Uncommon Grounds Part 13

The Black Frost The world's coffee trade . . . may have been permanently altered by the frost.

Few of the Parana coffee bushes will recover, and many will not be replaced.

The farmers have been frost-bitten too often in the past. They are planning to grow wheat and particularly soya beans. grow wheat and particularly soya beans.

-The Economist, July 26, 1975

Brazilian coffee farmers thought they had suffered through every kind of drought or frost, but 1975 brought snow to Parana for the first time, and the ripples from this freak weather system would affect the global coffee industry for years. Hitting on July 17 and 18, it was by far the worst frost of the century, virtually destroying the Parana coffee lands, while it inflicted terrible damage in So Paulo and elsewhere.

Viewed from the air, the area looked burned over; thus the event was named the Black Frost.105 One and a half billion trees, well over half of Brazil's total growth, were killed. Most of the harvest was already complete, but world production had lagged consumption in eight of the previous ten years, with Brazil's surplus making up the difference. Since new coffee plants required four years to come into production, it was likely that there would be a tight market for several years. In the frost's wake, coffee futures soared, and all producing countries halted exports in antic.i.p.ation of ever-higher prices. Brazil too held on to its 24 million-bag surplus. Coffee roasters, who had expected a surplus to bring down prices, were caught with low inventories. Within two weeks, the retail price of ground coffee rose by 20 cents a pound. One and a half billion trees, well over half of Brazil's total growth, were killed. Most of the harvest was already complete, but world production had lagged consumption in eight of the previous ten years, with Brazil's surplus making up the difference. Since new coffee plants required four years to come into production, it was likely that there would be a tight market for several years. In the frost's wake, coffee futures soared, and all producing countries halted exports in antic.i.p.ation of ever-higher prices. Brazil too held on to its 24 million-bag surplus. Coffee roasters, who had expected a surplus to bring down prices, were caught with low inventories. Within two weeks, the retail price of ground coffee rose by 20 cents a pound.

Several other factors combined to limit coffee production in 1975 and 1976. In Angola, tribal, regional, and political rivalries broke out in a violent civil war. In disarray itself after the fall of its military dictatorship, Portugal declared Angola independent in November 1975. The quarter million European settlers-many of them coffee farmers-fled the country, while the equivalent of 3 million bags of coffee rotted on the trees. When Cuban troops arrived to help the Movement for the Popular Liberation of Angola, the U.S. government rushed arms to the opposition, the Front for the National Liberation of Angola. For another two decades, the cold war would be played out in Angola, and its once-thriving coffee industry died. Jungle creepers climbed the coffee trees, and swimming pools once used by the Portuguese coffee elite lay empty and cracked.

Elsewhere, civil war raged in Ethiopia, interfering with the harvest, while dictator Idi Amin's activities in Uganda were beginning to affect that country's coffee crop. A dock workers' strike stalled Kenyan exports. In Guatemala, a devastating earthquake early in 1976 missed the coffee regions but destroyed bridges and caused landslides that would delay shipments. Floods swept Colombia. Coffee leaf rust surfaced in Nicaragua. Speculators took advantage of the situation, contributing to the size of the price hike.

The United States agreed to join another International Coffee Agreement (the previous one expired in 1973) in hopes that it would help to stabilize prices. A quota system would kick in when prices lowered substantially. The 1976 ICA therefore was a formality, although it did encourage producers to export their coffees, because when quotas were set, they would be based largely on the amount each country had exported in recent years.

In March 1976 green coffee prices reached $1 a pound, a 100 percent hike in less than a year. Prices continued to rise. Consumers and retail chains began to h.o.a.rd coffee in antic.i.p.ation of even higher prices, driving up the price faster.

As coffee sales declined and market-share battles intensified, Hills Brothers, the only remaining major family-owned roaster, sold out to a Brazilian agricultural conglomerate. Billionaire Jorge Wolney Atalla arranged for the $38.5 million purchase of the ailing American roaster. Atalla and his brothers, the largest coffee growers in the world, owned their own freeze-dried soluble plant, an exporting agency, two Brazilian coffee roasting firms, and Copersucar, a huge sugar cooperative that also produced alcohol for use as a fuel. Atalla announced his intention to produce an all-Brazilian blend (primarily using his own beans) and to double Hills Brothers' U.S. market share by 1980.

Machiavellian Market Manipulations As 1977 brought $3-plus a pound, boycott movements sprang up around the country. Supermarket chains joined the campaign, urging consumers not to buy coffee. The MacNeil/Lehrer Report MacNeil/Lehrer Report devoted a show to the crisis. "It's a bit ironic," observed Jim Lehrer, "that a nation that started on its road to independence with a tea boycott should be kicking off its third century with a coffee boycott." Conservative writer William Safire penned "Brazil's Coffee Rip-Off" in the devoted a show to the crisis. "It's a bit ironic," observed Jim Lehrer, "that a nation that started on its road to independence with a tea boycott should be kicking off its third century with a coffee boycott." Conservative writer William Safire penned "Brazil's Coffee Rip-Off" in the New York Times New York Times, a.s.serting that "the doubling of coffee prices has little to do with market forces"-Brazil's military junta knew that "dopey Americans will pay anything for their coffee fix."

Disturbed by the storm he saw brewing, Jorge Wolney Atalla took out a full-page ad in the Wall Street Journal Wall Street Journal so that Hills Brothers could explain the price hike as a result of the frost and other natural and political disasters. Atalla invited three dozen U.S. consumer advocates and supermarket managers to come to Brazil as guests of Hills Brothers, to see the frost destruction. They also visited the four largest government storehouses to see that they were nearly empty. His efforts could not stem the tide of righteous indignation. so that Hills Brothers could explain the price hike as a result of the frost and other natural and political disasters. Atalla invited three dozen U.S. consumer advocates and supermarket managers to come to Brazil as guests of Hills Brothers, to see the frost destruction. They also visited the four largest government storehouses to see that they were nearly empty. His efforts could not stem the tide of righteous indignation.

Once again, as in 1912 and 1950, a shrill political crusader led the charge of price manipulation. This time it was New York's Fred Richmond, the chair of the Domestic Marketing, Consumer Relations, and Nutrition Subcommittee of the Committee on Agriculture. Richmond expressed outrage when Brazil and Colombia repeatedly raised their export tax levies to take advantage of rising prices.

