The Fats and Oils: a General View

By Carl L. Alsberg and Alonzo E. Taylor

VI. International Trade in Fats and Oils

FATS and oils figure heavily in international trade; in particular the volume of trade in oil nuts, oilseeds, and vegetable oils has increased with the exploitation of tropical sources of supply, the development of technology, and the relative decline in animal fats.

Although statistics of international trade in fats and oils are less inadequate than statistics of production and consumption, they are far from satisfactory and present so many difficulties that no summary presentation seems desirable at present. (A useful recent summary is given by the U.S. Department of Agriculture In The World Situation in Oils and Oliseeds, Foreign crops and Markets, May 9, 1927, xiv, 594-647.) In subsequent studies of particular commodities the current position and the trends can be set forth in some detail with appropriate qualifications and reservations. Here, however, it is desirable to present only a broad and more or less provisional statement, with comparatively little quantitative data.

The International Position in General

The international trade in fats and oils flows largely in a few prominent streams. Palm and palm kernel oils come chiefly from Africa, though the Dutch East Indies are beginning to enter upon this trade. Practically all soy bean oil comes from Asia. Peanut, rapeseed, and cottonseed oils come from several regions. Coconut oil comes largely from the Philippines, the Dutch and British East Indies, and Oceania. Large amounts of cattle and sheep fats come from Australasia and Argentina. The United States and the lower Danubian area are practically the sole exporters of lard. Imports are much less specialized than exports, though many countries import predominatingly more of one fat or oil than of others, depending on political affiliations.

By and large, the more backward regions are prominent as exporters, while the highly civilized regions are prominent as importers. This is due partly to fundamental conditions affecting production, partly to considerations affecting consumption. But many countries export some fats and oils and import others, so that their net position in international trade in fats and oils as a whole may be very different from their position with respect to any one. Broadly speaking, Africa, Asia, and Russia are net exporting regions, while Europe and North America are net importing regions.

The term self-sufficiency, frequently used in this connection, may mean something or little, or may be actually misleading. It is technically correct, for example, but essentially misleading to say that the United States is not self-sufficient in cotton. We import each year some 200,000-500,000 bales, but our annual exports average well over 6 million bales. Cotton is not a unity. The imports consist largely of certain kinds that the United States does not produce at all. The cotton imported could, however, be produced, but the cost would be excessive. In view of the manifold sources and uses of fats and oils, it might similarly be misleading to say that any country, merely because it imports fats and oils, is not self-sufficient in these products. Import requirements and exportable surpluses are often not a matter of rigid need or absolute excess, but are evidences of adaptation, substitution, and price relations.

In the analysis of the international position of a country, the position as net exporter or net importer may or may not be significant. To be a net importer may signify a shortage, irrespective of price; thus the United States is a net importer of nickel because it has no deposits. But a country may be a net importer solely on the basis of price; the United States is a net importer of paper, not because it lacks the resources in its forests, but because at present the forests of Canada furnish a cheaper product. A country may be a net exporter because of the position of a primary industry; in this sense, the United States is a net exporter of copper. But a country may be a net exporter for incidental reasons; thus the United States is a net exporter of caustic soda.

For some countries it is difficult or impossible statistically to determine whether they are net importers or net exporters of fats and oils. Also, if this be ascertained, it may be difficult or impossible to determine whether the position is inherently necessary or merely incidental. A determination of the net position of a country in respect to fats and oils is particularly difficult because of the complexity of the situation, one manifestation of which is the inadequacy of statistics. Fats and oils pass in and go out not only as such, but under other names and in other forms. The United States both imports and exports fats and oils for use in the manufacture of soaps; it also both imports and exports soaps. Lard is counted as an export of fat, while cured-pork products are not; yet backs, sides, and bacon are three-fourths fat, and hams and shoulders are one-third fat. A state may be a fat-importing country when considered from the standpoint of industrial fats, and a fat-exporting country when considered from the standpoint of dietary fats; this is the position of the United States. It is, therefore, likely to be misleading to judge of the position of a country in respect to its total uses of fats and oils solely by such a classification as net importer or net exporter as might be determined from the use of trade statistics. Let us consider the circumstances in different countries.

