price of Santos 4 in New York caused by the rebates, assuming that the gross price rose $0.47 for
each $1increase in the unit export tax rebate during the periods 1965-71 and 1980-86. The effect
was small during 1965-71, but large during 1980-86. The maximum effect occurred in 1981,
when the export tax rebates increased the New York price of Santos 4 by more than $0.60/lb.
This increase implies that the New York price of Santos 4 was 49% higher than it would have
been had no export tax rebates been paid. Assuming that the prices of its competitor coffees
were similar and unchanged, the price of Brazilian coffee also rose proportionately relative to
their prices. On average, rebates increased the New York price during 1980-86 by about
$0.21/lb., or about 18% of the counterfactual price.26
The use of the export tax rebates is one of several policies used by Brazil that caused the
international price of Brazilian coffee to vary sharply and unpredictably relative to that of other
coffees. These unpredictable variations were the principle reason that the New York market
decided to delist the Brazilian “B” futures contract. The delisting of this futures contract has,
even until today, made it much more difficult for Brazilian traders to hedge against risk.
A sense of the overall effects of the export tax rebates is provided in Figure 4, which
presents a) the actual New York price of Santos 4, which reflects the effect of the rebates b) the
counterfactual New York price that would have occurred had no export tax rebates been emitted,
c) the net price paid for Santos 4 by foreign importers who received export tax rebates and d) the
percentage change in the New York price of Santos 4 caused by the export tax rebates. As can
be seen, the rebates greatly distorted both the gross and the net price of Brazilian coffee and thus
significantly affected the international coffee market.
issued was small.
26 Although the New York price rose, the net price fell to importers that received rebates.
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