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INDEPENDENCE FOR THE PHILIPPINE ISLANDS

MONDAY, FEBRUARY 1, 1932

HOUSE OF REPRESENTATIVES,
COMMITTEE ON INSULAR AFFAIRS,

Washington, D.O. The committee met at 10.13 o'clock a. m., Hon. Butler B. Hare (chairman) presiding.

The CHAIRMAN. The committee will come to order.

We have with us Mr. James D. Craig, of Spencer Kellogg & Sons, and we shall be glad to hear from him at this time.

Please give your full name and whom you represent. STATEMENT OF JAMES D. CRAIG, REPRESENTING SPENCER KEL

LOGG & SONS (INC.), BUFFALO, N. Y.

Mr. Craig. Mr. Chairman and gentlemen of the committee, my name is James D. Craig. I represent the firm of Spencer Kellogg & Sons (Inc.), an American concern, with general offices in Buffalo, N. Y.

Because I am not accustomed to argumentation, I am going to ask if I may be permitted to proceed with the presentation of my cause without interruption, and then I shall be glad to answer questions. when I am through.

We have large investments in the coconut oil industry in the Philippines. We are here, not for any political purpose, but to let our Government know what effect the enactment of some of these bills now pending before the committee will have on our investments.

The Philippine coconut oil industry is protected by the American tariff. The loss of that protection will cause the collapse of that industry. That means the destruction of our investments. This is the reason why we are here to appeal to our Government that they proceed cautiously and protect the interests of American nationals in the Philippines.

We have no interests in the Philippines that are not identical with the best economic interests of the Filipino people, especially those in our employ and those who deal with us on a commercial basis.

I shall now proceed to a presentation of facts demonstrating that coconut oil does not come in conflict with domestic fats and oils in the major industries where it is utilized as an indispensable raw material. If there is any competition in minor industries, its amount is insignificant and certainly too infinitesimal to constitute a basis for the drastic action proposed here, for such action will annihilate our company. And I wish to say right here that our company, engaged largely in crushing and handling domestic vegetable oils, will be seriously impaired if our coconut oil business receives the fatal blow that independence will give. This means the possible collapse of an American industry in America, bringing unemployment to more than 1,000 persons who are working for us in different States of the Union.

Most of the commodities with which we come in contact are of such a nature that their inherent properties are determined through our senses of sight and touch. But, unfortunately, in the case of coconut oil, its properties are revealed only through the medium of chemistry. Few of our citizens ever come in contact with coconut oil except in the finished manufactured product, and they have, therefore, no opportunity to form impressions concerning its characteristics and, consequently, have no means of forming ideas concerning its economic relationship to other commodities and other fats and oils. Because of its being a vegetable oil, it is natural that the impression is so easily formed that it must compete with all domestic vegetable oils and fats.

Coconut oil is in reality a hard fat. Its solidifying point is almost that of body temperature, 76° F., whereas other vegetable oils liquefy at temperatures only slightly above the freezing point of water, and some of them below.

I have here a few samples of refined oil and crude oil, which I will set out in order that you can see how they differ in their appearance. But, unfortunately, that does not disclose the major characteristics of the oils, which are revealed to us only through the laws of chemistry. In order to determine the competition or absence of competition between coconut oil and animal and vegetable fats and oils, it will be necessary to classify the groups through which these various fats and oils move into the fields of consumption. I shall arrange this classification not in the order of importance of coconut oil to each group, but rather in the order of the fields from which the greatest amount of misinformation has been furnished by Philippine independence propagandists.

The principal outlets to consumption in which all fats and oils are used in the United States are in the following major groups of consumable products:

(1) Table fats—butter and margarine; (2) cooking fats and oils, shortening—hog lard, vegetable lard, cooking oils, and salad qils; (3) confectionery and fancy biscuits; (4) soap—toilet and laundry; and (5) drying oils-paint, varnish, and linoleum.