The Position of Particular Countries and Regions

Russia, before the war, was a heavy exporter of butter, linseed oil, and edible vegetable oils. The customary diet of Russia was poor in fats and meats, consisting predominantly of cereals and vegetables (mostly rye, cabbage, and beets). Because of a low standard of living, the industrial uses of oils and fats were limited. On the basis of the trade figures, Russia was self-sufficient; but she was so only because the uses of fats and oils in that country occupied a position so low, in contrast with that of western European countries, as to seem abnormal.

The position of Russia is just the opposite from that of the United States. The two countries are not incomparable in size, population, and agricultural resources. Russia could not be called a superior fat producer and the United States an inferior fat producer. But Russia, in contrast with America, has a low standard of living, in respect to both dietary and industrial uses of fats and oils. Russia is a net exporter of fats and oils, but could easily consume what she exports if she were not a backward country; the United States is a net importer of fats and oils, but could easily produce more if she chose.

Europe as a continent, outside of Russia, is a heavy net importer of fats and oils, although a few countries, such as Denmark, are net exporters. Oilseeds are imported both for the protein and the oil fractions. The continent is also a heavy net importer of meats and animal fats, though Denmark and the lower Danubian area are net exporters of animal fats. The population of Europe is dense in respect to the agricultural area; and most countries are highly industrialized. Cereals, meats, animal fats and oils, vegetable fats and oils, must be imported. More could be produced of any one of these; the amounts that are domestically produced at any time largely determine the amounts to be imported. The adjustment between the different types of agriculture and the different imports of foodstuffs and industrial raw materials is mainly the expression of current efficiencies in agricultural technique, within the limits set by climatic factors and character of soil.

The United States is a net exporter of animal fats. It is a large net exporter of hog fats, both in the state of lard and in cured-pork products. In much smaller but still considerable amounts, it is a net exporter of beef fats in various forms. On the other hand, the import of live cattle is fairly extensive; and imports of milk fat, chiefly as butter, generally exceed exports.

The United States is a substantial net importer of vegetable oils. Cottonseed oil is the only one of which the exports are appreciable, and most of the exports of other vegetable oils are either small in amount, or are produced from imported materials, or are re-exports of oils of foreign origin. Practically all kinds of vegetable oils are imported, either as such or, much more largely, in the form of raw material. Imports of linseed oil (chiefly in flaxseed) and coconut oil (chiefly in copra) are the largest items, but imports of olive, palm, palm kernel, chinawood, and castor oil are also important, and several other kinds are by no means negligible.

The picture is heterogeneous. If all the imports and exports were lumped, the United States would be shown to be a net importer, to a small extent per capita. But that the country is a net importer does not mean that there is a shortage, in the sense of inability to supply needs from domestic production. It merely means that a small fraction of our heavy fat and oil requirements is imported because it is cheaper to secure it thus than to produce it. If one separates dietary from industrial uses, the country is a net exporter of dietary fats and oils and a net importer of industrial fats and oils. These are the relations as they actually exist, not as they necessarily must be or must continue to be.

Colonial Sources of Fats and Oils

To a large extent the oilseeds and nuts of commerce move to countries situated in the temperate zones from colonies and dependencies in the tropics. The colonies or dependencies of Great Britain, Holland, France, Belgium, and the United States are the largest sources of supply of tropical oilseeds.

During the early years of this century Great Britain had by far the largest trade of any European country in foreign oilseeds and nuts, and was the principal user of imported vegetable oil materials. As the years passed, however, Germany became a keener and stronger competitor in both the producing and the distributing branches of the trade. Her colonization activities are well known. In several of the colonies fatty vegetable materials were the principal or among the principal articles produced, and great efforts were made to stimulate their production. In addition, steamship companies were subsidized in the colonial trade and German ports were encouraged to organize for the handling of oleaginous materials so as to compete with such well-established trading centers as Marseilles and Hull. Consequently, by 1913, German imports closely approached those of Great Britain; indeed, the British trade was becoming seriously exercised over loss of business. France also had a large trade in vegetable nuts and oils before the war, but it did not reach the proportions of the British or the German. Because of her large domestic supply of olives, she was not dependent on foreign sources to the same degree.

