Because private firms handled all coffee exports, to achieve the desired price
discrimination the IBC had to develop some mechanism like the export tax rebates. This
mechanism had to ensure that any importer that signed a long-term contract could purchase
coffee from any exporter and pay only the agreed discounted price, while also ensuring that the
exporter received the actual market price. The mechanism adopted was a negotiable, U.S. dollar-
denominated certificate called an Aviso de Garantia that was issued by the IBC to a roaster on
completion of a purchase. Importers could redeem the certificate when making their next
purchase.8 Thus, assuming repeated purchases, the rebate reduced the net price of coffee to the
purchaser, but not to the exporter or farmer. While the formulas that determined the specific
export tax rebates to individual importers were secret, it is known that the magnitude of the
rebates was tied to the difference between Brazil’s export price and an average of its main
competitors’ prices, as listed on the New York and London markets.
The Use of Export Tax Rebates to Price Discriminate. The hypothesis that the rapid
rise in export tax rebates was a response to rent seeking can be tested using the model of price
discrimination shown in Figure 2. Demand for Brazilian coffee is divided into two components,
one from the largest foreign importers, DII, who are assumed to have purchased about 40% of
Brazil’s member market exports prior to initiation of the export tax rebates, and the other from
all other exporters, DI. See Figure 2a. When the price is PA, total member market exports equal
qI0 + qII0, which is assumed less than the Brazilian quota. Provision of a unit export tax rebate, α,
to the largest importers is assumed to expand sales to these importers from qII0 to qII1, and thus
expand total member market exports by the same amount.9 For the scheme to work as intended,
8 The aviso certificates were traded on an informal New York market throughout the period that was maintained
among coffee trading companies. In general, aviso certificates traded at only a small discount to their face value.
9 Since the export tax rebates were provided only to the largest importers, these contracts were referred to in Brazil
as “special deals.”