Mr. Havemeyer, as long as I live and have my senses, you will never own a dollar’s worth of it. But this world is big enough for all of us.”

  “Well, I have got 11,000 stockholders to take care of,” Havemeyer answered, “and I have got to take care of them.”

  “You could take care of them a good deal better by treating others in a more kindly way,” Arbuckle observed. The meeting ended in a stalemate, and the war continued.

  Arbuckle countered by pouring more money into sugar production. “We went to work and increased our refinery, and now it is between 7,000 and 8,000 barrels of sugar a day—we can run to 8,000 barrels a day. But it is probably not profitable to do that. When you strain a thing, you do not get the best results.” Nonetheless, Arbuckle had to “strain” things in the fierce price wars with the sugar trust. “Yes, at times we would sell at a loss. . . . We started the refinery in 1898, and there was a loss that year; I think there was a loss the next year, and . . . a profit the year following; and then there would be a fight started . . . and sometimes we would not make a penny.”

  While he preferred to call on “kindlier feelings,” Arbuckle knew that “moral suasion did not appear to have very much effect” on Havemeyer. Consequently, as Arbuckle said, “we would get our temper up, and then cut the thing wide open.”

  Havemeyer and Sielcken discovered that an Arbuckle crony owned the outstanding stock in Woolson when they were slapped with a lawsuit, brought by the minority stockholder, Thomas Kuhn. The suit alleged that the sugar trust had bought Woolson for the purpose of “crushing of the Arbuckle Brothers and compelling them to abandon their intention of engaging in the sugar business.” To do so, Woolson had repeatedly dropped prices for coffee. As a stockholder, Kuhn asked for an injunction, alleging that Woolson was losing $1,000 a day. The court ruled in favor of the sugar trust, refusing to grant the injunction, and a subsequent appeal was denied.

  At that point John Arbuckle brought suit in his own name against the Woolson Spice Company, demanding as a stockholder to see the company’s books and to receive the transfer of stock he owned. He wanted to know why no dividends were ever paid, when the company had been so generous prior to the Havemeyer takeover. On February 18, 1901, three judges concluded that Woolson was in contempt of court for refusing to obey the court order to hand over the books. The sugar trust had until March 5 to file a petition in error. A secret legal settlement was worked out shortly, however, and the lawsuit was dropped. Arbuckle apparently never got to look at the Woolson books.

  In the meantime, Havemeyer and Sielcken moved behind the scenes in Ohio. Because the Woolson Spice Company contributed so much to the state’s economy, they persuaded Joseph E. Blackburn, the dairy and food commissioner for Ohio, to single out Ariosa Coffee as adulterated, hoping to erode its legal customer base. In the words of Blackburn’s affidavit:“Ariosa” consists of a cheap and inferior grade of coffee which is coated and covered with glutinous mixture, for what purpose, affiant deems it unnecessary to state, but with the manifest result that by such glutinous coating and covering, the inferiority of said coffee is concealed, and it is made to appear better and of greater value than it really is.

  On February 5, 1901, Blackburn issued a circular to the grocery trade about the “coffee situation,” stating that “the only firm that has refused and still refuses to accept the ruling of this department . . . is Arbuckle Bros., of New York.”

  Although Blackburn’s action did not constitute an outright ban on Ariosa, it hurt business and outraged John Arbuckle, who instituted a lawsuit to make Blackburn take back his allegations. He lost all the way through the Supreme Court in 1902, but he did make an impressive case for himself. Harvey Wiley, the chief of the Division of Chemistry for the U.S. Department of Agriculture and the country’s most renowned consumer watchdog, testified that he had inspected the Arbuckle plant and found it to produce “as near as possible a perfect product.” Wiley described the process of roasting and glazing in some detail. “It does not conceal inferiority,” he asserted. “It [glazing] does not add a cheaper to a dearer substance. On the contrary, this added material is wholesome and digestible. It assists in the clarification of the coffee when the beverage is made; it preserves the aroma and flavor of the roasted berry, and prevents the absorption of moisture which would tak
e place on long standing in the air.”

  Despite such testimony, the courts simply refused to enter a state regulatory matter. Ariosa apparently continued sales in Ohio, regardless of Blackburn’s opinion—and indeed took over the greater share of the market. Arbuckle sold about a million bags a year when the total U.S. consumption was between 4 million and 5 million.