Shortly before the war, Germany far outstripped either Great Britain or France in her use of coconut and palm kernel oil. These, aside from linseed, were the principal vegetable fats imported. Great Britain, on the other hand, used a great deal of cottonseed, while France relied principally upon peanuts. Great Britain was the only one of the three that imported any appreciable amount of these fats in condition suitable for consumption. She imported considerable margarin and lard compound from the continent.

The war stimulated imports of oilseeds into the allied countries, to furnish vegetable fats in replacement of animal fats of which domestic supplies were greatly reduced. On the other hand, Germany was unable to continue these importations during the war. After the war, the trade of the allied countries continued in large volume, and in recent years annual imports (both gross and net) of vegetable oils and oilseeds in terms of oil have usually somewhat exceeded the pre-war figures. This is clearly true of Great Britain and France, and probably of most other countries of western Europe. The German trade revived in spite of the loss of the German colonies. Because of adverse economic and financial conditions, however, the volume of imports into Germany remained for some years well below pre-war levels, and only with 1925 and 1926 have German imports reached 1913 levels.

During these recent years cottonseed oil has been in general use in the United Kingdom only, and this not from American but from Egyptian or Indian seed. France and Germany use very little. Coconut oil, on the other hand, is in general use in all countries. Cottonseed and palm kernel oil are more important in the United Kingdom (as well as linseed), and peanut oil is considerably more important in France; but in Germany, coconut oil is the principal vegetable oil used. The British, through their control of West African territories producing most of the palm oil and palm kernels of the world, naturally draw heavily upon these, although Germany is also a large taker of palm kernel oil and the United States of palm oil. France is unique in regard to the use of peanut oil, because of her control of Senegal, one of the principal sources of supply. Germany uses more soy bean, rapeseed, and sesame oil than Great Britain or France, a fact that is rather remarkable in view of British connections in the Indian trade. All three countries use large quantities of linseed oil although not so much as America.

No quantitative information is readily available as to the proportions of the various oils that go into the different uses. The physical and chemical characteristics of the oils determine their use in main part, but since considerable substitution can be made the usage differs somewhat from country to country according to the availability of the various oils. In France, for instance, peanut oil is doubtless more generally used for margarin and salad oils than elsewhere. Similarly in Great Britain palm kernel oil serves many of the purposes to which coconut oil is put in America and Germany. The availability of palm oil for soap manufacture in Great Britain doubtless permits a larger use of animal fats and coconut oil for edible purpose there than in this country. Per capita consumption of margarin is considerably smaller in Great Britain than in Germany and the Scandinavian countries, but her total takings of vegetable fats and oils are larger than those of any other European country, apparently indicating very large industrial usage of inedible products. Careful investigation would show differing practices from country to country, manufacturing technique having been adapted to the supply of raw materials.

In the United States the use of imported oils is quite different because of the large domestic production of cottonseed oil; and the small per capita consumption of margarin and the large consumption of lard compounds also contribute to give American usage its peculiar cast.

Competition of Domestic and Imported Supplies

Every country with colonies or dependencies has more or less effective incentives, political and commercial, for increasing the trade of these colonies or dependencies with the mother country and with other countries. The mother countries accept oilseeds in return for services, interest charges, and manufactures. In such countries the colonial vegetable oils are substitutable to some extent for native animal and vegetable fats and oils. The animal husbandries of the United States, Great Britain, Holland, Belgium, and France must market their fats and oils in direct competition with certain vegetable oils obtained from the colonies. The price reactions are sometimes direct, sometimes indirect. The circuitous nature of some of these relations is well illustrated in the case of Denmark. Denmark imports oilseeds, expresses the vegetable oil, feeds the cake as protein concentrate to dairy cows, churns the butter from the milk and ships it largely into export trade, uses the buttermilk as a basis for a hog industry of which the bacon passes largely into export, and of the expressed vegetable oil makes butter substitutes (plus some imported margarin) to be used in the domestic market to replace the butter and bacon exported. The net result is a profit which forms a material proportion of the national income.

