importers. The aggregate gain of the participants, achieved by summing equations 1) through 3),
equals the total potential rent, R:
R = Re + Α + T = qA[(rg - ⅛) + α - (Pa - Pa) + (⅛ - α)]
= qA[rg - (PA’ - PA)]= qA[PA’ - PD - PA’ + PA]= qA(PA- PD)
Note that R is independent of α and the degree to which the international price was bid up as a
result of the export tax rebates. However, the distribution of R among the different actors is
dependent on α and on how α affected the international price.
Export Tax Rebates. When Brazil first received an ICA country export quota in 1963,
the IBC imposed a large export tax that restricted exports to less than them amount of the quota
that Brazil had been awarded. The IBC did so believing that Brazil had market power even
within the quota amount (Bacha 1992). However, the IBC changed it policy in 1965 to ensure
that it fulfilled its quota. It began to sign secret discriminatory contracts with a few large
importers, paying them export tax rebates in exchange for their commitment to purchase a larger
amount of coffee each year and to spread their purchases evenly throughout the year. The IBC
argued that although world coffee demand was inelastic, the demand for coffee from individual
countries (roasters) was highly price elastic, implying that Brazilian exports could be profitably
increased via a price discount (Delfim Netto 1959, Delfim Netto and Pinto 1965).
Internationally, the coffee importing and roasting industry was highly concentrated.6 Brazil
therefore thought that it could “exert its capacity to discriminate among buyers according to their
respective bargaining power” (Bacha, 1992).7
6 The three largest foreign importers, Nestle, General Foods and Procter and Gamble accounted for about 20% of
total world imports in the 1960s and about 30% in the 1980s.
7 The prices of different types and grades of coffee are highly correlated, but relative prices vary somewhat over
time and such variations induce changes in consumption.