PUBLIC RECORD OFFICE
Reference :-
C.O.882/12
ALLY WITHOUT PERMISSION OF THE BF REPRODUCED PHOTOGRAPHIC-
COPYRIGHT PHOTOGRAPH-NOT TO
PUBLIC RECORD OFFICE, LONDON
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in maintaining public confidence. Crops exceeding 250,000 tons have been by no means uncommon; they occurred in 1928, 1920, and in 1918, while in 1914 the crop reached 277,000 tons (see Mauritius Handbook, 1930-31, p. E. 23). I think that in March last there was every reason to anticipate that under normal con- ditions a crop of 250,000 tons or over would have been reaped and that the actual results indicate a loss of 86,000 to 90,000 tons of sugar. Whether this loss is exclusively due to the cyclone or may be in part attributed to subsequent weather conditions which might or might not have been different if there had been no cyclone, is an unprofitable and useless speculation on which I fear the statis- tician has embarked largely with the object of reducing the apparent degree of error in his earlier forecast. No special justification need have been attempted, for the task of forecasting in such conditions is one of extreme difficulty. In the event, the estimate of the Chamber of Agriculture has proved much more nearly correct than that of the statistician.
3. The loss in money which this destruction of sugar represents may be roughly placed at between 10,000,000 and 11,000,000 rupees. The sugar exported from this crop is not expected to reach more than 18,000,000 rupees in value, as against Rs.24,846,000 in 1930, which itself was the lowest figure on record for a generation. Had this occurred in a period of normal trade the loss could have been borne by accumulated resources, but a succession of two years with so heavy an adverse balance of trade was more than the unaided resources of the Colony could withstand. In 1930 the excess of imports over exports amounted to Rs.13,201,881. The Import figures for 1931 will be much reduced. They are not yet available, but are not expected to exceed Rs.32,000,000 with exports valued at approximately Rs.23,000,000.
Thus in two years there has been an adverse balance of trade of Rs.22,000,000. This is not counterbalanced to any extent by remittances from abroad; on the contrary it seems probable that it might be augmented by remittances from Mauritius. I fear it must inevitably be concluded that local resources of capital and credit are at exhaustion point. Had it not been for the material and moral support afforded by the guarantee by His Majesty's Government of a loan of £500,000 to planters and others I think there is now no doubt that a general economic collapse would have taken place.
4. The proceeds of this loan (say Rs.5,000,000) do not, as will be seen from the foregoing figures, by any means counterbalance the losses on the year and the position is still acute aud dangerous. Nothing is more difficult in Mauritius than to obtain accurate information as to the financial standing of companies or individuals. The various interests are so intertwined that I should think it runst be very difficult for many an individual whose interests are wide- spread to calculate his own position, or to distinguish between
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his situation as a member of the various companies in which he holds shares and as an individual, and frequently as a mortgagee on the property of those companies. There can be no doubt, how- ever that the general atmosphere is one of acute anxiety, and the impatience displayed on all sides over the unavoidable delays in making the proceeds of the Guaranteed loan available is an indica- tion of the very severe strains to which the financial structure of the Colony is being subjected. It may be asked why it is that in such a situation there have not been a larger number of actual failures and sales of estates. I think the answer is that the situa- tion is such that creditors will at all costs avoid foreclosing, in the certainty that they will not only lose a large portion, if not all, of the amounts due to them, but will in addition find them- selves in possession of properties the operation of which may involve heavy losses in the future.
5. The question of the actual losses involved in the production of sugar is one on which it is extraordinarily difficult to obtain reliable information. It will be recollected that Sir Francis Watts in his report on the situation in Mauritius fixed the average cost of production at just over £13 per ton. It is generally admitted that this figure is too high under present conditions and was probably an overestimate at the time it was compiled, though I am not personally convinced that this is the case if all charges are duly taken into account. An estimate more recently compiled by the Department of Agriculture on the same lines as that framed by Sir Francis Watts places the f.o.b. cost of sugar in September at £10 19s. 6d. per long ton or £2 18. 8d. less than Sir Francis Watts figure. Of this, however, 11s. 3d, is due to changes in the rate of export duty and only £1 10s. 5d. to actual decrease in operation costs. The average price received at the time the estimate was made was Rs.6.84 per cwt. or about £9 188. 6d. per long ton. Another figure, however, supplied by the manager of an excep- tionally well operated estate, placed the cost at £9 10s. 3d., showing au actual margin in favour of the estate. The production figures, however, were compiled on the basis of the 1930 crop and I fear that the actual experience of the 1931 crop with its very low yield and severe losses from the cyclone will be much less favourable; moreover the prices of sugar have fallen since the beginning of the crop. Yet I have been informed that two estates in the north of the Island, where the cyclone damage was less marked, will probably cover expenses even at the present rates. It must not be supposed, however, that because two estates in an exceptionally favoured position have been enabled to do this it is generally "of the Anglo Ceylon practicable. One of these (Beau Sejour
Co.) has been famous for years for its cheap production and can, I am told, turn out sugar under favourable conditions at not much over Rs.100 (say £7 5s. Od.) per long ton. This of course is exclusive of any interest
or financing expenses, this estate
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being in the fortunate and rare position of being enabled to operate on its own capital. In general there is no question that the majority of estates have operated this year at a considerable direct loss on production exclusive of mortgage charges and of any interest faisance valoir ** (money borrowed to finance crop operations). The extent of this loss is variable, but one instance which has come to light shows an actual loss on operation in "* sequestration during the current year of Rs. 185,000, which is about one-third of the price at which the estate was actually sold in 1921. Sequestration is the process by which an estate is operated under an order of the Court pending sale, the expenses of operation being a prior charge on all the proceeds of the sale. I have also been informed confidentially that the estates owned by Sir William Garthwaite, which are managed by the Anglo Ceylon Co., and total about 4,000 acres of arable land, can no longer be financed as the banks are unwilling to advance any money for their further operations. I have not yet heard whether any settlement has been reached in the matter, but was informed a few days ago that it had not and that there was at present no prospect of an arrange- ment being concluded.
