During World War II, the United States imported more than three million tons of Chilean nitrate, about 90 percent of which was used as fertilizer. Comprising more than 25 percent agricultural nitrogen (and 40 percent in 1942), it made a major contribution to American farm production during the war. Chilean nitrate was called “a boon to the war effort … without [which] the American farmer could hardly carry out the Government’s ambitious crop program of supplying food, vegetable oils, and fibers for the United States and its armed forces, as well as for its Allies.”Footnote 1 Modern scholarship has extolled the critical role of US agricultural production in victory over the Axis, and fertilizer is mentioned as having played an important part, but little if anything is said about the specific contribution of Chilean nitrate.Footnote 2
Philip Groggins, Chief of the Chemicals and Fertilizers Branch at the War Food Administration (WFA), estimated that “500,000 tons of Chilean nitrate would produce the crops that would otherwise require 2,000,000 acres,” and that “assuming that we could avoid the cultivation of only one million acres, and assuming further that an exempted farmer could farm 50 acres, this would indicate a saving of about 20,000 men, or a division or two.” Groggins emphasized that fertilizer “constitutes the remaining flexible instrument for obtaining greater crops without the use of additional manpower and farm machinery,” and that Chilean nitrate was indispensable for the WFA to pursue “all-out production.”Footnote 3 Chilean nitrate was especially important in the production of potatoes, corn, wheat, and cotton. Regionally, it was vital in the Southeastern states, which have some of the most nitrogen deficient soils in the country.Footnote 4
Because chemical nitrogen also is essential for weapons production, each additional ton of Chilean nitrate eased the “guns and butter” tradeoff. During the war, the overwhelming fraction of US synthetic nitrogen output was used for military and industrial purposes rather than agricultural. Imports of Chilean nitrate, consequently, permitted the United States to simultaneously increase weapons and food production.
At no time was Chilean nitrate more crucial than in 1942. The military demand for nitrogen increased dramatically with US entry into the war, yet most of the new government ammonia plants had yet to begin production. In 1942, the War Production Board reallocated most domestically produced nitrogen from agriculture to the military, so that even though imports of Chilean nitrate increased by 50 percent, there was a 10 percent decrease in consumption of nitrogen fertilizer.Footnote 5 Without Chilean nitrate, there would have been more than 40 percent less nitrogen fertilizer that year, assuming the same allocation of domestic nitrogen. That would have been a heavy blow to US food production during what Tracy Campbell calls the “Year of Peril.”Footnote 6 Chilean nitrate was relatively less important after 1942 but remained a vital supplier of nitrogen for the Allied cause. C. Kenneth Horner, of the Chemical Unit in the Department of Commerce’s Bureau of Foreign and Domestic Commerce, stated in October 1945: “If it had not been for sodium nitrate from Chile … agriculture would have been far short of nitrogen.”Footnote 7
The wartime nitrate trade was also a matter of national importance in Chile. Well over half of Chile’s nitrate exports went to the US during the war years. Nitrates accounted for 15–20 percent of Chile’s total exports, second only to copper, and were more than 5 percent of total output.Footnote 8 The Chilean Nitrate and Iodine Sales Corporation was a government enterprise that handled all exports. From 1942 to 1945, its US sales were to the US government. The wartime nitrate trade was the result of negotiations and cooperation between the governments of Chile and United States. On the US side, there was a bewildering number of players involved, including the War Production Board, the WFA, the Office of Price Administration, the Reconstruction Finance Corporation, the Foreign Economic Administration, the War Shipping Administration, the Department of State, and the Office of War Mobilization. It was the task of this bureaucratic soup to weigh the relative importance of increased food production that Chilean nitrate would make possible versus alternative uses, not just of government funds but critically of scarce shipping to transport the product nearly four thousand miles from northern Chile to its main market in the southern United States.
An unknown factor was the link between the nitrate trade and US foreign policy. Key figures at the State Department worried that insufficient imports could destabilize Chile economically and politically. Not only would such an outcome belie the Good Neighbor Policy but also could jeopardize access to Chilean copper, which the US viewed as having even more strategic value than nitrate.Footnote 9 Moreover, much to the consternation of the US administration, Chile did not break relations with Germany and Japan after the Rio Conference in 1942. The State Department was focused on remedying that situation. Nazi spies in Chile were sending sensitive information to Germany about northbound vessels laden with copper and nitrates, some of which were later sunk by enemy submarines. Chile severed relations with the Axis in January 1943.Footnote 10 There is no evidence that the US attempted to use Chile’s dependence on nitrate as leverage in negotiations over Chile’s foreign relations with the Axis. On the contrary, at crucial junctures when commercial tensions were high, the State Department intervened on Chile’s behalf. In the case of nitrate, military and merchant shipping constraints were overriding, but the State Department found opportunities to bend the will of the bureaucracy to further its goal of maintaining political and economic stability in Chile.
This research makes contributions to several literatures. First, while the nitrate industry holds a prominent place in Chilean economic and business histories, there is comparatively little scholarship about the industry in the period after 1935, especially the war years.Footnote 11 Second, despite the voluminous business and economic history literatures on the Second World War, surprisingly little focuses on the Allied procurement of strategic materials.Footnote 12 Mirko Lamer’s The World Fertilizer Economy contains the most comprehensive discussion of wartime fertilizer production, but only provides a cursory description of the Chilean–US nitrate trade.Footnote 13 This research also contributes to an extensive literature on Latin American business history that emphasizes its transnational connections.Footnote 14 The history of Chilean nitrate is global history—even though the nitrate commodity chain’s single biggest link was between the US and Chile—because the interchange of people, technology, resources, and the final product was global. In the Second World War, nitrate fertilizer was used almost entirely as such, so it did not require further processing, but production, transportation, marketing, packaging, and application technologies were transnational. The mining and processing facilities in the Atacama Desert were part of a global value chain.
This paper also speaks to larger questions about US relations with Latin America during the Second World War. The focus in the existing literature understandably has been on security and geopolitics, and even in those areas comparatively little attention has been paid to relations between the US and Chile. Rebecca Herman centers her study of US military bases in Latin America during World War II on Panama, Cuba, and Brazil. Herman explains that Chile “participated only minimally in the wartime [security] arrangement.”Footnote 15 By examining relations from the perspective of business and economic history, this paper demonstrates that Chilean–US cooperation was not just important economically but was vital to the Allied war effort. US government agencies purchased $638 million of commodities from Chile during the war, greater than any country in Latin America except Cuba and more than the combined purchases from Mexico and Brazil.Footnote 16 Chile was a crucial source of strategic materials, especially nitrates, copper, and manganese.
