L ^ :^ Cornell University Library SF 259.A93 The disastrous influence of foreign exch 3 1924 003 034 059 THE DISASTROUS INFLUENCE OF FOREIGN EXCHANGE ON THE CANNED MILK INDUSTRY IN AMERICA An Address at the Annual Dinner of the New York Milk Conference Board Hotel Astor, New York, November 11th, 1920 By D. E. AUSTIN Managing Director, Nestle' s Food Company Cornell University Library The original of this book is in the Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924003034059 THE AMERICAN producer was not a factor, except perhaps to a very small extent, in the world situation with respect to Condensed and Evaporated Milk before the war. The milk he pro- duced, if it went into canned milk, was nearly all consumed within the United States. Out of a total annual production in the United States of 15,000,000 cases before the war, less than 1,000,000 cases were exported. During the last six years exports increased until th^y reached the enormous total of 18,000,000 cases in 1919 or 20fo more than the whole production of 1914. It took fifty years to reach the production and consumption of 15,000,000 cases and in the brief period of six years, beginning with 1914, the production had jumped to 39,000,000 cases and the exports from 1,000,000 to 18,000,000 cases. Such a spectacular expansion was, of course, not a natural growth, but one made necessary by the world food situation during the war, with which we are all more or less familiar. Europe be- came shorter and shorter of dairy products as the war dragged on; not so much from the loss of cattle, but because she could not get feed for them. In Switzerland, for instance, where dairying is the chief industry, they depend principally upon oil cakes from America to feed their cattle, and ships not being available for the transportation of such freight during the war, their catde, to a great extent, ceased to give milk. As Europe's supply of fresh milk decreased, the demand for canned milk increased, and the only country that was in a position to supply this increase was the United States; and not from any sur- plus we were then producing, but by the possibility of quick expansion of our producing facilities. Besides the increasing needs of canned milk for Europe's civil population, as their supply of fresh milk decreased, the Allied Armies also soon began to require enormous quantities of canned milk. While at the beginning of the war canned milk was not a ration even with the British Army, it soon became so, and its popularity with the soldiers increased enormously each year until the Allied Military needs alone exceeded 6,000,000 cases per year before America entered the war. After we entered the war, the demands on the canned milk industry were still further increased by many millions of cases for our own military forces; and planning, as the Governments perforce had to, many months ahead for their supplies, the Armistice left them with enormous supplies of canned rnilk. on hand and contracted for, that would not then be needed by the Military establishment, and must, therefore, find its way into ordinary channels of trade and consumption. No information was available to anyone in the industry as to just what these surplus stocks amounted to, and while it was known in a general way and expected that a surplus would exist, the extent of it was not immediately apparent and could not be estimated. In the meantime, the expsuision in manufacture continued for some time after the Annistice, carried along by the impetus the war needs had given it and also by the reasonable expectation that with ships now released from carrying war freight, Europe, who was still terribly short of various foods, Would gladly grasp the opportunity to secure more canned milk, which, during the last years of the war, had been held down to a strict ration by the several Governments. This expectation was real- ized, as evidenced by the tremendous exports of canned milk in 1919, which were even heavier than in any year during the war. America had now reached the highest peak of production in the history of the industry and it seemed probable that with the wide introduction and popularity the war had given canned milk, Europe might easily consume for some years the enormous surplus production this country had now developed; at least, until they could bring their milk supply back to normal. But during 19 19 a new factor entered into the situation that could not have been foreseen, or the extent of its influence esti- mated, and that was: THE RAPID DECLINE OF FOREIGN EXCHANGE. In March 1919, the Governments of England, France and Italy withdrew the support to the exchange value of their currency, which they had maintained during the "war, and, as a result, tlie vsilue of their money experienced a rapid decline until by March of 1920 the Pound sterling had fallen from $4.76 to $3.20 French franc " " " .18 " .06 and " Italian lira " " " .16 " .04 Translated into Condensed Milk values, this meant that every case of Condensed Milk, whicli had cost the European buyer in March 1919 an average of about $8.50 per case, F. O. B. American seaboard, would in March 1920 cost: Great Britain $ 1 4.00 per case France 