Prices eventually leveled off in the summer of 1977, then fell sharply in August after a successful Brazilian harvest with no major frost. Determined to hold coffee prices up, Brazil refused to sell below $3.20 a pound, even as world prices tumbled below $2. Brazil sold little coffee, instead entering the world market to buy beans as far away as Madagascar in an effort to boost prices. Colombia, characterizing Brazil’s stance as “suicidal,” sold freely, afraid that North Americans would permanently lose their taste for coffee unless the price came down. Colombia was troubled by raging inflation fueled by too many dollars flowing into the country—not only from coffee, but from contraband in cocaine, marijuana, emeralds, and cattle. In November, Brazil finally succumbed, resuming sales at a 45 percent discount to the “official” price of $3.20 in order to save face, while arranging special deals with Maxwell House and Folgers for deeper discounts.
Although prices were coming down, they stayed over $3 a pound at retail. General Foods laid off workers from its four roasting plants because of declining demand, posting a 37 percent decline in earnings in the September quarter while taking a $17.5 million write-down on overpriced coffee inventories. On the whole, coffee sales were off 20 percent from preboycott levels.
Specialty Reaches the Heartland
One of the unforeseen consequences of the 1975 Black Frost and its aftermath was the boost it gave to specialty coffees. As prices rose, the percentage gap between inferior and quality coffees narrowed. Across the country, consumers began to realize that for only a little more money they could buy coffee that really tasted good. What’s more, shopping for coffee in a clean, aromatic specialty store was fun. Customers could chat with the knowledgeable, enthusiastic owner-roaster, who delighted in telling them what all those different names, origins, and roasts meant, and who suggested different blends. And the shops offered exotic devices for sale—French Melior pots, porcelain Melittas, grinders from Germany and Italy.
By 1980 specialty coffee was entrenched in the big cities on the East and West coasts of the United States and was reaching into suburban and rural areas. In Waitsfield, Vermont, Doug and Jamie Balne roasted coffee in their Green Mountain Coffee Shop. In Oregon, Gary Talboy started the Coffee Bean. Elsewhere in Oregon, Michael Sivetz bought an old church in Corvallis, installed a roaster, and opened a retail shop. A chemical engineer, Sivetz invented a “fluid bed” roaster that tossed the beans in blasts of hot air, rather like a giant popcorn machine, and he became one of the loudest voices crying for a return to coffee quality.
In Orlando, Florida, Phil Jones opened a Barnie’s (his real first name), ordering his beans preroasted from Joel Schapira in New York. In Long Grove, a Chicago suburb, contractor Ed Kvetko bought a little coffee shop. Within a few years he changed the name to Gloria Jean’s Coffee Beans (named after his new wife), adding a few more stores. Julius and JoAnne Shaw opened the Coffee Beanery in Flushing, Michigan. Phyllis Jordan founded PJ’s Coffee & Tea in New Orleans. Erna Knutsen having blazed the way, Jordan and Shaw represented the new female coffee entrepreneurs.106
Dominated by the huge roasters, the National Coffee Association ignored the tiny new entrants who sold their whole beans out of bags or barrels. So the neophyte enthusiasts began to congregate twice a year at the National Fancy Food & Confection Show hosted by the National Association for the Specialty Food Trade. Every year their numbers swelled. Gourmet roasters from the Atlantic to the Pacific began to get to know one another. Maybe the California crowd roasted their beans darker than the New Yorker would have preferred, but they shared the same dedication to quality.
Whole-bean coffees began to show up in selected supermarkets around the country. Starbucks offered its Blue Anchor brand in bulk supermarket bins throughout Washington state. Goodhost, a Canadian food supplier, pioneered whole beans in clear-plastic gravity-feed bins in the Seattle area.
