Stable agricultural markets and world order: FAO and ITO, 1943–49

9   Stable agricultural markets and world order

FAO and ITO, 1943–49

Ruth Jachertz

• The nutrition approach to surplus and shortage
  
• Increased consumption, food production, and market expansion: the Hot Springs conference
  
• Postwar shortages and the FAO’s plan for the World Food Board
  
• Commodity policy in the ITO
  
• The FAO’s International Commodity Clearing House
  
• The end of the ITO and the future of commodity agreements
  
• Conclusion

In May 1943, while World War II devastated Europe, a group of scientists met for two weeks in the plush surroundings of a remote Virginian resort hotel.¹ There they attended a technical and expert conference on food and agriculture as official delegations of their 44 respective home countries. For many, the travel had been dangerous, difficult, and long, but the experts were driven by a mission: to ensure lasting peace in the postwar order by increasing food production and restructuring agricultural markets. They were assured by the backing of US president Franklin Delano Roosevelt, who had initiated this gathering. This meeting in Hot Springs, Virginia, was the first in a series of conferences called by the United Nations, the term used for the Allies fighting against the Axis powers.² The conference on food and agriculture was followed by several others, most notably the UN Monetary and Financial Conferences in Bretton Woods, which established the International Monetary Fund and the International Bank for Reconstruction and Development, and in Dumbarton Oaks, which laid the foundation for the United Nations Organization at the UN Conference on International Organization in San Francisco.

Access to food was widely regarded as one of the key elements necessary for establishing lasting peace.³ For the delegates in Hot Springs, it was obvious that agricultural production and agricultural trade had to be seen in conjunction. Only stable international markets provided incentives for producers while providing consumers with a reliable food supply. The Hot Springs conference, therefore, not only led to the creation of the UN Food and Agriculture Organization (FAO), but also influenced the commodity policy envisioned in the charter for the proposed International Trade Organization (ITO).

Allied plans for the postwar world began astonishingly early. The planners were guided by their wish to avoid the mistakes after World War I.⁴ The main concern for the food sector was the “specter of surplus”—a buildup of unmarketable surpluses, followed by even lower prices, the eventual breakdown of international markets, and another depression, which had affected the agricultural sector especially hard in 1929.

However, there never really had been a surplus problem, argued scientists and political activists concerned with nutrition. Surpluses only meant that commodities could not be sold in regular markets, but the demand for food in the population was apparent. Looking at nutritional needs, therefore, production before the war had been inadequate.⁵ The solution was to turn nutritional needs into effective demand. The nutrition approach combined employment, health, and social justice policies; it had been championed by progressive British groups and popularized by the League of Nations, which regarded “under-consumption” as the cause of the Great Depression. To increase consumption and improve their nutritional status, people needed assured income provided by full employment and insurance benefits.

Increased consumption then would stimulate both local production and trade in foodstuffs and lead to economic growth.⁶ The two key people to develop this nutrition approach within the League of Nations were former Australian prime minister Stanley Melbourne Bruce and his long-time collaborator Frank L. McDougall.⁷ Bruce, then the Australian representative, gave a “rousing speech” to the League’s Assembly in September 1935 on the “marriage of health and agriculture,” which centered on the revival of trade between the industrialized and the agricultural countries to make it possible for immense numbers of people to get more and better food.⁸ The concept was so convincing that the assembly established two bodies, a Technical Commission on Nutrition to consider food requirements, and a Mixed Committee to report on nutrition in relation to health and agriculture and on the economic aspects of the subject.⁹ The Physiological Bases of Nutrition and The Relation of Nutrition to Health, Agriculture and Economic Policy, published in 1936 and 1937, respectively, became the League’s most popular publications.¹⁰

Increased consumption, food production, and market expansion: the Hot Springs conference

According to legend it was McDougall who persuaded Roosevelt to hold an international conference on long-term problems in food and agriculture.¹¹ While it is doubtful that the conference rested on McDougall’s initiative only, it is quite possible that he was influential in making food the topic for a first wartime international conference.¹² Roosevelt’s keen political instincts led him to embrace this positive topic, which resonated well with his own slogan “freedom from want.”¹³ The United States invited all United Nations and those Latin American republics that had broken off diplomatic relations with the Axis powers to a technical and expert conference on food and agriculture.¹⁴ The conference took place from 18 May to 3 June 1943 at the Homestead Resort.

