HL Deb 28 January 1975 vol 356 cc451-76

6.58 p.m.

Lord HALE rose to ask Her Majesty's Government to define their attitude to the problem of making provision by inter-national co-operation for the stability of world commodity prices. The noble Lord said: My Lords, may I say first that my special interest at this time was excited again by reports of speculation in commodities in the London markets, and by the Rowntree Mackintosh loss in speculating in cocoa about which they should know something, which amounted to just about as much as the country lost on groundnuts; by Dunlop's loss in rubber and, not very surprising to me, by bank managers gambling in currency. Since then, of course, there have been bankers' crashes abroad and rumours suggest that they make Watergate look like a petty misdemeanour. I have tried to look at these events quite fairly, and I hope that I came to a fair and correct conclusion. The Prime Minister has promised an in quiry into the methods of the markets. I confess that when I started my inquiries I had no idea of the immense complexity of the various procedures—some of it very necessary—and of the astonishingly diverse conditions which apply to different commodities.

Sticking to cocoa and to Rowntree Mackintosh, who undoubtedly were not involved as a company but were the victims of a too-optimistic employee, I understand—though I have not asked—that the cocoa market would reply, if asked, that it was really an insurance operation for the benefit of buyers and sellers of cocoa. Most buyers are normally concerned in the hedging of prices. The man who is committed to buy cocoa for his own legitimate purposes gets his insurance by selling the amount he is to buy, so that, however much the price may fluctuate, he is compensated. There is also what is, to the observer, the rather remarkable fact that they do not sell cocoa at all; they sell paper. No cocoa passes through their hands ; and, recently, the Ghana Bank was established in London and, I understand, devotes its principal attention to cocoa.

The cocoa market says that it does its best to discourage speculators and that it does not like speculation. I do not doubt that. It is not to the credit of reputable sellers to be involved in speculation, but they ask how they can stop an authorised trader from Rowntree Mackintosh, who is dealing in cocoa, from speculating. There is no doubt that they are right about the difficulty. I think they would say that they have taken one important precaution by establishing standards for their contracts. The contracts are dealt with by a clearing house, and they would say that they have used every possible method but that it is not easy to stop speculation. I have no reason to question that.

My Lords, in Mincing Lane they actually sell tea—and very good tea. I do not propose to discuss all the various commodities, and I am talking now about soft commodities. Rival institutions are springing up now. For instance, wool is dealt with primarily in Australia and we can read in the financial press phrases like, "Greasy wool remains steady", which seems to me a little surprising. Then, there is the metal market procedure, which is a highly different matter. I propose to turn to copper for the special reason that I referred to the position of Zambia, as one developing country which would benefit from the sale of commodities, and because the situation in copper seems to sum up some of the problems of finance, of politics, and of future planning, which present very special difficulties.

My Lords, last year the Common Market was about the second largest market for copper, at just over 7 billion dollars. This was a little ahead of sugar, and of course about 100 miles behind oil. What has happened to Zambia is that in 1973 we started with a price of about £450 per ton. Curiously enough, that figure is, I believe, precisely the figure which economists later gave as the estimated marginal cost of production. It would just cover the cost of production and there would be no particular profit to the producer nation. In the next few months, the price went up to a maximum of £1,350 a ton. There has been a misunderstanding and I want to explain that, of course, rises in prices of commodities paid to developing countries are generally in the interests of the world community. This is so in theory, certainly, and in my heart I know it to be true, but strange things happen in the commodity market or in commodity production. I am making no attack on the market. The price of copper yesterday was quoted at £502 a ton. It had dropped in an incredibly short time from £1,350. I doubt whether the greatest experts can fully explain that, but this is really part of the process which is quite briefly described in what I feel to be a masterpiece, the book Only One Earth, which covers an immense number of fascinating world problems with infinite knowledge and ability.

My Lords, I said on, I think, Wednesday, that in this field of world development we are constantly confronted with conflicting forces. The problem of copper is that, on the whole, world production is nearly balanced by world demand. A slight reduction in consumption can have a very great effect. That this is due to the, so to speak, "decent" speculative aspects of the matter—traders want to cover their future supplies—is understandable. The United States is now recycling about 40 per cent. of its own copper production, which is a very substantial figure. However, the effect of these immense fluctuations is that people are looking for substitute metals and there is one readily available in great supply—aluminium. Prospectors are looking for other sources of production, very often of rather inferior ore. Competition is stimulated and then it is damped down, and we are seeing in this very important—but in many of its operations not essential—metal, the old story that we had in the far distant days when the Americans were burning wheat and compensating people for slaughtering pigs. Indeed, it is only four years since American policy restricted the output of wheat and made about 60,000 acres fallow. There are immense fluctuations.

I want to say one more word about tin, merely because I once owned a tin mine—indeed, I owned it for about 25 years, which may be rather surprising. It had not worked for quite a number of years, and has not worked since, and the total amount involved was less than £1,000. I took it over from a friendly client who was the debenture holder and disposed of it for about the same price 25 years later. There was no interest or anything. I happen to believe still that that mine is probably full of tin. It was a tin and arsenic mine and the arsenic was undoubtedly plentiful, which certainly meant it was not suitable land for agriculture. We once got a London tin syndicate interested and they said: "The real trouble with this place is that the reports are too good to believe."

