In 1940, on account of the war, most European countries rationed sugar to curtail civilian consumption and also imposed rigid controls over imports through licensing systems. In that year, 81.6 percent of Cuba's sugar exports were to the United States and only 10 percent to the United Kingdom. In 1941 about 80 percent were to the United

FIGURE 15.-Average annual sugar prices and United States duty on Cuban sugar, 1907-41

States, 14 percent to the United Kingdom, and only 6 percent to other countries.

Exports of blackstrap molasses, worth from 4 to 10 million dollars annually during recent years, have been almost entirely (from 83 to 99 percent) to the United States. The only other market occasionally of consequence has been the United Kingdom. Exports of high-test molasses and sirups formerly had a total value about equal to that of blackstrap molasses and were divided about equally between the United States and the United Kingdom. In 1940 and 1941, however, the exports of high-test to the United States increased sharply.

PRICES

Raw-sugar prices (average annual) in Cuba have varied widely from less than 1 cent to about 12 cents a pound. (See fig. 15.) During the World War, prices rose sharply from 2 cents in 1913 to 4.6 cents in 1917, when prices were stabilized through the United States purchase of the entire Cuban crops of 1918 and 1919.32 In 1920, immediately after the World War, supplies were small and Cuban prices soared to an average of 11.95 cents for the year. After that, with sharply increasing world production and restricted export markets, prices in Cuba declined to the ruinously low point of 0.71 cent for the depression year 1932. Various measures to relieve this situation resulted in restoring the Cuban average price to 1.56 cents during the 5-year period 1936-40. For 1941 the Cuban price averaged 1.69 cents 33 and in 1942, 2.51 cents per pound.34

The sugar-quota system on the United States market, established in 1934, has contributed much toward improved prices in Cuba. Before the quota system was established, prices paid for Cuban sugar were determined primarily by the world market price; but since the quota system has been in operation, the quantity of Cuban sugar that may be sold in the United States market receives a price considerably higher than the world price as reflected by the London market (table 14).

TABLE 14.-Prices of Cuban sugar1 and molasses,2 annual averages 1910-41

The promedio price, on the basis of which growers are paid for cane delivered, is basically an average of American, London, and local Cuban market prices, less shipping and delivery expenses.

4 London quotations on New York, c. and f. basis.

U. S. Tariff Commission, Statistics on Sugar, March 1940.

32 The U. S. Food Administration contracted to purchase the entire export surplus of Cuba's 1918 crop for the United States and the Allies at 4.6 cents per pound, f.o.b. Cuba. Similarly the U. S. Sugar Equalization Board contracted to purchase the 1919 crop at 5.5 cents per pound.

33 On August 12, 1941, the U. S. Office of Price Administration and Civilian Supply fixed the maximum price for raw sugar at $3.50 per 100 pounds, which, less 90 cents duty and about 45 cents costs and freight, was equivalent to about $2.15, f. o. b. Cuba. This was about 30 cents below the current Cuban price on the preceding day.

34 On January 5, 1942, the ceiling price of raw sugar in the United States was raised to $3.74 New York basis, which, with a reduced duty and freight was equivalent to $2.65, f. o. b. Cuba, the price at which the United States contracted to purchase the 1942 Cuban crop.

TABLE 14.-Prices of Cuban sugar and molasses, annual averages 1910-41-Con.

GOVERNMENT MEASURES AFFECTING THE SUGAR INDUSTRY

A number of government measures, both in Cuba and in other countries, have greatly affected the Cuban sugar industry. The difficulties in the sugar industry date from 1925, when world supplies began to exceed requirements. As a result, prices fell and Cuban sugar at New York dropped from 2.83 cents a pound in January to 1.95 cents in October. Alarmed by the situation, Cuban producers and the Government in 1926 inaugurated a remarkable series of efforts to control the supply of sugar.

In the following years, the overexpanded industry struggled against forces beyond its control (12):

Cuba has experimented with restricted production, delayed production, and market quotas; it has had pools and cartels, single sellers and a near valorization scheme; it has acted unilaterally and has sought international cooperation; and it has experienced spasms of complete laissez-faire. Each effort seemed to lead the sugar industry closer to its doom.

VERDEJA ACT

The first step toward control was taken with the passage of the Verdeja Act on May 3, 1926. It provided for a 10-percent cut in the crop and was supplemented by decrees that ended the cutting of virgin forest for the extension of cane plantings. Quotas were assigned to individual mills in proportion to expected crops. These measures brought a rise in New York prices for several months, but production soon increased in other parts of the world and forced Cuba to change its policy.

SUGAR DEFENSE ACT

The Cuban Government then decided to solicit the cooperation of other exporting countries in a common effort to limit production and to adopt positive measures for marketing. The Sugar Defense Act of October 4, 1927, set up two institutions to effect this policy: (1) A national Sugar Defense Commission to estimate the amount that could be marketed abroad, to recommend any restrictions to be adopted, and to attempt to make agreements with other countries, and (2) a Sugar Export Co., in which all mill owners were compulsory

shareholders, to control all sugar marketed outside the United States and to administer a system of production quotas.