In 1979, at A & P’s Compass Foods, Paul Gallant’s phone began to ring off the hook after A & P closed its stores in Pittsburgh, Cleveland, and Milwaukee. Supermarket chains demanded to know, “Where can we get Eight O’Clock Coffee? Our customers want it.” With company permission, Gallant began to sell Eight O’Clock and Bokar on an exclusive basis to selected markets. “In a brief period of time, these stores were doing more business in coffee than A & P was,” he recalled. “Eight O’Clock Coffee was one of the triggers for the growth of the gourmet coffee movement. Our product was mostly Brazilian, but it was 100 percent arabica, which certainly made it better than most of the canned coffee out there.”
One Big Slaughterhouse
Under many corrupt, repressive regimes, the high coffee prices of the late 1970s enriched government coffers and traditional oligarchies. In Uganda, Idi Amin took virtually all of the coffee profits. The semiliterate but shrewd Amin came to power in 1971, after helping to overthrow Milton Obote. He proceeded to ruin the economy, in part by driving out the Asian business community. A Muslim, Amin then turned on the Christian majority, killing as many as 300,000 people. By 1977 the copper and cotton industries had been virtually destroyed, leaving coffee as Uganda’s only major export. Under Amin, coffee harvests declined by 35 percent, but with the postfrost price hike, the beans funded the dictator’s luxurious lifestyle and paid his army goons.
In March 1977, the New York Times reported that the United States was paying $200 million a year for Ugandan coffee to support the corrupt regime, while 80 percent of Ugandans survived only on subsistence garden plots. By the end of the year, U.S. activists raised their voices. Freshman Ohio Congressman Donald Pease introduced a bill into the House of Representatives to force a boycott of Uganda’s coffee, which accounted for about 6 percent of U.S. coffee imports, but a full third of Uganda’s exports. General Foods, Procter & Gamble, Nestlé, and other major roasters jointly issued a statement through the National Coffee Association, calling the Ugandan massacres “abhorrent and morally repugnant,” but asking for a “uniform national policy” for direction; in other words, they refused to implement a boycott until the government forced them to do so. Since the decline of Angolan production, Uganda, exporting mostly robusta, had become quite important to the major roasters of mediocre blends.
In February 1978 a congressional subcommittee held hearings on the Ugandan situation. The congressmen heard horrendous firsthand testimony from several expatriate Ugandans. Remigius Kintu, the son of a coffee farmer, told the committee that the official duties of the Amin death squads were to “terrorize, kill, rape, rob, and torture Ugandans.” Kintu spoke of prisoners forced to drink their guards’ urine, of men made to crawl on broken glass with hands and legs cuffed, of the continual cries and groans rising from the Ugandan concentration camps. Amin, Kintu said, had turned Uganda into “one big slaughterhouse.”
When Julius Katz from the State Department later temporized that “embargoes should be entered into only under extraordinary circumstances,” Representative Stephen Solarz suggested that he and his State Department colleagues read the book While Six Million Died, documenting U.S. inaction during the Holocaust.
“To me, American businessmen who would like to continue doing business with Idi Amin are merchants of death, more concerned with their bank balance than with human misery,” a Ugandan exile testified. “Are American coffee companies prepared to do business with a genocidist like Amin or Hitler if the price is right?” asked Donald Pease.
Clearly, the answer was yes, especially for importers like Claude Saks. “Our import statistics from Uganda were enormous,” he recalled, “and this fact was picked up by a columnist at the Washington Post. We were lambasted for supporting Idi Amin’s fascist and inhumane regime.” Other papers picked up the story, and Saks soon received letters from the New York Archdiocese, Protestant churches, human rights groups, and citizens. Saks sought legal counsel on his “publicity problem.” The lawyer advised him not to respond to the protest letters and articles and “see if the storm would pass.”107
On Monday, May 15, Procter & Gamble learned that th
e House was on the verge of passing a resolution condemning Amin and urging President Jimmy Carter to implement an embargo. The next day Procter & Gamble announced with a great flourish that Folgers would no longer buy any Ugandan coffee. Quickly, Nestlé issued a statement that it had stopped buying Ugandan beans the previous month, and General Foods said that it had ceased purchasing directly from the Ugandan Coffee Board in December—though General Foods still bought Ugandan beans through brokers.
