}lEPORT OF THE ,C~OMMISSION ON· ,-'. THE MARKETING OF WEST AFRICAN COCOA Presented by the Secretary of State for the Colonies 10 Parlia1ll1!nt by Command of H is Majeuy September, 1938 LONDON PRINTED AND PUBLlSHED BY HIS MAJESTY'S STATIONERY OfFICE T~'l:k purchaltcd directly from H.M. STATIONERY OFFICE at the following addre&8ell York House, King9way, London. \-V.C.2; 12.0 George Street, Edinburgh 2; 2.6 York ~trl'('t. Manchester I i I St. Andrew' .. Crescent, Carditf i ~o Chichester Street. Bc!LHi l; or through any bf')ok~dlcr 193" Price 3 f. 6d. ncr Cmd. 5845 111 CONTENTS Paragraphs. LETTER OF PRESENTATION, ETC . 1-15 I NTRODUCTORY- ChaPt~r I-GOLD COAST AND NIGERIAN COCOA I N RELATION TO WORLD PRODUCTION AN,D CONSUMPTION- (a) Description 16-18 (b) Production and Exports 19-21 (e) Consumption and Stocks 22-24 (d) Prices ... .. . .. 25-26 (e) Organization of Cocoa Trade in Gold Coast and Nigeria 27-3 1 PART I. The Gold Coast. Chapter II-POLITICAL CONDITIONS IN THE GOLD COAST- (a) General ... (b) System of Government in the Colony and Ashanti (e) The" oath" .. . Chapter III-THE COCOA I NDUSTRY IN THE GOLD COAST- (a) History of development and present importance 46-55 (b) Conditions of cultivation 56-63 (e) Technical 64-67 - (d) Loans and Agricultural Indebtedness 68-75 (e) Future prospects 76-79 Chapter IV-COCOA MARKETING I N THE GOLD COAST BEFORE THE BUYING AGREEMENT- (a) Preparation for market 80 (b) Possible routes to market 81-82 (e) Middlemen 83-92 (i) Scale-bu yers 84 (ii) Sub-brokers 85-86 (iii) Brokers 87-88 (iv) Factors 89 (v) Independent Buyers 90 -92 (d) Exporters 93-95 (e) Agreements made between buyers and their employers . .. 96-97 (f) Financing of buyers 98-104 (i) Advances 98-100 (ii) R emuneration: Commissions, Salary and Allow- ances 101 - 104 (g) The fixing of buying prices: Stock declarations I05-ro8 (h) Weights I09-IIO (i) Quality lII-II7 (j) Returns to Producers and Middlemen: incidence of up- country transport costs ... II8-127 Chapter V-COCOA FARMERS CO-OPERATIVE MARKETING AND CREDIT SOCIETIES- (a) General 128-130 (b) The system of marketing Co-operative cocoa 131-142 (e) Credit .. 143-147 (d) General conclusion on the Co-operative Societies 148- 151 13408 A 2 iv Paragraphs. Chapter VI-HISTORY OF INTRODUCTION OF AGREEMENT AND HOLD-UP- (a) Introductory 152 - 1 58 (b) The 1937 Buying Agreements 159-165 (e) Approach to Government 166-169 (d) R eception of the Agreement in the Gold Coast 170-174 (e) Development of feeling against the Agreement: the hold- up 175-1 76 (tl Negotiations between Government and the two parties 177- 188 (g) The appointment of the Commission 189-191 (h) Negotiation of the truce 1<)2-196 (i) Exports under the hold-up and the truce 197-199 (j) Origin and maintenance of the hold-up .. 200-230 (i) Part played by the Chiefs (201-204); (ii) Sanctions used to enforce the hold-up (205-207); (iii) " F armers Groups" (208-210); (iv) the influ- ence of the Brokers and" agitators" (21I- 214); (v) the Press (215); (vi) Low price of cocoa (216-218) ; (vii) Attitude of Gold Coast Government (219-230). PART II. Nigeria. Chapter VII-POLITICAL AND AGRICULTURAL CONDITIONS IN NIGERIA- (a) Political 23 1 - 233 (b) Agricultural 234-240 (e) Reception of the Agreement in Nigeria 241-248 Chapter VIII~CoCOA MARKETING AND CO-OPERATION IN NIGERIA- (a) Conditions of marketing before the Agreement (b) The Co-operative Movement PART III. The Buying Agreements. Chapter IX-DESCRIPTION OF THE PROVISIONS AND APPLICATION OF THE AGREEMENTS- (a) General 274-276 (b) Objects of the Agree.ments 277 (e) Provisions of the Agreements 278-287 (i) Administration 278; (ii) the sharing of the crop 279; (iii) the " hand-over" arrangements 280; (iv) False returns, 281; (v) Schedule of marketing expenses 282; (vi) Co-operative Cocoa 283; (vii) Reselling on the Coast, 284; (viii) Handling cocoa on commission, 285; (ix) Cocoa buyers and commissions 286; (x) Mis- cellaneous 287. (d) Application of the Agreements 288-308 v Paragraphs. Chapter X-THE CASES FOR AND AGAINST THE AGREEMENTS 309-361 Was reform urgently required? 316-35 0 Was a buying agreement essential to achieve reforms? 35 1-361 Chapter XI-THE CASES FOR AND AGAINST THE AGREEMENTS (Contd.)- Were the Agreements fair and not prejudicial to legitimate African interests? ... Would the Buying Agreements eliminate competition and create a monopoly? Chapter XII-THE COCOA MARKETS OF NEW YORK AND LONDON AND THE MARKETING POLICY OF WEST AFRICAN MERCHANT SHIPPERS- (a) Description of New York and London market coftditions for cocoa ... (i) The New York Market, 397-403; (ii) the London Market, 404-407; (iii) Statistics, 408. (b) The marketing policy of West African merchant shippers Chapter XIII-PRICE-FIXING UNDER THE AGREEMENTS (a) Could the current world market prices· on which the buying limits were based under the Agreements be manipulated by members? (b) Do the Agreements make proper provision for deter- mination of curr.ent world prices? (e) Can a uniform local price, determined as provided in the. Agreements, be regarded as fair to producers? PART I V. Conclusions and Recommendations. Chapter XIV-SUMMARY AND CONCLUSIONS~ (a) The Gold Coast 462-468 (b) Nigeria 469-472 (e) Conditions of marketing before the Buying Agreements 473 (d) Conclusions on the Buying Agreeme~ts 474-489 Chapter XV-RECOMMENDATIONS- (a) Introductory 490 (b) Possible solutions considered 491-50 9 (I) A Trade Practices Agreement 492 (2) The fixing of Market Centres and the licensing of bu yers and middlemen 49.3-497 (3) Export Quotas ... 498-499 (4) "Cocoa Union Limited" 500-50 3 (5) Gold Coast Cocoa Farmers' Federation Limited 50 4-50 5 (6) Price-fixing by Government- (i) Stabilization of Prices 50 6 (ii) Determination of minimum prices 50 7 (e) Form of organization recommended 508 13408 A 3 Vl Paragraphs. Application of these general ideas 5 IO-550 A. Gold Coast 5IJ -545 B. Nigeria 546-559 C. Miscellaneous Recommendations 560-570 (i) Agricultural Policy 560 (ii) The indebtedness of farmers 56r (iii) Weights and Measures 562 (iv) Licensing of Buyers and Buying Stations 563 (v) Unofficial inspection of Cocoa in Nigeria 564 (vi) Labour 565 (vii) Price Information 566-567 (viii) Crop Forecasts 568-5lr9 (ix) Statistics of Consumption 570 International Scheme 57 1 Appreciations 572 '576 ApPENDICES. Page. A. Alphabetical List of Persons and Bodies who gave Formal Evidence before the Commission 179 B. Diary of Proceedings of Commission 184 C. World Exports of Cocoa 186 D. Shipments of Gold Coast Cocoa by the Principa l Firms during Seasons 1933-34 to 1936-37 191 E. Gold Coast Statistics, 1936 192 F. Note on Labour in Cocoa Farms of the Eastern Province, Gold Coast .. 193 G, Present Routes of Cocoa Marketing in the Gold Coast 196 Routes of Cocoa Marketing in the Gold Coast under suggested Producers' Organization ... 196 H . Example of Broker's Agreement. 197 1. Note on Quality· in Cocoa 200 J. (I) Gold Coast and Nigerian Buying Agreements 202 (II) Letter of Instructions sent to Gold Coast Agents of Agree- m ent Firms 209 K. Message from the Governor of the Gold Coast 221 MAP-Gold Coast Cocoa Production, 1936-37. Note.-All expenditure in connection with the Commission, other than the cost of printing' the Report, has been borne by the Govern- ments of the Gold Coast and Nigeria. The cost of printing and publishing the Report is estimated by H.M. Stationery Office at £188 lOS. od. The Right Honourable THE SECRETARY OF STATE FOR THE COLONIES. SIR, The decision of your predecessor, the Right Honourable W. G. A. Ormsby Gore (now Lord Harlech), to appoint a Com- mission to examine and report on the marketing of Gold Coast ,and Nigerian cocoa arose in the following circumstances. 2. Early in November, 1937, as a result of Buying Agreements entered into in respect of Gold Coast and Nigerian cocoa by all but one of the important European firms trading in the two dependencies, a general hold-up of cocoa, accompanied by a boycott of certain European goods, was started by Gold Coast and Ashanti farmers. The hold-up and boycott were so effective as to bring both the export and the internal trade in the Gold Coast practically to a standstill; only small quantities of cocoa were marketed, and imported merchandise accumulated unsold in the firms' stores and in the Customs sheds. In spite of efforts made by Government to effect a compromise, neither the farmers nor the firms appeared to be prepared to withdraw from the position which they had taken up. No serious agitation against the Agreement occurred among producers in Nigeria and the Nigerian crop was marketed as usual: but in the Gold Coast the deadlock continued into the spring of 1938. At the instance of the Governors of the Gold Coast and Nigeria, therefore, your predecessor decided to appoint a Commission to inquire into the situation and at the same time to examine the whole question of the marketing of West African cocoa. 3· This decision was first announced to Parliament on the 14th of February, 1938, in reply to a question by Mr. Sorensen The reply also gave the Commission's terms of reference as follows:- " To examine and report on the marketing of cocoa in the Gold Coast and Nigeria, with special reference to the situa- tion which has arisen as a result of the Buying Agreement(s) entered into between certain firms; and to submit recom- mendations. " 4. The composition of the Commission was announced in the House of Commons on the 23rd of February, as follows:- Mr. William Nowell, C.M.G., C.B.E. (Chairman), Mr. Rupert S. Thompson, , Mr. C. A. L. Irving, with Mr. E. Melville of the Colonial Office as Secretary. I3408 A 4 2 5. In a subsequent statement in Parliament in reply to a question by Mr. Sorensen, your predecessor referred to the scope of the Commission's inquiry as follows:- House of Commons, 2nd of March, 1938. Question No. 33· " The Commission have been appointed to examine and report upon the situation, but they have the fullest freedom to make any recommendations which they think fit." 6. The Commission held three preliminary meetings in London on the 22nd and 25th of February and the 3rd of March, in order that members might discuss arrangements and furnish themselves with certain general information on the matters which they were called upon to investigate. No formal evidence was heard at this stage. 7. The Commission left England for the Gold Coast on the 9th of March, arriving in the Colony on the 23rd of March. Meanwhile, at the Commission's request, intending witnesses in the Gold Coast and in Nigeria were invited to prepare memo- randa of evidence in anticipation of the Commission's arrival; and an announcement was made in both dependencies to the effect that the Commission would not allow witnesses to be represented by Counsel. The Government of the Gold Coast appointed Mr. T. R. O. Mangin (Deputy Provincial Com- missioner) and Mr. H. Nicholas (Senior Superintendent of Agri- culture), and the Government of Nigeria appointed Mr. R. L. V. Wilkes (District Officer), to be attached as liaison officers to the Commission. Further, in order that the Commission should possess the necessary powers for its inquiry, it was considered necessary to pass The Commissioners' Powers (Conferment of) Ordinance, 1938, (No.3 of 1938) in the Gold Coast, and The Commissioners' Powers (Conferment of) Ordinance, 1938, (No. 10 of 1938) in Nigeria. 8. On the Commission's arrival at Accra, a communique was handed to the Press, in which the position of the Commission as an independent and disinterested body was emphasized and the hope expressed that there would be no reluctance in any quarter to give evidence and that all concerned would assist in creating an atmosphere in which the Commission's investigations could be carried out thoroughly and expeditiously. It was also announced that, while most of the evidence would be taken in private, the Commission would hold a certain number of public sessions. 9. The Commission held a preliminary meeting in Accra on the 24th of March, with the Governor and officials of the Gold Coast Government, for a general discussion of the situation. At this meeting the Commission put forward, for the Governor's consideration, certain tentative proposals for negotiating a truce between the farmers and the Agreement firms. The course of these negotiations is described in Chapter VI of the Report. 3 10. The subsequent activities of the Commission in the Gold Coast fall into the following categories: - (a) Public sessions at Accra and Kumasi. (There was also a short meeting of introduction at Swedru, but no evidence was taken.) (b) Private sessions at Accra, Kumasi, Koforidua, Aburi , Swedru and Winneba. II . The total number of formal sessions held was about' 30. Some 140 witnesses* were heard (their names are listed in Appendix A) comprising Chiefs and representatives of farmers, Co-operative Societies, middlemen, Agreement and non-Agree- ment finris, as well as of Government and of the mercantIle and professional community. In addition, much evidence was taken informally. 12. The Commission left the Gold Coast for Nigeria on the 27th of April, and arrived in Lagos on the following day. The only public sessions held in Nigeria were short formal opening sessions at Lagos on the 28th of April, and at Ibadan on the 3rd of May. All evidence was heard in ten private sessions at Lagos, Agege, Ibadan and He. About 60 witnesses* were heard (see Appendix A) comprising Chiefs, representatives of farmers' and middlemen's Associations and of Co-operative Societies, and representatives of Agreement and non-Agreement firms, as well as Government officials and a number of in- dependent persons. . 13. The Commission concll!lded taking evidence in Nigeria on the 6th of May, and left for England on the 7th of May, arriving at Plymouth on the 20th of May. 14· The Commission began the hearing of further evidence in London on the 24th of May and completed the taking of evidence on the 28th of June. Twenty-seven sessions were held and about 40 witnesses examined (see Appendix A), com- prising Government. officials and representatives of the Agree- ment firms and of mdependent firms, as well as brokers and dealer~ (British and American) and independent persons. IS . A complete diary of the Commission's official proceedings is attached (Appendix B). Our Report is contained in the following pages. • Deputations have been reckoned as single witnesses INTRODUCTORY. CHAPTER I. GOLD COAST AND NIGERIAN COCOA IN RELATION TO WORLD PRODUCTION AND CONSUMPTION. (a) Descriptive. 16. Cocoa is produced from the fruit of Theobroma cacao L., a small spreading tree indigenous to tropical South Al?erica. Many varieties are known, but two main types are cultivated. Gold Coast and Nigerian cocoa belongs to the " Amelonado " sub-variety of the coarser and more robust" Forastero " type. The finer" Criollo " type is now rare. 17. Coco<). is an exacting crop and its requirements as regards soil, drainage, rainfall and temperature must be met within relatively narrow limi.ts if it is to do well . Under favour- able conditions, which must include protection against drying winds, trees come into bearing from four to five years after planting. The crop is borne in pods attached to the trunk and thicker branches by short stalks, each pod containing a mass of some 20 to 40 seeds a.rranged in rows and covered in a white pulp. The seeds require only to be extracted from the pod, fermented with the pulp and dried to become the cocoa beans of commerce. . 18. There are usually two cocoa crops a year. In the Gold Coast and Nigeria the main crop season is from September or October to January or February, while the small" mid-crop" (which accounts in the Gold Coast for only 5 to 10 per cent. of total annual production) comes in about four or five months later. The time of harvesting and sale of the crop varies in other producing areas. The Brazilian crop normally reaches the world markets slightly before the Gold Coast and Nigerian crops and its peak exports occur usually between October and March. In San Domingo exports reach their peak between May and July; in Trinidad between February and May; and in Ecuador and Venezuela between April and June. The months of heaviest arrivals of all cocoas on the world markets coincide roughly with the Gold Coast and Nigerian exporting season, and for statistical purposes the crop year is usually taken as from the 1st of October to 30th of September. (b) Production and Exports. 19· Statistics of area under cocoa and of annual production in the various producing countries are not complete, but, since most of the cocoa produced is exported, figures of trade can be taken in most years as a fairly good indication of world production. 6 20. The world trade in cocoa is of comparatively recent growth . In 1895 total world exports were only about 77,000 metric tons. * The main countries of production were tlien, in order of importance, Ecuador, the West Indies (Trinidad, Grenada and San Domingo) , Brazil and Venezuela which together exported about 73 per cent. of the total. The only considerable single source of supply outside these areas was San Thome (a Portuguese island in the Gulf of Guinea) with about 9 per cent. of total exports . World exports almost doubled in the next decade: they had doubled again by 1915, and in 1925 a figure of nearly 500 ,000 metric tons was reached. This remarkable increase over a comparatively short period of years was made possible by the extension of cocoa cultivation to West Africa and by the very rapid growth of production especially in the Gold Coast. In I905 , British and French West Africa contributed only about 4 per cent. of total world exports. By 1925 the Gold Coast alone contributed nearly 44 per cent., and the Gold Coast and Nigeria together about 52 per cent., of total world exports. Within a period of 20 years, therefore, the centre of production had shifted from South America and the West Indies to West Africa. 2I. World exports of cocoa for the last II crop years are shown in Table I of Appendix C. It will be seen that, from 1926-27, total world supplies increased by 38 per cent. to a record total of nearly 720,000 metric tons in 1936-37. Brazilian production expanded by nearly 40 per cent. over the period and still accounts for about 15 per cent. of total world exports . But the importance of production in South America and the West Indies continued to decline relatively to that of British and French West Africa. This area contributed about 66 per cent. of total exports in 1936-37, as follows: - Gold Coast, 42 per cent.; Nigeria, 14 per cent.; the Ivory Coast, 7 per cent.; and the French Cameroons, 3 per cent. (c) Consumption and Stocks. 22 . In the absence of adequate statistics of stocks in manu- facturers' hands and elsewhere, it is difficult to obtain a close approximation to the true world consumption of cocoa. A satisfactory gauge is provided in the United Kingdom by the figures of removals of cocoa from bond; in the United States of America, the largest single consumer of cocoa, the position is complicated by the use of both licensed and unlicensed ware- houses. At present the generally accepted estimate of world consumption is that made by Gordtan. t It must be realized, however, that this is only an approximation to true • I metric ton = 2,204 lb. t A fortnightly German publication devoted chiefly to cocoa. 7 , consumption: we refer in our recommendations in Chapter XV to the desirability of more accurate statistical information being made available. 23. Tables II and III in Appendix C show estimates by Gordian of world consumption of cocoa by countries over the last II crop years, and total world stocks on 30th of September of each of these years. It will be seen that by far the largest single market for cocoa is in the United States of America. This market has increased in relative importance over the period, and took nearly 45 per cent. of total supplies of I936-7 as compared with 38 per cent. in I926-7. The United Kingdom has shown a considerable proportional increase as a consumer since the last industrial slump, and Canadian consumption is increasing rapidly: but in the important Continental market~ there has recently peen a tendency for consumpton to fall either absolutely or relatively. 24. It is clear from these figures that the prosperity of the cocoa industry is closely linked with the trend of consumption in the United States which in turn depends very largely on general business conditions. The business setback which occurred in the United States at tlle beginning of I937 had a serious effect on cocoa prices through a slump in demands from manufacturers. This decline was not apparent until late in the year and is revealed in the following Table: - T ABLE I* Estimated true consumption. Countries. I936. I937 · Tons. Tons. United States of America 2g0,oOO 23 2 ,000 Germany 75,000 7 I ,000 Great Britain I03,000 96,000 Netherlands 67,000 53,000 France 47,000 4 I ,000 Canada I7,000 I5,000 All Others II 0,000 119, 000 Total 7 0 9,000 627,000 • From Messrs. Wessels Kulenkampff & Company's Annual Cocoa Review January, I938. ' (d) Prices. 25· Two main types of cocoa are recognized on the world markets; cocoa known commercially as " fine " which com- bines the rare "Criollo" cocoa with the better varieties of plantation " Forastero " and is the type produced in Ecuador, B Venezuela, Trinidad, Ceylon and the Netherlands East Indies; and that known as " ordinary" or " bulk ", which is made up of the coarser " Forastero " varieties and is the type pro- duced in West Africa, Brazil and San Domingo. The premium obtainable for fine cocoas over ordinary cocoas varies con- siderably from time to time. There are also price differences, which may be very considerable, between cocoas of the same type from different sources of supply. * It will be seen from Table IV (b) in Appendix C that the premium for Trinidad Plantation, First Marks-a typical middle grade of fine cocoa- over Accra cocoa rose from an annual average of about Bs. per 50 kilos (roughly equivalent to £B per ton) in I 932-3 to 20S. per 50 kilos in I936-7. 26. From Table IV (a) of Appendix C, which shows the annual average price of Accra cocoa between I92I and I93I on the old basis of " Fair Fermented, f.o.b.", it will be seen that until the great depression prices were never lower than 30s. per cwt. and actually rose as high as 64s. per cwt. in I927. Table IV (b) shows that the fall in price which began soon thereafter continued, with minor interruptions, until December, 1933. (The revision of the basis of Accra quotations to " Good Fermented, c.i.f. London" in I93I disguises a further real fall in price of roughly four shillings per cwt.) The improvement up to the end of the 1935-6 season was very gradual but sound, resulting in part at least from the improved statistical position . The rapid rise in the first four months of the I 936-7 crop year was, however, of a very different kind; and all the market witnesses with whom we discussed the question agreed that the rise was unhealthy and, on a long view, undesirable in the interests of all parties engaged in the cocoa trade. There were many factors which united to cause this rise. The period was one of booms in all commodity markets, epecially in the United States of America, and bull speculation was given its head. A continued increase in American consumption was predicted, and an excessively speculative view of the cocoa market was encouraged by the forecast of a small crop in the Gold Coast. The extent of speculative dealings in cocoa in New York at this period is referred to in detail in paragraph 39B. Later forecasts of a heavy rather than a short crop in the Gold Coast, combined with the general business setback and a decline in cocoa consumption , especially in the United States, led to a sharp fall in price after January, I937: by the end of June the whole of the earlier advance had been lost. The short rally in prices between June and September, it was explained to us in evidence, was due to the operations of the Hershey Chocolate Corporation which attempted to " peg" the market * The position of fine cocoas is described at some length in Section X of the T wenty-second R eport of the Imperial E conomic Committee, I932 . 9 at about 8 cents per lb. (rotlghly equivalent to 35s. per cwt.). The removal of this peg towards the end of September pre- cipitated a renewed fall in price. These price movements had an important bearing upon the African reaction to the firms' Buying Agreements. (e) Organization of cocoa trade in Gold Coast and Nigeria. 27. Cocoa is grown in West Africa by a large number of small farmers. Most of the cocoa is bought, on behalf of the . exporting firms, by African middlemen employing money advanced to them by the firms. A fuller description of produc- tion and marketing conditions in the Gold Coast and Nigeria is given later in our Report; but in concluding this introduction it is desirable to give some account of the firms engaged in the West African cocoa trade and the nature of their business. 28. A list of all firms (and individuals) which exported cocoa from the Gold Coast during the crop years 1933-34 to 1936-37 is given, together with the tonnages shipped by each, in Appendix D. It will be seen that thirteen European firms .)dl.ipped, in 1936-37, approximately 98 per cent. of the cocoa exported. All of these firms, with the exception of the English and Scottish Joint Co-operative Wholesale Society, Limited, * whose exports were slightly under 4 per cent. of the total exports, entered into the Buying Agreement with which our inquiry is in part concerned. By far the most important shipper is the United Africa Company, Limited, a private Company formed in 1929 by an amalgamation of the Niger Company, the African and Eastern Trading Corporation and a number of other smaller firms, and oontrolled .as to 80 per cent. of its share capital by Messrs. Lever Brothers Limited and Unilever Limited and as to the remainder by the African and Eastern Trading Corporation. 29· The firms exporting cocoa may be classified into three groups; (i) merchant firms with a business in imported merchandise; (ii) merchant firms with no import business at all; and (iii) manufacturing firms which themselves consume the bulk of the cocoa which they buy on the Coast, and do not engage in the merchandise trade. There are now no important firms belonging to group (ii) although we have been informed that the merchandise business of two of the smaller firms men- tioned below as belonging to group (i) is so unimportant as to justify their being classified as traders in produce only. The 13 larg~ .. European organizations fall. into either group (i) or group (111). In the former group fall, 111 order of the importance of their cocoa business, the United Africa Company, Limited * A joint subsidiary of the Scottish Co-operative Wholesale Society, Ltd., and the (English) Co-operative Wholesale Society, Ltd., known popularly on the Coast as " C.W.S." 10 (which also has by far the most important merchandise business); Messrs. G. B. Ollivant, Limited; the Compagnie Francaise de L' Afrique Occidentale; the Union Trading Com- pany, Limited; Messrs. John Holt and Company (Liverpool), Limited; Messrs. Busi and Stephenson, Limited; the Swiss African Trading Company; the Societe Commerciale de L'Ouest Africain; Paterson, Zochonis and Company, Limited; and Messrs. W. Bartholomew and Company, Limited. In 1936-37 these merchant firms together exported nearly 76 per cent. of the total Gold Coast crop. 30. The manufacturer-consumers established in the Gold Coast (group (iii) ) are Messrs. Cadbury Brothers, Limited (who buy in association with Messrs. J. S. Fry and Sons, Limited); Messrs. J. Lyons and Company, Limited; and the English and Scottish Joint Co-operative Wholesale Society Limited. These manufacturers together exported nearly 22 per cent. of the 1936-37 crop, of which manufacturers within the Agreement exported about 18 per cent. To a limited extent manufacturers execute buying orders on behalf of other manu- facturers not established on the Coast. 31. The bulk of the cocoa trade in Nigeria is in the hands (i) of the merchant firms established in the Gold Coast with the exception of the Swiss African Trading Company, Messrs. Busi and Stephenson, Limited, and Messrs. W. Bartholomew and Company, Limited, and with the addition of Messrs. G. L. Gaiser, Messrs. Witt and Busch, and C. Zard; and (ii) of Cocoa Manufacturers Limited (representing Messrs. Cadbury Brothers, Limited, Messrs. J. S. Fry and Sons, Limited, and Messrs. Rowntree and Company, Limited) and the English and Scottish J oint Co-operative Wholesale Society, Limited. The last- named was again the only important shipping firm outside the Buying Agreement. II PART I.-THE GOLD COAST. CHAPTER II. POLITICAL CONDITIONS IN THE GOLD COAST. (a) General. 32 . The territory known as the Gold Coast comprises four distinct sections; the Colony proper, Ashanti, the Protectorate of the Northern Territories, and Togoland under British Mandate. The more important statistics of the area, population, trade, revenue, etc., of the territory are contained in Appendix E. The Eastern and Central Provinces of the Colony and the Kumasi District of Ashanti are the most densely popu- lated areas. These are, as will be seen from the map which accompanies our Report, the areas of the heaviest production of cocoa. The map further shows tha:t, while cocoa growing is general over about two-thirds of the Colony, the Southern Section of Togoland and Ashanti, none is grown in the Northern Territories Protectorate or in the Northern Section of T ogoland. (b) System of Government in the Colony and Ashanti. 33. The laws of the Colony are made by the Governor with the advice and consent of the Legislative Council, on which there is an official majority. For Ashanti, the Northern Territories arid Togoland, the Governor is empowered to enact laws. . 34. For general purposes of administration, the Colony is divided into three Provinces-Eastern, Central and Western, the Southern Section of Togoland being administered as if it formed part of the Eastern Province. Each Province is under the control of a Provincial Commissioner, who is assisted by a staff of District and Assistallt District Commissioners. Ashanti is administered, under the Governor, by a Chief Commissioner, with the assistance of an Assistant Chief Commissioner and a staff of District and Assistant District Commissioners. 35. The system of government, so far as concerns native affairs, may be described generally as " a mixture of direct and indirect rule, with a steady bias towards the latter. "* By this is meant that Government's policy aims as far as possible at adapting, for purposes of native administration, the indigen- ous African institutions. These institutions, as they have been evolved in the Colony and Ashanti, are described briefly in the following paragraphs. * Annual Repo~t on the Social and Economic Progress of the People of the Gold Coast, I936-37. p. 6. 12 36. There are 63 native States in the Colony, each under a Paramount Chief who is styled Omanhene, Mantse, Fia or Konor, according to whether he belongs to the Akan, Ga- Adangme, Ewe-Krepi or Krobo race. There are also in each State a number of Divisional Chiefs, responsible to the Para- mount Chief for the administration of smaller areas within the State; Sub-Chiefs and Village Headmen are again subordinate to the Divisional Chiefs. The traditional head of a State or of an area within a State is said to occupy the " Stool," which represents symbolically the unity of the people who owe allegiance to it. Chiefs are elected and installed in their Stools in accordance with native customary law; and their position is dependent upon the goodwill and support of their people. Abdications and" de-stoolments " of Paramount Chiefs occur, and Paramount Stools are sometimes vacant for appreciable periods. Under the Native Administration Ordinance,* Para- mount Chiefs are empowered, with the concurrence of their subordinate Chiefs and subject to the approval of the Governor- in-Council, to make by-laws for the good government and welfare of their African subjects. 37. In the administration of a native State, the Paramount Chief is assisted by a State Council . This constitutes the highest native authority in the State and consists of the Paramount Chief, with his Divisional Chiefs, Sub-Chiefs and Councillors. There are also native tribunals presided over by Paramount Chiefs and lower tribunals presided over by subordinate Chiefs, from which cases may, in certain circumstances, be transferred to the State Council. Except in land cases, where appeals lie to the Provincial Commissioner's Court, appeals from the decisions of a Paramount Chiefs tribunal or a State Council lie to the court of a District Commissioner sitting as a Magis- trate. Thereafter appeals may be taken to the Supreme Court and thence to the West African Court of Appeal; certain cases may finally reach the Privy Council. In the absence of any system of direct taxation and of properly run State Treasuries, court fines are often an important element in Chiefs' finances . 38. The Paramount Chiefs in each Province meet from time to time at the Provincial Councils and Joint Provincial Councils of Chiefs constituted under the Native Administration Ordinance. These Councils, in addition to providing opportuni- ties for discussing matters of common interest, elect representa- tives to the Legislative Council of the Colony and exercise, through Judiciary Committees, certain judicial functions, such as the settlement of disputes between two Paramount Chiefs. 39. In Ashanti there is a Confederacy, revived in 1935, with the Asantehene (literally" King of the Ashanti ") at its head. * Native Administration (Colony) Ordinance, Cap. 76 of Laws . I3 The Asantehene is assisted by a Confederacy Council including the Head Chiefs of the Divisions constituting the Confederacy, and a Chief of each of the seven Kumasi clans. Under the Native Authority Ordinance, * Native Authorities are appointed by the Governor, and have powers to promulgate local orders for prescribed administrative purposes and, subject to the approval of the Governor, to make rules providing for the peace, good order and welfare of natives within their area. Provision is also made :Iior setting up Native Treasuries, and a number of such Treasuries are now in existence. There are native Courts, with varying degrees of jurisdiction, headed by the Asantehene's Court, and there is provisioN. for appeals to higher Courts. Native institutions in the Southern Section of Togoland have been developed on lines broadly similar to those followed in Ashanti. 40. It will be seen that the system of native administration in Ashanti approaches more closely to the full system of indirect rule as found in Nigeria and Tanganyika, and presents a homogeneity which is absent from that of the Colony, with its various races and its numerous independent communities. 41. We have received, in the course of our inquiry into the cocoa hold-up, certain criticisms relating to the present system of native administration jn the Gold Coast, particularly in the Colony. These criticisms were made with the object of showing, first, that the Chiefs forced the hold-up and boycott on th€ir people against the will of the majority; and secondly that the Central Government was weak in dealing with illegal acts alleged to have been done by the Chiefs to enforce compliance with their orders. We discuss these matters in Chapter VI. It will be convenient here, however, by way of introduction, to describe briefly the practice of " swearing an oath", and the extent to which oaths are recognised as legally binding in the laws of the Gold Coast. (c) The to oath". 42. In native customary law, the idea underlying the swear- ;... ing of an oath is, according to Rattray, to provide" a means of removing a dispute from the sphere of possible private settle- ment and securing a trial in judicio ". t The oath used as another authority states,t might be a fetish oath, a Chief's personal oath, or a national oath; its form would vary accord- ing to circumstances. In a boundary dispute between two members of the Akan tribe, for example, one might swear "Wukuda and Sokodee" (the oath of the Akim Akwapim * Native Authority (Ashanti) Ordinance, Cap . 79 of Laws. t R. S. Rattray, Ashanti, p. 124 . t J. B. Danquah, Akan Laws and Customs, pp. 69-83. 