A large domestic quota rent existed whenever the ICA quota was in effect (Bohman and
Jarvis, 1990; Bohman et al., 1996). The IBC effectively determined the disposition of the
domestic quota rent insofar as it allocated the quota among exporters and set the export tax and
the export tax rebate. Although the government captured part of the domestic quota rent through
the export tax, Jarvis (2001) estimates that an important residual rent remained and was captured
by exporters to whom quota was allocated. Foreign coffee importers captured a larger part of the
rent, however, as a result of Brazil's payment of export tax rebates. These effects are briefly
modeled below.4
The government allocated the quota among exporters, who received it free of charge,
subject to the need to pay the export tax. Exporters purchased coffee at PD, measured inclusive of
exporters’ marketing and processing costs, and sold coffee on the member market at PA’. See
Figure 1. The demand curve for Brazilian coffee, DB, intersected qA, Brazil’s quota for exports
to the ICA member market, at PA, the counterfactual member market price that I assume would
have prevailed in the absence of export tax rebates. PA’ was higher than PA if the stimulus
provided by export tax rebates caused importers to bid up Brazil’s nominal export price.
The observed unit quota rent (per bag sold) on sales to the member market, gross of
export and sales taxes, was rg= PA’- PD. 5 After paying the taxes, exporters that received export
quota earned the residual or net rent, rn, with rn = rg - tcq, where tcq is the per bag export tax. The
IBC collected the export tax and issued export tax rebates (avisos) to foreign importers.
4 Producers captured rents only to the extent that they individually or collectively received a quota allocation and
this happened very little in Brazil. Indeed, producers probably suffered from a reduced producer price as a result of
the ICA quota. Bohman and Jarvis (1996) develop a theoretical model to explain why, given likely policies in
coffee-producing countries, the producer price of coffee should decline whenever ICA quotas are imposed. Their
econometric results suggest that the producer price of coffee did fall in most countries, including Brazil.
5 Trade among ICA-member nations, importers and exporters, accounted for 80-85% of coffee traded
internationally. Coffee was also sold by to importers in the non-member market, but at a large discount, usually
about 50%, whenever the ICA quota was imposed. Brazil sold about 10% of its coffee on the non-member market.
It appears that Brazil usually sold to the non-member market at a price that approximated PD.