423 Mr R. G. Menzies, Prime Minister, to Mr A. W. Fadden, Acting Prime Minister

Cablegram 82 LONDON, 22, April 1941, 6.05-10.40 p.m. [1]

Your telegram 185 of 2nd April [2] and Page's supplementary cables 188 of 2nd April [3] and 195 of 3rd April. [4]

I fully appreciate the grave anxiety you feel with regard to the diminution of our exports in the third year of the war and sympathise with the views you express. You can rest assured that there is no aspect of this question or point that you raise in your cables that I have not exhaustively represented to the United Kingdom Government.

Since my telegram 45 of 30th March [5], I have devoted a great deal of time to a detailed examination of the position in respect of the United Kingdom's vital requirements, particularly in regard to food, and have continued my efforts to bring home to the United Kingdom Government the effect on Australia's economic and financial structure and consequently on her war effort, of a serious diminution in Australia's export income.

With regard to the former, I have been supplied with and studied information as to the disposition of all shipping in the service of the Empire, and the methods of its present and proposed employment. As a result, I am satisfied that nothing which can be done under the programme of ship replacements by British or American construction, or by purchase or charter, or by redisposition and employment of Empire shipping resources, would materially improve the serious situation disclosed and justify insistence on our part that a greater proportion of the United Kingdom's vital requirements should be drawn from Australia than is visualised under the present plan.

This is particularly the case in regard to foodstuffs. In the High Commissioner's cable of 20th December last [6], he indicated that tonnage was required to the extent of 15 million tons a year if the United Kingdom's minimum food requirements necessary to sustain life and morale of the people were to be met. In that cablegram, after indicating the shipping trend for the first few months of the second year of the war, he indicated that this minimum requirement of 15 million tons could only be met by substantial diversion of shipping from longer to shorter hauls.

The position then indicated has not improved in the intervening period, and in the light of the intensified enemy campaign against shipping, all indications are that it will further deteriorate.

As obviously the supplying of minimum food requirements of United Kingdom must take precedence over all other considerations, I have been precluded, having satisfied myself as to the seriousness of the position, from pressing for an increased allocation of tonnage to Australia during the third year of the war to lift our export products. I have, accordingly, had to accept the United Kingdom Government forecast of the probable tonnage available to lift our exports of foodstuffs in the third year, September 1941 to August 1942, details of which are set out in appendix 'A' to this telegram. In appendix 'B' and 'C' I have set out for comparison the corresponding figures for the first year, September 1939 to August 1940, and the estimates for the second year, September 1940 to August 1941 . [7]

Faced with these facts I have concentrated my efforts upon arriving at agreement with United Kingdom Government upon a practical scheme for co-operative action to minimise the effect of curtailment of our exports upon our financial and economic structure and our war effort and have urged that as the United Kingdom Government have a common interest with Australia in obviating these results they should be prepared to co-operate generously in order to avoid them.

My representations have been received with sympathetic understanding by the United Kingdom Government and as a result of prolonged discussion with British Ministers concerned and particularly with a cabinet sub-committee that has been dealing with the matter we have now, subject to your approval, arrived at an agreement on broad principles of all schemes for co-operative action between the two Governments, based on proposals put forward by me which are set out my telegram 45.

These principles have been defined in document forwarded to me by Greenwood [8], copy of which is as follows:-

'His Majesty's Government in Great Britain fully recognise the grave difficulty created for Australian industries by the shortage of shipping.

They are anxious to continue taking all Australian Produce that can be shipped.

They also appreciate serious effect upon Australian economic and financial structure which these difficulties are causing, and with a view to minimising these effects and preventing the impairment of the Australian War effort United Kingdom Government are prepared to join with the Commonwealth Government in arrangements to ease the burden failing on Australia during the War, framed on lines that will not prejudice the post war position.

The two Governments have agreed that the following principles should be applied as a basis for such co-operation.

(1) The United Kingdom Government to purchase Australian produce that can be shipped and to pay for such produce at prices and upon such terms and conditions as are from time to time agreed with the Ministry of Food.

(2) The Australian Industries to make every effort to adapt their production to shipping possibilities, e.g. by de-boning, canning or pressing meat.

(3) Alternative market to be developed wherever possible.

(4) Reserve stocks of storable food-stuffs to be created up to certain quantities to be agreed.

(5) The quantities to be stored to be determined in relation (a) to probable demands during or after the war (b) to the importance of industries to Australia.

(6) The financial burden of acquiring and holding these reserve stocks pending their disposal to be shared equally between the two Governments.

(7) The payment to be made for produce acquired for reserve stocks to be agreed between the two Governments.

While it will be necessary to take due account of such matters as costs of storage, depreciation, etc., it is intended that payment shall be fixed on such a basis as will, as far as practicable, achieve the object of keeping industries going while avoiding creation of unmanageable surpluses.

(8) The detailed application of the above principle to be referred to experts from two countries.

Both Governments agree that wider problem of surplus production can be remedied only by concerting international action and Commonwealth Government will be ready to collaborate in any international discussions convened with a view to regulation production, stocks holding and marketing of surplus commodities in which they are interested.' These principles in my opinion should form the basis for practical and effective action. I shall be obliged if you will let me have your considered views and those of Page so that if we are in agreement I can conclude matter before my departure.

I should also like to have fullest information as to the method you would suggest for arriving at scheme for implementing principles in respect of individual commodities.

It occurs to me that possibly it might be desirable to bring the Agricultural Council in to the picture and place upon it the responsibility of approving schemes in relation to different industries.

In my discussions with United Kingdom Ministers, I have stressed strongly by [sic] the following points (1) In agreeing to curtailment of our normal exports to United Kingdom Market owing to the war shipping position, we are not giving up our rights in that market and that we look to the United Kingdom Government to protect our position.

(2) The fullest examination of possibilities of shipments from Australia to West Coast of North America and complementary shipment from east coast, to United Kingdom should be made.

(3) That our requirements of commodities e.g., tin plate to enable us to change our method of preparing goods for exporting to meet altered shipping circumstances should be fully met.

In regard to (1) I have stressed contemplated increase in production of foodstuffs in the United States to meet United Kingdom vital requirements and have urged this not be allowed to affect detrimentally Australian interests in the United Kingdom Market in future.

These representations have been sympathetically met by United Kingdom Ministers and a practical step towards safeguarding Australian interests is proposal that an Australian observer should sit in at discussions in Washington between Administration there and United Kingdom food and shipping Ministries.

This matter I will go into further when in United States of America.

With regard to (2) this possibility is now being examined and I have meeting next Wednesday with Sub-Committee of the United Kingdom Cabinet which is handling the matter at which Mr.

Harrim[an] [9] President Roosevelt's special representative who is most sympathetic will be present.

With regard to (3) I have already been given assurances on this point and I anticipate obtaining definite undertakings before I leave. [10]

MENZIES

1 This cablegram was dispatched in two parts.

2 Document 377.

3, 4 & 5 On file Defence: Special Collection 1, Box 621, Prime Minister's Visit to United Kingdom, 1941. Australian Export Surpluses. Ministry of Shipping.

6 Not found.

7 The appendixes to this cablegram have not been found.

8 U.K. Minister without Portfolio.

9 Corrected from the copy on the file cited in note 3.

10 Fadden replied on 30 April that although the Commonwealth Govt agreed' to a basis of co-operation somewhat on the lines you have indicated' it regarded the export tonnages predicted for the third year of the war as an absolute minimum and would accept them only on the definite understanding that, as the shipping position permitted, increases would be arranged. See cablegram 275 on file cited in note 3.

[AA: A3195, 1941, 1.6176, 1.6180]