In February 1977 Richmond co-chaired joint hearings. "Coffee consumers in the United States and other nations are in the grip of one of the most Machiavellian market manipulations in modern memory," Richmond thundered in his opening remarks. He accused Brazil of conducting "a deliberate, pervasive campaign to inflate and artificially maintain coffee prices at record levels."

Elinor Guggenheimer, New York City's Commissioner of Consumer Affairs, presented some of the 3,000 letters she had received from consumers.

"This is the first time I've ever written to protest anything," one housewife wrote regarding "all the greedy coffee growers, companies, and dealers." A veteran recalled "during World War II when a cup of coffee was the difference between misery and pleasure." He couldn't bring himself to abstain entirely, but he promised to cut his consumption.

Jane Byrne, Chicago commissioner of consumer affairs (and future mayor), lamented the plight of the Brazilian laborers she had met on Wolney Atalla's plantation. "They work for $2 a day; they are allowed to plant a little bit of corn in their backyards. Everything else which they make out of their $2 a day goes right back into the company store and goes for rent on the house." Michael Jacobson, the head of the Center for Science in the Public Interest, testified in favor of a permanent permanent boycott, or at least a severe cut in consumption, since he believed coffee could be harmful to health. boycott, or at least a severe cut in consumption, since he believed coffee could be harmful to health.

Following this parade of critics, the State Department's Julius Katz a.s.serted that the Brazilian and Colombian export taxes had no effect on coffee's cost to consumers. Rather, the export tax took a bite out of the price the farmer received. As prices rose, it was natural for the governments to increase their share in order to fund new plantings and the use of fertilizers and pesticides. Even so, the return to the Brazilian farmer had tripled. Katz ignored the plight of the laborers, however, since their wages remained minimal. Katz admitted that there was no coffee shortage, but "markets operate on the basis of antic.i.p.ation." With Brazil gradually depleting its surplus stocks, another frost or unforeseen disaster could easily cause a real shortage.

Even at higher prices, coffee cost about 6 cents a cup when brewed at home. Soft drinks, which pushed past coffee in 1976 to become America's most widely consumed beverage, cost much more. What was it about coffee prices that invariably aroused U.S. citizens? It is difficult not to conclude that a xenophobic distrust of Latin Americans and Africans lay behind the uproar. The hearings ended without lowering coffee prices or accomplishing anything. Prices continued to climb, exceeding $4 a pound by May 1977.

Riding the Bull Market to Millions Though speculators may not have caused the price hike, some of them certainly profited from it. One veteran who preferred to remain anonymous- call him Mike-began trading in 1973, when the coffee market had just become viable again. As a "local," he traded for whatever brokerage firm hired him, but he also bought and sold futures on his own account. "I don't know anything about coffee," he confessed. "I just know how to trade it. It wouldn't matter if I was trading lettuce. I can listen to the tone of the voices in the ring and tell what's going on."Il In 1975 Mike took advantage of the frost, then rode the price rises and shortfalls over the next few years. He jumped nimbly in and out of the market, sometimes taking a position only for a few minutes or even seconds. "I would just try to catch a move." During the late 1970s, Mike made over $1 million a year.

"Every day before the opening bell, I would get b.u.t.terflies. Then once it started, I would just automatically go. If my mother were standing next to me and I had to step on her to get an order off, I'd do it." The intense compet.i.tion, the gesturing to bid or sell, and the screaming to be heard, made it an exhausting occupation. "It's a young man's job, and it's not an occupation for a deep thinker. A Phi Beta Kappa would study it too hard and not perform in time." The street-smart kid who could keep a level head under stress thrived.

"I used to put pebbles in my mouth, like that Greek guy, and practice shouting quotes and bids. The loudest guy does the most business." No one left the floor, even to go to the bathroom, during the 10:00 A.M. to 3:00 P.M. trading hours. With a group of men-women were a rarity-screaming and sweating in close proximity, viruses thrived.

At night, Mike would drink with buyers and brokers. "We talked coffee all night." Every three months, he rubbed shoulders at conventions-in Boca Raton, Florida, for the National Coffee a.s.sociation, Bermuda with the Green Coffee a.s.sociation, Pebble Beach, California, at the Pacific Coast Coffee a.s.sociation, London for the European Coffee a.s.sociation. "All these guys did very well, indeed. It was the high life."

Hot Coffee (Stolen) and High Yield (Awful) As coffee prices spiraled in 1977, beans turned to gold for coffee thieves around the world. In San Francisco, a truck with $50,000 worth of coffee disappeared. Four men were arrested for stealing seventeen tons in Miami. A rash of coffee hijackings off the New York City streets accounted for well over $1 million.

In Brazil, coffee export earnings reached $4 billion, enough to match its whopping oil import bill, but rising prices caused problems there too. Greedy farmers broke fixed-price contracts with brokers. Smuggling out of countries with high export taxes, or low state-controlled prices to growers, increased dramatically, particularly from Colombia and Brazil. As one coffee expert observed, "Smuggling occurs almost everywhere. . . . If custom officials do not go along with the bribes, smugglers have been known to dispose of custom officials by beatings, intimidation and death."

In one swindle, four men sold $8.7 million worth of mythical Dominican Republic beans to Cuba, intending to sink the ship en route. The scam was uncovered when the crew failed to scuttle the freighter, which arrived empty. In another case, New York's Citibank lost $28 million in loans to a Colombian coffee broker who turned out to be in business with the Citibank agriloan officer.

The higher coffee prices did did filter down to smallholders (those with tiny coffee plots) in many countries, including some in Brazil, where the number of large filter down to smallholders (those with tiny coffee plots) in many countries, including some in Brazil, where the number of large fazendas fazendas was declining. Those who benefited from the high prices realized that it was unlikely to last. "Coffee gives you a jacket," an old Brazilian aphorism has it, "and takes your shirt." was declining. Those who benefited from the high prices realized that it was unlikely to last. "Coffee gives you a jacket," an old Brazilian aphorism has it, "and takes your shirt."

In Mexico's Chiapas, some Indians could temporarily afford meat with their rice and beans. In the Papua New Guinea Highlands, while most white planters had abandoned their plantations, natives found that their tiny plots, averaging five hundred trees, provided a handsome income in their terms. Colombian smallholders were unhappy, though, since they received less than a third of the international price, due to high export taxes. Some growers burned their coffee in protest, threatening to grow marijuana instead.