Late in July 1978 Congress finally voted to impose an embargo on Ugandan coffee, but no other countries joined the boycott. It weakened Amin’s support, however. In April 1979 Julius Nyerere of Tanzania sent troops into Uganda to oust Amin and, after several interim rulers, Milton Obote came back to power. The boycott was lifted in May, and business returned to normal. Unfortunately for Uganda, Obote was almost as ruthless and corrupt as Amin, and the terror and killings continued for years without any international outcry.
Repression and Revolution in Central America
In Nicaragua, a small group of Marxist intellectuals, the Sandinistas, led the fight against longtime president Anastasio Somoza Jr., with the entire country rallying behind them, eager to get rid of the dictator.108 In July 1979 Somoza fled and the Sandinistas took over, promising a better life for all, including coffee growers and laborers. The Sandinistas faced a difficult task, however, with 40,000 dead, a million homeless, and a wrecked economy as the legacy of the civil war.
Three months after the revolution, the government established ENCAFE (Empresa Nicaraghense del Café) as the sole buyer and seller of Nicaraguan coffee. The new government seized the vast Somoza family holdings, which included 15 percent of the coffee fincas, while dedicating itself to “renovating” selected farms, supposedly by applying the most progressive agricultural techniques. At first, Nicaraguan coffee workers and farm owners were enthusiastic; over the next few years, however, it became clear that the urban Marxists didn’t know much about coffee.
In El Salvador, the People’s Revolutionary Army (ERP) challenged the repressive regime of General Carlos Humberto Romero. In October 1979 a junta took over, with moderate José Napoleón Duarte eventually rising to become chief of state. The leftist rebels joined forces in 1980 to form the Frente Farabundo Martí para la Liberación Nacional (FMLN), dedicated to overthrowing the government by terror. At the same time, right-wing death squads roamed the countryside. The country descended into a bloodbath, with over 50,000 people killed by one side or the other in the next few years. The coffee-growing oligarchy loathed the rebels but were split politically, with some supporting the death squads, others seeking moderate reforms. The violence reduced the coffee harvest, as many laborers were killed or joined the rebels. Other Salvadorans fled the country, sending money back from the United States to help support those who remained.
In Guatemala, since the CIA-sponsored overthrow of Arbenz in 1954, a series of corrupt, repressive military regimes had battled increasingly active guerrilla bands. In 1978, with the rigged election of General Romeo Lucas García, death-squad activity intensified, along with resistance in the countryside.
Until the late 1970s, most Guatemalan Indians were living in the altiplano , subsisting on their tiny milpa plots, and suffering from continual malnutrition. During harvest season, as activist Phillip Berryman wrote in 1977, “men, women, and children pile into labor contractors’ rickety trucks and head to the plantations, where they are housed in sheds that are just roofs open on all sides. They get sick and have no medical attention. Besides their daily wage they are entitled to tortillas and perhaps beans—not even coffee.”109
By 1977 Rigoberta Menchú’s father, Vicente, had joined the revolutionary forces. The teenage Rigoberta soon joined the struggle. In 1979 her sixteen-year-old brother was killed by the military. “My brother was tortured for more than sixteen days. They cut off his fingernails, they cut off his fingers, they cut off his skin.” The following year, her father died with many others when soldiers set fire to Guatemala City’s Spanish embassy, which they were occupying. Then her mother was kidnapped, raped, and murdered. Rigoberta eventually fled to Mexico but continued to make forays back to Guatemala to organize rebels. She asserted, “It was not only now we were being killed; they had been killing us since we were children, through malnutrition, hunger, poverty.”110
El Gordo and the Bogotá Group
Even as his country of El Salvador drenched itself in blood, Ricardo Falla Caceres played the high roller in international coffee finance. Known as “El Gordo” (“The Fat One”), Falla was variously described as “a brilliant tactician” and a “formidable operator, admired and feared in the coffee market.” As the head of the trading company Compania Salvadorena de Cafe SA, he had impressed coffee producers with his ability to drive up prices on the New York Coffee and Sugar Exchange in late 1977 and early 1978. The situation had so alarmed the watchdog Commodity Futures Trading Commission that it issued an emergency order on November 23, 1977, halting trade in the December coffee contracts—most of which were controlled by Falla—and allowing only their “liquidation,” the fulfillment of preexisting contracts. In August 1978, on the heels of a mild Brazilian frost, coffee representatives from eight Latin American countries—Brazil, Colombia, Costa Rica, El Salvador, Guatemala, Honduras, Mexico, and Venezuela—met with Falla in closed session in Bogotá to plot a strategy.
