VII EFFECTS OF THE THREE POST-WORLD WAR II REESSDNS ON UNITED STATES TRADE WITH LATIN AMERICA Thais fat the Dogma of M. A. MICHIGAN STATE UNIVERSITY John H. 'Wood 1959 .t .QOOOOC‘O‘..." OYOOCDOQQ—Q ‘0. “I". THESIS LIBRARY ABSTRACT Because of the high degree of economic interdependence among the nations of the world, business cycles initiated in one country are often transmitted to other countries. The international transmission of business fluctuations is particularly evident in trade between industrial and primary producing economies. Contractions in industrialized coun- tries cause imports, especially raw material imports, to be reduced. This has a depressing effect on the economies of the underdeveloped countries because of the passive movements in their balances of payments due to declines in export earnings. They undergo losses of international re- serves, declines in domestic economic activity and income and, conse- quently, are forced to reduce imports. This paper discusses the extent to which the above pattern has held true with respect to trade between the United States and Latin Amer- ica during the period since world war II. Because the Latin American countries rely on exports to the United States for substantial proportions of their national incomes, recessions in this country may be eXpected to cause recessions among the republics of Latin America. The objective of this paper is to discover whether or not, and to what extent, the 1948-“9, 1953-5h, and 1957-58 United States recessions have brought about balances of payments deficits, declines in national incomes, and reductions in im- ports of Latin American countries. The responsiveness of the major Latin American export commodities to changes in United States income during the postwar period is determined and the structure and importance of foreign trade of each of the seven largest trading republics is presented. These are used as a basis for studying the effects of each of the three postwar recessions on the balances of payments and domestic economies of the above mentioned seven countries - Mexico, Cuba, Venezuela, Colombia, Brazil, Argentina, and Chile. EFFECTS OF THE THREE POST—WORLD WAR II RECESSIONS ON UNITED STATES TRADE WITH LATIN AMERICA by John H. Wood A THESIS Submitted to the Department of Economics of Michigan State University in partial fulfillment of the requirements for the degree of MASTER OF ARTS DEPARTMENT OF ECONOMICS 1959 .,_‘)I/.r,. 5. , . ...,~' I ACKNOWIEDG} ENT The writer wishes to express his appreciation to his wife, Norma, who provided the typing and moral SUpport, the absence of either of which would have made the completion of this paper impossible. Grateful acknowledgments should also go to Professors Harry G. Brainard and Mordechai Kreinin for their many helpful comments and sug- gestions which contributed greatly to the completion of this work. TABLE OF CONTENTS CHAPTER PAGE I 0 INTRODUCTION 0 o o o o o 0 o O 0 0 o O o o o O O 0 o o o o 1 II. EFFECTS OF THE THREE POSTWAR UNITED STATES RECESSIONS ON TRADE WITH LATIN AMERICA . . . . . . . . . . . . . . . 5 III. LATIN AMERICAN COLT-DDITY MARKETS DURING THE POSTWAR UNITED STATES RECESSIONS - COPPER, LEAD, ZINC, WOOL - . o o o . o o . o 19 Copper 0 o o o o o o o o o o o o o o o o o o 20 Lead 0 o o o c o o o o o o o o o o o o o o o 25 Zinc o o o o o o o o o o o o o o o c o o o o 28 WOOI o o o o o o o o o o o o c o c c o o o o 31 IV. LATIN AMERICAN COMMODITY MARKETS DURING THE POSTWAR UNITED STATES RECESSIONS - IRON ORE, PETROLEUM, SUGAR, COFFEE, CACAO - .. o o o 35 Iron ore o o o o o o o o o o o o o o o o o o 35 Petroleum 0 o o o o o o o e o o c c o o o o 37 Sugar 0 o o o o o o o o o o o o o o c o o o 39 COffee o o o o o o o o 0'. o o o o o o o o o “2 Cacao . . . . . . . . . . . . . . . . . . . #9 V. THE EFFECTS OF POSTWAR UNITED STATES RECESSIONS ON SELECTED LATIN AMERICAN COUNTRIES - MEXICO, ARGENTINA, CHILE - . . . . . o o . . 52 MQXiCO o o o o o o o o o o o o o o o o o o 53 Argentina 0 o o o o o o o c o o o o o o o o 60 Chile 0 o o o o o o o o o o c o o o o o o o 69 VI. THE EFFECTS OF POSTWAR UNITED STATES RECESSION ON SELECTED LATIN AMERICAN COUNTRIES - CUBA, COLOMBIA, BRAZIL, VENEZUELA - . . o o o o 77 cuba o o o o o o o o o o o o o o o o o o o o 77 Colombia o o o o c o o o o o o o o o o o o o 87 BraZil o o o o o o o o o o o o o o o o c o o 94 Venezuela . . . . . . . . . . . . . . . . . 100 VII 9 CONCLUSION O O O O 0 O O O O O O O O O O 0 O O O O O O O O 10? BIBLIOGRAPIIY O O O O O O O O O O O O O O O 0 O O O 0 O O O O O O 1 12 CHAPTER I INTRODUCTION It has long been recognized that the international incidence of business cycles has been especially evident in trade between industrial and primary producing economies. Due to the nature of demand for indus- trial raw materials, fluctuations in the dunestic business activity of industrial countries produce fluctuations. often magnified, in the exports of primary producing countries. Since exports of primary producing coun- tries are normally larger, relative to national incane, than those of in- dustrial countries, fluctuations in the emort earnings of the fonner tend to exert a strong impact on internal economic conditions. Because exports are much larger than dunestic investments in underdeveloped countries, they are the more powerful generator of economic fluctuations; whereas, in industrial economies, investments are a more important cause of business fluctuations than are exports.1 Because of the relative inportance of investments and exports in industrial and underdevelOped countries, the following cyclical pattern might be expected to follow: a change in investment, industrial production, and income in the United States tends to produce a change in the exports of many underdeveloped countries to the United States, as well as to other countries whose economies are likewise affected by United States business cycles. To the extent that this relationship prevails over other variables, a definite cyclical pattern of trade between the United States and its suppliers of raw materials should develop as a result of business contractions 1For a discussion of the relative size of exports and investment in primary producing and industrial countries, see Wallich. Henry 0., aUnderdeveloped Countries and the International Monetary Mechanism" . Mona, Trade, and Economic Growth: Essays in Honor of John He Williams, pp.17-32. 1 in the United States. When demand for producers ' and consumers ', durables declines during a United States recession, decreased dmand (due to both decreased requirements and reductions in inventories) for the crude ma- terials and semi-manufactm‘es necessary for the production of those items causes a decline in the quantity and unit value of imports from under- developed countries. A decline in export earnings has a depressing effect on the national income of underdeveIOped countries, (because of the impor- tance of exports relative to national incane) , and causes a passive movement in the balance of payments which is often sufficient to bring about a de- ficit because of the predominant portion of the trade of may underdeveloped countries that is conducted with the United States. A decline in national income and international reserves tends to bring about a reduction in imports. The decline in international reserves is usually the more important reason for underdeveloped countries to reduce imports because it is these countries, more often than the industrial coun- tries, who have insufficient reserves of gold and foreign currencies. Con- sequently, during a recession in this country, United States eccports to underdeveloped countries should be expected to decline almost imediately after a decline in imports - long before the income effect has had a chance to bring about a balance of payments adjustment . The question now arises: to what extent do the above statements hold true for the postwar period? Furthermore, if they hold for some underdevelOPed countries and not for others , what factors determine the impact of United States business fluctuations on the balances of payments and domestic economies of particular countries? Have the international repercussions of American economic declines been exaggerated as a result of the experiences of the thirties? 0r, may it be assumed that "the economy 2 of the outside world is now reasonably immune from fluctuations in the United States economy; or that tools of international policy are avail- able to offset serious international effects of any future decline in the United States.'?1 As a means toward a partial answer of some of the above ques- tions, this paper attempts to ascertain the effects of postJWOrld'War II United States economic declines on Latin America and to arrive at a few conclusions regarding the relationships between business fluctuations in the United States and trade with Latin America. The objective is to de- termine the effects of the 19LI8-lr9, 1953-5“, and 1957-58 United States recessions on trade with Latin America in general, on imports of the major Latin American export commodities, and on the balances of payments and economic activity of the seven largest Latin American trading nations. The method of analysis which this paper follows with the purpose of arriving at the above stated objective largely revolves around (1) the responsiveness of the major Latin American exports to changes in United States economic activity, and (2) the structure of foreign trade of Latin American countries. The products involved in trade between the United States and Latin America are the medium by means of which recessions in this country are transmitted to Latin American countries. In recognition of this fact, chapters III and IV deal with the impact of the three post- war recessions on United States imports of nine of the major Latin American commodity exports. Chapter III treats those commodities which have been observed to be responsive to changes in income in the United States during the postwar period - capper, lead, zinc, and wool. Chapter IV discusses TPolak, J .J . . “The Repercussions of Economic Fluctuations in the United States on Other Parts of the World", International Monetary Fund Staff Pamrs, 1956-57, Vol.V. p.280. 3 five Latin American exports which have been relatively unresponsive to changes in United States business activity - iron ore, petroleum, sugar, coffee, and cacao. Chapters V and VI are concerned with the effects of the United States postwar recessions on particular Latin American nations - Mexico, Cuba, Venezuela, Colombia, Brazil, Argentina, and Chile. The countries are treated individually and their reactions to each of the three recessions are considered separately. The responsiveness of the balances of payments and domestic economies of these seven countries are discussed in the light of the structure of each country's foreign trade, i.e., the composition of exports by canmodity and by country, relation of exports to national incane, and international monetary reserves relative to imports. CHAPTER II EFFECTS OF THE THREE POS’IWAR UNITED STATES RECESSIONS ON TRADE 1-.