The narrative depicts complex and multifaceted interactions between government officials and business executives in Chile and the United States. The negotiations over the nitrate trade show that Chileans were far from subservient lackeys kowtowing to their American principals. Instead, they exhibit sophisticated agency in advocating for their interests, both in terms of raw finance and strategic market position. In this sense, the research builds on major works that emphasize Latin American agency in its relations with the United States, including by Tanya Harmer, Eric Zolov, Rebecca Herman, and an anthology edited by Juan Pablo Scarfi and David Sheinin.Footnote 17
The Chilean nitrate corporations at the center of this history were led by a multinational staff of Chilean, US, and British citizens. Jorge Vidal, Osvaldo de Castro, Horace Graham, Medley Whelpley, and David Blair were some of the directors of the Chilean Nitrate and Iodine Sales Corporation. Each person held executive positions in the nitrate producing companies. Graham also served as the representative of the US government’s Metals Reserve Company in Chile during the Second World War. Graham told US diplomats that “it was the policy of the nitrate industry to use Chilean personnel whenever possible and they considered themselves inherently as a Chilean company.”Footnote 18 The rank-and-file laborers in the nitrate plants were Chileans, and many were communists, but this was not a hindrance to inter-American cooperation during the war. Graham went so far as to say that the communists “are the best workers, and the most outstanding workers that we have, and they do not drink.”Footnote 19
Albert Woods, a US citizen, was president of the Chilean nitrate sales subsidiary in New York and the agent of his principals in Santiago and Valparaiso. The subsidiary did the bidding of its Chilean parent. From 1942 to 1945, its operations were fully integrated with the US war machine and, to that end, its management was in frequent communication with the War Production Board, the War Food Administration, and the War Shipping Administration. The company participated in industry advisory committees along with other nitrogen and fertilizer producers, including DuPont and Allied Chemical. Like other US corporations, the firm made regular purchases of war bonds and its workers left to serve in the US military.Footnote 20 The overall picture is one in which the nitrate industry cooperated with the United States and made an important contribution to winning the war, but at the same time it pursued its own interests. The relationship was not one of subservience but of Chilean firms exhibiting independent action.
This research is based on evidence collected from the records of agencies and firms at the heart of the US–Chilean wartime nitrate trade. Most important are the War Production Board, the Department of Agriculture, the Department of State, the Foreign Economic Administration, the Defense Supplies Corporation, the Chilean Nitrate and Iodine Sales Corporation, and the nitrate producing companies. Much of the evidence for this paper was collected at the US National Archives in College Park, Maryland, and the Archivo Nacional de Chile in Santiago.
The Chilean Nitrate Industry and the US Market
The Atacama Desert contains extensive deposits of the nitrate-bearing mineral caliche. By 1914, dozens of firms had established caliche mining operations along with processing plants called oficinas. These plants used the Shanks method to obtain sodium nitrate of about 15.5–16 percent nitrogen, which gained international fame as a fertilizer. In the seven years before World War I, Chile exported an annual average of 2.5 million tons, with about 75 percent going to Europe and 20 percent to the United States. It supplied about two-thirds of the entire US nitrogen market during those years.Footnote 21
During World War I, Chilean exports to the US tripled, peaking in 1918 at almost 1.9 million tons, making up 75 percent of the US nitrogen supply. The US was the destination for about 60 percent of Chilean nitrate exports that year. Moreover, the price rose by more than 50 percent.Footnote 22 The US government intervened in the nitrate market in World War I. Charles Brand, chief of the Bureau of Markets in the US Department of Agriculture during the war, described the procedure:
Heavy American purchasers of nitrate of soda during World War I, namely, the War Department, the Navy Department, and the Department of Agriculture, controlled the details of their own purchases by contracts with the importers (DuPont Nitrate, W. R. Grace, Wessel-Duval and H. J. Baker, acting for Anthony Gibbs and Co.). The Allied Nitrate Executive in London determined the allocations to go to the various countries, and some of the conditions of sale, while the American purchases were made under the supervision of the nitrate section of the War Industries Board by each purchasing department. … During the early part of United States’ participation in the war, importers were allowed, as far as accessible supplies permitted, to bring in nitrate of soda for their own account. Subsequently … unsupervised private purchasing was practically stopped.Footnote 23
Through the Food Control and Food Production Acts of 1917, the US Department of Agriculture purchased and distributed Chilean nitrate as fertilizer. Ammonium sulfate, a by-product in the manufacture of coke, provided additional nitrogen. The Haber-Bosch process for producing ammonia was invented before the war but did not play a role in the United States. Germany, however, rapidly expanded synthetic ammonia capacity to replace that country’s lost access to Chilean nitrate to supply their nitrogen.Footnote 24
The war set the stage for an enormous expansion in low-cost nitrogen production capacity in the 1920s that threatened the viability of the Chilean nitrate industry. In 1913, world production of chemical nitrogen was 843,525 tons, and Chilean nitrate accounted for 56.5 percent of it. In 1931, world production was more than twice that in 1913, but Chilean production was less than half of its 1913 level.Footnote 25 US nitrogen production grew rapidly. DuPont opened its Belle, West Virginia, synthetic plant in 1925; and Allied Chemical followed a few years later with an even larger facility in Hopewell, Virginia. Shell, Dow, and Hercules constructed plants in California serving the West Coast.Footnote 26 Chilean oficinas, using decades-old technology, found it difficult to compete, especially in the market for industrial uses.Footnote 27
The Guggenheims appeared as prospective saviors for the Chilean industry. Their engineers, led by Elias Cappelen Smith, had developed a new caliche-processing technology that cut the cost of production appreciably. Two firms in which the Guggenheims held controlling interest, the Anglo-Chilean Nitrate Corporation and Lautaro Nitrate Company, built two huge oficinas, amassing commensurate debt in the process. In the face of intense competition from the synthetic industry and with its export tax revenues on increasingly shaky ground, the Chilean government created the Chilean Nitrate Company (Compañía de Salitre de Chile, or COSACH), which absorbed almost all of the industry’s firms, including Anglo-Chilean and Lautaro. From its inception, COSACH was highly leveraged. By 1932, the combined effects of synthetic competition and the Great Depression led to catastrophic losses, and COSACH was in default.Footnote 28 Table 1 shows a list of the Chilean nitrate entities, their acronyms, and functions.
Chilean Businesses and Government Agencies Involved in the Chilean Nitrate Trade
Source: Author’s compilation.
US Businesses and Government Agencies Involved in the Chilean Nitrate Trade
Source: Author’s compilation.
