The impact of Brazil's sweeping new anti-inflation economic plan on coffee exports will be at worst, neutral, and could turn out to be positive, said market analysts.
Last week, Brazil's government announced a sweeping plan to curb raging inflation, including elimination of virtually all economic indexing and a wage and price freeze. Monthly inflation for January was 19.91 percent for a 12- month rate of 1,355.45 percent.However, the Brazilian cruzeiro will continue to be subject to foreign exchange market supply and demand.
"The foreign exchange mechanism continues the same as before, meaning the cruzeiro can depreciate against the U.S. dollar whenever domestic exporter costs rise," said Sao Paulo University Economics Professor Michel Alaby.
"The government may try to control the exchange rate indirectly, through central bank transactions, but it seems likely they will make sure exchange rate levels remain adequate to stimulate exports," he said.
The impact of such free-floating foreign exchange action is that coffee export earnings may tend to rise above domestic market earnings, since export prices can float while domestic prices are frozen.
''We are anxiously waiting to see at what level the government freezes the domestic retail price of coffee," said Luis Roberto Diniz, Sao Paulo Coffee Cooperative president. "If they really freeze it at the current supermarket price (594 cruzeiros per kilogram or US$2.70), then I'll bet domestic roasters will refuse to sell, meaning they will stop buying from producers."
He said it was likely producers and domestic roasters will push for an immediate 15 percent boost in domestic prices over the current supermarket level.
However, a Santos trader said government response to such demands during wage-price freezes in 1986, 1987 and 1989 was always resoundingly negative.
Mr. Diniz noted that wholesale coffee prices have not been included in the government freeze, meaning the producer price to domestic roasters and exporters can continue to float freely.
The producer price to roasters and exporters as of last Friday for the best coffee types was 17,000 cruzeiros a 60-kilogram bag, the same as last week.
A Santos traders said "with domestic retail prices frozen and roasters possibly refusing to sell to supermarkets, some coffee may be diverted by producers from the domestic market to exports, especially in view of the fact that the prices they charge exporters can float freely just as exporter earnings, which are quoted in dollars, can also float freely."
Even a comparatively small amount of such increased export coffee availability could help reduce supply worries and maintain traditional Brazilian coffee export levels, he said.
Other traders said, however, that such diversion of domestic market coffee to export will probably be very limited, since Brazilian domestic consumption coffee is not usually considered high enough quality for export.
''All in all the economic plan does not have the coffee export market very worried, since it seems we have been spared the most bothersome aspects of the freeze," said one trader.
Nevertheless, traders reported little market activity last week, but the pause was due more to comparatively low world prices than to domestic considerations, said Fernando Carvalhaes, a Santos trader.