I understood that rather more clearly when I became professionally interested in gold and wandered around the gold mines of Australia, following in the steps of two detectives. That was during the food shortage. I did not discover any gold, but I discovered some beef which was very welcome, and some of it came back in tins to England. I believe that that mine is full of tin, and the reason it was closed down in 1910 was that the price had dropped to £30 a ton and the miners said: "We are going to discontinue. We just cannot produce at £30 a ton." Tin is now on the edge of £4,000 a ton. One or two tin mines have been reopened or newly developed in Cornwall, and it may be that we are not quite using all our possible resources. We are relying on getting it easily, as we did with oil.

The tragic tale about oil is that our greatest wealth is coal. Why we ran down the production of coal I do not know. David Lloyd-George was preaching his coal and power programme, with me as a supporter, in 1929. Indeed, the light that came to Sir John Foster in 1971, as disclosed in today's Times, came from a star that had been under fairly constant observation by political astronomers for 30 or 40 years. A lot of people saw the OPEC problem coming, but I do not believe anyone dreamed that it would come suddenly and with such violence. There are two matters which are quite heartbreaking about it. When the enthusiasts talked about the welfare of developing countries with the rise in commodity prices, they hardly took account of the fact that the poorest countries—the countries whose problems already seem insoluble—have virtually no share at all in this.

The problems of Bangladesh, for example, seem almost insoluble. Before the oil crisis, prospects were bad. Now they are quite terrible, because the first effect of increased oil prices is virtually to destroy the green revolution. Lord Boyd-Orr pioneered the ideas of hybridisation of rice and of producing varieties of seed. There were Japanese and Indian varieties—one a plain variety and one a mountain variety—which could survive more changes of climate. But we have gone much further than that. We have reached to the point where vital new knowledge has been acquired about fertilisers and irrigation, which has presented its own problems; where already there was a fairly constant small increase of production affecting a vast area of the world, and affecting, indeed, some Arab countries, too. The tragedy is that the scheme needs a lot of fertilisers and a lot of pesticides, both of which are made from oil. In the absence of adequate irrigation—it has been constantly absent, and this is a vital problem—oil is needed for the pumps. Oil is the essential basic commodity; and, of course, it is extensively used in making aluminium, too.

My Lords, the Economist fairly recently published some figures which were quite staggering. It estimated the total cost of world oil trade today to be of the order of 135 billion dollars, as against the previously quoted figure of 7¼ million dollars for copper. It estimated that the net income per year of the oil producing nations, over and above all their costs, over and above the cost of their imports, meant that the money avail-able at once for utilisation—banking, investment or development—is of the order of 60,000 million dollars a year. I am putting that in what I call CIPEC hours, days or months. It was estimated that it would take less than a day to earn enough to buy British Leyland, and about 11 days to buy all the British banks put together—the Standard Bank, Lloyds, National Westminster and so on. It would take a year or two to buy up all the assets of Britain. That is a shock of great immensity, and if those figures are accurate—I have no reason to doubt them; the Economist is a pretty reliable guide—the magnitude of the crisis makes political planning or prophecy almost impossible.

I tried to look at the Arab case and wondered why they had acted thus, and I found myself, very strangely, on nearly every conflicting argument about motives, on the Arabs' side. They say: "What you are saying to us is, 'You have never had it so good'. But we have heard that said before to the English people in no commendatory sense." They say: "You have been exploiting us for years, and that exploitation went on when we had British advisers."

I want to recall the original disposal of the whole of the exploratory rights of Saudi Arabia by a distinguished Briton who was reputed to be honest but who certainly was also in receipt of pay from the oil company. King Ibn Saud got 35,000 dollars for all those rights; plus a few limited payments which might have made the total price less than double that figure. When we go to them and say, "But this comes at a time of monetary crisis", they say, "You never consulted us about money! We were not invited to Bretton Woods when you had the conference there and arrived at conclusions that never worked. We know nothing about Eurodollars and how they came about"—in fact, neither do I. They sav "You have made your own monetary system which has been strangling us for years until the demand for oil developed. You claimed the right to say, 'We will ask you to exhaust your oil resources as much as you like and let us establish two-car societies.'" Certainly the average American baby born today in this world short of oil and goods and most things will during a normal lifetime use about 13 tons of coal. He will consume uncounted millions of calories of food and will use more wheat for feeding his stock than he consumes as food—he will eat more wheat as beef. I am no critic of the American economy. President Truman, when he won that wonderful second election, came back to power and did his best to implement that famous "Fourth Point" which he had enunciated in such magnificent words. The Americans were immensely generous in their implementation of the Marshall Plan.

I ventured to tell the House of Commons about 30 years ago that you could never have a trading currency which was not based on the essentially ethical proposition that a nation eventually must pay for its exports and not for its imports; that every trade surplus was ultimately a burden imposed upon other nations. I do not suggest that such a system would be easy to evolve; but I still believe that basically it is the ethical, economic and practicable truth. I do not understand the present American enterprises ; for the OPEC countries say that, in fact, America made more profit out of its last two seasons' wheat than they will have to pay for oil. Indeed, their imports of Middle East oil are minimal compared with ours. I think that Mr. Foster-Dulles was probably the worst thing that happened to Europe since Christopher Columbus brought back syphilis from America or perhaps since Genghis Khan poured his hordes into Russia.