Inside Chile, COSACH was immensely unpopular and the government dissolved it in 1933. The industry was completely reorganized over the next few years. First, nitrate production was returned to private hands. Three firms produced most of the output: the two Guggenheim-controlled firms and Compañía de Salitre de Tarapacá y Antofagasta (COSATAN), an amalgamation of thirty-four Shanks-process companies that had been part of COSACH but not associated with Lautaro or Anglo-Chilean. These three firms took on millions of COSACH’s former debt, in addition to their own. By 1937, the firms had court-approved reorganization plans that reduced and rescheduled their debts. These plans imposed strict rules limiting the accumulation of reserve capital and prohibiting dividends from the three companies for the foreseeable future.Footnote 29
The Chilean government created the Corporación de Ventas de Salitre y Yodo de Chile (Chilean Nitrate and Iodine Sales Corporation, or COVENSA). In contrast to COSACH, COVENSA did not own any production facilities or any stock in the producing firms. A new law instead granted COVENSA the sole legal right to export nitrate and iodine until 1968. COVENSA purchased nitrate from the producing firms at “industrial cost” and exported it on its own account. The Chilean government received 25 percent of the profits.Footnote 30
COVENSA’s sales in the United States were undertaken by its subsidiary, the Chilean Nitrate Sales Corporation (CNSC), which negotiated purchase and price agreements with COVENSA, arranged for transportation, and marketed the product. Its headquarters was in New York but it had offices, agents, and warehouses mostly in the southern United States, where most of the market was located.Footnote 31 During World War II, the president of CNSC was J. Albert Woods, a Tennessee native with a background in the fertilizer industry. Directors included Chileans and Americans, some simultaneously serving as directors of nitrate-producing firms. Those firms also maintained New York offices at the same address.Footnote 32
Sales and prices of Chilean nitrate recovered after 1933 but were still far below averages in the 1920s. The combined pressures of the Great Depression and synthetic competition prevented improvement.Footnote 33 Despite having reorganized their finances, the nitrate producers were pouring most of their net earnings into debt service and were severely limited in their ability to make productivity-enhancing investments. Additionally, the excess production in the early 1930s left the industry with massive overstock. According to the terms of the 1934 nitrate law, between one-fifth and one-third of each firm’s export quota consisted of old stock rather than new production. The considerable economies of scale in the industry meant that this stock increased average costs and hurt profits. The overstock was not fully liquidated until 1941.Footnote 34
Before Pearl Harbor
For Chilean nitrate, the main challenge presented by the outbreak of World War II was the loss of markets, which increased Chile’s reliance on the United States.Footnote 35 The US government’s nitrogen strategy in 1940 and 1941 was the responsibility of the National Defense Advisory Commission (NDAC) and the Joint Army and Navy Munitions Board. The latter was assisted by its Chemical Advisory Committee, which consisted of representatives of private industry.Footnote 36 The NDAC determined that the existing domestic nitrogen capacity and the current rate of Chilean nitrate imports would be insufficient to meet US requirements, and suggested that the US government should build additional domestic capacity to meet its needs rather than rely on an increase in Chilean imports. This decision was based on calculations that manufacturing nitric acid with Chilean nitrate was more than twice as expensive as with synthetic ammonia and that industrial use of Chilean nitrate was “obsolete.” Moreover, some argued that it was poor “military strategy to use [Chilean nitrate] for munitions because of the difficulty of maintaining a long ‘life-line’ at sea.” Instead, the NDAC opted to build government plants that would increase the country’s synthetic ammonia capacity by 25 percent.Footnote 37
The US decision was a blow to the Chilean nitrate industry not just in terms of lost potential wartime sales but also increased US nitrogen capacity constituted a long-term competitive threat. Chile’s representatives in Washington, DC, communicated their disappointment to the State Department, emphasizing that the Chilean nitrate industry was fully capable of “supplying all the nitrate necessary to meet the emergency.”Footnote 38 Undersecretary of State Welles was sympathetic, and requested that NDAC procure a stockpile:
In view of the importance of our broad hemisphere defense policy of cooperating in every possible way in the strengthening of the economic situation of the other American Republics, and the desirability of doing for Chile whatever is appropriate and consistent with our defense needs.Footnote 39
Edward Stettinius, head of NDAC’s Industrial Materials Division, and President Roosevelt approved the purchase in November 1940.Footnote 40
The US Defense Supplies Corporation contracted with COVENSA for 300,000 tons of nitrate at $18 per ton fas Chile, slightly above the $17.85 that the Chilean Nitrate Sales Corporation paid COVENSA for nitrate destined for the private market. The CNSC maintained the price of nitrate in bulk in US ports at $27 per ton since July 1, 1937, but it was no longer sustainable. Albert Woods, the company’s president, held talks with the Maritime Commission and the Office of Price Administration and Civilian Supply about how the rapid escalation in freight rates was causing the firm losses. Leon Henderson, the Price administrator, was trying to hold the line on inflation, but he reluctantly agreed to permit an increase in the price of nitrate from $27 to $30 per ton effective August 1, 1941.Footnote 41
Henderson did not want to jeopardize the nitrate supply, as he explained in a letter Secretary of Agriculture Claude Wickard:
For some months the members of my staff … have been worried about the possibility of a shortage in the supply of nitrogen. It now appears that their fears were justified and a serious deficiency in our supply of nitrogen and nitrogenous compounds may now be taken as a certainty. … New munitions plants which compete with agriculture for the supplies of fixed nitrogen are coming into production on schedule. It is at least probable that nitrogen now going into the manufacture of synthetic sodium nitrate will have to be diverted to the manufacture of propellants and explosives. New synthetic ammonia capacity is being provided but these plants will not be in production in time to relieve the situation during the next crop year. … It will not be possible to know for some months the exact extent of the shortage of nitrogen and, needless to say, we must plan to get all possible supplies.Footnote 42
Nitrogen specialists at the Office of Production Management (OPM) concluded that “if demand were to be satisfied completely it probably would be necessary to bring in about 750,000 tons from Chile and practically all of it by May 15. There is no other material available in such quantities this year for top-dressing purposes for use by the farmer.” In November, 750,000 tons of Chilean imports for the year ending June 30, 1942, was authorized, and OPM instructed the Maritime Commission to give that full amount a “high shipping rating.”Footnote 43 This quantity was much greater than in any year since 1929. Even before the US entered World War II, the Chilean nitrate industry increasingly depended on the US for its welfare. By the same token, war mobilization increased US reliance on Chilean nitrate.
Nitrate at War: Government Allocation, Price Ceiling, and Subsidy
After the United States entered the Second World War, ordnance output expanded enormously: the 487 thousand short tons of aircraft bombs and 103 million artillery rounds procured in 1942 were increases of 18 times and 26 times, respectively, over 1941 totals. The War Production Board reported that this expansion was achieved through an increase in “military consumption of fixed nitrogen [by] 500% from 1941 to 1942.” Although some new ammonia plants began production, most were not completed until 1943.Footnote 44 Given the limited domestic nitrogen supply, Chilean nitrate was essential, enabling the US to carry out its armament program and at the same time increase food output.