It is quite generally understood by everyone that a basic motive for granting Philippine independence is to make the present tariff of 2 cents a pound on coconut oil effective on the oils imported from the Philippines, the major part of such agitation actually coming from the dairy interests of the country. They apparently have been misled by many of their representatives and spokesmen to believe that if the cost of Philippine coconut oil were inflated, to the extent of the present tariff upon foreign coconut oil, the alleged competition between butter and margarine would be so minimized that the dairy farmers would procure much higher prices and greatly increased consumption for their butter.

In the first place, the coconut-oil supply of the margarine manufacturers can not be shut off by the application of our present tariff on Philippine coconut oil, for the simple reason that copra enters the country duty free from all countries, and the coconut oil for edible requirements would thus be imported in the form of duty.

free copra.

It was stated here by some of the witnesses appearing for the agricultural interests that their object was to equalize the prices of margarine and butter. Now, speaking to that point, I want to present the facts which will show the relative insignificance of placing a duty on coconut oil when it comes to equalizing the price of margarine and butter. In the first place, margarine is not a factor in controlling the price of butter. We have made a study and prepared a chart which shows the variation of the price of domestic butter with respect to the world price of butter, and it has absolutely no relationship with the consumption of margarine. In the year 1927 the New York price of 92 score butter exceeded the world market price by more than 11 cents a pound, yet the per capita consumption of margarine varied only three-tenths per pound per capita as compared to the year 1925, when the domestic price of 92 score butter was six-tenths of a cent per pound under the world price level.

The solid upper line on the chart shows the variation of the domestic price of butter, with respect to the world price of butter, at Copenhagen. The lower dotted line shows the per capita consumption of margarine in the United States.

You will see that, regardless of the variations in the domestic price of butter, as compared to the world level of price, the consumption of margarine in the United States proceeded along in a straight line and has only varied slightly with general business in our periods of inflation and depression.

I would like permission to introduce this chart into the record.

The CHAIRMAN. If there is no objection on the part of the committee, it will be introduced.

(The chart referred to, marked "No. 1A," is shown on following page.)

Mr. CRAIG. Now, assuming that the cost of the margarine manufacturers' supply of coconut oil could be inflated to the extent of the 2-cent tariff, it can easily be seen that no margarine, either the vegetable or animal variety, is a factor in determining the price of butter.

The controlling factors which set the price of domestic butter are, first, the price of foreign butter plus the duty, and, second, the rate of domestic butter production. If the production of domestic butter is below domestic requirements, the price of butter tends to advance to the cost of foreign butter delivered to New York, plus the duty of 14 cents per pound. If the production of domestic butter exceeds the domestic demand, then the competition between domestic butter producers and their efforts to dispose of their surplus production result in the price of butter declining below the duty-paid New York price of foreign butter, as is the case now.

We are not using anywhere near the full tariff protection granted us of 14 cents a pound. In fact, on the basis of the prices prevailing recently, we are utilizing only 10 or 11 cents of this 14-cent protection on butter. The average price spread between butter and margarine for the past 10 years has been 21.9 cents a pound. In other words, the price of butter has averaged 21.9 cents a pound above the price of oleomargarine. The minimum spread has not been less than 15 cents.

Now, if we apply this 2-cent tariff on the price of coconut oil, you will change the price of margarine to the extent of only 1.16 cents. The average pound of margarine contains 0.53 pound of coconut oil. That makes the duty of 2 cents on the oil increase the cost of the margarine by only 1.06 cents a pound, and allowing 10 per cent profit on this additional cost, the difference would be 1.16 cents.

Now, it seems absurd to believe that you can reduce this average price difference between butter and oleomargarine of 21.9 cents per

[graphic]

DOUNDS DER CAPITA.
Lack of relationship between per capita consumption of oleomargarine in United States and price of butter in United

States as compared to world-price level
CENTS PER LB.

pound, by the effect of this coconut-oil tariff which would amount to 1.16 cents on the pound of margarine manufactured therefrom. You can see that the tariff on coconut oil would not in any way affect the competition between butter and margarine.

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