- LATIN AMERICA 132 Danestic Econgxgy During the Three Recessions No two contractions are exactly alike, but the similarities apparent in the three United States recessions since World War II out- number the differences. Such contrasts that exist, with some exceptions, are mostly of degree rather than evidences of differences in the funda- mental underlying causes. All three of the postwar recessions were short relative to the National Bm‘eau of Economic Research's median contraction of eighteen months.1 Only three of the preceding twenty-four recessions were shorter than that of 1957-58, which had a duration of only nine months; the 1948-19 and 1953-51-b recessions lasted eleven and thirteen months, respectively. The tendency to liquidate inventories was the main, though not the only, feature characterizing the three postwar recessions. As stated by Geoffrey Moore: One of the typical features of brief business cycle contractions is that a large proportion of the decline in output is attributable to a decline in investment in inventories... . As a result, the decline in output exceeds the decline in sales, often by a wide margin. This was the case in 1957-58 and also in 1953—54 and 19148-149. In each of these brief contractions , the decline in inventory investment exceeded the decline in total final purchases and hence was a dgwnward factor contributing to the decline in gross national product. Table 11-1 compares changes in industrial production, disposable insane, corporate profits, and selected components of the expenditure side of gross national product during the three recessions. The percentages show changes from the peak to the trough quarters, seasonally adjusted at TBased on twenty-four contractions preceding that of 1957—58. 2Moore. Geoffrey 11., "The 1957-58 Business Contraction: New Model or Old?", American Econamic Review, May, 1959, pp.297-98. 5 annual rates. The decline in GNP was mildest during the 1953-54 recession although that contraction was the longest of the three. The deepest de- cline in GNP occurred during the shortest, but sharpest recession - that of 1957—58. Industrial production fell substantially during each recession, with the tendency to liquidate inventories causing the decline in output to exceed the decline in personal consumption expenditures. TABLE II-i CHANGES IN SELECTED INDICES DURING THREE UNITED STATES RECESSIONS _:rc_ent_chan,: from“ .- Gross National Product .- 3.3% - 1.8% .- 3.7% mutual PrOduction -13el'l' " 9e5 -1200 Disposable Personal Income - 2.4 + 1.6 - 0.“ Corporate Profits before Taxes -19.8 -18.6 —27.6 Personal Consumption Expenditures + 1.8 + 2.3 0.0 Durable Goods +13.9 - 3.3 ~11.9 Automobiles and Parts +31.6 ' - 8.3 -22.0 Furniture and Household Equipment 4- 8.5 - 1.1+ - 5.1 Other Durable Goods - 8.6 + 7.3 - 1.8 Non-durum. Goals - 2e9 + 0.8 + 0.6 Services + 501 + 7e° "’ 3e6 Gross Private Domestic Investment1 -30.) .- 7.8 ~26.2 Residential Nonfarm Construction +12.“ +12.9 - 4.1 Other Construction - 7.2 + “.3 - 5.1 Praducers ' Dm'able Equipment ' -20.l+ - 5.9 «20.1; Goverment Purchases of Goods and Services + 6.9 41.4 + 4.5 National Security + 5.3 -20.9 - 1.9 Other FederAl "' 905 -3106 “Sea State and Local. +16.1 +16.0 + 8.3 Sources: Survey of Current Business, 1919-1959; Federal Reserve Bank of St. Louis Mantra Review, 12/58. moans-50. IInventories are not shown here because of the impossibility of showing a percentage change from accmulation to liquidation of inven- tories. The change from accumulation to liquidation of inventories accounted for 72 per cent and 58 per cent of the decline in gross private domestic investment during the 19% and 1957-58 recessions respectively. The change in inventories accounted for more than the total change in gross private domestic investment during the 1953-514. recession - with in- creases in construction partially offsetting the decline in inventories. Disposable personal income declined only slightly in 1948-49 and 1957-58 and actually increased during 1953-54. This was attributable to several factors: first, transfer payments increased 17 to 21 per cent during each recession; second, income from rent and interest increased during each recession; third, dividend payments increased despite large reductions in corporate profits. Dividends increased during 1948-49 and 1953-54 and declined only 2.4 per.cent in 1957-58. Personal consumption expenditures did not fall during any of the postwar recessions. Declines in.spending on durable goods during 1953-54 and 1957-58‘Iere offset by'increased purchases of services and non-durables. During the 1948-49 contraction, the decline in consumer expenditures on non-durable goods was attributable to price decreases and consumers were able to divert income to spending for durables without having to reduce consumption of non-durables. Gross private domestic investment declined during all three of the postwar recessions. Reductions in inventories comprised an average of 70 per cent of the three declines in gross private domestic investment. Expenditures on plant and equipment also declined substantially during each recession. Increased spending on residential construction in 1953-54 partially offset the large decreases in spending on inventories and plant and equipent during that recession. Government purchases of goods and services increased during the 1948-49 and 1957-58 recessions but declined sharply during 1953-54. The decrease in government spending in 1953-54'mainly'resulted from.reductions in defense spending and stockpiling of strategic materials following the Korean armistice. Imports Dm‘ingg:the Recessiogs; Since there were few basic differences in the performance of the economy among the three postwar recessions, one would expect the foreign trade of the United States to react similarly during each of these re- cessions. The remainder of this chapter discusses the effects of the recessions on United States imports, by classes of commodities and by areas, with emphasis on trade with Latin America. Since the character of United States imports from specific areas is dependent upon the type of commodities which those areas export, it would be well to take a look at how the main categories of imports were affected by the three recessions. Table 11-2 shows the percentage changes in the value of United States imports during the three recessions according to the five canmodity classifications listed in the Survey of 0mg; Busi- 2233. The changes listed are from the peak twelve-month period to the low twelve-month period. For the 1948-49 and 1957-58 recessions the de- clines were between calendar years. For the 1953-54 recession the decline was from the fourth quarter, 1952 - third quarter, 1953 period to the fourth quarter, 1953 - third quarter, 1954 period. TABLE II-Z CHANGES IN VALUE OF UNITED STATES IMPORTS DURING THREE RECESSIONS .. BY CLASSES .. (Per cent change from peak twelve-month period to low twelve-month period) fission Crude Crude Manufactured Semi- finished" Materials Foodstuffs Foodstuffs & Manufactures Manufactures fiBeverages 1948-49 42.3% + 4.8% + 1.1% 41.0% - 4.8% 1953-54 . - 5.4 + 5.0 + 0.5 49.9 - 2.4 1957-58 -12.2 - 3.3 +19.1 - 9.0 +11.» Source: Survey ofrgurrent Business1 1Dates of table sources are, for the most part, not given in this paper because of the impracticability of listing the page numbers and titles of periodicals for tables which are comprised of data taken from periodicals over a twelve year period - 1948-59. It would be convenient for the writer 8 The value of United States imports of crude materials and semi- manufactures declined substantially during all three recessions. This is to be expected from the declines in industrial production during those periods. Imports of crude and manufactured foodstuffs were not as respon- sive to changes in United States inc one or industrial production as were other imports. The decline in the value of crude foodstuff imports during the 1957-58 recession was due primarily to the decreased price of coffee. Imports of finished manufactures declined slightly in 1948-49 and 1953-54 and increased substantially in 1957-58. The reaction of imports of manu- factured products to United States business declines is logical considering the high rate of consumer enq>enditures during the postwar recessions. The increase in imports of finished manufactures was especially important dur- ing the 1957-58 recession because United States purchases from abroad of this category of commodity have tended to increase, both in absolute amount and relative to total. imports, during the postwar period. Frau the figures in Table 11-2, it can logically be assumed that United States imports fran those areas exporting crude and semi-manufac- tured materials would show the severest declines during business recessions. These areas are the primary producing countries of Latin America, Asia, and Africa, with the exception of those countries exporting mainly food- stuffs. Table II-3 shows changes in the value of United States imports during three recessions according to the area of origin. The value of imports from Latin America fell during all three recessions as did those from Canada and the group listed as Others (mainly Africa, Asia, and Oceania). The small size of the reduction in imports if the reader would accept the statement for most of the remaining tables that they are calculated from data drawn from pertinent issues of the publications listed. For example , the figures in Table 11-2 above have been calculated from data obtained from a large number of issues of the m 2f Current Business between 1948 and 1959. 