multinationals in grain trade -1914

7/30/2019 Multinationals in Grain Trade -1914

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Multinationals in the Grain Trade, 1850-1914Morton RothsteinUniversityof Wisconsin-Madison

OVER the astdecader so here as eenecurringoncernboutthe market structureof the internationalgrain trade. A seriesof Congres-sional nvestigations,everal ookson alleged grain robberies," nd evensuch elativelybalanced ccounts s Dan Morgan'sMerchantsf Grain [32]haveall left an impression f globalcommoditymarkets hat are controlledand manipulated y about ive major irms n waysoftenat variancewiththe public nterest.At the same ime, morescholarlyecentwork ndicatesthat the grain trade remainshighly competitive, fficiently ssembling,storing,and transferringhe commodityo the benefitof both farmersand consumers. hey show hat this market workswell, yet thesesamescholars omplain hat we do not know enoughabout the structureoroperationof the grain export system r about the behaviorof the firmsinvolved [7, 12, 32].If we havea paucityof data about he recentand current grain trade,we know less about the full dimensions of market structure and businessbehavior as that branch of trade evolvedduring the nineteenthcentury.There were expressionsf similarconcerns bout the deficienciesn thatbusinesss t gradually pread round he globe,primarilyunder he aegisof multinational radingfirms.Mostof these irmswereprivatepartnershipsas are their survivors ven at present,but there is no doubt that mostofthem alsooperated n severalnationsat onceand that they were headedby managerswho met PeterDrucker'scriterionof "thinking nternation-ally" [15]. Moreover, hey increasingly perated n the United Kingdom,as much to perform their multi-facetedentrep6t functions here as toserve the continuouslyncreasingdemand of British consumers. heimportanceof the British grain market may have been exaggerated yhistorians n terms of the share of exports it attracted from surplus-producingnations,but its function as the nerve center of an evolvingworld tradingsystem emainsunassailable34, 36, 44].Before the 1850s he grain-importing usiness as oo uncertainand

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irregular o encouragemuchmercantile pecializationn that commodity.Somesmall-scale erchantsn the interiorof the United Kingdomand ofthe United States,as well as a few continentalEuropeancenters,didconcentrate rimarilyon grain[6, 20, 41 . Mostof the longdistancerade,however,was carried out by the generalmerchantshipping irms thatdominated he slowlywideningscopeof international ommerce. uchfirms as Alexander Brown and Sonsor Baring Brothersand Companydealt mostly n cottonduring the first third of the century,moving n andout of the grain trade only as conditionswarranted. n suchbrief periods,they virtuallydominated he trade [22, 37]. Lesser nown irms, suchasMorrison,Cryder& Co., held almost quivalent hares f both the cottonand grain trade from time to time in the trans-Atlantic usiness. ut it isdifficult o estimate he differencesn market shares nd influenceat anytime among he more than two dozenAnglo-Americanirms n the cottontrade, or of agentsof continentalirms at southernAmericanports,andimpossibleo calculatehem with regard o grain. n fact, marketshareschangedabruptly rom year to year, dependingon a variety of circum-stances. olton, Ogden & Co., for example,wasvery active n shippingflour from the United States o the United Kingdom and the continentfrom 1815 to 1820, then only sporadically ngaged n grain-relatedactivitieswhilebecoming leadingcotton-shippingirm duringthe 1820sand 1830s. In the 1837-1838 shippingseason,when Morrison, Cryderwas suddenlya leader in bringing Baltic grains o New York, Bolton,Ogden (which had equallygood connections ith the Baltic ports) wasgoing through insolvency nd reorganization t Liverpool,withdrawingfrom both the cotton and grain businessor several easons. hey wereback ull tilt in the grain trade during the hectic"hungry orties"beforefinallydissolving y 1850 [27, 33].By the 1850s, many of the general merchant shipping irms wereeither withdrawingrom directparticipationn trading o concentrate nbanking r shippingunctions, r werebeginningo specializen a narrowerrange of commodities. he Brownsand Morrisons ook the former route;Baringsstill shifted n and out of grain trading through their extensivenetworkof correspondents,sually n responseo suchunusualopportu-nities as were offered during the Crimean War. Meanwhile, wo othergroupsof merchantswho had gained mportance smultinationalraderswere operating n the Britishgrain market. With the old Hanseatic ortsreemergingas sources f supplementary heat suppliesor the UnitedKingdom in the 1820s, merchantswith strong family and/or businessconnectionsherebecamencreasinglymportant n Londonand used hattrade as a base or extending heir business eyondEurope. FrederickHuth & Co., Mark Collett,and the Brandts,all firmly establishedn Britainby the first decadeof the nineteenth entury, ose o prominencen the