14 State) that his farm extended to a certain tree, his neighbour swearing in return that a certain other tree marked the boundary between them. The two having been arrested as "oath prisoners", the dispute would be settled in the Chief's tribunal. In other circumstances, we understand that custom sanctions a number of clan members (e.g., a group of farmers) binding themselves, by an oath sworn by their representatives (e.g., Head-Farmers), to do or not to do a particular act (e .g., not to sell cocoa). A breach of the oath would involve the offender in a suit before the Chief's tribunal: but it would be for tl1e Chief to decide, before punishing a breach of the oath, whether the representative , in swearing the oath binding on the group , had acted in accordance with the wishes of the group. 43. In addition, it is customary for Chiefs themselves to employ the oath as a means of giving legislative sanction to a new order or edict. The procedure is for the Chief, having decided upon an order with the advice of his Council, to send the Stool criers to publish it throughout the State or Division by beating" gonggong" (a tubular metal bell) and proclaim- ing, in a set formula which would include the use of the Chief's oath, that anyone who broke the order would have violated the oath and would accordingly be arrested and punished. * 44 . Under the Native Administration Ordinance of the Colony, prosecutions before native courts for breaches of oath are recognised only so long as the oath has been "lawfully sworn". No oath which involves violation of the laws of the Colony or is contrary to the principles of " justice, equity and good conscience" can be enforced. Furllier, since" llie legis- lative power of Chiefs is entirely derived from the Ordinances of the Gold Coast, apart from which lliey have no powers of legislation, inherent or ollierwise, and llie prescribed melliod of such legislation is by means of by-laws which come into effect only if and when lliey have been approved by llie Governor-in-Council," t proclamations of Chiefs by beating gonggong and swearing the oalli are not recognised as legally binding. There is nolliing in llie Ordinances to prevent a Chief from issuing an order to his people in this way; but should he or any ollier person attempt to enforce compliance willi the order by threat or violence, or punish a breach of the oalli by fine or imprisonment, he would be guilty of an offence. It follows lliat, so far as the Colony is concerned, llie beating of gonggong by the Chiefs to forbid the sale of cocoa during the recent hold-up had no binding force on their subjects and that any steps taken to punish breaches of the oath or to enforce the hold-up by intimidation were illegal. . * R. S. Rattray, Ashanti Law and Constitution, p. 315. t Judgment by late Chief Justice Sir George Deane on 2nd February, 1931. in case of I.G.P. v. Asare Panyin. 15 45. As regards Ashanti, it has been stated in paragraph 39 that Native Authorities have powers to promulgate locai orders for specific administrative purposes. The promulgation of orders to forbid the sale of cocoa does not, however, fall within the competence of an Authority. At a meeting of Chiefs held in Kumasi in November, I937, the Chief Commissioner said, with reference to such orders: " I am sure that it is not necessary to warn any Chief here that he must not attempt to enforce any law which has not been approved by the Governor." The position is thus not materially different from that in the Colony. CHAPTER III . THE COCOA INDUSTRY IN THE GOLD COAST. (a) History of development and present importance. 46. The history of the cocoa industry in the Gold Coast is covered by the memories of the older men who are still engaged in it. Its beginning is popularly attributed · to one Tetteh Quarshie, a~labourer in the cocoa plantations of F ernando Po, who i~9 returned to Mampong with a smuggled cocoa pod. He is evidently destined to be a national hero, and we were somewhat embarrassed by the tendency of native witnesses to insist on beginning with this already somewhat legendary figure. We were told that the first pods produced in the Gold Coast were eagerly purchased for seed at 20S. each , and we found traces of a lingering belief that this should still be the basis of cocoa prices. We learned that the early farms, made in ignorance of the appropriate planting methods and con- ditions , were often far from successful. The results obtained were, however, favourable enough to attract official attention, and in 1887 there was a Government distribution in the Akwapim district of plants derived from imported San Thome seed. 47. The established agricultural exports at that time were rubber, which was purely a forest product, and palm oil derived from semi-wild and more or less scattered trees . The attraction of an export crop capable of ordered production and com- manding a ready sale proved irresistible, even though the plants took five to seven years to come into bearing. 48. The rise in exports of cocoa from the Gold Coast since the first shipment of 80 lbs. in 1891 has already been referred to in the introductory Chapter of our Report. The following 16 Table shows in more detail the rapid expansion, compared with that in Nigeria:- T ABLE 2.* A ve,'age annual export . Quinquenni al period. Gold Coast. Nigeria . Tons. Tons. 1892-1896 12 32 1897-1901 ... 329 144 19°2-1906 4,7 II 462 1907-19 II ... 20,934 2,375 1912- 1916 58,3 06 6,002 19 17- 1921 ... II8,290 17,294 1922-1926 ... 205,858 37,017 1927-193 1 ... 225,732 49,749 1932- 1936 . 256,033 75,690 * Compiled from Customs figures. This development, remarkable enough in bare figures, may well be described as phenomenal when it is explained to be the sum of the production of small native farms, mostly of one to five acres, . 49. As has been said in paragraph 20, world supplies of cocoa had, previous to the extension of the crop to West Africa, been derived almost entirely from organised plantation industries in tropical South America, the West Indies, and the Portuguese island of San Thome, Plantation production is necessarily conducted on business lines, involving a balance sheet. By contrast the West African industry grew up as, and to a large extent still remains, an accessory to subsistence agriculture. It is only in more recent years, witl1 the increasing demand for imported food and manufactures, the growing dependence on hired labour, and the tendency to acquire farms by purchase, that costs of production have begun to enter into the farmer's calculations. An illustration of the significance of this fact is afforded by the industry in Nigeria, where, at least in the older areas, the duration of a cocoa farm is limited by marginal conditions of soil and climate to a period of IS to 20 years . It is nevertheless accepted by the Nigerian Depart- ment of Agriculture fuat cocoa will continue to be grown under fuese comparatively uneconomic circumstances, and an official investigation is being made of fue long term rotation involved. Because fuere is no comparable export product available in fuese areas, fue extra labour required has little weight against fue necessity for a money crop. 50. The strength of the impulse in fue Gold Coast to grow and market cocoa, reacting on a Government which naturally I7 welcomed an unexpected flow of wealth, brought about the building of railways, the construction of a system of excellent roads , and the provision of a first-class harbour. In step with the development of production, there has grown up the large marketing structure necessary to purohase, assemble, transport and ship the produce and, parallel with this , the equally large business of importing and distributing goods in exchange. 5I. The increasing flood disoharged by West Africa upon the cocoa markets of the world has hitherto been absorbed (it will be seen from Tables I and II in Appendix C) by a rapid increase in consumption. The quality of the W'est African product is at best mediocre, and it is only by slow stages that preparation has improved. The tendency of manufacturers has been to use African cocoa as a relatively cheap and abundant supply for bulk and to regard an admixture of the choicer plantation growths as necessary for flavour. Technical advances in manufacture appear to have largely reduced this need. * 52 . It will be realised from what has been said above that cocoa dominates the Gold Coast. In I936 it represented 98 per cent. by value of all agricultural exports and 63 per cent. of total exports . Other agricultural products for export have, therefore, shrunk into insignificance. Exports of oil-palm products, which reached a peak in I884 of about 20,000 tons of oil and 40 ,000 tons of kernels, were only about II,OOO tons in I936. There are still small exports of copra, rubber and cotton. The important gold, manganese and diamond mining industries contribute materially to exports and to Government revenue; but these are European enterprises worked with hired labour, and their profits go in the main to shareholders outside the Gold Coast. As such they are extraneous to the traditional life of the African community. Misgivings about the eggs being all in one basket have of course been expressed, but so far have been a1most unheeded in the face of obvious prosperity. Government is, however, fostering a small banana industry based ·on the port of Takoradi, the area exploited being one unsuitable for cocoa. 53. A survey made in Ashanti some years ago by the Depart- \..- ment of Agriculture on farms of I ,250 farmers showed the average area per farmer to be 2i acres . The size of farms varied from a fraction of an acre to 27 acres, and 60 per cent. were under one acre. For the cocoa districts as a whole, the number of farms is estimated by the Department of Agriculture at 300,000, and the acreage under cocoa at somewhere between I,250,000 and I,500,000 acres . With production at the I936-7 level of about 300,000 tons, the average output per farm would J * See Twenty-Second Report oj the Imperial Economic Committee on Cocoa, I932, p . ISS · 18 work out at one ton. These figures are, however, in the absence of a land survey, very rough and conceal considerable varia- tions behveen indiviqual farmers. 54. The general conditions in an area of heavy production are well illustrated in the following extract:- " In a typical cocoa village with a population of 1,181 in the Western Akim district of the Central Province 201 families, living in 153 separate compounds, produced and sold 5A5I loads of 60 lb. each in the crop year 1934-5. The number of farmers was 174 males and 180 females giving a production per head of 924 lb . of cocoa worth, at the then average season price of 7s. 7d. per load, about £5 I6s." * 55. Cocoa is an important source of Government revenue. In 1936, when exports were 3II,000 tons valued at £7,760,000, the revenue obtained from the cocoa export tax of £1 3s. 4d. per ton was, in round figures, £363,000, and that from duties on imports (most of which is indirectly derived from the cocoa industry) £2,140,000. There is no direct taxation. The wealth of the country is reflected in its excellent roads, its fine schools at Achimota and elsewhere and in the scale and style of the Government buildings in Accra; less so in the appearance of the provincial towns; and least of all in the amenities of the country villages. (b) Conditions of Cultivation. 56. The primitive economy of the West African native followed the system common to the agricultural communities of the African tropics. He grew his crop mainly of food plants, on a system of shifting cultivation without the use of manures, and wholly for local consumption or internal exchange. Shifting cultivation involves the clearing of a patch of forest or other natural vegetation, the use of the plot so cleared for a period of not more than two or three years, followed by its abandon- ment to the encroaching weeds and bush, which in a longer or shorter time restores its fertility and renders it capable of being cleared and used again. The difficulty of fixed tenure under this system, and the need to make land for subsistence accessible to all members of the community, is met by tribal ownership of all the available land. Individual rights are based on occupa- tion only and lapse as regards any particular plot as soon as its cultivation is abandoned. Occasional permanent fruit trees, as for example, an orange tree or a coconut palm, may remain the property of the man who planted them, although the land * Annual Report on the Social and Economic Progress of the People of the Gold Coast, I936-37, p. 19. I9 on which they grow has passed to other cultivators. A modifi- cation of this general system, of considerable importance in relation to later developments in the Gold Coast, is that within the tribal lands, a certain area may be recognised as coming within the disposition of the Stool, and other areas as reserved to the members of certain influential families. 57. This is a very general statement of an intricate subject, and hides a multitude of local variations . Their study becomes exceedingly complicated in such a period of rapid transition as recent events have brought about in the Gold Coast. It is obvious that the introduction on a large scale, of a tree-borne crop such as cocoa, which may occupy the same land for 20 to 40 years or more, must destroy the balance of a system based on rotational occupation by short term cultures. Where the customary occupation of land has been extended by planting it with a permanent crop, the situation is comparatively simple and conforms to the unwritten rule that the continued use of land warrants its retention-although this right was established under conditions when long term occupation was not contem- plated. How far land so held can be alienated under tribal custom is highly uncertain, and probably depends on local cir- cumstances. The pledging and transfer of its usufruct seems, however, to be a common practice. 58. In contrast to the system of tenure described above, there ' has arisen in the Gold Coast a system which diverges much more widely from primitive forms and approaches more or less closely to private ownership, from which in many cases it becomes practically indistinguishable. By no means all the land in the country is equally suitable, or suitable at all, for cocoa cultivation. Land in the favoured districts has been in great demand. "Strangers," whether tr,ibesmen from other dis- tricts or more or less de-tribalised people from the towns, have been willing to pay large sums for land on which to establish farms. The custodians of tribal, Stool and family lands, which no doubt, on a limited view, seemed inexhaustible, have wel- comed the opportunity of easy money. With a complete ignorance of mensuration, and with no more than an oral indication of boundaries based on impermanent marks, land has been allotted to all comers who had money to offer. Cases are not infrequent of the same land, or parts of it, being sold twice ~ver '. ?-nd .land titles a~~ a most f~itful. source. of highly expenSIve htigation. The pOSItion of these lffinugrants m relation to tribal discipline is a subject which is still under dispute; the firmness of the footing they have established on the land seems not to be open to question. , 59· The original conception of the Gold Coast cocoa farmer still generally held except by th~se with personal experience of the present situation, is of a peasant cultivator who, with his 20 own labour and the help of his family, grows his food and tends an acre or two of cocoa trees. This picture is no longer true of more than a small minority of farms and these of the smallest size. The employment of labour has become a regular feature of cocoa growing, even where the owner resides on his farm . Multiple and absentee ownership has also developed, involving the complete use of hired labour. In actual fact very many so-called farmers neither grow nor market their cocoa. 60. There is little indigenous labour available for hire in the cocoa districts; and although there are now fairly large settle- ments of outside labourers in the districts of heavy cocoa produc- tion, farmers are dependent mainly on migrant labour which comes in from the Northern Territories, where money crops are inadequate, or from neighbouring French colonies, where money is a necessity to meet direct taxation. There is normally a great annual ebb and flow of such labourers , who tramp down to the cocoa districts from the north for the cocoa season and return by lorry to their homes and families in the food planting season* 61. Only the initial labour of clearing the bush and starting a new farm is paid' on a piece-work basis . Once a cocoa farm is in bearing it receives little or no attention of any kind during a large part of the year and to that extent the hired labourers responsible for it seem to carry out the somewhat vague duties of retainers and custodians rather than those of employees who are expected to give their whole energies to manual work. Wages for cultivation vary considerably and are usually less in Ashanti than in the Colony. Rates of {,6 to {,12, together with food and shelter, or a maintenance allowance in lieu, were mentioned to us, but it appears that wages are sometimes ~ased on the price realised for cocoa and may even be paid ill cocoa . 62. Multiple and absentee ownership is now common. The native small capitalist becomes possessed, either directly by purchase of land as described in paragraph 58, or indirectly through the widespread ' custom of pledging farms for monetary loans, of numerous farms, often widely scattered. He may be a farmer who thus invests the proceeds of his initial successes , or more commonly a broker who has made money as a middleman. It is usual to say that most brokers are farmers as well, but which function typically precedes the other has not been made clear . We heard of one farmer who had in his possession no less than 79 widely scattered farms. Absentee proprietors may employ a head labourer and assistants under their own periodic or occasional supervision ; more commonly they adopt some system of share-cropping. A usual * See Appendix F. 2I arrangement is that a relative occupies the farm as tenant or bailiff, hires the necessary labourers and returns to the owner one-third of the crop ' or its proceeds. The system known as " Abusa ", by which one-third goes to the landowner, one-third to the farmer, and one-third to the labourers, is apparently traditional, and tribal lands are often farmed on this basis without previous purchase beyond various dues to the Chief. 63. In the process of establishing a cocoa farm from for~st, when the trees and other vegetation have been cut and burned and the seedlings planted, the land remains available for two or three years for the growing of foods crops, after which the cocoa trees begin to close in and shade the ground. The staple foods are cassava, plantains, maize, yams and cocoyams. After about three years, food must be grown in separate clearings, the sites of which are shifted in the way already described. It is difficult to make any general statement as to the extent to which the cocoa farmer has ceased to be self-supporting. An internal trade in local foodstuffs exists. As regards imports, articles for personal consumption or ase such as sardines and stock fish, cotton cloth,* kerosene, gin,tobacco and matches, are in regular demand; while there is a considerable trade in imported galvanised iron sheets and cement. The fact that the recent hold-up of cocoa and boycott of imports (with minor exceptions) could persist for six months without visible strain demonstrates that the foundation of the natives' independence has not been seriously affected. . (c) Technical. 64· A cocoa farm will normally bear a small crop at about five years from the time the trees are set out and bearing should increase fairly rapidly in the next two or three years . SUb.sequent history. varies widely ~ccording to circumstances. Reliable and contmuous observations are lacking for West Africa, but it is obvious that, in their prime, the farms have a hi~h . rate of yield. t Inv.estigation of plantation cocoa in Tnmdadt has shown that YIelds tend to increase up to IS to 25 years from planting and then decline rapidly to a more or less permanent mean. In unfavourable conditions of soil and climate this decline is accompanied by dieback of the trees with loss of resistance to pests and diseases, and ends in their extinction. In the Gold Coast, apart from these marginal cases, there is as yet little evidence regarding the maintenance of yield and the duration of the farms. * Imports of cotton piece goods were valued at nearly {rim. in r936. t " The average yield is probably between 500 and 600 Ibs. of cocoa per acre per annum." C. Y. Shephard, ReplYYt on Economics of P easant Agriculture in the Gold Coast," paragraph 16. Professor Shephard's Report refers to a visit made in 1933-34. t Ibid., paragraph 18. 22 65. Beyond the periodic cutting of the undergrowth necessary for access, and apart from the collection of the crop, the trees are left to nature. The measures which are standard on a well- conducted plantation-draining, pruning, manuring, and pest control-are unknown. There may be some casual overhead shade from surviving or intrusive forest trees: we saw little attempt at its ordered provision. Where, as is frequently the case, the farm is carved out of the natural forest, which still surrounds it, great advantage is derived from the lateral pro- tection thus afforded. 66. An industry in the condition just described would seem to be ripe, in fact considerably over-ripe, for agricultural education. It would be a natural expectation to find a corps of native agricultural instructors moving among the farmers and raising, however slowly, their standards of husbandry. We found none, and as the idea is too obvious not to have been constantly in mind, we assume that there are reasons-which we did not feel it was our duty to investigate--considered sufficient to justify the omission. One serious difficulty is obvious. So many farms are left more or less completely in charge of migrant labourers, and so many are in the hands of receivers whose only interest is to gather the crops, that there is nobody, in a large number of cases, permanent enough to receive education or to apply it. Even where the farmer himself occupies his farm the incentive to careful cultivation and harvesting is frequently removed by his having pledged the usufruct as security for a loan. As the prospect of his ever being able to repay the loan diminishes, the farmer inevitably becomes more and more indifferent to the condition of the farm and to efforts by agricultural officers towards his education in proper methods. 67. There is one direction in which education has produced tangible results. The early Gold Coast cocoa was neither fer- mented nor properly dried. The efforts of the Department of Agriculture, reinforced by selective buying and the payment of premiums on the part of the more interested firms, notably Messrs. Cadbury Brothers, have gradually raised the standard. The introduction in 1934 of compulsory grading, coupled with the prohibition of export of cocoa below a certain standard of purity, has had recent effect: and we were assured by some important buyers that the quality, especially in the earlier months of the crop season, is now considered satisfactory. We refer to this subject and to the revised 1937 grading legislation in paragraphs III et seqq. (d) Loans and Agricultural Indebtedness. 68. Indebtedness of cocoa farmers is dealt with in detail by Professor Shephard.* Since we shall have certain recommenda- • Op cit. paragraphs 157 et seqq. 23 tions to make regarding credit, however, some reference to the question is required here. 69. Cocoa farmers do not require cash to meet direct taxa- tion; but with the development of the industry as described earlier in this Chapter the need for ready cash for producti-~7e purposes has arisen. A farmer may l?urchase land to beg:n his farm. Most farmers now employ hIred labour ; and, while still producing most of their food r.eq~irem~nts,. have now be- come accustomed to a standard of hfe In WhICh Imported goods such as fish, cloth, tobacco and stimulants play an essential part. In addition, cash is required for such non-productive' purposes as litigation, and the lavish solemnisation of funerals and marriages that social custom requires. Expenditure on funeral ceremonies-a matter which, since it profoundly affects prestige with the dead no less than with the living, over-rides any consideration of worldly prudence-has especially tended to increase with the development of the cocoa industry. 70. It might be expecte¢l that, since the farmer's income is concentrated into the few months of the crop season, he would save part of the proceeds to cover expenditure during the rest of the year. But thrift is rare in the Gold Coast. Partly from ignorance, which prevents the majority of farmers from under- standing the relation between indebtedness and costs of pro- duction, and partly on account of the tradition of communal family ownership which gives all members of the family an equal claim on an individual member's wealth, saving has little attraction for the Gold Coast African. He prefers to spend lavishly, even foolishly, when he has money; and to borrow when he has none. 71. Naturally, credit facilities have expanded with the cocoa industry, since the crop provides the farmer with a security to (lffer: and most of the lending is done by cocoa buyers to whom " loans afford an opportunity of controlling supplies before they are actually available."* The various types of buyers, including the money-lending " strangers", are described in Chapter IV. 72 . The methods of borrowing vary considerably. The 'Simplest type of borrowing is for the farmer to accept an advance from a buyer before the cocoa season in return for an assurance that he will sell his crop through that buyer. The loan is usually repaid in cocoa, either at the price ruling at the time of sale, or at a price fixed at the time of the loan. The latter really amounts to a forward purchase (see paragraphs 99 and I2I). An African witness of great authority informed us that a buyer would never in any circumstances lend money without a cash consideration. Undoubtedly promissory-notes are often drawn up so as to conceal the amount of interest, which is * Shephard, 1oc, cit" paragraph 160, 24 added to the capital sum. We find it impossible, however, to discount entirely the statements of brokers that loans are made by them before the season without interest or other considera- tion except that the crop should be sold through them. It seems likely that this practice has developed to some extent owing to the keen competition among buyers for tonnage. 73. Apart from borrowing on the strength of the forthcoming crop, a farmer may raise a long term loan in one of the following ways:- (i) He may agree with the lender to a bond under the terms of which the usufruct of his land belongs to the lender until such time as it is considered to have yielded sufficient to cover the principal of the loan and also the interest, which is seldom less than 50 per cent. and often more. Sometimes one-third of the produce is regarded as interest, one-third as repayment of principal, and the remaining third is given to the debtor. But in other cases the creditor seizes, by way of interest, the whole produce of the farm, including any additional crop there may be. (ii) Occasionally, when a farm is pledged as security for a loan, the crop is treated as a perquisite of the lender, who is entitled to repayment of the principal in cash and also to interest calculated at 50 per cent. or more per annum. (iii) A farmer who has already pledged his farm and has no other security to offer, may obtain a loan by entrusting a young daughter or a niece to the lender to act as his servant until the debt has been paid. Although this method of financing is illegal, one farmer volunteered to us the remark that he could always hand over four or five of his nieces when he needed capital. If a girl reaches marriage- able age while in the lender's keeping and becomes his wife, or if he gives her in marriage to a relative, the loan is thereby extinguished. 74. Borrowing on one or other of the above methods is widespread in the Gold Coast and debts may remain outstand- ing for many years. Information as to the extent of total indebtedness and the cost of borrowing is lacking but Professor Shephard quotes an estimate by the Agricultural Department that 30 per cent. of the farmers have pledged one or more of their farms and states that, according to his inquiries, few farmers can, unless redemption is automatic, clear themselves of their rapidly increasing indebtedness. 75. The results of the extensive pledging of farms on the quality of the crop have already been referred to in paragraph 66. We deal in our recommendations with the importance of making improved facilities for credit available to farmers. 25 (e) Future prospects. 76. There is great difficulty in forecasting the future of Gold Coast cocoa production; so much depends on whether measures are taken to regulate the use of land and on the progress made in agricultural practice. We have outlined the pi~tur~ ?f a wide and rapid development, spontaneous · and IrresIstible, almost unregulated (the provision of forest reserves affords the notable exception), primitive and unprogressive in its methods. Before we reached the Coast we had read accounts of one area in the Gold Coast in which the destruction of forest for cocoa farms and food production has gone so far that exposure, helped by soil and climatic conditions below the optimum, is likely to extinguish cocoa production unless ameliorative measures are deliberately and generally adopted. Our apprehensions that a similar situation might develop generally in the not-distant future were not supported by such observations as we were able to make of the principal producing areas . But though such a prospect may be more or less distant according to local circum- stances, it nevertheless exists . We include a reference to this subject in our recommendations in Chapter XV. 77. Such a survey would provide material for an answer to the first question arising in the attempt to forecast future pro- duction: how much scope remains for increasing the number of farms or, what may perhaps become more important, sub- stituting new farms for old. At present nobody knows. Professor Shephard, basing his opinion on the Trinidad investi- gations already mentioned, anticipates a heavy falling off in yield when the trees have passed their early prime . The main- tenance of the present level of production, on this view, depends largely on the answer to the question just stated. 78. The second question on which evidence is required relates to the duration of farms. Given first-rate conditions, including a deep well-drained soil, a cocoa tree may last IOO years, and under such circumstances a plantation field of cocoa, with due attention to renewals from suckers or by supplies, can remain in bearing for at least this period. On the other hand, as we have instanced above, established farms may fail in 20 years. The difference is brou.ght a~out by (a) environment and (b) husbandry. It IS ImpOSSIble to foresee how long the essential factors in the present environment will be preserved and how far education will affect husbandry. 79· We can only say that there is at present no obvious reason why Gold Coast production should not be maintained, or in- creased, in the visible future, qualifying the statement with the caution that vision, in the absence of essential evidence, cannot penetrate far. CHAPTER IV. COCOA MARK ETIN G IN THE GOLD COAST BEFORE THE BUYING AGREEMENT. (a) Preparation for market. 80. Harvesting normally takes place three to four times a season. After the pods have been split, the wet beans are extracted and collected into heaps, which are covered over with leaves and left for five to seven days to ferment. The beans are then headloaded in baskets to mats or trays near farmers' store-houses for drying, which takes about ten days. The dry cocoa is kept in bags or baskets in the stores which are of " swish" (i.e., wattle-and-daub) construction, roofed with thatch, shingles or galvanised iron . (b) Possible routes to market. 81. The farmer 's cocoa may be marketed in one of several ways. The alternative routes that the cocoa may take on its way from the farmer's store to the ship are shown diagram- matically in Appendix G. We reserve the treatment of Co-operative Societies' cocoa for the following Chapter. Ii 82. The European firms that buy and export practically the whole crop (see paragraph 28) maintain a network of buying stations reaching far into the cocoa districts ; but although it is possible for a farmer to sell direct to a firm's buying station, we were informed that only a negligible pro- portion of the crop is sold in this way. Most farmers sell in small lots and the cost of transport , plus a passenger fare, to the buying station would usually make this method of sale unprofitable. Some firms appear to have allowed the full price including commission to producers who sold direct : others did not. It was suggested by some witnesses that direct sale was formerly important, but evidence on this point was conflicting. The bulk of the crop therefore reaches the buying firms through one or more non-European intermediaries, who may be inde- pendent but are usually agents of the firms themselves or of other middlemen. (c) Middlemen. 83. There are large numbers of intermediaries, ranging in importance from the farmer who sells his neighbour's crop along with his own to the large independent African or Syrian buyer, who may have a capital of some thousands of pounds and handle up to 5,000 tons a season. The various types of inter- mediary buyers shade into each other, and there are local 27 differences of practice and nomenclature: but · for the purpose of our Report it is sufficient to recognize certain broad ·c1asses and to indicate briefly the functions performed by them. (i) SCALE-BUYERS. 84. These are salaried employees of the buying firms. ~hey are provided with a limited supply of cash and sent out WIth a scale into producing areas to buy cocoa brought to them at convenient points, frequently at the junction of bush tracks and main roads. This system of buying was devise~ by the firms with the object of getting into closer contact WIth producers. It is still used to a considerable though decreasing extent by Messrs. Cadbury, but agents of other firms have con~ended that in practice it has not been very successful, owmg to the opposition of the brokers and to the fact that most of the scale- men's purchases are from other petty buyers rather than pro- ducers. The scale-man differs from other buying agents in that he gives out no advances, buys strictly for cash and receives no commission. (ii) SUB-BROKERS. 8S. These are agents engaged by other and larger middlemen, from whom they receive advances with which to purchase cocoa in the bush. Their purohases may amount only to about one or two tons a year: on the other hand, those who are attached to the large independent brokers may handle 300 tons a year, and may, in turn, engage their own sub-agents, distribute advances to them and collect the cocoa bought by them. Government evidence indicated that the smallest type of sub- broker tends to decline in importance as roads develop and the bush farms become more accessible. 86. Th~ sub-broker's functions are to secure cocoa of accept- able quality up to the value of the cash advanced to him and to deliver it to his ~mployer at a convenient point. The sub- broker wh~ deals WIth the far~er frequ~ntly takes delivery at the farmer s store; the cocoa IS then weIghed and headloaded to the su~-broker's store, where it is redried if necessary. If the store IS on a mam road, the cocoa is put into service bags of ISO lbs. capacity for lorry transport to the sub-broker's employer; on arrival the cocoa is weighed in, and the sub- broker returns to the bush with a further advance. But further headloadin.g may be necessary, and the cocoa may change hands agam, before a road IS reached. Sub-brokers receive from tl1eir employers the service bags used for internal transport and redistribute them to their own sub-brokers and even to farmers. (iii) BROKERS. 87· A~though this t~rm is often used loosely for non-European buyers m general, It usually means those buyers who are B 28 engaged directly by the European firms on a commission basis and operate mainly with funds supplied by the firms . Fre- quently they receive in addition a small salary or retaining fee. Brokers may be quite small agents mainly collecting the cocoa of their own village for delivery to a firm; some firms make a point of buying through such brokers. At the other end of the scale there are large brokers buying 1 ,000 tons or more. The evidence indicated that the larger brokers have become more important in recent years. 