The U.S. coffee industry responded, as it had to previous periods of high coffee prices, with subst.i.tutes and coffee-stretching claims. Nestle introduced Sunrise, an instant coffee "mellowed with chicory," imported from its European plants, where the 46 percent chicory mix had long been a standard. General Foods came out with Mellow Roast, a coffee and cereal mixture that was easy enough to produce, since the firm simply added Postum to its regular roast. Procter & Gamble developed Folgers Flaked Coffee, specially cut into slivers with roller mill groovings, thus allowing overextraction in automatic drip machines. Procter & Gamble sold it in full-size cans that held only thirteen ounces, boasting that the flaked product made the same amount of coffee as a regular pound. Under its Brazilian management, Hills Brothers developed a "jet zone" roasting process in which beans were subjected to blasts of intense heat that expanded the cellular structure, resulting in a puffy product with more air, allowing Hills Brothers to pack its its thirteen ounces in a pound-size can of the new High Yield blend. General Foods followed with a similar high-yield product called Master Blend. thirteen ounces in a pound-size can of the new High Yield blend. General Foods followed with a similar high-yield product called Master Blend.

Prices eventually leveled off in the summer of 1977, then fell sharply in August after a successful Brazilian harvest with no major frost. Determined to hold coffee prices up, Brazil refused to sell below $3.20 a pound, even as world prices tumbled below $2. Brazil sold little coffee, instead entering the world market to buy beans as far away as Madagascar in an effort to boost prices. Colombia, characterizing Brazil's stance as "suicidal," sold freely, afraid that North Americans would permanently lose their taste for coffee unless the price came down. Colombia was troubled by raging inflation fueled by too many dollars flowing into the country-not only from coffee, but from contraband in cocaine, marijuana, emeralds, and cattle. In November, Brazil finally succ.u.mbed, resuming sales at a 45 percent discount to the "official" price of $3.20 in order to save face, while arranging special deals with Maxwell House and Folgers for deeper discounts.

Although prices were coming down, they stayed over $3 a pound at retail. General Foods laid off workers from its four roasting plants because of declining demand, posting a 37 percent decline in earnings in the September quarter while taking a $17.5 million write-down on overpriced coffee inventories. On the whole, coffee sales were off 20 percent from preboycott levels.

Specialty Reaches the Heartland One of the unforeseen consequences of the 1975 Black Frost and its aftermath was the boost it gave to specialty coffees. As prices rose, the percentage gap between inferior and quality coffees narrowed. Across the country, consumers began to realize that for only a little more money they could buy coffee that really tasted good. What's more, shopping for coffee in a clean, aromatic specialty store was fun fun. Customers could chat with the knowledgeable, enthusiastic owner-roaster, who delighted in telling them what all those different names, origins, and roasts meant, and who suggested different blends. And the shops offered exotic devices for sale-French Melior pots, porcelain Melittas, grinders from Germany and Italy.

By 1980 specialty coffee was entrenched in the big cities on the East and West coasts of the United States and was reaching into suburban and rural areas. In Waitsfield, Vermont, Doug and Jamie Balne roasted coffee in their Green Mountain Coffee Shop. In Oregon, Gary Talboy started the Coffee Bean. Elsewhere in Oregon, Michael Sivetz bought an old church in Corvallis, installed a roaster, and opened a retail shop. A chemical engineer, Sivetz invented a "fluid bed" roaster that tossed the beans in blasts of hot air, rather like a giant popcorn machine, and he became one of the loudest voices crying for a return to coffee quality.

In Orlando, Florida, Phil Jones opened a Barnie's (his real first name), ordering his beans preroasted from Joel Schapira in New York. In Long Grove, a Chicago suburb, contractor Ed Kvetko bought a little coffee shop. Within a few years he changed the name to Gloria Jean's Coffee Beans (named after his new wife), adding a few more stores. Julius and JoAnne Shaw opened the Coffee Beanery in Flushing, Michigan. Phyllis Jordan founded PJ's Coffee & Tea in New Orleans. Erna Knutsen having blazed the way, Jordan and Shaw represented the new female coffee entrepreneurs.106 Dominated by the huge roasters, the National Coffee a.s.sociation ignored the tiny new entrants who sold their whole beans out of bags or barrels. So the neophyte enthusiasts began to congregate twice a year at the National Fancy Food & Confection Show hosted by the National a.s.sociation for the Specialty Food Trade. Every year their numbers swelled. Gourmet roasters from the Atlantic to the Pacific began to get to know one another. Maybe the California crowd roasted their beans darker than the New Yorker would have preferred, but they shared the same dedication to quality.

Whole-bean coffees began to show up in selected supermarkets around the country. Starbucks offered its Blue Anchor brand in bulk supermarket bins throughout Washington state. Goodhost, a Canadian food supplier, pioneered whole beans in clear-plastic gravity-feed bins in the Seattle area.

In 1979, at A & P's Compa.s.s Foods, Paul Gallant's phone began to ring off the hook after A & P closed its stores in Pittsburgh, Cleveland, and Milwaukee. Supermarket chains demanded to know, "Where can we get Eight O'Clock Coffee? Our customers want it." With company permission, Gallant began to sell Eight O'Clock and Bokar on an exclusive basis to selected markets. "In a brief period of time, these stores were doing more business in coffee than A & P was," he recalled. "Eight O'Clock Coffee was one of the triggers for the growth of the gourmet coffee movement. Our product was mostly Brazilian, but it was 100 percent arabica, which certainly made it better than most of the canned coffee out there."

One Big Slaughterhouse Under many corrupt, repressive regimes, the high coffee prices of the late 1970s enriched government coffers and traditional oligarchies. In Uganda, Idi Amin took virtually all of the coffee profits. The semiliterate but shrewd Amin came to power in 1971, after helping to overthrow Milton Obote. He proceeded to ruin the economy, in part by driving out the Asian business community. A Muslim, Amin then turned on the Christian majority, killing as many as 300,000 people. By 1977 the copper and cotton industries had been virtually destroyed, leaving coffee as Uganda's only major export. Under Amin, coffee harvests declined by 35 percent, but with the postfrost price hike, the beans funded the dictator's luxurious lifestyle and paid his army goons.

