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

by Mark Pendergrast

  In 1927 Maxwell House opened a new roasting plant in Chicago, a direct result of the JWT surveys and ad campaign there. A monoplane, the Miss Maxwell House, flew across the country to push the coffee, while a new electronic sign in New York’s Times Square flashed “Good to the Last Drop.” That year Joel Cheek’s coffee netted a profit of $2.7 million and became the leading national brand. The coffee also caught the eye of Edward F. Hutton, “Lucky Ned,” the millionaire stockbroker who had become Marjorie Merriweather Post’s second husband and, in 1923, CEO of the Postum Cereal Company.

  With Hutton at the helm and Marjorie Post’s financial adviser, Colby M. Chester Jr., installed as president, Postum’s headquarters were moved from Battle Creek to New York City. Without diverging from the path set by C.W. Post, Postum had continued to generate cash but wasn’t growing. Hutton, Chester, and other executives made a list of some thirty companies that would fit their criteria. They wanted to buy consumer brands that were already well advertised, nationally prominent, and profitable. In 1925 they commenced with Jell-O, followed by a string of other acquisitions during the rest of the twenties.

  In 1928 Hutton made his biggest purchase, paying $42 million for the Cheek-Neal Company—half in cash, half in stock.48 Joel Cheek split the proceeds with his nine children and two nephews, making all of them instant millionaires. The following year Hutton reincorporated the firm, calling it General Foods. In a supreme irony, C. W. Post’s anticoffee business now had become the purveyor of the country’s most prominent coffee brand.

  By the time E. F. Hutton and Marjorie Post purchased Maxwell House in 1928, American capitalism had come of age. Until the 1920s most successful corporations and businesses were still essentially family-owned affairs. Eventually the second or third generation, lacking that fire in the belly, sold out, and steely-eyed financiers, cynical advertising men, and professional managers took over. Surveys and statistics replaced intuition. The public relations man, he of the firm handshake and perpetual smile, prowled corporate halls.

  The Great Stock Market-Coffee Crash

  Throughout the decade Brazilian coffee men had coped with overproduction by holding millions of bags off the market. In 1921 they financed a third valorization with a joint British-American loan totaling £9 million, with security provided by 4.5 million bags of coffee held in Brazil, London, and New York. When coffee prices obligingly doubled by mid-decade, the Brazilians sold most of the coffee, paying off the loan. The planters and politicians of Brazil recognized, however, that storing coffee overseas involved added expenses. President Artur da Silva Bernardes, elected in 1922, ordered the construction of eleven huge São Paulo warehouses, capable of holding 3.5 million bags. He then instituted a policy of shipping just enough coffee to the ports to meet market demand. The planters would be responsible for financing the retention of their own crops.

  The middlemen—exporters, importers, traders, speculators, and roasters—hated the new policy, since they now had little idea how much coffee was in the warehouses. As prices rose in early 1924, importers and roasters tried to break the system by a policy of heavy buying, hoping to lure the surplus into the open, but they failed. As usual, the rise of coffee prices provoked an outcry in the United States. At the end of June, Emmet Beeson, a New York coffee broker, suggested that the United States increase the use of the Hawaiian and Puerto Rican coffee grown by its own possessions. “In the final analysis, it would seem that Brazil’s greedy tactics will serve to encourage the development of vast areas of coffee lands that are now going to waste in different parts of the world.”

  In 1925 a delegation of coffee men representing the National Coffee Roasters Association, the chain stores, and wholesale grocers, including Berent Friele of A & P, called on Secretary of Commerce Herbert Hoover, asking that a permanent American commission be installed in São Paulo to monitor Brazilian coffee production and warehoused stocks. Hoover could ill afford to antagonize the government by making such demands. In January 1926, however, Hoover attacked international commodity schemes before Congress. Identifying a “growing menace in international commerce and relations,” he complained of price-fixing efforts that constituted an “intrusion of governments into trading operations on a vast scale.” Nine raw products were subject to such agreements, but the focus was on rubber (whose price affected the automobile-mad United States) and coffee.