Most debates in Hot Springs were informed by the League’s work on the role of nutrition, but while there was widespread agreement on the tenets of the nutrition approach—“that food production must be greatly expanded, but that to produce more food is useless unless markets are created to absorb it by a widespread increase in consumer purchasing power”¹⁵—the sections debating the role of nutrition and those pondering appropriate trade arrangements produced quite different ideas about the meaning. The nutrition section gathered the more enthusiastic and idealistic nutrition experts, who felt that the time had come to apply their research and finally feed humanity on a nutritional standard. Section III contained views from more hardnosed economists about how best to avoid surpluses, and whether an expansion of output was really feasible. Most agreed on the usefulness of commodity agreements for market stabilization but those had to be studied further.¹⁶ Furthermore, there was no agreement on where best to coordinate these agreements—in the proposed new international organization for food and agriculture or in a separate trade organization.

The Hot Springs conference created the UN Interim Commission on Food and Agriculture—to advise on the structure the UN Food and Agriculture Organization, which was formally inaugurated with the signing of its constitution at the Chateau Frontenac in Québec on 16 October 1945. As the first specialized agency, the FAO predated the actual United Nations Organization by eight days, since the UN Charter entered into force on 24 October 1945. In the United States, the deliberations over the FAO’s establishment were anxiously watched to gauge the extent of support for the new multilateral project. Thus, the US Senate’s ratification of the UN Food and Agriculture Organization’s constitution on 21 July 1945 was seen as an important indicator of strong support for the United Nations system as a whole when the Charter was still under negotiation.¹⁷

In the preceding two years, the Interim Commission on Food and Agriculture was under the leadership of Canada’s ambassador to the United States, Lester B. Pearson, who had worked on the institutional set-up and the goals of the envisioned food organization. For him, this appointment marked the beginning of his long involvement with the United Nations—later in his roles as foreign minister and prime minister. In a section written by McDougall, who was chairman of the review panel, the interim commission report stressed the familiar topic in the League of Nations that enlarging effective demand by providing employment and income would increase production while preventing the creation of surpluses. McDougall even claimed that the FAO would show that the “welfare of producers and welfare of consumers are in the final analysis identical”—the conflict between producers interested in high return and consumers interested in low prices would dissolve when seen in the “larger framework” of unfulfilled demand on the side of the consumers and the untapped production potential of farmers.¹⁸ the FAO’s first director-general, the esteemed nutritionist and fiery fighter for social policies John Boyd Orr, gathered a small staff in the temporary the FAO headquarters in Washington, DC. Their first task was to gather data on the dramatic world food situation.

Postwar shortages and the FAO’s plan for the World Food Board

During the war, there had been many conflicting forecasts on food needs in the postwar period. Generally speaking, the British started to worry earlier about impeding shortages; until the latter half of 1944, the US War Food Administration was preoccupied with the danger of domestic surpluses rather than with possible food shortages in liberated areas.¹⁹ Perception in the United States changed slowly, and only started to change substantially in the spring of 1945.²⁰ Secretary of Agriculture Clinton P. Anderson did not believe the more negative reports produced within his own department and failed to grasp the extent of the damage inflicted on world agricultural production. Only in early 1946 did he realize that there was no world surplus, but a massive food crisis with threats of starvation in Europe and Asia.²¹

FAO’s 1946 World Food Survey, based on data “covering 90 percent” of the world population, warned of a shortage of staple grains of grand proportion.²² It calculated a lack of 10 million tons in wheat equivalent for cereals, which spelled hunger for large parts of the world. An alarmed Boyd Orr called for an emergency meeting on the world food situation in May 1946 in Washington, DC. In order better to allocate food supplies on a worldwide basis, the delegations formed an International Emergency Food Council (IEFC).²³ This step was almost revolutionary because earlier the United States and the United Kingdom had resisted giving Canada (a food-surplus country) a seat on the wartime Combined Food Board. That board was now dissolved into the new body with a much larger membership. The IEFC’s membership was open to any country represented on one of its 16 commodity committees and was served by the FAO secretariat. Most staff were seconded from the Foreign Agriculture Service of the US Department of Agriculture. The IEFC relied on voluntary donations by member countries and then allocated these foodstuffs to the UN Relief and Rehabilitation Administration, other relief agencies, and individual countries.²⁴ In hindsight, this innocuous technical body marked the high point of international collaboration, because even the United States as the largest producer followed the IEFC’s recommendations for its export policy.²⁵