In March 1977, the New York Times New York Times reported that the United States was paying $200 million a year for Ugandan coffee to support the corrupt regime, while 80 percent of Ugandans survived only on subsistence garden plots. By the end of the year, U.S. activists raised their voices. Freshman Ohio Congressman Donald Pease introduced a bill into the House of Representatives to force a boycott of Uganda's coffee, which accounted for about 6 percent of U.S. coffee imports, but a full third of Uganda's exports. General Foods, Procter & Gamble, Nestle, and other major roasters jointly issued a statement through the National Coffee a.s.sociation, calling the Ugandan ma.s.sacres "abhorrent and morally repugnant," but asking for a "uniform national policy" for direction; in other words, they refused to implement a boycott until the government forced them to do so. Since the decline of Angolan production, Uganda, exporting mostly robusta, had become quite important to the major roasters of mediocre blends. reported that the United States was paying $200 million a year for Ugandan coffee to support the corrupt regime, while 80 percent of Ugandans survived only on subsistence garden plots. By the end of the year, U.S. activists raised their voices. Freshman Ohio Congressman Donald Pease introduced a bill into the House of Representatives to force a boycott of Uganda's coffee, which accounted for about 6 percent of U.S. coffee imports, but a full third of Uganda's exports. General Foods, Procter & Gamble, Nestle, and other major roasters jointly issued a statement through the National Coffee a.s.sociation, calling the Ugandan ma.s.sacres "abhorrent and morally repugnant," but asking for a "uniform national policy" for direction; in other words, they refused to implement a boycott until the government forced them to do so. Since the decline of Angolan production, Uganda, exporting mostly robusta, had become quite important to the major roasters of mediocre blends.

In February 1978 a congressional subcommittee held hearings on the Ugandan situation. The congressmen heard horrendous firsthand testimony from several expatriate Ugandans. Remigius Kintu, the son of a coffee farmer, told the committee that the official duties of the Amin death squads were to "terrorize, kill, rape, rob, and torture Ugandans." Kintu spoke of prisoners forced to drink their guards' urine, of men made to crawl on broken gla.s.s with hands and legs cuffed, of the continual cries and groans rising from the Ugandan concentration camps. Amin, Kintu said, had turned Uganda into "one big slaughterhouse."

When Julius Katz from the State Department later temporized that "embargoes should be entered into only under extraordinary circ.u.mstances," Representative Stephen Solarz suggested that he and his State Department colleagues read the book While Six Million Died While Six Million Died, doc.u.menting U.S. inaction during the Holocaust.

"To me, American businessmen who would like to continue doing business with Idi Amin are merchants of death, more concerned with their bank balance than with human misery," a Ugandan exile testified. "Are American coffee companies prepared to do business with a genocidist like Amin or Hitler if the price is right?" asked Donald Pease.

Clearly, the answer was yes, especially for importers like Claude Saks. "Our import statistics from Uganda were enormous," he recalled, "and this fact was picked up by a columnist at the Washington Post Washington Post. We were lambasted for supporting Idi Amin's fascist and inhumane regime." Other papers picked up the story, and Saks soon received letters from the New York Archdiocese, Protestant churches, human rights groups, and citizens. Saks sought legal counsel on his "publicity problem." The lawyer advised him not to respond to the protest letters and articles and "see if the storm would pa.s.s."107 On Monday, May 15, Procter & Gamble learned that the House was on the verge of pa.s.sing a resolution condemning Amin and urging President Jimmy Carter to implement an embargo. The next day Procter & Gamble announced with a great flourish that Folgers would no longer buy any Ugandan coffee. Quickly, Nestle issued a statement that it had stopped buying Ugandan beans the previous month, and General Foods said that it had ceased purchasing directly from the Ugandan Coffee Board in December-though General Foods still bought Ugandan beans through brokers.

Late in July 1978 Congress finally voted to impose an embargo on Ugandan coffee, but no other countries joined the boycott. It weakened Amin's support, however. In April 1979 Julius Nyerere of Tanzania sent troops into Uganda to oust Amin and, after several interim rulers, Milton Obote came back to power. The boycott was lifted in May, and business returned to normal. Unfortunately for Uganda, Obote was almost as ruthless and corrupt as Amin, and the terror and killings continued for years without any international outcry.

Repression and Revolution in Central America In Nicaragua, a small group of Marxist intellectuals, the Sandinistas, led the fight against longtime president Anastasio Somoza Jr., with the entire country rallying behind them, eager to get rid of the dictator.108 In July 1979 Somoza fled and the Sandinistas took over, promising a better life for all, including coffee growers and laborers. The Sandinistas faced a difficult task, however, with 40,000 dead, a million homeless, and a wrecked economy as the legacy of the civil war. In July 1979 Somoza fled and the Sandinistas took over, promising a better life for all, including coffee growers and laborers. The Sandinistas faced a difficult task, however, with 40,000 dead, a million homeless, and a wrecked economy as the legacy of the civil war.

Three months after the revolution, the government established ENCAFE (Empresa Nicaraghense del Cafe) as the sole buyer and seller of Nicaraguan coffee. The new government seized the vast Somoza family holdings, which included 15 percent of the coffee fincas fincas, while dedicating itself to "renovating" selected farms, supposedly by applying the most progressive agricultural techniques. At first, Nicaraguan coffee workers and farm owners were enthusiastic; over the next few years, however, it became clear that the urban Marxists didn't know much about coffee.

In El Salvador, the People's Revolutionary Army (ERP) challenged the repressive regime of General Carlos Humberto Romero. In October 1979 a junta took over, with moderate Jose Napoleon Duarte eventually rising to become chief of state. The leftist rebels joined forces in 1980 to form the Frente Farabundo Marti para la Liberacion Nacional (FMLN), dedicated to overthrowing the government by terror. At the same time, right-wing death squads roamed the countryside. The country descended into a bloodbath, with over 50,000 people killed by one side or the other in the next few years. The coffee-growing oligarchy loathed the rebels but were split politically, with some supporting the death squads, others seeking moderate reforms. The violence reduced the coffee harvest, as many laborers were killed or joined the rebels. Other Salvadorans fled the country, sending money back from the United States to help support those who remained.