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grain business uring the 1820s, then made connectionswith suppliersofother commoditiesn both North and South America during the 1830s[8, 12, 18, 25]. In the samedecade, he Anglo-Greek irmsbegan orgingconnections etween he United Kingdomand westernEuropeon the onehand and the new grain-surplusreasof SouthernRussia nd the Danubebasinports on the other. They introducednew techniques n the Britishmarket for dealing n full cargoes f grain. The Railiswere probably hemost important of theseAnglo-Greek amilies,and they remain leadingcommodity traders to this day. They certainly had the most extensivenetwork of branchesboth within the United Kingdom (at Liverpool,Manchester, ondon, and other cities)and between he United Kingdomand the Mediterranean, ut they were simply he largestof at leasta halfdozen major shippinghouses hat made various Mediterraneanports,especiallyOdessa, major sourceof grain imports,and were supplantingmany of the older Baltic firms in that trade [ 16, 21].It was after the well-known crisis of the mid-1840s in breadstuffs,and the associatedepeal of the Corn Laws, that the full transformationof the grain and other commodity radesbegan, ntensified y the rapidspreadof the "Communications evolution" n transportand telegraphsand climaxedby the circlingof the world with a network of transoceaniccablesn the mid 1870s.Thus technologyeinforced nstitutional hangesthat in turn respondedo markedlyhigher levelsof businessctivity.Byovercoming he barriers of high shippingcostsover long distances ndthe risks of sharp price changesover extendedperiodsof time, theseinnovations rovided he essential omponents f a world-wide ommoditymarket system. ven as that systemwasevolving,new firmsappeared nthe United Statesas it becamea major,dependable rain exporter.Basedmostly n the United Kingdom and specializingn a narrower range ofcommodities,he new firmsusually lsohad tradingconnections ith otherpartsof the world. For example,William Rathbone& Co., with connectionsto the Far Eastand India, openedbranchofficesn New York and Canadaduring he early 1850s,after several ecades f dealing n North Americanflour through correspondents.t became he leading irm in the Anglo-American bulk grain business uring the Civil War era [29, 38]. It wassoon ollowedby David Bingham, he PattersonBrothers,and the Railis;all of them had New York officesby the late 1870s.Meanwhile, a wholly different group of merchant shipperswereopeningbranchoffices t SanFrancisco, ominating he rapidlydevelopingCaliforniagrain export trade by the late 1860s.Balfour,Guthrie, & Co.wasassociatedith the Liverpool irm of Balfour,Williamson Co., whichin turn had begun its merchantshippingbusinessn Chile [24, 35, 39].Falkner, Bell & Co. was another British firm with Latin American connec-tions that moved into the San Franciscomarket in response o new