But, my Lords, one thing that we must face, however difficult, is that one of the problems is over consumption; and in that respect we, too, are guilty. It is extremely improbable that we can go on maintaining the two-car society or the wealthy, ostentatious expenditure which we have seen hitherto. The present Government have already achieved a minor transformation in the coal situation. Here the miners are at last going back to the mines and there is a real hope, too, that we may decide to develop new sources of minerals. That leads me to the "number one" question of real gravity which the noble Lord, with all his great gifts, I know will be unable to answer. It is this. If we do reduce consumption, will the Middle East nations come back and say: "Because you are reducing consumption, we are going to put up the price again." And if they do so, what are we to say? What are we to do? We must treat it as a crisis situation.

Finally, my Lords, I must say that I think the OPEC nations of the Middle East, with whom we mostly trade, are showing a real understanding, a real desire to reconcile themselves with world opinion. Already we are told that the Shah of Persia has promised—to India alone, I think; but certainly to the Indian sub-continent—a billion dollars. This is more than the total yearly expenditure of the United Nations. The wealthy nations contribute 70 million dollars a year to the Children's Fund. If we talk in big figures, the Financial Times reported yes terday a most welcome sort of proposal —in no detail to make it possible to consider—about the possibility of Britain exchanging future oil for immediate supplies.

My Lords, I believe that the Arabs, partly because they are conscious of world opinion and partly because of their own innate religious beliefs, are desirous not to bring about the tragedy that seems inevitable. They must be sensitive to the fact that they will get the whole of the blame for this dreadful famine situation which so many people fear—although the roots of the trouble were already there before the oil crisis.

I am grateful to those noble Lords who were kind enough to stay to listen. I think I shall be happy to conclude my speech with the rather technical question (which we need not put) about the use of imported oil by the Iron and Steel Board, and as to whether in this situation it may not be necessary to reconsider the reliance on high grade iron ores and to consider the ultilisation of our own reserves of poorer quality. It is a technical question. I hope that the united good will of the world will enable us to deal with this situation on equitable grounds and to come to agreements which will satisfy both the legitimate aspirations of the oil countries and our own developing needs while being conscious of the fact that the immediate needs of Britain sometimes conflict with the needs of the world. It is an inevitable conflict of politics. Again I thank your Lordships for your indulgence and beg leave to put the Question.

7.30 p.m.

Lord LYELL

My Lords, this evening all of us must be very grateful to the noble Lord, Lord Hale, first of all for the eloquence and erudition of his opening remarks and, secondly, for giving us the opportunity of discussing what I have found to be this very topical and fascinating subject of commodity prices.

As the noble Lord pointed out, there have been headlines in the newspapers, telling readers of sudden fluctuations in commodity prices. Of course, the commodity which has been discussed extensively throughout the world in the past 18 months, and which has been referred to again this evening by the noble Lord, Lord Hale, is oil. I shall be referring to this, too, but I think it might give a false picture of world markets in other commodities were I spend too long discussing something which crops up every day. In addition, I should run the considerable risk of boring your Lordships. However, the Yom Kippur war of October 1973 and the subsequent developments in relations between the oil producing and exporting countries—which I shall henceforth call OPEC—have given to us in the Western World some idea of the prospective political and financial power available to producer countries in respect of any of their commodities which we in the West, or indeed anywhere in the world, eat, drink or burn, or which can be made up into a commodity which clothes us or which we might use in any manufacturing industry.

This new phenomenon, which I think perhaps we might call "producer power", is not yet fully developed, but other factors could inhibit its growth. For example, a total ban on copper mining throughout the world could lead to consumers of copper seeking more efficient methods of using the scrap or of substituting other metals such as aluminium, which might be suitable for the uses to which copper is now put. I hope the House will bear with me if I base many of my remarks on this one metal which has been widely discussed over the last two years; that is, copper. During the year 1974, the price of one ton of copper wire bar fluctuated on the London Metal Exchange between just under £1,400 per ton and, at the end of the year, around £500 per ton. I believe that is the figure it rests at today. This is a crazy situation in many ways, and I would go so far as to say that it is undesirable. The London Metal Exchange does not want the price to leap around. The producers of copper ore concentrates are rightly angry, and the metal industry cannot run their affairs when they are at risk each day as they buy in their refined copper stocks.

However, before any of us begin to shout in over-righteous indignation, or emotion of any sort, I believe we should examine briefly the causes and effects of such fluctuations in market values. A market, and particularly the London Metal Exchange, does not consist of a group of mythical persons such as speculators, reclaimers, redevelopers, gnomes or anybody else. It consists of human beings like ourselves. This market has grown up over the centuries to provide a mechanism to regulate supply and demand. At the moment, the market can help both producers and consumers with expert advice, and it can greatly reduce the risk of excessive fluctuations in values. But no market can be totally invulnerable against circumstances which, even if they can be foreseen, are unlikely to occur more than once in twenty years, or indeed more than once in a lifetime. I feel, as do many of the experts in various markets in commodities, that much of the fluctuation and variation in market values which we have seen in 1974 will not, or need not, occur again.

