The shift to standardized contracts was expected to reduce the potential for irregularities
that had been inherent in the creation of special deals for favored large foreign importers.
However, the shift resulted in the payment of rebates to a much wider set of importers and thus
probably facilitated and expanded rent-seeking activity. The value of avisos issued did expand
and there is ample anecdotal evidence of continued rent-seeking activity during the 1980s.15
Indeed, Brazil introduced a new type of aviso rebate in 1979, as part of another effort to
increase its market share. Brazil was then expecting a return to an ICA quota that had been
suspended since 1972, and was negotiating its future quota share once the ICA quota was again
imposed. Bacha (1992) notes that Brazil hurriedly introduced new export contracts, offering
strong concessions to the big roasting houses in order to guarantee that Brazil’s 1979 shipments
would not be lower than Colombia’s 11 million bags. Brazil was concerned that its negotiating
position within the ICA would be harmed if its own exports were lower than those of
Colombia.16 One concession in the new contracts was a “Price-Fall-Guarantee,” essentially a
cost-free, unilateral hedge covering the period between the date of sale and delivery of the
coffee. This hedge ensured importers that signing a contract would not penalize them if the
international price subsequently fell. For each sack purchased, importers were to receive a rebate
equal to the difference between the purchase price and the lowest price occurring (using a 10-day
moving average) between the date of purchase and the expected transit time from Brazil to the
purchaser’s port of delivery.
Unfortunately for Brazil, the international coffee market collapsed thereafter, obligating
discrimination.
15 Several respondents mentioned a Brazilian saying that "only two agencies in the world can issue US dollars, the
Federal Reserve Bank and the IBC." Data are not available regarding the amount of avisos received by specific
importing firms, or how these amounts were determined. That so little information is available regarding the use of
avisos suggests the possibility of administrative irregularities. See also Jarvis (2000).
16 Brazil’s shipments turned out to be 12 million bags, with a full 3 million being shipped in December.
12