88. The functions of the broker are to collect and deliver to his employer conveniently large quantities of cocoa of accept- able quality. For that purpose he receives considerable advances from his employer for the purchase of cocoa, either direct from farmers or through sub-brokers. Further, the broker must distribute bags, tarpaulins and scales to his sub- brokers; tlle bags and some at least of the tarpaulins and scales are supplied by the firms. The broker has to have a store at which to receive supplies from sub-brokers, and keep tllem until reconsigned to his employer. Here cocoa is also redried, if necessary, and packed in service bags'. Brokers' stores are frequently operated under the name of the firm to which they are attached; the employing firm may also pay the rent of the store and make allowances for labour where necessary. (iv) FACTORS.* 8g. These are Africans or Syrians who receive special rates of salary and commission from the firms in return for special services. They have to deliver large quantities of cocoa , pre- pared ready for shipment, to the shipping stores of the employing firms . Their responsibilities therefore include, in addition to tlle normal functions of a broker, the performance of processes, such as grading and transfer to export bags, which would otherwise be performed under European supervision in one of the firms' buying stations. (v) I NDEPENDENT BUYERS. go. These are Africans or Syrians who buy cocoa with their own capital and resell to the firms. Small buyers of this kind are known as " free sellers". There are others who have a very considerable business and who carry out the same pro- cessing functions as factors, delivering cocoa ready for ship- ment. An independent buyer of this type mostly operates under an agreement with a buying firm . We received evidence from an independent Syrian buyer who stated that he bought 5 ,000 tons annually, and had at that time .£12,000 of his own money • The word " factor" is sometimes used as the equivalent of broker; in this Report it is used strictly in the sense of a non-European agent in charge of a buying station where grading is done. 29 out in advances. But there are very few independent buyers of this class and the proportion of the crop handled by them is small. 9I. Money-lenders often act as independent buyers and lend ... money before the season on the understanding that the farmer sells his crop to them at a fixed price (see paragraph 122). They are distinguishable from those brokers who use their own money to acquire cocoa only in that they are not tied to a firm and therefore receive no advances. Money~lenders are fre- quently " strangers" to the area in which they operate, and Lagosians (a term used vaguely for people of the Y oruba race from Southern Nigeria) appear particularly to favour this kind of business. Large farmers may also be money-lenders. There are numerous small money-lenders, and some with an extensive business. During the hold-up they are said to have bought considerable quantities of cocoa at low prices. 92. The Gold Coast census for 1931 indicated that there were some 1,500 'persons in the country who claimed to be cocoa brokers. Thls number certainly cannot include the host of sub- brokers, money-lenders, free sellers, etc., described in the pre- ceding paragraphs. One agent of a buying firm informed us that he engaged about 20 brokers in the purchase of 4,000 tons annually. Their purchases ranged from 50 to 1,000 tons. The number of their sub-brokers, some of whom might buy as much as 100 tons, was estimated at 500. If these figures can be taken as typical of the whole country, abont 1,500 brokers and 37,000 sub-brokers are required to market the whole crop. Un- doubtedly the number of persons engaged in the marketing of cocoa is very large; but it must be remembered that most of them, including the large brokers, also own cocoa farms. (d) Exporters. 93· The 13 European firms which normally buy and export abou~ 98 per ce~t . of the Gold Coast crop have already been descnbed m the mtroductory Chapter of our Beport. Between them they maintain some 130 buying stations with European age!1ts, and a much larger number of stations operated by J?fncans. Som~ of the smal~er firms depend entirely on estab- lishments at mam cocoa-buymg centres from which brokers are sent out. Others have large numbers of up-country stations. Certain firms rely extensively on scale-buyers or small local brokers. 94· The main up-country buying stations and headquarters st.a~ons are, for the most part, directly under European super- VISlOn, but there are a few under the control of salaried African produce managers. These stations issue advances to brokers for the purchase. of cocoa and e.mpl~y graders licensed by Govern- ment. On delivery the cocoa IS weIghed and examined for quality 13408 B 2 30 before a receipt is given. It is then sampled under the official grading scheme and if necessary, redried, graded, put into shipping bags and marked with the Government grades (see Appendix I) and placed in the store attached to the buying stations. As already mentioned, cocoa ready for shipment may also be supplied by African factors direct to a firm's shipping stores. On receipt of instructions from the port agents of the firm, cocoa is railed to beach warehouses where it is stored, sometimes for months, until required for export. The subsequent processes of marketing overseas are described in Chapter XII. 95. Besides the European firms, there are a few small in- dividual African and Syrian shippers who operate rather inter- mittently and sell through brokers in London . Attempts at joint shipment have also been made by associations of farmers from time to time, and on more than one occasion farmers have suffered by placing undue reliance in some plausible but unscrupulous person who has undertaken to market cocoa on their behalf. (e) Agreements made between buyers and their employers. 96. Buyers are engaged by their employers under agreements which may be more or less definite according to their im- portance and the status of the contracting parties. We were informed by some broker vvitnesses that they are not furnished with a copy of their agreements with the firm employing them. An example of an agreement between a firm and a large broker is given in Appendix H. The main points covered by it fai~ under the four following heads :- (iJ Purchase of cocoa.-The broker undertakes to buy and deliver cocoa of sound quality, exclusively for his employers and at prices fixed by them, and to render accounts. (ii) A dvances. - The employer undertakes to furnish advances to the broker exclusively for the purchase of cocoa ; and the latter undertakes to be responsible for these, even if redistributed to sub-brokers, and to provide suitable security for the advances. (iii) Rem~meration.-The employer undertakes to pay commission, salary and a contribution towards expenses. (iv) Supply of Requisites. - The employer undertakes to supply bags .. An agreement is frequently supplemented by a mortgage deed as security; alternatively trinkets, and in the case of the larger brokers and factors cash, may be deposited with the employer. 97. The larger brokers may use written agreements with their sub-buyers, drawn up on much the same lines as the 31 example quoted, or in less precise terms. The smaller buyers normally have unwritten understandings with their sub-buyers, although usually there is a written document relating to the mortgaging of any farm pledged as security. (f) Financing of buyers. (i) ADVANCES. 98. All brokers and sub-brokers from the largest to the smallest operate with advances made by their immediate employers, although in addition they may use their own capital. Thus the advances made by the firms reach the producer through one or more intermediaries. Advances by the European firms are essential so long as the African insists on cash payment for his cocoa and so long as the brokers have not sufficient capital of their own. The remarkable feature of the system in the Gold Coast is the amount of the advances issued by the firms. 99. The bulk of the advances are made during the crop season and are renewed as cocoa is returned by the buyer to his employer. Such advances may remain outstanding only for a day or two, or for several weeks according to the importance of the parties respectively supplying and receiving them and the difficulties of getting in the cocoa. Considerable sums are also given out by buyers before the season in order to obtain Jln option on cocoa, either by forward purchases or by loans entailing a more or less definite obligation to sell through the broker making the advance. It was suggested to us, for example, that in the Koforidua district as much as 50 per cent. of the crop might be purchased in advance at fixed prices. * Producers have now become accustomed to having such facilities for obtaining funds in the lean months between main crops. A large part of the advances before the season is made by buyers from their own capital, but considerable sums are also advanced during the same period by several of the firms. 100. The firms themselves sometimes advance money direct to farmers through their European agents, but in evidence it has been admitted to us that this system has not been very successful since, in view of the type of security available, the firms are not prepared to offer as much direct to farmers as are the brokers. We had evidence indicating that farmers who approach a firm for advances may be directed to put their application through one of its brokers, who will then take the responsibility of repayment. Advances in kind (cement, iron sheets, etc.) are sometimes made by merchant firms to petty buyers or farmers . • See also paragraph 12I. B 3 32 (ii) REMUNERATION : COMMISSIONS , SALARY AND ALLOWANCES. lOr. Brokers may be paid a salary by the European firms or by larger buyers; they are then considered as members of their employer's staff. A broker buying 1,000 tons may, if he has his own shed, get as much as £10 to £12 a month during the six months of the crop season; usually , however, the rate of salary would be less than this. Small retaining fees are some- times paid to buyers during the off-season. The large buyer using his own capital may be bound, by accepting such a fee irom a firm, to deliver exclusively to that firm . 102. More generally buyers are remunerated exclusively by commissions and allowances. The commission system is very complex and varies from firm to firm. The three following types of commission are recognised, but definitions of their scope and relationship are conflicting:- (I) Ordinary commission, i.e., an agreed flat rate per ton of cocoa delivered, payable by the firm to the broker at the end of the season . The rate has normally been 18s. 8d. or £1 a ton, i. e., 6d. per load or slightly more . (2) Tonnage, i .e., an extra payment per ton over and above commission and depending on tl1e amount of the buyer's purchases. Tonnage may be based on a sliding scale at rates increasing with the quantity bought during the season; or it may be at a flat rate payable only on purchases in excess of a given quantity. Some firms charge this type of commission wholly or partly to their expenses: others consider it to be entirely taken out of the price which their brokers are authorised to pay: several do not pay it at all . In any case the tonnage due to a broker is reserved until the end of the season. (3) Oveniding Commission, i.e., an agreed addition per ton paid to tl1e larger brokers. It may be purely a com- petitive addition to ordinary commission, but in some cases it is paid for exceptional services , e.g., high tonnages, bagging, grading , etc. The rate may be increased on purchases in excess of a given quantity. Oveniding com- mission is charged by some firms wholly or partly to expenses; others deduct it from the price offered. The term " overriding commission" appears sometimes to be used by Africans in the broad sense of commission on a sliding scale including tonnage . 103. Apart from commissions, various allo'wances are made to brokers in cash or kind. They are supplied with scales, tarpaulins, drying mats and bags and may be provided with a store or an allowance for rent . Allowances may also be given for labour costs, for shrinkage of cocoa in store and for trans- port. It seems impossible to separate allowances from com- missions and salaries, and the remuneration received by a 33 broker from his employers must be regarded as consisting of all three and as designed to cover his expenses and risks together with a margin for profit. Increased competition has no doubt tended to increase allowances. 104. The larger sub-brokers are similarly remunerated by commissions and allowances, but the smallest types may operate without a commission, being left to make what profit they Gan from the farmer. (g) The fixing of buying prices: stock declarations. 105 . From time to time the European agents of the firms receive cables from their Head Offices in Europe either naming a price at which they are authorised to buy or telling them to follow competition. When they fix limits the Head Offices must consider not only conditions in the world market but also their immediate requirements for shipment and the competitive con- ditions prevailing on the Coast. They are kept informed by their Coast ' agents of the prices that competitors are offering, or are said to be offering; the qualification is necessary, for European buying agents emphasised to us in evidence that prior to the Agreement their information about competitors' prices was often, if not usually, obtained through brokers. Agricul- tural officers have frequently found wide differences existing between the prices offered by the various firms at the same buying centre. 106. The European agent in tum fixes limits. up to which his brokers are authorised to buy, and the brokers again fix limits for their sub-brokers; these limits are subject to transport differentials, according to where tlle cocoa is taken over. The broker is supposed to be credited for his purchases at the authorised prices prevailing at the time when he is instructed to buy. If a broker chooses, in order to increase his purchases, to pay his sub-broker a higher price than is warranted on this basis, either by passing on a share of his own commission or by not deducting enough to cover transport, he is then supposed to bear the difference himself. 107. \¥hen the European agent is instructed to change his y. buying limit, he informs his brokers who must then furnish him with a declaration of their stocks within a fairly short period. Sometimes an agent may, as a precautionary measure, demand a declaration of stocks before any price change is announced. It is obviously reasonable that cocoa already purchased by sub- brokers. should be ~ncluded in stocks declared by the brokers employmg them, Sl?Ce the ~atter, when advancing money to the sub-brokers, wlll have mstructed them to buy at prices corresponding with the firm's buying limit, and this limit re- mains in force up to the time when the declaration is called for B 4 34 In practice the firms have recognised this by allowing the broker a period of grace in which to communicate the change of price to his sub-buyers in the bush, to ascertain their stocks and to bring the cocoa in. The period allowed to brokers for deliver- ing the cocoa has varied from district to district and has depended partly on the remoteness of tlle broker 's sub-buyers, and partly on the attitude of the European agent concerned and the intensity of competition. r08. Such a system, operated under the conditions prevailing in the Gold Coast, where, in the full tide of ilie cocoa season, both African and European buying agents are all straining to buy the maximum amount of cocoa and at ilie same time to avoid the risk of losing their advances, is obviously open to various irregular practices. The firms accuse tll e brokers of Jalse declarations, of holding stocks for a rise in price and of selling on a fall and declaring at the old price. They regard these practices as the most serious of the "abuses" which iliey alleged to have prevailed prior to the Buying Agreement and as the main justification for it. The brokers in turn bring counter-charges of unfair practices by the firms and their agents. These points are discussed in Chapter X. (h) Weights. rog. We received a good deal of evidence from tlle firms , from producers and from Government officials iliat farmers are often defrauded by false weighing. Spring-balances are fre- quently used in bush sales and tllese are easily tampered with; but even the platform scales issued by the firms to their brokers are apparently often treated in the same way. Sealing is regarded as impracticable. Inspection of weights and measures is now the responsibility of the Police Department, but the Department has at present only II officers qualified for the purpose. Opinions differ as to the present extent of cheating over weights. Some witnesses thought that farmers were be- coming more alert and were employing ilieir own balances as a check; and that the Police inspection was adequate. Others, including Government officials, believed iliat false weighing had not decreased and regretted that the post of Inspector of Weights and Measures had been given up some years ago for reasons of economy. An officer of the Police Department expressed the extreme view iliat not more than 5 per cent. of scales used in the bush are correct. An agent of one of ilie firms, with whose evidence we were impressed, stated: - " I have on several occasions seen sub-brokers buying in ilie bush with hand scales from which one coil of the spring has been cut out so that when a weight of 60 lb. is registered on the face the weight would in reality be about 80 lb. I should not like to estimate the amount of tare 35 taken in this way, but it may conceivably be anything up to 20 per cent. of the cocoa which is purchased in this manner." IIO. We believe that farmers often accept short weight know- ingly, preferring to sacrifice part of the price due to them rather than take the trouble of carrying their cocoa to some other buyer. One sub-broker witness stated quite openly that ohe pound in a load (60 lb.) was allowed to him by the farmer for transport costs. Moreover, the sub-broker may find short weight the simplest means of protecting himself against loss in accepting wet or otherwise defective cocoa . (i) Quality. III. All cocoa exported from the Gold Coast must be in- spected and graded under Government control. Compulsory inspection, coupled with the prohibition of export of cocoa below a certain standard of purity, was first introduced in 1934, after experience of a voluntary scheme. In 1937, as "a result of recommendations made by Sir Frank Stockdale in a Report on his visit to West Africa in 1936, a revised system was intro- duced which provided for compulsory grading into four cate- gories, viz., Grades I, II, III and" Sub-Grade." These Grades are described, together with the standards required in the United States of America and in the United Kingdom, in Appendix I. II2. Under the 1934 scheme inspection was carried out by sampling consignments at the ports. Under the revised scheme, grading is for the most part done at up-country stations. In addition to the graders employed by Government, provision is made for licensing employees of the firms as graders after special training; an arrangement which most of the firms prefer. Licensed graders are bound to keep special records and the Department of Agriculture retains the power to re-inspect cocoa at the ports. II3 . The Government's hope is that the grades will come to be recognized in the world markets, and that the standardiza- tion will lead to an improvement in the general reputation of Gold Coast cocoa and therefore in its price. The firms ' attitude towards the official grading system is one of grudging tolerance; but they do not conceal their view that it entails a waste of time and money especially as the larger firms at least have their own grades which cut across those of the Govern- ment. The producers and the brokers are at present not affected by the system since there is in general no payment of differential prices for quality, although an individual who brings in well-prepared cocoa to a firm's buying station may occasion- ally get a small premium. 36 lI4. The firms on the whole now appear to be hostile to differential payment for quality although it has in the past beeri supported by the largest manufacturing buyers. The principle is still supported by one firm and by individual agents. The reasons for the firms' objections appear to be be (i) that they are already paying the top price for all cocoa; (ii) that on the average Gold Coast cocoa is good enough to meet market needs; and (iii) that differential payment for innumerable small de- liveries would involve unjustifiable trouble and labour. lI5. We agree that there are serious practical difficulties in arranging for the payment of differential prices and above all in ensuring that tbese reach the producer under existing con- ditions; and further that there are certainly limits beyond which it is not economic to improve the quality of a bulk cocoa like that of the Gold Coast. We do not, however, accept the sug- gestion that differentiation of prices to producers is superfluous. Sufficient proof that all cocoa is not " just cocoa" is provided by the facts that some of the firms attach importance to their .j)wn private grades and that differences in quality are recog- nized in the official forms of contract in use in the world markets. The point was also admitted to us in effect by some of the firms' representatives who complained that 25 per cent. or more of the cocoa tendered in a normal season was below Government Grade I. lI6. We believe that if a practical system of differential pay- ment to producers could be devised, it would not only be more just than the present system of a flat rate of payment for all cocoa, but that by encouraging producers to improve the pre- paration of their supplies it would raise the general level of quality and strengthen the reputation of Gold Coast cocoa in relation to that of other bulk cocoa. In this we are reiterating the views expressed by Professor Shephard, Sir Frank Stockdale and others who have made a recent study of the question. lI7 . Certain conditions of production and marketing are un- favourable to quality. We have already referred in para- graph 66 to the tendency for a farmer who has pledged his farm to lose interest in maintaining good standards. The farmer's need for cash during the crop season may induce him to ferment his cocoa in unduly small quantities. On the other hand, he may be lazy and prepare his cocoa at long intervals, mixing overripe and underripe beans; the results of fermenta- tion are then unsatisfactory. The keen competition among sub- buyers leads to their accepting cocoa of poor quality. The in- clusion in the grading Ordinance of the prohibition of the sale or purchase of wet cocoa has, however, probably done some- thing to improve the quality of cocoa sold in the bush. It is unpopular with farmers, but is undoubtedly a wise measure. 37 (j) Returns to Producers and Middlemen: incidence of up-country transport 'c osts. IIS, It is not easy to form a clear idea of returns received by farmers and brokers under the complicated marketing system prevailing in the Gold Coast. Certain estimates which have recently been made by the Division of Statistics and Surveys of the Department of Agriculture are shown in Table 3. They are based on port prices furnished by the Bank of British West Africa, which are in turn based, we understand, on data sup- plied by as many as possible of the buying firms . From these prices, estimated carriage and handling charges between buying station and port have been deducted in order to arrive at the up-country price. IIg. The average price at the up-country stations is regarded as the average return to the agricultural community as a whole, since even if farmers do not arrange their own headloading, tlle brokers and small lorry contractors who provide transport a re closely connected with them. IZO. Headloading is an expensive item costing about 4s. per ton mile. According to the official authority already quoted, the average distance so covered is 4'1 miles; on the average, therefore, each ton of cocoa bears a charge of I 6s . 6d. for head- loading. Although headloading accounts altogether for only 3 per cent. of the total ton mileage involved in the transport of cocoa from farm to port, it is estimated that it accounts for z4 per cent, of the total transport costs. By contrast local lorry transport costs only 7' Id. per ton mile, It is evidently 'greatly to the producers' interest that more bush roads adequate for light motor transport should be opened up , TABLE 3. Average Average total price up-country Ave'Yage to the transport price to the agricultural (headloading farmer. community. and lorry). i per Ion. i per ton. i per ton. 1927-28 48 '4° 1·6 46 . 80 1928-29 35'42 1'4 34'02 1929-30 31 '99 1'2 3° ' 79 1930-31 17'78 1'2 16'58 1931-32 17'23 1'2 16'°3 1932-33 16'55 1'2 15'35 1933-34 12' 16 1'2 10'96 1934-35 14' 34 1'1 13'24 1935-36 16'51 1'1 15'41 38 12I. The estimated average price to the actual producer, arrived at by deducting local transport costs from the price at the up-country station, is admittedly optimistic since it takes no account of forward selling and mortgages. As regards forward selling the questionnaire conducted by the Department of Agri- culture over a large and representative sample of cocoa districts in 1932-33 is instructive. This indicated that 25 per cent. of )he crop had been sold in advance to money-lenders and specu- lative buyers at prices averaging 5s. 2d. per load as compared with an average price during the season of 9s. The actual returns to the farmer in the districts investigated were therefore estimated to average about II per cent. less than the local price level during the season. v 122. We have not the slightest doubt from the evidence that we have received on this subject, both from Africans and Euro- peans, that buying in advance at reduced prices is still widely practised by brokers as well as by money-lenders. Although on rare occasions the buyer may make a bad speculation, as he apparently did before the 1937-38 crop season, this system of purchase is usually to the detriment of farmers. Another factor that must be allowed for in considering the producers' returns is the loss through fraudulent weighing. We have already suggested that this is important. v 123. On the other hand, we are inclined to accept the brokers' contention, endorsed by the evidence of their rivals, the Co- operative Societies, that, wherever competition is keen, the full inclusive price less local transport costs is widely, perhaps generally, passed on to the producer; in other words, that at least the ordinary commission of 6d. and possibly more is sur- rendered to the producer. * In conceding this, we do not suggest that brokers are actuated by any charitable motive, or that they forego opportunities of profiting by their knowledge of market movements at the expense of the more ignorant producer. v 124. In view of these and other possible qualifications, Table 3 should not be taken as giving more than a rough estimate of average gross returns to farmers . It does, however, show clearly that these returns have varied enormously in the past ten years, ranging from nearly £47 in 1927-28 to about £II in 1933-34· In 1936-37, it has been estimated, the price to the farmer rose to between £35 and £40. At the lower price levels a com- paratively small movement in the world market price may mean an important difference to the farmer, owing to the incidence of fixed charges. For example, if ' the world price is £25, farmers in outlying parts of Ashann may get only £12; so that, if the world price rises or falls by £3, they benefit or lose by 25 per cent. * See paragraph 30 (el of Gold Coast letter of instructions in Appendix J. 39 125. To estimate the average cocoa farmer's net returns would v"" entail the impossible task of estimating average costs of produc- tion. A good deal of evidence on costs was submitted, but in the limited time at our disposal we have not been able to con- sider it closely. It is clear, however, that costs vary widely. A farm may be inherited or it may be acquired by purchase! the effect of which on costs may be increased by excessive interest rates on borrowed capital. It may be worked chiefly with family labour, or exclusively with hired labour; and there , are considerable differences in yields due to conditions of soil and shelter and to the age of trees. The costs of farm equip- ment are unimportant. 126. The income of brokers, however derived, might properly v be regarded as part of the income of the agricultural community. It seems therefore that the estimate of the gross income of the agricultural community given in the Table above should be supplemented by the gross income of brokers in so far as this is J111et out of the firms' expenses and not from the producers' price. We have heard much confusing evidence about the rates of brokers' commissions, salaries and allowances and it is not easy to draw conclusions with any confidence. On the whole, however, we think that the rates of commission cited to us by the Association of Ashanti Cocoa Brokers as those usually pre- vailing before the Agreement are probably fairly representative. They are as follows: - . T ABLE 4. Commission and Tonnage .. . IS. od. per load of 60 lb. of cocoa. Overriding Commission 7s. 6d. per ton for 50 t ons bought. 12S . 6d." " " IOO " ISS. od. " " ,,500 " These rates represent charges varying from about 37s. 6d. per t~n or IS. pe~ l?ad, to S2S. 6d. per ton or I S . Sd. per load: even hIgher overndmg rates than those given in the above Table may' be paid. to very l~rge buyers. In addition the larger brokers receIve varymg sums m the form of salaries and allowances. 127· To arrive at the net income of any broker it would be necessary in the first place to deduct the amount of any com- mission passed on to sub-buyers or to farmers from whom he purc~ases dire~t; we have little do~bt that the large brokers are workmg on faIrly small net margms per ton from their com- mission . Other deductions to be made are working expenses and losses through bad debts and unsuccessful speculative purchases. On the credit side there would have to be added the profits of successful speculative purchases. We asked a nu~ber of broker ~itJ:tesses what net income they actually receIved. Some, claImmg to market 700 to 1,000 tons said app?-rently with sincerity, that they w{)uld prefer a guaranteed net mcome of about {,80 to the commissions and allowances they 40 received at present. On the other hand a disinterested witness having great experience of the Gold Coast and of African marketing practices expressed the view that the income of a broker of this size would be about £300. Whichever of these figures is nearer to the truth, we are inclined to discount the suggestion frequently put forward by the firms that the brokers in general make very large profits. We /think it probable that their total share of the returns received by all Africans in the Gold Coast from the cocoa crop is excessive, but that this is due rather to their great number than to their high income per head. The smallest types of sub-broker, who buy direct from farmers, perhaps make the highest rate of profit, with the aid of forward purchases at fixed prices and the manipulation of weights . CHAPTER V. I COCOA FARMERS' CO-OPERATIVE MARKETING AND CREDIT SOCIETIES. (a) General. I28. The evidence tendered to us on behalf of the Co-opera- tive Societies in the Gold Coast covered wider issues than the Buying Agreement, and their general position may conveniently be considered at this point. A fuller account of the Societies will be found in the Reports of Professor Shephard * and of Sir Frank Stockdalet on their recent visits to West Africa. I29. Co-operative Societies first received statutory recognition in an Ordinance of I929 when they were still in an experimental stage, but their general development dates from I93I. The movement has been fostered and closely supervised by officers of the Department of Agriculture, with the Director acting as Registrar, and to a limited extent by administrative officers. Each of the Societies is administered by an elected committee and a Secretary, but small Societies may share the services of the same secretary. An Ordinance of I937 recognized a form of secondary organization that had already developed, namely, District Unions of Co-operative Societies ,operating through Joint Marketing Committees, which consist of delegates from tl1e affiliated Societies. There were 385 cocoa producers' Co- 6perative Societies in the Gold Coast Colony and Ashanti in March, I938; the total membership was 9,7II and the total paid- up share capital £26A22. I30. The Societies are essentially small local organizations ; the average number of members per Society in I937 was 24, * Op. cit. paragraph 105 et seqq. \ tOp. cit. page 47 et seqq. - \~ 41 and the membership varied from seven in the smallest to 142 in the largest Society. The average sales per Society in 1936-7 were 20 tons, and two-thirds of the Societies sold less than this quantity. Of the total membership of all Societies 22 per cent. sold no cocoa through them, and a further 54 per cent. ~old one ton or less; the average sales per selling member amounted to slightly over one ton. During the financial year 1936-7 the Societies marketed 7,807 tons of cocoa for their members, the value (in a yeaT of exceptionally high prices) being £318,371; these sales represented 2·6 per cent. of the total Gold Coast crop. (b) The system of marketing Co-operative cocoa. 131. Cocoa supplied by farmers belonging to Co-operative Societies follows a different course in the early stages of market- ing from those already described. The cocoa, already fer- mented and dried, is tendered by members to the Society when- ever it is convenient to them. A Society may have its own small store, sometimes of concrete or galvanized iron but usually of the cheaper swish construction. Most Societies, however, have no store of their own and members keep their oocoa in I their own stores or those of the richer members of the Society pending its sale. Before it is accepted the cocoa is graded . as "Co-operative" or "Special Co-operative" by an agri- cultural officer. Formerly rejected cocoa had to be taken away by the supplier; but under a rule introduced in many Societies in 1937, especially in the Eastern Province, members are now required to sell all their cocoa through the Society, a penalty of 2S. 6d. or 5s .. per load being payable on cocoa sold outside. Cocoa found to be below grade is sold without guarantee in separate lots. 132. Sales of.gr:aded cocoa are usually n::ade once a fortnight. Most of the SOCIetIes are now attached to DIstrict Unions and the bulk of Co-operative sales are made jointly through the Joint ~arketing Committ.ees of the Unions. In any case the procedure ~s t~at a Co-operative Officer of the Department of Agriculture mVltes secret tenders from European firms for the supplies offered. The tenders are then passed on to the committee of the Soc~~ty or of the Union which is offering the cocoa, for its declSlon. W1;en sold.' the co~oa may be delivere.d by the .Societies to the buyer s gradmg statIon by means of hued lornes, or it may be fetched by the buyer. The proceeds are available fOT distribution soon after sale; ~ut we were informed that producers often leave the sums credIted to them ,with the Society for seve.ral months. For .every load ?f cocoa sold each producer receIves an average pnce, a deductlOn being made for expenses. 