The Yom Kippur war, to which I have already referred, between Israel, Syria and Egypt, together with the intricate political manoeuvres which followed that war, occurred at the point in time when the oil-producing countries of the Middle East began to exercise their undoubted power as suppliers of a commodity whose shortage has caused near panic in the Western World. To my mind, it has been surprising that producer power in respect of this particular commodity was not attempted by Arab oil-producing countries after the 1956 dispute, or, indeed, in 1967. At any rate, 1973 marked the first clear occasion when primary producers showed that they are prepared to use their undoubted power over supplies of an urgently demanded commodity to obtain certain political advantages to which they feel they are entitled. This is quite understandable: yet the consumer, the importing nations of the West, and Japan, are still not able to mount a united answer to the demands made on them. Of course there have been problems for the poorer producing nations caused by the rise in oil prices. One example is that the Malayan tin mines may well have to cut down their levels of production because of the increased cost of diesel oil for fuelling the pumps. There are similar difficulties for metal ore miners elsewhere.

Higher oil prices have also led to financial obstacles for agriculture all over the world. This depends to a large extent on oil-based fertilisers, and farmers in this country—and I am such a farmer—know to their cost what has happened to fertiliser prices in the last 18 months. The price has almost doubled, almost totally due to the rise in oil prices. Very little else has been involved; certainly not speculation or other financial manoeuvrings. Happily, I think that there is clear evidence that, after the recent OPEC meeting in Algiers, the OPEC countries are adopting a much more responsible—indeed, I would go so far as to say a most responsible—attitude to future supplies for the Western world. On more than one occasion during their recent meetings the OPEC nations have recognised the difficulties involved for developing nations when oil prices have risen so sharply.

Of the other substances which I think can be commonly referred to as commodities, the one which seems to me to pro-vide the most interesting information on producers, fabricators, and ultimate consumers, is copper. I do not think the House will worry if I return to this matter, because it has several interesting aspects. This is the non-ferrous metal most frequently used in manufacturing industry in the Western world and in Japan. As such, the consumption of copper tends to reflect the state of world economics and trading conditions in industries in the Western countries. Copper in its basic form is found and mined mainly in the United States, Canada, Australia, Papua, the Phillipines and Southern Asia. Some copper is mined in Europe and there are also large deposits in Africa and South America. There is also extensive use of scrap copper, amounting to 40 per cent. of the total refined copper in the United Kingdom, and I was very interested to hear that a similar figure is reclaimed and refined in the United States.

However, the interest which causes us to examine the market for copper lies in the fact that four of the poorer Third World producers have banded together to form an organisation which I understand is called CIPEC. I understand that this is derived from the French title of Le Comité des Pays Exportateurs de Cuivre. I think that perhaps the noble Lord may know more of this than I do: I hope I have pronounced the name properly. The four member countries of this organisation are Chile, Peru, Zaire and Zambia, and their production of copper ore last year amounted to 2.3 million tons out of a total world production of 6.2 million tons—a fairly substantial amount. Yet of actual exported copper ore to consumer countries without their own source of supply, the CIPEC countries provide nearly 70 per cent. of world copper exports. One factor which they have in common is that to a great extent their economies are dependent on copper exports and on the prices which they can obtain for their copper from the consuming countries in world markets. Thus these nations have the greatest possible desire for an orderly marketing system. Most of the trade in copper and other metals is carried on on a simple contract basis. But the price, certainly of copper, is always fixed according to the level on the London Metal Exchange. I repeat that this is a free market where the price reflects the interaction of supply and demand of any commodity, but paritcularly copper.

The year 1973 was an interesting one since apart from the Yom Kippur war and the emergence of oil producers power, economists throughout the world had foreseen that there would be economic difficulties ahead. In 1973 these were already being reflected in high interest rates, in inflation and in weakness of various currencies throughout the Western world. In addition, some forecasts of continuing growth in world trade were thought to be more than a little optimistic. As world economic activity began to decline perceptively, so did the level of industrial output, and the cost of financing stocks of raw material for this industrial production rose to what then seemed alarming levels. I believe they are still fairly alarming. Inflation and interest rates made firms cut down drastically on their stocks and on their orders for refined copper. But such fine tuning is difficult, and naturally some consumers found their stocks dangerously low. Thus these firms did what is the natural and right thing; they turned to the market where they could obtain copper supplies with the minimum risk. But other firms consuming and needing refined copper also found themselves in the same position with very low stocks, so that demand forced up the price from an already fairly high level in January 1974 of £900, to the peak of just under £1,400 in April. I understand that the average price during April was of the order of £1,250, so it was already beginning to fall away sharply, and subsequently consumers obtained their required amounts of metal. The price fell consistently throughout 1974 until now it is right down to £500 per ton.

