MALAYAN RUBBER PRICES (DOLLAR EXCHANGE) (Hansard, 7 March 1946)

§ Major Sir Basil Neven-Spence (Orkney and Shetland)
Many Members will be aware that I have a personal interest in the rubber industry, but the subject I am raising tonight goes far beyond any personal interest I may have. A century of British rule has brought law and order to Malaya, and has paved the way for the development of its two great staple industries—rubber and tin. Malayan Governments derive the greater part of their revenue by direct and indirect taxation of these industries, and it is no exaggeration to say that the whole fabric of Government depends upon their prosperity. The rubber growing industry, in particular, has attracted millions of Asiatic immigrants, and has brought great wealth to the country, but the industry has had a very chequered career, owing to the unpredictable fluctuations in world markets.
During the world slump, when prices fell below the cost of production, drastic 628 economies had to be effected, and hundreds of managers and thousands of labourers lost their jobs. Many had to be sent back to their native countries, and wages were cut to the bare subsistence level. Needless to say, the smallholder suffered as badly as anyone, I think the huge stake that the Asiatic smallholder has in this industry is sometimes forgotten. Of the 3,125,000 acres under rubber in Malaya, two-fifths are owned and worked by Asiatic smallholders. One-fifth consists of estates of over 100 acres, which are owned by individual planters, Asiatic and British, and the remaining two-fifths consist of plantations owned by the sterling and dollar companies. In tropical countries, where much of the production is in the hands of the native population, as is the case in Malaya, the price paid for their produce has a most profound effect on the standard of living of the people
If the price is too low, a lot of evil consequences follow. Their standard of living is lowered, the purchasing power of the country is reduced, and the revenue of the Government dries up. It puts an end to the development of social services, restricts a valuable export market for our own industries, and deprives the Exchequer in this country of a very fruitful source of taxation. Last but not least, it deprives us of an invaluable source of dollar exchange.
It would be as well for the Government to remember that before the war, in the normal working of multilateral trade, the Malay rubber industry brought to us more dollars than any single industry in this country. That brings me to my principal point, the discrepancy between the price being paid to producers at the present time in Ceylon and Malaya. It has never been suggested that the price paid to Ceylon producers, is. 6d. a pound, is in any way excessive. Presumably, it takes into account the increase in the cost of production there and also some element of compensation for excessive bark consumption which must take place when tapping is being pushed to the full limit of productive capacity. If this price had been excessive surely it would have been adjusted this month-when the present agreement lapsed. In fact, however, it has been extended to the end of September. The renewal and extension of this agreement, after the end of hostilities with Japan, make the sub- 629 sequent decision that the Malay producers were to receive only 8d. per lb. all the more puzzling.
I call it a decision because it certainly was not an agreement so far as I have been able to ascertain. In reply to a question I put to him the Colonial Secretary said that it had been fixed by the Government on the advice of expert representatives on the spot. I would like to know who these experts were and what they represent. Neither the companies, the individual owners of the estates, nor the Asiatic smallholders were consulted from first to last. Do the Government realise that this discrimination in price means that the producer in Malaya is getting£75 a ton less for his rubber than the producer in Ceylon? When the Japanese evacuated Malaya they left behind 83,000 tons of rubber. If this is all bought by the Government it means that the Malay producers have been soaked to the tune of £6,250,000, or will have been by the end of March. The Government have tried to justify this price of 1od. per lb. on the grounds that it represented accumlated stocks or that it came from smallholdings. What a shameful defence to put up! It simply amounts to an admission that they have taken advantage of the wretchedness and misery of these people, who have suffered four years of starvation and oppression at the hands of the Japanese, to drive with them a harsh and unconscionable bargain.