133· We received eviden.ce from several Coast agents of the firms to the effect that bUYing through the Co-operatives was a 42 convenient method of obtaining cocoa; in particular it was pointed out that this method avoided the trouble and risk of loss inseparable from advances made to brokers. At the same time a number of criticisms were made. Some witnesses suggested that the system of tenders was unbusinesslike, and was not always properly conducted: for example, the secrecy of tenders was not always observed in an attempt to get a higher bid. Objections were made to the heavy expenditure of Government money entailed in the close supervision of Societies and their business. It was suggested that non-members, e.g., brokers, were sometimes permitted to pass cocoa through Societies, and to obtain the premium. As regards quality, a number of wit- nesses said that the difference between Co-operative and ordinary cocoa was not as marked as it used to be, partly on account of a rise in the general standard of quality, partly because Co- operative quality had declined. Cases of mixing graded Co- operative cocoa with inferior cocoa were cited. I34. In general the present attitude of the buying firms to the Co-operatives was stated by their witnesses to be one of neutrality. Some of the smaller firms, however , gave indications of a more positive attitude of support. Much of the evidence from firms on this subject was directed to rebutting the con- tention made by the Societies, and supported by Government officers, that an inadequate premium was paid for Co-operative cocoa. I35. From the producer's point of view the main advantages of sale through a Co-operative Society appear at present to be that he is assured of fair weighing, and of not being deceived by intermediaries as regards the prices offered by the firms. One of the chief original objects of Co-operative selling was, however~ that it should enable producers to secure a definite premium for their cocoa on account of superior quality and of the saving to the firms in marketing costs. We received much evidence from Co-operative Societies and their members as well as from Government officers that of late the premium received by Societies has not been sufficient to repay the extra expense and trouble involved in preparing fine quality cocoa and in supplying it in bulk lots. In their joint evidence the Co-operative Societies stated:- /, During the six year period Ist of May, I93I to 30th of April, I937, the Societies supplied direct to the buying firms 30,907 tons of cocoa of over 95 per cent. weighted mean purity. For this service the firms paid at the rate of 6d. per load which is just about the average overriding commission of the brokers. During this period the Societies never failed to fulfil .- .t;:, ~ PART IlL-THE BUYING AGREEMENTS~~ CHAPTER IX. DESCRIPTION OF THE PROVISIONS AND APPLiCATION OF THE AGREEMENTS. (a) General. 274. The history of tlole Buying Agreements* has already been outlined in Chapter VI of our Report. It was explained that, on the 28th of April, I938, as a result of a truce arranged in the Gold Coast between the farmers ' representatives and the Agree- ment firms, both Agreements were suspended until the Ist of Octo~er, I938. The texts of both Agreements (with certain omissions.) and of the letters of instructions sent on the I 8th of September, I937, to the principal agents of all the signatory firms are printed in Appendix J. 275. Two omissions have been made from the texts of the Agreements. The first is that of figures contained in the Schedules of marketing expenses which were used in arriving at the daily buying limits cabled to the Coast. The Agreement firms have represented to us that it would be contrary to their business interests for the details of the Schedules to be made pUblic. We have, therefore , withheld them as confidential but discuss their contents in general terms in Chapter XIII. The second omission, which was again made at the request of the Agreement firms, is that of the percentages in accordance with which the total tonnage bought by members as a whole was allocated amongst them (Clause 3). We have not been provided with the details of the allGcation; but the letters of instructions state that it was" based on past performaNces", that is, on the actual tonnages bought by each member firm during a period of years prior to the introduction of the Agreements. t It is generally believed that, aJthough concessions were made to the smaller firms in order to obtain their co-operation in the Agree- ments, the purchases controlled by the United Africa Company, Limited, under the Gold Coast Agreement were roughly half the total tonnage bought by all members; while th€ combined shares of the manufacturers-Messrs. Cadbury Brothers Limited (who also buy for Messrs. J. S. Fry and Sons Limited) and Messrs . J. Lyons and Company, Limited-would amount to approximately one-half of the remainder. Under the Nigerian Agreement it may be assumed, in view of the previous trade position of the member firms, tha1 the bulk of total purchases was again secured to the • Better known perhaps on the Coast as the Cocoa Division Schemes. t See Appendix D. D 92 Umted Africa Company, and a considerable part of the remainder to the one manufacturing concern, Messrs. Cocoa Manufacturers Limited (a joint subsidiary of Messrs. Cadbury Brothers Limited, J. S. Fry and Sons Limited, and Rowntree and Company Limited). 276 . It will be seen from Appendix J that, ~vhile the Gold Coast and Nigerian Agreements and the respective letters of instructions to local agents follow closely similar lines, there are a few points on which they differ materially. In describing the objects, main provisions, and application of the Agreements in the following paragraphs we shall draw attention to these differences as they arise. (b) Objects of the Agreements. 277 . The Agreements were intended to continue for four years from the 1st of October, 1937, except in special circumstances (Clause 1). The preambles and the first paragraph of the letters of instructions explain that the Agreements aimed at " elimin- ating harmful competition and the abuses hitherto associated with cocoa buying" in the territories covered by them, and state the intention of members to pay the full current market price, subject only to deductions of "actual out-of-pocket expenses and a reasonable allowance to cover overhead charges and a reasonable profit". It is to be noted that no mention of a deduction for profit occurs in the letters of instructions. (c) Provisions of the Agreements. (i) ADMINISTRATION. 278. In order to understand the administrative arrangements under the Agreements it is necessary to read them in conjunction with the letters of instructions. These state that" it is the inten- tion to operate the Agreement as much as possible from Europe." The machinery provided was, first, a General Com- mittee in London which, in addition to supervising the general application of the Agreements, was responsible for fixing the buying limit cabled to the Coast and for determining the amounts of cocoa to be handed over under the division scheme (see paragraph 280); secondly, committees in Accra and Lagos; and, thirdly, committees in up-country centres. The channel of communication both as regards the buying limits and the amounts purchased by each Member between the London Com- mittee and the Acera and Lagos Committees was the Secretary or Relay appointed as in paragraph 12 of the Gold Coast letter of instructions. The duties of the Accra and Lagos Committees were various. In addition to putting into effect the buying limits cabled from London, both Committees were directed to prepare tables of transport differentials to be deducted from the 93 price paid at the various up-country centres (Clauses I3 and I2 of the Gold Coast and Nigerian Agreements respectively) . These tables are described in the letters of instmctions as providing « for all varieties of charges of every description between naked ex-scale port of shipment and each of the buying centres." The Accra Committee was instructed under Clause I 2 of the Gold Coast Agreement to fix a time limit for declarations , the maximum period subject to special extension ' being fixed at 48 hours: in the letter of instructions it is stated that (( ultimately no time at all shall be allowed." Local committees were set up to carry out the instructions of the . Accra and Lagos Com- mittees but having powers to deal with matters as they arose with a report to these committees. In the Nigerian Agreement only two such local committees were recommended. (ii) THE SHARING OF THE CROP. I 279. Under Clause 3 of each Agreement members agreed to share their' total purchases in the respective territory in accord- ance with allotted percentages « fixed and immutable during the continuation of the Scheme" (Gold Coast letter of instruc- tions, paragraph 4b). For reasons already explained, the actual figures cannot be quoted. (iii) THE (( HAND-OVER" ARRANGEMENTS. 280. The arrangements for effecting the sharing of the total purchases among the firms are stated in Clauses 4 and 7. Members were required to declare the tonnage purchased by them in each week, and once a month there was to be a settle- ment in which: the total purchases would be shared out among the members according to the agreed percentages and on a prescribed price basis. .Members who had bought more than their percentages during the month were required to hand over the excess to those who had underbought. The price equaliza- tion arrangements were somewhat complicated (Clause 6). It was to be assumed that all purchases of eocoa in any week were made at the average of the daily limits cabled during the week . At the monthly settlement the average value of each member's purchases during the month was to be calculated on this bas~s, and compared with the similarly calculated average price of the total purchases of members: and each member would then be credited or debited accordingly. Following this arrange- ment, the transfer of any excess tonnage from one member to another was to be effected at the calculated average price of total purchases during the month. The grades of cocoa to be handed over are defined in Clause 5 oj the Agreements as Government Grade I in the case of the Gold Coast and Govern- ment Grade II in the case of Nigeria. Dz 94 (iv) FALSE RETURNS. 281. Clause 8 of the Agreements provides that a penalty of £,200 should be paid by any member who was found to have made a false return of his purchases. (v) SCHEDULE OF MARKETING EXPENSES. 282. The heads of expenses in the Schedules are given in Appendix J; but, as has already been explained, the figures are omitted. The item "Coast Establishment Charges" is further analysed in paragraph 32 of the Gold Coast letter of instructions . Clause 9 of the Agreements provided that the Schedule could be varied from time to time " so that it shall represent the current cost of marketing." (vi) CO-OPERATIVE COCOA. 283. Members of the Gold Coast Agreement were authorized in Clause 15 to pay for Co-operative cocoa a premium not exceeding 6d. a load above the ruling limit. Under Clause 14 of the Nigerian Agreement "the price to be paid for Co- operative Cocoa shall not exceed the limit ruling from time to time for Grade I cocoa." (vii) RE-SELLING ON THE COAST. 284. Under Clause 16 of the Gold Coast Agreement and Clause 15 of the Nigerian Agreement it was provided that, if one member sold cocoa to another, such cocoa would not be declared by the purchasing member for the purposes of the division but would be treated as a purchase by the member who had bought it from a producer. (viii) HANDLING COCOA ON COMMISSION. 285. Clause 17 of the Gold Coast Agreement and Clause 16 of the Nigerian Agreement prohibited members from selling cocoa in the territory covered by the Agreement on behalf of any party not a member of the Agreement. (ix) COCOA BUYERS AND COMMISSIONS. 286. Members of the Gold Coast Agreement undertook in Clause 18 not to offer employment to the recognized buyers of another member nor, without consultation, to engage a buyer dismissed by another member. A similar provision was included as Clause 17 of the Nigerian Agreement. In addition the latter Agreement provided in Clause 18 that the commission paid to middlemen should not exceed lOS. a ton and that such commission should at all times be deducted from the authorized ex scale limit (i.e., should not be charged to expenses). 95 (x) MISCELLANEOUS. 287. Those members of the Gold Coast Agreement who were not already engaged in buying cocoa in Nigeria undertook in Clause 19 not to establish themselves there during the period of the Agreement. A similar provision was included mutatis mutandis in Clause 19 of the Nigerian Agreement. (d) Application of the Agreements. 288. The details of the local application of the Agreements were left to be worked out on the Coast by local committees of the firms. Our information on the working of local com- mittees is drawn mainly from copies of minutes from the Gold Coast, which were submitted only as examples and were not supposed to be comprehensive. Committees in Nigeria pre- sumably worked on similar lines. 289. The first action of each local committee was to appoint V a Secretary or Relay whose main duty was to pass on the price limits received from London, or in the case of inland stations, from Accra or Lagos . The chief duties performed by local committees were to fix the basis of local prices, the rates of remuneration .to buyers, the period allowed for declarations, the amount of stocks permitted to be declared and local trans- port differentials. 290. Prices at the various buying stations were determined by the deduction of a transport allowance from the buying limits cabled to Accra and Lagos . In the Gold Coast a further deduc- tion for overriding commission was made, at least at some stations. 291. In the Gold Coast there appear to have been consider- able differences from place to place as regards remuneration to buyers, although we understood from the public evidence at Accra given by the senior Coast representatives of the firms that the rate of commission had been standardized at I8s. 8d. per ton, which was to be payable to all buyers and also to free sellers including producers. In certain important districts of the Gold Coast-e.g., in the Swedru, Kumasi, Bekwai and Cape Coast districts-sliding-scale commissions still continued. In certain other districts flat rates of commlSSlOn were introduced. As appeared from the answer to a questionnaire , some firms were under the impression that (( tonnage" and (( overriding cOJ?mission" were. abolished under the Agree- ment ; others sald that they continued, but among these there was a difference of opinion as to whether such commissions were. to be deducted from the price or charged to expenses, under Agreement conditions. The Swedru local committee, for example, explicitly agreed that all companies would" deduct 6d. from the price given by the Accra committee to ' cover com- mission , known previously as ' overriding' ." D 3 ' 96 292. The committees reached understandings about the allowances permissible under certain conditions, and lists of buyers qualifying for them were submitted for approval. The amount allowed appears to have been 3s. per ton in most cases, but certain large buyers were permitted to have a salary, overriding commission, rent and various allowances . 293 . The arrangements as regards payment to free sellers, including producers who sold direct, also appear to have varied. In general it seems that free sellers were supposed to receive the full local price; but from evidence it appeared that owing to difficulties with brokers this did not always occur. In certain places where 6d . per load was deducted in order to provide for overriding commission before the local price was fixed, the free seller was not usually entitled to receive overriding commission; but at Swedru a free seller of twenty ton lots might receive ~d . per load ill this way. I 294· As regards Co-operative Societies' sales in tl1e Gold Coast, a minute of the Nsawam committee is of interest. This records that" it was pointed out that London's instructions are that all members have the option to buy at a premium of not more than 6d. per load, but no member shall be obliged to buy such cocoa." Although representatives of the firms in London assured us that Clause IS of the Agreement was intended to be permissive and not restrictive , the Nsawam committee evidently interpreted their instructions literally. 295. The local variations under the Gold Coast Agreement in the arrangements regarding commissions, premiums and allowances, of which some indication has been given above, and their apparent inconsistency with certain public statements of firms' representatives, caused some bewilderment amongst Africans. 296. The period for delivery of declared stocks was fixed by the Accra committee at the maximum of 48 hours for all cocoa districts in . the Gold Coast; and the amount permitted to be declared by a buyer was similarly restricted to one-third of his purchases in the preceding six days. 297. As regards advances to buyers, we were informed by one witness in the Gold Coast . that it had been agreed to limit advances to buyers to ISS. per ton of their purchases in the pre- vious season; it is not clear whether this was a local or general rule. 2g8. The rate of buyers' commission in Nigeria appea,rs to have been standardized at 7s. 6d. per ton for graded cocoa and 5s. per ton for ungraded. These rates were payable to all buyers under agreement with a firm. The same amounts were apparently supposed to be allowed to independent sellers; but. (jJ certain agents informed us that they did not make these allow- ances to producers selling direot except in 'special cases. We received no detailed information about understandings regarding salaries and allowances, but it wOllld seem that these were reduced. The period for delivering declared stocks was appar- .ently fixed at 24 hours and the amount permitted to be declared by a bllyer was restricted to one-sixth of his purchases in the preceding six days. 299. The local transport differentials for the minor up- .country buying points were fixed by the local committees and agreements were also made as regards carting in towns; it was agreed that no payments for transport should be made to brokers. 300. The more controversial aspects of the Agreements are -discussed in the remaining chapters of this Part. For the follow- ing account of their actual working during the 1937-38 season we rely chi~fiy on the evidence of the Agr€ement firms, which relates especially in Nigeria, where there was no interruption of marketing. 301. The firms: Coast agents claimed that the Agreement was operated locally more or less according to plan, so far as they were concerned, although with some latitude as regards declarations; and that no serious difficulties had been encoun- tered. Certain head office representatives of the firms said that the Nigerian Agreement had even worked "too well " because, under the conditions of reduced competition, the local .agents were inclined to think that they need not "pay the price," and had to be pressed by the head office to keep up to the authorized limits. The same witnesses said, however, that the declaration arrangements under the Agreement were not working at all satisfactorily, and described the practice of certain agents in dealing with their bllyers as follows:- " They gave him a day's notice; they wrote to him to bring all the cocoa he wanted il'l -48 hours, and fm: one day they gave him one-third of his previous deliveries tacked on to the end of the 48 hours." The witnesses pointed out that the attention of head offices . had been somewhat distracted from Nigeria to the Gold Coast; and in general it was emphasized that the scheme could hardly be expected to operate perfectly at once. 302. We did not examine the operation of the hand-over arrangements, but we were told that they worked without diffi- culty as provided in the Agreements. It is of some interest that a small firm withdrew from the Nigerian Agreement on the ground that the conditions of the hand-over imposed risks greater than it was prepared to undertake. D 4 98 303. The effect of the Agreements on the sharing of the price paid by the . firms between buyers and producers is a contro- versial point and is discussed later. It was generally recognized, however, that the rates of remuneration paid to buyers were in many cases considerably reduced. The prices being offered by the firms on the Coast were more widely known than before the Agreements . Prices payable at the main centres in Nigeria were published in the Press. It was claimed that this was of value to producers. 304. The price limits cabled from London were changed at frequent intervals; the prices for Lagos Grade II were changed on 79 out of 153 buying days from the 1st of October to the 31st of March. On some days the cabled price limits were changed more than once. The relation between Nigerian and world market prices was generally considered to be more favourable to the firms than in preceding years. Independent evidence suggested that the improvement from the exporters' point of view was considerable. A witness who had previously exported on a small scale stated his belief that he could make " good profits", i .e., from £1 to 30s. per ton, by shipping under Agreement conditions. Evidence of the same tenor, but without any estimate of profit, was given by an English witness having great experience of the trade. 305. The firms themselves supplied a detailed comparison of the daily authorized buying prices under the Nigerian and Gold Coast Agreements with the corresponding daily market values during the season. The Nigerian daily authorized prices for Lagos Grade II cocoa, brought up to a c.i.f. Hamburg- Amsterdam basis by the addition of the Schedule of marketing expenses, varied between about z3s. 6d. per ton above, and the same amount below the actual market value c.i.f. Hamburg- Amsterdam. Over the season the average of the daily margins, calculated in this manner, was 5s. Id. in favour of the firms. 306. A similar comparison applied to the daily prices for the Gold Coast showed an adverse average margin of 5s zd. per ton over the season; and the extreme variations in the daily Gold Coast price, adjusted as above, were 74s. per ton above and ZIS. 6d. below the actual market values c.i.f. Hamburg- Amsterdam. For about nine days towards the end of the season the adjusted Gold Coast price was maintained between 40s. and 74s. per ton above parity with the Hamburg- Amsterdam market value, and was considerably more above parity with the New York value. The authorized prices were admittedly fixed at levels less favourable to the firms in the Gold Coast than in Nigeria, with an eye to the hold-up. The quan- tities bought in the Gold Coast were of course very small. '99 307. These price comparisons were made by the firms, and are quoted here, only for the purpose of general illustration. Great caution is needed in interpreting them. Certain com- parisons made by critics of the Agreement in Nigeria and the Gold Coast between the authorized Coast prices and quotations of London prices purported to show that no strictly regular prin- ciple of price fixation had been adhered to. We are satIsfied that the market price quotations used in some of these compari- sons were not entirely satisfactory; and the firms themselves freely admit, and justify, a certain elasticity in the price-fixillg arrangements. 308. We cannot claim to have investigated in detail t~e daily price limits calculated by the firms, or the data on whIch they were based. This alone would have been a long and intricate task which would entail examination of a large quantity of data. We consider that the main questions at issue relate to the system of price-fixing regarded as a whole and in principle rather than the manner in which it has been applied from day to day during the past season; and we deal with these questions in Chapter XIII. CHAPTER X. THE CASES FOR AND AGAINST THE AGREEMENTS. 309. The general case for the Agreements was very clearly presented to us in written statements and in the oral evidence of directors of the firms concerned. The corresponding case against the Agreements was ably presented by African leaders of recognized authority in the Gold Coast, notably Sir Ofori Atta and the Asantehene, and also by delegates of representative organizations, such as the Co-operative Societies in both countries, the Brokers' Unions and the Ashanti Farmers' Union in the Gold Coast, and the Nigerian Produce Buyers' Union and the Nigerian Youth Movement in Nigeria. The general case of each side was supplemented by a mass of subsidiary evidence given by individuals at both public and private 'sessions, and in written statements. 310. It seems desirable to mention that the chief African spokesmen felt themselves somewhat hampered in presenting their cas,e by not having seen the Agreements; possibly as a result of this, the main African case was expressed in rather general terms. Practically, however, it did not suffer thereby; the essential features of the Agreements, having been either revealed or guessed, were all covered by the various witnesses. 3 II'. A general feature of the African evidence in the Gold Coast was the common front of producers and brokers, which in view of the hold-up, was perhaps to be expected. In Nigeri~ the strong organization of the produce buyers in local and 100 central representative unions permitted them to play an impor- tant and perhaps unduly important part in the presentation of the African case. In forming our own conclusions, however , we have not accepted the view that the interests of producers and buyers are necessarily identical. 312. We have been assisted in our consideration of the two cases by having access to the relevant documents, including, of course, the Agreements themselves, by the evidence of Government officials in the two dependencies and at home, and also by that of a number of independent witnesses with intimate knowledge of West African conditions and of world cocoa markets. 313. The firms' case for the Agreements, briefly stated, is (i) that conditions prevailing in the West Coast Cocoa market made drastic reform necessary , in order to protect the firms against continued losses and to promote the efficient conduct of their business; (ii) that the Agreements were the only practicable solution ; and (iii) that they are fair to all classes ,of Africans concerned, and will actually benefit producers; in addition they contend (iv) that the Agreements represent a perfectly normal form of business arrangement, and that they do not establish monopoly conditions. It was also suggested by the firms at the outset of the Agreements that fluctuations in world prices would be reduced by them; but this contention was subse- quently withdrawn . v 314. The Africans' case, in brief, is (i) that no such drastic and sudden alteration of marketing conditions was necessary; (ii) that even if reform were needed , other and less objectionable methods could have been adopted; (iii) that the Agreements are unfair both to farmers and to the middlemen; and (iv) that they established conditions in the buyin5 of cocoa which approximate to monopoly , and which, coupled with existing agreements for the sale of merchandise, place the cocoa farmers of both countries too much under the economic dominance of the European firms . 315. In this and in the following Chapter we set forth in some detail the arguments . of the contending parties on the four main questions covered by their respective cases, and state certain conclusions. On some important points , how- ever, no conclusion can be reached without reference to the conditions of the disposal of West African cocoa in world markets, a subject dealt with in Chapter XII. Was reform urgently required? 316. The Agreement firms have represented to us that drastic reforms were required in the conditions of purchasing the West African cocoa crop because (i) serious abuses had developed as a result of " insane competition" between the buying firms; 101 (ii) these abuses had inflated the cost of buying cocoa to such an extent that it was usually impossible to make an immediate sale in world markets except at a loss; and (iii) cocoa buying in West Africa had for these reasons normally been an unprofitable business in recent years. 317. As regards the profits of cocoa buying, to take the third point first, both Africans and certain independent witnesses doubted whether the position of the firms was as bad as it was painted. !t was suggested, for example, that the manu- facturers gained by direct buying, that speculative transactions in cocoa by the merchant firms had given good profits, and that in any case the combined profits of cocoa buying and merchandise selling were very satisfactory. 318. The selling policy of the merchant firms is discussed in v Chapter XII. Here we shall on~y state our belief, based on the evidence of disinterested and competent witnesses, besides that of the ,firms themselves, that the West African cocoa busi- ness, considered over a period of recent years, has not been a profitable one. The United Africa Company has informed us in evidence that during the period 1930 to 1937 inclusive, the trading results of their cocoa operations showed a net loss of .£1,338,000. Even granting that a large part of this loss occurred in the abnormal year 1936-7, and that in one or two years a fair profit is admitted, the results cannot be considered as satisfactory. The combined business of merchant firms who import goods as well as export cocoa would certainly show more satisfactory results. We were informed that the average earnings of the United Africa Company over the first eight years of its existence were 4t, per cent. on its written-down capital ; in the boom year of 1937, when losses on coooa trad- ing were heavy, a dividend of II per cent. was paid. But the numerous casualties since I920 among cocoa exporting firms on the Coast, and the virtual disappearance of those dealing exclusively in cocoa, suggest that cocoa buying has not been a very remunerative business. ' 319. One general contention made by Africans is that the world price of cocoa beans ought to be higher in relation to that of the finished product and by implication, at least, the Coast firms are blamed for the disproportion. We do not consider that thi~ is a reasonable charge, even though it may ~e regr~tted that wo~ld prices for cocoa beans are not higher III relatIon to the pnce of chocolate. Unless and until the world markets are organised very differently, the merchant shippers who buy and sell most of the crop cannot get more for the cocoa they sell than the price determined in a more or less free market; in any case, it is obviously in their interest, as sellers of merchandise to the Africans, that the general level 102 of prices for cocoa should be high. Nor can one expect the chocolate manufacturers buying on the Coast to pay appre- ciably more than the prices justified by world market values, so long as their competitors are free to buy at that level. It seems probable that the manufacturing firms buy on the West Coast primarily in order to secure cocoa of good quality and to safeguard themselves against anything in the nature of a " corner, " rather than on account of the cash advantage, if any, of this method of purchase. 320. Our first conclusion therefore is that the West African cocoa trade has not in general been a profitable business in recent years. Before considering the causes for this state of affairs we have to dispose of another question of fact, viz., whether the cost of cocoa bought on the Coast has usually been above parity with the current world market price. Detailed evidence was given on this point by the Agreement firms. In particular, graphs were submitted with the object of showing that the buying price of the United Africa Company's cocoa purchases in the Gold Coast, plus marketing expenses, exceeded the current market price c.i.f. Hamburg on almost every day during the main-crop seasons 1934-5 to 1936-7, by sums vary- ing from 6d. to 2S. per cwt. or more. During this period, it was claimed, the average "overpayment" to Africans was 26s. per ton, amounting over the whole purchases of the firm to £352,291. 321. The Africans' case did not deal in detail with this specific question of fact; but we obtained independent evidence, part of which came from witnesses who were by no means uncritical of the Agreements. As a result we are quite satisfied that for several years prior to the Agreement the cost of cocoa bought on the Coast was very frequently, probably even usually, at a level that would mean loss to most, if not all, exporters who made immediate sales in the ordinary markets. 322. African and other witnesses have pointed out that even if the existence of an adverse margin relative to the current world price be accepted, this is not a fair index of loss on the cocoa purchased, since it may be used in fulfilment of a forward contract previously made, or may be held for a rise. This contention is certainly valid and is admitted by the buying firms. The United Africa Company's" overpayment" of 26s. per ton, already mentioned, should not, therefore, bi regarded as an index of loss; actually their loss per ton in 1936-7 was far greater, while in 1935-6 there was admittedly a profit. Th_e more or less constant existence of an adverse margin does, however, mean that a conservative merchanting business becomes well-nigh impossible. 323. The causes of the intense competition to which the firms attribute the unremunerativeness of the cocoa trade and the r03 existence of the Coast premium are best expressed in their own words: - " Apart from the all-important question of buying as large a tonnage as possible for the purpose of giving a wide spread to overhead charges, there is the additional con- sideration of the loss of prestige, eventually tr;l.llslatable into terms of trade, in the .case of any shipper who did not at least fight to retain his previous tonnage. Prestige bulks large in the native mind, especially in West Africa." 3:24. As regards overhead charges, it has been stated to us. by witnesses with experience of produce buying in other troplcal countries that expenses in West Africa are abnormally hlgh. One of the firms concerned only with cocoa-buying has one European employee for every 2,000 tons bought. A Coast representative of the United Africa Company estimated in evi- dence that the overheads of the Company's cocoa business amount to £no ,000 if the normal share of the crop is bought and to £70 ,000 if no cocoa at all is bought. 325. As regards the prestige acquired by buying a large ton- nage, it must be remembered that the firms believe that this affects their position not only as cocoa buyers but also in the much more profitable business of importing and distributing merchandise. Merchants have indeed represented to us witfi considerable emphasis that their business as buyers of cocoa is largely carried on in order to assist them indirectly as importers. 326. The intense competition in cocoa buying has beep. variously described in the firms' evidence as "cut-throat", " unbridled}}, " insane}} and " competition gone mad}}. The general willingness of merchant shippers to buy cocoa at prices out of parity with those of the world markets was, as the firms have explained, in part due to the fact that the history of cocoa buying in West Africa is punctuated with agreements which aimed at stabilizing the total tonnages bought by individual firms in accordanc~ with past performances. During periods of free competition there was consequently a general expecta- tion that a fresh agreement based on this principle would be introduced sooner or later. In these intervals between agree- ments, the firms felt that to refrain from paying what must be regarded as speculative prices would jeopardize their position in the future. Current losses were regarded as being offset by future advantage, and the fact that the firms were willing to buy cocoa even though it might involve a loss imbued agents with the idea that nothing else greatly mattered so long as their tonnage was maintained or increased. In the years immediately preceding the Agreements, it was pointed out, certain firms were expanding their tonnage and new shippers had invaded the market. 104 327. How far such competition should be described as " insane" depends on the point of view. To the smaller shipper, wishing to pursue a steady and conservative type of business, it may well have appeared so. But the competition of new-comers to the trade, or of firms with a definite policy of expansion, may have been based at least as much on method as on madness . 328. According to the fi r:ms' evidence, competition mani- fested itself in certain practices, frequently termed" abuses", which together raised the cost of buying cocoa to an unduly high level. They comprised (aJ the overpayment of the price justified by the home markets and the acceptance of false declarations; (b) the offer of ever-increasing inducements to middlemen; and (c) the granting of excessive cash advances. The firms them- selves described the position in the following words:- " Shippers attempted to overreach each other by offering successively higher prices than were being bid by tl1eir com- petitors, or alternatively endeavoured to attract to tl1em- selves increased quantities of cocoa by maintaining prices at the same level as were being offered by their competitors but offering constantly increasing inducements to large middlemen who, by reason of their connections, were in a position to purchase substantial parcels of cocoa for them. " (a) Overpayment and false declarations. 