Such a story is a very sad one for everybody. It is sad for the producers, who do not know what to do with the sudden influx of money, and who cannot increase their output to meet the demand at the blast of a whistle. It is also a sad story for consumers, who cannot plan their marketing or output with what they regard, and with what I believe are, unrealistic prices, and who are keen to see that their suppliers obtain the proper return on their investment. The market itself is also unhappy, but it reflects the level where supply will meet the demand. Various estimates have been made as to fewer short-term investment or "hedging", or anything else that one would like to call it. This is not thought by the greatest experts in the market to be much in excess of 10 per cent. of the total business carried out on the London Metal Exchange. I do not think there is a great deal of pure speculation.

Lord HALE

May I just interrupt to say that I have of course read about the formation of CIPEC and its objectives. The two principal nations producing copper are Zambia and Chile. Months after I read about CIPEC, I read a firm statement in a well-informed paper to say that Kenneth Kaunda had declined to co-operate in CIPEC for fairly obvious political grounds: he would not wish to be associated with the present regime in Chile. I think that is like Mr. Kaunda; I hope that is true. I can only assert it. I do not know whether the noble Lord has checked, but perhaps he would leave that point open as both of us have a great personal regard for Mr. Kaunda.

Lord LYELL

My Lords, I should like to thank the noble Lord, Lord Hale, for that observation; I was not aware of the details but if the noble Lord and the House will bear with me, later in the course of my speech I will refer to politicians and marketing organisations. I am grateful, as I am sure the House is, for the noble Lord's intervention.

I was speaking about what had been thought to be short-term "hedging" in the market. From figures we can find it was about 10 per cent. of any business carried out. This was particularly with reference to copper. Some of the more emotional cries as to speculation and gambling in this commodity, and copper rising to £1,400 a ton, is somewhat wasted effort. I do not think it has been borne out by the facts—and certainly not in this case. Nevertheless, the problems of the world economy to which I referred earlier included weaknesses of currencies. But there was a corollary to this. It was a desire to move investment out of conventional stock, share and bond markets, into what was considered by these investors as safer stores of value, such as silver, but also including copper, zinc, wool, rubber and sugar—what we tend to call "commodities".

Pure gambling, as opposed to long-term investment, which was beginning to take place in 1973 in the commodities, occurred, but not to any great degree, certainly not in London. One or two well publicised cases of over-optimistic ordering and gambling occurred. The noble Lord, Lord Hale, started his speech with the much publicised case of the cocoa firm. But this particular operation, and others, were carried out by people in what I would call "the trade", by suppliers and consumers. I understand that this particular operation was carried out with the view to making slighter larger profit for the firm, and it clearly backfired. Nevertheless, it was carried out as part of a trading operation.

I and many people have the highest regard for London as a centre for trading in commodities, and so it seems does the world, for the London Metal Exchange and the Baltic Exchange, as well as Lloyds, are pre-eminent as world markets in their particular commodities. Thus I believe that the Government and all politicians could ask the advice of these experts, and others, in such commodities and markets, and could use the advice as a basis for discussions between primary producers, the Western world and Japan, which tend to be the main consumers of these products.

We are all aware of the meetings which take place between the OPEC countries and the Western world. Oil is unique as a commodity, and I believe the main problem affecting the Western world in 1975 is to see that the producer nations do not suffer more than can be helped, particularly when the market price and the demand for their particular primary products fall to an alarming level. For example, how can the CIPEC countries continue their production of copper, which could cost up to £600 per ton to mine and refine, when other consumers can obtain whatever quantities they require of these substances on the London Metal Exchange, or elsewhere, from simple contracts at £500 a ton? At such a low price can the producer-countries make a profit for future investment, let alone pay off any debts and past losses? That is virtually impossible. As it is, world copper stockpiles stand at around 600,000 tons. This is under 10 per cent. of the world consumption in 1974 of approximately 6.8 million tons. Unprofitable production of copper is going to continue. I believe that CIPEC is a fair attempt to unite the interests of the four member countries. But can their political leaders resist the urge to break any agreements that they might have made formally or informally on levels of production, pricing or even stockpiling, when the prices on the free market rise or fall due entirely to economic events and industrial recession in the West? The situation would be hard for CIPEC countries; they would need to be supermen if they were to band together, whatever the price.

There is a similar problem when we consider sugar. Sadly, there is not an organisation called SPEC—the Sugar Producing Exporting Countries; or we could have a great deal of fun in "Speculating in SPEC". However, the right honourable gentleman in another place is attempting to ensure that the United Kingdom can obtain sufficient sugar on the world market. But this is one commodity which has reflected a certain degree of producer power. It shows also an alarming fluctuation of prices. Now that the Commonwealth Sugar Agreement is ended, the current price on the London market is around £350 per ton and producers from outside the EEC will require a sum approaching this figure when new agreements are reached.

As I am sure noble Lords are aware— and I have made one or two gentle studies recently—sugar is produced from sugar beet, which can be, and is, indeed, grown in Europe, as well as from sugar cane which can come in from the primary producing countries of the Commonwealth, Australia and Jamaica, and, interestingly enough, from Martinique and other associated territories of the French community. But as noble Lords, particularly farming noble Lords, will be well aware, as with so many other agricultural crops, the weather destroys, or can destroy, not merely the crop but also all forecasts as to what that crop is likely to be. The terrible, wet autumn of 1974 led to production of beet in the United Kingdom totalling approximately only 480,000 tons, as opposed to a forecast output of nearly 800,000 tons. This additional shortfall will have to be supplied by cane sugar, costing whatever will be the agreed world price. It will mean a substantial rise in sugar prices for the United Kingdom and probably for the world. This is another example of producer power, with oil, as well, but less so with copper.

