COFFEE, TEA, AND COCOA COMMAND HIGHER PRICES

Press, Volume XC, Issue 27377, 16 June 1954, Page 10

COFFEE, TEA, AND COCOA COMMAND HIGHER PRICES

BOOM IN BEVERAGES

[By

“LYNCEUS”

of the "Economist"!

The feature of the commodity I markets in-recent weeks has been the i boom in three of mankinds staple beverages—coffee, tea and cocoa. Tne rises in the prices of these commodities have been remarkable. The standard quality of “broken pekoe” tea, which was-quoted between 3s and 3s 6d per lb at the London auctions six montns ago. has since strengthened to 4s 8d per lb. In the New York coffee market the quotation for Santos Number 2. which six months ago was around 59 cents per lb, has since risen to 89 cents. Cocoa has over the same period risen from around £3OO to well over £5OO a ton. . , , , These price movements might have sociological as well as economic implications. In some quarters they have been hailed as evidence that mankind is turning away from demon alcohol and quenching its thirst in less intoxicating beverages. This reasoning has had some support in the recent immense growth in the consumption or soft manufactured drinks and m the battle for the soft drink market, which is now beginning to rage in such relatively underdeveloped markets as Great Britain. x _ But further analysis does not support this theme of increasing sobriety. It merely looks as though mankind s thirst were growing. Though high indirect taxation has, admittedly, put a brake on the consumption of beer and spirits in Britain, so far the movement does not offset more than a fraction of the increased consumption of nonalcoholic beverages. The temperance supporters who seek comfort fpom this boom in soft drinks might, in fact, have to revise their premises and conclusions. If, as may well be the case, the rise in prices has little or nothing to do with a switch to non-alcoholic drinks it may In the long run have the reverse effect. The time may be approaching when in Britain the price of half a pint of beer may be lower than that of a good mug of tea and when consumers will be moving from the coffee to the public houses m the cause of economy. The rises in the prices of coffee, tea and cocoa are to some extent related phenomena. In the case of coffee it has been the result of increased demand impinging on a volume of supplies severely curtailed by the late frosts which damaged last year s Brazilian crop. The increased demand came not only from North America but also from the Continent of Europe, where reviving prosperity has made itself felt in a remarkable increase In the consumption of coffee? After making do with bitter and nauseating substitutes during the war years and the period of post-war difficulties, the consumer in Germany and other countries has been going back with relish to the genuine article.

A Buyers’ Strike In the United States the sharp rise in the orice of coffee towards the end of last year was not accepted as a compound of increased demand for a decreased supply of this commodity. That is too simple an explanation to be swallowed in the country of free enterprise. The American public, aided and abetted by its press, fell for the story of a gigantic conspiracy by Brazil and coffee traders the world over to extract extortionate prices from the housewife. A buyers’ strike against coffee developed and one of its incidental effects was to stimulate the demand for tea in the United States. ■ It is always difficult for the British visitor to the United States to understand why tea is consumed iq. that country, given the execrable way in which it is brewed—the small muslin bag cf tea leaves dipped in a cup of tepid water. The fact remains that the American public seems to like its tea that way and that it is consuming stead il£ increasing tonnages of this

commodity. At the London tea aueWenj during the last six months, as in the direct purchases made from India and Ceylon, the American demand has dominated the bidding and provided the main stimulus behind the rise in prices. The resentment of the British consumer at having to pay more for his tea should be tempered by the thought of the considerable benefit which these increased American purchases, at higher prices, are bringing to the gold and dollar reserves of the sterling area. Part of the persistent commercial demand for sterling in recent months and of the consequent strengthening of the gold reserve can be attributed to this increased American consumption of what is essentially a sterling product. Cocoa

What applies to tea is true in even greater measure of cocoa. The bulk of the supplies comes from West Africa; and the demand is dominated by the United States. The supply of cocoa has been held back by the spread of swollen shoot disease in the cocoa plantations of West Africa. Cocoa isx not a crop the production of which responds quickly to the behest of price movements, since it takes from five years upwards for a cocoa tree to proceed from seedling to fruit bearing. Another reason why supply may not respond rapidly to the influence of prices is that in West Africa cocoa is bought by marketing boards, which give the grower a much lower price than that they obtain at present in the world market. The principle on which the boards work is admirable, namely, to build up a reserve out of which cocoa growers may be subsidised if and when the world price falls drastically. But when the margin between the two prices is as much as £350 a ton. as at present,- the principle of equalisation seems to be flying out of the window. It has. on the other hand, been argued that the small grower in West Africa, the dominant factor in the industry, would relax rather than intensify his efforts if he got a much higher price —that his main interest is to secure a given income which, in most cases, he already has. and that beyond this his first concern is more leisure. In other words, a higher price might mean less production. That, however, is an alleged distortion of economic laws that should be taken with a pinch of salt, especially now that there Is such a variety of goods to tempt the native. . The inordinately high prices being realised for tea and cocoa and, to a lesser extent for coffee, are to be given some of the credit for the success with which the sterling world has resisted the # infection of modest economic recession in the United States. The customary multiplier by which the effect of a fall in industrial production in the United States communicates itself to exports to that country has not appeared on this occasion. The rest of the world has hardly felt the impact of the recession; and for this the relatively high prices ruling for such sterling commodities as tea and cocoa, as well as lor wool must be given a large part of the credit. . Another generalisation that can be made about this rise in certain sensitive commodity prices is that it betokens a continued uptrend in the world’s economic activity. If there were substance in the predictions of further recession, commodity prices would be heralding it by moving downward. The fact that they are not is a cause for reassurance which should go some way to neutralise the resentment that the consumer experiences as he finds the cost of a cup of tea. of a pound of coffee and of a bar of chocolate soaring steadily higher.