A little more than one month after Pearl Harbor, the War Production Board issued General Preference Order M-62, through which it exerted almost complete control over the allocation of sodium nitrate. All military requests for the product received the highest priority, essential industries were next in line, and agriculture received the residual. The War Production Board issued similar orders for the other sources of nitrogen: ammonium sulfate (M-163), synthetic ammonia (M-164), and cyanamide (M-165). The Nitrogen Unit of the Chemicals Branch of the War Production Board allocated nitrogen products in close consultation with the military and, for fertilizer, with the Department of Agriculture.Footnote 45 War Production Board Order M-231, later superseded by Department of Agriculture Food Production Order 5, regulated fertilizer manufacture and established priorities for allocating fertilizer to different crops. The CNSC “shipped the nitrate in accordance with Government allocations,” either to end-users or to fertilizer dealers and distributors. Table 2 shows a list of the US government entities, their acronyms, and functions.Footnote 46
One of the more contentious and important aspects of the Chilean–US nitrate trade during the war was the conflict between Office of Price Administration’s desire not to raise the price of nitrate and the Chileans’ requests for price increases. The Office of Price Administration (OPA) set a price ceiling for Chilean nitrate at $30 per ton at US ports in August 1941.Footnote 47 The increase in freight rates and war risk insurance rates after Pearl Harbor led the CNSC to request a $1.50 per ton increase in that ceiling price. After examining the financial records of the CNSC, OPA concluded that the request was justified, but it did not want the price to increase. Price Administrator Leon Henderson wrote to Secretary of Commerce Jesse Jones:
It is important that the price of nitrate of soda be held to the $30.00 a ton level. Increased fertilizer prices add to the costs of agricultural production. Furthermore, the prices of synthetic nitrate of soda [Arcadian brand from Allied Chemical] have not risen from the pre-war level of $27.00 per ton bulk. In general, the other nitrogen materials which are used primarily in mixed fertilizers have not increased in price. If the disparity between the price of Chilean nitrate and the materials produced in this country is increased, it makes the problem of controlling the prices of the domestic nitrogen most difficult. Not only is there a diversion of demand to the domestic commodities, which increases the pressure on the very limited supply of them that is available, but also it is made increasingly difficult to enforce the existing price levels upon the domestic nitrogen producers. … It is requested that the Defense Supplies Corporation reimburse the Chilean Nitrate Sales Corporation the amount of $1.50 per ton … in compensation for the increased costs in bringing in this material. … It should be pointed out that the Defense Supplies Corporation will in all probability be requested to continue the proposed arrangement, or one similar to it, beyond July 1, 1942.Footnote 48
This was the origin of the US government’s subsidy of Chilean nitrate imports, but the amount of $1.50 per ton grew in short order.
The CNSC purchased nitrate from its parent, COVENSA, at prices fixed in annual contracts. Under the contract expiring June 30, 1942, the purchase price was $18 per ton but COVENSA informed CNSC that it would request a $3 per ton increase for the new fiscal year to cover higher costs of production. The CNSC replied that such a request would require CNSC to request the OPA to increase the subsidy, which would in all probability be rejected.Footnote 49 Moreover, the New York office warned that the US might demand that Chilean producers reveal detailed cost of production data. Nonetheless, COVENSA directed the CNSC to make the request.
In a visit to Washington, CNSC executives asked that the subsidy be increased from $1.50 per ton to $7 per ton: $3 to cover the increased price from COVENSA and the remainder due to further increases in freight rates, insurance, and port costs.Footnote 50 They provided some rough details that justified the cost increases in Chile, attributing about one-third to general increases through April 1942, another one-third to recently concluded wage contracts, and the remainder to higher railway rates and anticipated increases in fuel and other imported materials costs. The Board of Economic Warfare (BEW) contacted the State Department to request that the US Embassy in Chile verify these claims.Footnote 51 On August 20, the embassy replied with some details of recent wage and input price increases, along with the most recently available financial statements that it had obtained from the three major nitrate producers. In the view of Ambassador Bowers:
That the producing companies have not been in a very prosperous condition is indicated by the fact that the bonds of the Lautaro Nitrate Company were quoted in the New York market on June 28, 1942, at 43-3/4, the highest point reached during the year. This is the most prosperous of the producing companies.Footnote 52
In discussions with officials at the Board of Economic Warfare, CNSC President Woods insisted that they were presently making shipments at a loss and could not do so indefinitely. E. W. Reid, the head of the Chemicals Branch of the War Production Board (WPB), told W. Y. Elliott, head of the Stockpile and Shipping Branch of the WPB: “If means are not provided to compensate Chilean Nitrate Sales Corporation for increases in costs, it is probable that importations will be diminished or entirely cut off.”Footnote 53 The Chilean ambassador to the United States, Rodolfo Michels, met with US Vice President and Chairman of the Board of Economic Warfare (BEW) Henry Wallace, and Wallace asked point blank if any cost increases were from higher payments to executives rather than wage increments for laborers. Michels assured Wallace that was not the case. Michels told his superiors that from his conversations with Wallace and with Milo Perkins, Executive Director of BEW, he suspected that synthetic nitrogen producers in the US had been working against the requested price increase.Footnote 54
There is nothing in the record to suggest that is true or that the US was holding up the price increase as a way of exerting leverage over the Chilean government to break relations with the Axis. COVENSA officials suspected that Chile’s position might hurt the nitrate industry in its dealings with the United States.Footnote 55 An internal State Department memorandum of August 19, 1942, before the cost information arrived from Santiago, includes the following tantalizing passage:
[T]he meeting had been called to discuss the policy angle of whether the increase in price could be used to our advantage in the Chilean situation. It was agreed that while this Department approved the price increase, which fact should be made known to BEW, no indication thereof should be given to the Chilean Nitrate Sales Company pending the completion of the economic studies which it is understood BEW is continuing; that BEW should inform this Department when it had reached a decision, prior to going ahead with the contract. Meanwhile, Mr. Bonsal will discuss with Mr. Welles the question of use as a matter of policy of the increased price.Footnote 56
In a memorandum to Undersecretary of State Welles on August 28, Philip Bonsal, Chief of the Division of American Republics at the State Department, wrote that “all of the agencies concerned have agreed to go ahead” on the price increase, but “we are not notifying the Chileans until further advice from you. [Assistant Secretary of Commerce] Mr. Clayton has indicated that he believes that we are ‘morally’ obliged to proceed in this matter.” Nevertheless, Bonsal noted that the State Department should not move forward with a new trade agreement with Chile “until the Chilean attitude with regard to breaking relations with the Axis is more clearly defined.” Welles agreed with Bonsal to move ahead with nitrate but added that he “was not satisfied with the present Chilean position,” and that they should hold back on trade negotiations.Footnote 57
On September 7, 1942, Thomas Finletter, Special Assistant to Secretary of State Cordell Hull for Defense Materials, wrote to Arthur Paul, chief of Imports at BEW: “The Chilean nitrate negotiations … may now be completed in so far as political considerations are concerned.” Paul determined that the $3 portion of the cost increase (the higher COVENSA price to CNSC) “could not be justified on business grounds,” but Finletter told him that although the US may lack precise cost information, the State Department believed that rejecting that increase “would have undesirable results.” He therefore recommended going ahead with the increase of the subsidy to $7 per ton as Woods had requested two months prior. This formal request was decisive, and the contract between Defense Supplies Corporation and CNSC was concluded with the subsidy in place.Footnote 58