329. It is claimed that the buying prices offered by the firms on the Coast frequently exceeded the level justified by the current world price for cocoa of corresponding quality, allowing for necessary out-of-pocket and overhead buying expenses. We have received evidence from independent sources which con- firms this contention, and we accept it as true. The principals of some of the firms recognize that their competitive policy has in part been responsible for overpayment. We were informed by one witness that few definite price instructions had been sent from London in recent seasons; the order usually ran: " Follow competition" . At the same time Coast managements were blamed in that they often pursued a speculative buying policy not endorsed by their principals. For example, forward contracts might be made at a definite price, sometimes without a definite delivery date, and on a falling market these tended to keep up prices generally. Some Coast managements would take a view of the price and on a rising market pay ahead of the current limit authorized by their home office. Again, when there was a fall in price, Coast managements might report larger purchases at the expired prices than were actually made, so as to have" surplus value, " to be utilized' later for over- paying the Coast price. Certain agents on the Coast who com- monly used such practices came to be known as « tonnage 105 hunters" among the English community, "abatteurs de tonnage" among the French, and " Tonnage-jager" among the Germans. 330. In spite of these admissions by the firms, a large part of the blame for overpayments was attributed by them to the abuse by African middlemen of the strong position which they had acquired as a result of the firms' keen competition for their services and for tonnage. 331. We received much evidence on the subject of abuses of the declaration system. Briefly, the firms allege that the middlemen engaged by them speculated with cocoa bought on behalf of their employers and with money advanced by them. On a price rise, it is alleged , buyers would insist on being credited at the increased price for purchases rriade at the pre- vious lower price, and if refused this, they might take the cocoa to another firm, although under contract not to do so; or they might even declare .smaller purchases at the lower price than they had actually made . Conversely, on a price fall, buyers would frequently declare cocoa in excess of their purchases and make a profit by buying in at the lowef price such quantities as were necessary to make up their declarations ; and if the price rose again before they had time to cover their declarations by buying at the lower price, they might default. 332. According to a written statement of the firms' case "the v native mind on this point of ' declarations' is very naive. He really considers that it is his right to have the market option both ways, and is genuinely indignant if it is not given to him. He regards it as a perquisite and he often ... asks to be allowed a ' declaration ' at the old price a week or more after the market has fallen." 333. On this statement of the firms' case the obvious question arises, why the firins' agents do not verify buyers' declarations carefully and refuse to make the concessions demanded without having satisfied themselves of their reasonableness. The firms' reply is, first, that the difficulties of verifying the stocks of cocoa which buyers may claim to hold in various parts of the bush are so great that European agents could not spare the time to attempt it, or if they did, might be "led round the bush fa~ms "in useless pursuit wi~h fresh excu~~s offered at every pomt ; and secondly, that m the competition for tonnage the agent dared not risk losing the services of the buyer or the advances entrusted,to him, by being too, meticulous. 354. This we believe to be a fair though summary statement of the firms' .case against th~ buyers ~ respect of overpayments and declaratIons. The publIc and wntten evidence of the lead- ing African spokesman and of certain of the leading broker 106 witnesses ir. the Gold Coast and of the Nigerian P.roduce Traders' Union rebutted these charges and brought counter- charges against the firms. The individual evidence, however, of local representatives of the firms and of buyers, especially in cross-examination, gave us a much clearer picture of the work- ing of the declaration system, and we are confident in asserting that the truth lies somewhere between the extreme statements of the two sides . 335. In the first place it must be recognised that a period of grace after a price change is necessary under the existing con- ditions; that is, so long as purchases are made through a system of buyers and sub-buyers, many of whom are operating at a considerable distance and out of reach of telephones or tele- grams, and all of whom are using cash advances made to them by their employers. Several of the firms' Coast agents, especially in the Gold Coast, freely admitted this; in Nigeria, the distances between buyers and sub-buyers seem generally to be smaller; but even there some period of notice before a price change takes effect is necessary, as the experience of the first year of the Agreement confirms (see paragraph 301). The initial arrangements under the Agreements provided for a period for declarations. It is true that the Gold Coast letter of instructions suggests that the ultimate intention was to eliminate this entirely; but we are at a loss to understand how this could be done without fundamental changes in the marketing system. 336. Secondly, the difficulties of the buyer must be recog- nized. Exactly the same charges as the firms make against buyers have been made by tl1e latter either directly or by implication against sub-buyers and have been supported by the evidence of many of the Coast agents. The buyer, being anxious to increase his tonnage and not to risk the advances to sub- buyers for which he is held responsible by the firms, is in a weak position relatively to his sub-buyers and may be forced to make concessions to fuem. Moreover it is often difficult for him to check stocks declared by sub-buyers, who may be operating at a considerable distance; in the Gold Coast distances up to 50 miles were mentioned. The sub-buyers, in their turn, may not dare to refuse concessions to the farmers supplying them for fear of losing both their supplies and the advances made in anticipation of fuem. 337. Thirdly, the vagueness of the obligations of the buyer under the declaration system is very striking. Alfuough the buyer may be required by the terms of his contract or agreement with his employer to render accounts and declare his stocks, we have heard of no attempt to define what is meant by stocks. One example is sufficient to illustrate the effeCt of this vagueness. A buyer may secure an option on fue crop of a farmer by giving 107 him an advance; in reply to the question whether he would then be entitled to declare this at any time that he wished, one broker witness said that he thought so, while another witness, the agent of a European firm, said that he thought not. Nor did contracts ever appear to define within what period cocoa should be delivered. On the other hand, buyers have explained to us that a farmer will frequently ask them to store his cocoa for sale at a favourable moment. In tllese circumstances they do not consider themselves bound to declare such supplies as a part of their own stocks . If a custom of this sort exists, it is obvious that it would at least give opportunities for irregular practices in declaration . 338. Fourthly, it is evident that in many cases European agents accept as a matter of course that there should be con- siderable elasticity in working the declaration system. As the firms' case admits, agents might themselves over-declare to their home office when the price fell and thus be in a position to " overpay". We do not know how common this practice was, but the evidence certainly suggests that many European agents, appreciating the difficulties of buyers in collecting stocks from sub-buyers, and arncious to increase their tonnage, were quite willing to allow considerable latitude to tll e buyers. A buyer witness stated to us that his firm allowed him two or three days to bring in as much as he liked at the old price. Another case was quoted of a buyer who was asked to declare a quantity and then was supplied with cash to buy it; tllis instance, if correctly stated , shows that tlle firm concerned was itself actually inviting a speculative declaration. . 339. The evidence as a whole suggests that there were no clearly defined obligations as regards declarations, but that certain accepted practices or conventions had developed in dif- ferent areas and with the various firms, which might properly be described as " implied terms" of contracts, if not actually as " customs of the trade ". If this is so, much of the blame laid at the buyers' door as regards declarations must at least be shared by the firms. 340. We have no doubt, however , that the declaration system operated so that both firms and buyers tended to receive heavier supplies on a price fall than on a rise. So far as the firms are concerned, it is maintained that this tendency is most serious in periods of considerable price fluctuation, as for example in 1936-7. Graphs of the United Africa Company's purchases in the years 1934-5 to 1936-7 appear to confirm this. It is evident that 'when prices were marked down in the 1936-7 season larEre supplies had to be accepted at the previous price level. This must certainly have been a serious source of loss to the firm , and probably was largely due to the declaration system. 108 341. Great weigh~ was attached by the firms to the question of declarations, and we have therefore dealt with it rather fully. An important witness on their behalf stated in evidence:- " We have no control whatsoever over the volume of our purchases, with the result that the greater our ability to sell, the less our ability to buy and vice versa. On a rising market when we could sell freely our purchases were negligible, but when the turn came and buyers [in the world markets] completely ,vithdrew we were deluged with pur- chases at pounds per ton over anything we could make." At least as regards 1936-7 we accept this statement. The same witness said:- " A lack of margin or rather the adverse margin on a steady market without fluctuations is not too serious a a matter . . . . . . we could get over that . . . . .. It is the declaration system." 342. It may safely be assumed that, in considering how far a reform of marketing was necessary when the Agreement was introdu<;ed, the main question is whether the declaration system had developed to a dangerous extent. This we believe to have been proved. There is no need to attempt to apportion the responsibility or blame exactly . Undoubtedly there have been malpractices among buyers; but it is no less certain that these have been in part connived at by European agents and even by their principals in Europe; we have the authority of independent \vitnesses of great experience that a firm's agent can, if he wishes, exercise a fairly effective control over his buyers' declarations. The buyers in their turn have accused the firms of practices which can at best be described as dubious . For example, we accept the statement fn~quently made to us that agents desiring to draw out supplies will announce a fictitious price fall and invite declarations. When these have been made a price rise is announced, which may place the honest as well as the less scrupulous buyer in a difficult position. It was stated that a" false drop," as this manoeuvre is described, was some- times directed from the home office of firms. 343. It would be superfluous to enlarge upon other abuses in selling or on the various devices of which either side accuses the other, still more to attempt to answer the question who started them. Wherever the chief responsibility lies, they afford evidence of the unsatisfactory condition of the trade. The intense competition prevailing on the Coast had unquestionably created conditions of great strain and anxiety for many of the firms' agents and for the buyers. The agents were admittedly often harried for tonnage by their principals and in their pursuit of it were forced to take risks on advances and on declarations. The buyers were held responsible by the firms for advances log to sub-buyers, often amounting to considerable sums, and had to conduct their business under circumstances which were some- times inevitably speculative. (b) Inducements to Middlemen. 344. The firms contend that competition for tonnage has been accompanied by competitive bidding for the services of middle- men. As a result, it is claimed, the remuneration offered to buyers, the other inducements in the shape of various allow- ances, and the amount of the advances issued to them. developed to an unreasonable degree. It is also suggested that middlemen were able " to exact a greater share of the money paid out by the shippers than was their due." 345. The methods of remuneration and the system of allow- ances to buyers have been described in Chapters IV and VIII, where some observations on their returns from these were made. There is little doubt that the gross income of all kinds including allowances received by buyers as a class has expanded owing to the competition for their services. But 'it also seems certain that their numbers have increased considerably, and for this the firms were partly responsible, by encouraging small buyers who purchase more directly than the larger buyers. At first, small buyers of this type were able to outbid the agents of the larger buyers, but the latter in turn contrived ultimately to secure higher rates from the firms, in order to compete with the small buyers. 346. On the whole it seems likely that the firms' increasing ' expenditure on commissions, salaries and allowances was accounted for less by increases in the net incomes of individual middlemen than. by the increase in their numbers and by the handing over of a part of their commissions to producers . The producers as a body would seem to have gained. The firms 'as a whole have lost; ,but those of them who set the pace in competitive bidding for buyers' services presumably had an object in so doing and were prepared to pay a price for it. (c) Advances. 347. The development of the advances system described in l / Chapter IV was probably more serious. It enabled the buyers and sub-buyers to obtain a strong hold over producers, par- ticularly the more improvident. It is admitted by both firms and buyers to have been one of their chief sources of anxiety and a factor encouraging over-declarations. We are satisfied that both the amount of advances made by firms and the length of the period over which they were permitted to remain out- standing had increased in recent years. The representative of one firm of medium size stated that until about four years ago their advances had been small, but that in 1'936-37 they had lost £20,000 on them. rIO 348. The firms themselves, and especially certain firms, were responsible for the exaggeration of this system in competing for the services of buyers and in attempting through them to secure an option on tonnage. We are satisfied that under con- ditions of cocoa farming on the West Coast little financing of the crop is really necessary, since labour appears usually to be paid by a share in the proceeds of the crop or by wages as the crop is harvested. We received evidence from certain wit- nesses that it is possible to buy successfully with small short- term advances. Both the increase of remuneration and allow- ances and the exaggeration of the advances system must have helped materially to raise the cost of cocoa bought on the Coast. 349. We accept the general contention of the firms that there was need for fairly drastic reform in the arrangements for buying cocoa inasmuch as the trade had become in general unremunerative and unduly speculative conditions of buying had arisen. We agree also that it is particularly regrettable that the system of giving advances should have been developed to the present extent. 350. We do not accept the suggestion made by the firms, at least in parts of their evidence, that the chief blame lies with the buyers, since we think that the policy of the firms them- selves and to a less extent the customary practices of their agents were primarily responsible. Was a buying agreement essential to achieve reforms? 351. The firms claimed that a buying agreement was the only possible means of achieving the reforms already discussed and also that it would " promote greater efficiency." In reply to questions on this subject, they stated that a number of " Gentlemen's Agreements" with regard to trade practices in cocoa-buying have been drawn up from time to time both locally between agents and by the West African Merchants' Association. These, it was stated, have invariably failed. The reasons given are connected with the mentality of the local agents and the rivalry among them, the intensely competitive nature of the trade in general, and the difficulty of proving breaches of the rules. 352. It was stated that Coast agents could not be persuaded really to accept the idea of combined effort to set up more reasonable conditions of trading. Penalty clauses ·were impracticable, since to enforce them it would be necessary to have books inspected, which no firm would allow, especially as acceptable arbitrators were not available. Evasion would be HI suspected and would actually occur, and accusations, followed by counter-accusations, would quickly bring the agreement to an end. An important witness asserted that 48 hours was the longest any such agreement would continue to be obserVed. 353. While attributing the difficulty of working a trade prac- tices agreement chiefly to local conditions and to the attitude of Coast agents, the spokesmen for the firms admitted that pressure from head offices for tonnage was an important con- tributing factor. They insisted that no agreement unsupported by sanctions was of any use and that experience in the West African produce trades generally had proved that the only practical form of sanction was to make breaches of rules un- profitable, by means of a buying agreement. To quote one witness, "We are not trying to prove that a man has broken the rule [i.e., under buying agreement conditions] but that it does not pay." 354. We are satisfied from this and independent evidence that, given the existing attitude of mind of the firms and of their Coast personnel, a trade practices agreement would not be really effective. We are not entirely convinced, however, that, given a real will on the part of all concerned, such an agreement would not materially improve matters. This will . does not exist; instead, complete scepticism and distrust prevail. Under these conditions, which are not likely to alter in the near future, no mere trade practices agreement could be expected to succeed. 355· Although African witnesses did not mention a trade practices agreement as a possible alternative to a buying agree- ment, certain of the larger buyers in the Gold Coast said that a buying agreement was unnecessary because it was in the power of the firms to alter the terms offered to the buyers in any case. The Nigerian Produce Traders' Union, discounting the firms' statement that abuses were serious, said that if they had been .approached,. the .middl~men would have been pre- pared to discuss alterations In trading arrangements. 356. An independent witness well qualified to judge also stated ~is belief that. al.though a buying agreement would be necessary In order to elirrunate a number of abuses, those connected with declarations, of which firms chiefly complained, could be cured to the extent of perhaps 80 per cent. by greater efficiency on the part of agents, and by requiring the buyer to furnish proof of stocks. 357·. The possibility of Gover.nment action to regularize trade conditions has also been mentioned by one or two witnesses. II2 The firms stated that they would have been pleased to discuss matters with the local Governments, but they did not mention that they had ever taken the initiative. 358. Assuming for purposes of argument that a buying agreement is at present the only workable type of agreement, the questioI). remains whether it is likely to achieve the objects claimed for it, viz., the elimination of abuses and the promotion of greater efficiency. It would undoubtedly remove the main incentive for "insane competition", since the purchaser " overpaying the market" or buying in excess of his stipulated tonnage would be likely to lose rather than to gain thereby. Firms' agents would therefore be more willing to make and to conform to local agreements on trade practices. In fact, the local committees of the firms' agents did make a beginning in this direction in the I937-8 season, as we stated in Chapter IX. 359. We think that such local agreements, under the pro- tection of freedom from competition, might do something to regularize trade practices in the directions aesired by the firms; the question of the equity of the local arrangements actually made under the Buying Agreements is discussed in the following Chapter. The firms themselves acknowledged that progress would have to be made gradually. A senior agent of (ime of the finns recognized that " the abuses of holding cocoa on a rise and of declaring it only after a fall in price is minimized only and not entirely eliminated by the Buying Agreement". We have already referred to the unsatisfactory operation of the rules regarding declarations in Nigeria (paragraph 30I). In our opinion it would be extremely difficult to avoid speculative dealings by middlemen so long as advances continued to be given out. 360. As regards the firms' claim that greater efficiency would be promoted by the Buying Agreements, we learned in oral evidence that this was hoped for primarily through the saving of time and trouble to Coast agents and to the headquarters staff of firms. The firms' representatives in general did not anticipate a reduction of the total number of buying points, although one firm would apparently welcome rationalization of this sort. We gathered that it was unlikely that most firms would be prepared to give up ground already gained, in view of their experience of the transitory nature of previous agree- ments and of the importance they attach to maintaining prestige with the Africans. 361. From the point of view of the firms, a buying agree- ment was undoubtedly the easiest way of beginning to introduce certain reforms. Such an agreement might increase 'the efficiency of the firms as individual concerns to some extent; it would be unlikely to produce any appreciable alteration in the general organization of cocoa-buying. II3 CHAPTER XI. CASES FOR AND AGAINST THE AGREEMENTS (Contd.). Were the Agreements fair and not prejudicial to legitimate African interests? 362. The main issue between the firms and the Africans, to which the question of monopoly is supplementary, concerns the fairness of the Buying Agreements and their effects on African interests. Our final conclusions on this issue cannot be stated until we have considered in the following Chapter the conditions in the world market for cocoa. Here we confine ourselves to the case for each side and to certain preliminary observations. 363. The firms in their main statement claimed that a prin- cipal object of the Agreements was (( the assurance, despite the eliminatJion of competition between the principal shippers, of a fair price · based on world market value to the African, of which a reasonable proportion should go by way of remuneration to the middleman for the services rendered by him, and the balance, being the fullest possible price, should reach the farmer." 364. The firms also claimed that producers would actually benefit from certain conditions which would result from the Agreements, although it was admitted that some of these could only be gradually realized. They anticipated that (( the producer would benefit by securing a bigger pro- portion of the price paid owing to the elimination of over- remuneration to the middleman; by smaller advances being made by the merchcl.nts to the middleman thus leaving less power in the latter's hands to exploit the producer by way of loans or purchases of standing crop; and by the general over-riding conclusion that as the world's market price was being paid, any economies realized in local marketing must of necessity result in the producer obtaining the benefit thereof. " 365. A further point, of which much was made in the public evidence of the firms in the Gold Coast, was that they intended to allow the full amount of commission to producers who sold their cocoa direct, and that this form of purchase would be developed under the Agreement. The firms also considered that producers would benefit by the greater publicity given under the Agreements to the prices offered by them. 366. In the Agreements themselves three factors are mentioned as the basis of the limit price, namely (i) (( the full current market value", (ii) (( actual out-of-pocket expenses" and (iii) (( a reasonable allowance to cover overhead charges" and II4 a reasonable profit" . The firms contend that the basis so arrived at is fair, and both has been and must be operated fairly . The Africans, it is claimed, were "amply safeguarded " (a) by the invitation to the Colonial Office to nominate an observer to the Merchants' Committee in London, who could satisfy himself that the prices offered were fully in line with world prices; (b) by the firms' willingness to accept a proposal made in the Gold Coast in November, 1937, to constitute a J oint Committee of representatives of the merchants together with a representative Chief, farmer and middle- man, with a view to verifying day-to-day prices; (c) by the fact that there was an open market and that any attempt by the Agreement firms to buy cocoa below its real value would encourage competition from outside firms and from Africans selling direct; (d) by the fact that the scheme was submitted to the Secretary of State, and by the terms in which he commented upon it in his message to the Gold Coast at the end of November (see Appendix K); (e) by the fact that the Gold Coast Government examined and approved the Schedule of marketing expenses to be deducted from the world prices; and (f) by the Secretary of State's confirmation on lOth of November that up to then the prices paid had been full world market prices subject only to the schedule deductions. The firms also referred to the smallness of their average daily margin on Nigerian cocoa in the first season of the Agreement's operation, and to the adverse margin on Gold Coast cocoa (see paragraphs 305-6). 367. A more general argument adduced by the merchant firms was that the prosperity of their merchandise trade, which is a far more important part of their business than the export of cocoa, depends on the purchasing power of the Africans and that it would therefore be against their own interests to depress the world price of cocoa, even if it lay in their power to do so. 368. The Africans' case against the Agreements did not deal in detail with their price arrangements, partly because these had not become fully known . But in support of their general contention that the price arrangements would operate inequit- ably and against the interests of Africans, a number of impor- tant points were raised. We deal with these in Chapter XIII, and they need only be enumerated here. (a) Profit.- Sir Ofori Atta in his public address to the Commission expressed forcibly the belief that the price II5 terms provided for a good margin of profit. (As already explained, profit was not mentioned in the letters of instruc- tions, of which the Africans had some knowledge, but only in the preambles to the Agreements.) He further stated that the Africans would want to know how the profit was arrived at and how it would be made. (b) The Schedule of Marketing Expenses.-It was pointed out that different firms had different operating costs but that under the Agreements all would be credited with the same costs. (c) Forward contracts and post-season sales by the firms. -The possibility of special profits from these was men- tioned. (d) SPecial markets.-Certain firms might have special markets; manufacturers used their purchases directly in the manufacture of expensive products and could afford to pay more. (e) Price manipulation.-The firms were already able to" manipulate prices both locally and on world markets against producers; the Agreements would make this still easier. A fair price had been paid in the past, a relatively lower price would eventually be paid in future. 369. The African case also dealt with certain specific points v in which African interests would be affected, including some of the benefits to producers which the firms anticipated as a resuIf of the Agreements (see paragraph 364). It was contended that the reduction of the buyers' commission would be reflected in tlle payment of a lower price to producers, since buyers had previously passed on a share of their commission. We have already expressed our belief that this was probably a frequent and perhaps a general practice in the Gold Coast. The Gold Coast letter of instruction admits (in paragraph 30 e) that it occurred in certain circumstances. In Nigeria it was probably less common. In any case it seems reasonable to suppose that the middleman, finding bis commission reduced, would try to " squeeze" the producer. At least "one agent of the firms believed that this might occur. 370. The reduction of advances anticipated by the firms was not considered by the Africans to be in the interest of producers or of buyers. We feel, however, that there is some force in the contention of the firms that producers would benefit in the long run if advances were reduced, for the lavish offering of advances has provided a temptation to improvidence both in farnting and in the disposal of the crop. 371. The last point made by the firms in the passage "referred to may not have been fully explained to the Africans. It;; significance is that the firms intended to reduce the Schedule rr6 of marketing expenses as actual costs were reduced. We discuss this in dealing with the Schedule in Chapter XIII. African witnesses did not seem to take very seriously the firms' claim that the Agreements would benefit producers by promoting direct sales . It appeared to us that the point was somewhat exaggerated in the firms' Gold Coast evidence, whereas in Nigeria direct selling did not appear in practice to be given any particular encouragement under the Agreement. 372. The greater publicity given under the Agreements to the firms ' prices was not recognized in the African evidence as being of value to producers. We consider, however, that in itseII the pUblicity would be useful in affording farmers a means of checking the prices offered locally by middlemen. 37:3: A number of complaints regarding the effect of the Agreements on middlemen were made in the African case. The following were the more important:- (a) The firms' attack on· buyers.-The firms had made unwarranted ang unjust attacks on buyers as a class and did not recognize their services. (b) Lack of notice of the Agreements.-The Agreements were introduced without warning and buyers had put out considerable advances before the season which they would not have risked had they known of the impending radical change in conditions. As a result they had been placed in a difficult position financially. (c) Elimination of buyers .-The firms avowedly aimed at reducing the number of buyers and would thereby create unemployment and hardship, especially if the minur firms delegated all buying to one or two of the larger firms . The firms were trying to eliminate the large buyer who was on a more equal business footing with 'them so as to be able to deal only with " small boys", i.e. minor buyers, whom they could exploit. (d) Restrictions on emPloyment. -The Agreemen ts placed restrictions on the offering of employment to buyers by the firms; it might be made impossible for a dismissed buyer to find another post. (eJ Declarations.-The regulations introduced with regard to declarations were unfair and would place great hardship upon buyers. The period of grace permitted for declarations, namely forty-eight hours in the Gold Coast and twenty-four hours in Nigeria, was too short, especially for buyers whose sub-buyers were operating at a distance. Buyers would be ' forced to take very serious risks with money put out in advances to sub-buyers, for which they were held responsible by the firms. They could never be sure, when a declaration was demanded, that much heavier II7 supplies would not be declared by sub-buyers than they in turn would b.e permitted to declare under the new con- ditions. The buyer would constantly be faced with the alternatives of accepting declarations in excess of what he was entitled to declare himself or of refusing them and risking the loss of the advances given out by him. (f) Remunera.tion.-Unjustifiable reductions in the rates of commissions and other remuneration had been made. The granting of commissions to small buyers equal to those payable to large buyers was unjust to the latter. The grant- ing of an equal commission to producers who sold direct was unjust to all buyers; a levelling-up on these lines would tend to force buyers and sub-buyers out of business. (g) Price changes.- Prices had been changed too fre- quently . under the Buying Agreement in Nigeria. It was alleged that changes were much more common than before the Agreement, sometimes occurring two or three times a day, and that they were effected in such a way as to induce buyers to bring in their cocoa only to find that the price had been lowered. ,. 374. On the first and most general complaint of the buyers (a above), we think that the firms sometimes understated the importance of the buyers' function. It was suggested 'in parts of the firms' evidence that they are a recent and unnecessary growth upon the industry. In other parts, however, it was admitted, expressly or implicitly, that the services of buyers are at present quite indispensable. We received convincing evidence, moreover, from both Europeans and Africans of authority, not only that cocoa buyers had existed in the Gold Coast since the earliest Glays of the trade, but that they are in direct descent from buyers or brokers in the rubber trade and even from the " trade boys" who, at a still earlier date, acted as middlemen between merchant firms at the ports and African tribes up-country. 375. As regards advances made before the I936-7 season (b above), we formed the conclusion from a considerable amount of evidence that the buyers' complaint was justified, at least in some areas, and probably generally as regards their own advances. The feeling of grievance may have been increased in some cases by the fact that buyers had made forward pur- chases on a basis influenced by the previous season's high prices, which the fall in prices rendered unprofitable. Apart from this, buyers might well have been more cautious in making advances had they known that the terms of their engagement were to be radically altered. It has been represented to us by the firms that where buyers had received advances from them before the Agreements were announced, they were permitted u8 to continue on the aId terms . We do not believe this con- cession to have been made by all firms in all areas, notably Ashanti; in any event it does not cover the case of buyers who had advancea their own money. 376. As regards the reduction in the number of buyers (c above) , we believe that, in practice and whatever the firms ' intentions , this would not have been very serious, since we think it unlikely that there would have been any very material change in the organization of buying. 