9 frcn Latin America during the 1948-49 recession was primarily due to the rising price of coffee during that period. The “.6 per cent decline listed for the 1957-58 recession would have been much larger if the periods used were 1956 and 1958. There was a sizeable reduction in the value of imports from Latin America during 1957 due to falling prices for non-ferrous metals and other industrial raw materials as a result of increased capacity built during the Korean War period and immediately thereafter; but, most of the 1957 decline cannot be attributed to the recession, which began in the fourth quarter of that year. TABLE 11-3 CHANGES DJ VALUE OF UNITED STATES IMPORTS DURING THREE RECESSIOI‘IS (Per cent change from peak twelve-month period to low twelve-month period) M I Recession Total Latin Em'ope Canada Others a America 1948.49 4.0% 4.1% «49.6% 4.6% 41.2% 1953.51“ -705 .800 -1192 One9 - 6e8 1957-58 -2.8 Jué + 6.9 -7.3 - 7.5 aMainly Africa, Asia, and Oceania Source: Survey of Current Business The sensitivity of United States imports frat Latin American countries to domestic economic activity depends on the type of cosmodity imported from each country. The Latin American republics can be classi- fied under three general headings according to the type of comodity ea:- pcrted to the United States: (1) those countries exporting mainly food- stuffs (coffee, sugar, cocoa, and bananas); (2) those countries snorting mainly non-ferrous metals or wool, and ; (3) those countries in which peter is the predominant export, namely Venezuela. Table II-J-b lists, under the above three headings, the absolute values and changes in United States imports fran Latin America during the three postwar recessions. 10 TABIE II-llv UNITED STATES IMPORTS FROM LATIN APERICA DURING THREE RECESSIONS k (MILE Grow) A Grog B Group C Total 19% 1346 717 271 2333 1949 1387 +3.09% 636 - 9.9% 278 + 2.5% 2301 4.49% 49/52-39/53 2022 1135 #27 3584 “9/53-3Q/54 2010 -o.693 808 -28.8% 11-80 442.14% 3298 43.0% 1957 1937 928 899 3764 1958 1800 4.1% 898 - 3.2% 892 - 0.8% 3590 41.6% Group A - Countries exporting mainly foodstuffs: Brazil, Colombia, Cuba, Haiti, Dominican Republic, Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica, Panama, Ecuador, and Paraguay. Group B - Countries encporting mainly non-ferrous metals and wool: Mexico, Chile, Peru, Bolivia, Argentina, and Uruguay. Group C - Countries exporting mainly petroleum Venezuela. Sources: égrvey of Current Business, Foreign Trade Repprg As Table 11.11 indicates, imports from Group A, the countries ex- porting foodstuffs to the United States, have not shown a high degree of responsiveness to United States recessions. Fluctuations in the price of coffee daninate movements in the value of imports from those thirteen coun- tries and, as one might guess, the price of coffee rose in 19118-119 and de- clined during 1957-58. The fall in the unit value of coffee and cacao imports during 1958 more than offset the increased value of sugar imports. Although the price of coffee rose in 1954, the decreased quantity of coffee imports during that year caused the value of coffee imports and, therefore, imports frun the Group A countries to decline. Group B is composed of those Latin Amarican countries eacporting primarily industrial raw materials - non-ferrous metals and wool - other , than petroleum to the United States. Based on the figures in Table III-2, which showed that United States imports of crude and semi-manufactured materials were very sensitive to declines in United States industrial acti- vity, it is logical that imports from these countries should decline during United States recessions. United States industrial raw materials imports 11 fran Latin America declined very much in line with declines in industrial production. Industrial production, as measured by the Federal Reserve Board's index, was 8.3 per cent lower in 1949 than in 19118. Imports of crude and semi-manufactured materials fell 11.6 per cent and imports from the Group B countries declined 9.9 per cent. As is the case for most re- cessions, the decline in total value was attributable to reductions in both quantity and unit value. The exceptionally large decline in the value of imports from the Group B countries in 1951+ was due more to declines in quantity than in price decreases.1 Increased demand from Europe strengthened raw materials prices during the 1953-51+ recession, whereas declines in the economies of Western Europe during 19118-149 had accentuated the adverse affects. of the United States recession on raw materials prices. The decline in United States imports from Mexico, which accountedfor over 35 per cent of imports from the Group B countries, was an important reason why the reduction in imports from that group of countries was greater in 1953-54 than in 19118-119 or 1957-58. The value of imports fran Mexico fell by 19 per cent in 1953-5% whereas imports from that country increased in both 1949 and 1958. Imports from the Group B countries declined less severely than those fran the foodstuff exporting countries during the 1957-58 recession. This was attributable to several factors: (1) the increase in agricultural imports from Mexico; (2) the increase in meat imports from Argentina: (3) metals imports had already fallen substantially in 1957 and the decline in industrial production in 1958 did not cause that category of imports to be mduced much farther. ~ TLovasy, Gertrud. "Prices of Raw Materials in the 1953-51: United States Recession", INF Staff Pgmrg, Vol. V, 1956-57, Washington, D.C.. 131301474730 1 2 Mexico has the most diversified eXport schedule of the countries in Group B. Whereas the other five countries in that group rely on the non-ferrous metals or wool for at least 60 per cent of their exports to the United States, Mexico' s exports to the United States are comprised 50-60 per cent of agricultural products and only about 25 per cent metals. Consequently, Mexico's balance of payments with the United States is not as responsive to recessions in this comtry as are the balances of payments of the other Group B countries. If one were to omit Mexico, the exports of the Group B countries to the United States would have declined during each of the three recessions as follows: 1948-49, 16.8 per cent; 1953-54, 34.4 per cent: 1957-58, 11.4 per cent. From this one can see that United States recessions have the greatest impact on trade with the following five Latin American countries .. Argentina, Uruguay, Chile, Bolivia, and Peru, and a sauewhat lesser, but still significant, impact on trade with Mexico. Venezuela has been placed in a separate category, rather than in Group B because the long-run increase in petroleum imports has overshadowed the tendency for petroleum consunption to decline during United States re- cessions. Imports from Venezuela, which have increased relative to total imports frcm Latin America, declined only during the 1957-58 recession and then by less than one per cent. The value of petroleum imports and of . imports frcn Venezuela increased during the 1948-119 and 1953-54 recessions. The major distinction that can be found in United States - Latin American trade among the postwar recessions is in the reaction of the Latin American countries to declines in imports; that is, in curtailment of imports ten the United States subsequent to a decline in dollar earnings. These countries , primarily by means of import and exchange controls , reduced imports from the United States as a result of a reduction in exports during 13 the 19148-119 and 1957-58 recessions. Primary producing countries need a large supply of foreign exchange reserves relative to imports because of seasonal and cyclical fluctuations in their balances of payments. How- ever. the underdeveloped nations have a tendency to spend foreign exchange as soon as it is acquired, and, as a result, they have insufficient re- serves to weather a passive movement in. their balance of payments.1 The Latin American countries had acquired large amounts of gold and foreign exchange during World War II because of the large demand for their products during wartime and because they were unable to purchase manufactured pro- ducts from the belligerent nations. With the end of World War II, these countries increased their imports of capital goods and luxuries at a faster pace than could be supported by their current earnings of foreign exchange. Consequently, the international reserve holdings of Latin Amer- ican countries declined by one-fourth between the end of 19116 and the end of 19148 (from $3.97? million to $2,911.53 million) .2 With the advent of the United States recession and the resultant decrease in exports, nearly all Latin American countries found themselves in a weak international mone- tary position. Most republics of Latin America, as a result of the com- bination of decreased foreign exchange earnings and a high demand for 1Ragnar Nurkse, in his book for the League of Nations on inter- war currency problems, discusses balance of trade fluctuations of eighteen countries during the interwar period. No of Nurkse's observations which are worthy of notice are: (1) the countries with highest degree of trade- balance fluctuations were borrowing countries and exporters of primary products; and (2) those countries with the most “need" for international reserves (i.e., those with the greatest fluctuations in their balances of trade) were the ones which did not have the inclination or ability to hold them. I'A poor country is less likely than a rich one to sacrifice potential imports and to tie up some of its limited wealth in an inter- national cash reserve.“ (International Currengy Memence, League of Nations, 19%, pp.91-92.) 2Economic Commission for Latin America, Recent Develoments fl ms in the Economy of IathLAmerjiga, Mexico City, May 28, 1951, p.22. 1h imports , adopted complicated systems of exchange controls and import restrictions.1 They reduced imports of capital goods and severely cur- tailed imports of luxuries with the result that imports fran the United States declined by 17 per cent between the periods indicated in Table II-5. Table II-5 shows the values of United States exports, in total and to Latin America, during the twelve-months in which exports were at their pro-recession high and during the twelve-months in which exports were at their lowest. TABLE II-5 UNITED STATES EXPORTS DURING THREE RECESSIONS (mill.