File No. 611.226/16
The Ecuadoran Minister ( Elizalde) to the Counselor for the Department of State ( Polk)
My Dear Mr. Counselor: Bearing in mind your personal good will, I am presuming to address you in this form because it seems to me the most adequate in order that you may know as soon as possible certain details of the situation that Ecuador is suffering at present, on account of the restrictions placed by the War Trade Board on the importation of Ecuadoran cocoa into the United States.
The termination of the war, end for which the attitude assumed by the Government of the United States was decisive, to its glory and the gratitude of the world, raises the presumption that the restrictions to international commerce, imposed by the war, will close with the formal advent of peace.
But as this delay and the situation, which I am going to explain to you, requires immediate remedy, I have believed it to be my duty to present the same to you.
Permit me to respectfully call your attention to a serious economic situation facing my country which, I believe, it is in the power of your Government to forestall or remedy without any sacrifice of your own vital interests.
In view of the friendly spirit so often manifested by the Government of the United States towards its sister Republics in South America, I do not hesitate to address you, therefore, with the suggestion that the restrictions now existing on the importation into the United States of cocoa beans (the export commodity on which my country’s economic life depends) be altogether removed, or at least diminished.
Ecuador’s annual production of cocoa beans is approximately 45,000 tons, constituting about 15 per cent of the world’s crop. Formerly marketed in Europe, largely through German channels, practically the entire quantity for the past two years has been purchased by chocolate manufacturers in the United States, and in view of certain advantages over nearly all other grades of cocoa, it has become one of the principal ingredients in the formulas of the majority of American chocolate manufacturers to-day.
In 1916, cocoa represented $12,773,040 or 72½ per cent of Ecuador’s total exports of $17,600,598. There are no figures as yet available for 1917 or 1918.
For the six months ending December 31, 1918, the War Trade Board of the United States has limited the importation from Ecuador of cocoa beans to 7,200 tons. More than half of this allocation has already been shipped, and the other half will probably be less than the amount that the cocoa plantations will have ready for market during the remainder of this year, thus keeping the stocks on hand at their present level of 15,000 tons, a large part of which is already old stock produced during the latter part of 1917 or early in 1918 and subject to rapid deterioration. For the first 6 months of 1919, the production is estimated at 27,000 tons, thus making a total stock, with that carried over from 1918, of about 42,000 tons of cocoa by June 30, 1919.
[Page 422]Cocoa, unlike other commodities in Latin American countries upon which restrictions have been placed by the War Trade Board, is a perishable foodstuff which, if kept in the tropical climates of its origin, is liable to become worm-eaten and otherwise deteriorate rapidly (say, in about nine months), but if shipped to a temperate climate, may be safely kept in store for a period of about two years. The commerce and finance of Ecuador have suffered greatly by the war, since none of its products have increased in price, as have those of many other Latin American countries. On the contrary, the price of its principal commodity, cocoa beans, has been less than in pre-war times, and is to-day about 10 per cent less than the average market value for the ten-year period prior to 1914. The country’s economic difficulties have unfortunately been aggravated by the recent restrictions upon the importation of cocoa into the United States. In spite of the endeavors of my Government, there has been a most serious rise in the rate of exchange, which went as high as 320 sucres for $100, as against the normal rate of 205 sucres. This rise is the natural consequence of the decline in exports. If Ecuador can not ship her cocoa, the exchange situation will become worse. Importers of American goods, because of inability to buy exchange, except at exorbitant rates, will have to curtail their importations still more. With inability to sell its products, the country’s purchasing power will be reduced, and the Government revenues derived chiefly from import and export taxes will decrease, and it will be doubly embarrassed in meeting its foreign obligations by reduced income and the exorbitant price it would have to pay for foreign drafts.
Ecuadoran planters, unable to sell their product, and seeing it become valueless through deterioration, will be permanently injured, as they will be unable, for lack of funds, to properly maintain their plantations, whose output will thereby be reduced for four or five years afterwards. The future consequences of this curtailment of supply would be an increase in the price of this commodity in the world’s markets, entailing an increase in the cost to the consumer of chocolate, cocoa and its by-products, all of which may be considered essentials throughout the world.