6. As is well known the great weakness of Mauritius estates is their lack of capital and dependence on the assistance of Bailleurs de Fonds" who charge high rates for money. The gentlemen in turn borrow from the banks on their personal security and guarantee payment to merchants for supplies. Where there is an actual loss on operation the Bailleur de Fonds not only receives no interest on his money but has actually to make up the shortage for repayment to banks and merchants. He takes security by a mortgage on the estate but where operations show an actual losa it is obvious that this process is of little value as security and the capital at the disposal of Bailleurs de Fonds is insufficient to continue it. Had the crop for the current year been the large one originally expected it is probable that actual operating expenses would in most cases have been covered but not the cost of financing. As it is the Bailleurs de Fonds are themselves in a position of great difficulty and the continuance of their operations next year may be in many cases impracticable. In the case of sequestration quoted above the Bailleur de Fonds will be obliged to buy in the estate with a direct loss to himself of Rs.185,000.
If there is a forward movement in sugar before next April it seems probable that the credit of the Bailleurs de Fonds will be sufficient to continue operations, but without an improvement in the outlook this is very questionable. Mortgage creditors must, of course, in many cases disappear, which in point of view of the industry as a whole is much to be desired. We have thus the apparently anomalous position that if and when there is a definite improvement in the prospects of sugar the number of estates seized and put up for sale may quite probably show a rapid increase.
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The estates in many cases are so heavily involved that it is only by this process that there is any prospect of equilibrium being restored, but it is most desirable in the public interest that the process of liquidation should proceed gradually. What is to be feared under present circumstances is a collapse, i.e., that it will no longer be possible to finance cultivation operations and that creditors will be unable to face the further loss involved in taking over and operating the estates.
7. The creditors of estates of course include finally the merchants and the Banks and any extensive failures of the larger properties or groups will certainly affect the position of the merchants and Banks to a serious extent. The system of financing through Bailleurs de Fonds" is particularly unfortunate at such a time but it is obviously impossible to eliminate it until the financial obligations in which the Bailleurs de Fonds have become impli- cated can be liquidated, and for the reasons given above this cannot be done at the height of a crisis such as the present, as the Banks or merchant would be no more in a position to continue the operation of the estates than are the Bailleurs de Fonds thein- selves. The Bank principally affected is of course the Commercial Bank of Mauritius through which probably three-quarters of the business is done; the other Banks being branch banks only and much less heavily involved. The position of the Bank of Mauritius is therefore the crux of the situation as its failure would involve the collapse of more than half the business of the Colony. I have recently been confidentially assured by the chairman that he regards the future of the Bank with grave anxiety and fears that unless things improve the Bank may be compelled to stop financing the merchants and the planters." It is true that these representations were made in connexion with objections to the continuance of the sale of drafts on India by the Currency Com- missioners which, he represented, was draining the Bank of funds, but the fact remains that the cause of his anxiety was that the cash resources of the Bank were being reduced to a dangerously low figure and that the Bank had no means at its disposal of replenishing them. The position will be relieved at any rate temporarily by the issue of notes by the Currency Commissioners in payment of advances made under the Guaranteed loan. The Bank, however, represents that if the present system of un- restricted sales of drafts by the Currency Commissioners continues the notes will quickly return to the Treasury vaults and the Bank will again find itself short of funds.
8. The question of exchange is playing a very important part in the present situation and whatever view may be taken of the policy adopted the present position is unquestionably causing great anxiety to the Mauritius Bank and to commercial circles. "I will attempt therefore to deal with it more fully. The difficulty of the position in Mauritius arises, as is well known, from the fact that
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