$) W" Total To Latin America Amount Percentage Amount Percentage Change Change 3/u8.2/49 12,808 2,992 3/u9-2/50 10,206 -20.3 2,u75 -17.3 1953 15.723 2.919 1954 15.107 - 3.9 3.195 + 9.5 1957 20,805 u,l+60 1958 17,815 ~14.b 4,050 - 9.2 Source: Survey of__Current Business Although the 1953-511 recession was the postwar recession during which United States imports from Latin America suffered their severest decline, Latin America increased its purchases fran the United States during that period. The reasons for the increased exports (to Latin America during 1954 were as follows: (1) many Latin American countries had undergone severe recessions in 1953 and had reduced imports frm the 1For a thorough—going discussion of the trends in Latin American exchange controls during the postwar period, see ,Schott, Francis E"; , "The Evolution of Latin American Exchange—Rate Policies Since World War II”, Essays in International Finance, No.32, January 1959, International Finance Section, Department of Economics and Sociology, Princeton Univer- sity, Princeton, N.J. , 15 United States during that year.1 As income increased in 1951+, despite the decline in exports to the United States, they imported nary products that had been deferred from 1953 because of reduced economic activity; (2) the 1953-51+ recession in the United States did not spread to other countries as had the 19148-18 decline. The economics of Latin America and Western Europe were on the upswing in 1951+ and were healthy enough to weather a decline in sales to the United States. Because of the boom in Western Europe, Latin American exports to that area increased and the overall balance of trade of Latin America improved during 1954 despite the de- cline in smarts to the United States: (3) as Table 11.6 shows, most of the major Latin American countries were in a stronger international position at the beginning of the 1953-54 recession than they had been at the begin- ning of the preceding United States recession. Consequently, they were more capable of withstanding a decline in dollar receipts without being forced to restrict imports. Of the seven countries (which comprise 80-90 per cent of Latin America's foreign trade) listed in Table II—6, only two - Brazil and Chile - held a smaller supply of gold and dollars relative to imports in 1953 than they had held in 19148. The other five countries, particularly Argentina, were in substantially stronger inter- national monetary positions in 1953 than in 19118. This, along with the factors listed above, probably accounts for the increase in Latin American purchases from the United States in the face of decreased exports to this comry e 1These recessions preceded and were independent of the 1953-54 United States recession. They generally were caused by a slowing of the rate of domestic investment and by a general contraction in demand caused by restrictive policies in some countries and by changes in inccaue distribution. ECLA, Economic SE19! of Latin Amazica 1253, 1951;, p.h. 16 TABLE II-6 RATIO OF GOLD AND DOLLAR RESERVES TO IMPORTS OF SEVEN LATIN AMERICAN COUNTRIES (Reserves at end of gar to agggate annual flows: . 1.9118 1:953 4957 Mexico 32% 116% 119% Cuba 97 108 ‘18 Venezuela 65 73 93 Colombia 30 L13 I45 Brazil 39 32 31 Argentina 23 66 20 Chile 37 36 26 Sources: Federal Reserve Bugetin, UN Statisticalcgearbgojlg United States exports declined in 1958, both to Latin America and to the rest of the world. This was partly a reaction to reduced imports by the United States and partly the result of increased competition for overseas markets from the revitalized countries of Western Europe. United States airports had increased substantially during 1956 and 1957 (the total value of merchandise exports in 1957 was 28 per cent over that in 1955: exports to Latin America increased 17 per cent in 1956 but declined in 1957) and it was not to be expected that the rate of increase of those years could be maintained. Also, as the EurOpean economies have become able to supply more of their own requirements and to export manufactured products as well. they have regained many of their Latin American markets which they lost during World War II. Table 11.? shows the downward trend of the proportion of Latin America's foreign trade that is conducted with the United States. This trend is similar to the one following World War I. During both world wars, trade was diverted fra peacetime patterns and Latin American countries that traditionally had transacted the bulk of their foreign trade with EurOpe were forced to buy from and sell to the United States. Following both World War I and World War II, trade between Latin America and Europe has tended to become adjusted to prewar patterns. 17 This trend, it it continues, should make: the economies of Latin America less sensitive to United States business fluctuations except insofar as those fluctuations are transmitted to Europe and result in a decline in European imports from Latin America: this happened in 1948-49 and in several prewar United States business declines. TABLE II-7 PROPORTION OF TOTAL FOREIGN TRADE CONDUCTED WITH THE UNITED STATES OF SEVEN LATIN AMERICAN COUNTRIES Imports Exports 1&8 1951 A956 1948 « M Mexico 87% 81% 78% 75% 74% 73% Cuba 80 76 , 7b, 52 61 65 Venezuela a 73 67 59 13 37 110 Colombia 70 62 61 84 83 72 Brazil 52 28 37 43 48 ’49 Chile . 42 53 58 53 611 ’48 Argentina 37 17 20 10 19 12 a-The proportion of Venezuela's total exports which is ultimate- ly destined for the United States is actually far in excess of the figures shown in this table. Much of Venezuela's crude petroleum is exported to the Netherlands Antilles , where it is refined and shipped to the United States and Western Europe. Source of data: UN Statistical Yearbook In summary, United States imports from Latin America declined during all three recessions, primarily due to reductions in demand for industrial raw materials. The reactions of those economies to declines in dollar earnings seemed to depend on (1) the phase of the business cycle that they were in when experiencing a decline in exports, (2) levels of international reserves, and, (3) economic activity in Europe. 18 CHAPTER III LATIN AMERICAN COMMODITY MARKETS DURING THE POSTWAR UNITED STATES RECESSIONS - COPPER, IEAD, ZINC, WOOL - In order to understand the effects of United States business fluctuations o n Latin America, one must understand the impact of these fluctuations on the markets for the commodities which the Latin American countries export to the United States. Most of the Latin American na- tions are, to a large extent, export economies and the majority of these countries rely on one primary commodity for the predominant share of their foreign exchange earnings. Consequently, changes in the price and the quantity demanded of these products, resulting from economic declines in the United States, have a strong impact on the national incomes and balances of payments of the Latin American countries. Chapters III and IV discuss the effects of changes in United States demand during the 1918-49, 1953-54, and 1957-58 recessions on nine of the major Latin American commodity eXports to this country. These commodities, which comprise 80-90 per cent of the total value of United States imports from Latin America, are listed in Table III-1. All of these coumxodities are primary products - either raw materials for United States heavy industry or crude foodstuffs. Table III-1 shows that two commodities, coffee and petroleum canprised over 6.0 per cent of Latin America's total exports to the United States in 1957. Consequently, variations in United States demand for those two commodities should be expected to have a large effect on total Latin American dollar earnings. The right-hand column of Table III-1 indicates the proportion of total United States imports of each commodity 19 obtained from Latin American suppliers for the year 1957. For example, Latin America supplied 88 per cent of United States coffee imports and 28 per cent of wool imports in 1957. TABLE III-1 MAJOR UNITED STATES IMPORTS FROM LATIN AMERICA (mill.of $) Imports Imports from 1:er 1948 1957 1957 $29—57 Coffee 686 1207 88% ' 32.6% Petroleum and products 379 1111+ 72 29.6 Sugar ‘ 312 356 78 9.1+ Copper, metals and manufactures 170 206 59 5.3 Iron ore 10 152 54 4.0 Cocoa and cacao beans 91 69 51 1.8 Zinc, metals and manufactms 11 66 43 1.8 Lead, metals and manufactures ’47 61+ 1+1 1.6 Wool, Immanufactured ' 139 59 28 1.6 Sources: Survey of Current Business, goreig Trade Reports. Foreign Commerce Weeku, April 13, 1959, p.5. Those commodities which have shown a high degree of income elas- ticity, with respect to imports into the United States, during the postwar period are discussed in this chapter - copper, lead, zinc, and wool. COPPER Since the bulk of copper output is consumed in the. production of durable (capital and consmner) goods, the demand for copper tends to be a function of the demand for durable goods. The demand for durable goods has been unstable in the past, and therefore, the demand for copper has undergone wide fluctuations. Since mine output is relatively inflex- ible, changes in the level of production usually come too late to prevent major fluctuations in price. Fluctuations in price and output have tended to reinforce each other, thus increasing the amplitude of changes in the 20 f: of Total ' receipts of the copper exporting countries.1 The United States is the world's largest producer and consumer of copper. During 1937-38, the United States ranked fourth among copper importers and was actually a net eoqaorter of copper.2 However, during and after World War II, domestic consumption of copper advanced at a faster rate than domestic production. The United, States now ranks second only to Western Germany as an importer of copper ores and manufactures. United States imports of copper from Latin Arnerica declined substantially during periods of recession prior to World War II. Table III-2 shows changes in United States domestic production of copper and imports from Latin America during four economic declines from 1907 to 1938. Since the United States has become more important in the world copper mar- ket, changes in United States demand for copper should be expected to exert an even stronger impact on the export receipts and domestic economies of copper producing countries during the postwar period than during the period prior to World War II . TABLE III-2 UNITED STATES PRODUCTION OF COPPER AND IMPORTS FROM LATIN MERICA Domestic Production orts from Latin America f Change % Change 2 Change a Change “in Value in Volgme . Q Value in Volume 1907-08 48% - 9% 42% 48% 1920-21 -71 -58 .50 .29 1929.32 -90 -73 .86 .63 1937-38 .45 -33 .140 -20 Source: ECLA, "United States Capacity to Absorb Latin American Products". 1951 Table III-3 shows percentage changes in United States consumption, production, and imports of copper during the three post-World War II I 1United Nations, Department of Economic and Social Affairs, Non-Ferrous Metals in Under-Developed Countries, New York, 1956. 2Ibid.. p.36. 21 recessions. The percentage figure, Opposite the years designating the recession periods, shows the degree of change from the peak twelve-month period to the low twelve-month period. The years 1957 and 1958 are listed separately because each year showed substantial declines from the preced- ing year. The declines in the consumption, production, and imports of cepper during 1957 were mainly the continuation of a weakening demand dating fran the end of the Korean War. The 1957-58 recession served to accentuate this decline in the domestic and world markets for copper. TABLE III-3 COPPER: UNITED STATES CONSUMPTION, PRODUCTION, AND IMPORTS DURING THREE RECESSIONS (Per cent decline from preceding 12-month period) Domestic Production and Deliveria Quantity Value Price Deliveries Production Mine of Imports of High Low of Refined of Refined Production (refined, Imports ($/lb.) unrefined and scrap: 1998-119 -2552 44.11% 42.09: + 8.3% 44.3% .2320 .1653 1953-5‘1 ~22.9 - 6.0 - 9.7 -21.7 .30.0 .2990 .2960 1957 -12.2 + 9.5 - 2.1 - 0.3 -24.3 .0673 1958 "' 6e6 " 8e5 " 8e8 -15.