Future Of Vegetable Oil
pp. 27-30 · Read in the full issue
World Position Summarised by Mr. H. M. Faure
ONE of the most illuminating and in structive summaries on the world’s economic problems that we have read was delivered in Stockholm on June 5; and it is of peculiar interest to our readers that the man who delivered the address was Mr. H. M. F. Faure, of Messrs. Faure Blattman and Co., London (one of the world’s biggest operators in the copra markets), and that the occasion was a congress of the International Association of Seed Crushers.
Space does not permit us to reproduce Mr. Faure’s address in full. He mar shalled an array of facts in an authori tative manner, and showed how the re strictions imposed on international trade caused inevitably a serious dislocation in the world’s supply of gold, which, in turn, caused a further dislocation of world trade, and the developmertt of the mon strosity called “economic nationalism.”
Mr. Faure proceeded: It is not a question of over-production, but of disorganisation caused by undue attempts to obstruct the operation of economic laws. It should not be difficult to visualise what the difference would be in a state of international free trade, from that existing at the present time.
We can confine ourselves for an ex ample to what would be the effect of world free trade in our own line of busi ness. Take the case of the U.S.A. The consumption and production is approxi mately 3½ to 4 million tons of Oils and Fats or, say, the equivalent of 6 to 7 million tons of Oilseeds. The U.S.A. im port ¾-million tons of Oils and export half this quantity—an international movement of something under 1¾-million tons. Under international free trade, prices of vari ous raw materials would be more or less the same. There is no doubt that if American consumers had the world mar kets open to draw upon, they would find that there are many raw materials avail able outside their country which they would prefer to use. Also, there would be times when they could buy abroad to better advantage than in their own country, and in, the same way, American pro ducers would find that in many cases they could dispose of their products slightly more advantageously than in their own country.
I think, therefore, that we can take as a conservative estimate that, provided American production and consumption re mained about the same, the external trade movement under world free trade conditions would amount to at least 2 million tons more imports and 2 million tons more exports, viz., a total movement of 4 million tons more than under pre sent conditions, instead of a reduction of 300,000 to 400,000 tons, which is sure to be the result of the new Processing Tax, of which we shall hear more. The carriage alone of these goods would give employ ment to a vast number of people and, in directly, the international movement of
such quantities of goods would give em ployment to many times that number . . .
Dislocation Of Oil Markets
The principal Government interference which has affected the Oil and Fat posi tion has been: — Firstly, the German control of Oils and Fats, which aimed principally at the protection of the Dairy Farmer, involving the reduction of the Margarine produc tion, which came into force in March, 1933 Secondly, the Dutch control of the Dairy Industry, which came into force in April, 1933.
Thirdly, the French duties on Ground
nuts and Copra other than of French origin, which came into force in August, 1933, and more particularly the introduc tion of a quota system in January last, whereby foreign Copra and Groundnuts may only be imported in a fixed ratio to imports of French Nuts.
Fourthly, the Italian control which came into force on the 14th April, 1934, making imports of Oilseeds subject to licence.
American Processing Tax
Fifthly, the most far-reaching measure of all, the imposition of the Processing Tax on the principal imported Oils and Fats used in the U.S.A., which reluct antly received the signature of President Roosevelt on the 9th May, 1934.
I think we may say without exaggera tion that this Bill is the most extraordin ary piece of legislation which has ever been placed on the Statute Book of any country. For a long time there has been a strong agitation on the part of the
American farming interests demanding the protection of the Butter and Lard pro duction by penalising the manufacture of substitutes. Every few years legislation has been asked for placing prohibitive import duties on the Oils and Fats which constitute the principal faw material of these substitutes.
Up to the time of the present Bill, these proposals have always been squashed on the ground that the raw material it was sought to exclude could not be produced in the U.S.A., and was essential to some of the most important U.S.A. industries, notably the soap trade. This time, how ever, the dairy interests launched their political campaign with such success that, ruthlessly over-riding all reasonable arguments against their demand, they completely carried the day, and the Bill was passed, levying the Processing Tax of 3 cents per lb. to be paid by the first manufacturer in the U.S.A. using the Oils in question.