In Guatemala, since the CIA-sponsored overthrow of Arbenz in 1954, a series of corrupt, repressive military regimes had battled increasingly active guerrilla bands. In 1978, with the rigged election of General Romeo Lucas Garcia, death-squad activity intensified, along with resistance in the countryside.

Until the late 1970s, most Guatemalan Indians were living in the altiplano altiplano , subsisting on their tiny , subsisting on their tiny milpa milpa plots, and suffering from continual malnutrition. During harvest season, as activist Phillip Berryman wrote in 1977, "men, women, and children pile into labor contractors' rickety trucks and head to the plantations, where they are housed in sheds that are just roofs open on all sides. They get sick and have no medical attention. Besides their daily wage they are ent.i.tled to tortillas and perhaps beans-not even coffee." plots, and suffering from continual malnutrition. During harvest season, as activist Phillip Berryman wrote in 1977, "men, women, and children pile into labor contractors' rickety trucks and head to the plantations, where they are housed in sheds that are just roofs open on all sides. They get sick and have no medical attention. Besides their daily wage they are ent.i.tled to tortillas and perhaps beans-not even coffee."109 By 1977 Rigoberta Menchu's father, Vicente, had joined the revolutionary forces. The teenage Rigoberta soon joined the struggle. In 1979 her sixteen-year-old brother was killed by the military. "My brother was tortured for more than sixteen days. They cut off his fingernails, they cut off his fingers, they cut off his skin." The following year, her father died with many others when soldiers set fire to Guatemala City's Spanish emba.s.sy, which they were occupying. Then her mother was kidnapped, raped, and murdered. Rigoberta eventually fled to Mexico but continued to make forays back to Guatemala to organize rebels. She a.s.serted, "It was not only now we were being killed; they had been killing us since we were children, through malnutrition, hunger, poverty."110 El Gordo and the Bogota Group Even as his country of El Salvador drenched itself in blood, Ricardo Falla Caceres played the high roller in international coffee finance. Known as "El Gordo" ("The Fat One"), Falla was variously described as "a brilliant tactician" and a "formidable operator, admired and feared in the coffee market." As the head of the trading company Compania Salvadorena de Cafe SA, he had impressed coffee producers with his ability to drive up prices on the New York Coffee and Sugar Exchange in late 1977 and early 1978. The situation had so alarmed the watchdog Commodity Futures Trading Commission that it issued an emergency order on November 23, 1977, halting trade in the December coffee contracts-most of which were controlled by Falla-and allowing only their "liquidation," the fulfillment of preexisting contracts. In August 1978, on the heels of a mild Brazilian frost, coffee representatives from eight Latin American countries-Brazil, Colombia, Costa Rica, El Salvador, Guatemala, Honduras, Mexico, and Venezuela-met with Falla in closed session in Bogota to plot a strategy.

The International Coffee Agreement's 77 cents per pound trigger price was woefully inadequate in the postfrost inflationary world, and the producers sought a way to boost the price of coffee. Quota restrictions without consumer country partic.i.p.ation never worked in the past, since someone always cheated. Now, with green prices falling below $1 a pound, producers put together a $150 million fund and directed Falla to play the futures market. The infamous "Bogota Group," named for its first meeting place, was born. With supply and demand roughly in balance, market manipulation stood a fair chance of succeeding, as people were more likely to react to false scarcity or fear of one. The coffee market was no place for the timid; thinly traded, compared to other commodities, coffee offered less liquidity, huge volatility, and high stakes, as one contemporary financial a.n.a.lyst pointed out. "Who's trading it?" he asked in 1978. "A few big speculators with bra.s.s-bound egos, some of the locals, and the trade-the producing countries certainly, and roasters, on occasion."

By September 1979 the Bogota Group's activities were drawing fire in the American press. Syndicated columnist Jack Anderson wrote an article headlined "Price Gouging by the Coffee Cartel." Falla's activities also alarmed the U.S. State Department. Testifying before Congress, Julius Katz of the State Department accused the Bogota Group of "acting collusively and unilaterally to try to support prices." Though he informed the group of the State Department's "serious concern," Falla snubbed him. "It may be your court," Falla said, "but it's our ball." In other words, without their coffee, there would be be no exchange or futures market. At $1.85 a pound, coffee prices in fact were not unreasonable. Nonetheless, the New York exchange (now covering coffee, sugar, and cocoa) once again imposed "liquidation only" conditions on the December 1979 contract to prevent the Bogota Group from doing a "market squeeze," driving up the price by buying too many future contracts. no exchange or futures market. At $1.85 a pound, coffee prices in fact were not unreasonable. Nonetheless, the New York exchange (now covering coffee, sugar, and cocoa) once again imposed "liquidation only" conditions on the December 1979 contract to prevent the Bogota Group from doing a "market squeeze," driving up the price by buying too many future contracts.

In spring 1980 Falla convinced the Bogota Group to form its own trading house, Pancafe Productores de Cafe SA, a Panamanian corporation based in Costa Rica, with a whopping $500 million to invest, bankrolled by his previous trades and new money from contributing countries. By incorporating as a Panamanian company, the speculators hoped to evade attempts by the Commodity Futures Trading Commission to make them divulge their trading position. To express its displeasure with Pancafe, Congress held up implementing legislation for the ICA, which had been renegotiated with a more reasonable trigger level of $1.68 a pound.

Then, according to informed insiders, U.S. Customs officials grabbed Falla out of a New York airport, where he was en route to London, and took him to a small room, where officials told him that he wasn't leaving the United States until he promised to disband Pancafe. If he agreed, they would push for full U.S. partic.i.p.ation in the International Coffee Agreement. Falla succ.u.mbed to pressure, Pancafe dissolved, and Congress promptly pa.s.sed implementing legislation. Coffee prices sagged in antic.i.p.ation of oversupply. An observer from Merrill Lynch doubted whether Pancafe could have held prices up anyway. "The moral of the story," he said, "is that coffee may be black and liquid, but it is not oil."

