The Use of Intergovernmental Agreements in the Marketing Of
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THE USE OF INTERGOVERNMENTAL AGREEMENTS IN THE MARKETING OF AGRICULTURAL COMMODITIES, WITH PARTICULAR REFERENCE TO THE INTERNATIONAL WHEAT AGREEMENT OF 19k9 Dissertation Presented in Partial Fulf ill men t, of the Requirements for the Degree of Doctor of Philosophy in the Graduate School of the Ohio State University By Gordon Joseph Dobson, B.S.A., M.S. The Ohio State University 1953 Approved byj r► ACKRGWLEDGMEN TS Grateful acknowledgment is made to Ur. J.I. Falconer, Chairman of the Department of Agricultural Economics and Rural Sociology for his guidance throughout the study, and through whom the financial assistance was obtained which made the research possible • A debt of gratitude is owed also to Dr. Clifford L. James of the Department of Economics, whose valuable suggestions helped greatly in the organization of the study and the writing of the maims cript. Thanks is extended also to Dr. V.R. Wertz and Dr. R .W. -Sherman of the Agricultural Economics Department and to Dr. Alvin Coons of the Economics Department, whose constructive help in reading the manuscript was much appreciated. TABLE OF CONTENTS Page PART I INTERNATIONAL TRADE IN AGRICULTURAL COMMODITIESs GENERAL PROBLEM Chapter I - Introduction........ 1 Chapter II - Difficulties Arising Within the Industry ij. Chapter III - Difficulties Arising Outside the Industry .... 8 Deficit and Surplus Areas 8 Market Dislocations 13 Shifts in Demand 17 Other Causes of Dislocations 2k Nationalistic Policies 28 State Trading 38 Conflict of Producer and Consumer Interests irl Chapter IV - Summary of Part I and Scope of Present Study.. UU PART II INTERNATIONAL COMMODITY AGREEMENTS: HISTORICAL PERSPECTIVE Chapter V - Growth of Intergovernmental Commodity Policy.. U6 Chapter VI - Alternative Stabilization and Surplus Control Plans .......................... $9 Graham Commodity Reserve Proposal Modified Commodity Reserve System 73 League of Nations-Reifler Proposals ?8 L. St. Clare Grondona-National Reserve Corporation 80 Plan of Andre 1stel 81 Economic Reserve System of R.J. Scanlan 8U International Employment and Stabilization Fund 87 World Food Board - Food and Agriculture Organization 89 ii Page International Commodity Clearing House 91 Emergency Food Reserve 9h Surplus Disposal Agreements 96 Commodity Control Agreements 98 Other Types of Agreements 99 Chapter VII - Conmodity Agreements in the Interwar and Early Postwar Period........ 101 Specific Commodities 101 Coffee 102 Beef lQti Rubber 106 Sug ar 109 Tea 113 Tin 113 Wheat 118 General Considerations 123 PART H I THE INTERNATIONAL WHEAT AGREEMENT OF 19U9: A CASE STUDY Chapter VIII - Postwar Demand and Supply Conditions for Wheat ........... 126 Chapter IX - The Agreement ...................... 1^2 Terms of the Agreement 1U2 Transactions and Administrative Problems lii9 Chapter X - The Effect of the Agreement on Wheat Prices... 159 Chapter XI - The Effect of Incomes and Expenditures....... 171 The Agreement as a StabilizationDevice 171 What Constitutes Stability 171 Nature and Causes of Instability 17U Economic Costs of the Agreement 193 Chapter XII - The Effect on Resource Allocation............ 202 Importing Countries 202 Influence of Prices 203 Influence of an Assured Supply 205 iii Page In Exporting Countries 208 Possibility of Meeting Wheat Agreement Commitment 208 Relationship to Conservation Policy 210 Influence on Resource Allocation Between Farm Enterprises 212 Chapter XIII - Degree of Conformity to the Havana Charter for an International Trade Organization .......... 217 Chapter XIV - Comparison with some Alternative Devices and Possibilities of Wider Future U s e ........... 230 PART IV SUMMARY AND CONCLUSIONS Chapter XV - Suranary of the Interwar and Postwar Period.... 2U7 The Interwar Period 2U7 The International Wheat Agreement of 19U9 and the Period Ahead 2£U Bibliography...... ............. ... ......... ........ 264 Appendix A ........... 279 Appendix B ............................................... 280 Appendix C ...................................................... 281 iv TABLES Table Page III-l Total Land Area, Cultivated Land and Population, by Continent or Country, Percentage of World Total 9 III-2 Distribution of Cultivated Land Among the 15 Countries Having More Than 75 Percent of the World’s Total Cultivated Land, Latest Data Available at 1 9 4 6 ................................ 10 III-3 World Population and Grain Production........ 11 III-4 Geographical Distribution of United States Imports, 1939-191+U........................................ 15 III-5 Population Estimates, Regions of the World,1920-191+9 18 VIII—1 Wheat Stocks in Four Principal Exporting Countries as of July 1, 1934-1952 .......................... 