377. The other complaints made by buyers concern the actual operation of the Agreements. We think that in part they are justified , and that the agreed practices complained of might well cause hardship, if applied suddenly and with undue rigidity . We have not been able to ascertain how far con- cessions 'were made to mitigate the impact of the changes and to meet special cases; the evidence was somewhat confusing on this point. For example, as regards rates of commission (f above), it was suggested by important spokesmen of the firms that a fiat rate of I8s. 8d. for all tonnages was to be paid. Yet the minutes of the local committees of the firms indicate that sliding scales were still to be operative at certain Gold Coast buying centres. It is probably true, however, that the larger buyers would generally suffer a reduction in their remuneration and that some of the smaller buyers dealing direct with the firms would gain. As regards the payment of commission to producers, at least one agent in the Gold Coast declared that he had not felt able to pay the full commission to producers who sold direct for fear of brokers' opposition and the risk of losing advances. In Nigeria also the full commission was not always paid. 378 . The most serious objections of buyers were undoubtedly those connected with the changes in the declaration system (e above). We have little doubt that if rigidly applied these changes would cause hardship. In effect they would t)J.row upon buyers the greater part of the risk entailed in bringing about a price change . Unless and until buyers were as effec- tively organised as the firms, it would be difficult if not impossible for them to induce sub-buyers to accept equally strict conditions with regard to the period of grace and the quantity of declarations allowed. The position of the buyer was succinctly put by an independent European witness who said that under the old system the buyer was encouraged to speCUlate; under the Agreement he was compelled to do so. 379. The restrictions on the offer of employment and on the re-engagement of dismissed buyers (d above) was another important subject of complaint especially in the Gold Coast. There is no evidence that the firms either operated or intended II9 to operate the provisions under this head unfairly; but in view of their possibilities we are not surprised that they were regarded with apprehension. 380. As regards the frequency of price c?-anges about wh~ch the buyers complained (g above), the eVIdence was confhc;t- ing. The cabled limits were changed on the aver.age once .m every two days. Several witnesses for the firms saId that pnce changes were less frequent than before the Agreement. 38I. With regard to all these local rules affecting buyers, there was uncertainty and suspicion among the broker witnesses whom we heard on the Gold Coast, where, however, marketing was never in full swing under Agreement conditions. We think that in both countries the buyers have a legitimate ground of complaint in that they were not consulted in advance. In Nigeria, at least, consultation with a fairly representative Union would have been possible. 382. The chief complaints made to. us by the Co-operative Societies L'1 the Gold Coast were against the general attitude of the firms apart from the existence of the Agreement; these have been discussed in Chapter V. Undoubtedly the Societies' support of the hold-up in the Gold Coast was due chiefly to a sense of solidarity with producers as a whole and to a suspicion of the effects of combination among shippers. Certain special points were, however, raised by the Co-operative Societies . They appeared to welcome the principle of paying the full commission to producers, which would, or should, allow the Societies to benefit; but they said that in practice this principle was not being applied and that brokers were still being allowed a commission above the price paid to farmers selling direct. They also indicated that if the firms really wished to buy direct, the Societies provided the best means for the purpose; and that, had the firms consulted them in advance, an arrangement might have been reached advantageous both to the firms and to the co-operative movement. The case of the Nigerian Co-operative Societies was also in line with that of producers in general, and referred to costs of production, low prices and the danger of monopoly. It was argued also that the producer was not to blame and should not be made to suffer for the malpractices of middlemen and that if the firms were sincere in their decision to protect producers agaiBst them, they should pay an encouraging price to Co-operative Societies. 383. So far we have referred only to more or less specific v point:; raised by the Africans in their general contention that the Agreements were inequitable. There is no doubt, how- ever, that the strength of their feeling against the Agreements was due chiefly to their intense suspicion of the motives behind them. The heavy fall in price since the season previous to the 120 Agreements, and particularly the drop that occurred almost simultaneously with the first news of the Agreements, certainly increased this suspicion. The firms contend that if prices had been favourable there would have been no effective hold-up in the Gold Coast and no real dissatisfaction in either country. The truth of the first of these contentions is uncertain; in any case we have indicated our belief that the firms gravely under- estimated the importance of the suspicions felt by the Africans with regard to the Agreements. 384. For our part we have been impressed by the force and apparent sincerity with which these suspicions have been ex- pressed, whether or not they were justified. They were based on the circumstances of the introduction of the Agreements, the refusal of the firms to publish them, and, in the Gold Coast, on the unwillingness of Messrs. Samuel and Cadbury to explain important provisions during their visit. It seems desirable to refer in this and the following section to the actual words used by some of the more important African spokesmen. 385. In his speech at the opening session at Accra, Sir Ofori Atta said :- " We have lost confidence in our merchants and we refuse to give credence to anything they say in regard to this Pool as being on our behalf. . .. We know they may be able, in fine language, to say that the Buying Agree- ment is a good thing; that they will use it in such a way that it will not be prejudicial to the interests of the people. We do not believe that. We have experience of their actions and we believe them not." The Asantehene, speaking at Kumasi at the joint meeting of Ashanti Chiefs with Messrs. Samuel and Cadbury, said, with reference to a question that had been put to the merchants' representatives about the division of purchases:- " My people are still suspicious about the conditions em- bodied in the Agreement . . .. If you find it impossible to explain unless a committee is set up , then we cannot understand the situation . . . . If you cannot explain that clause to the meeting people will leave with a doubtful mind. . .. You have wide knowledge of business affairs, therefore do not take advantage of our little knowledge in business affairs." This episode was referred to by the Asantehene in his publi~ evidence before us. 386. Similar suspicions were expressed in the Nigerian evi- dence. The Nigerian Produce Traders' Union stated:- " Weare unable to accept the assurance . . . . that the Pool and the Buying Agreement were designed to benefit I~I the trade as a whole, including the producer. If the interest of the,'producers was ever considered it is strange that the Pool 'firms should have been so slow in bringing to general notice the specific clauses in the Agreement providing for this: the terms of the Agreement have been treated with the utmost secrecy, and all requests that same be made public have so far been rejected," The Ibadan Co-operative Marketing Union stated:- " By the commercial activities of the United Africa Com- pany, Ltd., the producer regards himself encompassed, and any measure introduced osteLlsibly to better his condition by this great and influential combine, he regards as a design to subject him to economic enslavement." 387. The Africans' suspicions were crystallized in the fear that the Buying Agreement, or " Pool}} , would eliminate all com- petition and establish monopolistic conditions. Would the Buying Agreements eliminate competition and create a monopoly? 388. In the African case it was submitted that the combination of nearly all the European firms buying cocoa on the West Coast under the Buying Agreements meant the virtual elimina- tion of local competition, and was tantamount to a monopoly in that it gave the Agreement firms a dominant position which they would exploit both against the cocoa producers and brokers and also in world markets; and that this, coupled with the firms' control over merchandise prices, especially under th€ Merchan- dise Agreement in the Gold Coast, would place Africans too much in the economic power of the firms. 389. We were left in no doubt of the strength of African feeling on these points. It is sufficiently indicated in the following quotations from oral evidence or documents submitted in evidence:- " Now, it is said definitely that the object of the Pool is to e1,4ninate competition. Competition .. . . is the soul of trade, and in view of the fact that the majority of the farmers of this country are illiterate they have always taken whatever advice has been given to them by the merchants .... They have told us in this Chamber and else- where many a time 'Don't be afraid for the price you are getting. Competition is your safeguard and you will never be deceived.' By this Pool, or the Buying Agreement, competition is going to be killed." (Sir Ofori Atta.) . " We believe .... that the objects for the formation of the Pool are to control the price of our stocks and eliminate the little broker, so that European capitalists may have free and unrestricted access to the real exploitation of the poor farmer." (Sir Ofori Atta.) " We have our fear and that fear, I believe, is very well grounded, that if this Pool does exist, it will lead to one firm only taking absolute control of the cocoa in this country and doing what it likes with it." (Sir Ofori Atta.) 122 "I, as a representative of the Chiefs and people of Ashanti, feel that the Pool, with a very large capital at the back of it, makes for a direct control of the cocoa situation in Gold Coast and Nigeria." " It is believed that this policy is an outcome of the programme which is a lleged to have been laid down by the Empire Resources Development Committee shortly after the last Great War. The policy was that the African Colonies of the Empire were to be developed for the benefit of England. .. The Agreement firms with a very large capital at the back of them, it is feared that it gives them an unbounded liberty to dictate prices in the market to the detriment of the producer as also the consumer .. . . The Pool aims at eliminating the smaller firms from the market. This is selfishness and is diam etrically opposed to the policy of ' live and let live'. " (The Asantehene.) " This counb:y strongly and persistently manifests its profound dis- like of, and deep resentment for, combinations of big companies or capitalists in dealing with the farm ers of this country ." (Sir Ofori Atta.) " The Pool and Buying Agreement could have no other object than the artificial control of prices by the elimination of free competition which is an essential feature in all normal and healthy trade mere knowledge of the existence of such pact among the cocoa interests in a region wh ere about two-thirds of the world's supply is produced, cannot fail to cause the most serious reaction in the world market of so sensitive a commodity as cocoa." (Nigerian Produce Traders' Union .) " It is our unshakeable conviction that the Pool is nothing short of a monopoly designed to control prices for the benefit of the interest ed firms and the disadvantage of the producers and others interest ed in the cocoa trade. The weight of the monopoly is felt not only in the export but also in the import trade . " "There is a clause in the Buying Agreement referring to the distribution of cocoa purchases among the Agreement firms , the aim of which would appear to be ultimately to centralise all activities under a single Buying Agency, a most undesirable development." (Nigerian Produce Traders' Union.) " It seems almost inconceivable that such powerful combination of interests as is represented by the P ool firms who h andle practically two-thirds of the world's cocoa supply should fail to influence to a very considerable extent the movem ent of world prices in this com- modity. The formation of the Pool is obviously to create a monopoly for the firm members, who by agreeing not to compete among them- selves and centralising their buying activities placed themselves in a position to exercise complete control over the local market. At the same time protection is given to firms some of whom will use such privilege to cover up their inefficiency and mismanagement the burden of which is transferred to the poor fa rmers. This is oppression of the gravest kind . The farmer was helpless enough even when the various European firms were operating separately and in competition with one another, under the conditions introduced by the " Pool" the farmers' position can best be described as desperate .. . The loca l farmer cannot easily be persuaded to accept the theory that the "Pool" which is based on monopolistic aims could ever operate to his advantage ." (Nigerian Youth Movement.) " Since July, I934, a trading Pool has been in existence . . . . It has for its object the fixing and agreeing of prices of staple articles and keeping out competition amongst themselves . . . . thus a mono- poly is created and t he consumer is exploited. The consumers of manu- factured goods in this country, it may be ob served, are the peasant I23 farmers. They are bound to buy from these same firms~the cocoa Pool and the trading Pool . ' .. . When cocoa price is raised ' generally ' the merchants increase the price of staple goods which are most in demand irrespective of cost price." (Sir Ofori Atta.) " In buymg from the mero1:tant and in selling to him, he has no option but to accept the prices quoted by the firms . . . . thus 1t would be seen that the European merchaNt holds the key of the two positions running both sides to his advamtage." (Ibadan Co-operative Marketing Union.) " We could not but view wj,th disfavour and alarm the invitation . extended to manufacturers to join middlemen or distributors', and we are confidently of the opinion that any such monopoly will cripple free trade." (Agege Planters' Union.) " It is most sorrowful that when they start to buy the cocoa all the ' firms formed themselves into a Pool and decided to offer one price for cocoa produced by us, but for their own co=odities they have the right to increase their prices. Having increased the price of their commodities, they offer us 7s. for a load of cocoa." (J . Mensah Kwabi, an Akwapim farmer .) 390. The firms' reply to the suggestion that the Buying Agree- . ments create a monopoly has already been quoted in their statement of the safeguards which, they claim, will protect the . producer from exploitation. They laid special stress on the existence of an open market (see paragraph 366). In addition they have said:- " In principle, the Agreement is not dissimilar from agreements pre- viously operated in W est Africa and in other parts of the world . Oil products agreements were operating in Nigeria certainly 45 years ago and have, subject to temporary interruptions, continued ever since. Cocoa agreements in the Gold Coast operated from 19II-19r6, and again from 1925-1927. Price as well as quota agreements of this kind are now widely recognised as being necessary to eliminate the waste and inefficiency arising from unbridled competition. We believe that agreements of this nature have obtained world-wide general approval, not excluding British Governmental approval, and we would instance (1) the Conference Agreements which · exist throughout the shipping industry (not excluding West Africa) in order to maintain :£reight rates at a reasonable level and to remove from the structure of the industry the dangers inherent in uneconomic competition; (2) the world wide quota selling agreements of the leading oil companies; (3) the steel, cement and other cartels for similar purposes." 39I. The elimination of competition among the Agreement firms and the allegations that the Agreements constituted a monopoly and would tend to concentrate buying in the hands ?f one firm are dealt w~th in Chapter XIII and in our conclusions III Chapter XIV;. but It seems desirable here to comment briefly on the MerchandIse Agreement, and the control of merchandise prices, referred to in the African case. 392. We gathered from evidence, of which the passages quoted form only a small part, that widespread resentment had been aroused on this point. We were told on good authority that the existenc~ of a Merchandise Agreement only became generally known III the Gold Coast as a result of Press articles when the campaign against the Buying Agreement began, but E I24 that the idea has now taken deep root . The Africans attribute to the Merchandise Agreement the general rise which, they claim, took place in merchandise prices in I 936-7; and they have pointed out that in spite of losses that the firms claim to have made in cocoa in that season, the total profits from West African trade were considerable. 393 . The merchant firms have submitted evidence to the effect that the articles covered by the Agreement, which include such staple lines as galvanized iron, sugar, flour, cabin bread and rice, constitute under IS per cent. of their total merchandise trade; they have also submitted statistical data to show that the price rises in 1936-7 barely kept pace with rising costs. They deny that merchandise prices have been raised on account of high cocoa prices, and point to the keen competition maintained by Syrian traders in some lines. 394. It is not within our terms of reference to submit any conclusions on this issue, even if we considered that the evidence at our disposal was sufficient to enable us to do so. It is certainly true that the merchant firms made good profits in 1936-7 on their trade as a whole; but it was of course a boom year in West Africa as elsewhere. We should be surprised if in a year of prosperity there were not some marking up of prices or , as it might be expressed , if cut prices were not restored to a normal level. This is common practice in all countries and was certainly considered normal in West Africa by certain witnesses engaged in the merchandise trade, and by a store- keeper of one of the Agreement firms with whom we had conversation. 395. Although offering no opinion on the validity of the African complaints we "vish to emphasize their importance. If harmonious relations are to exist between the African com- munity and the trading firms, it is vital not only that the African should get a square deal but that his present suspicions that he does not should be allayed. We are aware that these matters have recently been receiving the attention not only of the local Government and the Colonial Office but also of the merchant firms. CHAPTER XII . THE COCOA MARKETS OF NEW YORK AND LONDON AND THE MARKETING POLICY OF WEST AFRICAN MERCHANT SHIPPERS. (a) Description of New York and London market conditions for cocoa. 396. In Chapter Iof our Report :ve referred to statistics .of the world trade in cocoa over a penod of years, and we dis- cussed (with reservations as to the accuracy of consumption 125 figures) the relative importance of the various consuming countries. The statistics show that the United States of America provides by far the largest single market of cocoa and now consumes about 45 per cent. of total world production; the remainder being taken, in order of importance, by the United Kingdom (14 per cep.t.) , Germany (10 per cent.) , the Nether- lands (8 per cent.) , France (6 per cent.), Canada (2' 5 per cent.), and a number of other countries. The following paragraphs relate chiefly to the two most important markets-New York and London. . (~) THE NEW YORK MARKET. 397. There is no official record of the volume of business in actual cocoa which takes place in the world's consuming markets. The importance of the market in New York, as might be inferred from the tonnage consumed in the United States, greatly exceeds that of any European market and there is no doubt that the current value of cocoa is determined in New York to a much greater extent than in any other marketing centre. The Hershey Chocolate Corporation is the largest con- ,.sumer of cocoa beans in the world ; its annual requirements are said to amount to some 100,000 tons. 398. Owing to the transactions of merchants, brokers and speculators, the tonnage bought and sold annually in the New York terminal market, conducted by the New York Cocoa Exchange Incorporated, far exceeds the amount imported into the United States. The following statistics* show the tonnages bought and sold in the terminal market during the ten years 1928 to 1937 as percentages of annual world (( production" (i.e . exports) and of United States estimated consumption during the same period:- TABLE 9. Estimated Quanti ties P ercentage P ercentage Y ear . Total World Total U .S. bought and sold Production. Consumption. on N ew York oj (iv) to oj (iv) to Cocoa Exchange. (ii). (iii) (i) (ii) (iii) (iv) (v) (vi) Tons Tons Tons % % 1928 5 II ,000 15'2,000 5 14,044 100·6 338 '2 1929 530 ,000 185,000 632 ,250 119'2 341 ' 8 1930 479,000 175,000 364>4 19 76' I 208 ' 2 193 1 550,000 185,000 374,920 68 ' 2 202'7 1932 564,000 178,000 466,045 82'6 261'8 1933 555,000 192,000 658,125 IIS· 6 342 . 8 1934 590,000 21 5,000 73 1,866 124'0 340 '4 676,000 265,000 2 21 '<'l 1935 55 ,3 81 '7 208'4 1936 702,000 290,000 1,038,73 8 148 ' 0 358 '2 1937 657,000 232,000 1,808,022 275'2 779'3 I • From Messrs, \;Vessels Kulenkampff and Company's Annual Review, January, 1938. Ez 126 399. While there is a large volume of day to day buying of cocoa by consumers for 'near delivery to meet the ordinary needs of the chocolate factories, from time to time the leading manufacturers come into the market as large buyers for future deliveries extending, it may be, as far as nine months or even a year ahead. The forward buying by consumers arises in part from the nature of their trade, which obliges them to enter into forward commitments for the delivery of finished or semi- finished goods . At the same time, according to traders of experience whose evidence we accept, the buying policy of manufacturers has on occasions appeared to be largely specula- Jive, and has even been described to us as perhaps the most important of the various speculative elements which have together been responsible for excessive fluctuations in the value of cocoa. On the other hand, it has been pointed out to us that abnormally heavy purchases made for factory account, which exerted an important influence over prices in the latter half of 1937, can hardly be explained except as an endeavour to accumulate stocks as a safeguard against another period of high prices caused by speCUlators and also to stabilize the market. 400 . It seems clear, in fact, that the buying policy of con- sumers is affected at time by purely speculative and at times by ~ther considerations, of which one may be the desire to make a competitor pay dearly. The daily published statements of stocks in licensed warehouses are recognized as having an important influence on speculative sentiment, and we have had evidence of a manufacturer's stocks being transferred to and fro between licensed and unlicensed warehouses apparently for the purpose of misleading other operators and of creating • false movements in price. To quote an American witness : " Large quantities changed from Visibles to Invisibles merely to bob up as Visibles a short time later." 401. Operators in the New York market, apart from the con- sumers, consist (a) of merchants and dealers whose business, although based on the carrying of stocks with wl;llch to supply factory requirements, involves extensive use of the terminal market; (b) brokers who act on commission as intermediaries between shippers and the various classes of buyer operating in the market and who carry out speculative orders; and (c) specialized dealers, frequently referred to as " cash and carry houses," who are mainly concerned with market differentials and carry stocks against forward sales. The outside speculator is not necessarily in direct contact with market operators: as is normally the case with commodities for which there is a suffi- ciently wide market in futures, speCUlative orders for cocoa are collected by commission houses and others, specially organized for the purpose, and are transmitted by them to the market for execution. I27 402. It has been pointed out to us that cocoa, which is of rela- tively small importance as compared with leading commodities such as wheat or cotton, probably receives rather more than its due in the way of advertisement and pUblicity and that in a market of this kind an inrush of speculative orders might reason- ably be expected to have an excessive influence on prices. The expert evidence we have received, however, would seem, on balance, to indicate that the various factors which together determine the value of cocoa are so complex as in all normal times to preclude the course of the market being very greatly influenced by outside speculative interest. Owing to a drastic change in the general economic outlook which occurred in I936-7, an exceptional condition prevailed for a time, and specu- lation, showing its full force, took temporary charge of com- modity markets , cocoa included. 403. Transactions done in the terminal market are all publicly known, but an operator can always conceal his identity by employing some other party to act on his behalf. The forms of contract are so worded as to permit of deliveries of various grades of cocoa, subject to appropriate premiums and discounts for quality. While the main function of the terminal market is to provide facilities for hedging and arbitrage transactions and for speculation, manufacturers are reported to be making an increasing use of it, and in I937 to have used it to a sub- stantial extent, for the acquisition of actual cocoa. In that year deliveries of actual cocoa to buyers on the terminal market rose to 64,567 tons as compared with I 6,995 tons in I936. Buying of this type is , we are informed, somewhat restricted by the fact that the expenses involved in accepting a terminal delivery exceed those incurred by a consumer who takes delivery at th(' port of arrival. (ii) THE LONDON MARKET. 404. While the cocoa markets of London and New York react closely in sympathy with each other, the stronger influence is inevitably that of New York, with the result that in normal times the London market can usually be relied upon to open at approximately the level of the closing price in New York and to follow American quotations as they become known during the day. The relative dependence of the London market upon New York, which is primarily due to the smaller volume of factory demand in the United Kingdom, has been accentuated by the establishment of the leading British manufacturers in West Africa and also by the special conditions which have rendered normal trading with Germany impossible. Other con- tinental countries , however, including Holland, where cocoa is bought largely for the manufacture of cocoa butter, look to the United Kingdom as a principal source of supply. E 3 I28 405. The trading in actual cocoa both for shipment and delivery is regulated by the Cocoa Association of London, a body which has no official connection with the London Cocoa Terminal Market Association. The chief functions of the Cocoa Association of London, which includes in its membership manufacturers, shippers, merchants, dealers, brokers, ware- house-keepers and ship-owners, are to formulate suitable forms of contract, to provide for the settlement of disputes by arbitra- tion, to promote the accurate sampling and the proper storage of cocoa, and generally to establish uniformity of commercial usage in the trade. 406. As in New York, all transactions other than those which are effected on the terminal market are by private treaty, the practice of holding public auctions at regular intervals having been abandoned owing to the reduced proportion of tonnage available for spot sale. An attempt which was made a few years ago to delimit more accurately the functions of the various classes of traders in the market was ,u nsuccessful. It appears to be the generally accepted view in the trade that the market suffers, in the sense of being rendered unduly narrow, from a certain shortage in the number of merchants and dealers with capital prepared to carry stocks and also from the concentration , in the hands of a single shipper of an unduly large tonnage of the Gold Coast and Nigerian crops. Another development which is regarded with concern by brokers and dealers alike as having seriously curtailed the general prosperity of the London market is the alleged tendency amongst shippers to increase their direct sales to consumers. The fact, to which we have already alluded, . that important manufacturers have for many years preferred to make a considerable part of their purchases on the Coast rather than in Mincing Lane has inevitably had its influence in pre- venting the home market from developing in the way which the general expansion of the industry might have warranted; and the decision of those manufacturers to extend their business in West Africa by acting as the buying agents of other manufac- turers who are not established there has been yet another factor in reducing the relative importance of London as a distributing centre. 407. All contracts entered into on the terminal market, which was established in I930, are registered by the London Produce Clearing House Limited which collects margins from buyers and . sellers and assumes financial responsibility for the fulfilment of contracts. As in New York, the terminal market, which is recognized as a necessity to merchants and dealers in their ordinary business and also to brokers and others who carry out speculative orders, is becoming more commonly used by manufacturers . In the following figures , showing the total annual imports into this country for the years I934-7 and the I29 \ annual tonnages registered by the London Produce Clearing House during the same period, the effect of the speculative boom during the Accra crop season of I936-7 is a salient feature :- T ABLE 10. Estimated Quanti ties re-Total W orld gistered by the P ercentage P ercentage Y ear. Production . Total U.K. Consumption. London Produce oj (iii) to oj (iv) to (ii) . Clearing House. (ii). (i) (ii) (iii) (iv) (v) (v i) Tons Tons Tons % % 1934 590,000 74,000 235,IIO 12· 5 39. 8 1935 676,000 83,000 229,520 12·3 34. 0 1936 702,000 103,000 102,470 14·7 14 . 6 1937 657,000 96,000 352,250 14. 6 53. 6 I (iii) STATISTlCS. 408. We have been impressed by the number of market wit- nesses holding the opinion that the lack of adequate trade statistics has given uninformed sentiment an unusually large part in the determination of cocoa prices in the world markets and that better statistical knowledge, more especially of manu- facturers invisible stocks of cocoa and of consumption would tend towards a greater stability of price. To quote one impartial V authority, " the greatest drawback to intelligent trading is prob- ably the lack of adequat~ statistics on crops and stocks in pro- ducing countries and consumption and stocks in importing countries" . The actual consumption of British, German and French manufacturers can, it is believed, be estimated with a fair degree of accuracy from the tonnage taken out of bond, whereas Dutch consumption can only be more roughly estimated on the basis of imports . In the United States only the stocks in licensed warehouses are m.ade public; those in unlicensed premises are unknown. If manufacturer's in the main consuming countries were prepared to make, for publication, a regular return of their cocoa stocks and of their consumption, we believe that a positive step would have been taken towards the forma- tion of sound views regarding the probable trend of prices and thus towards the a voidance of excessive and unjustified fluctuations. We refer to this again in our recommendations in Chapter XV. (b) ·The marketing policy of West African merchant shippers. 409. The whole problem of the marketing of West African cocoa is dominated by the fact that the bulk of the crop has to be bought within a period of approximately three months. E 4 130 About 22 per cent. of the Gold Coast crop is bought by con- sumers either for their own or for other consumers' use , the remainder being taken over by merchants. One of the Agree- ment firms has expressed the view that" the outstanding service which the merchants have rendered to the producers and the trade as a whole, and one which would be out of the question unless the firms had at their disposal considerable financial resources, has been their shouldering the risk of spreading over twelve months to meet consumers' requirements a crop the marketing of which is compressed into five months". The acceptance of this risk by shippers has been described by the same witness as so incalculable that it " can only be justified .tby their interest in sheltering the producer". It was, however, admitted that on occasions the carrying of stocks might prove a profitable policy. 410. We accept the contention that it would be to the detri- ment of producers if the whole weight of the crop were forced on to the world markets as soon as it passed into the hands of merchants. We have in fact no doubt that the policy of merchants in carrying stocks of unsold cocoa has at certain times been of great value, as they claim, to the industry as a whole. In this regard the policy adopted by the leading firm of merchant shippers has necessarily been of overwhelming importance. 4II. As we have said in paragraph 321, it has very fre- quently, probably even usually, been impossible for shippers to sell day by day except at an unfavourable level against the purchases which they were making on the Coast at keenly com- petitive prices; a regular policy of minimising market risks by maintaining a square book could usually only be carried out at a loss. The existence of a local premium on the Coast must clearly have entailed serious marketing difficulties for a firm which was anxious to act eonservatively and to avoid risk. It was not, however, impossible for a firm, provided that it was handling moderate quantities of cocoa, to pursue such a policy if it was thought to be essential. That is to say, a buyer of moderate tonnage could, though perhaps only at a loss, either dispose of his actual cocoa day by day, or, if that was imprac- ticable, could secure temporary protection against a decline by effecting sales on one or other of the terminal markets without depressing the price level. This would not be true of a firm handling a large tonnage. V 412. in so far as a strictly conservative policy of keeping pur- chases balanced by sales as continuously as possible was unpro- fitable, it could only be continued indefinitely by a firm which considered its purchases of cocoa essential to its successful con- 1d uct of other business in West Africa, or which had some other overriding motive for keeping up its record of tonnage. In any 131 case, whatever motive may have been involved and whether the capital available to absorb market losses was ample or not , the existence of a situation in which a conservative policy was in itself unprofitable must always have encouraged, even though it may not actually have necessitated, the adoption of a more or less speculative one. 413. For the large shipper a conservative marketing policy was excessively difficult. Just as his purchases might be heavy enough to stiffen prices against him in Africa, his sales might frequently be sufficient to depress prices against him in the con- suming markets. We agree with the contention that the con- ditions prevailing before the Agreements certainly made it most difficult for a single firm to purchase a large proportion of the Gold Coast and Nigerian crops without assuming serious and perhaps even incalculable risks. We have, however, been assured by a witness whose ability is recognized in the cocoa market that for his part, however large his purchases during the crop season might be, he would favour a policy of making adequate sales against them day by day, so long as the value of cocoa in the world markets was not below £20 a ton. 414. That the risks that have sometimes been assumed by shippers were both serious and incalculable there is no room for doubt. Five merchant firms within the Agreement, who are sellers of merchandise as well as buyers of cocoa and who handle most of the cocoa offered in the market, have provided the following figures showing the total tonnage unsold and unhedged in their hands at the 1st of March in the three years, 1935, 1936 and 1937. These were given us as indicating the proportions of the responsibility which merchants have assumed. Tons 1935 65,355 1936 106,729 1937 46,625 The United Africa Company, Limited, informed us that on the 1st of March in the same years it had net unsold holdings, to be marketed during the remaining part of the year, of no less than 58,581 tons, 84,288 tons and 39,920 tons respectively. 