TABLE 3. United States imports for consumption of raw or green coffee 5,233,000 1948 18,424, 484 22,059, 603 20, 947, 307 2,215,719 2,062,869 1,568, 879 1,317, 113 1, 127, 272 1,047, 442 2, 107, 170 2,049,283 1,662,305 1,879,283 2,076, 280 1,879, 819 1,775,689 1,208, 768 1,466,933 1,602, 014 974,264 1,675,837 1,389, 141 It is the considered opinion of the group that the stock level of green coffee, in terms of days of supply, can be reduced. The determination of a stock level cannot be made on the basis of dollar cost alone unless a price tag can be placed on the benefits of uninterrupted supply support of this essential beverage to military personnel. Considering no other fact except that the operating level must at least be equal to elapsed time between receipts, and that as a practical matter input into the supply systems at intervals of less than 30 days is not feasible, the operating level must be at least 30 days. Considering that supply is subject to interruptions because of sudden changes in personnel strength, human error in requirements calculations, strikes or failures in communications systems, and the administraitve lag between actual receipt and the availability for issue, and in this instance that the recommended operating level is only 30 days, the safety level should be at least 30 days. Consideration must also be given to the fact that coffee is not indigenous to the United States and that no adequate substitute for this essential beverage is available. This makes it advisable to maintain an import level to assure uninterrupted supply support in the event of internal political disorders, restrictive export controls, crop shortages, and communications difficulties in the producing countries. Further, in the event of mobilization, military consumption will immediately increase, pipelines will be immediately extended, and as the time required to import green coffee from producing countries is 60 days, the established stock levels must absorb in part the initial impact of accelerated operation until the volume of imports can be increased. It is concluded that stock levels of green bean coffee in the zone of interior should be identical between the services and that the maximum stock on hand at storage points should not exceed 120 days of supply based on expected consumption. The breakdown of these levels follows: It is recommended in another section of this report that all roasted and ground coffee be vacuum-packed in 20-pound containers. This will permit the establishment of levels of supply of this item at depots, posts, camps, and stations. It has also been recommended that car or truckload lots be delivered from the roasting plant directly to the user to the maximum extent possible. The degree to which this will be possible cannot be determined at this time, but it can logically be concluded that this method of distribution will substantially reduce the quantities of vacuum-packed coffee necessary to be carried in depot stocks. The recommendation to vacuum pack coffee in effect results in distribution of coffee through the depot systems of the departments in the same manner as other nonperishable items, with the exception as noted above. The question of stock levels for nonperishable items is a matter which will be treated in the study for all nonperishable subsistence items. Mobilization reserves of vacuum-packed coffee are established by the Joint Chiefs of Staff. Insofar as green coffee for overseas use is concerned, the group has recommended that the Department of the Army adopt the policy of direct shipment from vendors to overseas installations through ports of embarkation. Section 405 of the National Security Act of 1947, as amended, authorizes the establishment of working capital funds for (1) the purpose of financing inventories and (2) to provide working capital for industrial and commercial type operations. With respect to the above, there are basic differences between the departments; i. e., the Army (includes the Air Force) and Marine Corps finance inventories of coffee with appropriated funds, whereas the Navy uses a revolving fund. The funds which finance the inventories of coffee are included in the departmental appropriation of revolving funds which finance the inventories for all items of subsistence. While the method of financing inventories between the services should be similar, the findings on coffee with respect to this function are not sufficient to support a recommendation which would isolate coffee from other items in the system. With respect to the coffee roasting plants, the Army finances operation of the plants out of several subappropriations and programs, whereas the Navy uses a working capital fund. The significance of methods used to finance coffee plants is pointed up when consideration is given to the sales of military processed coffee by commissary stores. Operating costs are included in the price of coffee. When coffee is sold in Army and Air Force commissary stores, the funds are collected in the quartermaster replacing account which is used to purchase subsistence for resale and issue. Thus, elements of coffee-processing costs, such as labor and utilities budgeted for under programs other than subsistence, are recovered by sales and, in effect, augment the subsistence budget. Procedures should be established by the Army to prevent this. The cost of roasting of coffee by