North of the latitude of the Alps lard is preferred in cooking; southward, vegetable oils are preferred. Germany and the other countries of northwestern Europe (except Denmark, a net exporter, because of the peculiar development of her agriculture) import hog fat from the two exporting areas. The lower Danubian area (a net fat and oil exporter) exports hog fat because it produces fat in excess of its customary dietary needs. The United States (a net fat and oil importer) exports lard because a large fraction, possibly a majority, of our people prefer vegetable lard substitutes. Hog producers in northern Europe endeavor by tariffs to make defense against imported lard. What would happen directly to the hog raisers of northern Europe, and indirectly to those of the United States, if it should come to pass that lard substitutes should supplant lard in Europe, as has been the case in the United States, is an interesting subject for speculation.

Not merely do the hog producers of northern Europe strive for tariff protection against imported lard, but the dairymen agitate for tariff protection against imported vegetable oils because these are the principal raw materials for the enormous butter-substitute industry of western Europe. Similarly, there is agitation in Mediterranean countries for tariff protection against imported oils even though these countries are heavy exporters of olive oil, because the import of other edible vegetable oils reduces the domestic price of olive oil. In character and degree this demand for protection differs in no essential way from that in other agricultural produce or in manufactures. If all the countries from which vegetable oils are derived were independent, rather than colonial and dependent, their oil seeds would obtain entrance to the importing countries less readily than they do now.

Another aspect of this competition deserves consideration in its bearing on agricultural profits and tariff policies. The prime products of animal husbandry are milk and meat; the carcass fats, as we have seen, are secondary products. Cheap imported vegetable oils, largely from the tropics, are substitutable with indigenous fats and oils over a wide variety of uses and thus make for lower prices of the indigenous fats and oils. The lower the price level of the fats, the greater the load to be carried by the meats or by non-fat by-products. Since the prices of meats are relatively high and advances are met by restriction of consumption, and since rising hide and by-product prices arouse competition of substitutes, low prices for fat obtained by packers and merchants tend to be reflected back to agriculturists in the form of lower prices for live animals. So far as fat is concerned, the effect is greatest in the case of hogs, since the lard and the cured fat parts of the average hog exceed one-fifth of the live weight; in the case of the average steer, the net yield of commercial fat is relatively small, consequently the effect of low prices of fats on the price of the live animal is smaller. Competition of artificial leather, bone substitutes, and other substitutes for animal by-products operates in the same way. In some measure these influences affect the remunerativeness of the entire system of diversified agriculture. Tariffs on importations of fats and oils, in so far as they might tend to raise the general price level of fats, would thereby tend to raise the return on the carcass fat produced in animal husbandry, to raise slightly in consequence the prices of live animals, and to improve slightly the profitableness of diversified agriculture.

The problem of tariff policy is especially complicated in the United States because the United States, unlike Europe, is a heavy producer of an important animal fat, lard, and an important vegetable oil, cottonseed oil, and because it draws most of its coconut oil from a dependency, the Philippines. Indeed, the United States is the only modern industrial state with as low a net import of fats and oils. No other industrial state has an export of animal fats to match the lard exports of the United States. No other modern state, except Mediterranean countries producing olive oil, has any considerable production of oil to match the cottonseed oil of the United States.

With the exception of olive oil the major fats produced in western Europe are the product of animal husbandry; and production by no means suffices to meet requirements. Indeed, much of the animal fat production, including milk fat, is dependent upon the importation of oil seeds. The oil cake remaining after the expression of the oil is fed to cattle and hogs, thereby helping to produce fat. The manure resulting from this feeding adds to the fertility of the soil. Thus the importation of oilseeds has three effects of the greatest value to the importing country. First, it contributes dietary and industrial fats directly. Secondly, it contributes concentrated animal feed by means of which meat and animal fats are produced. Thirdly and lastly, the feeding of the oil cakes produces very rich manure, with which heavier crops of grains, roots, and legumes are raised than would be possible otherwise.