415. A Director of the United Africa Company, after referring to the difficulties resulting from the declaration system, stated by way of illustration:- "On the 14th of January, 1937, The United Africa Company, Limited, held a long interest of only 2,700 tons, and we had so little confidence in the market that we intended to do everything possible to maintain as nearly as possible a level book. " By the 31St of January, 1937, our long interest had increased to 37,000, and by the 13th of February, 1937, it had :Eurther increased to 51,600 tons. 132 " On the 14th of January the price was £57, by the 31st of January it had declined to £52, and by the 13th of February it was down to £47· " On the ultimate realization of this cocoa which was acquired very much against our wishes, we made a colossal loss ." 416. We are indebted to the same source for an outline of the marketing policy generally adopted by the United Africa Company , Limited . Realizing that it would be obliged to take over an unwieldy tonnage during the few months when pro- ducers were selling, the Company, like other merchants estab- lished on the Coast, usually made forward sales in anticipation of the crop season. These sales in the case of the United Africa Company might amount to some 40,000 tons of new crop cocoa. At the beginning of the season, however, the Company would still be holding cocoa left over from the previous crop which it had failed to dispose of, amounting, it might be, to half that quantity. That is to say, the Company would at the beginning of the crop season have a net short account of about 20,000 tons. During the first part of the crop season, namely, for a period of two or three months, the Company would make sales against, say, fifty or sixty per cent. of its purchases , the balance being used to reduce its short account. The volume of cocoa bought by the United Africa Company's agents was such that even in years when the Company expected lower prices and would have preferred it to remain open, the entire short account was invariably closed before Christmas. There- after the Company was in the dilemma of having to choose between selling its purchases currently at a loss and accumula- ting a stock of unsold cocoa which it had no wish to carry. The latter policy was adopted. The Company's unsold holdings usually reached their maximum about the middle of March when we are told it generally became possible to start reducing them. , 4I7. The incidence of the Brazilian and other South American crops and also of the Gold Coast and Nigerian mid-crops is regarded as adding to the difficulties of marketing. There being no period in the year when fresh supplies are not either actually forthcoming or imminent, there is, it was explained to us, no sufficient interval in the world's output of cocoa to give a big shipper of West African cocoa much opportunity to work prices up when the crop season is over and so to dispose of their stocks without a loss. 418. In justification of this marketing policy the United Africa Company have contended in their evidence, first, that it was inevitable under existing conditions and, secondly, that it serves to strengthen the general level of prices during the main-crop season . ' Critics of the Company, however, maintain that its purchases on the Coast are habItually used as the basIs I33 for a policy of unscrupulous speculation carried out in the New >lYork and London markets and involving numerous transactions in which the Company's identity is carefully concealed. 4I9. We have already agreed that a large shipper could hardly in the circumstances escape a more or less speCUlative policy even if he wished, and that the spreading of sales by merchant firms and in particular the carrying of stocks, tend to benefit producers. The question, however, is whether these benefits are counteracted by market manipulation. 420. There would at any rate be no injury to the interests of producers if a firm, finding itself with a stock of cocoa to liquidate towards the end of the season and afterwards, were able by some means to get the market up; and we regard this possibility as of little importance from the producers point of view. The question of forward sales made in advance of the crop season requires closer considerati.on. 42I. The critics have suggested that such sales merely prove ' a desire on the part of the United Africa Company" to hammer the market" and to make sure that prices are low before the African producers can begin marketing their cocoa. It is some- times even implied that forward sales are necessarily in some way discreditable and can only be prompted by a desire to manipulate prices. During the first half of the crop season, and until sufficient cocoa has been bought to fulfil the Com- pany's forward commitments, prices are, so it is argued, easily kept at a low level by judicious offerings of the ba1ance of its current purchases and thus, by about the middle of the crop season, the Company can start to build up a long position on a very favourable basis. It goes without saying that those who hold these opinions also credit the United Africa Company with the ability, when it has acquired a large holding of cocoa at a price level largely determined by its own previous operations, to raise prices-partly by withholding supplies and partly by fictitious transactions in the world markets-and so to sell out before it needs to start preparing the way for its purchases of the following season. 422. Forward selling in advance of the crop season is in our opinion to be regarded as a normal part of the business of merchanting. We consider that selling in anticipation of the crop is not in principle open to criticism. A merchant whose business involved buying an unwieldy proportion of the crop might reasonably regard it as absolutely indispensable. The first effect of selling of this nature must, like that of any other selling, be a tendency to depress. On the other hand, the sub- sequent covering purchases of actual cocoa, provided always that they are made in a fully competitive market, must equally 134 have a strengthening effect on prices and may even raise local prices above parity with the world markets . 423. None the less, whatever may be the precise reasons which lead to forward selling in anticipation of purchases during the crop season, the fact remains that a merchant is in business . for the purpose of buying as much below his selling price as he can; and a merchant who has sold short to a substantial extent must desire lower prices, and has a strong incentive to promote them, if circumstances give him an opportunity of doing so. This is still true even though a merchant's interests as a cocoa buyer m.ay be greatly exceeded by his interests as an importer of goods. 424. We have mentioned the important argument of the merchant firms that they can have no interest in depressing the • price of cocoa, since as sellers of merchandise their desire is that Africans should have the largest possible purchasing power. As a general statement this is obviously true. We do not, however, consider that sufficient motive is thus provided for importing merchants to forego direct profits on cocoa tran- sactions, nor would they themselves claim that this is the case. If, for example, tlle alternative lay between paying £20 and £21 for cocoa, the merchant firms would clearly not choose the higher price for the sake of creating an additional £1 of pur- chasing power; for at best only a part of this sum could be returned to them in the shape of profits on merchandise. 425. The possible effects of the operation of the Agreements upon the marketing policy of shippers may be very briefly considered. The use of buying limits arrived at in accordance with the Agreements by deducting the expenses of marketing and also a profit from the world price would help to facilitate the prompt sale or hedging of purchases without a loss being incurred and would therefore h ave some effect in reducing the need to incur speculative risks. The Agreements might possibly lead to the firms selling more heavily against their current purchases and to the general adoption of a more conservative policy. The pressure of the crop upon the consuming markets would thus become more concentrated and this would , in our opinion, tend to depress the general level of prices during the season. If this were so, it would also have the effect of relieving the firms to some extent of what has been described ,as their out- standing service to producers and to the trade as a whole, namely, the carrying ,of the crop and its gradual distribution in accordance with demand. A general development along these lines cannot, however, be confidently predicted. The latger shippers in particular might equally well regard the Agreements as facilitating a continuance, though with some diminution of risk, {)f the general marketing policy which has governed their operations over a period of years. 135 CHAPTER XIII. PRICE-FIXING UNDER THE AGREEMENTS. 426 . In considering the cases for and ag~inst ~he Agreements in Chapters X and XI we reserved our dlscusslOn of the faIr- ness of the price-fixing arrangements. Having described the conditions of the cocoa markets in New York and London and the policy of West African merchant shippers, we are now in a position to reach certain conclusions regarding them. We do so under three heads . (a) Could the current world market prices on which the buying limits were based under the Agreements be manipulated by members? 427. The Agreement firms have expressly disclaimed any intention of entering into an agreement as to seiling. In thIS discussion, therefore, we have not taken into account the position which might be created either by the introduction of a selling agreement or by an informal understanding among parties to the Buying Agreements to the effect that they would consult each other in regard to their selling policy. 428. Whether prices could be artificially raised by the Agree- ment firms is, for the purpose of our enquiry, less important than the question whether they could be artificially depressed. If it were possible for prices to be artificially depressed by a buying firm either in anticipation of the season or even for periods of a day or two during the season, the equity of a buying agreement based on the payment of current world prices. would be open to serious challenge. 429. We are convinced on general grounds, and our opinion is, supported by the weight of evidence, that the Buying Agree- ments did not confer upon members any power as individual firms to exert an influence over world prices which they had noit previously possessed. 430. Market witnesses appeared on the whole to take the view that not even the largest fum has such control over the market as to be able regularly and systematically to manipulate the world price to its own advantage; the risks involved in attempt- ing to ex:rcise a con.trol of this kind were thought in any case to be suffiClently formidable to act as a deterrent. The opposite view was, however, put to us with great emphasis and with evident sincerity by highly qualified witnesses; both British and American. 431. We have examined a record, covering the three crop v' years 1934-5 to 1936-7, of the United Africa Company's hol.d- mgs of unsold stocks of cocoa, in conjunction with a graph of 136 the prices ruling during that period; and it is clear beyond a poubt that the general trend of prices in the world markets was not controlled by the Company. A control which cannot be exercised by the United Africa Company is certainly beyond the scope of any other member of the Buying Agreements . 432. As the buying limit authorized by the London General Committee is liable to be changed daily, or even more fre- quently, in accordance with price movements in the world mar- kets, the question arises whether a member of the Buying Agreements, although unable to exert any lasting control over quotations in those markets, may none the less be able to depress prices for a brief period and so to affect the basis of the buying limit on a particular day or days. 433. So far as the London market is concerned we have found among qualified witnesses a general conviction that on many occasions a wealthy firm could depress the value of cocoa with- out incurring a disproportionate or unreasonable risk. The general opinion that the home market is often very sensitive to selling pressure is confirmed by a statement in the written evidence of the United Africa Company as follows: " It must be borne in mind that on possibly the majority of days during the year the home market price is ' nominal " in the sense that the market in cocoa is a comparatively narrow one, and that except in times of substantial activity a sale of several hundred tons can have a marked effect on the market". On a vulnerable market of this kind there is no doubt that prices could be tem- porarily depressed by a powerful firm which was prepared to run a moderate risk. While the London market normally reflects the tone of the larger market in New York, this does not preclude transactions done in London from having an effect upon the course of prices in New York. 434. We found a very wide range of opinion among wit- nesses with special knowledge of the New York market as to the extent to which prices in that market could be deliberately influenced by West African shippers. A considerable divergence of views was no doubt to be expected. In every market surmise and rumour play so large a part that on many points confident and unqualified information is forthcoming only from the less reliable witnesses. We place most reliail'ce in those witnesses who, when questioned on the subject of possible price manipu- lation, preferred to give their evidence in the form of belief and impressioFl and to .,a void definite assertion.. As all responsible observers would agree, market operations which are really quite justifia,ble may easily be misjudged, even by the disinterested, and attributed to,,~an ulteriQr motive. 435. On the one hand, we have been assured by witnesses of standing that West African shippers are in a position to depress I 37 prices almost at will and that their activity on the terminal ,;narkets of New York and London usually regulates the price of Accra cocoa in New York. On the other hand , equally experienced witnesses were of the opinion that the market in New York is altogether too wide, and the factors which deter- mine the price level far too complex, for deliberate manipula- tion to be within the scope even of the wealthiest organization operating in cocoa. We believe that both these views require careful qualification. More convincing and perhaps more generally held than either of these is the view that, while the market is in normal circumstances too wide, and the influences upon it too complex, for anyone firm to acquire a continuous Jontrol over prices, there are none the less times when it is vulnerable and open to attack, and that in the absence of a good consuming or speculative demand there would be nothing to prevent shippers from forcing prices down by means of heavy sales . 436. Except only in times when external conditions loom so large in the minds of traders and speculators as to prevent much attention being paid to the particular facts of the cocoa situation considered apart from the general economic context , the selling policy adopted by a concern responsible for handling about half of the Gold Coast and Nigerian crops must, whether it desires it or not, be an important factor in the current prices of Accra and Lagos cocoa. Such a concern might be quite unable to reverse the tendency of a strong market when higher prices were being confidently predicted. This has no bearing on the question whether it could depress prices on occasions when the market was dull and hesitant and when values were scarcely being maintained at their level; if on a market of this character a big operator decides to sell substantially, his action must equally result in lowering prices whether he acts through fear of a decline or in order to make sure of a decline occurring. Market conditions vary so enormously from time to time that we believe it would be equally wide of the truth to assert , with some of our witnesses, that a large shipper could regularly depress prices at will, as to deny with others that he ever could do so. (b) Do the Agreements make proper prOV!Slon for the determination of current world prices? 437· The preambles to the Agreements state that " it is the intention of the members tha t the price to be paid to the African for his cocoa shall be based on the fullDcurrent rfiarket value .,.from which only actual out-of-pocket expenses and a reasonabl~ allowance to cover overhead charges and a reasonable profit shall be deducted." The body of the Agreements indicat~ that the " limits" are to be "authorised " by the London General 138 Committee from time to time and that " limits cabled from London come into force on the day following despatch of the cables." But the method to be used in determining the current full market value of cocoa is not described in the Buying Agree- ments nor in the explanatory letters of instructions. 438. As a result of our enquiries we have learned that the General Committee delegated the duty of determining the limits cabled from London to Mr. J. W. Knight of the United Africa Company and to Mr. John Cadbury of Messrs. Cadbury Brothers. These gentlemen, however, appointed to act as their deputies Mr. E . C. Tansley and Mr. Norman Edwards , senior members of the staffs of the United Africa Company and Messrs. Cadbury respectively. In practice most of the day-to- day work devolved upon Mr. Tansley, who is continuously in close touch with price movements in the world markets. He explained to us carefully in evidence the principle upon which he worked. Messrs. Tansley and Edwards were throughout instructed to take as the basis of their cable limits the highest price at which Accra and Lagos cocoa could be sold in any of the markets for actual cocoa Or in the terminal markets of New York and London . Unless terminal quotations were at a premium, the limit cabled was based on the price ruling for near shipments from the Coast. Thus, during June the price used would be the buyers ' price of June-July or of July-August shipment. 439. The cabled limit was intended as a fair statement of the full value on the Coast of Accra cocoa and consequently no account was taken of any slight premium which might happen to be obtainable for a small quantity on special conditions. With a view to furthering stability of price and avoiding the inconvenience of too frequent variations, which local condi- tions render especially undesirable, Mr. Tansley did not in his co-operation has been to build slowly on firm foundations. This is in accordance with the best authorities on the subject. The time seems ripe to intensify and extend the work of develop- ment, which has hitherto been limited by the small staff avail- able to the. Department of Co-operation. Current annual ex- penditure on co-operation is estimated a t '£4,800. Of this a large part represents the salaries of senior staff, whose chief duties should be to exercise a general supervision, partly by tours of inspection, and to frame policy. If the junior staff were considerably enlarged, especially by the recruitment and training of Africans, an increase in the effectiveness of the Department would be secured at a proportionately much smaller increase in cost. 549. We recommend that Government should adopt a policy of developing the . educational and propaganda work for co- operation on a more ambitious scale than hithertoj that for "this purpose, and also to provide for the supervision of new Co-operative Societies as they are formed, the funds available to the Department should be considerably increased; and that arrangements should be made for the recruitment and training of a much larger staff. In general, we advise that Government should wholeheartedly adopt the co-operative system as the desirable method of marketing Nigerian cocoa, and should put the whole weight of its influence behind it. 550. In considering the present incentives for producers to join the Societies it must be recognized that a premium for co-operative cocoa is no longer easily obtained. Under the Agreement, indeed, the payment of a premium over Grade I was expressly excluded. There has been a general improve- ment in the p'repara~on of cocoa in Nigeria in recent years, a~d Co-operative SOClehes cam:lOt co~nt on receiving high pre- ffilums over other cocoa. It IS pOSSIble that 111 the past this hope has been too much encouraged; the Department is on safer ground in .its present policy of emphasizing chiefly the more general advantages of co-operation. 551. The main incentives to the producer must be that he will receive the full local value of his cocoa after the costs of a n efficient and economical marketing system have been met; 172 and that he can exchange his present position of subordination to relatively well-organized middlemen for membership of an organization which exists solely for his benefit and in the con- trol of which he has a voice. To facilitate the more rapid de- velopment of Co-operative Societies, however, we recommend that Government should consider assisting Societies to provide themselves with stores and other necessary equipment. Loans on favourable terms might be provided for this purpose, and perhaps even grants made on condition that Societies them- selves raised a given percentage of the funds required. An offer on either of these lines would probably be attractive to farmers and should both help , the formation of Societies and enable them to operate efficiently from the outset. 552. Regarding the method of development, we consider that the present policy of the Department should in general be con- tinued . The Registrar of Co-operative Societies, in a memo- randum expressing his personal views, visualizes:-" A series of 15 to 20 Co-operative Marketing Unions (each serving some 20 to 40 primary societies) each making independent, regular and automatic sales of cocoa 3 or 4 days a week". One such Union, the Ibadan Co-operative Cocoa Union, alI'eady exists and operates efficiently. 553. It seems desirable that for some time to come, at least until co-operative producers are in a more advanced state of education, sales should be made at frequent and regular inter- vals both by Societies on behalf of their members and by Unions on behalf of their affiliated Societies. There is a danger, in the absence of a fixed policy of regular selling, that rela- tively inexperienced committees may take unduly speculative views of the market to the detriment of their members' interests. The position of Co-operative Societies is very different from that of the organization advocated for the Gold Coast, the business of which would be managed by an efficient permanent staff. 554. We envisage that the bulk of co, operative sales would normally continue to be made to firms and buyers established in Nigeria. Nevertheless it is important to provide a channel, for use at need , through which exports fO-I, sale could be made through Co-operative Societies. Nigerian producers, like those in the Gold Coast, attach much importance to having direct access to world markets; and the existing Societies and Unions seem likely, as they gain experience, to il)sist more and l!l0re on powers to export. Export sales would do much,. ~e belIeve, to educate producers with regard to market condItions; they would provide an additional inducement to join the Societies. 555. With these considerations in mind, and recognizing how much supervision would be needed if export sales are to be made by individual Societies or even by Unions, we recommend the formation of a Cocoa Export Agency. Membership of the I73 Agency should be confined to Co-operative Societies and Unions. Any exports which they might decide to make would have to be made through the Agency and would thus be conveniently canalized for supervision. The work of the Agency might be carried out by a small Committee consisting of an officer of the Department of Co-operati<;m as Chairman, one or more representatives of the Societies and an independent me.mber of business experience. That the Agency would not Itself. be strictly co-operative in form we do not r.egard .as a senous objection, in view of the advantages attachmg to It. 556. Societies or Unions should be required to prove the general support of their members before being permitted to export. Bank advances could certainly be obtained without difficulty on cocoa exported under an officially sponsored body. Sales should be made through brokers in London or other markets. 557 . As regards the firms' attitude, we can see no reason why they should not give positive support to the transformation of the present marketing system to one in which Co-operative Societies would undertake all the functions at present performed by middlemen. In our recommendations for the Gold Coast we have enumerated the advantages that would accrue to the firms from a change essentially similar, so far as they are con- cerned. In Nigeria likewise the abuses of which the firms have complained should be removed. There is no doubt that many if not most of the firms' local agents would welcome a general extension of co-operative cocoa marketing. In these circum- stances we trust that the firms will give full support to the policy of accelerating the development of co-operation which we advocate. 558. Strenuous opposition is naturally to be expected from the middlemen , who will see in this policy a threat to their cocoa business'.1 J 'They are well organized, and many of them, we are informed, have close ties of relationship with Chiefs and influential members of the Councils who for this reason, and even because of per!3onal interests in the cocoa business, are inclined to give them political as well as personal support. We take the view that the interests of the producer should predomi- nate. We have no prejUdice against middlemen as such. They perform a useful and necessary function under the present system; but if considerations much wider in their scope, em- bracing both the welfare of the great number of producers and orderly buying by the exporter, make it desirable that the system should be superseded, progress should not be arrested in order to preserve the interests of a particular group whose present influence is disproportionate to its numbers. The mar- k~ting <;>f go,ooo ton~ ?f cocoa under co-operation will still pro- VIde Wlde OpportunIties of employment, although it will be 174 different in character. It is also an advantage of the entirely voluntary nature of co-operation that the change would not be so rapid as to prevent personal adjustments. The effects on employment would also be reduced by the fact that in Nigeria cocoa is not the only, or even the most important . commodity with which the middlemen are concerned. 559. As regards agricultural credit, we recommend that the Department of Agriculture should examine the possibilities of developing thrift and credit societies independently of market- ing societies on the general lines suggested for the Gold Coast (paragrapt1 545) . Agricultural credit is no less needed in Nigeria and is much less developed, partly because the country is poorer. We are aware that the Savings Banks, which pay interest at zi per cent. and are widely developed, provide a. counter-attraction to depositors; but they do nothing to meet the problem of credit. Local thrift and credit societies, operated on sound lines, should be able to pay at least an equal rate on deposits; since in addition they would provide the farmer who has reasonably good security with a source of credit alter- native to that of the money-lender, and at much lower interest rates, they appear to us to be the best means of encouraging- a more businessc.like mentality among producers. C.- MISCELLANEOUS RECOMMENDATIONS . (i) Agricultural Policy. 560 . We mentioned in Chapter III certain general problems of agriculture and land tenure, some of them only partially explored, to which the development of the cocoa industry has given rise in the Gold Coast. We recommend that a careful watch should be maintained on the rate of expansion of cocoa- farming and the location of farms, with a view to appropl"iate action when and whel'e its necessity is indicated; and that dis- trict land surveys, in some form sufficient f'Or this purpose. should ' be immediately instituted. We took note of the fact that, except in the case of the forest reserves, no demarcated boundaries of any kind exist. (ii) The Indebtedness of Farmers. 56!. We have frequently referred in our Report to the pre- judicial effects of various forms of mortgages, and also of short term indebtedness, on the economic position of cocoa farmers . and even on their method of marketing. The whole problem of indebtedness is complex , and appears to call for special investigation. Having been impressed by its bearing oq the problems of marketing reform, we have suggested the develop- ment of thrift and credit societies in both countries as a main line of attack. We recommend, in addition, that any agricul- mral instruction which may in future be given to the cocoa. 175 farmers by Government officers should be allied with economic instruction of an elementary kind. This should help farmers to form a clearer idea of costs of production and to appreciate the effects of the employment of labour and of borrowing at high rates of interest upon their ability to make cocoa-farming pay. (iii) Weights and Measures. 562. Farmers in both the Gold Coast and Nigeria evidently suffer considerable loss through the use of false weights and measures by middlemen. Under the reformed marketing systems which we have advocated, producers delivering to local collecting depots would have an assurance of fair dealing; but assuming that our policy is accepted, considerable num- bers of middlemen would continue to operate for some time. We recommend that a fuller inspection service be provided. in. both countries. In the Gold Coast we recommend that the post of Inspector of Weights and Measures should be revived and supported with adequate staff. In Nigeria we recommend that the possibility should be considered of enforcing the use of some cheap standard form of measure, when cocoa is not bought by weight; this might for example be the standard kerosene tin. (iv) licensing of Buyers and of Buying Stations. 563. We recommend that careful consideration be given both · in the Gold Coast and in Nigeria to the desirability (so far as marketing continues in its present form) of a licensing system applicable both to middlemen and to buying stations; and of attaching suitable conditions to the licences with a view to limit- ing undesirable trade practices, and any undue expansion of the numbers of middlemen and of the firms' buying stations. (See paragraphs 493-4.) (v) Unofficial Inspection of Cocoa in Nigeria. 564. We have described in paragraph 261 the system of un- official inspection of cocoa in Nigeria by employees of the pro- duce buyers' Unions. We consider that this system is undesir- able in principle, and encourages forms of petty extortion. We therdore recommend that it should be ended, and that the possibility of replacing it with a system operated by Native Authorities under the general supervision of the official Produce I Inspectorate should be considered. (vi) labour. 565. We have referred in paragraphs 60 and 237 and in Appendix F to the importance of hired labour in the cocoa in- dustries of the Gold Coast and Nigeria. We consider that it is necessary to afford protection to agricultural labourers em- ployed by Africans, at least as much as to labour employed in European undertakings. We believe that the recently created post of Chief Inspector of Labour in the Gold Coast provides 176 the means of dealing with this problem, and we recommend that this officer be instructed to give special consideration to it. We recommend that in Nigeria also the position of agricultural labour should be ex amined. (vii) Price Information. 566. We have mentioned in paragraph 372, as an advantage conferred. by the Buying Agreement in Nigeria, the greater pUblicity given to the prices offered by the firms. We recom- mend that both Governments should examine the possibilities of pr ovid ing regular official information on cocoa prices . We think that ' it would be valuable to contmue as a permanent a rrangement the system followed during the truce in the Gold Coast whereby market prices obtained through official sources in London were communicated daily to the Gold Coast Govern- ment, and to extend it to Nigeria. We consider that it would also be valuab le in the general interests of the trade if a daily statement of prices offered on the Coast continued to be pub- lished; this would require the co-operation of the firms. 567. We recommend that Governments should take steps to ensure the fullest publicity for reliable information regarding local and world market prices. Apart from the Press, broad- casting provides a valuable medium for disseminating market news, as the Gold Coast has already shown. In addition, it might be possible to post price bulletins at agricultural stations, post offices, and other Government establishments. It is very desirable, however, that any market infOlmation should be entirely objective. The bulletins should not indicate any view of future prospects of the market, and above all it should be made clear that there was no official support or disapproval of the prices qU9ted. 1 (viii) Crop Forecasts. 568. We consider that it is important that adequate provision , should be made for crop-forecasting. At present no attempt is made to forecast the cocoa crop of Nigeria, although it now ranks third among the producing countries. We recommend that unless there are insuperable difficulties this deficiency should be remedied. 569. In the Gold Coast, crop forecasts have been made for a number of years . We understand that in general they are accepted as having been useful and, in most years, reasonably accurate . .officials of the Department of Agriculture suggested that the present methods of crop forecasting are liable to serious error only when an exceptionally large number of trees e!lter into full bearing; this apparently occurred in 1936, when an underestimate of the Gold Coast crop was a factor contributing to a violent fluctuation in world prices. It was stated also that the preparation of statistics had been handicapped in the past 177 by the lack of adequate co-operation on the part of the firms. We understand that a committee, on which the firms are repre- sented, has now been set up to consider means of improving crop estimates. We recommend that this committee should carefully examine the possibilities of obtaining further infor- mation on new planting and on the extent to which new trees are likely to come into bearing; in this the co-operation of local Chiefs would be very useful. We also recommend that means be found of making full information on stocks in store avail- able on request to statistical officers. If, on investigation, it is considered that the funds available for the preparation of crop estimates are insufficient, we recommend that, in view of the importance of this matter, an increase be granted. . (ix) Statistics of Consumption. 