  Julius Klein, Hoover’s director of the Bureau of Foreign and Domestic Commerce, testified about coffee, emphasizing the secrecy of the warehouse stockpiles. “There is a vast quantity of coffee there that might suddenly be turned loose at almost any moment or under any contingency—political or otherwise.” Hoover conceded that “if all these combinations had been content with fair returns,” he might not object so strenuously; but due to the “inherent quality of all monopolies,” speculators inevitably took over to drive prices to unreasonable levels.

  Thumbing its nose at Hoover, the São Paulo government sought a £4 million ($19.2 million) loan in London. British bankers rushed to supply the money, and the bonds were oversubscribed within five minutes. The rubber problem eventually was solved by the invention of synthetic rubber, but no one could duplicate the coffee bean in a laboratory.

  The Brazilians were infuriated with Hoover’s grandstanding. Shortly after his speech a Brazilian journalist protested that Americans shouldn’t talk, with their “Sugar Trust, Petroleum combines, cigar and tobacco monopolies, Metal Mining and refining combination, United Drugs and Cold Drinks monopolies, meat packers, [and] Motion Picture Trust.” U.S. cotton and wheat growers had a system of bonded warehouses; why not the Brazilians? Besides, the major markup on coffee occurred after export. Why did American consumers have to pay 50 cents a pound for coffee imported at 20 cents?

  With its newly borrowed money the São Paulo Coffee Institute opened its own bank, the Banco do Estado do São Paulo, and began loaning money based on real estate (primarily coffee plantations), warehouse receipts, and coffee bills of lading. With the 1926 presidential election of Washington Luís Pereira de Sousa, a Paulista, the coffee growers were assured of continued federal support. Although the 1926-1927 crop had been relatively small, the institute decided to carry over more stock in an attempt to bolster sagging prices. The warehouses now bulged with some 3.3 million bags. The following year a bumper crop totaling nearly 30 million bags surprised everyone. In 1927 the São Paulo Coffee Institute called two conferences with other Brazilian coffee-growing states, who agreed to join their retention scheme by limiting coffee sent to the ports.

  By the end of 1927 it appeared that the institute could do no wrong, securing a £5 million line of credit for a year from Lazard Brothers in London, followed by a £5 million gold mortgage loan to the Banco do Estado. Even with the bumper crop, coffee prices rose. In 1928 Lazard renewed its loan for twenty more years.

  Amid general euphoria, however, there were a few Brazilians who expressed concern about the 100 million new São Paulo trees about to begin bearing. The Paulistas also were uneasy about the possibility that Herbert Hoover might be elected the U.S. president.49 On the whole, however, the Brazilian coffee planters were optimistic about the future. They argued that the new production would be offset by declining fertility on old plantations, aging of other trees, and continued increase in world consumption. Besides, there had never been two bumper crops in consecutive years.

  In the buoyant mood of the twenties, only a few Brazilians protested the continued axing of their rain forests. During that decade, forest destruction in São Paulo proceeded at the rate of 3,000 square kilometers a year. Yet most Brazilians didn’t care that the forest was being destroyed. It was only “an unimaginable surfeit of climbing plants, a tragic disorder of trunks [in which] man [is] imprisoned in the labyrinth of demented vegetation,” according to one commentator. At a typical Brazilian Arbor Day celebration, schoolchildren often planted nonnative coffee trees, which one cynic observed was similar to eulogizing chickens during a wildlife celebration.


  Herbert Hoover, newly elected president, warned that “Brazil is carrying the umbrella for the other coffee producing countries,” allowing them to expand and profit at Brazil’s expense. On a visit to São Paulo, Berent Friele urged the government there to release more coffee and lower the price to encourage greater exports to the United States. The prosperous Brazilian planters ignored Friele and Hoover, despite signs of trouble. Credit became tighter. Nervous foreign banks refused to send capital into the country.

  Under the protection provided by Brazil’s retention plan, Central American coffee planters prospered. The region’s stability, important to North American businessmen, was guaranteed by the “dollar diplomacy” that sent U.S. Marines into Haiti and Nicaragua to protect American business interests.50 In 1929 American professor Parker Thomas Moon complained of “American imperialism,” objecting to the American habit of “confusing altruism with Wall Street and naval strategy.” Two years later, retired General Smedley Butler admitted that he had spent the past three decades as a “muscleman for big business” while serving as a U.S. Marine. “I helped in the rape of a dozen Central American republics for the benefit of Wall Street.” Although few U.S. businesses owned coffee plantations, many American banks provided credit for the coffee industry. Thus it is relevant that Butler spoke of helping the “National City Bank boys.”

