§ 1.52 p.m.
§ Mr. H. Rhodes (Ashton-under-Lyne)
The subject I want to bring to the attention of the House is that of cotton stocks held in Lancashire. The Minister and everybody in the House knows that at the present moment uncertainty and fear stalk through Lancashire. We know that short-time is being worked, that there are to be extended holidays at Easter, that mills are closing down, and that there is a general atmosphere of gloom surrounding the cotton trade.
I do not want to dwell on the political aspects of the situation today. Rather do I want to probe and to bring some arguments to bear upon the influence of the stock position on the fortunes of Lancashire. It could be argued, of course, that the fact that stocks are low is due to the fear of a drop in prices. It may be due to there being no demand for cotton goods, so that there is no need to buy cotton in any case. All these things were argued at length when the Cotton Bill was under discussion some 18 months ago on the Floor of the House and in Committee.
The question was discussed whether an exchange could function without free convertibility. That ran like a thread through the fabric of the debate. I do not want to discuss that today. Another question was whether stock could be accumulated sufficiently to support a free market. That, of course, is a very important factor in the situation. I should like to quote some remarks of the hon. Member for Bury and Radcliffe (Sir W. Fletcher), whose absence from the House and the reasons for it I am sure everybody deplores. He said:Until we have freedom of exchange, until we have free physical stock behind the market—that is, the Liverpool Cotton Market—without which no such market can work at all, we shall not have the full benefit of this Bill."—[OFFICIAL REPORT, 18th November, 1953; Vol. 520, c. 1768.]That was the Cotton Bill, now the Cotton Act. Although that is an important factor, and although it could be argued politically that that is one of the reasons why stocks are running at the present 1376 low ebb, nevertheless that is a question I do not want to talk about today.
Another question which was discussed was whether finance would be available in Liverpool. That exercised the minds of Members on both sides of the House, and I very well remember the President of the Board of Trade making a very blunt comment on that aspect of the matter. He said:I wish to say quite bluntly that if an industry as great, as powerful and as historic as the cotton industry were unable to finance its own stocks, it would be an astonishing and deplorable situation."—[OFFICIAL REPORT, 18th November, 1953; Vol. 520, c. 1746.]One could argue that, but I do not want to argue that today.
I want to argue the question whether the price risk of United States cotton would prevent adequate stocks from being available in this country. In the debate on the Second Reading of the Cotton Bill, my hon. Friend the Member for Farnworth (Mr. Thornton) quoted the Financial Editor of Reuter's, pointing out the risk attendant on the American cotton. He wrote an article which was published in the "Textile Mercury and Argus" for 13th November, 1953, and my hon. Friend quoted from the article as follows:Even now, prices of American cotton may look more stable than those of other growths, but it could prove to be a very brittle stability. It is hard to believe that any values in the free world are more 'political' than those of United States cotton and other United States surpluses. Accordingly one may doubt whether there are price risks anywhere in the free world comparable to the risk of unloading of United States cotton and other surpluses."—[OFFICIAL REPORT, 18th November, 1953; Vol. 520, c. 1786.]That was what Mr. Sydney S. Gampell, Reuter's Financial Editor, wrote. It is with that aspect of the matter that I wish to deal today.
Those of us who have studied this question know that before the last war Liverpool used to hold 1 million bales, and it was usually assumed that 23 per cent. of the cotton in use before the war had a colonial or Dominion origin. So it is safe to assume that of the stock held in Liverpool about 750,000 bales were of American type and long staple cottons. Before its dissolution the Raw Cotton Commission used to hold about 260,000 tons of cotton, equivalent to about the 1377 same amount that the Liverpool merchants held before the war. It was necessary to hold such stocks of cotton at the time when variety was much sought after by Lancashire spinners. They needed to have on hand stock cotton which could be used for manufacture at short notice. The advantages of holding stock cotton are apparent. It is quite obvious, with a world commodity like cotton, that when stocks are held by the United Kingdom, France, Belgium and other countries. people are not disposed to talk down prices. It is only when they have no stocks that they are prepared to talk down prices in the hope that the next purchase may be cheaper.