The vital importance of the importation of oilseeds into western Europe was brought out during the Great War. When the allies stopped the importation of oilseeds and of oil cakes into the Central Empires, importation of these commodities into Scandinavian countries and into Holland increased by an amount not very far from the average pre-war importation into Germany. These countries became practically feeding yards for Germany. When the importation of oilseeds and oil cake into neutral neighboring countries was brought under control by the allies, Germany began to feel a shortage of fat. This shortage was greater than was represented by her pre-war normal importation of fat, for inability to secure oilseeds and oil cake contributed to the deficiency of feeding stuffs. This necessitated a reduction of the cattle and hog population with a consequent reduction of the meat and animal-fat production. Because of the lack of such concentrated feeds as oil cakes the fat production -- and especially the butterfat production -- by the surviving animals fell below normal. And this was not all. The lack of concentrated feeding stuffs reduced the volume and the fertilizing value of manure, which in turn resulted in smaller yields of cereals, legumes, roots, and other crops.

It is obvious, then, that the oilseed trade is of vital importance to western Europe. It is not to be ignored by these nations in shaping their respective national agricultural policies.

VII. Concluding Observations

In preceding sections there has been sketched in broad outline and in contrasting colors the background against which the individual fats and oils must be viewed if their behavior as commodities fitting into the general economic scheme of the world is to be understood. The presentation is a failure if it has not made clear that there has been little systematic study of the subject, that it presents matter of great interest to students of economic theory, that there are wide gaps in basic information, and finally that there are many problems important to American national welfare. Let us return for a moment to consideration of some of them.

In the first place we need to know more than we do concerning the effects of the importation of vegetable oils upon our own producers of fat and especially upon the producers of lard and of butterfat. We need to know the effect, prospective as well as present, upon the mixed farming which is so important to our general national well-being. Because until recently we have been net exporters of fats and oils and because we are still heavy exporters of lard, we have paid little attention to these questions. Since the war the situation has been changing and it is now high time that it be analyzed objectively and taken into consideration in shaping national policy with reference to agriculture.

However, to appraise the situation touched upon in the preceding paragraph we need to know vastly more than we do concerning tropical and other fats that are offered for import into the United States -- the coconut, peanut, palm, palm kernel, soy bean, and other oils. We need to know more concerning their costs of production, existing acreage, trends of acreage, outlook for increased or decreased production, probable demand in the several consuming countries, character of the world trade, and the like. Comprehensive data and interpretation of data are needed for each case.

In our own country we need to know many things of which we are now ignorant but which are none the less of great importance for our national welfare. We need comprehensive detailed statistics, now largely lacking, of the ways and forms of consumption of the several sorts of fats and oils that disappear each year. Only by studying such data for a series of years will it be possible to forecast with any reasonable degree of probability the trends of consumption and the probable future demand for the different types of fatty raw materials. But such knowledge is essential if our national policy with reference to agriculture as well as to foreign trade is to be based upon a rational foundation rather than upon the accidental success before the Congress of one or the other of two warring groups representing supposedly or actually opposed economic interests.

We need, furthermore, to know more concerning the relative cost of producing vegetable oils in different regions by growing an oil-seed crop as compared with producing animal fat by feeding a fodder crop. Conceivably it might have been wiser policy for pre-war Germany to have encouraged by subsidy, tariffs, or otherwise the growing of oil-seed crops rather than to foster, as she did, so extensive a hog husbandry.

These are but a few of the important questions that obtrude themselves promptly upon the student. They are not so much individual projects for research as broad general fields for investigation. They are so broad that much of the field can best be cultivated by government agencies -- indeed, some of the problems cannot be attacked with hope of success in any other way. No other agencies have the resources or the power to gather the necessary basic statistical data. Only when these have been collected, tabulated, and made generally available can other agencies undertake the study of many of the economic aspects of the fats and oils situation. In the meanwhile it seems possible to mark off from these broader fields of investigation many specific smaller territories in which even now research may profitably be undertaken by agencies with lesser resources and less power than governments but with greater freedom of action and of opinion. It is toward the study and solution of problems of this sort concerned with the role of fats and oils in the world's economic situation that the Food Research Institute hopes from time to time to make some contributions.

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