POLITICAL

SCIENCE

QUARTERLY.

OF

THE SUGAR SITUATION IN AUSTRIA.

F the recent events in the history of industrial combinations, the Austrian Sugar Contingent Law of January 31, 1903, and the bill introduced by the government shortly after for the prohibition of sugar-beet rayons, are especially noteworthy. The former is a law assigning to the various refineries, as united in cartels, fixed contingents or quotas of the total production of sugar in Austria; the latter is a project designed to prevent the sugar manufacturers from dividing the field in the purchase of beets, and thus exploiting at will the beet growers. In order to understand the present legislation and policy in Austria in regard to the sugar industry, it is necessary to make a brief historical survey of the situation.

I. The Sugar Industry and the Cartel.

The sugar industry in Austria, as in all European states, is of modern growth. Formerly sugar was a "colonial ware," but its high cost, especially during the Continental Blockade, promoted the efforts to develop a substitute for the sugar-cane which might be cultivated in Europe. The discovery of an economical method of getting sugar from beets was due to a German (in the eighteenth century), but the early development of the industry was left to the French. Even in the middle of the nineteenth century cane-sugar played a predominant rôle in the European markets. In Austria in 1850, over two-thirds of the sugar con

sumed was of colonial origin. From that time on, the cultivation of sugar-beets made such rapid progress that in the sixties sugar became an Austrian export.2 An indirect or consumption tax was first levied on the producers in 1849, but in the interest of the local industry a rebate or drawback was allowed for the quantity exported. This tax, originally based on the actual output, was changed in 1865 to a tax on estimated output calculated on the assessed capacity of each plant. Producers naturally tried to improve their methods so as to get the greatest possible output from their plants, and succeeded so far that in 1875-6, in spite of increased capacity assessments and tax demands on the part of the government, the amount they were required to pay in taxes was less than what they received as rebates for exports. The tax had become a bounty through technical progress! It became necessary to alter the system, and in place of the plan of refunding taxes, a system of fixed bounties was adopted in 1888 with a fixed total amount.1

The industry had developed with great rapidity; from a production of 800,000 metercentners in 1860-1 to 6,530,000 metercentners in 1884-5; from no export in 1860-1 to 3,590,187 metercentners in 1884-5, and from a consumption of 820,000 metercentners in 1860-1 to 2,260,000 metercentners in 1884-5.5 This had been accompanied by a development of large industry and great reductions in cost and price. Circumstances favored the development of the manufacture of refined sugar, as compared with the manufacture of raw sugar, and, consequently, through the rapid multiplication of refineries, the price of refined sugar was forced down to a low point, so that the difference between

1 Cf. Grunzel, Ueber Kartelle, Leipzig, 1902, p. 275.

2 Denkschrift der Handels- und Gewerbekammer in Prag in Betreff der staatlichen Regelung des Cartellwesens Prag, 1896, p. 80.

3 This gives an illustration of the power of taxation to develop production, which in its historical significance may be put beside McCulloch's famous illustration drawn from the taxation of spirituous liquors in England.

4 Grunzel, op. cit., pp. 275-6, 279. Originally fixed at 5 million florins, it was frequently increased; in 1896 it was set at 9 million florins. Cf. Bruker, Zuckerausfuhrpramien und Brüsseler Vertrag. Jahrb. f. National-Oekonomie und Statistik. III Folge, 23 Bd. 1902, p. 468.

5 Grunzel, op. cit., pp. 276-7.

raw and refined which in 1884 was 12 florins per metercentner, sank in 1891 to 5.50 florins, and the weaker refineries found themselves in a difficult financial situation.' These difficulties were aggravated by the erection of large new plants in Hungary.2

The consequence was the formation of a cartel by the refiners which was signed on July 8, 1891.3 Cartels were already popular in Austrian industrial circles, where, in spite of considerable accumulation of capital, there seems to exist a certain timidity in business and a desire for a safer, if more moderate, profit. Hence the strong are almost always ready to make alliances with their weaker competitors. The principal feature of the cartel was the limitation of production for the home market - for the year 1891-2 it was set at 2,300,000 mtc., of which Bohemia was allotted 900,000, Moravia, Lower Austria, Silesia and Galicia 950,000, and Hungary 450,000. Within these provinces the fixed quantity was apportioned among the refineries, partly on the basis of the tax statistics of production. A central office was established to check the output and to impose conventional penalties for breaches of the agreement. Its object, as the Prag Handelskammer remarks, was "selbstverständlich," to raise prices, but it was not a "price cartel," i.e., the price of sugar was not to be fixed, but only the quantity that might be produced.5 Practically, nevertheless, prices seem to have been fixed more or less by oral agreements. This cartel did not include the raw sugar manufacturers. The subsequent rise in the price of refined sugar, from which they got little or no advantage, afforded a constant temptation to the raw sugar manufacturers to engage in refining also. The margin between refined and raw sugar increased from 4.45 florins in October, 1891, to 10.05 florins in

1 Grunzel, op. cit., pp. 279-80.

2 Cf. 154 der Beilagen zu den stenogr. Protokollen des Abgeordnetenhauses. Session XV, 1898, p. 47.

83.