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opportunitiesn the grainbusiness. oth firmsremained xtensive wnersof sailing esselsntil the late 1870sand early 1880s,both had experiencein cargo-trading,nd both wereprepared o invest xtensivelyn the grainproduction nd handlingactivities f the interior.They wereby no meansthe only sourceof foreign credit. Of the ten or more leadingbanks nSan Francisco hat financed he trade, at least five were controlledbyshareholders ased n the United Kingdomand in Germany.No othergrain belt in the United Statesbecame o dependent n foreignmarketsfor disposingf its grainas he WestCoast, r sodependent n foreignersfor financing nd storing he crop.By the 1880s,as Californiawheat production eached ts peak andcable inkagesmadeprice informationmore readilyavailable, dditionalfirmsentered he grainbusinesshere. Among hemwereseveralEuropeantraderswith relativelyslender inancial esources, uchas E Lenders,TedBosch,Dresbach, ndEppingers,ll originally ontinental uropeanraderswhoalsohadopenedofficesn Liverpool.By then,someAmerican hippersmoved nto the trade aswell. One of them, GeorgeW. McNear,wasknownas the "Wheat King" of the WestCoast hroughout he 1880s. Towardsthe end of that decade,however,Californians eganshiftingout of wheatgrowingand into more capital-intensiveypesof farming,while the WestCoast wheat frontier moved north into the Columbia River basin. Alsomoving o Portlandand Seattlewere Balfour,Guthrie & Co., along withtwo smallerBritish firms, Kerr, Gifford & Co. and Sibson,Quackenbush[2, 23, 30, 42]. Two or three flour-millingconcerns f local origin viedwith this small group of foreign firms for the largestshareof the graintrade from the PacificNorthwestuntil World War I, using he credit andservicesheycouldextendas he chiefmeans f attracting arm customers.But it was the multinational irm, with direct contacts n the shippingmarketsof the BalticExchange nd the futuresmarketsat Liverpool,aswell as superior nfluence n the corn trade associationst London andLiverpool,whichcontinued o shape he conductof the WestCoastgraintrade. They influenced he nature of the grading system,of contractforms, and of handlingmethods,while dominating he mercantileorga-nizations.

This record is quite different from the role of exporting irms n theAmericangrain radeeastof the Rockies, here he mercantilenstitutionalinfluenceof multinational rading firms wasnegligible.To be sure, therewas considerable ttraction or foreign capital n the burgeoninggrainbusinessof the Midwest, but that business ad undergone a strongindigenous evelopmentmarkedby the emergence f the elevatorsystem,with its associated rading systems nd futures markets.A flurry ofinvestmentctivityn the ate 1880s ndearly 1890scausedmuchcomment,since t involved he organization f suchconglomeratenterprises s the

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Chicago& NorthwestGranaries,Ltd., with Lord Seton-Karras chairman,and the independent irm of Chicago Grain Elevators,Ltd. Foreigninvestmentsn railroadsduring the great "Dakota Boom," as well as inwheat arms hemselvesn the Red River valleywere no doubt inked tothe interestn the grain radeof manyBritishbusinessmen.qually trikingwas the reorganizationof Pillsbury-Washburn o., Ltd., into a multi-divisionallour-making oncern hat included mong tssubsidiarieseveralline elevator ompaniesnd an exporting ranch 10, 28]. Pillsbury'shiefagent in the United Kingdom, William Klein & Sons,which had bothcontinentaland British offices,were central figures n this short-livedexperiment n making a major American firm into a multinationalcor-poration.Yet none of theseactivitieshad any significantmpacton thestructure, nstitutions, r conductof the grain trade in the Midwest [3,4O]. Instead, the continuous elimination of mercantile intermediaries be-tweenBritishgrainbuyers nd the suppliers eep n the American nteriorstrengthenedhe indigenous mericangrain exportingsystem. etweenthe 1850s and about 1880, the interior trade had moved west with theadvancing heatbelt that extendedby the 1870s rom Ohio to the RedRiver valley.The combinationof trunk line railroadsand Great Lakes-Erie Canalshipping hanneledhe streamof surplus rainsmostly o theAtlantic ports. Improvementsn transport inked together he variousintermediate markets between the western Great Lakes and the seaboard,wherea smallgroupof New Yorkers ad ncreasinglyy-passed erchantsat Buffalo,Cleveland, nd Toledo to dominate he trade by providingessential redit and financing or westernmillers and traders. The twooutstandingnnovatorsn this processwereJesseHoyt and David Dows,eachby 1850 headinga prominentNew York firm of "fobbers," eceiverswho broughtgrain from the west o deliver"free on board," o the "c.i.f."trading exporters,who in turn soldto Europeanbuyerson the basisofquotations hat includedcost, nsurance, nd freight charges.Dows wasprobably he most eputableand largest eceiverof western readstuffsnthe nation by the 1860s. Hoyt almostmatchedhim in the volumeandgeographic preadof his business, aving openedbranches t Buffalo,Chicago,and Milwaukee,where he servedas the silentpartner of AngusSmith, who operatedall the elevatorwarehousesn that Wisconsin ortand thereby dominated he city's grain trade. Hoyt also was a majorpartner n Chicago's unger,Wheeler& Co. whichoperated ightelevatorsthere in the 1870s,as well as the chief backerof a rather nervy youngChicagowarehouseman amed ra Y. Munn [17, 31 .By the late 1870s,however, ew grain firms were reachinga largerscalen the interiorand dealingdirectlywith foreignbuyers. he Barnesand Magill Elevator Co. owed much of its growth in the 1880s to the