  In general, the U.S. support of the Latin American status quo did provide a beneficial business environment, particularly for coffee farmers. The famous “fourteen families” of El Salvador (by now more like forty), along with growers in Guatemala and Costa Rica, thrived during the twenties. “The coffee barons lived in great splendor, collecting chorus girls in Manhattan, tall blondes by preference, and became familiar figures at the baccarat tables of the Riviera,” one historian noted. Regardless of the owners’ prosperity, however, the workers made the same 15 cents a day.

  Against this uneasy backdrop, the prosperity of the Roaring Twenties fell apart. The 1928-1929 Brazilian crop was much smaller than that of the previous year, coming in at 10.6 million bags. Yet the warehouses still overflowed with coffee, and a vigorous flowering in July 1929 from new trees indicated that a huge crop would arrive in 1930, unless some natural disaster prevented it. By September the planters finally started getting nervous. Rumors spread that they soon would move a million bags of coffee toward foreign markets and that they were negotiating with Berent Friele and other American buyers to contract for 10 million bags, though knowledgeable coffee men were skeptical that so much coffee could ever be absorbed into the market without causing a major price slump.

  Lazard Brothers, which had renewed the old loan in July, informed the Paulistas, when they sought another £9 million, that no more money would be forthcoming. Now frantic, the Brazilians sought help from the Rothschilds. No dice. Nor could they expect loans from American banks, especially not with Hoover in the White House.

  On October 11, 1929, the Santos Bolsa, the country’s coffee exchange, opened as usual. Trading was moderate. The São Paulo Coffee Institute’s broker sat silently in his chair all morning. No one paid much attention. In the afternoon, when he still failed to buy, sellers offered much lower prices, yet he never bought. The terrible secret was out. The institute was bankrupt. Coffee prices plummeted. In a desperate attempt to reassure the New York Coffee Exchange, Consul General Sebastiao Sampaio lied, denying that Brazil had ever applied for a loan and boasting of Brazil’s large gold reserves. The coffee market rallied temporarily. Then on October 29 the New York stock market crashed, and all hope with it.

  It is no coincidence that coffee crashed two weeks before the U.S. stock market. By that time coffee was a “canary in the coal mine,” since it was so intimately tied to international commerce. Like their prosperous business counterparts in the United States, the arrogant Brazilian coffee kings thought that the prosperity party would never end. As late as October 17, an American economics professor stated that stock prices had reached “a permanently high plateau.” Similarly, the Paulistas deluded themselves into thinking they were invincible. As their warehoused coffee commanded higher and higher paper prices, they used it as collateral for ever-higher loans, just as U.S. investors bought on margin. In the end it all came crashing down, buried under the weight of all that coffee. The worldwide Great Depression of the 1930s ushered in years of lower prices for coffee and just about everything else, along with massive unemployment. But no one stopped drinking the black brew.

  10

  Burning Beans, Starving Campesinos

  Coffee is our national misfortune.

  —Brazilian coffee grower, 1934

  The world’s interlocking economic system pulled everyone down when it crashed in 1929. The story of how several million coffee growers, importers, and roasters survived the Great Depression offers a microcosmic look at how the economic chaos affected the globe. For some the crisis created opportunity; for others it meant bankruptcy, despair, or even death. But for billions of Brazilian coffee beans it meant a holocaust.

  The Coffee Inferno

  In Brazil the crash signaled the end of the country’s Old Republic and the domination of the coffee oligarchy. In 1930, after a rigged election put Julio Prestes in power, an October military coup replaced him with Getúlio Vargas, a politician from southern Brazil. Even the coffee kings of São Paulo welcomed the revolt, since the faltering government had failed to rally around coffee valorization at all costs. The price of coffee tumbled from 22.5 cents a pound in 1929 to 8 cents two years later. In 1930, 26 million bags of coffee sat in Brazilian warehouses—a million bags more than the entire world had consumed the previous year. In such a desperate situation, any change seemed good.