That brings me to my next point, dollars. The Government agreed to let the United States of America have two-thirds of all this rubber available for export. Their share will amount to 55,000 tons, at a discount, at the expense of the producer, of £75 a ton. That means that we are losing 20 million dollars which should have come to us in the normal course of fair trade at a just price, this at a time when we are going cap in hand to the Americans to get a huge dollar loan. There seems to me to be a wide difference between proletarian nonsense and ordinary commercial common-sense. Think what we could have done with that 20 million dollars. Do right hon. Gentlemen realise that it would have provided this country with all the dried egg it wanted for six months? I hope every housewife in Britain will ponder on this fact, but it is useless to cry out over spilt latex. The Government had better get rid of their inhibitions and get down to the 630 practical problem before them when the agreement expires at the end of March. It is estimated that Malaya will produce 175,000 tons of rubber during the rest of this year. If the price remains at 10d., the producers are going to be deprived of another £13 million. The U.S.A., under the two-thirds agreement, will be taking 117,000 tons and therefore there will be a loss to this country of 40 million dollars, enough money to provide the country with dried eggs for a whole year. What is the sense of depriving ourselves of dollars by selling rubber at a price very little above the prewar cost and buying cotton and tobacco from America at 140 and no per cent. above prewar prices?
I cannot imagine my right hon. Friend the Member for Woodford (Mr. Churchill) tolerating for one moment a Colonial Secretary, or President of the Board of Trade, or whoever is responsible for this, who transacted the business of this country with such complete incompetence. My right hon. Friend has far too keen an understanding of the immense importance to this country of the rubber growing industry as a dollar earning asset. The whole matter revolves around the present cost of production and labour. By far the greatest problem is labour which has suffered greatly by the Japanese occupation. On the Burma-Siam railway it is said that every sleeper cost a human life, and probably 75 per cent. of the labour employed there is now dead. Individual estates have lost as high as 50 per cent. and the survivors are debilitated by starvation and disease.
One of the direst results of the Japanese occupation is the recrudescence of malaria owing to the Japanese neglect of well organised anti-malarial measures which we had established. It is going to take a long time to rebuild the health and strength of the population, and also to bring the labour force up to normal prewar strength. It is not generally realised that two-thirds of the labour strength were Tamils attracted to Malaya by the better standards of living, and better welfare conditions than they could get in their own country. The remainder were Chinese. The Indian Government are not going to allow emigration to take place again until the standard of health is restored. These facts show that the cost of production must rise on account. of the general shortage of labour and inefficiency of the labour. Wages have to 631 be increased, and I should be very much surprised if this item alone has not to be increased by 100 percent. I see no fair way of meeting it except by increasing the price of rubber.
Another very important item is the question of rehabilitation. Wholesale destruction was not large, but most of the estates have suffered in varying degrees through felling of trees for food production or for fuel. Probably about five per cent. of the area has been destroyed. There has been extensive looting of furniture and machinery from bungalows and factories, but most serious of all is the cumulative effect of four years' neglect. Weeds and pests have invaded the plantations, roads have deteriorated, bridges have fallen, buildings' have become dilapidated, and it is estimated that it will cost £25,000,000 to repair this. Where is that money to come from? Again and again the Government have been asked what their policy is in this matter and so far they have said and done absolutely nothing about it, except to issue a rather nebulous statement about compensation for direct war damage.
The simplest and fairest way to repair this damage due to neglect and to enable the industry to do the job itself is to make it possible by allowing an element in the price of rubber for this purpose. Assuming that the job takes three years —I do not think it can be done, in less than that—and assuming, to make a big assumption, that Malaya produces 300,000 tons on the average during the next three years, it would need an addition of 3d. to the price per pound to produce the 25 million pounds wanted. This rehabilitation is a matter of the utmost urgency both for Malaya and the United Kingdom. We have a breathing space, because it is an absolute certainty that the world will take every pound of natural rubber that can be got for the next few years. That means that there must be control of the price to prevent it rocketing, as it would rocket if the control were taken off overnight. No one who has the interests of the industry at heart wishes to see that happen. We realise that control must remain. It also means allocation of supplies to the consuming nations, so that everybody can get a fair share. In return to the industry, for surrendering a free market, is it too much to ask that the producers should receive 632 a fair price? Incidentally, the Government took very good care to protect their own interests. The Government bear the cost of handling rubber between the plantations and the docks, a transaction which in prewar days used to cost from one-half to one cent per lb. They began by raising the charge to 10 cents, an increase of between 1,000 and 2,000 per cent., although the cost of transport had only risen by 50 per cent. It was only after protests" that it was reduced to 3 cents, which is still over 300 percent. above the prewar cost. The price of controlled stores is from 200 percent. to 300 percent. above the prewar costs.