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activepartnership f David Dows,but went on to further expansion fterhis death in 1890. Meanwhile, Bartlett, Frazier & Co., and William T.Baker and his partnershad been usingtheir Chicagoheadquartersoarrange or direct exports hroughbills of lading since he introductionof that deviceabout 1880. Severalmeat-packingirms also moved intothe grain trade on a large scale, ncluding osephRosenbaum nd Sonsand Philip D. Armour. Following heir examplewere the British-basedfirms of Sawyer,Wallace& Co. and Fowler Brothers,Ltd., each withCanadianas well as Liverpoolconnections. y the end of the century hePeaveyand Cargill firms, which had begun in the 1870s as modest ineelevatorcompaniesn Iowa and the Dakotas,were rapidlyextending heirfunctions o include direct involvement n the grain export business. obe sure, many of the older arrangements ersisted,with several eadingBritish firms and suchnew large British millers as Spillersand Ranksmaintaining correspondent"elationships ith American"fobbing" out-fits until well into the twentiethcentury.RossT. Smyth& Co., for example,whichsucceededhe Rathbonesn the Anglo-Americanrade, held fasttosucharrangementswith Nye, Jenksand Gill & Fisherof Baltimoreuntilthe 1930s [1, 5].The influence f European rain irmsoperating cross everal ationalboundarieshad continued o grow in British mercantile nstitutions.Bythe 1870s the Anglo-Greek irms were being challengedn variouspartsof the world by French, Dutch, German,and other continental raderswho were movingdirectly nto conducting usinessn grain cargoes nLondon'sBalticExchange ndalongwithnewBritishentrantswere oiningthe newly formed London Corn Trade AssociationLCTA). This cosmo-politan institutionhad been formed to draw up uniform trading rules,especiallyoncerninghe arbitrationof disputes ver qualityof shipmentsand the performance f delivery. he contract ormsof the LCTA quicklybecamestandard hroughout he internationalgrain trade [9, 43]. Suchafirm as Louis Dreyfus et Cie., which began in Central Europe, moved intothe United Kingdom t the same ime that it entered he southernRussiantrade during the late 1870s o become dominant orce here. The Britishfirm, Wm. H. Pim & Co., also moved nto that part of the world andfrequently ssued cripas warehouseeceipts hat circulatedwidely n theBlackSeaportsand their hinterland.SamuelSanday, hobeganhis radingcareer as director of a New York office for a London firm, struck out onhis own in the 1880s,concentratingmostlyon the Bombayand Karachitrade before enlarging his American operationsafter the turn of thecentury.WhenWorldWar brokeout, his irm becamehe argest peratingin the Americangrain export trade and servedas purchasing gent forthe British government.Meanwhile, representatives f the Ralli and