Despite acquiescing to the State Department’s request in 1942, the BEW continued to have reservations about subsidizing Chilean nitrate imports. These came to a head in 1943 when it was time to negotiate the next annual contract. COVENSA’s board initially wanted an increase in its fas Chile sale price of $3 to $24 per ton, based on increases of fuel costs of $1 per ton, wages of $1.50 per ton, and miscellaneous other items at $0.50 per ton. Because some oficinas were beginning to access higher-grade caliche deposits, they felt that they could accept $23.50 per ton. Woods held conversations in Washington on this basis, but the BEW felt that the increase was not justified.Footnote 59
Two representatives from COVENSA, Vice President Pedro Álvarez and Manager Florencio García, arrived in Washington in August to participate in the negotiations with CNSC President Woods. The three held meetings at the Office of Economic Warfare (OEW), which replaced BEW by executive order on July 15, 1943. They again requested the $23.50. OEW countered that it was ready to conclude a contract at the old price of $21 and could not accept the price increase. García repeated the information provided the previous month about the fuel and other cost increases. The OEW wanted to examine the books of the producing companies to verify not just the cost increases but the overall margins. Álvarez and García said that they could not do so because the US government was the owner of synthetic nitrogen plants that were direct competitors. This was true, as the immense increase in US synthetic capacity was mostly online in 1943, and a sizeable volume of ammonium nitrate would be available as fertilizer. The Chileans offered to provide details of the cost increases, as they had been done in 1942, but OEW “replied that they could not now accept this without previously knowing the actual costs over a period of years.”Footnote 60
The discussion within COVENSA about how to respond hinged on an uncomfortable fact about the Chilean industry: there was significant heterogeneity in the cost of production. The president of COVENSA and Ministro de Hacienda Guillermo del Pedregal recommended that, as a last resort, they tell the US that they would accept the $21 price, but this would mean concentrating production in the region and plants with the lowest costs, with consequent unemployment and “upheaval.” COVENSA and the Guggenheim firms’ director Horace Graham frankly stated that they would not be successful arguing to OEW that the higher price was necessary because some of the oficinas are high-cost producers. Graham explained that the Guggenheim plants had not increased their costs too much because they had offset higher oil and labor costs with some “technical improvements.” He also reminded the board that the balance sheets of Anglo-Chilean and Lautaro clearly show increases in profits proportional to the amount sold. Del Pedregal countered that once one considered firms’ debt service and the 25 percent share of the Chilean government, profit rates were no higher than 10 percent, “which is not in any way exaggerated.”Footnote 61
Indeed, there is scant evidence that Chilean nitrate producers earned excess profits during the Second World War. Table 3 shows the net proceeds before depreciation and debt service for the three firms accounting for over 90 percent of output. The three contract years of 1943, 1944, and 1945 are all lower than both earlier and later years. Neither the Tarapacá and Antofagasta Nitrate Company nor Anglo-Chilean issued any dividends during the war. The Lautaro Nitrate Corporation paid dividends of about $0.20 per share in 1942, 1943, and 1945, and $0.12 per share in 1944. This was not by any means an impressive dividend payout.Footnote 62 Lautaro share prices improved, however. Its shares traded at a low of 7.25 shillings in 1942 but were never lower than 12 from 1943 to 1945 and were as high as 19. The US index of common stocks more than doubled during this time as well. The most significant financial outcome of the war for the nitrate industry was that the Guggenheim firms, at least, met the terms of their trust deeds, paid down their debt, and set the stage for much needed capital improvements after the war.Footnote 63
Chilean Nitrate Producing Firms’ Operating Profits (Thousands of Pounds Sterling)
Sources: Annual reports of Lautaro Nitrate Co. and Anglo-Chilean Nitrate Corp., New York Public Library; Moody’s Manual of Investments.
Note: Figures do not include charges for depreciation and debt service.
The Chilean government, through its 25 percent share in industry operating profits and additional revenues through exchange controls, earned almost $16 million in revenue from nitrate between 1942 and 1945. This was about 2.8 percent of total government revenues, and while it was not insignificant, it was far shy of copper’s 20 percent.Footnote 64 There is little question that the Chilean government’s interest in the nitrate trade was motivated at least in part by its contribution to government income. The government’s 25 percent participation in COVENSA profits as well as import duties collected on petroleum imported by the nitrate companies were earmarked for external debt service. Chile’s external debt had ballooned in the run up to the Great Depression, and it was about half of Chilean gross domestic product as late as 1939. Nitrate revenues were important for the government’s ability to meet its debt obligations and improve its standing in international financial markets. The nitrate industry’s capacity for earning hard currency—and US dollars in particular—was critical to service foreign currency denominated debt and for financing vital imports. Accordingly, the Chilean government resorted to an increasingly elaborate system of exchange controls and compensation agreements.Footnote 65 The Treasury Minister’s presidency of COVENSA is indicative of the importance Chile placed on nitrate revenues. As the documents analyzed for this study show, the Chilean ambassador in Washington frequently acted in service of Chilean nitrate during the war.
This extended to the controversy over the price of nitrate in contracts with the US government. In the face of resistance from the US Office of Economic Warfare, COVENSA enlisted Ambassador Michels to plead its case with the State Department. In a meeting with Secretary of State Cordell Hull, Michels stated if the US insisted on seeing detailed cost data, Chile would insist that the US reveal the cost structure of its synthetic nitrogen plants.Footnote 66 That proposal was not accepted, but a breakthrough occurred on September 9 when CNSC President Woods and Victor Goldberg, Chief of the Miscellaneous Commodities Division at OEW, agreed to a price of $22.25 per ton fas Chile. The OEW wanted to see firmer data on fuel oil costs, and the $22.25 was adjustable downward if a rebate could be obtained for the nitrate firms for their imported fuel and other inputs. There were numerous transmittals of information on rising oil and materials costs, and the contract for the 1943–44 year was not signed until February 1944.Footnote 67
OEW was not simply relying on Woods and COVENSA for information. The US was intercepting communications between CNSC and COVENSA as well as communications within nitrate firms to obtain information about firms’ finances and their negotiating position. A cable intercept of September 3, 1943, and a telephone intercept of February 7, 1944, are included in the record. So is a 1945 report that lists “censorship intercepts” between the New York and Chile offices of Anglo-Chilean and Lautaro nitrate companies.Footnote 68 There is no indication that COVENSA or the nitrate producers were aware US negotiators were privy to their internal communications.
Woods visited Chile in March 1944. In consultations with members of COVENSA, they determined not to ask for any price increase for the 1944–1945 contract, despite foreseeing a decline in profits of $1.40 per ton. Negotiations for that contract began early because of developments in the war and the distraction of the upcoming US election.Footnote 69 Within the US, however, the issue of the subsidy did not go away. Norman Burns, an official in the Program Bureau of the War Production Board, completed a study of the issue in June 1944 in which he made estimates of actual costs of production in Chile using some of the intercepted information that suggested low production costs for the most efficient nitrate plants. Moreover, given the increased availability of domestic synthetic nitrogen, it galled one official that “we may be subsidizing an imported material at the expense of a domestic product.”Footnote 70 The State Department intervened more directly in 1944. In a letter from Charles Taft, Director of the State Department’s Office of Wartime Economic Affairs to Paul Nitze, the Director of Foreign Procurement at the Foreign Economic Administration (FEA), Taft said that State felt “it would be inadvisable to try to obtain a lower offering price” on nitrate and that unless OPA would permit the price to rise, a continuation of the subsidy would be required.Footnote 71 This advice was followed, so there were no conflicts over price in the 1944–1945 contract.
