International Coffee Agreement

The International Coffee Agreement (ICA) is an international commodity agreement between coffee producing countries and consuming countries. First signed in 1962, it is aimed at maintaining exporting countries' quotas and keeping coffee prices high and stable in the market, mainly using export quotas to steer the price. The International Coffee Organization, the controlling body of the agreement, represents all major coffee producing countries and most consuming countries.

The current 2007 agreement has 42 exporting members and 6 importing (the European Union represents all its member states as one member).

The original agreement was signed in 1962 for a five-year period, and since then there have been six subsequent agreements, ratified in 1968, 1976, 1983, 1994, 2001 and 2007.

The precursor to the ICA was the Inter-American Coffee Agreement (IACA) established during the Second World War. The war had created the conditions for a Latin American coffee agreement: European markets were closed off, the price of coffee was in decline and the United States feared that the declining price could drive Latin American countries—especially Brazil—towards Nazi or Communist sympathies.

In 1940, the United States agreed to restrict its imports to a quota of 15.9 million bags, and other Latin American countries agreed to restrict their production. The agreement had an immediate effect, the price almost doubled by the end of 1941. After the end of the war in 1945 the price of coffee rose continuously until 1955–57 when a degree of equilibrium was reached.

Producers sought ways to maintain the price, this led to the first International Coffee Agreement. A target price was set, and export quotas allocated to each producer. When the indicator price set by the International Coffee Organization (ICO) fell below the target price, quotas were decreased; if it rose above it, quotas were increased. Although the system had its problems, it was successful in raising and stabilizing the price.

The International Coffee Organization was established in 1963 to administer the clauses of the agreement and supervise the mechanisms in place. Until 1986 the Coffee Council, the decision-making body of ICO, approved export quotas.

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