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Dreyfusfirms had been active n the New York market since he 1880s[5, 26, 45].British influencewas profound enough on the conductof trade innewlyopenedgrain-producingegionso shapehe entireorganization ftrade.For example,whenArgentina ose o importance san exporter nthe 1880s such firms as Railis and the newly formed Bunge y Bornerequestedassistancerom the London Corn Trade Associationn orga-nizinga grainexchange nd defining ulesand contracts.William Goodwinand John Hubback,two veteransof the Liverpool rade, went to Rio deJaneiro and worked with the local traders as well as representatives fforeign firms in drafting the first set of rules for the grain businesshere[5, 9].This kind of direct influenceby the larger tradingfirms on newlydeveloping rain-growing reassuchas India, Argentina,and Australiahasbeen ncreasinglyegardedwith suspicionincewe havebecomeawareof what s now calleddependencyelationships.evertheless,hosemul-tinational rading firms had been, and still are, extraordinary isk-takers.It wasa rule of thumbamongsomeof them n the early wentiethcenturythat if they could guess ight about the future directionof market pricesfor their graincargoes even imesout of twelve, hey woulddo well. Onthe eve of World War I and in much of the interwar period, their profitmarginson total sales arely exceededan average of more than one ortwo percent, hough heywereprobably everalmultiples f that figure fcalculated s returns o invested apital 13, 14]. We do not know nearlyenoughyet aboutthe declineover time of marketing osts, f the spreadbetween arm gateprices nd he finalchargeso processorsndconsumers[46]. But it doesseemclear that much of the improvement hat did takeplacewasdueto the self-interestedffortsof traderswhobrought ncreasingvolumesof grain to westernEurope rom the far cornersof the earth andwho in doing so created the nineteenthcentury'sbest-organizednterna-tional commoditymarkets.REFERENCES

1. CharlesH. Baker,TheLife and Character f WilliamTaylorBaker New York: PremierPress, 1918).2. AndrewBerglund, The Wheat Situationn Washington,"olitical cienceuarterly,Vol. 24 (September1909), pp. 489-503.3. Otto Bi3hm,Die KornhauserMunchenerVolkswirtschaftlichetudien,No. 26, 1898).4. Bolton,Ogdenpapers,n Ogden,Ferguson ollection,New York HistoricalSociety.5. G. J. S. Broomhalland John H. Hubback,CornTradeMemories:ecent nd Remote(Liverpool:Northern PublishingCo., 1930).6. NormanSydney uck,TheDevelopmentf heOrganizationf heAnglo-Americanrade,1800-1850 (New Haven: Yale UniversityPress,1925).7. Richard Caves,"Organization,Scaleand Performancen the Grain Trade," FoodResearchnstitute tudies, ol. 16, No. 3 (1977-1978).

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8. S. D. Chapman, "The International Houses:The ContinentalContribution to BritishCommerce,1800-1860," The ournalofEuropean conomicistory, ol. 6 (Spring1977), pp.5-48.9. C. Chattaway, Arbitration in the ForeignCorn Trade in London,"Economicournal,Vol. 17 (September1907), pp. 428-31.10. Roger V. Clements, The Farmers'Attitude toward British nvestment n AmericanIndustry,"TheJournal of Economicistory,Vol. 15 (1955), pp. 151-55.11. Mark Collett Papers,Kent County Archives,Maidstone,England.12. NielsonChaseConklin,"An Economic nalysis f the PricingEfficiency nd MarketOrganizationof the U.S. Grain Export System,"U.S. General AccountingOlfice (GAO/CED-82-61s) Supplemento a Staff Study) 15 June 1982.13. JosephS. Davis, "Pacific NorthwestWheat Problemsand the Export Subsidy,"WheatStudiesStanfordUniversity,Food Research nstitute), Vol. 10 (August 1934), pp.361-69.14. Paul de Hevesy,WorldWheatPlanningand Economiclanning n General Oxford:

Oxford UniversityPress,1940).15. Peter Drucker, Management: asks,Responsibilities,ractices,New York: Harper &Row, 1974).16. SusanFairlie, "Shipping n the Anglo-RussianGrain Trade, to 1870: Part One,"MaritimeHistory,Vol. 1, No. 2 (September1971), pp. 158-75.17. William G. Ferris,"The Disgrace f Ira Munn,"Journalof the llinoisStateHistoricalSociety,ol. 68 (June1975), pp. 202-12.18. JosephR. Freedman,"A London Merchant Banker n Anglo-AmericanTrade andFinance,"doctoraldissertation,Universityof London, 1969.19. William Goodwin, WheatGrowingn the Argentine epublicLiverpool:NorthernPublishingCo., 1895).20. N. S. B. Gras,TheEvolution f theEnglishCornMarketrom theTwelftho heEighteenthCenturiesCambridge,MA: Harvard UniversityPress,1915).21. PatriciaHerlihy, "StapleTrade and Urbanization n New Russia," ahrbilcherrGeschichtesteuropas,eue Folge,Band 21 (1973), pp. 184-95.22. Ralph W. Hidy, TheHouse f Baring n American radeand Finance: nglishMerchantBankers t Work,1763-1861 (Cambridge,MA: Harvard UniversityPress,1949).23. DorothyD. Hirsch,"A Studyof the ForeignWheat Trade of Oregon, 1869-1887,"ReedCollege ulletin,Volume 31 (August1953), pp. 47-85.24. Wallis G. G. Hunt, Heirs of Great Adventure: Historyof Balfour,Williamson ndCompanyLondon:privatelyprinted, 1951 and 1967),2 Vols.25. FrederickHuth & Co. papers,UniversityCollegeDepository, gham,England.26. LeoJurowsky, errussischeetreideexport,eine ntwicklungndorganisationMunchenerVolkswirtschaftliche tudien, No. 105, 1910).27. JohnR. Killick,"Bolton,Ogden& Co.: A CaseStudy n Anglo-Americanrade,1790-1850," TheBusinessistoryReview, ol. 48 (Winter 1974), pp. 501-19.28. Larry A. McFarlane, BritishAgricultural nvestmentn the Dakotas,1877-19537in Paul Uselding, ed. PapersPresented t the Twenty-Secondnnual Meetingof the BusinessHistoryConference,2-13 March 1976, pp. 112-26.29. Sheila Marriner, Rathbonesf Liverpool, 845-1873 (Liverpool University Press,1961).30. Donald W. Meinig, The Great Columbia lain: A HistoricalGeography,805-1910

(Seattle:University f Washington ress,1968).31. MilwaukeeChamberof Commercepapers,StateHistoricalSocietyof Wisconsin.32. Dan Morgan,Merchants f Grain (New York: The Viking Press,1979).33. Morrison, Cryder & Co. papers,Guildhall Library, London.

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34. Mancur Olson, "The United Kingdomand the World Market in Wheat and OtherPrimary Products,1870-1914," Explorationsn Economicistory, ol. 11 (Summer1974),pp. 325-56.35. Rodman W. Paul, "The Wheat Trade BetweenCalifornia and the United Kingdom,"Mississippialley istorical eview, ol. 45 (December1958), pp. 391-412.36. J. Richard Peet, "Influencesof the British Market on Agriculture and RelatedEconomic evelopmentn Europebefore 1860," nstituteof BritishGeography, ransactions,No. 56 /July 1972), pp. 1-19.37. EdwinJ. Perkins,FinancingAnglo-Americanrade: The Houseof Brown,1800-1880(Cambridge,MA: Harvard University Press,1975).38. Rathbone amily papers,LiverpoolUniversity.39. Morton Rothstein, "A British Firn on the American West Coast, 1869-1914," TheBusinessistoryReview,Vol. 37 (Winter 1963), pp. 392-415.40. H. Schumacher,Die Getridehandeln den VereinigtenStaatenvon Amerika undSeineOrganization,"JahrbiicherJrational6konomiendStatistik, ol. 65 (1895),pp. 361-92,801-22.41. AbbottPayson sher,TheHistory f heGrainTrade n France, 400-1710, Cambridge,MA: Harvard University Press,1913).42. John B. Watkins, WheatExportingrom the PacificNorthwestPullman, WA: StateCollegeof Washington, griculturalExperimentStation,Bulletin No. 201, 1926).43. Egerton R. Williams,"Thirty Years n the Grain Trade," NorthAmerican eview,Vol. 161 /July 1895), pp. 25-33.44. Jeffrey G. Williamson, "Greasing the Wheels of Sputtering Export Engines:MidwesternGrains and AmericanGrowth," Explorationsn Economicistory,Vol. 17 /July1980), pp. 189-217.45. Max Winters,Zur Organisationes udriissischenetreide-exporthandelsLeipzig:Duncker& Humblot, 1905).46. L. B. Zapoleon, Internationand DomesticCommoditiesnd the Theory of Prices,"Quarterly ournal of Economics,ol. 65 (May 1931), pp. 409-59.

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multinationals in grain trade -1914

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