In face of all these facts, how can the Government justify a price of 10d. per lb. to the producer, which is an increase of only 11 percent. over the prewar cost of production? Gathering up all that I have said, it is clear that the producer in Malaya ought to be getting about is. 8d. per lb., which I arrive at in the following way. The prewar cost of production in Malaya, on the average, was about 7d. per lb. I have explained why I think there must be an increase of at least 100 percent. in the cost of production, and this would bring the figure up to is. 2d. One must add to that 3d. in the lb., the margin on the prewar price, and add to that again the 3d. per lb. I have suggested in order to pay for the rehabilitation of this great industry. One then arrives at is. 8d. per lb., which is not, considering the problem before the industry, very far out when the Ceylon producer is getting is. 6d. per lb. That I believe is the minimum that will enable this great industry to get going again and repair the damage it has suffered.
No doubt the Under-Secretary of State for the Colonies will trot out the old bogy about synthetic rubber. I ask the Government not to worry too much about that. Synthetic rubber was first produced in 1870, but no one has yet produced synthetic rubber capable of doing the work of natural rubber in all its most important uses. No chemist has yet succeeded in producing a substance repeating the exact chain of molecules that nature produces in the rubber tree. Synthetic rubber has special uses for which it is better than natural rubber—they are very limited—but it is inferior to natural rubber for nearly all the important purposes for which natural rubber is used.
633 That applies particularly to the tyre industry, which absorbs two-thirds of the whole output of world rubber. The United States spent 700 million dollars in erecting a synthetic rubber plant, and we owe them an eternal gratitude for it all in the way in which they tackled this most important element in our war effort. We won the war on tyres, made of natural rubber eked out with reclaimed and synthetic rubber, and the higher the percentage of natural rubber in the tyres, the longer they lasted. I hope the Government will accept with great reserve estimates about the cost of production of synthetic rubber. The published figures take no account of the Washington expenses, sales charges, or depreciation of plant. The synthetic plants were rented at one dollar a year to the big chemical, rubber and oil concerns. At least two-thirds of them will have to be scrapped, because they were built in a hurry in places where they will be of no use. Perhaps one-third of them may be retained for strategical reasons.
In the meantime, manufacturers all over the world are screaming for raw rubber, and they are not going to get all they want. They will have to balance it with synthetic rubber and make the best use they can of what they get, irrespective of quality and cost. For years we shall not be able to produce much natural rubber I am afraid the Government have allowed themselves to be bounced over this business. They will have to take a far firmer attitude. I call the Government's attention to the supremely important part which a healthy rubber-growing industry can play in securing the dollars which we so badly need at present. Let the Government get those dollars, and stop playing ducks and drakes with them.

The Under-Secretary of State for the Colonies (Mr. Creech Jones)
In the few minutes at my disposal I will try to give the hon. and gallant Member a factual account of the position, on the main question he has raised. I am grateful to him for bringing to our notice a problem which has aroused very special interest in the financial Press and elsewhere, although some of his feeling and indignation might have been more wisely directed to quarters other than the Government Front Bench. As I understand the position, the hon. and gallant Member is con- 634 cerned about the price of 1od. per pound which His Majesty's Government are paying to the producers of Malayan rubber, as being unduly low compared with the prices paid in Ceylon of is. 6d. He thinks also that the price at which the Government are reselling Malayan rubber to the United States is unnecessarily low. Consequently, he argues we are deprived of dollar exchange and we are also confirming a rather poor standard of employment in the producing industry.