However, I trust the House will forgive me if I wind up and do not mention every single commodity which is traded in London, such as coffee or cocoa, jute or wool, grain, zinc, bauxite, or any other such commodities; I think that one or two examples will suffice, and I hope they have sufficed. I hope that I have indicated some of the difficulties that I believe afflict commodity markets, and the traps which await those who try to interfere with what I think has been shown to be a fairly well established and delicate market mechanism. The role of commodity markets is to iron out fluctuations in the market values of such commodities and to provide stable prices for both producers and consumers. In addition, the role of the market is to minimise risks to the suppliers and the consumers.

Economic upheavals such as those which we are witnessing in the world at the moment may tend to cause fluctuations in commodity prices, but the best way to ensure stability is to support the market mechanism. I believe that politicians can do immense good in negotiations to help the producer countries, so long as they discourage politicians in the producer countries themselves from taking precipitate action which will affect relations with consumer countries. Politicians can help in negotiations with other politicians: for example, over nationalisation of mines or products in the primary producing countries, where relations may well have been soured between Western companies or organisations or multi-national corporations and the politicians of those countries. I believe that the greatest service the Government could perform for Third World nations would be to unite the OPEC nations and the Bank for International Settlements together with the International Monetary Fund.

These three organisations could, first of all, do so much to iron out the world economic crises; they could give us a far clearer forecast of the factors which will affect industrial and other consumption in the Western world—and for that I include Japan. I think that a meeting of such organisations could do a very great deal to assist producer nations, now that much of the West's financial strength has been transferred to the oil producers. My Lords, I should like to conclude by thanking the noble Lord, Lord Hale, for allowing us to discuss this very interesting subject, and I greatly look forward to hearing the views of the noble Lord, Lord Winter-bottom, when he comes to reply.

7.54 p.m.

Lord BROCKWAY

My Lords, I should like to join with the noble Lord, Lord Lyell, in expressing appreciation to my noble friend Lord Hale for introducing this debate tonight on the problem of international co-operation in world commodity prices. I think we shall find during the next two or three years that this matter will become the biggest problem in world economic relations. Only two or three years ago raw materials and foodstuffs were coming to the Western world and the industrialised nations were absolutely dominant. The price of raw materials and foodstuffs—whether rubber, or rice, copper, coffee, cocoa or bauxite—was then determined predominantly by the industrialised nations which received them and found them necessary for their food , and for their industries. I do not think that we have yet quite realised the revolution that has taken place in economic relations throughout the world as a result of what has happened—the decision of the oil-producing nations of the Middle East to unite and to make their demands upon the consuming nations for the oil they supply. It has meant, as we have experienced in the last 18 months, an absolute confusion in the industrialised nations of the world ; not merely in the industrialised nations but also in other nations in parts of the world which also are dependent upon oil.

It is now hoped that a solution of this problem may be found. First, it was proposed by the United States of America that there should be consultation between the industrialised consuming nations and then a common demand upon the producing nations. Then there was the proposal of our own Chancellor of the Exchequer, Mr. Denis Healey, that there must be a conference between the consuming nations and the oil-producing nations. At this moment, at Rabat, the oil-producing nations are meeting, and they are proposing a joint gathering of the producing nations before any inter-national consultation takes place. I think it likely, and I hope, that a compromise on these various proposals will be reached by both the producing nations and the consuming nations having their consultation in the first place and then meeting together to try to resolve their problems.

Their problems are not insoluble. The oil-producing countries of the world are using their monopoly position to demand high prices. But, on the other hand, those countries are under-developed, except perhaps for Kuwait, and need technical help and industrial know-how. If their territories are to be made modern societies, they are dependent upon the industrialised nations. It seems to me that if there can be the necessary co-operation between the producing and consuming nations for their joint interests, in time a solution of that problem can be found.

But I go on to say, my Lords, that this is not only going to be a problem of oil; it will extend to all the nations producing the raw materials and foodstuffs which we need. We have recently had an example in the combined action of the sugar-producing nations of the Caribbean. They have been able to make demands for the price of their sugar which have been resisted by our own Chancellor of the Exchequer and which involve the whole of Western Europe. What has happened in the case of the sugar producers will inevitably extend to other producers of foodstuffs and of raw materials from what has been known as the Third World—the Caribbean, Latin America, Africa and Asia. Some-times, when I hear optimistic remarks about our ability to control inflation in this country, I wonder whether we are looking to the coming years when it will not be merely the producers of oil in the Middle East, or the producers of sugar in the Caribbean and in Mauritius, but the producers of all the other raw materials and the foodstuffs which we are using who will be getting together to demand higher and higher prices from Britain and other industrialised nations.

