The name is absent

How Brazil Transferred Billions to Foreign Coffee Importers:

The International Coffee Agreement, Rent Seeking and Export Tax Rebates.*

Lovell S. Jarvis

Department of Agricultural and Resource Economics and The Giannini Foundation
University of California

Davis, CA 95616

530-752-7221

530-752-5614 (FAX)

[email protected]

August 30, 2003

Abstract

Rent seeking is well known, but empirical evidence of its effects is relatively rare. This paper
analyzes the how domestic and international rent seeking caused Brazil to provide coffee export
tax rebates that transferred foreign exchange to coffee importers. Although Brazil was the
world’s largest exporter, it began to pay export tax rebates to selected coffee importers in 1965
and, by 1988, had paid rebates totaling $8 billion. Brazil explained these rebates as a mechanism
to price discriminate among importers and expand exports within the context of the export quota
imposed by the International Coffee Agreement. We show this explanation was invalid during
most of the period. The net price fell for those who received rebates, causing Brazil to effectively
transfer approximately $3 billion to foreign importers. The effects of the rebate policy were
never recognized in Brazil, hidden largely by the complex nature of government intervention in
the coffee sector.

* Much of my research on coffee, including the early work that led to this paper, has been carried
out jointly with Mary Bohman. I am grateful to her for ideas that enriched this paper. Other
individuals who generously shared information and data include Takamasa Akiyama, Regis
Alimandro, Luiz Araripe, Dean Burnquist, Manoel Correa do Lago, Jorio Dauster, and Paolo
Vieira Da Cunha. I am also grateful to Julian Alston, Lee Branstetter, Ereney Hadjigeorgalis,
Steven Helfand and Tom Holloway for comments. The views expressed in the paper are those of
the author and should not be attributed to any other person or organization.

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