Once again the United States agreed to resuscitate the ICA partly from cold war fears. The Sandinista revolution in Nicaragua, together with leftist guerrilla movements in El Salvador and Guatemala, heightened fears that Communism would triumph in the troubled coffee countries of Latin America. With Brazilian production recovering and world consumption stagnant, another coffee glut loomed. Prices might drop to dismal levels again without a quota system. At the end of 1980, with prices down to the $1.20 a pound level, the ICA system kicked into gear, with consuming and producing countries agreeing to cut world export quotas to 54.1 million bags for the coming year. Brazil was lucky to negotiate a 25 percent world quota share-down from the 40 percent it commanded in 1962, but better than its actual 18 percent bite of the 1979 market.

Grinding Out the Decade As prices declined in 1978, Procter & Gamble finally rolled Folgers into New York City and the rest of the East Coast to complete its national expansion. By the end of the year, Folgers had grabbed 26.5 percent of the national market for regular coffee, surpa.s.sing Maxwell House, which held 22.3 percent. Because of its other regular brands-Sanka, Yuban, Max-Pax, Brim, and Mellow Roast-General Foods still edged out Procter & Gamble with 31.6 percent of the total roast and ground market, and it held a whopping 48.3 percent share of instant coffee. Even in that category, however, Nestle's Taster's Choice was trouncing Maxim, the General Foods freeze-dried entry. The Folgers battle for supremacy hiked advertising expenditures for 1978, with the top ten coffee companies spending a total of $85.8 million, of which Procter & Gamble spent $25 million.

Abandoning Aunt Cora, General Foods switched to quick vignettes in which a cross-section of Americans-including young people-drink Maxwell House all day long. The ads attempted to rise above the fray to promote all coffee as an uplifting experience. Fighting back against Taster's Choice, General Foods brought out a new Maxwell House Freeze-dried Coffee, backed by a $20 million ad budget, though the company insisted it had no plans to phase out Maxim.

With high coffee prices no longer in the news, the new economy blends such as High Yield, Master Blend, and Folgers Flaked faltered, since they tasted even worse than the regular brands. Sanka provided the only real bright spot for General Foods, where it long had dominated the U.S. decaffeinated field-so much so that many restaurants listed "Sanka" on the menu instead of "decaf." Folgers launched High Point decaf in 1980 but barely dented the market. General Foods bought Kaffee HAG from Ludwig Roselius Jr. in Germany, where the longtime decaf leader (the sister brand of Sanka, both invented by the senior Roselius) had fallen to 25 percent of its segment, behind Tchibo's Sana brand, which held 40 percent of the decaf market. One German compet.i.tor scoffed at the new merger, calling General Foods and HAG "two drunks holding each other up."

If General Foods was a drunk, however, Hills Brothers and Chase & Sanborn were suffering from delirium tremens. Caught in the crossfire between Folgers and Maxwell House in the price wars, the second-string brands watched their market shares dwindle. Standard Brands' Chase & Sanborn had dropped to 0.6 percent of the market. Hills Brothers fared better, at 6.3 percent, but it too trended downward, despite a $6 million ad budget for its High Yield economy brand. Its Brazilian owners did not help much. During the price rise, Jorge Wolney Atalla ordered Hills Brothers to stockpile his Brazilian beans, leaving the firm with high-cost inventory that produced a $40 million loss. When Atalla sold his share in Copersucar (the firm that owned Hills Brothers), the Brazilians backed off and allowed the American managers to go their own way.

Regional roaster Chock full o' Nuts held its ground relatively well in New York City, its home turf. To compete, Chock threw robusta into its blends too. Founder William Black, now in his seventies, was turning paranoid and reclusive. In 1962 Black had divorced his second wife and married singer Page Morton, putting her on television to pitch the "heavenly coffee" for years to come. At a stockholders' meeting, someone asked why they didn't "get rid of that ugly broad." Black never attended another meeting. Communicating by memo, he insisted on approving every communication that left the company.111 Not surprisingly, Black ran through a string of presidents, none of whom he found satisfactory. Not surprisingly, Black ran through a string of presidents, none of whom he found satisfactory.

As the 1970s ended and a new decade began, the traditional roasters remained engaged in a myopic pursuit of market share through cheap, inferior products. They had no clue that specialty coffee represented coffee's hope for the future. In a January 1, 1980, meeting, NCA president George Boecklin reviewed the dismal seventies, with its frosts, record high prices, congressional hearings, civil wars, earthquakes, boycotts, health scares, and cutthroat compet.i.tion. "Did I leave anything out?" he inquired.

Yes, he did. The little guys selling whole beans.

17.

The Specialty Revolution Our industry has the opportunity to stem the downward drift by paying attention to an industry phenomenon which has been labeled alternately "specialty" or "gourmet" bean coffees: the preparation and sale of whole beans blended, ground, and bagged right in front of the customer. It is an effort to bring the coffee business back to its roots.

-Donald Schoenholt, 1981

Specialty coffee was the perfect drink for the go-go 1980s, which witnessed the triumph of yuppies-young urban professionals-willing to pay top dollar for life's luxuries. At the end of 1982, Money Magazine Money Magazine recognized its readers' interest with an article t.i.tled "Coffee to Your Taste: Rare Beans at $5 to $10 a Pound Resemble Wines in Their Richness," quoting specialty pioneers. Flavored coffees, such as Swiss chocolate almond, introduced neophytes to gourmet beans. Specialty purists were horrified, but others argued that such customers would "graduate" to straight varietal beans. Besides, flavored coffee sold, and few coffee men were too idealistic to make money when they could. recognized its readers' interest with an article t.i.tled "Coffee to Your Taste: Rare Beans at $5 to $10 a Pound Resemble Wines in Their Richness," quoting specialty pioneers. Flavored coffees, such as Swiss chocolate almond, introduced neophytes to gourmet beans. Specialty purists were horrified, but others argued that such customers would "graduate" to straight varietal beans. Besides, flavored coffee sold, and few coffee men were too idealistic to make money when they could.

It was almost inevitable that the specialty roasters would form their own organization. Primarily through the efforts of California's Ted Lingle and New York's Donald Schoenholt, coffee idealists from both coasts met in San Francisco in October 1982, sitting cross-legged on the floor in the parlor of the little Hotel Louisa, and hammered out a national charter. The new Specialty Coffee a.s.sociation of America (SCAA) was born, with forty-two members signing on.