The reason for making this a process ing or excise duty was that under the Treaty with the Philippine Islands the U.S.A. could not levy an import duty on Philippine products, and as Philippine Coconut Oil and Copra are far and away the most important Vegetable Oils im ported, the promoters of the Bill were naturally most anxious to see this in cluded. They therefore thought of the ingenious way of making the tax a Pro cessing Tax.
Apparently even this was not enough, as it was pointed out to the promoters of the Bill that this, even if technically not an infringement of the Philippine Treaty, would distinctly constitute a breach of faith, and therefore the most extraordinary clause has been added to the Bill that in the case of the tax collected on Philippine products, the whole of the tax is to be placed to a separate account and refunded to the Philippin Government on condition that the Philip pine Government do not in any way sub sidise the Copra producer.
When we see that on the basis of last year’s imports, provided these are main tained, this will mean an annual payment by the U.S.A. to the Philippine Govern ment of a sum of 25 million dollars, or three-quarters of the total Philippine Bud get, I think you will agree that I am not exaggerating when I say that this is a most extraordinary piece of legislation.
Unfortunately, I can lay no claim to being a great student of history, but I am quite prepared to challenge all the history professors in the world to find a precedent where one country, especially at a time when their own Treasury is struggling with a heavy deficit, have, un solicited, adopted the role of fairy godmother by assuming the responsibility for three-quarters of another country’s national budget. This goes to show to
what desperate measures the vested in terests are able to drive legislators in the endeavour to protect their own par ticular industry at no matter what cost to the community, and completely in different to the resulting heavy loss to international trade.
The Philippine Government will be faced with the problem that on the one hand it will be to their interest to do all they can to encourage the export of Copra and Coconut Oil to the U.S.A. but, on the other hand, they will be faced with the terrible threat that on any infringe ment of the non-subsidy condition, they would forfeit the beautiful present promised them by the U.S.A. It will tax all the ingenuity of the Philippine states men to steer a course which will bring them in the maximum amount without risking to lose the whole lot.
World Production.
Oils and Fats have perhaps been one of the worst sufferers from the world depression.
I do not know whether any or you have ever tried to estimate the total world production of Oils and Fats. I have made a good many calculations, and I have come to the conclusion that the total world production of Oils and Fats lies somewhere between 20 and 30 million tons —a commodity, therefore, of the greatest importance to the world.
The most important use for Oils and Fats is, of course, for edible purposes, and if we study the American statistics we find that, for Instance, in the Vear 1931 the quantity of Oil and Fat used for edible purposes amounted to about four and-a-half times the quantity used for soap. The most important edible fat is Butter, the world production of which is probably well in excess of 4 million tons per annum.
The next in importance is Lard, the production of which no doubt very nearly approximates to the Butter pro duction.
The increases in the butter and lard production in the U.S.A., which amounte d to 50 per cent., from 1912 to 1933, can no doubt be taken as a criterion of the increase which has taken place elsewhere in the world.
Substitutes
It is only natural that this huge con sumption of Butter and Lard should have stimulated the producing and perfecting of substitutes for these articles, viz., Mar garine and Compound Lard, which could be produced from other Oils and Fats at a very much lower price than that com manded by Butter and Lard, and that, therefore, we have seen the growing-up and flourishing of the Margarine and Compound Lard industry.
At the same time the continual stimu lus given to the production of Butter
and Lard by nearly every government in the world has led to such an increase in the production of these articles (as borne out by the American figures) that gradu allv the outlet for the substitutes for these articles is being decreased. I think we may say that for the time being the Margarine industry, especially as far as Europe is concerned, has reached its zen ith, although, even if the policy of assist ing the Dairy Farmers and discouraging the manufacture of Butter substitutes should be further intensified, we are a long way off the time that the world could hope to do without very large quan tities of Margarine and Compound Lard.
Whilst the production of Oils and Fats is undoubtedly growing from year to year, and at the same time the consump tion of Margarine and Compound Lard, if not actually diminishing, is certainly not growing at the rate of the raw materials supplied, it is only natural that the price of raw materials must continue to suffer in value.
There are many theories that the fall in price is entirely due to manipulations of Combines. Although I am the last person to wish to hold a brief for any Combine, I am convinced that this reasoning is fallacious and that the drop in prices is entirely due to the disorganisation caused by Government action, whereby produc tion and consumption are continually being prevented from adjusting them selves to their proper level.