commercial contractors is included in the subsistence budget and sales of coffee produced in this instance do not result in augmenting subsistence funds. The 5-percent surcharge is separately accounted for and is not credited to the quartermaster replacing account for subsistence. Consideration was given to the necessity and desirability of financing and operating military-owned roasting plants under an industrial fund. It was determined that the use of an industrial fund is not practicable or necessary because (1) the relative simplicity of the coffee-roasting process and (2) the operations of roasting, grinding, and packing comprise the smallest cost element of the finished product. Irrespective of the method of financing the operation of the coffee plants, the selling price of coffee sold in the commissary stores should include all costs. Navy sales approximate 2,500,000 pounds annually. Army and Air Force sales figures were not centrally available. An estimate of Army and Air Force sales in the zone of interior, based on an average sale of 21 pounds per year to each cardholder and 350,000 zone of interior store permits in force, amounts to 7,000,000 pounds annually. This figure is based on data collected by the group, and exceeds the Army estimate which is based on 10 percent of zone of interior issues (exhibit VI). When this data was assembled, Army and Air Force commissary stores were selling coffee at 64 to 67 cents a pound; Navy and Marine Corps prices were * * 71 to 72 cents a pound. No attempt was made to analyze this price difference but, in general, they arise from (1) the legislative requirement that the Army and Air Force sell at cost (cost is defined in the act of July 5, 1884, U. S. C. 10-1238 as "the cost price of each article shall be understood to be the invoice price of the last lot of the article received prior to the first day of the month in which the sale is made"); (2) Navy and Marine Corps commissary stores operate on a self-sustaining basis which requires varied mark-up percentages based on volume; and (3) additional elements of cost are included in Navy coffee-processing operations. Army and Air Force green coffee is purchased f、 o. b. port of entry and freight from the port to the roasting plant is not included in the price of the finished product. The Army and Air Force have recently added a 5-percent surcharge to all sales in commissary stores to comply with the provisions of section 628 of the 1952 Appropriation Act, which charge is levied to recover cost of first destination freight and certain miscellaneous costs of store operation. Substantially the same requirement is included in the 1953 Appropriation Act under section 627. The January 1952 market price on green coffee blend used in the services is ($0.5463, Santos 4's; $0.5845, Colombians f. e. b. port) $0.5577 per pound. Shrinkage in roasting averages 16 percent which yields roasted coffee at $0.6636 per pound without considering any other cost, such as roasting, bagging, grinding, and the requirement that each commissary store rebag coffee from 50-pound sacks to 1- and 2-pound bags prior to resale. The February selling price for issue coffee in Army and Air Force commissaries in Washington, D. C., was $0.66, yet the cost of coffee based on the last purchase equaled $0.6636, exclusive of all processing and packaging costs. Appreciable amounts can be recovered by refining the methods of pricing coffee sold by commissary stores. Coffee-roasting plants, bread bakeries, fat-rendering plants, and ice-cream plants are food-processing units which are part of, and integrated with, the subsistence supply systems of each service. The budget and financial policies and procedures of each service are in many instances applicable to all these operations. It is the conclusion of the group that specific recommendations concerning budget preparation and financing of coffee plants should not be made on the basis of findings on coffee alone. EXHIBIT 6 Findings of working group relating to issues of coffee roasted by military departments to messes and to commissary stores for resale at selected installations ANDREWS AIR FORCE BASE, MD. SECTION 7. PROCUREMENT OF GREEN-BEAN COFFEE An abstract of coffee procurements made by the Army for the armed services from September 1950 through September 1951 indicates that the average prices paid by the military for Santos and Colombian coffees were generally lower than New York spot-market prices at the time the contracts were awarded (chart VII). CHART 7 ARMY BUYING The Army has purchased (for the armed services) over 90 million dollars' worth of coffee over the past 12 months and, on a tonnage basis, has bought an amount equivalent to about 6.5 percent of the country's imports. On a 60-kilo bag basis, purchases have totaled 1,298,209 bags (890,931 bags of Santos and 407,278 bags of Colombian). Of this amount, 864,466 bags of Santos were for delivery in 1951 and 26,465 bags for delivery in January 1952; while 395,093 bags of Colombian were for delivery in 1951 and 12,185 bags for delivery during the first month of 1952. These purchases, of course, do not include soluble coffee bought for combat kits.1 1 The above data extracted from Nov. 15, 1951, issue of Complete Coffee Coverage, which is issued daily by George Gordon Paton & Co., 66 Beaver Street, New York 4, N. Y. This is the daily news service for the coffee industry. |