In the case of a slump or recession, such as we had in the spring of 1952, I think it is now well-known and readily acknowledged that it was the stocks held by the Raw Cotton Commission which really saved Lancashire. I emphasise that, because when the recovery came, as it did very quickly after the spring, Lancashire was able to get all the cotton it wanted and its wheels turning in the quickest possible time. That is the background. What is the position now?
I urge the Government seriously to consider this problem and its possible implications. I understand that at the present time, excluding mill stocks and stocks afloat, we have in this country 330,000 bales. Let us think about that in terms of 1 million bales which the Raw Cotton Commission and the Liverpool merchants had before the war. Out of this stock, I understand that about 55,000 bales are still held by the Raw Cotton Commission. That means that approximately 258,000 bales are in private hands. Of this, 149,000 bales are long staple cotton, so it does not need much mental arithmetic to arrive at the very small amount of actual American cotton which is held in this country, which is in the region of only 63,000 bales. I understand that there are about 111,000 bales afloat. Comparing this with the stocks held on previous occasions, we automatically have a big "why" in our minds.
I say that the reason for this is not so much financial, not so much a question of convertibility, and not so much a question of whether stocks can be accumulating at a sufficiently high volume to support the free market, as the fear of the 1378 export subsidy of the United States Government coming into operation. How has this situation arisen? The prices of United States cotton are really artificial. The United States Government have a Department known as the Commodity Credit Corporation to finance cotton. It buys in cotton when the farmers cannot sell and pays the farmer for it. This cotton is put in stock. That is in addition to the normal off-take by private organisations for domestic use.
At the present time the parity price is 35 cents. As the Commodity Corporation pays 90 per cent. of that, it comes to about the quoted figure of 32 cents. This position can be affected by the amount of cotton that is grown in a season, so the Department of Agriculture in America takes action. When it looks as though there will be a substantial surplus, the Department of Agriculture in America decides that it will reduce the acreage, and I understand that last year it reduced the acreage from about 22 million to 18 million or less.
In these days, however, there are such things as artificial manures, and these are now being used; and so we are faced this year with a considerable cotton surplus in America. Think of the world picture again. This problem is not confined to this country. Belgium and France are affected, and all the other manufacturing countries are affected in the same way. Think in terms of 63,000 bales of American cotton in this country compared with a possible total in America for disposal of old and new cotton in August of 22 million bales. It does not need much imagination to appreciate the pressure that will have not only on the political set-up in America, but also on the economic set-up in every country in the world, whether producers of raw cotton or manufacturers.
To protect themselves against too great a surplus the Department of Agriculture in America, under the Agricultural Trade and Development Act, has at its disposal 700,000 dollars for cotton spread over three years for allocation abroad. It is sent to those countries which are needing or lacking dollar facilities. I should like to hear the Government's opinion on this matter. There may not be as much in it as I think, but it is very important to realise that Japan is one of these countries needing dollar facilities.
1379 I should like the Minister to give me some indication of what he thinks of that. The Mexican correspondent of the "Cotton and General Economic Review," published in Liverpool on 18th March. says:It is quite apparent that the United States, without establishing a direct cotton export subsidy, is indirectly fostering exports of American cotton through a policy which other cotton producing countries are unable to counteract. Sales against F.A.O. authorisations permitting payment in local currencies, and the Export-Import Bank credits guaranteeing U.S. exporters immediate reimbursement in dollars for a small premium of 1¾ per cent., are no less forms of dumping than those effected under the above-mentioned programme.That is what people abroad are considering. There is a growing feeling that this market for cotton all over the world is becoming semi-paralysed.