Increase In Production
The extraordinary feature is that in many cases the production, instead of diminishing as the price gets lower, has actually increased. This is notably the case, for instance, in Copra. We find that in 1933, when prices were lowest, the shipments were the highest. This is due to the fact that the native producers, having given up the hope of benefiting by holding back supplies, make the biggest effort to produce the maximum quantity so as to try to make up for the fall in prices by bringing in larger supplies.
Thus we find that the nearer we get to cancellation point, the bigger the sup plies. The only thing which seems to stop supplies is when the price gets to the point where the price of the article does not cover the cost of bagging, dry ing and freight.
Once again the study of American statistics is helpful in arriving at our con clusion, for we find that the average stocks of Oils and Fats in the U.S.A. on the 31st December, 1923, 1924, and 1925, amounted to 360,000 tons, whereas the total stocks on the 31st December, 1933, amounted to 1 million tons, viz., nearly three times as much.
I think this illustrates fairly clearly the state in which the Oil and Fat
markets find themselves at the pre sent time, and we now come to the point that we want to examine which are the factors we are likely to reckon with in the future, and how we may benefit by past experience.
Factors In The Future
We all have, no doubt, pretty clear ideas as to what we would wish to be done or as to what we think would be a rational action for the world to take, but in gaug ing- the future, we shall be compelled to face hard facts as we find them, and as we are likely to find them, and not as we would like them to be.
We think, therefore, we must first of all start off with the idea that the policy followed by the various Governments to increase trade barriers by imposing quotas, tariffs, restrictions, etc., will be pursued further, and that, therefore, the free movement of goods will continue to be impeded more and more for some time to come, until the world is ripe for saner methods.
It is impossible for any of us to see a long way ahead, and I propose, therefore, that we try to visualise more or less the conditions which we shall have to reckon with for the balance of the year.
As far as the demand is concerned, we may reckon that there is reason to expect no increase in the demand for Oils and Fats for edible purposes.
The demand for Cake is likely to re main good, as a result of the continual increase in the cattle and hog population, so that the tendency of the Crushers will be to crush more for the purpose of get ting Cake, and that they will always be faced with the difficulty of finding suffi cient outlet for their Oil.
As regards the future of supplies, we have no reason to assume that they will not be plentiful, except perhaps in the case of Linseed Oil, where we have to reckon with a distinct shortage, which cannot be relieved until the next Plate crop. We also still have the bulk of the 1933 Whale Oil catch (which, so far, has not yet been sold) hanging over the mar ket, and as far as the distant future is concerned, we can always reckon on Whale Oil as a potential supply to which we can help ourselves to make up any shortage in Oils and Fats.
Effect Of Cheap Butter
One of the Unilever Chain of Com panies is the Maypole Dairy Co. The chairman at the annual meeting recently reported a substantial fall in profits due entirely to reduced sales of margarine.
He said: “We have had two factors to contend with. On the one hand the abnormally low prices prevailing for butter have affected the sales of our best margarine.
and on the other, the competition of lard which has been retailed at the lowest price for many years, has affected the sales of the cheaper grades of margarine.
Our aggregate tonnage of these three articles has been fully maintained, but the margin of profit has been less, the result being a reduction in our gross profit of £73,000. ‘‘There is no sign of an immediate ad vance in butter prices sufficient materially to help the margarine trade. Quotas in other countries and increased and unre stricted production in New Zealand and Australia have resulted in huge quan tities of butter being shipped to this country at prices which, to put it mildly, cannot possibly be remunerative to the producers. This is a state of affairs which will, no doubt, be rectified in time.”
The German Position
Messrs. Brown and Joske, in July, re
ported to the Fiji Coconut Planters’
Union as follows:— advices are now to hand from London in regard to the new Ordinances problem in Germany in respect of oil seeds. It appears that the import of all oil seed is prohibited, with the sole exception of copra. Why copra has been specially favored is something of a mys tery, but it is believed that it has been exempted for the fact that most of the copra imported into Germany comes from Dutch East Indies, with whicn country Germany has a favorable trade balance.
Germany only imports the better grade of copra, and the new regulations are not likely, therefore, to affect South Sea copra to any extent. In addition, if Ger many is not importing such articles as Ground Nuts, aqd Palm Kernels, there is that extra quantity of these commodities available for other markets to compete with copra.”