Over the course of the war, the US sold nitrate at a loss equal to the difference between the contracted prices and the OPA maximum price of $30 per ton. A summary of the prices and subsidies are in Table 4. Norman Burns, in the 1945 edition of his report, estimated the amount of the subsidy over the war to total $17,520,000. A formal audit undertaken after the war by the Comptroller General of the US arrived at the figure of $14,491,734.Footnote 72 As the war drew to a close, Sidney Scheuer, Executive Director of the FEA Bureau of Supplies wrote to Assistant Secretary of State William Clayton, “While we have never felt that a subsidy of this nature and amount was necessary on procurement grounds, the Department of State has on two separate occasions asked that we meet the demands of the Chilean sales company without attempting to negotiate a lower price.”Footnote 73
Annual Prices and Subsidy per Ton
Source: Norman Burns, “Subsidy on Imports of Chilean Nitrate of Soda,” 825.6374/6-1445, RG 59, 4, National Archives at College Park.
Notes: COVENSA is Chilean Nitrate and Iodine Sales Corporation; CNSC is Chilean Nitrate Sales Corporation; OPA is Office of Price Administration; FOB is Free On Board.
The US’ dissatisfaction with the subsidy helped precipitate the decision to return nitrate to market conditions. By summer 1945, there was burgeoning demand for fertilizer in liberated countries, especially in Europe. Chilean nitrate found a ready alternative market that made reliance on the US less important; the State Department recognized this and did not push either for a continuation of US purchases or a subsidy.
Determining the Volume of Sales: Requirements and Ships
A remarkable feature of the negotiations over the contract price is that it was virtually unconnected with the question of quantity. In 1943, the Chileans raised the possibility of accepting the lower price of $23.50 FAS Chile if the quantity was 1 million tons versus a higher price of $24.50 FAS Chile if the contract quantity was 700,000 tons.Footnote 74 This was essentially ignored by US negotiators. The bureaucratic and legal structures of the US government’s import program separated the two.
The War Production Board, the military, and the Department of Agriculture worked together to determine the overall requirements of nitrogen to meet production goals for munitions, industry, food, and fiber. They estimated the supply of domestic nitrogen and compared that with overall requirements to calculate desired nitrogen imports. In 1942, they concluded that the only prospect to easing restrictions imposed by the WPB allocation and conservation orders was to increase the availability of Chilean nitrate. William Batt, Chairman of the WPB’s Requirements Committee, stated that unless imports of Chilean nitrate could be increased, it would be necessary to cut fertilizer consumption by at least 50 percent below 1940–41 levels. Both the Department of Agriculture and the WPB recommended importing 1.4 million tons, and the president authorized that amount.Footnote 75
Industry advisory committees (on which the Chilean Nitrate Sales Corporation was represented), the Nitrogen Unit of the War Production Board, and the Chemicals and Fertilizers Branch of the War Food Administration worked together to determine fertilizer requirements. The Allied Combined Food Board also made recommendations that informed the WPB’s determination of the nitrate purchase authorization. Tables 5 and 6 show sodium nitrate allocation and nitrogen fertilizer consumption during the war. Chilean nitrate played the most significant role in 1942. Given the extreme scarcity of nitrogen in the US that year, the goal was to import as much Chilean nitrate as possible, subject to the availability of shipping.
US Government Allocation of Sodium Nitrate during World War Two (short tons)
Source: “History of the Distribution of Nitrogenous Chemicals, 1940–1945,” Select Document File, Box 77, f. Nitrogen, RG 179, 8, National Archives at College Park.
Note: Barrett refers to Arcadian Nitrate produced by Allied Chemical.
US Chemical Nitrogen Fertilizer Consumption (Thousands of Short Tons of Nitrogen)
Sources: Author’s computations from Philip Groggins, Chemicals and Food Production (Ann Arbor, MI, 1945), and “History of the Distribution of Nitrogenous Chemicals, 1940–1945,” Select Document File, Box 77, f. Nitrogen, RG 179, National Archives at College Park. The figures for Chilean and Arcadian Nitrate of Soda for 1941 are from a memorandum from Norman Burns, War Production Board Program Bureau, to Mr. J. Anthony Panuch, special assistant to the director of Material, Army Service Forces, War Department, “Nitrogen Supply and Requirements,” August 7, 1943, Policy Documentation File, 535.2004, f. Nitrogen Supply and Requirements, Box 1705, RG 179, National Archives at College Park. None of these sources contain a breakdown between Allied Chemical’s Arcadian nitrate and Chilean nitrate for 1937 and 1939. Notes: 1910, 1925, 1937, 1939, and 1941 are calendar years; 1942, 1943, and 1944 are fiscal years beginning July 1 of the year shown and ending June 30 the following year. For 1942–45, the months omitted are January–June 1942 and July–Dec. 1945.
Even though there was a great increase in the demand for imports of strategic materials, “United States shipping was allocated primarily to fit outbound requirements of the military, naval and foreign-aid (Lend-Lease) programs.”Footnote 76 This meant that there was abundant shipping available inbound from Europe and the Pacific Theater but a severe shortage of shipping to and from South America. Initially, shipbuilding could not even keep pace with losses from submarine warfare. The WPB’s Emergency Shipping Priorities List assigned priority ratings to the most essential strategic materials. Items designated A-1 were the highest priority, and so on. The WPB set shipping priorities in consultation with the Interdepartmental Shipping Priorities Advisory Committee, which included staff from the WBP, the WFA, the State Department, the OPA, the War Department, the Navy Department, and the War Shipping Administration.Footnote 77
W. Y. Elliott, the director of the Division of Stockpiling and Transportation in the WPB, said that obtaining vessels for 1.4 million tons of Chilean nitrate in 1942–43 was “completely outside the reach of possibility.”Footnote 78 When Elliott was pressed in November to arrange transport for 900,000 long tons of Chilean nitrate before June 1943, he replied that it was “completely impossible … given the fact that we depend almost entirely for shipping from the West Coast of South America on a return haul from Australia that means a diversion of up to forty days on boats desperately needed for our military efforts.” After consulting with the War Shipping Administration, Elliott rated 600,000 tons of nitrate as A-4 and the remaining 300,000 tons as B-3. He warned that even the 600,000 tons might not happen because essential materials like copper also required shipping from the west coast of South America.Footnote 79 Figure 1 shows the monthly imports of nitrate, which indicates a strong flow of imports through the second half of 1942 into 1943: about 655,000 of the 900,000 requested arrived.
Nitrate imports (short tons). (Sources: US Dept. of Commerce, Monthly Summary of Foreign Commerce, various issues.)
Because the goal in 1942 was to import as much Chilean nitrate as possible given the shipping constraints, COVENSA and the CNSC did not need to push for a higher contractual quantity but for higher administrative shipping ratings. This pattern did not repeat in 1943 because the US government’s ammonia plants were almost fully in production. Secretary of Agriculture Claude Wickard wrote to Vice President Wallace in February 1943 that “with shipping as tight as it is, importation of additional quantities of Chilean nitrate does not seem to be the answer, so we are exploring the possibility … of [obtaining nitrogen from Ordnance] synthetic nitrogen plants.”Footnote 80 In April 1943, Ordnance informed the Chemicals Branch of the WPB that its ammonia capacity had expanded, so it “need[ed] substantially less ammonia and ammonium nitrate for explosives, and as a result this office [the Chemicals Branch of WPB] is planning to have agriculture serve as a sponge to absorb ammonia and ammonium nitrate in fertilizer … [which] will directly influence imports of sodium nitrate from Chile.”Footnote 81 The immense expansion of US synthetic nitrogen production is illustrated in Figure 2.
