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  • QA 160
    Question:
    What is the object of Brazil's PEPRO coffee auctions?
    Background:
    What is the object of the so-called PEPRO auctions in which, as we understand it, the Brazilian government is offering support to growers?
    Asked by:
    Exporter - Ethiopia
    Answer:

    The PEPRO* program, already in use in other Brazilian agro- industries, aims at obtaining a minimum market price without the government buying the product. * 'Premio Equalizador Pago ao Productor or, Equalization Premium paid to the Producer'.

    As indicated by the program's title, the aim is to assist growers in marketing their crop at more remunerative prices. This the program does by offering growers a premium to hold out for better prices, rather than perhaps selling as quickly as possible due to financial pressure and/or cost considerations.

    The 2007 PEPRO auctions (held in June and July) offered growers the opportunity to bid for a maximum equalization premium of 40.00 Reals (R$) per 60-kilo bag, for up to 5 million bags in all.  In each auction individual growers were limited to bid for a maximum of 300 bags each whereas cooperatives could bid for up to 300 bags per active member.

    Auctioning the premium provides an element of competition into the equation. In the auction held on 11 July 2007 the average premium worked out at R$ 29.40 per bag, i.e. below the potential maximum This demonstrates that growers actively competed for the right to be included by offering to accept a lower premium.

    Successful bidders will receive the auction premium provided they sell the committed coffee for not less than the strike price (Fine coffee R$ 275; Type 6 coffee R$ 260 and Type 7 coffee R$ 250 per bag), and by no later than July 2008. Strict rules apply to ensure participating farmers fulfil their obligations under PEPRO: if they sell for less than the strike price or not within the stipulated period they will be penalised. In other words, this is not for free…

     

    Posted 09 August 2007

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    Q&A 120