The impact of coffee on the Brazilian economy was much stronger than that of sugar and gold. When the coffee surge began, Brazil was already free from the limitations of colonialism. Moreover, the substitution of wage labor for slave labor after 1870 meant an increase in efficiency and the formation of a domestic market for wage goods. Finally, the greater complexity of coffee production and trade established important sectorial linkages within the Brazilian economy.
Coffee was introduced in Brazil early in the eighteenth century, but initially it was planted only for domestic use. It took the high world prices of the late 1820s and early 1830s to turn coffee into a major export item. During the initial phase, production was concentrated in the mountainous region near Rio de Janeiro. This area was highly suitable for coffee cultivation, and it had access to fairly abundant slave labor. Moreover, the coffee could be transported easily on mule trains or on animal-drawn carts over short distances to the ports.
An entrepreneurial class established in Rio de Janeiro during the mining surge was able to induce the government to help create basic conditions for the expansion of coffee, such as removing transportation and labor bottlenecks. From the area near Rio de Janeiro, coffee production moved along the Paraíba Valley toward São Paulo State, which later became Brazil's largest exporting region. Coffee was cultivated with primitive techniques and with no regard to land conservation. Land was abundant, and production could expand easily through the incorporation of new areas. However, it soon became necessary to ease two basic constraints: the lack of transportation and the shortage of labor.
The cultivation of coffee farther away from ports required the construction of railroads, first around Rio de Janeiro and into the Paraíba Valley, and later into the fertile highlands of São Paulo. In 1860 Brazil had only 223 kilometers of railroads; by 1885 this total had increased to 6,930 kilometers. The main rail link between São Paulo's eastern highlands and the ocean port of Santos allowed for a rapid expansion of coffee into the center and northwest of the state.
After the initial coffee expansion, the availability of slaves dwindled, and further cultivation required additional slaves. However, by 1840 Brazil was already under pressure to abolish slavery, and a series of decrees were introduced, making it increasingly difficult to supply the new coffee areas with servile labor. In the 1870s, the shortage of labor became critical, leading to the gradual incorporation of free immigrant labor. The coffee expansion in the west-northwest of São Paulo State after 1880 was made possible largely by immigrant labor. In 1880 São Paulo produced 1.2 million 60-kilogram coffee bags, or 25 percent of Brazil's total; by 1888 this proportion had jumped to 40 percent (2.6 million bags); and by 1902, to 60 percent (8 million bags). In turn, between 1884 and 1890 some 201,000 immigrants had entered São Paulo State, and this total jumped to more than 733,000 between 1891 and 1900. Slavery was abolished in 1888.
The Brazilian economy grew considerably in the second half of the nineteenth century. Coffee was the mainstay of the economy, accounting for 63 percent of the country's exports in 1891. However, sugar, cotton, tobacco, cocoa, and, at the turn of the century, rubber were also important. During the first three decades of the twentieth century, the Brazilian economy went through periods of growth but also difficulties caused in part by World War I, the Great Depression, and an increasing trend toward coffee overproduction. The four-year gap between the time a coffee tree is planted and the time of the first harvest magnified cyclical fluctuations in coffee prices, which in turn led to the increasing use of government price supports during periods of excess production. The price supports induced an exaggerated expansion of coffee cultivation in São Paulo, culminating in the huge overproduction of the early 1930s.
The 1840 to 1930 period also saw an appreciable but irregular expansion of light industries, notably textiles, clothing, food products, beverages, and tobacco. This expansion was induced by the growth in income, by the availability of foreign exchange, by fiscal policies, and by external events, such as World War I. Other important factors were the expansion of transportation, the installed capacity of electric energy, increased urbanization, and the formation of a dynamic entrepreneurial class. However, the manufacturing growth of the period did not generate significant structural transformations.
Economic growth in the nineteenth century was not shared equally by the regions. Development and growth were concentrated in the Southeast. The South Region also achieved considerable development based on coffee and other agricultural products. The Amazon Basin experienced a meteoric rise and fall of incomes from rubber exports. The Northeast continued to stagnate, with its population living close to the subsistence level.
The decade of the 1930s was a period of interrelated political and economic changes. The decade started with the 1930 revolution, which abolished the Old Republic (1889-1930), a federation of semiautonomous states. After a transitional period in which centralizing elements struggled with the old oligarchies for control, a coup in 1937 established the New State (Estado Novo) dictatorship (1937-45) (see The Era of Getúlio Vargas, 1930-54, ch. 1).
To a large extent, the revolution of 1930 reflected a dissatisfaction with the political control exercised by the old oligarchies. The political unrest of the first half of the 1930s and the 1937 coup were influenced strongly by the onset of economic problems in 1930. The coffee economy suffered from a severe decline in world demand caused by the Great Depression and an excess capacity of coffee production created in the 1920s. As a result, the price of coffee fell sharply and remained at very low levels. Brazil's terms of trade (see Glossary) deteriorated significantly. These events, and a large foreign debt, led to an external crisis that took almost a decade to resolve.
The external difficulties had far-reaching consequences. The government was forced to suspend part of the country's debt payments and eventually to impose exchange controls. Excess coffee production led to increasing interventions in the coffee market. The state programs to support coffee prices went bankrupt in 1930. To avoid further decreases in coffee prices, the central government bought huge amounts of coffee, which was then destroyed. Central government intervention provided support to the coffee sector and, through its linkages, to the rest of the economy.
Despite the economic difficulties, the income maintenance scheme of the coffee support program, coupled with the implicit protection provided by the external crisis, was responsible for greater industrial growth. Initially, this growth was based on increased utilization of the productive capacity and later on moderate spurts of investment. The initial import-substitution industrialization (see Glossary) that occurred especially during World War I did not lead to industrialization; it became a process of industrialization only in the 1930s.
The 1930s also saw a change in the role of government. Until then, the state acted primarily in response to the demands of the export sector. During the first half of the decade, it was forced to interfere swiftly in an attempt to control the external crisis and to avoid the collapse of the coffee economy; government leaders hoped that the crisis would pass soon and that another export boom would occur. However, with the magnitude and duration of the crisis it became clear that Brazil could no longer rely solely on exports of primary goods (see Glossary) and that it was necessary to promote economic diversification. During the Estado Novo, the government made initial attempts at economic planning, and in the late 1930s began to establish the first large government enterprise, an integrated steel mill.
The World War II period saw mixed achievements. By the late 1930s, coffee production capacity had been reduced drastically, the worst of the external crisis had passed, and the Brazilian economy was ready to grow. However, the war interfered with development efforts. Output increased mainly through better utilization of the existing capacity but, except for the steel mill, there was little industrial and infrastructure investment. Thus, at the end of the war Brazil's industrial capacity was obsolete and the transportation infrastructure was inadequate and badly deteriorated.
Data as of April 1997