US domestic nitrogen production (short tons). Note: By-product production refers to by-product ammonium sulfate. Synthetic government production includes Ordnance plants, the Tennessee Valley Authority, and Defense Production Administration. (Source: A. L. Mehring, Statistics on Fertilizers and Liming Materials in the United States [Washington, 1957], 13.)
A hitch in the plan was that, up to this point, ammonium nitrate had not been a significant fertilizer in the US. In addition to organic sources of nitrogen, ammonium sulfate, sodium nitrate, and calcium nitrate were the preferred nitrogen fertilizers for direct application. It was not known if the ammonium nitrate produced in the Ordnance plants would have the desirable physical properties that the others had. Chemists were working with the product to see if they could prevent “caking” by “graining” the ammonium nitrate. If the product “caked,” it would be difficult, if not impossible, to apply. Consequently, the WPB felt that it could not “afford to burn our bridges as regards Chilean nitrate imports. … If [the experiments with ammonium nitrate are] successful, we can probably discontinue Chilean imports this fall. State will probably want to continue, although it can probably be stockpiled in Chile.”Footnote 82
In fact, conversations between the Chemicals Branch of WPB and the State Department on this issue began in March 1943, at which time Philip Bonsal said that the State Department would like to purchase enough nitrate so that Chilean output could be kept over 1.5 million tons during the upcoming year, “in view of the need to support the Chilean economy.”Footnote 83 Woods was appraised of this issue and began a series of meetings with officials from the State Department, the WFA, and the WPB to make the case in favor of a continuation of imports at the previous year’s level of about 1 million tons. Woods argued that during 1942–43, Chilean nitrate “relieved a very serious nitrogen shortage and has made a tremendous contribution to the food program of the nation.” The Nitrogen Unit of WPB told Woods that the range for the upcoming year would be from 300,000 to 600,000 tons. Exasperated, Woods wrote to Chester Davis at the WFA:
Frankly, those estimates remind me of those days in 1940 with which you and I are so familiar, when certain people then in charge of the Nitrogen Program stated that there would be no need for Chilean nitrate in the War effort. How erroneous those statements and estimates have been proven!
Woods maintained that imports at the proposed level would mean large-scale unemployment in northern Chile and was inconsistent with the Good Neighbor Policy.Footnote 84
Woods’s arguments resonated with many in the State Department and their advocacy helped to avert a worst-case scenario for Chilean nitrate. Lawrence Duggan (Adviser on Political Relations at State), wrote to Secretary of State Hull: “The shipping people (chiefly W. Y. Elliott of the WPB), sided by technicians” claimed that synthetic ammonia from the ordnance plants “will eliminate the necessity for any but very slight purchases” of nitrate, but that other technicians “hold that this is a short-sighted and risky policy which … could well lead to disaster.” He told Hull that a substantial cut in the imports of Chilean nitrate “would cause the ruin of the industry … [and] cause political chaos in Chile. It could not but hurt our all important copper procurement program … [and would have] sweeping repercussions” in the rest of Latin America. “We would be serving summary notice that our promises to maintain their economies were empty words which would repudiate at will the moment we were able to get along without them on any specific point.”Footnote 85 He urged Hull to contact Donald Nelson, director of the WPB, to push for imports of 700,000 tons in the next year.
Duggan also was in contact with Wallace, who was sympathetic. Wallace had visited Chile and the nitrate area earlier in 1943, where he was feted by the nitrate industry.Footnote 86 Moreover, the Fertilizer Industry Advisory Committee recommended one million tons of Chilean nitrate imports and the War Food Administration supported the same figure. Nelson had to balance the competing interests and constraints, and ultimately decided to formally request 700,000 tons of imports in a letter to the Board of Economic Warfare.Footnote 87 Elliott went along with this, but he warned Nelson that “if more than 700,000 tons of nitrate are to be brought in next year it will really be over my dead body.”Footnote 88
Álvarez and García from COVENSA, in meetings with officials around Washington, forcefully made the case for one million tons and warned of “economic and political chaos” in Chile. The Secretary of State directed the embassy’s second secretary, Sheldon Mills, to conduct a study that “in particular should show Chile’s ability to withstand with its own resources the possible closure of one of the nitrate oficinas, such as Pedro de Valdivia or María Elena … what we are concerned with is the over-all economic, political and social stability of Chile as a whole and not necessarily of the nitrate industry.”Footnote 89 A previous draft of the instructions included this illuminating statement: “For your strictly confidential information, there are elements in the United States which feel that the Chilean nitrate industry is doomed to an eventual and probably early decline and that little would be gained by pump-priming activities.”Footnote 90 Mills produced an extraordinary study in which he estimated that imports of 700,000 tons instead of one million would throw 2,801 people out of work in northern Chile, but that copper expansion would absorb some and the Chilean government could provide others with income support from their extraordinary copper tax revenues. Mills was doubtful that the lower figure would spell ruin for the nitrate industry.Footnote 91 The combination of this view, plus an unforeseen substantial increase in nitrate purchases by Egypt, led officials to conclude that 700,000 tons would be sufficient to maintain stability in Chile. The 1943–44 contract (signed in February 1944) covered 700,000 tons with an option for an additional 300,000 tons, which was never exercised.Footnote 92
The War Shipping Administration assigned 500,000 tons of nitrate imports a B-1 rating and an additional 120,000 tons a B-3 rating, but actual imports were reduced to a trickle (see Figure 1). Admiral Emory Land, the War Shipping Administrator, blamed a “sharp increase in military loadings outward on the Pacific Coast mean[ing] that returning vessels have to skip Chile … [and that] a large number of vessels have been retained by MacArthur for operational purposes.”Footnote 93 Whatever the military justification, the result was a credit crunch for the CNSC and the nitrate industry, and anxiety about the supply of the fertilizer at the WFA.Footnote 94 In response to repeated inquiries about the lack of nitrate shipments, Elliott replied: “The equation that we had before us in this matter was not so simple as MacArthur against nitrates, but what other commodities on the West Coast of South America could we cut out along with nitrates to help MacArthur?” There were reductions in zinc, lead, and lower grade copper concentrate, although copper ore was unaffected. Browning added:
The only commodities … that have a higher priority rating than nitrate on the West Coast of South America are Balsa Wood, which is used 100 percent in bombing planes and life rafts for the Navy; copper, zinc, [and] tin. … Zinc and copper, of course, are used to make cartridge brass for ammunition. Tin, as we all know, is the covering for the food which goes to the armed forces.Footnote 95
Elliott put the onus back on the WFA, noting they had prioritized coffee, sugar, and other foodstuffs from the west coast of South America and the Caribbean higher than Chilean nitrate shipments over 500,000 tons, and that if the WFA really wanted to increase nitrate imports it was within their power. That is, they could request a downgrading of the shipping rating for those items and a corresponding upgrading of the rating for nitrates. The WFA rejected Elliott’s suggestion.Footnote 96