The International Coffee Agreement’s 77 cents per pound trigger price was woefully inadequate in the postfrost inflationary world, and the producers sought a way to boost the price of coffee. Quota restrictions without consumer country participation never worked in the past, since someone always cheated. Now, with green prices falling below $1 a pound, producers put together a $150 million fund and directed Falla to play the futures market. The infamous “Bogotá Group,” named for its first meeting place, was born. With supply and demand roughly in balance, market manipulation stood a fair chance of succeeding, as people were more likely to react to false scarcity or fear of one. The coffee market was no place for the timid; thinly traded, compared to other commodities, coffee offered less liquidity, huge volatility, and high stakes, as one contemporary financial analyst pointed out. “Who’s trading it?” he asked in 1978. “A few big speculators with brass-bound egos, some of the locals, and the trade—the producing countries certainly, and roasters, on occasion.”
By September 1979 the Bogotá Group’s activities were drawing fire in the American press. Syndicated columnist Jack Anderson wrote an article headlined “Price Gouging by the Coffee Cartel.” Falla’s activities also alarmed the U.S. State Department. Testifying before Congress, Julius Katz of the State Department accused the Bogotá Group of “acting collusively and unilaterally to try to support prices.” Though he informed the group of the State Department’s “serious concern,” Falla snubbed him. “It may be your court,” Falla said, “but it’s our ball.” In other words, without their coffee, there would be no exchange or futures market. At $1.85 a pound, coffee prices in fact were not unreasonable. Nonetheless, the New York exchange (now covering coffee, sugar, and cocoa) once again imposed “liquidation only” conditions on the December 1979 contract to prevent the Bogotá Group from doing a “market squeeze,” driving up the price by buying too many future contracts.
In spring 1980 Falla convinced the Bogotá Group to form its own trading house, Pancafe Productores de Cafe SA, a Panamanian corporation based in Costa Rica, with a whopping $500 million to invest, bankrolled by his previous trades and new money from contributing countries. By incorporating as a Panamanian company, the speculators hoped to evade attempts by the Commodity Futures Trading Commission to make them divulge their trading position. To express its displeasure with Pancafe, Congress held up implementing legislation for the ICA, which had been renegotiated with a more reasonable trigger level of $1.68 a pound.
Then, according to informed insiders, U.S. Customs officials grabbed Falla out of a New York airport, where he was en route to London, and took him to
a small room, where officials told him that he wasn’t leaving the United States until he promised to disband Pancafe. If he agreed, they would push for full U.S. participation in the International Coffee Agreement. Falla succumbed to pressure, Pancafe dissolved, and Congress promptly passed implementing legislation. Coffee prices sagged in anticipation of oversupply. An observer from Merrill Lynch doubted whether Pancafe could have held prices up anyway. “The moral of the story,” he said, “is that coffee may be black and liquid, but it is not oil.”
Once again the United States agreed to resuscitate the ICA partly from cold war fears. The Sandinista revolution in Nicaragua, together with leftist guerrilla movements in El Salvador and Guatemala, heightened fears that Communism would triumph in the troubled coffee countries of Latin America. With Brazilian production recovering and world consumption stagnant, another coffee glut loomed. Prices might drop to dismal levels again without a quota system. At the end of 1980, with prices down to the $1.20 a pound level, the ICA system kicked into gear, with consuming and producing countries agreeing to cut world export quotas to 54.1 million bags for the coming year. Brazil was lucky to negotiate a 25 percent world quota share—down from the 40 percent it commanded in 1962, but better than its actual 18 percent bite of the 1979 market.
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