  Vargas, a short, stocky lawyer with a ready smile and a pragmatic bent, was to rule Brazil for an unprecedented length of time. Chewing contemplatively on his ever-present cigar, he presented the facade of a calm, friendly listener who genuinely cared for his country and its problems. Unlike other Latin American dictators, Vargas generally practiced moderation rather than terror. He quickly banned new coffee plantings.

  Vargas also appointed a military governor in São Paulo who immediately alienated the Paulistas by decreeing a 5 percent wage hike and distributing some land to revolutionary veterans. Vargas infuriated coffee shop owners by cutting the price of a cup of coffee in half. To conciliate the coffee growers and sellers, Vargas appointed José Maria Whitaker, a Paulista coffee banker, as his minister of finance. “It is absolutely necessary to return to unrestricted trading,” Whitaker announced, “first removing the nightmare of the formidable coffee stocks.” The government intended to burn the massive coffee surplus, but only so that the market could “revert to the time-honored law of supply and demand.” In the first year, the Brazilians destroyed over 7 million bags of coffee worth some $30 million—and they still had millions more bags clogging their warehouses.

  Foreign journalist Heinrich Jacob first encountered the burning coffee from a low-flying airplane in the early 1930s. “An aromatic yet pungent odour was rising from beneath and permeated the cabin,” he wrote. “It dulled the senses, and was at the same time actually painful. . . . The smell by now had become intolerable, and the fumes had produced a ringing in my ears. It seemed to sap my strength.” Jacob subsequently met a distraught former coffee grower, now bankrupt, who declared, “Coffee is our national misfortune.” He produced a small box with a glass cover containing the broca do café, the coffee borer that had begun to attack beans about ten years earlier. “Nothing should be done to resist the onslaught of the broca,” he said. “If the government really wants to save the country, it will take up loads of the eggs of this beetle in airplanes, and strew them far and wide over the plantations.”

  The Brazilians were desperate. Their scientists and inventors labored to find alternative uses for their surplus coffee. The minister of public works authorized a project to compress beans into bricks, to be used as fuel for the railroad. Other experiments sought to extract alcohol,
oil, gas, caffeine, or cellulose by-products from coffee. A Rio newspaper suggested that nutritious bread “of excellent taste and appearance” could be made from flour milled in part from green coffee beans. Vintners made a passable white wine from the pulp, while perfume came from crushed coffee blossoms. A few years later one inventor created a new type of plastic from the beans.

  The Brazilians also approached foreign governments with innovative coffee proposals. They would recognize Soviet Russia and trade coffee for Russian wheat or hides. They planned to open thousands of Brazilian coffee shops throughout Asia, creating new markets for their beans. Little came of most such plans, but they did trade coffee for American surplus wheat, beginning in 1931.51 Although the rich Brazilian terra roxa could have grown enough wheat for domestic consumption, the country grew only an eighth of its requirements—another result of the short-sighted devotion to coffee monoculture.

  The coffee-wheat swap caused trouble, though. American shippers complained that Brazilian shipping lines were carrying all of the wheat and coffee. Argentineans, who had previously supplied wheat to Brazil, objected. American coffee men didn’t like the government getting into the coffee market with cheap coffee that might lower the price. U.S. flour companies were upset when they learned that the deal involved an embargo on flour imports into Brazil.

  In July 1932, just as the Grain Stabilization Board began to sell the coffee it had received in exchange for wheat, the frustrated Paulistas rebelled against Vargas, demanding a restoration of constitutional government. The port of Santos was closed. “Breakfast Without Its Cup of Coffee Looms,” an August New York Times headline warned. Although the alternate ports of Rio and Victoria hastened to export more coffee, the huge supplies of better-grade beans from São Paulo were suddenly unavailable. In the United States the Grain Stabilization Board held over a million bags of coffee but was contractually restricted to sell only 62,500 bags per month. As a result, it looked as if there would be a coffee shortage, but the Paulista revolt fizzled after three months and coffee prices again declined.