  The Arbuckle Signatures

  Perhaps the main reason for Ariosa’s outstanding success, aside from name recognition and a standardized, reliable product, was Arbuckle’s premium program, begun just before the coffee-sugar war commenced. In a distinctive script, “Arbuckle Bros.” appeared on each package, along with the printed statement, “CASH VALUE ONE CENT.” By collecting a sufficient number of these signatures, customers could redeem them for an impressive array of items in the Arbuckle catalog, ranging from toothbrushes and suspenders to clocks, wringer-washers, guns, and jewelry. For sixty-five signatures, women could buy window curtains. For only twenty-eight, men could secure a razor.

  In a typical year the Arbuckle Notion Department was flooded with over 100 million signatures, for which consumers received 4 million premiums. “One of our premiums is a wedding ring,” observed one company official. “If all the rings of this pattern serve their intended purpose, then we have been participants in eighty thousand weddings a year.” The company also began to insert a stick of sugar candy—from its own refinery—into each package of Ariosa.

  Havemeyer tried to strike back with his own premium plan, but it failed to make a dent in Arbuckle’s sales. The only time Ariosa was challenged was when the Woolson Spice Company salesman told Indians in New Mexico and Arizona that owing to the picture of the lion on its package, drinking the coffee would give them the strength of a lion. Mose Drachman, the local Arbuckle salesman, quickly countered this rumor by assembling the local Indian chiefs. Didn’t they see the picture of the angel floating on the Ariosa package? Didn’t they know that an angel was stronger than 10,000 lions? The problem was solved. “If Lion wants to beat my angel,” Drachman told his wife with satisfaction, “they’ll have to put on their label a picture of God himself.”

  In the West, where Ariosa dominated, entire buildings were made from the wooden crates in which the coffee was packed. A Navajo baby would be rocked in a cradle made of Arbuckle crates. One reservation physician recalled, “I have seen adults buried in many a coffin built of wood from Arbuckles boxes, and more often than not a package of coffee would be put into the coffin . . . to ease the trip to the Happy Hunting Ground.” John Arbuckle included beautifully lithographed trading cards in his coffee for many years and offered albums in which they could be displayed. On the flipside of the Ariosa cards were advertisements for the coffee and its egg-sugar glaze. “BEWARE of buying low-grade package coffee,” the ad continued, taking aim at Lion brand, “falsely purporting to be made of Mocha, Java and Rio; this being a cheap device, employed by the manufacturers, to deceive unwary consumers.”

  Coffee-Sugar Cease-Fire

  Despite the cutthroat competition, John Arbuckle and H. O. Havemeyer developed a kind of grudging respect for each other. Although Havemeyer was a “man of very, very aggressive temperament,” Arbuckle also saw another side of him. “You would go up to his house and find a very accomplished gentleman of refined tastes and good company.” He was astonished to find that Havemeyer was a sensitive and accomplished violinist. “Mr. Havemeyer,” he told him, “you can not be as bad a man as they think you are, a man who produces such beautiful music as that.” Arbuckle observed him to be “lovely in his family; he had his good qualities, and, of course, he had his bad.” Havemeyer was proud of saying that he had no friends below Forty-second Street—in other words, in the business district. “I think he took an erroneous idea about business,” Arbuckle observed, “that a man in business had to fight everybody, and all that. . . . The fellow that wants to own the world does not always get it.”

  Although Arbuckle insisted that “there never was any armistice,” the great coffee-sugar war really lasted only from 1897 until 1903, when Havemeyer essentially gave up trying to put Arbuckle out of either the coffee or the sugar business. Arbuckle asserted that they never came to a formal agreement, but it is clear from many comments he made that he was extremely careful not to be accused of price fixing. At one point, presumably in 1903, Arbuckle admitted writing a note: “Mr. Havemeyer, you know more about sugar than I do, and I know more about coffee than you do. Of course, we are losing a lot of money”—in other words, let’s call off this insanity. And with this rather subtle rapprochement the price wars essentially ended. “Kindlier feelings prevailed, and that is what I was working for,” Arbuckle recalled. “I knew there could not be any [formal] agreement; but the keynote was always kindlier feelings. ‘The world is big enough for us all.’”

