Unilever and Copra’s Future
pp. 1-2 · Read in the full issue
———♦———
International Combine’S Stranglehold
Capitalisation Problem for South Seas Planters
BY R. W. ROBSON, EDITOR OF THE PACIFIC ISLANDS MONTHLY.
IN my first two articles, written in London in January, I dealt with two depressing and discouraging factors in the world copra market namely, the enormous over-production of all classes of vegetable oil seeds, and of whale oil; and the manner in which scientific discoveries and technical developments have allowed soap and margarine manufacturers to use, as substitutes for coconut oil, various soft vegetable oils and animal products which, formerly, could not be used in high-class goods.
In this article, I propose to give something about the most disturbing factor operating in the market —namely, the combination of buyers. The over-production of oil, and scientific progress, while unfortunate, cannot be resented—they are the natural results of commercial development and the law of supply and demand—and they will cure themselves.
BUT the Combine is in a different category. It is an artificial creation, a poisonous growth on the healthy body of trade, a sinister and cruel force designed to suck the life blood out of private enterprise, and rob honest industry of its just rewards.
Most of the things which alarm the coconut planter to-day are of transient character—with other economic abnormalities, they presently will pass away.
The Combine, I fear, is here to stay for some time —merciless in its purpose, and so strong that it can defy the strongest selling agent and the most determined Government. At the present time it is completely in command of the European market. Over production, chaotic economic conditions, and buyers’ weakness—all have given it a hold of the market from which it cannot easily be pried loose.
I can see only one ray of hope in the situation a possibility that the bludgeoning of the market will give small manufacturers a chance. That possibility is dealt with later on.
In a world of great combines, Unilever is among the most powerful. I have not the exact figures but I know that they are startling. It dominates the soap and margarine making industries of Europe few, if any, manufacturers of importance are now operating against it. Its operations extend over the whole world, and it controls almost every selling market— except possibly those in North America.
Unilever’S History.
The growth of the Unilever Combine can be traced from developments before and during the war. Originally there were two big operators in the copra market Yergen and Vanden-
berg, both Dutch. During the war, while the competing firms of the combatant nations were otherwise occupied, these two big concerns got together and bought a controlling interest in certain German mills.
After the war, a strong German organisation, the Heimer Combine, sprang up, and took control of mills in Czechoslovakia. Austria and Switzerland. It fought the Dutch Combine, and competition was healthy.
But the next move was bad—there came a Yergen-Vandenberg-Heimer combination, which gave them control of the margarine industry in nearly every country. They bought a mill in Latvia, a controlling interest in two big mills in Sweden, and, in the latter end of 1930, they got control of the Norwegian mills.
Meanwhile, the Continental organisation had linked up with British manufacturers—and so we obtain the famous “Margarine Union,” controlling margarine manufacture and distribution throughout Europe, and, in the copra market, buying for the mills of Britain, Scandinavia, Holland. Germany, Switzerland, Austria and Czecho-Slovakia.
During this period Lever Brothers were creating in the soap making industry of Europe the same dominant organisation that the Dutch-German Combine had brought into being in the margarine business. Since their chief raw materials were the same, it was inevitable that the Margarine Union and Lever Brothers should come close together—either as friends or enemies.
To the discomfiture of the oil seed producers of the world, they amalgamated their interests. And thus Unilever was born, less than two years ago.
Over Production Favours
Unilever.
No arguments or figures of mine are needed to show how Unilever can command the European copra market.
Even in normal times, the concentration of so much buying power in the one organisation must have adversely affected sellers’ interests. But, if all the high gods had combined to arrange favourable conditions for the advent of Unilever in the raw materials market, they could not have improved the position as Unilever found it in 1930. The phenomenal over-production of every kind of oil-seed, and of whale-oil, simply invited Unilever to pay what it liked for copra and all allied commodities. Unilever, naturally, took full advantage of its opportunities, and has established itself, firmly and permanently, as the most powerful factor governing the European copra market.
Unilever completely controls the selling price of copra in Northern Europe.
The Marseilles group of copra buyers is independent of the Combine and provides the chief market for the South Seas product. But the Marseilles market absorbs only 100,000 tons of copra annually, and the buyers there natur-
(Continued On Page 2.)
The American market is said to have maintained independence. But I was told in London in January that negotiations had been in progress between Unilever and some of the chief American consumers of vegetable oils.
The whole aspect of the coconut oil producing industry has altered in Europe. At one time a large proportion of the copra sold in Europe went to British mills. To-day, the London mills are crushing less than 1,000 tons per week. The work is being done in the Continental mills. The London brokers who deal in copra are now much reduced in numbers.
Public Does Not Benefit.
The most significant fact about these developments was thus presented to me by a leading merchant in the City of London, who is a keen student of the copra market: “Although prices of raw materials have fallen tremendously, and Unilever claims as justification of its existence that it has reduced over head and production costs, the public has gained little advantage. The price of margarine today (mid-January) is substantially the same as it was two years ago. Unilever is getting the difference between £28 which it paid for copra two years ago, and £15 to-day; and, apparently that difference is paying the interest on the amount involved in buying up all the rival crushing plants, and throwing them idle.”
Here is a well known London copra broker’s summary: “There are only two big buyers here now— Unilever and the Co-operative and Wholesale Co. The combines have had a tremendous effect on the trade—we sell to a few Combine buyers now, where before we sold to many individual mills. The chief Continental buyers are in Northern Europe and in France. There is a small demand from Italy, Spain and Turkey. The respective demands of soapmakers and margarine manufacturers for copra are just about 50-50.
