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When Brazil Dumped Coffee to Save Its Economy

Brazil's Constitutionalist Revolution, 1932
Brazil's Constitutionalist Revolution, 1932. Source: Deep Brazil magazine

By Philip Scranton

The Great Depression deepened an ongoing Brazilian political crisis that had intensified during the 1920s and resulted in a military coup and the rise to power of Getulio Vargas in 1930. Civil war broke out in 1932 as Constitutionalists from Sao Paulo rejected Vargas's provisional government.

Although ultimately unsuccessful, the rebellion against Vargas would mark a moment of transition for Brazil, and offer a grim preview of how economic shocks would shake political structures across the world in the years to come.

Sao Paulo and nearby Santos, a major port, were Brazil’s most rapidly industrializing cities, while the country's vast countryside anchored its coffee production. Regional plantation elites had long dominated national politics, hardly a surprise given Brazil's dependence on coffee exports.

State subsidies had supported coffee export prices in the 1920s, but also had led to overproduction.

After 1929, prices, demand and credit for international sales cratered. Wholesale coffee prices in Brazil dropped from 1929 to 1931, and demand did not rebound. Instead, mountains of unwanted coffee piled up.

By mid-1932, the new government’s Coffee Stabilization Council had spent $63 million to purchase more than 14 million bags of coffee -- 1.9 billion total pounds -- and then set about destroying it all, the New York Times reported.

At the time, Brazil owed U.S. bondholders about $450 million. These creditors argued that the council's program was simply “a racket” intended to raise the price of coffee in the U.S. They suggested the council's millions be used instead to pay down debt, letting markets again determine international prices. Brazil ignored them.

By June 1932, half the oversupply had been destroyed, with thousands of bags dumped at sea. Later reports described beans compressed into fuel bricks for locomotive fireboxes. Coffee prices rallied for a few months, but the maneuver proved hugely expensive.

Vargas's program had sought to divide Sao Paulo’s coffee-planting elite from their urban shipping and industrial colleagues so that he could retain political power from his base in Rio de Janeiro. Instead, the planters began organizing rural leagues, built regional alliances with city power blocs and revived the regional Paulista political party that the 1930 coup had displaced.

Paulista leaders soon challenged Vargas, demanding a return to constitutional rule and the restoration of Sao Paulo state’s full autonomy. Brazil’s federal government rejected such options, and the Paulista War broke out in July 1932.

Early reports that Sao Paulo’s forces had crumbled proved premature. Battles erupted along a 225-mile front, as federal troops sought to subdue Constitutionalist forces that were anchored by the state militia. Ominously for the rebels, no other Brazilian state joined their revolt.

As the struggle continued into September, the Paulistas lost ground in border fighting, but the federal military wasn't able to access Sao Paulo.

Although a stalemate was widely predicted, Vargas’s Navy began a shipping blockade by mining Santos’s harbors, preventing coffee exports and food imports. Within weeks, the uprising collapsed, as did coffee prices, which had increased 50 percent during the crisis.

The fighting had ended, but nothing was settled.

(Philip Scranton is a Board of Governors professor of the history of industry and technology at Rutgers University, Camden, and the editor-in-chief of Enterprise and Society. He writes "This Week in the Great Depression" for the Echoes blog. The opinions expressed are his own.)

Read more from Echoes, Bloomberg View's economic history blog.

To contact the writer of this blog post: Philip Scranton at scranton@camden.rutgers.edu.

To contact the editor responsible for this blog post: Kirsten Salyer at ksalyer@bloomberg.net.

-0- Oct/08/2012 19:09 GMT

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