Home' Trinidad and Tobago Guardian : July 18th 2013 Contents JULY 2013 • WEEK THREE www.guardian.co.tt BUSINESS GUARDIAN
THE ECONOMIST | BG27
Not everyone appreciates the pungent
smell of roasting coffee. Just ask the author-
ities in Brazil, who have been faced with
farmers burning bags of beans and chanting
slogans borrowed from recent nationwide
protests to demand fatter state subsidies.
The farmers are upset by falling prices.
Their beans now fetch around US$106 a
60-kilogramme bag, a four-year low and
less than half what they could get a couple
of years ago. A reversal in the near future
A third of the world s coffee is grown in
Brazil. Along with other countries that cul-
tivate mainly the tastier and pricier arabi-
ca-bean variety, it faces two problems.
First, the traditional markets for their
wares are saturated. Growth in America,
Europe and Japan, which between them
chug more than half the world s coffee, is
Second, in places such as China, Indonesia
and Brazil itself, where coffee is an affordable
luxury for the middle class, the market is
growing by around five per cent a year --
but these drinkers are filling their pots with
cheaper robusta beans, what Kona Haque
of Macquarie dubs the "emerging-market
Strong demand for entry-level coffee --
40 per cent of the world s coffee crop is
now robusta beans -- has enabled Vietnam
to go from almost nothing a decade ago to
producing 25 million bags today. Worse still
for arabica producers, the recession in Europe
has hit demand and squeezed profits for
roasters. These processors, including big
food firms such as Nestlé and Kraft, have
responded by blending cheaper robusta with
arabica. As a result robusta prices have not
fallen as fast as arabica. Even so, the nar-
rowing gap between them has not yet
prompted bean counters to reintroduce the
Nor is the supply of arabica beans likely
to fall. In response to the high prices of 2011,
Brazilian farmers invested heavily in new
acreage and improved yields with better
husbandry and more fertilizer. High prices
also convinced Colombian farmers to replant
many coffee plantations with more pro-
What s more, the bumper harvest of 2012,
an "on" year for Brazilian coffee bushes,
should be followed by an "off" year as the
bushes yields naturally fall after their exer-
tions. Nonetheless, good weather means
that even this year s "off" crop is a bumper
one, with the prospect of another "on" year
Low arabica prices are accompanied by
rising costs. Coffee is a labour-intensive
crop, its picking still largely done by hand.
Wages in Brazil and Colombia are rising
fast, and production costs are above prices.
Planting other sorts of crops, the usual
response to agricultural boom and bust, is
not an option. Prices for sugar cane, a poten-
tial alternative, are low, and coffee is grown
mainly on small plots by farmers who have
known nothing else.
Consumers ought to benefit from low
prices, but discerning drinkers will still be
disappointed. Demand for the fanciest ara-
bica beans is healthy, as the global prolif-
eration of coffee chains shows.
Much of the finest coffee is grown in
Central America in places such as El Sal-
vador, Guatemala and Nicaragua. That region
has been hit by leaf rust, a fungal disease,
which could destroy 30 per cent of the crop
this year. Cutting back plants to deal with
it is set to hit production next year too.
For the tastiest coffee, there is no chance
of a cheap shot.
@2013 Economist Newspaper Ltd. (Dis-
tributed by the New York Times Syndi-
Brewed awakening for
the coffee business
No one denies that America s tax code is a mess.
It is unintelligible, which is why 90 per cent of
taxpayers use an accountant or commercial software
to file their returns. It is a labyrinth of loopholes,
which is lovely for tax lawyers but bad for Ameri-
ca.Public outrage tends to focus on specific abuses.
How is it, people ask, that multinationals such as
Apple can legally avoid billions of dollars of tax? Why
is it, conservatives fume, that the Internal Revenue
Service happened to select anti-tax groups for intrusive
The real problem is much broader, though. A tangled
code is unfair and inefficient. Loopholes for some
mean higher tax rates for everyone else. The 6.1 billion
hours Americans waste each year complying with
tax rules could have been spent inventing new prod-
ucts. Exemptions promote unproductive activities,
such as buying big houses, while high rates penalise
work and drive companies abroad.
America sorely needs tax reform. Two legislators
are trying to deliver it. Senator Max Baucus (Demo-
cratic-Montana), who heads the Senate s tax-writing
committee, and Representative Dave Camp (Repub-
lican-Michigan), his counterpart in the House of
Representatives, have been taking testimony and
floating ideas for almost three years. They have yet
to release a full plan, but their principles look sound:
lower tax rates for both corporations and individuals,
paid for by limiting or scrapping tax breaks.
Ideally no tax break should be spared, even the
popular ones for charitable donations, home mort-
gages, health insurance and research and development.
All these things are desirable, but their privileged
treatment imposes a cost, in the form of higher taxes,
on other desirable things.
The political reality is that some of these tax breaks
will survive, the same way there s no hope for a
carbon tax, one of the more sensible ways to raise
money. Yet Baucus and Camp have found enough
common ground to build a more efficient tax sys-
Where they differ is on the crucial question of
whether tax reform should raise more revenue. Camp,
being a Republican, says no. Baucus, like the rest of
his party, including President Barack Obama, says
yes. On this the Democrats should concede, for two
First, tax reform is so important that lawmakers
should not let the perfect be the enemy of the good.
A revenue-neutral tax simplification would raise the
same sums to pay for Leviathan while imposing a
lighter burden on taxpayers. A simpler code would
create fewer distortions and spur faster growth.
Getting rid of all loopholes would allow individual
income-tax rates to fall a whopping 44 percent and
still raise the same revenues.
Second, although the Democrats are right that
higher taxes eventually will be needed to stabilise
America s debts, this is a separate issue. By using tax
reform as a bargaining chip for higher revenues,
Democrats probably doom it to fail.
Better to pass it into law quickly. That would still
allow Obama to pursue a separate grand bargain,
with the Republicans tolerating higher taxes in return
for the president accepting curbs on the growth of
entitlement programs such as Social Security and
Medicare, as suggested in his own budget.
For the moment, the chances of the Republicans
swallowing that are slim. That is a shame for a party
that used to believe in balancing the books, but it is
not a reason to let the Baucus-Camp reform die.
A simpler tax system, with lower rates and fewer
loopholes, would be good for America. Obama should
@2013 Economist Newspaper Ltd. (Distributed
by the New York Times Syndicate)
Tax reform in
Links Archive July 17th 2013 July 19th 2013 Navigation Previous Page Next Page