Permit me to point out that the primary purpose of the restrictions imposed by the United States Government, namely, the saving of tonnage, need not be interfered with. It is a comparatively short haul from Guayaquil to the United States, and it is feasible for cocoa to be shipped in small steamers or sailing vessels which by reason of their size or otherwise can not be used in European service or for the shipment of cargoes of nitrate, sugar, etc., which can not stand the same high freight rate as cocoa. I have been informed in this connection that the Nankai Maru, a Japanese vessel, will this month load about 20,000 bags of cocoa at Guayaquil for San Francisco, part of Ecuador’s allocation of 7,200 tons aforesaid, and that the said steamer would be prepared to take a much larger cargo if the import regulations of the United States permitted.
The removal in their entirety of import restrictions would be greatly appreciated, I am sure, by other Latin American countries producing cocoa, such as Brazil, Venezuela, Santo Domingo, etc. Certain special considerations, I understand, have been given to shippers [Page 423] of cocoa from Santo Domingo and from the British colonies in West Africa. Would it not be possible for your Government to show a like special consideration to Ecuador? For instance, by anticipating so as to permit shipment prior to December 31, 1918, of the present stock of cocoa before the Ecuadoran rainy season sets in, in anticipation of the greater allocations to which Ecuador reasonably looks forward in 1919. Such anticipation during the remainder of this year of future allotments would prevent the present stock on hand from becoming destroyed by climatic changes.
The new crop can not possibly be shipped before April or May, and before that date there is no cocoa in Ecuador, and by that time the restrictions are likely to have been removed altogether, or Europe will buy said new crop
It is of utmost importance to get the present stock of cocoa out of the country because a great deal of it is about one year old and will surely deteriorate if carried through the Guayaquil summer, beginning in January and ending in April. If this should happen, it is equivalent to Ecuador losing a corresponding amount of capital.
It is just at present that the Ecuadoran Government and Ecuadoran commerce need assistance. If this cocoa could be shipped immediately, the Ecuadoran Government would get at once a large amount of export taxes and there would be pretty nearly $3,000,000 of exchange drafts available, and which will bring the exchange rate down to a normal level and thus help the Ecuadoran Government in purchasing remittances for the foreign debt at low rates, and equally help the importers.
On the other hand, if no shipments are made, exchange is liable to get entirely out of hand and the financial crisis is inevitable.
I also request that, in the matter of allocations by the War Trade Board, due consideration be given to the interests of the Ecuador producers, so that they may be permitted to market their cocoa through the channels to which they have been accustomed in the past. It might be taken for granted that this would be done, were it not for the recent attitude that, I am informed, has been taken by the cocoa division of the War Trade Board, which, I am informed, seemed to think that it would be proper for American buyers of Ecuador cocoa to take advantage, to the detriment of the Ecuador producers, of the power given them by the War Trade Board in making them the only recipients of the restricted quantity of cocoa to be imported from Ecuador. Notwithstanding the prevailing market price in New York for Ecuador cocoa of 13 to 13½ cents per pound, willingly paid by manufacturers, the aforesaid division suggested to the agents of the Asociación de Agricultores (a farmers’ cooperative association in my country) that they sell the Asociación’s cocoa at a price of 11¼ cents per pound, a price below that obtained for other grades of cocoa at the same time, on the plea that one or two manufacturing concerns had stated that if they obtained licenses for a part of the allocation of 7,200 tons, they could purchase at that price in Guayaquil. If the War Trade Board adopted the policy of granting licenses for cocoa importations only directly to the purchasers, they might naturally be tempted to use this power to purchase at as low a figure as possible, even forming a combination therefor, and the Ecuadoran producers holding a much larger stock of a perishable commodity than they can possibly hope to export [Page 424] would naturally have to accept any price offered to them by the parties in whose hands the War Trade Board had unwittingly placed this weapon.
The policy which my Government would desire be followed in this respect is a policy of liberty and justice which may avoid the monopoly made by consignees or by manufacturers, and to obtain this result the better, in my judgment, would be to establish the rule of not granting import licenses on applications which are not recommended by this Legation. My Government would be able to make the allotments in Ecuador to the respective exporters, big or little, proportionately and equitably, and to give me the corresponding instructions. In this same sense I sent to you my official communication of the 27th of last July, No. 16.1
Exportation on consignment ought not to be prohibited because this is the balance weight that would prevent the formation of manufacturers’ trusts which lower or depress the market with probable damage to the Ecuadoran producers and with the upsetting of current prices in the New York market, which would affect the interests of other American manufacturers, or it may be those who would have bought cocoa at higher prices.
I am [etc.]
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