During the war, the United States were allocated by the Rubber Committee of the Combined Raw Materials Board substantial quantities of rubber from supplies purchased by the Government at varying prices. Deliveries made to the United States were supplied under reciprocal aid terms. Natural rubber supplies are still allocated by the International Committee in Washington in the light of the requests of the consuming countries. At the end of the Japanese war, when reciprocal aid ceased, the United States said that they would not be prepared to pay for the Ceylon rubber which they had previously received under reciprocal aid at the price which His Majesty's Government paid for it. We are, however, the sole purchasers of rubber from Malaya, Burma, and British North Borneo, and I gather that a price of 1od. a lb. to the producer was fixed experimentally, taking into account the advice of expert representatives on the spot. It was a price which was designed to secure the maximum quantity of rubber in relation to the limited supplies of consumer goods available in the territory. This price related to stocks taken over from the Japanese as well as to new production, though the former were vested in the Malayan Custodian of Enemy Property, and were acquired by the Rubber Purchasing Unit. This price is roughly what the producer received immediately prior to Pearl Harbour, though it is higher than what he received during several years before the war. The disorganised conditions in Malaya at the time made it difficult to estimate the cost of current production and had necessarily to be tentative. The native smallholders have, however, been offering their rubber at the current price.
An economic adviser was recently appointed to the Government of Malaya, 635 and one of his urgent tasks is to report on the cost of production and the present price, and he has already advised us that it seems impracticable at present to "form even an approximate estimate of the current cost of production, because the European estates at the moment are producing little, and the cost of living is still somewhat erratic. The Ceylon price, in contrast to that paid in Malaya, it should be remembered, was fixed before the end of the Japanese war, when Ceylon was the main source of supply open to the United Nations, and when the price was designed to secure maximum production for war needs, after taking into account the costs in marginal areas and the competing demands for labour for other essential purposes in Ceylon. Until the end of this month, the Government has agreed to supply 50,000 tons of Malayan rubber to the United States Government, though the latter made it plain that they were only prepared to pay such a price as would enable them to resell in the United States at their ceiling price of 2¼ cents per lb. above the price they pay f.o.b.; that is, at their appropriate c.i.f. price.

§ Mr. Walter Fletcher (Bury)
F.o.b. where?

Mr. Creech Jones
Malaya. It will be appreciated that what was involved here was the sale of almost the entire stocks taken over from the Japanese, and the price would in fact cover our own costs only. We could not forget the desirability of continuing later on these sales to the United States, in view of the importance of this market and the competition of synthetic rubber. Having fixed a buying price in Malaya in the light of local considerations, His Majesty's Government did not think they could properly sell this rubber to the United States for a price which would give them a profit.

§ Mr. Walter Fletcher
They have accepted an enormous loss.

Mr. Creech Jones
There are no commitments of any kind after 31st March. The French and Dutch have also agreed to sell their rubber to the United States at this figure, but in their case up to 30th June. I think the House will appreciate what my right hon. Friend the Secretary of State for the Colonies said on 6th February, that the amount of dollar exchange which can be obtained from the 636 sale of rubber to America depends on the price which the American Government are willing to pay and the quantity they will buy at that price, which are matters not under the control of His Majesty's Government. The whole question is under the Government's consideration, but the terms upon which further sales can be made must have regard to the report from our economic adviser, when it is received. Parliamentary consideration is also being given to the future arrangements in regard to Ceylon, the agreement with whom expires on 30th September. I am told that for the remainder of this year it is anticipated that there will be an overall shortage of natural rubber, and the Malayan growers would like, obviously, to take advantage of this and secure the highest price possible. By the latter half of 1947 supplies of rubber will be much more ample, and by then the competition between synthetic and natural rubber cannot be overlooked.
The House will, I am sure, agree that this is a matter in which the Government and the rubber producers themselves must take a long view. We think that natural rubber is superior to the synthetic article, and therefore should command a better price, but, for a wide range of articles, the two are directly competitive, with a price differential slightly in favour of the natural. It is no good hoping that customers will pay more for the natural rubber than the cost of synthetic plus the differential. They agree with us, we hope, or at any rate their Governments agree, that the standards of primary producers should not be depressed and that there should be, wherever possible, margins which can ensure fair remuneration, reasonable welfare conditions, and stability to those engaged in the work. This involves a two-sided obligation, an obligation on consumers not to drive down the price by the last farthing, in disregard of the interests of the producer, and an obligation on those responsible for the organisation of production to practice the maximum efficiency, to eschew high profits and exaggerated overhead expenses, and to ensure that the greatest possible proportion goes to the man who actually produces the rubber.