File No. 837.61351/66
The Minister in Cuba ( Gonzales) to the Secretary of State
Sir: I have the honor to report that I feel apprehension about political and economic effects in Cuba of our fixing the price of raw sugar, with the provisions for buying the crop. There are, in my opinion, worse complications to be feared from the conditions of buying imposed than from the fixing of a price below the point which the producers believe their product is worth, although I have reports that colonos (the cane farmers) are already bitterly condemning the United States for action against their interests, and are censuring the mill owners and the Cuban Government for accepting conditions that most intimately affect the cane farmers when those farmers have had no voice or representation in the negotiations. As the Department of State would have the burden and responsibility of dealing with any problems that may be presented, and as the United States Government is considered by Cubans to be acting in this matter, and not a board or commission, I feel that I should make to the Department a clear statement of the conditions as I understand them. I have acquired a comprehensive understanding of methods of sugar production here, the economic conditions at several important points being very similar to those of cotton production and marketing with which I am intimately familiar.
The colonos produce the cane. Upon them fall the losses incurred through bad seasons, fires, and revolutions. They employ and pay the laborers, and they bear the expense of increased cost of farm supplies and labor. They contract in advance with the mill owners to deliver the cane to the mill for a certain percentage of the current price for the sugar produced from the cane. These contracts vary in different parts of the country, but I understand the colonos receive an average of 55 per cent of the value of the sugar, the mill getting 45 per cent for manufacturing.
A few strong mill corporations plant their own supplies, but the great majority are dependent upon the farmers in the country adjacent [Page 351] to the mills for the sugar-cane supply. Under the contracts the colonos must be paid for the cane delivered to the mill on the 15th and end of every month. That is the long-established custom, and it is necessary to enable the farmers to pay their labor and discharge other expenses of their harvest. Scores of thousands of workmen, native and foreign, are paid for their labor on those dates.
The mills must be prepared, therefore, to pay promptly for the cane 55 per cent of the market value of the sugar produced, and with the exception of a few financially powerful companies, they are able to do this only by fairly prompt sale of the sugar.
The normal grinding season begins in December and extends over a period of six months to about the first of June. In that time all the cane is paid for by the mills and rendered into raw sugar.
Under the plan for buying the cane, fixed in New York recently, at the time the price of 4.60 a pound was determined upon, the buying combine agrees to take 70 per cent of the sugar, with an option on the remaining 30 per cent, and of that 70 per cent, 2 per cent is to be taken this December and the remaining 68 per cent will be taken in equal quantities over a period of 11 months.
To illustrate what this would mean I will take a mill with a product of 100,000 bags of sugar. The buyers would take 2 per cent of 70 per cent in December, or 1,400 bags, and 6,236 bags a month thereafter until December 1. On the latter date the mill owner would still have 30 per cent or 30,000 bags on hand subject to the buyer’s option. But on the first of June, after having paid for the cane and ground the sugar, the mill would have sold only 32,580 bags, and would be supposed to be holding 67,420 bags. Or, to put it another way—the mills would have paid out to the cane growers by the first of June, on a yield of 3,300,000 tons, $175,000,000, and would then have to hold $200,000,000 worth of sugar until the buyers called for it during the succeeding 6 months.
The first practical objection to this plan, but not the most pressing, would be the physical impossibility of properly warehousing that quantity of sugar in Cuba. A greater obstacle would be the inability of the banks of Cuba, even should they place their entire resources at the disposition of the sugar mills to the detriment of every other enterprise, to finance such an undertaking.
But if this financial obstacle could be overcome, there yet remains a more formidable difficulty. Very many of the mills can not pay for their cane and discharge their own expenses during the harvest season from November until June on the proceeds of the sale of one-third of the sugar, which is all the buyers propose to take during that period. Yet the cane must be paid for. Neither laborers nor colonos have ever waited for their money, and they know that now the world needs the sugar. The cane must be paid for or it will not be harvested.
By the possible direct assistance of the United States Government, it is considered that this last objection might be removed; if it were not, the mills to prevent riots might have to offer their sugar for anything speculators would pay for it; or they might offer to pay the colonos in sugar which would be bought up by Spanish and American speculators to the great loss of the producers [Page 352] who would inevitably hold the United States Government responsible for the conditions.
Were it practicable, however, to surmount the several financial difficulties cited, there is another point bound to bring the colonos and the mills into serious conflict and to engender more bitterness against the United States, if the present program for buying is carried out. Should the mills be able to finance themselves, they will probably charge the colonos with part of the cost added to the marketing by these revolutionary methods. That cost will not be merely the interest on the money, but will include storage charges for an average of 4 months, and the loss in weight and quality of the sugar. The colonos know that a price of 4.60 has been fixed. They are protesting against it, and will certainly make a bitter contest against payment for their cane on the basis of 4 35 or 4.40. To suppose a parallel situation in the United States, the effect upon a million of the less advanced cotton growers of the South may be imagined should the price of their cotton, selling for 9 cents a pound this time three years ago, be fixed at 20 cents (it is now selling for 30) and they be required to bear part of the loss in weight, warehousing charges, and insurance, throughout the year. And the ground is made more fertile for discontent by the great advance in prices of those food products for which Cuba is dependent on the United States. There is no lard or lard compound; the last I heard of sold for 75 cents and 50 cents a pound respectively. There was no butter in the market last week except that brought from Spain and Denmark. Wheat flour was priced to me at $20 a sack of 200 pounds, and 11 cents a pound in smaller quantities. There is no corn meal. Common bacon has become a luxury. Potatoes are from 250 to 300 per cent higher than they retailed for in France the past summer at the time our transports landed the first American-armed contingent. The only relatively cheap food in Cuba is rice imported from Japan, which is selling for from 8 cents to 9 cents a pound; and we are receiving urgent requests from the authorities in the United States who watch over these things, to know why so much rice is coming here.
I do not know, of course, why it is proposed to leave in Cuba after its manufacturing, such a large part of the sugar crop. In the circumstances it would appear safer in the United States. The immediate practical result would appear to be a shifting of loss in weight, etc., and the cost of storage and carriage in banks from the pockets of the buyer to those of the mill owner here. Nor do I know the reasons governing the selection of the American members of the commission which fixed the price of sugar, and imposed the conditions of buying, but I think the Department should know the criticism here that the sugar interests of Cuba were placed at the mercy of the sugar refiners. Mr. Mesa, of the Cuban delegation, who lived in England many years, and knew Mr. Todd, one of the English representatives on the commission, makes a solemn declaration to me that, after hearing his statement, the Englishman said: “I would like to help you, but what can I do? I am the only man on the board, not excepting my associate from England, who is not personally interested in the issue.”
When I saw General Menocal on December 5, the day before he left Habana for eastern Cuba, where he now is, his only comment [Page 353] was that he could sincerely say he had asked for an increase in the price of sugar not for the little benefit such increase would do this country, but for the sake of avoiding arousing any feeling among the cane growers against the United States.
My uneasiness over the outcome of the sugar-buying program in Cuba is not confined to the results here. The exigencies of war demanded the breaking of barriers, but the spirit of our Government is against, as fundamentally wrong, “combinations in restraint of trade” and “pools”, and it would be better for the future were it feasible to avoid giving the Government’s stamp of indorsement to such policy.
I have [etc.]