“ .3ug9 921402 Source: Survey of Current Business The decline in United States copper consunption and production led the 1948-18 downturn in overall business activity by one quarter. However. the decreased demand did not at first affect imports of copper, due to a strike in the Utah mines. Consequently, although GNP turned down in the first quarter of 19149, the quantity and value of copper inports did not begin to decline until the third quarter of 1949. The decline in the quantity of imports was brief but the fall in the price of copper was longer and more severe than the decline in volume. During the period from the third quarter of 19169 through the second quarter of 1950, the value of 22 copper imports fell by approximately 11+ per cent while the volume of copper imports actually rose by about 8 per cent. The fall in price occurred during the first half of 1949 (before the decline in total imports) and was the result both of decreased demand by Western EurOpe and the reces- sion in the United States. The prices listed in Table III-3 are the high prices, occurring prior to the recessions, and the low prices, occurring during the recessions. The variations between average yearly prices are not as large as the variations between those prices listed in Tables III-3, III-5, and III-7. The decline in domestic consumption and production of copper during the 1953-54 recession was similar to that occurring during 1948-49. However, the quantity of copper imports into the United States fell by approximately 22 per cent during the period July, 1953 to June, 1954 from the preceding twelve-month period. The price of copper fell only slightly during 1953 because of increased demand by Western Europe, which offset the decline in'United States purchases.1 The experts and production of most of the major suppliers of cepper rose during 1953-55 (including the United States and Chile), with most of these additional amounts going to the United Kingdaa, Belgium, France and west renaming.2 As a result of the increased European demand, the price of copper remained stem, and the loss in Latin American dollar earnings from copper was mainly the result of decreased volume. The decline in United States consumption of copper during 1957-58 led the decline in gross national product by nearly a year. The decline in United States consumption and production of copper during 1957-58 was more prolonged, though not as severe, than the consumption and production ilevasy and Zassenhaus, op, cit.. IMF Staff Papers. ZECLA, (E/CN.13/L.1), p.15. 23 declines which occurred during the 19148-119 and 1953-51+ recessions. The quantity of imports during 1957 stayed at near 1956 levels but the value of imports declined substantially. This price reduction occurred as the result of (1) an expansion in world output as investments made at the time of the Korean War came into production and (2) a levelling off of ccpper demand in both North America and Western Europe.1 The combination of decreased European demand, recessions in the United States and Canada, and expanded world supplies caused the sharpest decline in copper prices of the postwar period in 1956-58. As a result of this price decline, com- bined with a decreased volume of imports, the value of United States copper imports during 1958 was 51 per cent below that of 1956. The value of copper imports from Latin America registered a 61 per cent decline during the same period. United States business recessions caused the value of copper imports from Latin America to be drastically reduced during 1999-50, 1953-54, and 1957-58. Table III-ll» lists the value of United States copper imports preceding and during each of the postwar recessions. The postwar trend of United States copper imports has been upward, but the Latin Amer- ican countries have provided a progressively smaller proportion of the total. In addition, United States recessions have had a stronger impact on copper imports from Latin America, particularly Chile, than on other suppliers . 1United Nations, Commodity Survey 195;. 1959, p.163. 21$ TABLE 111.11 ‘ COPPER: VALUE OF UNITED STATES IMPORTS DURING THREE RECESSIONS (metals and manufactm'es: mill.of $) Chile Mexico Peru OtherTJi. Total L.A. Rest of World 30/98-20/119 145.11 25.2 9.7 9.1 189.5 53.1 39/49-20/50 84.6 23.1 8.3 '~ 5.5 121.5 86.5 39/52-20/53 297.3 1+2.3 9.5 11.6 360.7 160.3 30/53-29/59 148.5 34.6 15.9 11.8 210.8 153.5 1956 192.1 191.3 30.8 13.6 280.8 2221.1 1957 113.2 27.11 23.5 11.5 205.6 176.6 1958 711.7 19.1 10.2 9.2 110.0 138.9 Sources: Survey of Current—Business: Egreim gade Reports In sunnnary, United States business declines have affected copper imports from Latin America similarly during all three postwar recessions. A decline in United States consmnpticn of copper leads to a decline in production and imports. This, in turn, leads to a decline in price which reinforces the decline in quantity, causing a further drop in total value. LEAD As in the case of copper, the position of the United States was reversed from that of a net exporter of lead before World War II to a net importer during and after World War II. Between 1937 and 1950, a lead Import surplus of 61,000 short tons was converted into a deficit of 2211.000 short tons. There was an eight fold increase in the quantity of United States lead imports between 1936-38 and 19117-50. The United States ranked first among theworld's importers of lead ores and metals during the post- war period compared to sixth place during the 1930's.1 The major uses of lead in the United States are in storage batteries, mainly for motor vehicles, and in building and construction. IUnited Nations, Ngu—Fegous Metals in Under-Develofl Countries, New York, 1956, p.36. 25 Since these activities fluctuate closely in response to total business activity, the consumption of lead should be expected to decline during United States business recessions. Table III-5 shows the declines in United States consumption, production, and imports of lead during the three postwar recessions. TABLE III-5 LEAD: UNITED STATES CONSUMPTION, PRODUCTION, AND IMPORTS DURING THREE RECESSIONS (Per cent decline from preceding 12-month period) —:._ Recession Total Mine Quantity Value of Price Consump. Prod. of Imports Imports High Low Lax-metal) (millJ) E1 113.) was-£19 - 6.1% + 11.2% -26.5% 419.2% .2150 .1063 1953-51+ - 3.0 -11.9 -29.o 414.0 .1900 .1282 1957-58 ~12.7 -21.6 +10.1 -15.9 .1615 .1086 Sources: Suggey'9£_Current Business, Foreign Trade Reports During the 19h8-h9 and 1953q5h recessions, small declines in United States consumption resulted in large declines in the quantity and value of United States imports. In contrast to the case for capper, lead consumption in Western.Europe during 1953q5h'was not enough to offset the decline in United States demand, and consequently, the price of lead fell 'by nearly one-third between 1952 and 1954. During the 1948-h9 and 1953-54 recessions, lead imports were curtailed more severely than was domestic mine production. The reverse was true during 1957-58. During 1957-58, United States producers took advantage of falling lead prices to build up stocks of lead ores and re- fined lead. As a result, the quantity of United States lead imports in- creased during 1958. However, the price of lead fell due to the decreased demand.by United States and‘western.Eur0pean consumers. ‘Because of the 26 decline in price, the value of lead imports into the United States in 1958 fell by 15 per cent from the previous year. The value of United States lead imports from Latin America de- clined during two of the three recessions. Table III-6 shows the value of imports immediately preceding and during each one of the declines in lead imports. Three years are listed for the 1953-5h recession because of the prolonged decline in imports fran Latin America during that period. United States inrports fran Mexico and Peru continued to decline in 1954 after imports'fran other areas had recovered. The value of imports from Latin Anerica increased during 1958 despite a 28 per cent decline in im- ports from other areas - mainly Canada. An increased value of lead im- ports from Peru and Bolivia offset a decreased 1958 value for Mexico. The value of lead imports from Latin Anerica declined less than those from other areas during the 1918-49 recession while the decline during 1952-54 was approudmately the same for Latin America as for other regions. TABLE III-6 IEAD: VALUE 08 UNITED STATES IMPORTS DURING THREE RECESSIONS (10111.23) -———.—.~—-.-- ..-..--_ WM -— Total L.A. Rats of Mexico Peru Other L.A. World 3Q/h8-2Q/49 54.2 14.4 10.9 79.5 82.1 3Q/lr9-2q/50 36.3 6.9 2.2 45A 36.? 1952 67.8 23.1 10.7 101.6 105.11 1953 35.4 19.0 2 5 56.9 58.9 1954 19.1 13.1 5 7 37.8 83.8 1957 32.6 22.8 8 6 63.9 93.1 1958 27.5 28.9 8 7 65.1 66.7 Source: Foreign Trade Reports The effects of United States recessions on imports of lead from Latin America were similar to those for copper. The same pattern existed 2? for both copper and lead - a decline in domestic consmnption and production leads to a decreased volume of imports and a falling price, both of which contribute to the decline in the value of Latin American airports to the United States . ZINC Similarly to the cases of lead and copper, the United States changed from a net exporter of zinc in the prewar period to a net importer during and after World War II. Imports of zinc into the United States during the 1930's were extremely small relative to the imports of other countries. For example, during 1937-38, the United States imported only five per cent as much zinc as did Belgim-Luxembourg, the world's largest zinc importer at that time. However, imports of zinc into the United States increased almost fourteen times between 1936-39 and 1947-50 and the United States emerged as the world's largest zinc importer in the postwar period.1 The principal uses of zinc are for plating steel sheets and for use in die casting. Consequently, the demand for zinc, like that for cop- per and lead, tends to fluctuate in relation to domestic production of durable goods. Changes in United States consmnption, production, and im- ports of zinc during the three postwar recessions are shown in Table III-7. Domestic consumption and production declined substantially during each recession. The quantity of zinc imports rose somewhat during 19119-50. However, the price declined by over #0 per cent and