Agreements were reached with Germany, Czechoslovakia, and Poland. Cuba reduced its 1928 crop to 4 million tons. In the American market, however, there was a tremendous increase in the supply of United States insular sugar, and prices declined. At the end of August 1928, the Cuban Government indicated that there would be no crop control or export restriction in the coming year. The announcement came before the crop was sold; prices sank sharply, and the holders of Cuban sugar lost millions of dollars.

The American corporations took action by forming the joint Foreign Sales Syndicate, which sold 600,000 tons of sugar in 5 months. The success of this agency led the Government of Čuba to similar action.

SUGAR SALES AGENCY

On July 26, 1929, the Sugar Sales Agency was organized by presidential decree. It was directed by a board elected by the mill owners and undertook the sale of the 1930 crop as well as stocks on hand. However, no provision was made for financing the crop. Mill owners could not borrow against sugar stocks, since they did not control their sales, and the sales agency had no borrowing power. Moreover, the agency failed to turn the sugar rapidly into cash and, hence, because of public pressure, it was terminated.

A free market was reestablished, and the flood of sugar released by dissolution of the agency forced prices to their lowest point up to that time. Government action was again imminent.

CHADBOURNE PLAN

The passage by the United States of the Hawley-Smoot Tariff in 1930, by raising the duty to 2 cents per pound, threatened to reduce further the United States market for Cuban sugar. Cuba attempted in vain to get insular and United States producers to join in limiting production.

Cuba then passed the Sugar Stabilization Act on November 15, 1930. It segregated 11⁄2 million tons of sugar to be sold outside the United States market over a 5-year period. Financing was by sale of bonds and an 11-cent tax on each bag of sugar. A stabilization institute was set up to enter into international agreements on behalf of sugar producers.

An agreement was reached at Brussels on May 9, 1931, between seven (later nine) exporting countries, representing 40 percent of world production and about 90 percent of sugar entering international trade. This was known as the Chadbourne Plan, named after the New York lawyer who originally promoted the plan. Under the terms of this agreement, the member countries were to limit their exports to specific annual quotas. It was agreed that a portion of the yearly exports from the member countries would be taken from surplus stocks and that the countries would endeavor to adjust production so that it would not exceed domestic consumption plus exports, less the quantity taken from surplus stocks. Surplus stocks were to be eliminated within the 5 years covered by the agreement. The Chadbourne Plan was adopted at a time when the economic depression was becoming increasingly severe and the trend of world consumption was turning downward for the first time since the World

War. Moreover, no importing countries signed the agreement; barriers against sugar imports increased; and exports of agreement countries fell short of their quota allowances. Nonmember producing countries continued to increase production, and world production after 1932 began a steady upward trend that nullified any price improvement expected under the agreement. While its operationmaterially reduced surplus stocks in signatory countries, it failed in its ultimate goal, the improvement of the world price of sugar.

LONDON AGREEMENT

The United States market for sugar was stabilized under a quota system after 1934, but in order to stabilize world production and the international marketing of sugar, Cuba entered into an agreement with other producing countries at London on May 6, 1937. Under the terms of this agreement, the major exporting countries agreed for 5 years to limit their exports of sugar to the "free market," a term used to designate that limited international trade in sugar that does not enjoy preferential treatment. The principal importing countries also agreed not to adopt measures that would reduce the free market for sugar.

The 21 countries that became parties to the London Agreement. represented almost 90 percent of the world sugar production, in contrast to 40 percent under the Chadbourne Plan. They also included the major importing and self-sufficient countries, and accounted for 85 percent of total world consumption. Hence, certain basic weaknesses of the Chadbourne Plan were remedied in the London Agreement. Prices (London c. and f.) increased from 1 cent a pound in 1936 to 1.59 cents in 1939, though this may be attributable in part to the imminence of war.

Cuba had therefore carried to a successful end its struggle for regulation of the world market and quotas proportional to past shipments. Cuba was assigned 1,036,162 short tons in the initial "free market" quota of 3.6 million tons. At the outbreak of war in September 1939, the policy of stabilization had been assured and Cuba had begun to reap the benefits.

UNITED STATES MARKET AND MEASURES AFFECTING CUBAN SUGAR

United States Government measures have probably had more effect on the Cuban sugar industry than any others, since they directly affect Cuba's principal market. Among these measures may be mentioned (1) changes in United States import-duty rates, (2) United States Government purchase of Cuban sugar crops during the first World War,35 (3) establishment of the United States quota system for imports and domestic production, and (4) purchase of the 1942 Cuban crop in the second World War.36

Ever since 1903, Cuba and the United States have enjoyed a guaranteed reciprocal tariff preferential of 20 percent, but the increases in the general tariff rates on sugar into the United States from time to

35 In 1917, the U. S. Sugar Equalization Board was established as an agency of the U. S. Government, for the purpose of purchasing and equalizing the distribution and price of sugar. The Board purchased the entire Cuban crops of 1917-18 and 1918-19 at prices fixed in advance, disposed of the sugar to refiners, and stabilized prices in all phases of the industry. Due to this operation and the subsequent rising prices, a substantial profit accrued to the U. S. Government (7).

36 In January 1942 the U. S. Defense Supplies Corporation contracted to purchase the entire surplus of Cuba's 1942 crop.