Review Of The Copra Industry

The Factors Which Make for Price Recessions

THK editor of the "Pacific Islands ■ Monthly”, while in Rabaul In August, spent a very profitable hour with the expert men of the New Guinea Department of Agriculture. Some exceedingly good research work is being done there.

For example, the following is an article, compiled by the Economic Branch, in which the condition and prospects of the copra industry were reviewed. Although the article was written in January, 1939, and the whole situation has been af fected by the outbreak of war, the com piler’s review and summary are still worth publication.

THE price movements in all commodity markets, whether they are metal, wool, copra or other vegetable oil markets, are fundamentally based on the factors of supply and demand, supple mented especially by business confidence.

For the most part, these markets move to gether in the same direction; recession in one is generally reflected in others. There seem to be “sympathetic” movements be tween commodity prices. This has been particularly noticeable since 1936.

The monthly average price for lead fell steadily during the 15 months ending June, 1938, by 60 per cent, while spelter, copper and tin showed similar declines of 65 per cent., 51 per cent, and 45 per cent, respectively. Since June, however, the efforts of restriction committees have been successful in limiting production and raising the prices of tin and copper. Al though lead also recovered somewhat, a restriction scheme for the production of this metal aiming at price stability around £2O per ton has also been agreed upon.

From March, 1937, to June, 1938, rubber and wool each showed price declines of

40 per cent. Lastly, prices of copra, coco nut oil and other vegetable oils have fallen by 55 per cent, over the same period, while prices of foodstuffs have also drop ped.

The reason for this fall in prices is largely the uncertainty, both economic and political, in the main markets of the world. The first break in the rise of world commodity prices was caused by President Roosevelt’s intimation, early in 1937, that the price of gold in the United States dollars might have to be lowered in view of the rising level of prices, especially commodity prices. The uncer tainty which followed this pronounce ment started a downward movement in commodity prices, which has only been accentuated by the recurrent political shocks in the East and in Europe. De mand fell off in the last few months of 1938, while the uneasy tension in the world has caused buyers to leave the market. Speculators, whose influence is appreciable in the commodity markets, have also temporarily ceased operations.

Thus the present low prices ruling in the vegetable and seed oil markets are not phenomenal. Copra is low in price in company with other commodities in all markets. In addition to these broad conditions, there are special factors af fecting copra which are important in fluences in the continued price decline These are set out below.

WORLD demand has fallen off as a re sult of various quota and import re striction schemes, such as exist in Germany, Italy and Spain. The position

of Germany is of particular interest.

German copra imports shrank in the de pression and have been since curtailed in the interests of rearmament and later under the drive to achieve self-suffi ciency. By this fall in the German de mand copra has been deprived of one of its largest markets.

Germany has had a further and in direct effect upon copra prices by her refusal to import butter in her efforts to expand armaments at the cost of cut ting down foodstuffs. Butter prices have been at a relatively low level for some years and the withdrawal of Germany from the world market has diminished demand with the inevitable result that prices have fallen lower. Low butter prices have caused butter to be bought in place of margarine in many countries, and as coconut oil is the main ingredient of margarine, the decreased demand has been reflected in lower copra prices.

ANOTHER important feature is the competition of substitutes—mainly whale, palm kernel and Babassu oils, and to a lesser extent, cotton seed and soya bean oils —as well as sugar in the manufacture of glycerine.

Perhaps whale oil at present is the most serious competitor, it being estimated that over 30 fleets from Britain, Norway, Japan and the United States will operate in the Antarctic this summer, and a re cord production of oil is expected. Japan is extending her activities rapidly, and, as she is remaining outside the inter national agreement to protect the indus try from indiscriminate killing, the pro posed restrictions on the production of whale oil. which would be so beneficial to the copra market, will be much less effective. Nevertheless, it is significant that the United States Government has taken action against its own whalers for the contravention of the agreement.

Simultaneously with the increased out put a process has been devised whereby whale oil can be de-odourised and it is now replacing copra in the manufac ture of soap.

Competition in the soap industry is not limited to whale oil alone. According to the report of the United States Bureau of Agricultural Economics, 112 million lb. of palm kernel oils were used in the manufacture of soap in 1937-38, compared with 26 million lb. in 1936-37; and, allowing for increased output, a considerable amount of copra must have been replaced. Babassu oil, because of its similarity to coconut oil in appearance and content, has also recently been used as a substitute. The oil is produced by crushing the nut of the Babassu palms which grow wild, and in very great num bers, throughout Brazil. As the Brazilian Government is encouraging the production of the oil, its share of the vegetable oil market will probably increase.

Japan also reports that a process has been perfected whereby sugar has replaced coconut oil in the manufacture of glycer ine, and that she is already in a position to export her surplus at a price below the cost of extraction from coconut oil. It would thus appear that the portion of the market which would normally im prove with armament programmes is likely to be lost.

On the other hand, America has re turned into the market and the Philip pines are supplying the bulk of her im ports. The importance of America’s de mand is more or less indirect, as the Philippines’ production of copra is di verted to Europe when America’s buying falls off. This added competition, with the usual supplies of copra from the South

Sea Islands, Ceylon and Federated Malay States has been a depressing force on world copra prices, which fortunately has now been removed.

A further factor which influences the return to the producer, through costs and not prices, is the rise or fall in freight rates. High freight rates in the early part of 1937, at a time when copra prices were declining, increased the difficulties of the producer. Since October, 1937, how ever, the deterioration in the international situation and the continued fall in the prices of primary products have had their effect upon freight rates, which have fallen considerably. But they have not fallen in the same proportion as copra and other commodity prices and the level is still high in relation to the copra price level. It is interesting to note that the downward turn took place six months later than the decline in commodity prices. (Now, of course, since the out break of the Hitler War, all freights have risen steeply.—Ed.) COMPETITION by substitutes can only be met by improving the quality of copra and by adopting better methods of marketing. It has been suggested that copra producers might concentrate on both these factors.

First, although the quality of the meat in the coconut is practically the same throughout the world, the standard of the copra marketed varies from place to place. Careless handling and preparation reduce the value of copra to the buyer, who is inclined to prefer the standardised product which many of the substitutes offer. At times, variations in quality are due to the deterioration of copra in trans port; but this is not the sole explana tion of the unsatisfactory condition in which many buyers receive their ship ments It is therefore essential that, in some instances at least, producers should take more care in the preparation of the copra and its subsequent handling. Buyers would then be more satisfied with the quality of their purchases.

Secondly, many primary products are marketed under international agreements, but possibly due to the large number of scattered producers no such copra agree

(Continued On Page 13)

ment exists. Nevertheless as the Malayan Agricultural Journal points out, buyers and sellers could arrive at some agree ment setting out particular grades of copra, and the purchaser would be as sured of the quality of the shipment he was about to receive, while at the same time the growers would be encouraged to improve their product. This has been done to a minor extent, but, when com pared with the elaborate arrangement in the cocoa industry, much still remains to be done.

LONDON is the main vegetable oil and oil-seed market of the world, and all influences are taken into account in Lon don and reflected in the movements of prices, which are very sensitive to world events.

Therefore, as long as conditions in Europe remain unsettled, there will be forces tending to prevent any appreciable increase in the price of copra, coconut oil and other vegetable oils.

Producers are also faced with the com petition of substitutes and, unless the in dustry is organised along the lines of other primary products, planters will not be in a position to take advantage of the increased demand should the market im prove.