As I see that propect before us, I find the problem of controlling rising prices and inflation in this and other industrialised countries becoming more and more difficult. The noble Lord, Lord Lyell, in a speech which has raised some of the issues to which I am now drawing attention, mentioned copper. I want to confirm what my noble friend Lord Hale said, that even if his national interests were involved, it is very unlikely indeed that Kenneth Kaunda of Zambia would agree to co-operate with the present Government of Chile regarding copper prices. When that has been said, it is inevitable that the producers of other raw materials and foodstuffs will follow the policy of the oil producers in combining together to demand higher prices for their products.

My Lords, I do not have up-to-date figures. I acknowledge to this House that I have had to refer to my own book on the Colonial Revolution to get figures on this subject. I wrote it two years ago, but then it was true that the producers from Africa and Asia very largely controlled the raw materials and the food-stuffs which the industrialised West needs. Seventy-three per cent. of the jute which the world needs comes from the nations of the Third World; 70 per cent. of the cocoa of the world, used so much not only as our drink but in our chocolate supplies ; 59 per cent. of the bauxite and 42 per cent. of cotton comes from these territories. The producers of these goods in Africa and Asia have only to get together, like the oil producers have done, to change the balance in economic relations. Where three years ago the consuming industrial countries were dominant, now as oil and sugar producers are showing, the producing countries are becoming dominant and can make demands on us.

Lord SANDYS

My Lords, I hesitate to interrupt the flow of the noble Lord, but I should like to ask one question: will he not allow himself one crumb of comfort in that certain countries have indulged in the practice known as indexing. Indeed, the noble Lord will recollect that his noble friend Lord Bowden has on a previous occasion given this House a real ray of hope in this whole field of the Third World.

Lord BROCKWAY

My Lords, I agree entirely, and the noble Lord will find that before I conclude I have a considerable amount of comfort on these issues. If I may I will come back to that point. To the raw materials and foodstuffs to which I have referred I want to add two other major commodities. One is phosphorus, so absolutely essential for fertilisers and enormously important in food production. It is now almost the monopoly of one country, Morocco, and is really becoming the issue as to who shall control that area of the Sahara which has been under Spain. The other issue is the resources which are now utilised for nuclear energy, again almost entirely in the territories of the Third World. I think we have to recognise today that the balance between the old industrialised nations of the world and the Third World which is producing these raw materials and foodstuffs has entirely changed. But I want to say that it is just as important for the producers in the Third World to find a solution of this question as it is for the industrialised consuming nations. The progress which has been made, to which the noble Lord refers, indicates the lines of advance which we can make.

In my opening remarks I referred to the fact that because of the oil crisis there is now a proposal that both sides should meet separately and then meet together to find some solution to this problem. I believe that we have to recognise now that the problem of international co-operation in dealing with the commodities of the world is so important that we must not take action, just as an issue, like the issue of oil which has arisen, but must begin to establish an inter-national agency to look at this problem as a whole, which will begin to bring together the producing countries of the world and the consuming countries of the world and will try, in a world pattern, to solve the problem so that while the producing countries are providing raw materials and foodstuffs the industrial countries will be providing their technology and their industrial experience in order that together the producing and the consuming countries alike may find a basis from which they will both benefit and which will be for the development of all the peoples of the world.

Lord LYELL

My Lords, the noble Lord referred to the question of President Kaunda of Zambia and the CIPEC countries. The noble Lord, Lord Brockway, and, I understand, the noble Lord, Lord Hale, both know President Kaunda personally. Is the noble Lord therefore able to tell me why it has taken him so long to consider withdrawing from CIPEC, since I understand that the Government in Chile have been in power for over 15 months. I should have thought that this is a suitable time to withdraw from the organisation if, indeed, the President wishes to do so. Perhaps the noble Lord will not feel able to comment at this time.

Lord BROCKWAY

My Lords, I shall not answer for President Kaunda. I can only say to the noble Lord that today fifteen months is a very short time indeed in these kind of matters.

Lord HALE

My Lords, I doubt whether he was ever in it.

Lord BROCKWAY

My Lords, I cannot speak affirmatively, although, as the noble Lord has said, I am his very close friend, as is the noble Lord, Lord Hale. However, I doubt very much whether the Press reports of his association with Chile have ever been true. I think that it is far more probable that he had his reservations about it from the beginning, and from what I know about President Kaunda, I think that it is very unlikely that he would ever co-operate with the present régime in Chile, even if it were in the interests of his own country.

Lord HALE

Hear, hear!

8.15 p.m.

Lord WINTERBOTTOM

My Lords, the friends of my noble friend Lord Hale—and I like to think of myself as his friend—know that he has a heart of gold, a commodity which, thank goodness! we have not discussed this afternoon. However, from the way in which he started this debate I felt that he was indulging in what our German neighbours call Schadenfreud—their delight in the discomfort of others—because his starting point was the impact it had upon him when experts in the world commodity market came unstuck. He claimed that this was his starting impulse, but I think it was his sense of humour rather than his lack of heart which launched him on this track.