"I call upon each of you, my heroes!" wrote Schoenholt in a January 1983 invitation to join the fledgling SCAA. "Rise up, my fine buckos, and a.s.sert your will." He likened the task before them to climbing Mt. Everest in sneakers, but urged them on. "We must throw ourselves into our task united, or we shall be hurled down into the ma.s.sed elephantine corporations waiting to trample us alive."

Specialty coffee did not fit neatly into the corporate coffee statisticians' world of retail share, since usually it was sold in bulk or through direct mail. Yet by the end of 1983 even the stodgy Tea & Coffee Trade Journal Tea & Coffee Trade Journal took note. "Last year we said there was a general belief that specialties comprised about one percent or less of the coffee business in the U.S. market," wrote publisher James Quinn. "Today we have strong reason to believe that the gourmet market represents about three percent of the total market." The next year, three or four new specialty roasters entered the trade every month. By 1985 one expert estimated that specialty coffee accounted for 5 percent of all U.S. coffee retail sales, and now a new roaster set up shop every took note. "Last year we said there was a general belief that specialties comprised about one percent or less of the coffee business in the U.S. market," wrote publisher James Quinn. "Today we have strong reason to believe that the gourmet market represents about three percent of the total market." The next year, three or four new specialty roasters entered the trade every month. By 1985 one expert estimated that specialty coffee accounted for 5 percent of all U.S. coffee retail sales, and now a new roaster set up shop every week week. There were 125 wholesalers in the United States and Canada, with their numbers growing at a 25 percent annual clip.

To reach the upscale market through mail orders, specialty roasters advertised in the New Yorker New Yorker, Gourmet Gourmet, and the Wall Street Journal Wall Street Journal. They now were able to package and ship their beans across the country because of the one-way valve, the most revolutionary packaging innovation since the Hills Brothers' vacuum can of 1900. Built into an airproof, laminated plastic bag, the valve allowed fresh-roasted beans to "de-gas," letting out carbon dioxide, but it did not not allow oxygen back into the bag. Invented by Italian Luigi Goglio in 1970, the one-way valve had been in use in Europe for over a decade by the time the U.S. specialty industry discovered it in 1982. allow oxygen back into the bag. Invented by Italian Luigi Goglio in 1970, the one-way valve had been in use in Europe for over a decade by the time the U.S. specialty industry discovered it in 1982.

Good Till the Last Drop Dead Throughout the late 1970s, Michael Jacobson of the Center for Science in the Public Interest (CSPI) had hammered away at the U.S. Food and Drug Administration to remove caffeine from the list of drugs "Generally Recognized as Safe" (GRAS). The FDA hesitated to take such a step, which would have disastrous economic consequences for the coffee, tea, and cola industries.

In November 1979 Jacobson filed a pet.i.tion with the FDA asking for warning labels on coffee and tea packages reading: "Caffeine May Cause Birth Defects." At the same time, he issued a press release and wrote letters to 14,000 obstetricians and midwives.

In an emergency meeting, the NCA funded a $250,000 program to counter the CSPI, hired public relations consultants, and lobbied the FDA to keep caffeine on the GRAS list. The NCA pointed out that the rats were being forced to ingest the equivalent of thirty-five cups of coffee all at once. The International Life Sciences Inst.i.tute (ILSI), founded in 1978 with soft-drink money, joined the NCA to conduct epidemiological studies on caffeine. Caught in the political riptide, the FDA waffled. "We're not saying caffeine is unsafe," Sanford Miller of the FDA said. "We're just not saying it's safe." The agency warned against caffeine consumption by pregnant women but did not demand a warning label.

The next year, an epidemiological study appeared to link coffee to pancreatic cancer, triggering widespread media attention and sick jokes about coffee being "good till the last drop dead." Then a new study purported to link caffeine with the formation of benign breast lumps. Yet another claimed that coffee produced heart arrhythmia, while a Norwegian survey found higher cholesterol levels in heavy coffee drinkers.

The 1980 edition of the Diagnostic and Statistical Manual of Mental Disorders Diagnostic and Statistical Manual of Mental Disorders, bible of the American Psychiatric a.s.sociation, included "caffeinism" as a diagnosis, making the consumption of too much coffee a bona fide psychiatric disorder.

The National Coffee a.s.sociation moved vigorously to counter the calumnies against its drink, funding more studies and a.s.sembling a file of thousands of articles from the medical and scientific literature. Many other independent scientists and doctors pointed out flaws in the anti-coffee findings, and a 1982 study of 12,000 pregnant women revealed no detectable ill effects from coffee consumption. Nonetheless, the damage was done. During the 1980s, coffee was a.s.sociated with over one hundred diseases and disorders and, though subsequent studies threw every negative finding into question, the implanted fears led more consumers to decaffeinated alternatives or away from coffee completely. The number of Americans who drank coffee fell from 58 percent in 1977 to 50 percent in 1988.

Learning to Love Uncoffee In 1979 a large Swiss manufacturing firm, Coffex, perfected a decaf process using only water. Although the methylene chloride method left virtually no chemical on the roasted beans, the new "Swiss Water Process" appealed to the health conscious, and many specialty roasters began to supply the beans. The decaffeinated variety would never taste as good as regular coffee, since essential flavor oils were removed with the caffeine, but 1980s decaf offered a much better flavor than its predecessors. The processing had improved, and specialty roasters used higher quality beans to begin with. They also began to offer flavored decafs to spice the denatured beans.

By the mid-1980s nearly a quarter of all American coffee was decaffeinated, with some experts predicting that the segment would grow to 50 percent within the next decade. In the early 1980s, companies rushed to take advantage of the decaf craze. General Foods introduced decaffeinated versions of Maxwell House and Yuban to go along with Brim and Sanka. Nestle added a new line of Nescafe decafs to go along with its Taster's Choice variety. Procter & Gamble sponsored a decaf Folgers instant to augment its High Point.

Ad budgets for decaf coffee increased. In 1982 General Foods replaced Robert Young with "real people" in active occupations-wildlife photographer, logger, white-water kayak instructor, tugboat captain, mountain climber-promoting Sanka. In a typical spot, a rugged underwater welder explains that "too much caffeine makes me tense. And down here, I can't afford that." After Sanka stopped using methylene chloride in favor of a carbon-dioxide process, its ads also touted its use of "pure mountain water." General Foods tried to stir Brim sales with an ad showing a young couple drinking coffee by a fireplace. The copy read: "The thunder was loud. The music was soft. The coffee was Brim." Nestle and Procter & Gamble also switched to emotional lifestyle appeals, such as "Times Like These Were Made for Taster's Choice."