Philip Bonsal suggested to Chilean Ambassador Michels that the Chilean government urge the Chilean Line steamship company (Compañía Sudamericana de Vapores, or CSAV) to carry additional nitrates. Chilean Line was operating a small fleet of ships on the route from Chile to the US—several under the Danish flag that the Chilean government requisitioned in 1941 after Germany occupied Denmark—and four large “Hog Island” cargo ships under bareboat charter from the United States. Chilean Line obtained the American ships in early 1943 after it had sold its three large passenger vessels to the US for conversion to troop transport ships.Footnote 97 The Chilean Line coordinated its activities with the War Shipping Administration, which was indispensable for any shipping company operating with US commerce. Along with carrying cargo to the United States during the war, Chilean Line also carried rice from the west coast of South America to Cuba and shipments of wheat from Argentina to Chile. During the third quarter of 1943, it only carried about 1,500 tons of nitrates even though it landed 38,000 tons of shipping in the United States. Much of the cargo in these ships was “nonessential,” and was picked up in the Caribbean after dropping off rice cargoes there. The War Shipping Administration was dissatisfied with Chilean Line’s program. Unbeknownst to the State Department, in October 1943, the WSA concluded an agreement with the Chilean Line aimed at increasing loadings of nitrate in Chilean Line vessels. When Undersecretary of State Stettinius wrote WSA Administrator Admiral Emory Land to request his help in getting more nitrate shipped from Chile, Land informed him of the agreement and expressed his “hope that this agreement will materially assist our nitrate lifting program and that no further negotiations will be required.” Chilean Line’s nitrate shipments increased, but not to the extent originally planned because some of the space initially assigned to nitrate was reallocated to copper.Footnote 98
In October 1943, García and Álvarez, having just returned from the US, reported to the COVENSA board on the shipping crisis:
In the midst of this disparity of opinions between these Departments, the question has been put up to President Roosevelt, who has entrusted its study to a Committee under Mr. Byrnes’ chairmanship, which unfortunately is mainly composed of representatives of the synthetic industry whose influence it is necessary to counteract.Footnote 99
Byrnes was Judge James Byrnes, who resigned as a US Supreme Court Justice in October 1942 to become the director of Economic Stabilization. In May 1943, President Roosevelt created the Office of War Mobilization as the “top Federal Agency for conduct of the war on the home front.” FDR appointed Byrnes to be its director, one of the most powerful posts in the government. The Office’s mandate was “to put an end to inter-agency quarrels which have recurred with such frequency that they have become known as ‘the Battle of Washington.’” It is through this role that the Office of War Mobilization became involved in the discussions over nitrate imports in 1943.Footnote 100
Woods organized a pressure campaign by nitrate users worried about a lack of supply. A flood of letters from farmers, farm organizations, and fertilizer dealers inundated Congress, the War Production Board, and officials at the Office of War Mobilization. Woods personally appealed to Byrnes in a letter dated October 27, 1943, which Byrnes summarily deflected, stating merely that while it was true “this office has made certain inquiries as to the outlook for fertilizer … this is a matter clearly in the hands of Judge Jones [Marvin Jones, the War Food Administrator].”Footnote 101 This was at best a half-truth. As early as August 1943, Donald Russell, secretary of the Office of War Mobilization, had been studying the fertilizer situation as it related to both Chilean nitrate and ammonium nitrate. Moreover, Russell met with representatives of DuPont, Allied Chemical, and the Virginia–Carolina Chemical Corporation about efforts to produce fertilizer using ammonia from government plants.Footnote 102
The letter-writing initiative, however, did manage to stimulate congressional action. A subcommittee of the Senate Agriculture and Forestry Committee launched an investigation of “fertilizer imports, exports and domestic production.” Officials from the WPB, the War Shipping Administration, and the WFA testified. The senators were clearly sympathetic to the WFA’s representatives, who expressed the urgent need for imports of Chilean nitrate fertilizer, and their difficulty in obtaining shipping through Elliott of the WPB and Bissell of the War Shipping Administration.Footnote 103
It is unclear whether the campaign by the CNSC and COVENSA to increase the tonnage of nitrate imports had its desired effect. Shipments did increase, but the overall tonnage shipped in the fiscal year did not reach the 620,000 tons rated, not to mention the 700,000 tons in the contract. Although CNSC and COVENSA were anxious about the volume that might be contained in the 1944–45 contract, military and logistical circumstances evolved dramatically over 1944. In June, Woods cabled COVENSA with the welcome news that the WPB and the WFA agreed that they would need one million tons of Chilean nitrate for the upcoming year, and they were urging the War Shipping Administration to find the space. This implied 855,000 tons of new purchases plus the liquidation of the 145,000 tons unshipped from the previous contract.Footnote 104 These estimates proved to be optimistic; the contract was for 700,000 tons plus the unshipped nitrate from the previous year.Footnote 105 By this time, however, COVENSA was eyeing exports to newly liberated territories, which came to fruition in a significant way in the following year.Footnote 106 The increased market opportunities for Chilean nitrate, combined with the Foreign Economic Administration’s continued reluctance on the subsidy issue, made the conditions ripe for the termination of the public purchase program in 1945.
Conclusions
During the Second World War, the Chilean Nitrate Sales Corporation published a monthly periodical aimed at American farmers entitled Farm for Victory. This paper argues that the title was apt. Chilean nitrate fertilizer made a major contribution to the Allied war effort. Not only did it directly increase agricultural output but it also enabled the US to concentrate its synthetic ammonia production on munitions, thereby enhancing the production of “guns and butter.” Nitrate was most important in 1942 when government ammonia plants were just starting to come online. Afterward, it continued to play a vital role.
Chilean nitrate was one of many strategic materials that fueled the US war machine. Latin America was an especially important source for these critical resources. The US imported nitrate through a public purchase program that depended on the coordination and cooperation of a vast bureaucracy. Government agencies weighed the benefits and costs of importing additional quantities of Chilean nitrate, and their perspectives differed. The War Production Board, especially the Stockpiling and Shipping Branch, and the authorities at the Board of Economic Warfare and later the Foreign Economic Administration, were less sympathetic to Chilean nitrate than the War Food Administration and State Department where, respectively, food production and foreign policy goals dominated. The State Department intervened in support of Chilean nitrate at several key junctures. The department’s support was critical for the stockpile purchase in 1941, for maintaining the subsidy, and for defending the quantity imported. As the documents analyzed in this paper illustrate, the highest levels of the US government became involved in nitrate matters, including the president, the vice president, cabinet secretaries, and war agency administrators.
For their part, the officers of COVENSA and the Chilean Nitrate Sales Corporation became fixtures across Washington. They spent much of the war negotiating contracts and managing the day-to-day affairs of the trade with the US government. Chilean diplomats and high-ranking government officials frequently intervened. Far from subservient, they displayed intelligence and independence in pursuit of their own interests while collaborating with the United States and contributing to Allied victory. The business history of the US–Chilean nitrate trade illustrates inter-American cooperation in the most intense and dramatic circumstances. It demonstrates how Chile, sometimes mischaracterized as a disinterested neutral party on the fringes of the conflict, played an important role during the Second World War.
Professor Sicotte researches the business and economic history of US-Latin American trade. He also conducts research on the business and economic histories of the shipping and airline industries.