Here is another report on this matter:Reports from all parts of the world give evidence of the state of semi-paralysis which is creeping over the international cotton trade as a result of U.S. export subsidy apprehensions. The present Congressional campaign to accelerate sales of surplus stocks on world markets by offering competitively has so undermined confidence in prices that the disposition on all sides is to refrain from purchasing more than essential immediate requirements, and to reduce reserve stocks to the lowest workable minimum.The writer goes on to comment on the question whether exports subsidies will be applied either before or after 31st July next. He says:… Mr. Benson has to accept the stark economic realities of the international situation. An export subsidy next season would have to be in a proximity of 10 cents per lb. to be effective, completely disrupting the world price of cotton. A subsidy of only up to 5 cents would not reduce cotton growing elsewhere in the world; neither could it improve the competitive position of American cotton, as other producing countries would be obliged to reduce their export prices correspondingly.This matter has been taken up by some very important groups. I want to mention one in particular. The directors of the Liverpool Cotton Association, after full consideration of the paralysing effect of Washington uncertainties on the markets for raw cotton and textiles, decided on 22nd March to send the following cable to Mr. E. T. Benson, the United States Secretary of Agriculture:Respectfully draw attention to disastrous market reaction due to uncertainty regarding future United States Government policy. Fresh importing of American cotton is virtually at a 1380 standstill, while consumption of other growths is being encouraged by price cutting in anticipation of a possible American export subsidy. Would urge vital necessity of clear statement of policy at earliest.I could adduce dozens of pieces of evidence in support of that statement, but I have not the time now, and I think that I have said quite enough to convince the Minister and the House of the urgency of this problem.
Another aspect which I should like to mention is the effect on colonial cottons and other growths at present. They are doing very well at the moment because, as a result of the artificial price in America, the growers of colonial cottons and others are able to keep their prices below the American prices and still make a substantial profit. The dividends of the British Cotton Growing Association which were published the other day show that full well. But if an American export subsidy is to be imposed this year, many of these countries which are dependent upon cotton as a cash crop will be seriously disrupted economically. It may be that if there is an export subsidy on American cotton India will take off the present export tax, and it may be that Mexico, Peru, Egypt, the Sudan and East Africa will follow suit. It means that unless we can obtain some information from America which will definitely determine whether this is going to happen or not, uncertainty will be experienced throughout the rest of the year.
We cannot go on from season to season having the uncertainty experienced during the last two seasons. It was on 11th June that news came last time that the Americans were not going to apply an export subsidy last year. This year we do not know the position and, since private efforts have failed to secure any sort of answer from the Americans, I ask the Government what they are going to do. Does the Minister think that the present purchasing methods for cotton are adequate? If he does, he cannot lay any blame on the merchants. If events over which they have no control are responsible, surely it is action by our Government vis-à-vis the United States Government which is needed.
Last week I asked the right hon. Member for Woodford (Sir W. Churchill) the next but one last Question he answered in the House. I asked if he would try to 1381 make some effort to contact the Americans in connection with this matter or send the President of the Board of Trade over there to discuss it with them. I believe that here is a chance for the new Prime Minister. I only hope that the matter does not get bogged down in the "official channels" of which we hear so much. I hope that the Government will stir themselves with regard to this urgent and desperate problem, because I am perfectly certain that, if they can secure the result for which I plead, they will at one stroke remove at least 70 per cent. of the uncertainty which prevails in Lancashire.
§ 2.16 p.m.
§ The Minister of State, Board of Trade (Mr. A. R. W. Low)
I am sure that the House would like to congratulate the hon. Member for Ashton-under-Lyne (Mr. Rhodes) upon the lucidity of his statement. This is a rather complicated subject, but it is a very important one and I certainly have no complaint at all that the hon. Member should have tried to raise the matter today and should have been successful in doing so. We all know that he has great knowledge of the textile industry. It is a good thing that it should have fallen to his lot to present this case to the House.