At the same conference in May 1946, delegations requested that the FAO director-general develop proposals dealing with the long-term agricultural situation. How could production, distribution, and consumption be organized to prevent both shortages and surpluses? Orr and his staff developed a plan for the World Food Board (WFB) to be operated by the FAO. A massive increase in production was technically feasible, the report argued, but this increase would only materialize if world market prices were reliable and farmers could plan and plant accordingly.²⁶ Stable prices would result in more trade, which in turn would provide better nutrition for consumers and more income for producers. To this end, the WFB relied on operating buffer stocks.²⁷ To operate the stocks, it would fix a price for each commodity and then array minimum and maximum prices within 10 to 15 percent of this initial price. When the world price rose to the high, the WFB would release its stocks onto the global market; when prices reached the minimum, it would purchase and store the surpluses. Recognizing that “underdeveloped” countries lacked capital to buy much-needed fertilizer, machinery, pesticides, and seeds, the WFB also envisaged a credit facility to provide long-term credits. In addition, it would use some of its reserves for famine relief and for concessionary sales to poor countries that could not otherwise meet their food needs.²⁸

At the core of the World Food Board lay the notion that increased trade with all its attendant benefits would only materialize in regulated markets, not in a resort to a free market.

The World Food Board versus commodity policy in the ITO

The delegates at FAO’s second conference in September 1946 in Copenhagen were aware that US support was crucial for the WFB. When US under secretary of agriculture Norris E. Dodd expressed his government’s support for the plan, there was thus “a sigh of relief.”²⁹ The conference agreed that “international machinery” was necessary and asked a preparatory commission to discuss Orr’s proposals and other recommendations. The 18-member Preparatory Commission under the leadership of Bruce met for three months of intensive work.³⁰ At the first meeting, Dodd informed the delegates that Washington was reversing its position. The State Department had convinced President Harry Truman that agricultural trade should fall within the responsibility of the proposed trade organization.³¹ The discussions on the ITO’s charter, which contained a chapter on international commodity agreements, were in full swing. Most delegates to the FAO were members of the departments of agriculture and assumed that the FAO should receive oversight over agricultural trade. However, the delegates to the ITO preparatory committee unanimously agreed that since the ITO had the overall mandate over trade, there should be no separate responsibility over agricultural trade.³² In the end, FAO’s governing bodies had to agree, and Bruce, the head of the FAO committee discussing the world food proposals, asked the members of the ITO delegations to attend his group’s meetings and to advise on the proper course.³³ In deference to the ITO’s mandate, the Preparatory Committee’s report did not embrace the World Food Board.³⁴

The Preparatory Committee supported many of the WFB’s ideas—which is not surprising considering that it had been written by Bruce with the help of McDougall. It retained the concept that an increase in consumption held the key to functioning markets. While it embraced the commodity proposals in the ITO’s proposed charter in principle, it stressed that these agreements should contribute to fair prices for consumers and producers alike; avoid restrictions on production and stimulate expansion of consumption and improvement of nutrition; and encourage shifts in production to areas in which the commodities in question could be most economically produced. Furthermore, it envisaged that these agreements would include provision for famine reserves, price stabilization reserves, and sales at concessionary prices to “needy” countries.³⁵ In order to keep commodity trade and the general food situation under review at the highest political level, it advised the FAO to set up a council composed of political representatives, which was immediately established. Crucially, though, the report did not insist on the FAO’s oversight over trade in agricultural products, and thus responsibility fell to the ITO.

Commodity policy in the ITO

Official negotiations on the proposed International Trade Organization had been initiated by the United States. At its first meeting in February 1946, the UN Economic and Social Council (ECOSOC) passed a resolution calling for a conference on trade and employment. During 1945, a multiagency staff committee in the US administration developed Proposals for Expansion of World Trade and Employment, which it published for “consideration by the peoples of the world.”³⁶ After the team under assistant secretary of state William L. Clayton received feedback—not from the world, but rather from the United Kingdom—they elaborated the draft into the Suggested Charter for an International Trade Organization.³⁷