30.00 " Italy 45.00 ■• " This increase in cost was simply lost to the European buyers because of the depreciated VcJue of their money in Americeui , currency, with no corre^onding gain to anyone. Then, on top of that, the price of sugeir began to advance, until the cost of 4ugar this year has averaged 100% over that of 1919 and this has added another $2.00 to the cost of eiach case of Condensed Milk produced here. These two factors of exchange and «ugar, therefore, increased the cost of a case of Condensed Milk to the European buyer in one year from an average of $8.50 per case to: $17.00 per case for Great Britain 36.60 " '* " France 55.00 " •• " Italy Bear in mind these are costs to the European wholesale buyer at American Seaboard and to find the probable cost to the consumer, we must add at least the equivalent of $1.50 per case to cover ocean freight and profit to the European distributors. The comparative cost therefore to the American and European consumer vfSLS as follows: ■ United States $ .20 per can Great Britain 40 France .85 Italy 1.30 •• •' and it must be remembered that these European countries are more or less poverty-stricken and, of necessity, must buy very carefully and as sparingly as their needs will permit. For the purpose of this example I have used the American wholesale price of March 1920 and the foreign exchange rate of the same period. While both the wholesale price of Condensed Milk and rates of foreign exchange have since fluctuated somewhat from these figures, the essential dif- ference in cost to the European buyer, because of the two factors, fallen exchange and higher cost of sugar, has not materially changed. With the development of this situation, European buying took a precipitous drop and diei d«- miand has continued to decline until now it is very small. This decline will probably amount to 10,000,000 cases for the year 1920; in other words, our exports this year will probably be not over 8,000,000 cases as against 18,000,000 cases last year or a loss of 55%. There is an old saying that "It never rains, but it pours." This seems to have peculiar ap- plication to the difficulties that have beset our industry in the year 1920. The loss of 10,000,000 cases in foreign buying was, in itself, a heavy enough blow for the in- dustry to stand, but, on top of that, it was reported by the Government in the early Fall, this year, that the production of Evaporated Milk in April, May and June was 10,000,000 cases in excess of the production of the same months last year. Thus we were faced with a total apparent surplus pro- duction for 1920 of 20,000,000 cases, an amount equal to the annual American consumption. And this is not all: the situation has been still further aggravated by the unprecedented dull market in this country ever since early summer. Not in the history of the business has buying been so dull for so long a period. This does not apply to canned milk only, but to every line of the whole- sale grocery trade. It was imperative, therefore, that manufacturers close plants and cease piling up more stocks until the demand should again catch up with the supply. It is obvious that Europe cannot afford to buy again the quantities of canned milk she bought from America in 1919 until costs and exchange are again favorable; and the consumption in this country cannot be expected to increase fast enough to overtake the present high peak of production, since it took over fifty years to reach the present consumption of 20,000,000 cases. The conclusion is, therefore, inevitable that production must now be re-arranged to meet pres- ent world needs, or the business will continue to be an unprofitable one, as it. has been for the past year. While it is true that producers have continued to enjoy high prices for milk right up to the 1st of October, the manufacturers have lost heavily during the whole year; and, as far as our Company is concerned, this loss is not offset by any excessive profits made during the war years, as is so popu- larly supposed, for, as a matter of fact, we have made a smaller net profit per case on all our business during the last six years than during the six years before the war. A large part of the milk that producers have supplied, particularly to Eastern condenseries dur- ing the last five years, has gone into export trade and I doubt very much if those producers have been in- formed of the importance these factors I have mentioned, have in export trade, and particularly the influence they have had in bringing about the present situation in the canned milk industry. Foreign exchange is not an easy matter to understand^-^^even for those ha:vilig^a great;tleal to do with it. Its rise and fall in normal times has been very slight, but the present situation of foreign exchange has no precedence in history and not even experts can to-day predict its future. 1 believe that a thoughtful consideration of the facts I have here presented will enable the producer to better understand the world-wide situation in the milk industry and to realize that, while the old law of supply and demand may tenipbrarily be suspended by Government for a war emergency, it must in the end be obeyed. ■i-