570. We referred in paragraph 408 to the inadequacy of the available statistics of cocoa consumption. Consumption in the United States of America, where estimates are at present based on visible stocks; in the Netherlands where they are based on imports; and in the United Kingdom, where, as in Germany and France" removals from bond are taken as providing a fairly reliable criterion, amounts altogether to about 78 per cent. of world consumption. The assembly and periodic pUblication of satisfactory statistics would require the co-operation of the manufacturing industries in the chief consuming countries, and we understand that there is little prospect of this being achieved without positive steps being taken by the Governments con- cerned. We recommend that His Majesty's Government in the United Kingdom should initiate discussions to ascertain whether the Governments of the United States of America and the Netherlands would be willing to arrange for the monthly or quarterly publication of official statistics of the actual consump- tion of cocoa beans in their respective countries. In order to ensure the co-operation of manufacturers, the procedure followed under the International Rubber Regulation Scheme might be adopted, namely, the appointment in each country of a firm of chartered accountants to collect and total, under bond of secrecy, the returns of individual manufacturers. 571. Proposals have been made from time to time for an international Scheme to regulate the output of cocoa . As several witnesses have raised this question in evidence, we desire to record that we have not regarded it as falling within our terms of reference. 572 .. w.e cannot conclude .our ~eport without recording our apprecIation of the manner m whIch our work was facilitated by the Government of the Gold Coast, and our sincere thanks for the hospitality we received. To the Governor, Sir Arnold 178 Hodson, who made Christiansborg Castle our headquarters dur- ing our stay in the Colony, to the Chief Commissioner of Ashanti, Major H. C. Stevenson, who welcomed us at Kumasi, and to the many Government officers who did so much to make our tour useful and enjoyable, we are most grateful. Our thanks are also due to the Chiefs, especially the Asantehene, and to the peoples of the Gold Coast and Ashanti for the very cordial way in which we were received. Mr. T. R. O. Mangin and Mr. H. Nicholas, who were appointed to act as the Com- mission's liaison officers in the Gold Coast, were of tlle greatest assistance and , through their wide knowledge and experience, enabled US to acquire an insight into local conditions which would not otherwise have been possible. 573'. During our brief visit to Nigeria we met everywhere with the same ready co-operation and with a like hospitality . We ,vish to thank the Governor, Sir Bernard Bourdillon, who entertained us at Government House, and his officers, especially those of the Agricultural Department, for their great personal kindness to us and for the admirable arrangements which were made. The services of our liaison officer, Mr. R. L. V. Wilkes, with his intimate knowledge of the Yoruba people, were in- valuable. We regret that we were unable, owing to the short- ness of our stay, to make closer acquaintance with the Chiefs and peoples of Nigeria; but we were shown great hospitality by the Oni of He. 574. We feel under a debt of gratitude to the buying firms and to their representatives on the Coast for arranging the attendance of a large number 'of witnesses so as to suit our convenience and especially for their readiness in supplying the statistical and other information we required. 575. We would also thank Mr. W. J. Muston, the Clerical Officer attached to us, who was responsible for much detailed work; the clerical staff placed at our disposal in the Gold Coast, Nigeria and London; and the interpreters, especially Mr. Boatin in the Gold Coast and Mr. Ajayi, of the Nigerian Depariment of Agriculture , who accompanied us on the journeys from our headquarters. 576. Finally, it is a pleasure to express our appreciation of the work done by our Secretary, Mr. Eugene Melville, who carried out his varied and exacting duties with conspicuous ability and energy. (Signed) WM. NOWELL (Chairman). RUPERT S. THOMPSO~ . C. A. L. IRVING. EUGENE MELVILLE. (Secretary) . 5th of September, 1938. 179 APPENDIX A. (Paragraphs II, I2 and I4 of Report) ALPHABETICAL LIST OF PERSONS AND BODIES WHO GAVE FORMAL EVIDENCE BEFORE THE COMMISSION.* (a) Gold Coast. Nam e. Place of eviden ce. Date. Aboagye, Sampson Swedru 19th April Abobio, Mante .. . Koforidua 12th April Aberbeseh Kumasi 2nd April Abora, ]. D . Koforidua 12th April Acquah, Ayirebi (Omanhene of Effutu) Swedru 19th April Adjei, E . B. Koforidua 12th April Adjei, F. Koforidua 12th April Afari, ]. W. Kofor idua . 12th April Afari, Minta Kumasi 23rd April Afriyea, Owusu '" Kumasi 23rd April Agonahene, The ... Kumasi 1st April Akropong Akorase Co-operative and Market- Accra 28th ;March ing Society. Amankrah, John K. Accra 30th March Amankwa, K weku Kumasi Ist April Ampiaw, ]. K. Swedru 19th April Amprachim, Kojo Kumasi 2;lrd April Atsridom, S. W. IV. (Head Chief, Kpedj e- Accra l oth April Awlime). Auafi, Akwase Swedru 19th April Apenteng, Bekoe Koforidua 12th April Apponsah, J. L. .. . Swedru 19th April Ashanti Cocoa Farmers' Union Kumasi 2nd April Atta, Nana Sir Ofori Accra 29th March (Omanhene of Akim Abuakwa). IIth April Audulai Koforidua 12th April Ayew, ]. K. Accra 29th March Baiden , J . B . A. Swedru 19th April Baiden , J. E. Accra lIth April Bartholomew, W. & Company, Limited (Mr. A. Clark) Accra 7th April (Mr. A. J. Gupwell) Koforidua 13th April Boadi, Yaw Koforidua 12th April Boateng, Santahene Kwaku Koforidua 12th April Bolton, Kobina ... Swedru 19th April Botchey, Ben Accra IIth April Brobey, S. A. Kumasi 1st April Bruc~, W. Swedru 19th April • The list excludes persons and bodies who submitted written memoranda to the Commission but did not give oral evidence . Memoranda were submitted as follows: Gold Coast, 3I; Nigeria, I; London, II; and America, 5. 180 Place of Name. evidence. Date. Buamanhene Kumasi 23rd April Buoh, K weku . .. . . . Kumasi 2nd April Busi & Stephens on, Limited- (Mr. F . N ewton) .. Kumasi 22nd April (Mr. C. Goodfellow ) . .. . .. Accra 8th April Cadbury Brothers, Limited (and J. S. Fry & Various Various Sons, L imited) (I7 witnesses). Chamba , Yesufu .. Koforidua 12th April Chilley, L. C. (Bank of British West Africa, Accra 14th April Limited) . . Compa nie Francaise de L 'Afrique Occidentale (Mr. E. Debort) Accra 6th April (Mr. G. Benoit-Barne) Accra 8th April (Mr. E. Galinier) Accra 9th April Co-operative Societies of Gold Coast, Ashanti Accra 26th April and Togoland, Joint Delegation of. Dadzie Swedru 19th April Department of Agriculture, Officers of Various Various Donkor, Kweku Swedru 19th April Ellis, R. E. Kumasi 23rd April English and Scottish J oint Co-operative Wholesale Society, Limited- . (Mr. Emery ) ... Accra 14th April (Mr. V. Harrod) Kumasi 23rd April Etison, J. E. Swedru 19th April Ewua, E. Swedru 19th April Fieldgate, A . F . E. (Provincial Commission, Winneba 2Ist April Cent ral Province) . Gaisey, G. S. Swedru 19th April George, S . A. Accra nth April Ghartey, J. B. Swedru 19th April Gyechi, Koii Kumasi 23rd April Hage, F. J. .. . Swedru 19th April Harlaro.d, J. A. (Barclays Bank (D.C. and 0.), Accra qth April Limited). . Holt, John & Co. (Liverpool), Limited- (4 Witnesses). { 6th April Accra 8th April 9th April Koforidua 12th April Jones, E. N. 16th May Koi, J.M. Swedru 19th April Kojo Winneba 20th April Korsah, K. D. ... Accra 30th March Kotokoli, Haroum Koforidua 12th April Krampa, Joshua Swedru 19th April Kwabena, Osei .. . Kumasi 2nd April Kwabi, J. Mensah Accra 30th March Kwamin, Fori II Swedru 19th April Kwao, Kwabena Koforidua 12th.April Kwateng, Kwesi Kumasi Ist April Lilley, Captain, C. C., M .C. Accra 24th April London, G. E., C.M.G. (Colonial Secretary) ... Accra 25th April r81 P lace of Name. evidence. Date. L yons, J. & Company, Limited Accra 7th and (Mr. F. A. B . Johnston) Accra 8th April (Mr. H . E. Edmunds) Accra 9th April (Mr. H. Abraham) Kumasi 22nd April (Mr. R. W. Higginson) Kumasi 22nd April Matthias Kofiridua 12th April McGranahan, -. Kumasi 22nd April Morrison, K . A. Swedru 19th April Moshi, Abdulla and others (Delegation of Koforidua 12th April labourers) . Nassar, Solomon Kumasi 23rd April Nifahene, Nana Adu-Ameyaw . . . Koforidua 12th April Odufo, Emanuel Accra 30th March Ollivant, G. B . & Company, Limited Various Vari9us (7 witnesses). Osei, F. Koforidua 12th April Osimpo " . Swedru 19th April Oteng, C. S. Accra lIth April Oteng, R. K. Kumasi 1st April Otoo, Kobina Swedru 19th April Overbeck, G. F . (Mr. O. E. Durlach) Acc;a 26th April Paterson, Zochonis & Company, Limited- (2 Witnesses) . 7th and Accra 8th April { lIth April Police Department, Officers of Accra 22nd April P rempeh II, Nana Sir Agyeman (Asantehene) Kumasi 2nd April Rennie, G. M . (Financial Secretary) Accra 25th April Safo, Kwame , Koforidua 12th April Sarkodee-Adoo, J . Accra IIth April Swiss African Trading Company- (Mr. W. Huiterman) ". Kumasi 22nd April Seidu, Malan Koforidua 12th April Siska Kumasi 1st April Stevenson, Major H . C., C.M.G., O.B.E., M.C. (Chief Commissioner, Ashanti) Kumasi 23rd April Societe Commerciale · L'Ouest Africain Various Various (6 witnesses). Tarku, Adam Swedru 19th April Tawia, Kofi Swedru 19th April Teng, Kobina Kumasi 1st April Thomas, H .• W. (Secretary for Native Affairs) Accra 25th April Tutu . Sam Swedru 19th April United Africa Company, Lirnited- (31 Witnesses). Various Various Union Trading Company 7th April (Mr. R. Knittel) Accra 8th April (Mr. Spoerri) . . Kumasi 22ndAprii Whit~eld, T . (Elder D empster Lines, Limited) Accra 14th April I8z (b) Nigeria.** Name. Place of evidence. Date. Abeokuta Farmers' Association Ibadan 3rd May Agege Planters' Union Lagos 29th April Agege 30th April Cocoa Manufacturers Limited- (4 W itnesses) Lagos 30th April Ibada n 4th May Companie Francaise de l'Afrique Occidentale- (Mr. J. Pastor) Lagos 30th April (Mr. L. Paret) Ibadan 4th IVlay (Mr. O. Coquet) ... Ibadan 4th May Department of Agriculture, Officers of Ibadan 2nd and 3rd May Ellis, F. J. D. (Barclays Bank (D.C. & 0.), Limited) ... ... . .. . .... . Ibadan 6th May English & Scottish Joint Co-operative Whole- sale Society, Limited- (Mr. Slater) Ibadan 6th May Ephraim, G. B . Lagos 29th April Gaiser, G. L. (Mr. R. Hertzel) ... Ibadan 4th May Gbenro, A. Lagos 29th April George, - Lagos 29th April Holt, John & Company (Liverpool), Limited (4 Witnesses) Lagos 30th April Ibadan { 3rd May 4th May Ibadan Co-operative Cocoa Marketing Union Ibadan 3rd May Ibadan Native Traders ' Union Ibadan 3rd May Ijebu Farmers' Association and Produ'ce Ibadan 3rd May Traders ' U nion. Jeremiah Lagos 29th April Jibogwu Lagos 29th April Layinake Lagos 29th April Nabham, F . J. Lagos 29th April Nabham, J. I badan 6th May Nigerian Producer Traders' Union Lagos 29th April Ibadan 3rd May Nigerian Y outh Movement Lagos 29th April Odesilo Lagos 29th April Odulare Lagos 29th April Oge, J. Lagos 29th April Ogunluyi Lagos 29th April Oke, S. L. Lagos 29th April Ollivant, G. B., Limited- (Mr. W. Sheldon) Lagos 30th April (Mr. J. V . D. Bray) Ibadan 4th May Ondo Farmers' Union Ibadan 3rd May ani of He He 5th May ** In Nigeria a considerable amount of African evidence was given by delegatories comprising, e.g., members of Co-operative Societies, scalermen, labourers, etc. These are not included in this list . Place of Name. evidence. Date. ----------------------------'-------------~I--------- Paterson, Zochonis & Compamy, Lirnited- (3 Witnesses) Lagos 30th April Ibadan 4th May Societe Commerciale de l'Ouest Africa,in- (Mr. R. Baron) Lagos 30th April (Mr. H. Flury) Ibadan 4th May Somefun Lagos 30th April Suberu Lagos 29th April Thomas, P. J. C. L agos 29th April Union Trading Company- (Mr. B. Schwarzenbach) , Lagos 30th April United Africa Company, Limited (7 witnesses) Various Various Witt & Busch (Mr. A. Ohle) Lagos 30th April Zard, C. (Mr. N. Abizakhem) ... Lagos 30th .i\pril (c) London. Name. Date. Agreement (merchant) firms, Delegation of ... 20th June Agreement (manufacturing) firms, Delegation of 21st June Bevis, F. C. 28th June Bonitto, J. S . 2nd June Buxton, D. A. J. Ioth June Cadbury, J. 22nd June Clauson, G. L. M., C.M.G., O.B.E. 2nd J une Colonial Office, Delegation of 27th June Cope, A. E. Ioth June Coyne, S. Y. (New -York) 27th May English and Scottish Joint Co-operative Wholesale Society, Limited 27th J une Fehr, Frank A. 3rd June Fischel, A. N . (New York) 26th May l"reeman, \Iv. G. 8th June Gre<:;naway, F. A. 9th June -Grey, Major-General W. H. I3th June Harvey, J. I3th J une Hodson, Sir Arnold W., K.C.M.G. I7th June Holt, John 20th June Knight, J. W . 23rd June Leach, Godfrey 22nd June McFall, J . H. 3rd June Miller, W. J. 26th May Permuy, M. G. 20th May Samuel, Frank 22nd June Spice, W. G. 28th June Steeqman, Crombie I7th June Stockdale, Sir Frank, 'K.C.M.G. , C.B.E. 9th June Tansley, E. C. 23rd June Turner, H. N . 8th June APPENDIX B. (Paragraph IS of R eport) DIARY OF PROCEEDINGS OF COMMISSION February 22nd Private session in London. 25th Private session in London . March 3rd Private session in London. 9th Commission left EngJand aboard M.V. Accra. I 7th Commission visited Sir Thomas Southorn at Bathurst. I 9th Commission visited Mr. D. J. Jardine at Freetown. 23rd Commission reached Accra. 24th , Private session at Government House with Governor and officials. 26th Formal opening session in Legislative Council Chamber, Accra. 28th Private session~fficers of Department of Agriculture. 29th-30th Public sessions-farmers' representatives. JIst Commission proceeded to Kumasi. April lst Formal opening session in Cadbury Hall, Kumasi. Public session-Co-operative Societies' representatives. 2nd Public session-Asantehene and farmers' representatives. 3rd Members of Commission visited various cocoa farms in the Kumasi district. 4th Commission returned to Accra. 6th-7th Pu blic sessions in King George V Memorial Hall- Agreement firms' representatives. . 8th-gth Private sessions-Agreement firms' representatives. loth Private session. rrth Private session-farmers' and brokers' representatives. Commission proceeded to Koforidua. l2th Priv.ate session-farmers' and brokers' and labourers' representatives. Private session-Agreement firms' representatives. Private session-labourers' representatives . Commission returned to Accra. l4th Private session-independent witnesses. l5 th Commission proceeded to Aburi. l6th-l7th Informal discussions with officers of the Department of Agriculture. I 8th Commission proceeded to Winneba. 19th Private session at Swedru-farmers' representatives. 20th Private session at Swedru-Agreement firms' repre- sentatives. 21St Chairman and Secretary returned to Accra. Messrs. Thompson and Irving proceeded to Kumasi. 22nd A cera . Private session-Government officials. Kumasi. Private session-Agreement firms' representa- tives. 23r d Accra. Private sessions. Kumasi. Private session-brokers' representatives. Accra. Private session. Kumasi. Private session with Asantehene. Messrs. Thompson and Irving returned to Accra. Private session-Government officials. Private session-Co-operative Societies' representatives. Private session-representatives of Agreement firms and independent merchant. 185 April 27th Private session-officials of Department of Agriculture. Commission left for Nigeria aboard M.V. Abosso. 28th Commission reached Lagos. Formal opening session in Glover H all, Lagos. 29th Private session-local farmers' and middlemen's Associa- tions and independent merchants. 30th Private session-Agreement firms' representatives. May 1St Commission proceeded to Agege. Private session-farmers', middlemen's and labourers' representatives. Commission returned to Lagos. 2nd Commission proceeded to Ibadan. Formal opening session in Mapo Hall, Ibadan. Private session at Moor Plantation-officers of Depart- ment of Agriculture . 3rd Private session-farmers' and middlemen's represen- tatives. 4th Private session-Agreement firms' representatives. 5th Commission proceeded to He. . Private sessions-farmers' and middlemen's representa - tives, and Oni of He. 6th Commission returned to Ibadan. Private session-representative of Agreement firm and independent witnesses. Commission returned to Lagos. 7th Commission left Lagos aboard M.V. Abosso. 20th Commission arrived at Plymouth. 24th Commission commenced further evidence sessions in London. June 28th Commission concluded evidence. APPENDIX C. (Pa1'agraph 21 et seqq of Rep ort.) T able I. WORLD EXPORTS OF COCOA' (By crop years .) I" ,6-'71 "'7-"1 ",8-,,1 " "-~: 1 '93~'=;;1 '93HJ I' '''-34-1 '934-J5I·~935:J6_1 m6-J7 Countries of Production. t IV!etric Tons . I H ex. G )ld Coast ... 236,500 204,500 240,700 230,200 220,600 20g,gOO 254,500 0' 224,400 \ 245,500 I 2g0,000 304,800 B razil ... ... 77,800 68,400 66,000 73 ,700 66,400 g8,700 101,gOO 87,700 102,600 127,000 108,400 N igeria ... 43,200 42,800 50,100 52,600 49,500 . 56,200 6g, 800 72,200 83,500 92,700 103,300 I 'ory Coast ... g,ooo 13,000 16,700 22,200 19,700 24,800 31,600 35,700 44,300 49,400 51,500 T rinida d ... 21,200 27,300 26,600 24,800 27,900 18,000 23,200 13,200 20,700 12,600 12,goo D ominican R epublic 27,000 16,300 24,400 I g,400 27,500 16,300 Ig, 800 22,600 28,400 18,200 19,900 E cuador ... 20,600 21,300 15,800 17,700 15,000 16,200 10, 2 00 16,800 18 ,800 20,500 19,700 II others ... 86,000 gl,200 96,900 93 ,\100 97,goo g2,000 g4,200 g2,400 gl, 800 g6,500 99,200 Total ... 521 ,300 484,800 - 537,200 534,500 524,500 532,100 605,200 565,000 I 635, 600 706,goo 719,700 • All fi gures from" Gordia n." t The highes t >'ears of prod uction in each cou ntry over the p eriod are in heavy type. ... 't" Table II . '" WORLD CONSUMPTION OF COCOA· (By crop years.) I926- 27· I I9 27- 28. !I928- 29. I I929-30. II 930-3I. II 93I-32. I I93 2-33.! I933-34· I I934-35· I I935-36. I I936-37· Countries of Consumption . t M etrie Tons. I United States I I of America ... 175,000 180,000 185,000 I 190 ,000 190 ,000 185,000 190,000 I 182,200 253,000 254 ,900 307,000 H Germany ... 00 74,000 74,000 80,000 72 ,000 81,000 77,000 77,000 90,000 75,200 7 8 ,200 7 1,400 Great Britain ... 5 8 ,400 5 6 ,500 57,500 5 6,200 59,300 67,800 67,500 74,400 79,900 99,900 99,300 " Netherlands 4 0,000 45 ,000 5 0 ,000 5 1,000 5 2 ,000 45,000 45',000 53,100 5 8 ,800 66,800 54,700 France ... 22,800 33,400 35,800 35,200 4 1,500 4 10400 4 2,900 4 2 ,800 4 1,000 47,300 4 1 ,300 Canada . . . 7,700 9,000 9,300 8,900 8,300 8,400 9,700 II,400 12,900 14,300 17,500 Switzerland 7,000 8,300 9,100 7,400 10,800 5,100 7,600 7 ,400 7,300 7,800 7,200 Italy ... 5,90 0 7,800 7,700 6,800 7,500 6,800 7,600 8,400 12,100 9,200 6,800 Belgium .. . 5,500 6,200 7,800 6,500 11 ,200 9,100 6,200 9,900 8,300 10,200 9,000 Other countries 5 8 ,90 0 61,500 65,900 67,600 1 84,800 7 8 ,000 81,500 79,200 7 ,800 I 72 ,700 67, 600 Total ... 455,200 4 81,700 5 08,100 5 01,600 533,400 5 18,300 5 2I ,IOO 5 64,400 626,500 670 ,100 693,400 ------ -- * Adjusted to give most accurate estimat e possible of" true consumption". All figures from " Gordian." t The highest points of consumption in each country over the periocj are in heavy type. r;l Table III. WORLD STOCKS· I9 2 7· I I9 28. I I9 2 9· I930. I I I9P · I I93 2 . I933· I I934· I93S· I936. I I I937· I I I - M etrie Tons. I Visible stocks in consuming countries .. . ... ... 53,100 70,300 83,700 84,800 67,300 92,700 128, 000 II9,200 110,100 II8,600 166,000 Invisible stocks in consum- H (Xl ing countries (est.) ... 135,000 II5,000 125,000 135,000 135,000 110,000 155,000 100,000 125,000 115,000 100,000 (Xl Invisible stocks in producing countries (est.) .. . ... 50,000 70,000 66,000 55,000 76,000 72,000 45,000 64,000 75,000 60,000 50,000 Stocks afloat ... ... 30,000 20,000 15,000 20,000 20,000 30,000 35,000 25,000 35,000 35,000 45,000 Total ... ... 268,100 275,300 289,700 294,800 298,300 304,700 370,000 308,200 345,100 328,600 361 ,000 Percentage of consumption in previous season 59 57 I 59 59 55 59 71 55 55 49 I 52 I * Estimated by " Gordian" on September 30th of year shown. H '.o".. CO Table lV (a). P RICES OF ACCRA COCOA (Annual averages.) Accra, fair fermented, f.o .b. (Shs. per cwt .) H 00 '" I92I . I922. I923· I 924· I925· I926. I927· I928 . I9 29· I930 . I93I . 40s. od . 38s. od. 30s. ad. 30s. od. 37s. od. 455. od . 64s. od . 5IS. od. 4IS. od . 30s . od . 22S . od. <;) " 190 Table IV (b) . PRICES OF ACCRA AND TRINIDAD COCOA· (i) Accra, good fermented (c.Lf .) London. (Per 50 kilos-nearly a cwt.) Quotations I93I -32 . I932 -33· I933-34· I934-35· I I935-36 . I936-37· I937-38. early in s. d . s. d. s. d. s. d. s. d . s. d. s. d. September. 21 9 29 9 22 9 21 0 21 9 32 3 37 3 October 26 0 27 9 20 9 19 6 22 3 35 0 29 0 November ... 29 3 26 0 19 3 20 6 21 9 38 6 28 9 December ... 26 9 25 9 16 9 20 6 22 3 49 0 26 3 J anuary ... 25 6 24 9 17 3 22 6 22 6 52 0 26 3 February .. 24 6 22 6 22 6 23 0 23 9 48 6 25 3 March .. . 30 0 22 6 23 3 23 6 23 6 50 0 29 6 April ... 27 9 20 9 23 9 22 6 23 6 49 0 26 9 May ... ... 27 3 23 9 23 3 22 6 24 9 39 9 20 6 June ... 27 0 24 0 26 6 22 3 26 3 35 0 17 6 July .. . ... 28 0 25 6 24 3 21 6 28 0 35 3 21 6 August .. . 29 0 25 6 23 0 22 0 28 0 38 0 22 0 Annual average 26 II 24 IOt 21 II 21 9 24 0 41 10 25 IOt (li) Trinidad Plantation, first marks (c . and f. ) (Per 50 kilos-nearly a cwt.) I Quotations I93I -32 . I93 2 -33. I I933-34· I934-35· I935- 36 . I936-37 · I937-38. early in s. d. s. d . s. d. s. d. s. d. s. d. s. d. Sept ember ... 34 0 40 0 30 0 33 0 31 0 50 0 58 6 October .. 37 0 40 0 28 6 31 6 33 0 54 0 49 0 November 40 0 38 0 26 6 32 0 32 6 59 0 43 0 D ecember . .. 41 0 35 0 27 0 33 0 32 0 65 0 37 0 J anuary ... 40 6 I 32 0 33 0 33 6 35 0 72 0 37 0 February ... 41 6 30 6 39 0 34 6 36 0 71 0 37 0 March .. . 41 6 30 0 39 0 34 0 37 0 70 0 39 0 April . .. 39 0 28 6 38 0 31 6 37 6 69 0 36 0 May .. . ... 38 0 29 0 37 0 30 0 42 6 67 0 32 0 J une ... 37 0 30 0 37 0 30 6 46 6 58 0 30 0 July ... ... 37 6 31 0 38 0 29 6 52 0 54 0 31 6 August .. 37 0 31 0 37 6 31 6 58 0 56 0 3 1 6 Annual average 38 8 32 II 34 2t 32 ot 39 5 62 I 38 6 Annual aver- age premium over Accra II 9 8 ot I 12 3t 10 3t 15 5 20 3 12 7! * Figures have been taken from Imperial E conomic Committee's. publication " P lantation Crops." Prices in heavy type are highest and lowest over the period . APPENDIX D ~ .'.". (Paragraph 28 of Report,) o CO SHIPMENTS OF GOLD COAST COCOA BY THE PRINCIPAL FIRMS DURING SEASONS 1933-34 to 1936-37* - I933-34, I934-35, I935-36 , I936-37 , Firm, Tons, Per cent, Tons, Per cent, Tons, Per cent, Tons, Per cent, United Africa Company Limited .. , 86,062 4 1 ' 49 90,044 37'47 105,83 1 37,84 II3,976 38 '61 Cad bury Brothers Limited .. ' .. , 23,736 II '44 37,783 15'72 47, 8r6 17 ' 10 43,740 14'81 G, B, O ll ivant Limited .. , 13-432 6'48 19,317 8'04 29,836 10'67 34,236 II '60 Compagnie Francaise de I'Afrique Occident ale .. ' .. , .. , .. , 14,008 6'75 19,244 8'01 25,035 8'95 23-444 7'94 Union Trading Company Limited .. , 9,763 4'71 II,728 4,88 8,676 3' 10 13,598 4,61 English and Scottish J Oint Co- H operative Wholesale Society Limited 10,095 4 , 87 II, 535 4,80 9,938 3'55 II,754 3 ' 97 \0 H J. Lyons & Company Limited .. ' 7,159 3'45 8,598 3'58 9,608 3' 44 12,332 4' 18 Busi & Stephenson Limited .. , .. , 6,987 3'37 12,330 5'13 9,346 3'34 9-442 3'20 Swiss African Trading Co, .. , .. , 6,147 2'96 7,693 3 ' 20 5,359 1 ' 92 7,455 2 ' 53 Societ e Commerciale de I'Ouest Africain 9,686 4 , 67 6,572 2'74 7,575 2'71 4,794 1,62 John Holt & Co, (Liverpool) Ltd, .. , - - - - 4,330 1' 55 II,349 3,84 Paterson, Zochonis & Co, Ltd, .. , - - 775 0'32 2,236 0,80 4,370 1'48 VV, Bartholomew & Co, Ltd, ' " .. , 2,821 1'36 603 0'25 5,006 1'79 316 0' II p, B, Anti .. , .. , .. , .. , .. 1,5 25 0'74 1,324 0'55 1,512 0'54 255 0 ' 09 G, F, Overbeck", .. , , .. ' 10 - 277 0' 12 1,053 0'38 1-467 0'50 Woermann and Company .. , , .. 70 0'03 904 0'38 895 0'32 317 0' II F. H, Ryden . .. ... '" ... 5,398 2,60 1-422 0'59 - - - - All other firms ... .. , ... 10,505 5'08 8,269 3 ' 44 5, 603 2 '0 2,350 0 , 80 Adjustment to agree with Customs ... - - 1,863 0'78 - - - - Total .. , ... ... 207-404 240,281 279,655 295, 195 !;) -- '" * Figures supplied by United Africa Company Limited. 192 APPENDIX E . (Para.graph 32 Of R eport. ) GOLD COAST STATISTICS, 1936. Area 91 •843 Squa,·e m-iles . Population 3. 613.876 (1936 estimates). Trade- £ (i) Total Imports . . . II .656.719 (ii) Total E xports . . . 12.636•899 (iii) Exports of Domestic Produce 12.239.952 (iv) Value of Agricultural Exports 7. 849. 633 (v) Value of Cocoa Exports 7.659 .743 (vi) P ercentage (v) is of (iv) 97'6% Finance (Y ear ending 31st March. 1937). £ (i) Total R evenue 3.774.746 (ii) R evenue from Cocoa Duty 342.302 (iii) P ercentage (ii) is of (i) 9° 1 '% £ (iv) Total Expenditure 3.916.992 193 APPENDIX F . (Paragraph 60 of R eport. ) NOTE ON LABOUR IN COCOA FARMS OF THE EASTERN PROVINCE, GOLD COAST.' Classi:fied loosely as "Northern Territories people " , large numbers of labourers come from the north every y ear in search of work on cocoa farms in the Gold Coast. They belong to various tribes, mostly Mohammedan in faith, speaking different languages but possessing a wide- spread lingua franca. L abourers from the " Zongos "t are to-day the back · bone of the Gold Coast cocoa industry, being employed both by the . merchants and by the farmers. The reason for their employment is plain; it must be considered what factors lead them to stray so far from their native lands in search of work. 2. The labourers from the Zongos may be divided into two classes; those who reside in the Gold Coast throughout the whole year and those who live there only during the cocoa season. The former came from the north probably many years ago and have established permanent dwellings with small food farms attached, Although many earn their living by petty trading and home crafts, there is always a large floating population ready to work for wages . Such a labour surplus would not, however, be sufficient to meet the heavy demand of the cocoa season ; it has to be supplemented yearly by fresh inundations of labourers, m ostly from French territory. Apart from the growing importance of cash to Africans, the special reason for these annual visits is the existence in the French Colonies of a h ead tax, or impot. 3. The chief tribes represented in the " Zongos" are Konkonbas from Togoland; Chamb as, Moshies, Zabarimmas, Grumas, Grunshies, Basares and Wangaras from the French Colonies; and Lobis, Dagartis, Fra Fras, Kusasis, Gonjas, Dagombas from the Northern Territories. The two chief routes followed are from the North E ast through Kete Krachi and Kwahu and from Palime in the French Mandated area of Togoland down the Senchi road. . 4. The grand trek starts about the beginning of September, and the majority of the would-be. labourers, sometimes accompanied by their wives and children, arrive in the cocoa country before the middle of October. New travellers follow in the steps of their tribesmen and the report of a good season such as 1936-7 will bring an increased exodus in the following year. On arrival the travellers seek lodging in the local Zongo and enquire there where work can be found: on learning that neighbouring farmers are in search of workers they make application personally or through the local Zongo brokers. If no work is to be found they will journey on. In practice, however, labourers who have worked during previous seasons become attached to a certain area and probably return to work for the same farmer in successive years . Frequent cases are to be found where men have worked at one place for ten years. There is also a further tendency for workers to congregate in tribal groups, particularly in outlying stations; thus all the labourers in one area may, for instance, be Moshies. In general, such p eople owe allegiance in a loose fashion both to the local Sarikin Zongo and to the headman of tlieir own community. • Consisting of an extract from a Memorandum prepared for the Commission by a Gold Coast administrative officer and dated" Koforidua, the 25th April, 1938." t Zongos are the quarters of towns in which the immigrant tribes live. 13408 G4 I94 5· With regard to the terms of the labour contracts entered into, systems differ in various native States. All that can be definitely said to be common to all is their general vagueness, since the reward to be. paid is not fi .- ",ed in advance but left subject to certain eventualities. In Krobo country it is customary for the fanner to supply the labourer with a ce.rtain ampunt of food during the season, and to give him a sum of money at the end. In Akim it is common to pay the labourer in cocoa, leaving him to conduct his own sales. This system caused some trouble during the hold-up,. But the most general practice, and that which appears likely to become in time universal, is to pay the labourer, at the end of the season, a percentage of the actual money received from cocoa sales: the sum varies from IS. 6d. to 2S . for every lOS. obtained by the farmer for his cocoa. 6. In n ormal circumstances the migrant labourer works for about six months and returns to his country about the middle of May, before the rains set in . But whereas the outward journey normally takes one month on foot, the return journey, after a season of employment, is completed partly by lorry and occupies only a week or so. Although the majority of the work done during the period is on cocoa, the labourer is frequently employed by the farmer from the time of his arrival to perform other work such as wood carrying and clearing before the cocoa season opens. If payment is made in money, as is generally the case, it is received at the end of the season and is generally at the rates mentioned in the preceding paragraph. In a good year, such as 1936-7, a labourer can expect to obtain about £8 for six months' work, and of this £4 to £5 will eventually r each French territory. 7. During the period of their employment in the Gold Coast, the life of labourers varies little. The working day lasts about ten hours but the speed of work is left to the men themselves and varies according to the job on hand. The cocoa crop must be gathered but there is no question of working against time. In the m eantime wives cook and make a small side-line of selling firewood in small quantities in the market at 3d. a head-load. The staple food of the labourer is plantain and cassava with occasional additions of meat. In the event of a shortage of ready cash he always obta,ins credit preferably from the permanent residents of the Zongo . Such is a brief account of the community upon which the economic dispute of October, 1937, descended. 8. After the unprecedented season of 1936-7 more emigrants came south at the beginning of the 1937-8 season than ever before. By the middle of October thousands had arrived in the Colony, and the large majority had obtained work without difficulty. It was only when the time for market- ing of the main crop drew near that the farmers informed them that, owing to the activities of a wicked " Pool" sales had been postponed, and they would have to wait for some weeks before r eceiving their share of the pToceeds. Thereafter, whenever the labourers asked for their pay, they were told that they must wait until the cocoa had been sold; market- ing would begin "within the n ext few weeks." By April, when the labourers normally return to the North, they had still not received their ./"ages. During the previous six months they had managed to keep them- selves in food only by dint of the labours of their wives in selling firewood. Many, however, had not been so fortunate, and all had to reduce their living expenses considerably. To add to their misfortunes, the price of plantain, cassava, and yam remained at the previous year's high level. Towards the end of the season letters began to arrive from their home towns begging them to return soon with money to pay the tax. In such circumstances it is not surprising that numerous complaints were received by Government asking for intervention to force employers to pay I95 off their labourers . In most cases, however, the labourer kne.w that the farmer had not in fact the money to pay his wage bill until the cocoa had been sold. So long as the hold-up continued, he could not hope . to receive his money. 9. Such, in brief, is the unfortunate position in which these ignorant labourers found themselves placed, through forces beyond their control and comprehension. The. month of April finds them still wandering restlessly within the cocoa producing areas, seeking payment for their labour which they are beginning to r ealise they· may n ever obtain. For- tunately the local Zongo Chiefs are men of some responsibility and are doing their best to prevent any outbreaks of lawlessness; but it is difficult to expect that such a band of hungry men will forfeit the fruits of their just earnings and be prepared quietly to return empty handed to an incredulous family. What effect the present experience will have on this necessary source. of cocoa labour in future years has yet to be seen. Prob- ably the necessity for cash and the impossibility of obtaining it elsewhere, will militate towards bringing labourers south again next year; but it is very possible that the numbers will be somewhat curtailed. At any rate it is difficult to look with equanimity upon the unmerited hardship inflicted upon this section of the community, a section to whose worth few experienced administrators in this country have not testified.'" * We ourselves had evidence of the pitiable conditions of many of the labourers, particularly towards the end of the season. One witness from a Northern Territory tribe working in the Gold Coast said: " I live in Asiakwa in Akim land. I have been there for thirty years working in cocoa farm. Every year after the cocoa I go home and return. The Zugus who come down for the cocoa country are about 10,000. This year we have not been paid for the work we have done. Our parents in the North write asking us for money. We used to be paid one third of every load of cocoa which we collect : this custom is different in Akim and New Juaben. This year the farmers will not give us one third of the cocoa to sell as they did in the past. This yea" they give us nothing." G 5 APPENDIX G (See paragraphs 8I and SIS oj R ep ort) 1. PRESENT ROUTES OF COCOA MARKETING 2. ROUTES OF COCOA MARKETING IN THE GOLD COAST IN THE GOLD COAST UNDER SUGGESTED PRODUCERS' ORGAN IZATION . PRODUCERS PRODUCERS '"'-r"'~ I FARMERS' GROUP DEPOTS H BROKERS \0 0\ CO·OPERAT SHIPPERS' UP-COUNTRY STATIONS ""oJ~r'~ rr~ i j M i RY STATIONS ./ I 4 SHIPPERS' HEA.DQUARTERS STATIONS T"IO A.R.T ,E.~R. S. .. i S 'TA TIONS 4 / SHIPPING :STOR.ETS SHIPPING STORES OIRECT EXPORT I97 APPENDIX H . (Paragraph 96 of Report.) EXAMPLE OF BROKER'S AGREEMENT. THIS AGREEMENT made the 1St day of October, in the year of our Lord one thousand nine hundred and thirty-seven [I937J b etween the of Kumasi (hereinafter referred to as the" COMPANY" which expression shall include their successors and assigns) of the one part and of (hereinafter referred to as the "BUYER" which expression shall include his h eirs personal representatives and assigns) of the other part WITNESSETH as follows:- 1. The Company agrees to re-employ the Buyer in Ashanti or elsewhere as the Company may from time to time direct and the Buyer agrees to continue to serve the Company in the aforesaid place or places. Either of the parties hereunto may terminate this Agreement by giving to the other party one (I) month's notice in writ~ng of their intention so to do and such notice shall be sufficiently given by the posting of same to the last known address or last known place of abode of the party to whom the notice is given who shall for the Company be the Manager for the purposes of this Agreement. 2.-[aJ The Buyer agrees to carry out diligently and faithfully a ll duties entrusted to him by the Company and to conform to such regulations affecting the buying of Cocoa which the Company shall issue from time to time and to submit reports on his work when required so to do by the Company. [bJ Tbe Buyer shall purchase cocoa solely for the Company and for none other during the continuance of this Agreement. A breach of this clause shall entitle the Company to determine this Agreement and claim any damages suffered by the Company . 3. The Buyer agrees to render proper accounts to the Company and to examine and cercify to the correctness of the entries in the Buyer's accounts in the Company's books a t the end of each month. In default thereof the accounts as shown in the Company's books shall be deemed to be true and correct, provided always that the buyer has fail ed to remedy his breach herein within 8 days from the date of written notice from the Company requiring him so to do. 4·-[aJ The Buyer agrees to purchase cocoa at prices which sh all be ftxed by the Company from time to time and the price so ftxed shall be communicat ed to the Buyer by the Company at Kumasi or elsewhere. The Company may at their discretion advance monies to the Buyer for t he purpose of purchasing cocoa, the amounts of such advances to be determined by the Company as they consider advisable from time to time. [bJ The Buyer shall be responsible to the Company for any of the Com pany's monies advanced to him whether such monies shall have been adv