consequently, the value of United States imports of zinc fell by 111.3 per cent during that period. IUnited Nations, Non-Ferrous Metals-in Under-Qevelgped Countries, NOW York. 1956. p.350 28 TABLE III-7 ZINC: UNITED STATES CONSUMPTION, PRODUCTION, AND IMPORTS DURING THREE REGESSIONS (Per cent decline from preceding 12amonth period) Recession Consmnption Primary Mine Quantity Value of Price Production Prod. of Imports Inports High Low of Slab (35/15.) iinc 1948.49 -14.8% - 4.4% - 5.1% + 5.9% -14.8% .1750 .0932 1953.54 ~15.5 -10.6 ' -32.6 -16.4 .40.? .1950 .0938 1957-58 -18.0 -20.? .25.2 -16.6 .40.9 .1350 .1000 Sources: Survey of Current Business, Eoreign Trade Reports The 1953-54 recession brought about a decline in domestic con- sumption of zinc and a reduction in manufacturers' inventories. Both of these factors contributed to a lower United States demand for zinc imports. The decreased quantity of imports, coupled with a price decline of over 50 per cent, caused the value of imports to be reduced by 1&0 per cent «- most of which was brought about by a cutback in imports from Mexico. The decline in domestic consumption and production of zinc during the 1957-58 recession was more severe than the declines in domestic zinc activity which occmed during either 19148-99 or 1953-51+. Conse- quently, the declines in the quantity and value of imports was much greater than in 19148-49 and slightly more than in 1953-54. The effects of postwar recessions on consumption, production and imports of zinc have been much the same as for copper and lead. A decline in domestic durable good production causes a decline in the quantity de- manded and price. This decreased consumption encourages producers to re- duce their inventories. The reduced level of consumption, accentuated by the liquidation of inventories, causes a decline in domestic production 29 and imports. The reduced demand for imports, coupled with a relatively inelastic supply, brings about a large decline in price. The decline in both the quantity and value of imports causes the fall in the total value of imports to be magnified. Table III-8 lists the value of United States imports of zinc immediately preceding and during three business declines. The value of zinc imports, both in total and from Latin America, declined during all three recessions. The decline was relatively slight during the 1948-49 recession but this was partially due to the fact that zinc imports had been declining prior to the recession and the decline during 1949-50 began from an already low level of imports. TABLE III-8 ZINC: VALUE or UNITED srmzs IMPORTS DURING THREE RECESSIONS (metals and manufactures: mill.$) I___ W ...;_ W Mexico Peru Other L.A. Total L.A. Rest of .i Wor_l_d___ 39/48-20/49 ~ 11.4 1.9 0.06 13.4 36.5 39/49-29/50 9.7 1.9 0.02 11.6 30.9 1952 57.1 11.8 6.7 75.6 73.7 1953 16.7 9.4 2.1 28.2 72.4 1954 14.7 15.0 2.2 31.8 56.6 1957 33.4 28.1 4.1 65.6 88.2 1958 15.2 15.7 1.9 32.8 55.6 Source: Lorain} Tgade Reports Three years are listed for the 1953-54 recession. This is done to illustrate the fact that the decline in imports from Latin America led the decline in zinc imports from other areas. The value of zinc imports from Latin America fell by 63 per cent in 1953 while imports from other regions fell only two per cent. In 1954, imports from Latin America re- covered slightly (except for Mexico) while imports from the rest of the world fell by about 22 per cent. 30 The 1958 decline occurred before imports of zinc had reached pro-1953 levels. The value of United States zinc imports in 1958 was nearly identical to the value of imports in 195“. However. the 1958 de- cline started from a lower level than the decline which occurred during 1953-51+. Hence, the later reduction in zinc imports does not appear to be as severe as the earlier one. WOOL Apparel and carpet wools are the two important types of wool imports into the United States.1 The United States produces a large quantity of apparel wool which does not vary substantially from year to year or over the long run. Production of carpet wool in the United States is negligible . The volume of United States apparel wool imports from Latin America has fluctuated in cycles of two to three years against a long-term downward trend beginning in the 1920's. Carpet wool inports, conversely, have shown a rising trend and have exhibited fluctuations of relatively minor amplitude. This contrast in behavior is due to the diff- erence in the domestic production of these two types of wool in the United States. Dm'ing depression periods, United States production of apparel wools is sufficient to supply most of the domestic requirements, while in prosperous times, with a rising consumption of wool, substantial imports are needed to sUpplement United States production. Therefore, imports meet“ marginal requirements determined by the spread between a relatively fixed domestic supply and a fluctuating domestic consumption of apparel wools. Inventory adjustments in the United States apparel wool industry are undertakenlargely in relation to imported rather than domestic wools. IThis discussion of the causes of fluctuation in U.S. wool im- ports is taken from a discussion of the subject in E/CN.12/226. pp.110—112. 31 Fluctuations in apparel wool inports due to both inventory adjustments and changes in consumption, show the same basic pattern since imports are limited to the spread.between (1) total consumption, or business estimates of consumption, and (2) United States domestic apparel wool supply. Small changes in consumption or inventories, therefore, are likely to cause major fluctuations in.imports of apparel wool. Carpet ‘wool imports ordinarily show much less variation than apparel wool in- ports, due to the fact that United States production of carpet wool is negligible. Nevertheless, imports of carpet wools, as well as those of apparel wools, fluctuate in response to movements in United States busi- ness activity and consumer income, though in differing amplitudes. The above discussion of the causes of fluctuations in United States wool imports refers primarily to the prewar period. Nevertheless, events of the years following‘world‘war II indicate that the same factors prevailed during the postwar period. Table III-9 shows changes in the consumption and imports of wool during the three postwar United States re- cessions. The total amount of these declines can not be attributed to the recessions since the long-term.trend in both the consumption and imports Def wool is downward. Rather, periods of recession in the United States serve to accentuate this longerun decline. As indicated in Table III-9, the three recessions had similar effects on the consumption and mmports of wool. United States mill con- sumption of apparel and carpet wools declined between 22 per cent and 28 per cent during each of the three recessions, and the value of wool.imports declined between 18 and 31 per cent. In each case, the greater the de- cline in domestic consumption, the more severe was the reduction in the value of imports. Civilian consumption of apparel wools declined relatively 32 little during 195“» but a 96 per cent reduction in government orders fol- lowing the Korean amistice accentuated the decline caused by the fall in civilian purchases. This was part of the large decline in government expenditures during the 1953-50, recession. TABIE III-9 WOOL: CHANGES IN UNITED STATES CONSUMPTION AND IMPORTS DURING THREE RECESSIONS (Per cent shows change from high to low 12-month period) Mill Wool Volume of Value of Consumption Wool Wool (apparel and Imports Imports carpet) 191649 47.8% 42.77!» 47.9% 1953-51b -22.6 -28.9 48.0 1957-58 -21+.1 -23.7 -30.5 Sources: Survey 21' Current Easiness, Eoreim age Remgts Table III-10 shows the absolute values of wool imports from Latin America during and imediately preceding each of the three reces- sions. Unmanufactured, send-mand‘actured, and manufactured wools are included. However, unmantd'actured wools comprise over 90 per cent of total United States wool imports, both from Latin America and in total. The most outstanding fact concerning United States wool imports is that they fluctuate widely along a fairly steep downward trend. The value of wool imports from Uruguay and Argentina were reduced 88 per cent and 5‘} per cent, respectively, between 1948 and 1958. 33 TABLE III-10 'WOOL: VALUE OF UNITED STATES IMPORTS DURING THREE RECESSIONS . (unmanufactured, semiqmanufactured, and manufactured wool - mill.$) Argentina Uruguay Other L.A. Total L.A. 1948 80.9 49.9 8.0 - 138.8 . 1949 46.6 43.6 7.7 97.9 1953 87.6 41.4 7.4 136.4 1954 46.7 17.5 7.4 71.6 3Q/56-2Q/57 54.3 10.9 9.4 74.6 3Q/57-2Q/58 35.1 4.6 4.5 44.2 Sources; Survey;9f Current Business, Foreign Trade Reports The value of wool imports from.Latin America has declined more severely than wool imports from other areas during United States reces- sions. In addition, the long-run decline in imports of wool is more pro- nounced in imports from Latin America than from other areas. For example, the value of United States wool imports from Latin America in 1956 was only 61 per cent of 19h8 levels. In comparison, the value of total wool imports in 1956 was 78 per cent of the value for 1948. 34 CHAPTER IV LATIN AMERICAN COMMODITY MARKETS DURING THE POSTWAR UNITED STATES RECESSIONS - IRON ORE, PETROLEUM, SUGAR, COFFEE, CACAO .. This chapter deals with the major Latin American exports to the United States which have not shown a high degree of responsiveness to changes in United States economic activity. Two are industrial raw mater- ials (iron ore and petrolemn) , the imports of which have shown tendencies to expand in spite of decreased domestic consmnption during periods of recessions. The remaining three are crude foodstuffs - sugar, coffee, and cacao. IRON OR‘E Imports provided only 5.6 per cent of total United States iron ore supplies in 19118 compared to 24 per cent in 1957. United States steel companies have been interested in expanding overseas iron ore sources, (particularly Canada, Venezuela, Brazil, and Peru) because of (1) the near- ing exhaustion of the Mesabi Range and other domestic sources and, (2) the richer ores obtainable in the newer foreign sources. For example, Vene- zuelan ore contains about 75 per cent iron canpared to approximately 115 per cent for ore from the Mesabi Range. Consequently, the United States steel industry has tended to expand iron ore production in foreign sources while, at the same time, cutting back output from United States mines. This is the reason why the quantity and value of iron ore imports rose during both the 19148-18 and 1953-54 recessions while domestic production of iron ore declined. Total consumption of iron ore in the United States in 1958 was down 28 per cent from 1957. Usage of foreign ore, though, was off only 35 about 20 per cent. Consequently, imported are comprised more than 27 per cent of all iron ore consumed in the United States in 1958, compared to 24 per cent in 1957.1 These figures indicate that the decline in imports of iron ore during the 1957-58 recession was due to the severity of the recession, rather than to any tendency to divert purchases fran foreign to domestic sources of supply. Table Ill-1 shows chamges in United States steel production, mine output of iron ore, and the quantity and value of iron ore imports during the postwar recessions. TABLE Iv;1 IRON ORE: UNITED STATES CONSUMPTION, PRODUCTION, AND IMPORTS DURING THREE RECESSIONS (Per cent decline from preceding 12-month period) Steel Mine Quantity of Value of Production Production Imports Moms 1949 42.0% 45.9% +2147: I +35% 19511- -20.9 -25.8 +1+2.3 +23.2 1958 -24.3 -35.2 44.6 -18.4 Sources: Sgrvey of Current Business, Foreng Trade Reports Table IV-2 shows the value of United States imports of iron ore during 19h8-l-P9. 