“To my mind, the most reassuring argument, in regard to the future of your coconut planters, is that people must eat; that vegetable oils are a valuable food; and that the coconut product is the best of all these oils for food purposes. But, even when the world returns to normal consumption, I cannot see copra back to £25 and £28 per ton. There has been too much coconut planting in the last decade for sellers to regain control of the market, in our time.”
Significant Figures.
Just as I write this, there comes to my hand a series of articles, written by Isaac Marcosson for The Saturday Evening Post, and surveying the world’s economic condition. Two of his statements are, for my purpose, singularly apropos.
I have, in these articles, emphasised the price-depressing effect of the enormous over-production of oil-seeds. It is a condition common to almost every common product. Says Marcosson: “It may be interesting to note that, while world population increased by only 10 per cent, between 1913 and 1928, its production of foodstuffs and raw materials grew 25 per cent. Trade is 22 per cent, greater than in 1913.”
On the subject of combines, Marcos son is emphatic: “A factor which bears directly upon . . . the new world economic set-up lies in the growth of the international trust. With closeknit internation groups in a wide range of commodities from glue and glass to rayon and steel—there are more than 100 pooling arrangements in Europe. These trusts, all initiated and participated in by Germany, have succeeded because the element of politics has not been injected.”
What of the future?
Here (if I may recapitulate) are the chief factors which have brought about this depressed copra market: 1. A general inability to buy, the result of the world’s economic sickness. That is a temporary condition and will presently pass away. 2. Huge over-production of oil-seeds and whale-oil. That, also, is a temporary condition. The fall in prices to the level of production cost, and below, will inevitably reduce production, and price-levels will swing back again. 3. The treatment of soft oils so that they may be used as hard oils, in place of coconut oil. This appears to be a permanent condition, and must be faced.
Margarine-makers now can, and do, use up to 70 per cent, of whale oil. It comes down to a question of price. To obtain a hardened refined oil from whale-oil costs £6 per ton. To get a refined, deodorised coconut oil from copra costs £15 per ton. It is calculated that the absolute nett cost of producing whale-oil is £15 per ton. For comparison, the figure might be arranged this way: ... Copra ... Whale-oil ... per ton ... per ton Nett cost of production .. £10 ... £15 Cost of refining oil ... 15 ... 6 Nett cost of refined oil ... 25 ... 21
The report that Unilever now proposes to send its own whaling equipment to Antarctica, thus cutting out the Norwegian enterprises and the Norwegians’ profits, is significant and disturbing. 4. The domination of the market by the Unilever Combine.
It is apparent that Unilever plans to hold control of the market by balancing whale-oil against vegetable-oil.
This is easy, under the present depressed conditions: but it will not be so easy, once the economic pendulum swings back—as it inevitably will at an early date—and the world regains its buying capacity. Once let the market for oil-food products increase, and the Unilever manufacturers probably will have competition. Insofar that, while they are buying their raw materials at less than half of what they were two years ago, and selling their products at the old prices, they are to-day simply inviting competition.
While Unilever is supreme and unchallenged, the outlook for the copra producer is not cheery. But if Unilever is vulnerable and can be attacked—and many well-informed men seem certain that Unilever will presently be challenged—the planter can take heart of grace.
Problem Of Capitalisation.
Meanwhile, it is clear that the real and immediate problem for the South Seas planters particularly those in the Mandated Territory of New Guinea who are paying off Expropriated plantations—is one of capital cost. Most of the plantations established in the last 10 or 12 years are on a financial basis more or less fixed by the average price of copra between 1920 and 1929 —in other words, it is likely that for the most part, they represent a capital investment that is not now justified by their earning power.
It stands to reason that, so far as plantation properties generally are concerned except in cases where planters had been sufficiently far-visioned to treat the 1920-29 range of prices as exceptional and not normal— there must be serious and far-reaching readjustments of values. Where planters have built up no reserve, to permit a writing down of values to meet the new conditions, much in the way of “paper assets” (values created by boom prices) must disappear and, their disappearance must bring ruin to many hard-working men who bought their properties hopefully, but unwisely.
The position was admirably summed up for me in London by Mr. W. J Gilbert, president of the Copra-Buyers’
Association: “The problem for the coconut plan ter in the South Seas, I think, is one of capitalisation. I personally sold copra from the New Guinea and Solomons Expropriated plantations here in London, on behalf of the Australian Government, for £28 per ton. That was the price two years ago. To-day, that same quality copra is selling for £14 and £14/10/- per ton. There may be some recovery, but it stands to reason, in view of all the circumstances, that the price is not going back beyond £20 per ton. It may not, for some time, improve much on the present rates. The position of those planters who established themselves on properties, on a basis of £25 or more for copra, is pretty clear. They must write down their property values and reduce production costs, so as to make a profit on copra at £10 to £12 per ton, on the plantation.
“I have heard discussions lately concerning what is to be the future ‘living price’ of copra on the plantation.
Copra is now coming into this market from one country where the producers, by careful capitalisation and close scrutiny of costs, can sell at £10 per ton, f.o.b. After that the copra has to bear the cost of freight, insurance, handling charges, loss of weight and commissions. The fair average f.o.b. price for Singapore, and that region, is £12 per ton.” ===