We have heard three interesting speeches on the subject of world commodities, but my role tonight is to answer the Question on the Order Paper, which is: To ask Her Majesty's Government to define their attitude to the problem of making provision by international co-operation for the stability of world commodity prices". What is the attitude of Her Majesty's Government? In, I hope, a short time I shall try to state that attitude. I want to make it clear at the outset that the view of Her Majesty's Government is that the prime responsibility for procuring our raw materials rests with those who are actively engaged in commerce and industry. The Government are not directly engaged in commodity trade, but what they seek to do is to secure the framework of international trade so that the needs of our industries and of our consumers can be met in the most effective and economical way.

It is impossible to devise a system where supply and demand are in balance. In fact, one of the problems of our present economic debate is that some people think the laws of supply and demand can be abolished, but unfortunately that is not so. I think your Lordships will agree that both producers and consumers have an interest in avoiding violent fluctuations in prices and patterns of trade. The best known and hitherto most successful method used to secure the stabilisation of prices has been the international commodity agreement. I am glad to say that the United Kingdom is a member of all current commodity agreements except sugar, and we hope that the Community will join a new International Sugar Agreement in due course.

The present agreements other than sugar cover coffee, cocoa, wheat, olive oil and tin. Because of the state of the world market, economic provisions where they exist have not always been fully operative during the past 18 months. However, we are taking part in current negotiations for a new International Coffee Agreement and preparatory work is in hand for the renegotiation of the Fifth International Tin Agreement which is due to take place this summer. We shall also be participating in negotiations for a new International Cocoa Agreement during 1975. However, Her Majesty's Government do not believe that it is reasonable to talk in terms of a single integrated policy for all commodities. Differences between commodities in their physical nature, in their production structures and in their vulnerability to substitution do not allow this. Rather we believe that it is essential to look at the possibilities on a commodity by commodity basis and to seek to secure a balance of advantage which is accept-able to both producer and consumer and to establish, where possible, appropriate mechanisms to maintain this balance. Above all, Her Majesty's Government believe that the United Kingdom's commodity policy must be adaptable to changing world circumstances. For this reason, we keep a close watch on economic developments and participate in all international fora where commodity problems are discussed. Thus we play an active role in discussions at the level of the Community, the Organisation for Economic Co-operation and Development and the United Nations.

The main international fora on a world-wide basis are, of course, the United Nations Conference on Trade and Development, the Food and Agricultural Organisation and the forthcoming GATT Multilateral Trade negotiations. Indeed, we hope that in the context of the organisations it may prove possible to negotiate commodity agreements for certain temperate products. The United Kingdom has actively participated in the inter-Governmental consultations on individual commodities which were set up under the terms of UNCTAD Resolution 83 III which called for the setting up of ad hoc consultative groups on specific commodities with the aim of reaching concrete and significant results on pricing policy and trade liberalisation early in the 1970s. The results of these consultations will be discussed at the UNCTAD Committee on Commodities which will be meeting in February and, hopefully, further lines of action will be agreed. The United Kingdom will continue to take part and to work for a constructive and acceptable outcome.

Again, within the UNCTAD the Committee on Commodities will also undertake a wide-ranging discussion of the problems of commodity trade—not least, the problem of price instability—on the basis of proposals which are currently under study. The United Kingdom, along with other consumer nations, will examine the proposals carefully in order to identify areas where there is scope for action towards greater price stability and improved trading conditions which will benefit producers and consumers alike. In short, my Lords, there is a general recognition within the international community that price stability for commodities, as for other goods in trade, is a desirable objective and deserving the most serious consideration. There is, indeed, much international discussion of the problems of commodity trade and I can assure your Lordships that the United Kingdom will continue to play a part in the hope that mutually satisfactory arrangements can be found.

My Lords, that is a formal statement of the attitude of Her Majesty's Government towards this set of problems. May I just make two final points? Knowing as I do my noble friend Lord Hale's current of thought on this matter, I would agree with him completely that the problems we are facing are not a total disaster. In fact, the problems that we have to solve bring advantages to the emerging nations, the primary producers. The balance which in the past was not in their favour has been disturbed by the Arab-Israeli war and by the use of the petrol embargo, and as a result opportunities are opening to primary production nations to increase their earnings from their products, which in the past was denied to them. One can only hope that those nations which have political leverage from the production of certain specific raw materials will use that leverage wisely. This is perhaps asking a lot in view of past history, but one can only hope. Nevertheless, I believe that within the present difficult period lie the seeds of a future better balance between the developed and the developing countries. The final point which I should like to make—

Lord HALE

My Lords, before the noble Lord concludes may I put one question, as I understand that I have absolutely no right of reply. Does he realise how much I personally appreciate the very able speeches which have been made by the three speakers in this debate, and indeed—a rare compliment!—the very enlightened attitude of the Ministry of Overseas Trade?

Lord WINTERBOTTOM

My Lords, one can only accept with thanks such a gracious statement. The final point which I should like to make, and which I should like to emphasise, was made by my noble friend who said that he was not launching an attack on the commodity markets. This is important, because many of these commodity markets lie in London due to our past economic history and our close relations with the primary producers of the world. I think it would be an economic setback, if not a disaster, if these important commodity markets moved from this country—which they could always do—to some other place in the world. As I have stressed, it is the view of Her Majesty's Government that private action is responsible for the procurement of our raw materials, and it is our hope that these raw material markets in this country will prosper in the future as they have in the past.