§ Mr. Boardman
asked the Chancellor of the Exchequer how far it is the policy of His Majesty's Government to encourage long-term contracts for the purchase of Colonial products.
§ Sir S. Cripps
The declared policy of His Majesty's Government is to push ahead with all possible speed with the economic and political advancement of the Colonial Empire. The importance of a rapid increase in Colonial productivity has been accentuated by world shortages of many of the raw materials and foodstuffs which the Colonies produce and by the special balance of payments difficulties in the sterling area of which the Colonies form part.
It will clearly be a great help to Colonial producers in any plans to increase the volume of their production if they have an assurance of a market for their goods for some years to come. His Majesty's Government have, therefore, been considering the general principles which should, in the interests alike of Colonial producers and of the United Kingdom as a consumer, underlie contracts made between the two parties for the sale and purchase of Colonial agricultural export surpluses. Of necessity the principles are stated in general terms. Because of the variety of the commodities involved, the varying degree of organisation of Colonial producers and the varying arrangements for purchase in the United Kingdom, each commodity and each contract will require individual treatment.
Such contracts should as far as possible be freely negotiated between the producers and the purchasing Department of His Majesty's Government. Wherever possible negotiations should be conducted direct between representatives of the producers themselves and the purchasing Department. It is part of the 'policy of His Majesty's Government to encourage the growth of statutory marketing organisations in the Colonies and these organisations will be able to take part in the negotiations. Colonial Governments and the Colonial Office 2W will assist producers in these negotiations. to the best of their ability and, where there is no satisfactory organisation of the producers, they will themselves undertake the negotiations as they have done in the past.
Period of Contract
The U.K. Purchasing Departments will be ready to enter into long-term contracts for many Colonial products. The periods of such contracts will vary according to the circumstances of the individual cases, but where appropriate, they may extend up to 10 years.
It is recognised that there is a special need for long-term assurances in the case of tree crops which take a considerable number of years to come into bearing. While a contract for more than 10 years will probably never be practicable (and, indeed, contracts for this length of time present many difficulties), it should be possible to provide in some contracts for the question of their extension to be considered some years before they come to an end.
It will be the policy to give Colonial producers as precise estimates as possible of the future requirements of the United Kingdom for home consumption and for export in manufactured form. It will not generally be possible for the United Kingdom to undertake to purchase Colonial production in excess of these requirements.
Both the United Kingdom and the Colonies will, of course, have in mind the desirability of Colonial producers nursing or developing other markets. In particular, balance of payments considerations will be of major importance in this connection and must be kept constantly in mind by both sides in all negotiations.
The exact quantities to be included in any long-term contract must, therefore, depend upon a variety of factors which can only be assessed for each product at the time when the contract is being negotiated. The probability of changes in market conditions during the currency of the contract may make it desirable for quantities to be expressed as minima 3W and maxima. The contract would if necessary provide for different minima and maxima in different years.
With the present disturbed market conditions and the special economic factors which now affect prices in world markets it is not wise to attempt to agree a fixed price over a period of years. The longer the period of the contract the more speculative a fixed price becomes. The fact that a large proportion of certain commodities does not now reach the world market often means that countries competing in the limited free market are prepared to give grossly inflated prices for the relatively small quantities available. It cannot, therefore, be expected that where actual prices are written into contracts negotiated while present conditions of scarcity remain they will be comparable with these marginal prices. Moreover, in the view of His Majesty's Government, Colonial producers in negotiating prices for inclusion in contracts should have due regard to the security they receive from the making of long-term contracts. The extent to which this particular consideration will affect prices will, of course, depend upon the length of the contract and the measure of the security which it gives to Colonial producers.
In many cases, however, it may not be desirable to fix actual prices at the time when a contract is made, and it may be preferable to agree a formula by which the price is varied from time to time. In some cases, for instance, it may be found most convenient to both buyers and sellers for the price to be negotiated periodically in the light of current market and other factors. It may be possible in such cases to specify in the contract the factors to be taken into account in these negotiations, such as the prices ruling in established markets in which an appreciable proportion of the product is traded; or, where no such market exists, the prices received by other Empire producers for substantial quantities of the same or similar products. It may also be possible in some cases to specify in the contract upper and lower price limits beyond which the price will not vary.
His Majesty's Government hope that this statement of principles will facilitate the conclusion of contracts which will 4W be mutually beneficial to His Majesty's Government, Colonial producers and the Commonwealth as a whole.