I have no doubt at all that the hon. Member was right in emphasising that the great uncertainty in Liverpool and Manchester about the future price of cotton is a subject which we ought to consider in the House and which the Government should consider. He is right, of course, in saying that this uncertainty is created at present by the threat of a substantial artificial reduction in the United States price of cotton some time after 31st July, and, of course, we know that the United States price governs the world price.
§ Mr. William Shepherd (Cheadle)
My hon. Friend speaks about an artificial reduction. Would it not be more proper to say that the present level of prices is artificial and that what we are coming to is getting prices down to the natural level?
§ Mr. Low
I thank my hon. Friend, but if he had given me a little more than a minute he would have found that I was coming exactly to that point.
1382 I come back to explaining why I said something about 31st July. Up to 31st July this year the United States Government have promised that there will be no subsidy. As the hon. Member for Ashton-under-Lyne said, this promise was made in June, 1954. In the slightly restricted Press which we are able to read at present a number of statements have been reported to have been made recently by Mr. Benson, Secretary of Agriculture in the United States. I understand that these statements referred to this year's crop and that what he was talking about covered only up to 31st July. Therefore, the hon. Member for Ashton-under-Lyne was quite right in referring to the position after 31st July.
§ Mr. Price
I am much obliged to the right hon. Gentleman, but the point I am worried about is that he should say that in the absence of newspapers the Government are not completely informed on these things. Surely the Governmnent have a commercial secretary at our Embassy in Washington, who, on such a vital question, would be in cable communication with the Minister.
§ Mr. Low
I must apologise to the House because I must be very bad at explaining my case, as this is the second time that an hon. Member has taken up a point to which I was about to refer. It is, on the other hand, worth commenting in present circumstances on the information already available to hon. Gentlemen.
We have been in touch with the United States about this matter. We have represented strongly to them that serious damage to confidence has already resulted from this uncertainty, and we have also represented the possible serious effects of the continuance of this uncertainty. We have made these representations to them now, and we shall continue to press 1383 them on this matter. What we want, as the hon. Gentleman has said, is a statement of what is to happen after 31st July.
The hon Gentleman the Member for Ashton-under-Lyne referred to the danger of this matter getting bogged down through official channels. He knows the Board of Trade. I do not know whether, when he was there, things used to get bogged down in that way, but I can assure him they do not get bogged down now. We are carrying on these representations in the normal way, and we shall see that they are pressed. We have to make this clear: the continuance of this uncertainty covers the whole of the cotton textile industry and not just the Liverpool Cotton Exchange. We are on common ground there with the hon. Gentleman.
My hon. Friend the Member for Cheadle (Mr. Shepherd) is quite right to make the point that the price of United States cotton is slightly artificial, to say the least of it. I have always considered it a rather complicated matter, but after I heard the hon. Member for Ashton-under-Lyne describe the system with great lucidity I cannot help but congratulate him very much. I do not confirm everything that he said, but, in general, I agree with the way he described the system. The price is kept artificially high by the support policy, and as a result the world price of cotton is above what might be called the economic price of production in many cotton-growing countries.
But—and I want to make this quite clear—even in these circumstances we here are opposed to subsidies. Subsidies can be harmful, as everyone knows, and they can be very unfair. They can be put on and taken off arbitrarily at the whim of Governments. For that reason and for others of which the hon. Gentleman is aware we are opposed to them. But the problem here is not merely the effect of subsidies already in existence. It is a much worse thing from the point of view of Lancashire, with which we are dealing here. The problem is the uncertainty caused by the threat that a subsidy of an unknown size may or may not be put on. That is the problem with which we are dealing and about which we are making representations.
The hon. Gentleman was also right, in my opinion, to link the subsidy with the 1384 accumulation of surplus cotton in the United States and the arrangements for its disposal. He is quite right, I know, in saying that much anxiety is being caused in the minds of some people about United States Government policy on the disposal of surpluses, including cotton. We have, of course, been in touch with the Commonwealth Governments and the United States Government on that point for some time, and it may help the hon. Gentleman and the House if I give this information, which may or may not be in their possession.