1953-54. and 1957-58. Latin American sources have stead- ily gained predominance among foreign suppliers of iron ore to the United States. During the 1918-49 recession, imports from Latin America remained steady while imports from the rest of the world rose. In 1951+, Latin American eXports to the United States rose considerably while imports from other sources fell. The value of imports from Latin America fell less sharply than imports from other areas during the 1957-58 recession. Tflall Street Jomngl, February 3, 1959, p.24. 36 TABIE IV-Z IRON ORE: VALUE OF UNITED STATES IMPORTS DURING THREE RECESSIONS (111111.33) Venezuela Chile Brazil Peru Other L.A. Total L.A. Rest of World 19’48 o 705 1.5 0 O.“ 905 1707 1949 0 6.9 2.1+ 0 0.3 9.6 27.2 1953 17.0 12.3 6.4 6.0 3.9 45.6 51.3 1954 36.0 7.9 7.0 15.5 1.8 68.2 41.1 195? 87.7 20.6 20.3 20.7 3.1 152.4 133.“ 1958 87.9 26.0 12.0 17.1 1.2 11:14.2 89.1 Sources: Survey 9f Ozrrent Business, goreign TradeReportg In summary, it may be said that the rapid expansion of foreign sources of iron ore more than offset the adverse effects of the declines in total iron ore consumption during the 19118-19 and 1953-51+ recessions. However, the slowing of this expansion, combined with the more severe recession of 1957.58, caused a decline in the quantity and value of im- ports during 1958. PETROLEUM The United States is the world's largest producer of petroleum and petroleum products, but consumption is greater than production, and hence, the United States is a net importer of petroleum. Most of these imports ccnne from Latin America. In 1949, petroleum and products comprised 18 per cent of the total value of Latin American airports to the United States. By 1957, this figure had increased to nearly 30 per cent. This compares to a total of about 9 per cent for the non-ferrous metals. In 1958, petroleum, for the first time during the postwar period, surpassed coffee in importance as a Latin American export to the United States.1 IIncltitling-imports from the Netherlands Antilles - which originate in Latin America. 37 Consequently, the pattern of United States imports of petroleum has a strong impact on Latin American dollar earnings. Table IV-3 shows changes in the consmnption, production, and imports of petroleum during the three postwar recessions. All three re- cessions brought about declines in domestic consumption and production of crude petroleum Nevertheless, the quantity and value of imports increased during both 1949 and 1954. United States producers have tended to expand pm‘chases from foreign sources of crude petroleum at a faster rate than fran domestic sources during the postwar period. Consequently, foreign supplies continued to advance during the 19118419 and 1953-51+ recessions even while domestic production was reduced. The 1953-5h recession slowed the rate of increase in imports but the 19148-49 recession did not. The 1957-58 recession caused a slight reduction in the quantity of petrolemn imports although not as severe as the cutback in domestic production. How- ever, the price increase more than offset the decline in quantity and the total value of United States imports of petroleum and products increased in 1958 as it had during 19149 and 1951+. - TABLE Ill—3 PETROLEUM: UNITED STATES CONSUMPTION, PRODUCTION, AND IMPORTS DURING THREE RECESSIONS (Per cent decline from preceding 12-month period) Consumption A Pmduction Quantity of Value of of Crude - of Crude Imports Imports Foreign and Domestic 191‘9 -l|'..1% “'8 07% +20 e 3% +124. 9% 1951} -0.6 -1.9 + 1.9 + 8.8 1958 4.0 -6.4 - 1.3 + 6.5 Source: Survey of Current Business 38 Table IV-4 shows the value of United States oil imports during. 1948-49, 1953-54. and 1957-58. The Netherlands Antilles are shown sep- arately because petrolemn imports from these islands are refined from crude petroleum originating in the Latin American countries - mainly Venezuela. Therefore, when taking into account the importance of United States petroleum imports fran Latin America, imports from the Netherlands Antilles must be considered along with those from the South American mainland. TABLE IV-4 PETROLEUM: VALUE OF UNITED STATES IMPORTS DURING TIEEE RECESSIONS (petroleum and products: mill.$) j W ‘ Venezuela Colombia Mexico Other Netherlands. Total L.A. Rest of L.A. Antilles and Neth. World Antilles 1948 242.2 22.2 10.5 0 122.0 396.9 36.8 1949 251.3 28.1 16.0 0 117.1 412.4 65.2 1953 363-1 39.3 23.9 0.3 155.9 582.5 179.1 1954» 412.4 3“.“ 35.3 2.5 164.9 649.5 178.9 1957 767.2 26.5 39.5 2.4 282.9 1113 .5 ' 430.3 1958 751.9 31.0 29.6 4.9 337.5 1154.9 489.7 Sources: Survey of Current Business, Foreigl Trade Reports Imports from Venezuela and Mexico increased considerably between 1948 and 1958. The recessions in the United States have tended to slow the rate of increase but have not halted the expansion 61‘ petroleum imports during the postwar period. SUGAR Official regulations since 1934, in the form of quota restric- tions, have minimised the degree of fluctuations of United States sugar imports. The United States sugar market is supplied from three sources: 39 domestic producers, imports from territories, and imports from foreign sources.1 The division among these sources is determined by United States government policy. Under the United States Sugar Act of 1948, 98.64'per cent of United States sugar requirements in excess of the domestic, terr- itorial, and Philippine quotas is allotted to Guba. In addition, Cuba is permitted to supply 95 per cent of the amount by which the Philippines fails to meet its quota, as well as portions of other unfilled quotas. The limit that Ouba is permitted to supplyrdepends, therefore, on the quotas alloted to it, the marketing requirements fixed by the United States Secretary of Agriculture, and the unfilled portions of other quotas. When- ever United States consunption or inventories decline, the marketing re- quirements, as set by the Department of Agriculture, are reduced. This causes a reduction in both domestic supplies and imports. This system brings about fluctuations in the volume of sugar imports, but maintains a stable price for sugar in the United States harm-u2 Table IV-5 shows changes in United States consumption, inventories, and imports of sugar during three recessions. As the table indicates, imports fell during the 1948~49 and 1953-54 recessions but rose substant- ially during the 1957958 recession. Despite the fact that total deliveries for domestic consumption in the United States increased slightly in 1949950, imports of sugar dropped during the twelve months from August, 1949 to July, 1950. This reduction in imports was due almost entirely to the liquidation of inven- tories. The 1948-49 recession is often termed an "inventory recession", 1ECLA, United States Capacity to Absorb Latin American Products (a/cn.12/226, May 28, 1951). p.56. ZFor example, the price of raw sugar, wholesale, on the New York market varied only'between .054 and .066 cents per pound between January, 1947 and June, 1959. 40 and this tendency to liquidate inventories extended to sugar. Stocks of raw and refined sugar in 1949, end of the month levels, averaged 19 per cent below 1948. Inventories in September, 1949 were less than half (46 per cent) of those in September, 1948. Since consumption did not vary significantly, and inventories were reduced, the difference was made up by decreased imports. Since sugar prices remained steady, due to the previously discussed stabilizing influences, the decline in the value of sugar imports was approximately equal to the decline in volume. TABLE IV95 SUGAR: UNITED STATES CONSUMPTION, STOCKS, AND IMPORTS DURING THREE RECESSIONS (Per cent decline from preceding 12amonth period) Vol.of U.S. U.S. Sugar Vol.0f U.S. Vol.of U.S. Total Value Sugar Stocks Sugar Sugar of U.S. Consumption (raw and Imports Imports from Imports from ::g refined) Cuba Cuba 30/49-20/50 +0.7% 46.6% - 9.7% 40.5% - 5.9% 30/54-2Q/55 -2.1 .- 7.8 -12.6 45.5 «43.9 10/58-4Q/58 +4.1 + 3.8 +15.h +17.o + 9.4 —rSource: Sggyey of Current Businesg, Unlike the 1948-49 recession, domestic consumption of sugar de- clined during 1954. Total deliveries were down from 1953 by 3.2 per cent. In addition, inventories were reduced in 1954-55, further reducing United States demand for sugar. Because of the reduced demand, due to decreased consumption and inventories, the volume and value of sugar imports fall between the middle of 1954 and the middle of 1955. It is noteworthy that anger imports from Cuba declined.more than total imports of sugar during both the 1948-49 and 1953q54 recessions. This was due to the fact that the Philippines ordinarily does not fill its allowable quota of sugar exports to the United States and cube is permitted to add the unfilled portion of the Philippines' quote to its own. During periods of decreased demand in 41 the United States, a fairly constant quantity of Philippines’ eXports comes closer to filling that country's quota, thus leaving a smaller quota of allowable shipments available to Cuba. United States domestic consumption of sugar increased during 1958 and sugar stocks were maintained. Total United States sugar pro- duction increased nine per cent in 1956-57 and a further 7 per cent in 1957—58. Despite this increased domestic supply, higher quotas were al- lotted in 1958 to Cuba and to some smaller sugar exporters. This was made possible by the increased levels of consumption and a shortfall in deliveries from Hawaii and Puerto Rico.1 The income elasticity of demand for sugar imports is not clear, based on postwar experiences. United States demand for sugar imports de- clined during the 1948-49 and 1953-54 recessions, but increased during the 1957-58 recession. Therefore, it would be dangerous to draw any rigid conclusions concerning United States demands for sugar during declines in income, based only on analysis of the postJWOrld'War II period. During four United States business contractions between 1907 and 1938, however, the value and volume of United States sugar imports demonstrated a fairly definite pattern of decline in response to declines in United States income.2 COFFEE Coffee has traditionally been the most important export of Latin America, in value and in terms of the number of countries selling this commodity abroad - fourteen out of twenty. These republics provided fUN, Commodity Survey 1958, 1959, p.71. ZECLA, United States Capacity to Absorb Latin American Products (E/CN.12/226, May 28, 1951). p.26. 