#FromtheArchives - Brazilian Coffee Loan

In the 1920s Barings, acting with two other London merchant banks, lead-managed several sterling bond issues for the Brazilian Government and for Brazilian state governments. One issue of note was the 1922 £7 million 7.5% 30-year bond issued for the United States of Brazil Government. The loan was secured on the Brazilian Government’s stock of coffee.

Coffee was a major product of Brazil, but price controls had led to an excessive supply. The Brazilian Government responded by attempting to support the price of coffee through stockpiling. The prospectus for the 1922 issue stated that the Government's total stock was about 4,535,000 bags of coffee with a market value exceeding £13,000,000. The coffee was warehoused in Santos, Rio, Victoria, New York and London and the Brazilian Government had set up a committee of five members in London to manage its sales. Each year the committee would sell at least 453,500 bags of the coffee and the proceeds would be used to amortise the bonds. The committee could also sell further coffee to pay one year's interest on the bonds and to meet any other expenses arising from the warehousing of the coffee, which was of course insured.

The total issue was for £9 million pounds with £7 million sterling bonds offered in London and the remaining £2 million to be offered simultaneously in New York by Dillon, Read & Co. When the idea of a further loan was floated in 1925 the American magazine Time criticised this rigging of the market and commented that, “The British drink tea, not coffee, and so were indifferent to the purposes to which the loan funds were to be put. But curiously enough, a considerable proportion of this 7½% coffee loan was sold in the US, the greatest coffee-consuming nation in the world. US investors consequently helped to supply the funds needed to rig the coffee market, and thus had to pay higher prices for their coffee." 

Discover more:

Detail from the reverse of the 1922 bond
Detail from the reverse of the 1922 bond

Posted on Monday, 14th March 2022

Back to top