Given the magnitude of the price effects, it may seem strange that the issue did not come
forcefully to light at the time. However, although the price effects of the rebates were large,
particularly in 1980 and 1981, they were probably not easily discernible. The coffee market
normally exhibits large price fluctuations and these may have masked the price effects of the
export tax rebates, as shown in Figure 4. The net price was never publicized. Those who
received the rebates had no reason to protest. The change in prices had little effect on country
market shares since these were essentially determined by the existence of country export quotas.
Thus, Brazil’s competitors were probably not greatly affected by the rebates. The main question
is why Brazil’s federal government did not respond to the growing fiscal cost of the export tax
rebates. In large part, it seems that these were hidden within the IBC, which had long been a very
powerful and largely autonomous institution that controlled and utilized coffee revenues as it
desired (Jarvis, 2001). Greater analysis of this issue is warranted.
Conclusions. The International Coffee Agreement (ICA) restricted world coffee exports
from 1965 to 1989 in an effort to increase world coffee prices. The ICA imposed a global export
quota that was divided among producing countries, thereby creating significant domestic rents.
In Brazil, the largest exporting country, these rents led to significant rent seeking and, ultimately,
to significant welfare loss. The greatest component of this loss was associated with the issue of
export tax rebates that systematically transferred income from Brazil to foreign importers,
though this effect was never recognized.
The Brazilian Coffee Institute (IBC) captured a significant fraction of the domestic coffee
quota rent through imposition of an export tax. However, when the coffee export quota was
implemented in 1965, Brazil was underselling its quota. As this situation suggested that the
export tax was too high, Brazil decided to provide export tax rebates to qualifying purchasers of
24
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