The Coffee Nonachievers Aside from the decaffeinated and specialty segments, overall coffee consumption continued to dwindle throughout the early 1980s, down 39 percent from twenty years before. In 1982 beverage a.n.a.lyst John Maxwell blamed the drink's temperature and its inconvenience, observing, "People today are in a hurry. They want to slug something down and move on, particularly the younger ones."

At Maxwell House, young marketers such as Mary Seggerman tried to change coffee's image. Seggerman pushed for bluesman Ray Charles to sing in lifestyle ads. The commercials tugged at the heartstrings, with swelling music, touching family scenes, and a tagline about "that good to the last drop feeling," appealing to emotions rather than taste. Although the ads obviously imitated upbeat soft-drink efforts, Seggerman complained that "General Foods never really understood that Maxwell House competed against c.o.ke and Pepsi." She had to battle for the only 1983 ad to feature two teenagers, who worked on a beach boardwalk and met over a cup of coffee.

That year, Seggerman and a few colleagues found relatively unknown stand-up comics at little clubs and made innovative, edgy Maxwell House spots in which they did their routine, including a reference to Maxwell House at the end. "What is the saucer for, what?" asked Jerry Seinfeld. "My mother says, 'That's what you put the cup on.' I thought that's what the table was for. I guess it's in case someone pulls the table out from under the coffee, you just go, 'Nice try, pal.'" Then he walked offstage to drink a cup. The ads aired only once, killed by conservative Maxwell House managers. Seggerman had to settle for a hunky freelance photographer who roamed America with his dog and drank coffee soulfully.

The generic "Coffee Achievers" campaign was launched by the National Coffee a.s.sociation in 1983. Because of the small ad budget, they settled for third-string celebrities who supposedly represented the "new coffee generation." The announcer explained, "Coffee lets you calm yourself down. Coffee gives you the time to dream it. Then you're ready to do it. No other drink does it like coffee." Critics questioned how the drink could be simultaneously calming and invigorating. "Not a bad hype," observed The Nation The Nation, "for a product with no nutritional value, whose most important ingredient is an addictive drug that tends to make users nervous and irritable." The NCA modified the wording slightly to "Coffee is the calm moment." The short-lived ads did not increase coffee consumption.

No amount of advertising could move the shoddy products the major roasters offered. They introduced the "brick pack"-ground coffee vacuum packed in skintight, laminated packages. The product had to be pre-staled, since otherwise "de-ga.s.sing"-the carbon dioxide released from freshly roasted coffee-would ruin the brick. Cheaper than cans, the bricks could be stacked on shelves more compactly. For inst.i.tutional use, fractional packages-"frac-paks"-containing enough for one brewed pot became popular. They contained less and less coffee, however, and were often pinp.r.i.c.ked to allow dega.s.sing and subsequent staling.

Every year Maxwell House cut back a little more on its coffee's roast color, since there is less weight shrinkage with a lighter roast, and it saved on fuel to heat the beans. Unfortunately, under-roasted coffee tastes bitter. The company lowered the quality of the beans, using only cheap Brazilian and robusta. It introduced the "Fresh Lock," which allowed more weight-adding moisture before the ground coffee clumped together. It also pelletized and returned the chaff (silver skin blown off during the roasting process) to the blend.

The Little Big Guys Struggle Smaller conventional roasters struggled for survival, often becoming booty for investors who batted them about like shuttlec.o.c.ks. In 1982 tea company Tetley bought Schonbrunn, with its Savarin, Brown Gold, and Medaglia D'Oro brands, and Tenco, manufacturer of instant coffee, from Coca-Cola. Tetley already owned Martinson's and two Hispanic blends, Bustelo and Oquendo, which made it a player in the dark-roasted segment of the market. Tetley downgraded the once-great blends of Martinson and Savarin, rendering them no better than Maxwell House or Folgers. It also cheapened Medaglia D'Oro, the only national espres...o...b..end.

Chock full o' Nuts' fortunes declined as the aging William Black refused to relinquish power. After Black died in 1983, his physician, Leon Pordy, took over the company. Chock could still claim first place in the New York coffee market, but only by cheapening its blend and selling 20 percent below the average price.

Nestle decided it should expand its North American coffee business beyond its lackl.u.s.ter instant brands. In 1984 it bought Goodhost, a major Canadian roaster, and announced that it would exercise an option to buy Hills Brothers. The Brazilians at Copersucar had sold the old family firm only four months earlier to a group of five investors, who then resold to Nestle. In quick succession, Nestle also bought Chase & Sanborn and MJB.112 Alfred Peet, a Dutch immigrant, fathered the U.S. specialty coffee movement at his Berkeley coffee shop, which opened in 1966. He is shown here cupping coffee in Kenya with Jim Reynolds, another coffee pioneer, at left.

Despite this 1970 effort to attract the baby boom hippies, the coffee industry lost out to the Pepsi Generation.

In 1971, partners Jerry Baldwin, Gordon Bowker, and Zev Siegl (left to right) founded Starbucks in Seattle, selling fresh-roasted whole beans to local customers.

In the early 1970s, Erna Knutsen fought her way into the male-dominated cupping room and became the doyenne of specialty coffee importers, seeking out her "green jewels."

In the 1970s, conscience-stricken liberals began to worry more about the plight of the campesino, campesino, who often received starvation wages while middlemen and roasters profited. This cartoon appeared in 1976. who often received starvation wages while middlemen and roasters profited. This cartoon appeared in 1976.

After starring in Father Knows Best Father Knows Best and and Marcus Welby, MD, Marcus Welby, MD, actor Robert Young was the perfect pitchman for Sanka decaf, dispensing fatherly medical advice to avoid caffeine-even though in real life he suffered from depression and alcoholism. actor Robert Young was the perfect pitchman for Sanka decaf, dispensing fatherly medical advice to avoid caffeine-even though in real life he suffered from depression and alcoholism.

Folger's Mrs. Olson, played by actress Virginia Christine, gave motherly advice to save coffee and marriages.

In 1977, following the Black Frost in Brazil, coffee prices rose quickly, bringing consumer protests and congressional hearings.