The United States Government gave a general assurance recently, and, in fact, over a period of months before, that in disposing of their surpluses they would seek to avoid any undue disruption of world prices and also to avoid damage to the trade of friendly countries; and they would consult other countries concerned. That is a rather important and valuable assurance, for which we should be grateful. It is also good to know that under United States laws relating to trade transactions in disposing of surpluses the United States Government always seek to ensure that other friendly countries are not displaced. That is their position under existing laws.
The hon. Gentleman also referred to the size of stocks. It is quite true that stocks are very low today.
§ Mr. Low
I have not looked back 65 years, but they are certainly lower than they have been for any period over which I have looked back. In January this year I am told that the total stocks of raw cotton in the United Kingdom were only 144,000 tons. I have made a quick calculation—the hon. Gentleman himself used the term "bales"—and I find that that comes to 650,000 bales or thereabouts. That figure includes stocks at mills, and I am told that most of these stocks are at mills. The amount on the average—and we are here using averages though some mills may have more and some less—is equal to 18 or 19 weeks' consumption.
In pre-war days sufficient stocks were normally kept for six months' consumption.
§ Mr. Low
That was in January, and they are the latest reliable figures that we have.
As I was saying, in pre-war days stocks were normally kept for six months' consumption, but in considering these lower stocks we must bear in mind the practice mentioned at the time of the debate on the Cotton Bill, in 1953, that spinners now tend to buy cotton for shipment from shippers and not spot cotton in Liverpool. The result is that the Liverpool merchants do not keep the large stocks they kept before the war. We must have regard to that practice in looking at these figures.
When the hon. Member was making his observations, I was wondering whether he was looking back nostalgically to the days of the Raw Cotton Commission. I hope he will forgive me if I say that today the trouble and uncertainty about price would not be removed by having a Raw Cotton Commission.
§ Mr. Rhodes
I can assure the right hon. Gentleman on that. I was not arguing for the Commission or against the merchants, I was looking back nostalgically to full-time and a bit of overtime
§ Mr. Low
I am not quite sure what the hon. Gentleman had in mind, but if he is not looking back nostalgically to the Raw Cotton Commission I will not waste time in explaining to the House that the Commission would not have met the difficulty at all, and that if the Commission had held large stocks it would have been making an unjustifiable use of public money in what would amount to something very like a gamble.
The hon. Gentleman also mentioned the sales of American cotton under aid arrangements in local currencies. That is one way in which the Americans have been disposing of part of their surplus, and it is an attractive way to the countries which are short of dollars. It is a way that has appealed to Japan, to France and to Italy as well as to other countries which have benefited from it. It is one of the conditions of this aid that the cotton shall not displace the normal marketings of cotton from other friendly countries, and it is sold in local currencies at the world price at the current level of exchange.
The hon. Gentleman was also concerned about the effect of a possible sub- 1386 sidy upon colonial and Empire cotton. That is a very proper matter to be raised in the House of Commons. The hon. Gentleman mentioned that Empire cotton growing was on the increase. Last year it was higher in general than the year before, but I cannot say what damage would or might be done to Empire cotton by any United States subsidy. It would depend upon the size.of the subsidy. I can say, however, that the present uncertainty about world prices has some effect upon purchases of Empire cotton as well as upon purchases of American cotton.
In conclusion, one must agree that any anxiety about substantial reductions in the world price of cotton is bound to be harmful. One must agree, too, that such uncertainty is bound to have some effect upon stocks. I think the hon. Gentleman would agree that there is no shortage of raw cotton in the world today, and one ought to agree that the level of stocks, though certainly lower than previously, does not, so I am advised, appear to be dangerously low.
That is all I can say to the House in reply to the speech of the hon. Gentleman, for which I have thanked him already, and I repeat that we shall continue to press the United States Government for a statement on this matter.