Grunzel, op. cit.,

p. 280.

4 Grunzel, op. cit., pp. 280-1.

Denkschrift der Handels und Gewerbekammer in Prag, etc. Cit. sup., p.

Cf. 154 der Beilagen, Session XV, 1898 p. 47

January, 1894. The cartel, which had been formed at first for one year, but had been renewed, broke down in 1894 under the new competition called forth by its price policy.1

The price situation is shown by the following table2 (florins).

The weakest point of the cartel had been the failure to come to an understanding with the raw sugar manufacturers, and an earnest effort was made by the refiners to establish peaceful relations by the offer of a part of the margin over a certain minimum (6 florins), together with some other conditions. This failed, and in October, 1895, a new cartel was formed, still independently of the raw sugar producers. Renewed attempts were succeeded by a war in which the raw sugar manufacturers invaded the field of the refiners, but were defeated. In order to strengthen themselves, the former also established a cartel, called the Genossenschaft der österreichisch-ungarischen Zuckerfabriken, which regulated the output of raw sugar. It was more difficult to cartel the raw sugar production, as this was more widely distributed and the parties were more unequal. The combination was effected, it is claimed, at the expense of the small manufacturers, who sought to secure their existence by the sacrifice of part of their beet-territory (rayon).3 A more friendly relation with the Sugar Cartel was established, and soon resulted in the formation of a common cartel (July 26, 1897) for five years. The principal features of the agreement are: the guarantee of a mini

1 Grunzel, op. cit., pp. 281-2.

2 Grunzel, op. cit., p. 282.

3 See Report of Hodek, in Denkschrift der Handels- und Gewerbekammer in Prag, etc., p. 96.

mum price to the raw sugar manufacturers of 15 florins; the exclusion of the same from refining; the obligation of the raw sugar manufacturers to sell only to the refiners' cartel in the home market; the agreement of the refiners not to manufacture raw sugar, nor to buy raw sugar from outsiders. The executive power is given to a joint committee, and the cartel has the usual appurtenance of an arbitration court. For the refiners alone important changes were made in the cartel, notably the introduction of a monthly contingent and a price regulation.2

The cartels, and particularly the Sugar Cartel, had called forth loud complaints in Austria, which is notoriously a country given to small industry and small shop-keeping influences which are politically influential. The denunciation of the socialistic Rosenberg, that the Sugar Cartel was "a registered robber band,' found echoes even in conservative circles. Government suppression or regulation was demanded, and, curiously enough, the cartels in general did not seem opposed to the latter, provided, of course, the regulation paid sufficient regard to their interests. The government had also another motive; it viewed the cartels, and particularly the Sugar Cartel, with considerable alarm, as it feared that an increase in the price of commodities subject to indirect taxation (especially sugar) would lead to a diminution of consumption, and hence of state revenue. The government also meditated increasing the sugar tax, which would be made difficult if the cartel at the same time increased prices. Moved by these reasons, the government brought in a bill for the regulation of cartels in certain lines-i.e., those pertaining to articles of con

1 Differences between 15 florins and the market price of raw sugar, unfavorable to the raw sugar manufacturers, are to be made good by the refiners, provided that no quotation will be taken below 11 florins; provided further, that the total bonification shall be limited to 10 million florins. The payments are to be made to a committee, who are to divide the sum among the raw sugar manufacturers in such a way that those producing less than 35,000 mtc. shall receive a full bonus, and the others, eventually, a proportionally reduced one. Cf. Grunzel, op. cit., p. 285.

2 Grunzel, op. cit., pp. 282-6.

3

Cf., e.g., Adler in Schriften d. Verein für Social Politik, Bd. 61, p. 198. For complaint of traders, cf. Verhandlung der Handels- und Gewerbekammer in Prag im Jahre 1897. Prag, 1898.

4 Zeitschrift für Staats- und Volkswirtschaft, June 6, 1897.