How Brazil Transferred Billions to Foreign Coffee Importers:
The International Coffee Agreement, Rent Seeking and Export Tax Rebates
Lovell S. Jarvis
Introduction. To raise the price of coffee, the International Coffee Agreement (ICA)
imposed a global quota on the amount of coffee that producing countries could export during
most of the period 1963-1989. Brazil, the world’s largest coffee producer, received the largest
share of the quota. Although the quota may have increased the international price and thus
improved Brazil’s gross terms of trade1, the quota also created large quota rents within Brazil
and these rents motivated considerable rent seeking activity. Much has been written about rent
seeking, e.g., Krueger, 1973, but there are few detailed empirical studies because the effects of
rent seeking are often hard to document.
Rent seeking in Brazil occurred in many of the traditional forms (Jarvis 2001). However,
an exceptional, but previously unidentified example of how rent seeking affected the coffee
sector involves Brazil’s use of coffee export tax rebates. These rebates were introduced soon
after the ICA quota was implemented. The amount of these rebates was initially small,
averaging $21million per year during 1965-69, but grew rapidly and reached a peak of nearly $2
billion in 1981. In total, between 1965 and 1989, Brazil emitted more than $8 billion in coffee
export tax rebates, thereby reducing Brazil’s net export taxes. The export tax rebates stimulated
international demand for Brazilian coffee, causing the nominal price of Brazil’s coffee to rise
relative to those of its competitors. However, the net export price declined, causing Brazil to
transfer billions of dollars to foreign coffee importers and other rebate recipients.2 The latter
1 Akiyama and Verangis (1990) present credible estimates suggesting that the ICA may not have increased the
international price when an average is calculated over the coffee cycle.
2 This rent transfer is distinct in type from the rent transfers identified by Krishna and Tan (1992) and by Krishna et