  By the time Havemeyer gave up trying to drive Arbuckle out of business, he had lost $15 million. Arbuckle Brothers, having lost a mere $1.25 million, clearly came out the winner in the great battle. Havemeyer had been bested. It seemed that for once the less rapacious personality triumphed in the world of coffee, where a man’s word was better than a signature. John Arbuckle typified many coffee men of that day: gruff but honest and well-intentioned.

  By 1905 Havemeyer sought in vain for a purchaser for the ailing Woolson Spice Company, a thriving business he had virtually destroyed in less than a decade. Two years later H. O. Havemeyer died. In 1909 Hermann Sielcken bought the Woolson Spice Company for its cash value of $869,000—quite a bargain compared to the excess of $2 million that Havemeyer had paid in 1896. Indeed, Sielcken managed to turn the coffee misfortunes of others to his own benefit repeatedly. During this same period, in the early 1900s, he would “save” the Brazilian coffee industry while making himself a millionaire many times over.

  5

  Hermann Sielcken and Brazilian Valorization

  Planters and producers have been lulled into a sense of security in the belief that the present crisis, like the preceding ones, would be dispelled after short duration.

  —El Salvador delegate to 1902 coffee conference

  If the United States makes a law that the merchant should not speculate, it decrees the merchant to be a shoemaker or a tailor, and shoemakers and tailors are not fit to make the country great.

  —Hermann Sielcken

  The coffee industry was an enormous, interconnected global economic force by the turn of the twentieth century. Bankers in New York, London, and Hamburg were vitally interested in Brazilian harvest projections, which loomed ever larger, threatening to swamp the world with too much caffeine. Just as it appeared that the tottering financial coffee structure would collapse of its own weight, Hermann Sielcken came to the rescue. In the process, he nearly landed in prison.

  For many years preceding the crisis period, coffee spelled prosperity. From 1888 to 1895 coffee consumption, fueled by improved standards of living and coffee-loving immigrants, rose with production. The big trading houses kept on hand buffer stocks of some 2 million to 4 million bags of coffee (132 pounds per bag), insurance against a small crop caused by frost or drought. Known as the visible supply, these buffer stocks, which kept well for several years, could then be sold during periods of smaller crops when the price edged upward. Until 1895 wholesale prices remained high, fluctuating between 14 cents and 18 cents a pound on the New York market, leading to vastly increased coffee plantings.

  Then in 1896 Brazilian planters flooded the world market with too many beans. The average price per pound for green beans fell below 10 cents and stayed there for years, initiating a boom-bust coffee cycle that continues to this day.

  The fiscal philosophy followed by Brazil’s New Republic government, after the deposition of Pedro II in 1889, called for money—lots of it. The Brazilian government cranked up the printing presses. The short-term result of this inflationary policy was an enormous economic boom during 1890 and 1891.

  Though the constantly devalued Brazilian milreis eventually spelled
disaster for internal markets, it helped the coffee grower for a few years, since he paid his local expenses in Brazilian currency while receiving his income in the currency of consuming countries. Even if coffee prices fell, fazenda owners did not suffer as long as the exchange rate also fell.

  In 1897 world production increased dramatically, to 16 million bags, and prices fell to 8 cents a pound. The world’s visible supply jumped to 5.4 million bags, which hung over the market like a price-suppressing sword of Damocles. The following year Joaquim Murtinho, Brazil’s new finance minister, reversed the inflationary policies. Murtinho saw that repeated devaluation of the milreis had made it increasingly difficult to service the federal government’s debt to foreign creditors. Meanwhile, lower coffee prices also led to an unfavorable balance of trade payments. As the value of the milreis rose, the coffee growers’ profits dwindled.

  Murtinho believed that in business and coffee only the fit would survive. The free market would produce optimal results, and if that meant a few failed plantations, so be it. That would leave the industry “in the hands of those better organized for the struggle.”

  In 1901 a bumper crop, the result of plantings five years earlier, shot total world production up to nearly 20 million bags, over half of which flowed through the port of Santos. The world consumed only 15 million bags or so, leaving a surplus of almost 5 million. The visible supply jumped to 11.3 million bags—over two-thirds of the entire world consumption that year! The price of a pound of coffee fell to 6 cents.