128 VIII-2 Wheat Production in Specified Countries, Year of Harvest, Average,1934-1938 and Annual, 1945-1952 .. 129 VIII-3 Wheat Exports, Prewar and 191+5-1946 to 1956-1951 Inclusive........................ 136 IX-1 Guaranteed Purchases and Sales, International Wheat Agreement, Crop Years 1949-1950. 1950-1951 and 1951-1952 ........................................ 147 IX-2 Total Exports and Exports Under International Wheat Agreement for Member Exporting Countries ....... 154 XI-1 Government Payments on Wheat, United States, 1933-1943 ........................ ............. 199 XII-1 Grain Acreages, Western Europe, Specified Years ... 203 XII-2 Wheat Prices in Selected Countries, 1946-1948 ..... 205 XII-3 Production and Available Export Supply of Wheat, United States, Canada and Australia, 1925-1952, Inclusive, At Present Domestic Requirements ...... 211 XIII-1 Wheat: Prices Per Bushel in Three Exporting Countries Friday Nearest Mid-Month, August 1949- July 1952, in U. S. Dollars .............. 228 v FIGURES Figure Page X-l Demand and Supply Relationships With and Without the International Wheat Agreement.......... 163 XI-1 Effect of the Agreement on Price Stability........ 178 XI-2 Relative Range of Monthly Average Prices for Wheat and Other Selected Commodities, July 19k9 - June 1 9 5 1 .................... 186 * * vi PART I INTERNATIONAL TRADE IN AGRICULTURAL COMMODITIES i GENERAL PROBLEM -1- INTERNATIONAL COMMODITY AGREEMENTS AS A MEANS OF INTERNATIONAL MARKETING OF AGRICULTl)RAL PRODUCTS CHAPTER I INTRODUCTION Throughout history people have exchanged goods with others in distant areas, thus drawing on the special resources with which thos areas had been particularly endowed. In biblical times caravans journeyed from the East with frankincense and myrrh. During the Mid die Ages and the period following, oriental spices and silks were prized throughout Europe and thriving commercial cities, suoh as Ven ice row up. In the search for new trade routes to the Orient, the American continent was discovered. And the development of the fur and tobacco trade which followed, depended on trade with Europe. During the IGth and 19th centuries rapid improvements in tech nology, particularly In communication and transportation, opened up vast new producing areas that had previously not had much economic significance. Expansion in these areas was dependent on the markets found in the rapidly growing industrial areas of Ex-’rope. Roads, k canals, railways, steamships and telegraphy all contributed to ex tending enormously the trade between nations. Along with such a rapidly growing corinerce evolved a complex institutional framework in which trade v/as conducted relatively smoothly. Highly organized commodity markets came into being, sup ported by equally efficient money markets. Trade moved freely -2- between rations and the cities of Western Europe, particularly Lon don, became busy centers of commerce. Thus, by 1900 a multilateral network of world trade existed, automatically controlled by the use of gold as an international mone tary standard, with access to goods and services limited only by a nation's financial ability to buy them. There was a relatively free movement of goods between the producing and consuming areas of the world and, except for some occasional adverse repercussions on do mestic economies transmitted by the autoi.atic operation of the gold standard, an institutional framework existed that served fairly well to organize the world's resources so that they made their utmost con tribution to material welfare. However, within the last three decades three major blows have greatly impaired the effective operation of this free market- system. The effects of the first World War had not been resolved when the Great Depression struck. And by the time World VJar II was declared in September, 1S3S, Mthe international economy retained only a semb lance of Its one time resilience and strength. " 1 / The havoc wrought by two world wars and a depression of unprecedented severity is not easily overcome, but some institutional framework must be built up within which the world's resources can again be turned to the pro duction of goods and services for the welfare of all mankind. l / Buchanan, i..b, and F.A. Lutz, Rebuilding the World Economy, Twentieth Century Fund, Hew York, 1947, p. 4, During the past three decades the importance of raw materials in the economy was brought home with force. "Modern industrial civi lization has made itself dependent upon such an array of raw mater ials and upon such enormous quantities of them, as to dwarf by com parison the raw material needs of all previous civilizations in human 2 history.1* / And the raw material base upon which our modern industr ial civilization rests is unavoidably international. Since raw mat erial needs are relative to