837.61351/2–448
The Ambassador in Cuba ( Norweb ) to the Secretary of State
Sir: I have the honor to report that Mr. James Marshall, Director, Sugar Branch, Production and Marketing Administration, of the Department of Agriculture, has returned to Washington without being able to reach an agreement for the purchase of sugar for use by the Army in occupied areas. On January 27 Mr. Marshall informed the Sugar Stabilization Institute that he was prepared to discuss the purchase of up to one million tons; but the Cubans stated that, in view of the varying points of view within the industry, they were not prepared to quote a price and requested Mr. Marshall to do so. He indicated that for one million tons he could pay 3.5 cents per pound f.o.b. Cuban port. The meeting adjourned in order that the Cubans might discuss the offer with various sectors of the industry and the Government. [Page 546] The Cubans did not reply to Mr. Marshall’s offer until the evening of February 2 when they indicated that they could not consider any price below 4.5 cents (which incidentally is the present price for sales to the United States market). Due to the wide difference in prices, Mr. Marshall returned to Washington on February 3.
Mr. Marshall explained that his offer provided an opportunity for Cuba to dispose of a large part of its surplus 1948 crop sugar to consumers who would otherwise not be able to purchase from Cuba, and that in view of the relief nature of the proposed purchase, he was prepared only to consider prices near those that prevailed on the world market before his trip to Cuba.
The Cubans argued that the Government’s Decree fixing 1948 wages at the 1947 level resulted in maintaining a high cost of production and prevented them from accepting a price much below that of 1947. Neither the cost of living nor the prices of items imported from the United States had decreased. They mentioned that certain elements of the industry were still supporting the idea of “coordinated sales” and fixed minimum prices, and stressed the continual uncertainty as to the Government’s sugar policy. They admitted that Cuba might not be able to sell all its 1948 production at the price they had in mind, but in that event they would either carry it over into 1949 or conceivably might restrict the 1948 harvest. They also argued that high costs of production had resulted in sharply reducing new plantings and the cultivation of existing fields, and consequently the 1949 crop would be sharply reduced.
During the early part of January, Cuba was selling world market sugar at 3.65 to 3.75 cents, but during the last week of January, speculative purchases by Cubans, proposals for a single seller and rumors of the Army’s requirements resulted in a sharp rise to 4.10 or 4.20 on the very thin futures market. Most of this rise occurred in one day when the total sales on the New York futures market No. 4 Contract reportedly totalled only about 3,000 tons.
The opportunity of selling a million tons for the Army offered Cuba an unexpected windfall for disposing of most of the remaining unsold surplus. By selling this quantity Cuba could have (a) assured itself of maximum production in the 1948 crop, (b) assured orderly marketing with a minimum of interference, (c) discouraged competition in other countries, and (d) would have forced the necessary downward adjustment in cost of production to place the industry on a sound competitive basis for the future. Such a price adjustment in the world market share would have been much easier with the present large crop and high income, supported by the relatively large quota on the higher-priced United States market, than it will be when Cuba’s crops are smaller and the total sugar income is drastically reduced.
[Page 547]Cuba’s reaction to these negotiations is not yet clear. Most of the industry considered the price of 3.5 cents too low, but some mill owners let it be known privately that they would like to offer their sugar at prices well below 4.5 cents. A large crop with an unsold surplus of at least 1.5 million tons is still in prospect. This will bring with it serious problems of financing the harvest. The most dangerous aspect, however, is the possibility that certain elements of the industry and the Government may be encouraged to demand a single seller or a minimum price which in itself would aggravate the situation by discouraging sales and would cause very serious difficulties in financing, harvesting and holding the crop. If such radical proposals are not adopted, it is probable that a system of retained quotas will be adopted to limit the quantity available for sale on the world market at any given time.
By rejecting this offer President Grau’s Administration appears to have lost an excellent opportunity to assure itself maximum stability for the rest of its political life. Labor interests already had been appeased by guaranteeing 1947 wage rates. Mill owners and colonos had been largely placated by the Government’s promise to refund profit taxes offsetting one-half the cost of the wage Decree. The major sugar problem confronting the Administration was to find a market for the rest of the crop at a reasonable price. The possibility of selling one million tons to the Army would have provided just such an opportunity; but the Government, influenced by a few impetuous Cuban mill owners and colonos, was induced to reject this offer, thus leaving a major issue to confront the Administration during the campaign for election on June 1.
Respectfully yours,