862.51 D 481/–

Memorandum by the Economic Adviser, Department of State (Young)

Proposed Potash Loan

(1) Lee, Higginson and Company have consulted the Department regarding a loan to the German “Kalisyndikat”, the amount of which would be $50,000,000 authorized and $25,000,000 immediately to be issued. The purchase of the loan would be to pay off $20,000,000 of indebtedness (in Germany, Switzerland and elsewhere), leaving about $3,000,000 for “current construction”. It is stated further that the Syndicate expects an increase in demand for potash which will necessitate an improvement of the plants.

(2) The potash syndicate was organized under German legislation dating back at least to 1910, which vested the exclusive sale of potash at home and abroad in a syndicate composed of all producing firms. The syndicate is controlled by a Government commission which “has the power to fix prices, both domestic and export. It is understood, however, that the actual price fixing is not done by the Kalirat but by the producers themselves.” (Report April 14, 1925, from American Consul at Bremen.31) The report of October 7, 1924, from a Trade Commissioner of the Department of Commerce enclosed with report No. 64, August 22, 1924, from the American Embassy at Berlin,31 states on page 10 that “prices are fixed with reference to the production costs and profits of the least efficient small producers”.

It appears that each potash producer is assigned its “quota” of production.

(3) In the summer of 1924 the Department received reports of a Franco-German potash combination for the purpose of regulating sales in the United States. Although it proved difficult to get reliable information and impossible to procure a copy of the agreement, an examination of the files leaves no doubt that such an agreement was made. It appears that the agreement allows to the Germans 62.5% and to the French 37.5% of the American market over a three-year period from May, 1924.

On receiving reports concerning this agreement, the Department, on January 30, 1925, asked the comment of the Departments of Commerce [Page 206] and Agriculture.37 The former Department did not formally reply, but a letter dated February 6, 1925, from the “Liaison Officer”37 stated that prices had not advanced nor declined since the agreement, but that “There is a general feeling that with the world’s supply so closely held we may expect to see an increase in the price of potash at some time in the future.”

The letter of the Acting Secretary of Agriculture dated February 17, 1925,37 stated that while the combination would probably result in higher prices than would otherwise exist, the American farmer would not be greatly burdened, since potash is only one element in fabricated fertilizers, and that higher prices would tend to stimulate domestic production of potash and tend to make the United States less dependent on foreign sources.

(4) A further Franco-German agreement appears to have been made last May. The Consul General at Paris telegraphed on May 7, 1925,37 that this agreement “assures a durable fusion of interests for the future and regulates in particular all export prices”. Information concerning these agreements is, however, not very satisfactory, not withstanding the fact that the Department has issued several instructions to different diplomatic and consular missions calling for investigation. The interested producers seem unwilling to disclose much concerning agreements.

(5) It is alleged that prices of potash are now lower than before the war, and that the syndicate will keep them low in order to broaden consumption. The determination of price, however, is in the hands of the foreign monopoly, and the American Consul General at Berlin stated in despatch No. 1861 of November 7, 1924,37 that “There are very strong indications that both the French and the German syndicates will advance prices as rapidly as they believe the market can stand”.

The draft prospectus of the loan transmitted by Lee, Higginson and Company37 states that the Franco-German agreement “provides for the division of the whole world into sales districts”.

(6) About a year ago certain credits, about $6,000,000, were extended to the Potash Syndicate by the Chase National Bank and the International Acceptance Corporation. The American Consul General at Frankfort reported (No. 668, June 4, 192537) that he had seen certain of the papers relating to these advances and added:

“These papers contained no provision that the loan should not be used for purposes inimical to the United States or its citizens, or American industries. Such a clause might well have been inserted by the Bank group.”

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The views of the Department of Commerce have already been informally asked with regard to this loan. It is suggested that the attached letter38 be sent to the Department of Commerce.

In view of the position of the Department in regard to the coffee loan,39 it seems doubtful, pending the views of the Department of Commerce, whether this Department properly can refrain from objecting to this loan. The principal question seems to be whether it would be practical to utilize the desire of the Potash Syndicate to procure this loan in order to get assurances that the Syndicate will not take action by virtue of its monopoly that would adversely affect American consumers.

A. N. Y[oung]
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  10. See letter to the Secretary of Commerce, November 28, infra.
  11. See Foreign Relations, 1925, vol. i, pp. 533 ff.