Foreign Relations of the United States: Diplomatic Papers, 1944, The Near East, South Asia, and Africa, The Far East, Volume V

600.458/12–444

The Agency General for India to the Department of State

Memorandum on the Relative Positions of the United States and India in Cotton Export Markets and the Effect of the Present United States Policy of Assisting the Export of Cotton by Subsidy

1. (a) The United States is the world’s largest cotton producer. India is second.

(b) Over the six years 1933–34 to 1934–39 inclusive, U. S. exports averaged 5,490,000 bales (500 lbs) compared with crops averaging 12,768,000 bales (500 lbs) i.e., 42.9% of the crops while, over the same years, India’s exports averaged 3,398,766 bales (400 lbs) compared with crops averaging 6,148,166 bales (400 lbs), i.e. 55% of the crops. Details are shown in statement “A” attached.⁷¹

(c) Both countries carry a cotton surplus; the United States about 10½ million bales (500 lbs), India, 4 million bales (400 lbs).

(d) Indian markets have always been “free” in the sense that supply and demand have been the major influences on prices and the flow of pre-war exports was steadily maintained. The increase in the Indian surplus from 1,062,000 bales (400 lbs) on August 31, 1939 to 4,000,000 bales (400 lbs) on August 31, 1944 (both figures exclude mill stocks) was caused directly by war closing the export markets.

(e) The Indian surplus would have been greater had not the Indian Government taken steps:

(i) To increase, with the cooperation of the Textile Industry, domestic cotton consumption from 2,999,609 bales (400 lbs) in 1937–38 to 4,200,000 bales in 1943–44.

(ii) To switch over acreage from unwanted cotton to wanted food. The 1944–45 crop is estimated at 4,250,000 bales (400 lbs), no more than is required for domestic consumption.

2. It was anticipated that the post-war reopening of export markets would restore balance to cotton statistics and the cotton trade but, instead, India is faced with a position in which the United States subsidy policy⁷² of 4¢ a pound on cotton exports, combined with the sharp market discounts already ruling for lower grades and shorter staples, reduces the prices for such qualities below world levels as measured by India, the second largest producer.

3. Attachment “B”⁷³ shows that Americans f.o.b. Houston as on November 20, 1944 were 3 to 3½ cents a pound cheaper than equivalent Indians f.o.b. Karachi. Specimen calculations are given in attachment “C”.⁷³

4. The American Seed Indians selected for comparison are not only export cottons with American equivalents but of the 1944–45 crop of 4,200,000 bales (400 lbs), 1,668,000 bales are American Seed descriptions. The breakdown in bales (400 lbs) is 289F, Punjab 317,000, Sind 450,000; L.S.S., Punjab 470,000, Sind 10,000; 4F Punjab 414,000, Sind 7,000.

5. Furthermore, it is acknowledged in the world’s cotton markets that qualities which bear little or no similarity to higher descriptions are, nevertheless, affected on grounds of sentiment, by the prices of higher descriptions; from which it follows that the adverse effect of the United States policy of assisting exports by subsidy will extend even to those lower Indian descriptions in which there is no quality overlap with Americans.

6. The Indian cultivator has only a limited number of cash crops, of which cotton is the most important, a fact which tended even to prejudice the switchover to food cultivation. It will be realised, therefore, that by bringing the prices of lower grade and shorter stapled Americans below world levels as measured by Indians, the present United States policy will disturb the economic balance of India, essentially an agricultural country, by its serious effects on the incomes of Indian farmers, whose return from their produce is already little above a bare subsistence level.

7. The immediate effect in India of the announcement of the United States subsidy policy was a decline in the Jarilla hedge contract price from Rs.425 per candy to Rs.392, equivalent to 1.27 cents per pound at exchange 30.37 cents per rupee. That the decline was not greater was accountable to the nearness of several descriptions to the minimum prices at which Government buys, a fact which cushioned pressure. In the normal swing of markets there has since been a partial recovery but, in the minds of Indian traders, the threat to their export markets remains.

8. In examining the position it may be stressed that:

(a) India did not take advantage of the United States price raising policy over the last ten years by increasing her cotton production.

(b) The Government of India realises the futility of cotton production in excess of domestic and export requirements, as shown by the short-term policy of reducing the 1944–45 crop to an estimated 4,250,000 bales (400 lbs) when food was needed and not cotton. The crop in prospect is no more than is required for domestic consumption, leaving no provision for export.

(c) The Government of India is prepared at all times to take a realistic and rational view of the cotton problem.

9. In the light of the facts contained in this memorandum and the assurance given by the Government of the United States in the announcement dated Washington, November 11, 1944 that the United States “has no intention of precipitating mutually injurious price competition in world wheat and cotton markets”, the Government of India requests that the Government of the United States may see its way to reduce the export subsidy of 4 cents per pound so far as that subsidy applies to qualities Middling ⅞” staple and lower.

Washington , December 4, 1944.

71. Not printed.
72. Authorized by the Surplus Property Act of October 3, 1944 (58 Stat. 765), and promulgated by the War Food Administration, of the Commodity Credit Corporation, on November 11.
73. Not printed.
73. Not printed.