42 approximately 80 per cent of the world's supplies in the early 1950's. In 1953, coffee accounted for 26 per cent of Latin America's total ex- ports and 44 per cent of the eXports of the coffee producing countries.1 Coffee was the largest Latin American dollar earner in every year of the postwar period until 1958. when it was surpassed by petroleum. ”The principal determinants of United States coffee demand are changes in per capita income and in relative coffee prices."2 Per capita consumption of coffee varies inversely to changes in the price of coffee relative to prices of other commodities. There has also tended to be a rather direct correlation between changes in per capita income and per capita Spending on coffee, although expenditures on coffee have tended to absorb a progressively smaller portion of per capita income since the early'1930's.3 Demand for the beverage commodities - coffee, cacao, and tea - tends to be more sensitive to price changes than.most basic food- stuffs but not much.more responsive to income changes, at least in the industrialized countries.“ The fluctuating price of coffee during the postwar period was an indication, both of fundamental changes in the structure of the coffee industry and of the short-run inelasticity of coffee supplies. Coffee planting is a long-term investment requiring four to five years before yielding any returns. Once the coffee tree begins to bear fruit, it be- comes a fonm of capital investment which is usually productive for some forty years. Coffee is a labor intensive industry and, since wages are usually paid in coffee, harvesting of the crop will almost always be of 1ECLA, Egpnomic Review of Latin America, August, 1955, p.25. 2Ibid., p.28. 31bid., p.28. “UN, Commodity Survey 1258, 1959. p.84. 43 ' I'wv I a} ' h" '. 'r II. advantage to the producer. The loss incurred by not harvesting is greater than the loss that would he suffered by selling the product, no matter how low the price. These conditions lead to a very inelastic supply of coffee.1 Between 1930 and 1945, a persistent fall in coffee prices induced the discontinuance of many coffee plantations and the investing of money in other crops and industries. During this fifteen year period, a billion coffee trees, or one-third of the Brazilian plantations, disappeared. In addition, in an attempt to adjust world coffee supplies to world demand, great amounts of coffee were dumped in the ocean, used as fuel, etc. By 1945, Brazil had about two billion coffee trees, and a large proportion of these were partially or almost entirely nonaproductive. 'With the end of world War II, and the upward tendency of coffee prices, the planting of coffee trees‘began again. It has‘been estimated that nearly 100 million trees per year were planted in Brazil starting in 1949 and the figure was not too far beneath that for the years 1946-48. Due to the interval between investing in and getting returns from coffee, Brazil's coffee production did not increase significantly during the immediate postwar years. In.fact, in direct contrast to prewar conditions, the total of exports plus domestic consumption exceeded the production of coffee in every year during the period 1945-50. In 1945. Brazil had large stocks of coffee which had a de- jpressing effect on world prices. By 1949, these stocks were gone. At the same time that Brazilian coffee production was declining, ‘world coffee consumption, especially that of the United States, was in- creasing. The decreased capacity of coffee production, increased consumption, 1This discussion of coffee production is based on a section in the .following publication: ECIA, Recent Developments and Trends in the Brazilian Econom (E/CN.12/217/Add.2, March 26, 1951), pp.76-84. I44 the exhausted Brazilian stocks, and news of the impending unfavorable Brazilian and Colombian.harvests in 1950 sent coffee prices soaring. The price per pound of Santos #4 on the New York market rose from $.261 in April, 1949 to $.490 by the end of that year. By September, 1950, the price had increased another 14 per cent to $.561.1 The volume of United States coffee imports actually decreased in 1950, due to the poor Braz- ilian and Colombian harvests and United States buyer resistance to the rising prices, but the value of coffee imports increased from $794'million in 1949 to $1,090 million in 1950 - a 35 per cent increase. Table IV-6 shows the values and quantities of coffee imports during and surrounding periods of United States business fluctuations in the postwar period. It is evident that fluctuations in volume are mild ‘while fluctuations in the value of coffee imports have been quite severe. Coffee prices, after the substantial rise of 1949e50, stabilized somewhat during the next three years. There were still upward tendencies present due to the increased per capita consumption in importing countries and the short-run inelasticity of supply in the exporting countries. Be- tween'December, 1950 and December. 1953, the wholesale price per pound on the New York market of Santos #4 increased from $.540 to $.61), a slight increase considering the nearly $.28 rise which occurred in 1949150. There have been numerous explanations advanced for the increase in the price of coffee which took place during 1953e54; such as, valori- zation policies on the part of the Brazilian government, a freeze which caused poor harvests in Brazil, and others. At any rate, the price of Brazilian coffee on the New‘York market rose from $.585 in November, 1953 to $.88} in July, 1954, a 51 per cent increase within the Space of eight months. ISurvey of Guggent Business. 1949. 1950. 1+5 lil;i‘l TABLE IV-6 VALUE AND QUANTITY OF UNITED STATES COFFEE IMPORTS DURING THREE RECESSIONS Brazil Colombia Other:L.A. Total L.A. 'WOrld Total _\_r_A_LUE (mill.of A) 1948 352.6 206.3 126.7 685.6 696.6 1949 428.8 203.5 146.8 779.1 793.6 1950 566.4 266.6 217.1 1050.1 1090.2 1953 627.9 414.5 326.1 1368.5 1465.1 1954 544a5 461.5 352.0 1358.3 1484.0 1955 486.3 408.3 333.3 1227.9 1356.0 1956 604.7 372.6 324.3 1301.6 1437.7 ‘1957 528.4 349.0 330.9 1208.3 1375.7 1958 406.6 291.0 317.1 1014.7 1170.4 QUANTITY (mill, 1b,) 1948 1531 703 420 2654 2771 1949 1689 655 514 2858 2918 1950 1259 537 525 2321 2437 1953 1187 741 662 2590 2781 1954 840 649 555 2044 2258 1955 1018 652 622 2292 2598 1956 1310 603 553 2466 2810 1957 1176 549 604 2329 2761 1958 986 562 712 2260 2672 Source: Foreign Trade Reports Buyer resistance to rising coffee prices played a more important role in the 1953q54 recession than during 1948-49. The quantity of coffee imports into the United States declined by 21 per cent from.1953 to 1954 (29 per cent in the case of Brazil). As a result of this decreased quan- tity the value of Latin.American coffee exports to the United States de- clined in 1954. It would be difficult, however, to ascertain how much of this reduction in coffee imports should be attributed to responsiveness to price changes and how much to the fall in income during 1954. The impacts of the price and income elasticities of demand undoubtedly reinforced each other in bringing about a decline in the quantity of imports. 46 As income rose and coffee prices fell during 1955, the quantity of coffee imports increased again - but not sufficiently to offset the falling prices. Consequently, the value of United States coffee imports continued to fall during 1955. The reasons for the reduced coffee prices beginning in late 1955 were (1) reduced consumption in the United States, and (2) excellent harvest conditions in Brazil and other Latin American coffee producing countries. In addition, 1955 was the first year that production was able to take full benefit from the coffee trees planted in the late 1940's and early 1950's under the stimulus of the rising coffee prices of those years.1 The weakness that has characterized the markets for primary products during the post-Korean period is particularly evident in the case of coffee. The upward movement in the cyclical production of coffee was still underway in 1958/59.2 After the long downswing which had started in the 1930's, coffee production was practically doubled between 1944/45 and 1958/59.3 The severe decline in coffee prices beginning in the first quar- ter of 1957 was the result of large increases in production stimulated by the high coffee prices of the early 1950's. ‘World coffee production in» creased by about 16 per cent between 1956/57 and 1957/58. During 1956e58 the coffee market situation was influenced very little by the total level of demand - although a changing structure of demand had considerable influ— ence on the demand for coffee of Specific areas. In addition to the shift in supply, changes in the structure of demand by the United States, the world's largest coffee importer, had an adverse effect on Latin America's coffee exports. The brunt of this change 1ECLA, Economic Survey of Latin America;1955, May, 1956. 2Diagonal marks indicate growing seasons. 3UN, Commodity Survey 1958. 1959, p.84. 47 in the direction of demand was borne by Brazil. United States imports of soluble, or instant. and "mild" coffees continued to rise during 1957 and 1958. "Mild" coffees may be roughly classified as those types grown in the‘Western HemiSphere outside of Brazil. Coffee produced in Brazil is termed "Brazilian" or “hard" coffee.1 A growing African supply profited from the fact that the types of coffee grown in that area are best suited for the production of soluble coffee, for which United States demand has advanced considerably in recent years. As a result of the circumstances affecting the supply of and demand for coffee, Brazil's exports to the United States suffered in two respects - quantity and price 7 while the exports of other Latin.American coffee producers declined in.price but increased in quantity. In summary, the supply picture for coffee has fluctuated so widely that it is difficult to