The Peruvian nitrate monopoly was a state-owned enterprise over the mining and sale of saltpeter (sodium nitrate) created by the government of Peru in 1875 and operated by the Peruvian Nitrate Company.David P. Werlich, Peru: A Short History (Southern Illinois University Press, 1978), p. 101. Peru intended for the monopoly to capitalize on the world market's high demand for nitrates, thereby increasing the country's fiscal revenues and supplementing the financial role that guano sales had provided for the nation during the Guano Era (1840s-1860s).
During the 19th century Peru established a virtual international monopoly in the trade of guano, another fertilizer, and since the 1840s income from this source had financed the Peruvian Guano Era. By the 1860s these revenues were in decline, as deteriorating quality led to a reduction of exports. Alongside this trend, nitrate exports from the Peruvian province of Tarapacá grew, and became an important competitor to guano in the international market. In January 1873 the government of Manuel Pardo imposed an estanco, a state control on production and sales of nitrate, but this proved impractical, and the law was shelved in March 1873 before it was ever applied.
In 1875, as the economic situation deteriorated and Peru's overseas debts increased, the government expropriated the saltpeter industry and imposed a full state monopoly on production and exports. However, there were nitrate deposits in Bolivia and Chile, and although the latter were not economically viable, exports from Bolivia by the Chilean Compañía de Salitres y Ferrocarriles de Antofagasta (CSFA) made Peruvian price controls impossible. Following the Peruvian state's failure to raise new loan capital from Europe to finance its nationalization program, the government proceeded to acquire Bolivian licenses to exploit newly discovered nitrate fields, and encouraged the Bolivian government to withdraw from the Boundary Treaty of 1874 between Chile and Bolivia. This treaty had fixed for 25 years the tax rate on the Chilean saltpeter company, in return for Chile's relinquishing of its sovereignty claims over the disputed region of Antofagasta.
In 1878 the Bolivian Government imposed a 0.35 Pounds Sterling per tonne (10 cents Bolivian Bolivianos per 100 kg) tax over the CSFA's export of saltpeter, contrary to Article IV of the Boundary Treaty. Although it is uncertain whether Peru exerted direct pressure on Bolivia to impose this tax, its consequence was the confiscation and auctioning off of the CSFA, the major competitor to Peruvian saltpeter.
Historians agree that control over the nitrate fields in the Atacama were a central cause for the start of the War of the Pacific.Peruvian historian Alejandro Reyes Flores, Relaciones Internacionales en el Pacífico Sur, in La Guerra del Pacífico, Volume 1, Wilson Reategui, Alejandro Reyes & others, Universidad Nacional Mayor de San Marcos, Lima 1979, page 110: "Jorge Basadre respecto a este problema económico crucial dice Al realizar el estado peruano con la ley del 28 de marzo de 1875, la expropiación y monopolio de las salitreras de Tarapacá, era necesario evitar la competencia de las salitreras del Toco [in Bolivia].... Aquí es donde se internacionalizaba el conflicto, pues estas salitreras, económicamente estaban en poder de chilenos y británicos" (transl.) Jorge Basadre states regarding this crucial economic issue: The Peruvian state, in carrying out the law of 28 March 1875, expropriated and monopolized the nitrate fields of Tarapaca, because it was necessary avoid the competition of the Toco's nitrate fields [in Bolivia], ... In this moment the [Peruvian debt] problem became international, because the nitrate fields were property of Chileans and British.Heraclio Bonilla, "La crisis de 1872", Ponencia presentada a la Comisión de Historia Económica del Congreso Nacional de Investigación Histórica organizada por el Concejo Nacional de Ciencia y Tecnología (CONCYTEC), Lima, 13 al 15 de noviembre de 1984, pág. 21-22: "Más bien, la cuestión del salitre, añadido a la cuestión de la deuda externa, se convertirá en un poderoso factor en el desencadenamiento de la guerra de 1879." (transl.)the saltpeter problem, added to the problem of the external debt became rather a mighty factor of unleashing the war Some Chilean historians consider that the Peruvian plan to control the price and production of the Bolivian nitrate fields was what ultimately caused the War of the Pacific (1879-1883).: "El deseo de controlar también la producción del litoral boliviano condujo al Perú a una política de alianzas internacionales que desembocó en la guerra de 1879" (transl.)The quest to control also the production of the Bolivian litoral led Peru to a policy of international alliances which ended in the 1879 war" According to the Chilean government, Peru's actions were the primary cause of the 1879 war. However, most historians consider that the war was actually precipitated by the Chilean government's expansionist foreign policy and its ambitions over the Atacama's mineral wealth in Bolivian and Peruvian territory.J.R. Brown, "The Frustration of Chile's Nitrate Imperialism," Pacific Historical Review (University of California Press), Vol. 32, No. 4 (November 1963), pp. 383-396.Riet Delsing, "Issues of Land and Sovereignty: The Uneasy Relationship Between Chile and Rapa Nui," in Decolonizing Native Histories, ed. Florencia Mallon (Durham, North Carolina: Duke University Press, 2012), p. 56.Robert N. Burr, By Reason or Force (1974), pp. 138-139.
Prosperity and bankruptcy
+ Guano and Saltpeter Exports from Peru 1865-1879 Item 1865 1866 1867 1868 1869 1870 1871 1872 1873 1874 1875 1876 1877 1878 1879 Saltpeter productionThousands of tonne - 99.4115.986.7114.0133.8163.9200.9284.7253.7326.9320.5214.0n/a- Saltpeter price £/tonne in Europe 15.00-16.0012.50-13.00n/a 13.25-14.0015.00-15.7515.50-16.2515.50-17.0015.25- 14.25-14.7512.25-13.0011.75- 11.50 ?-14.7514.50 Guano productionThousands of tonne 502575452363404342337373379310n/a Guano price £/tonne in Europe 12.00- 12.00-12.5013.00 13.25-14.0012.00- 12.00- 12.75- 13.00- 12.50- 12.50- 12.00- 11.00- 11.00-
Peru was rich in guano, a highly effective fertilizer because of its exceptionally high content of nitrates, phosphates and potassium, which had since the 1840s provided the government with dramatically increasing revenues. To obtain the best possible price for the guano, the Peruvian state established a system of consignment to private companies, to sell the product in Europe and the United States. The consignees were important elements in the government's finances, because they delivered the cash and credits for the government's spending. From the beginning of the guano exports until 1869, the consignees were Peruvian traders.
In 1865 a coup d'etat brought a new Peruvian leader, Mariano Ignacio Prado. During his first administration (1865-1868) the finance minister, Manuel Pardo (later President of Peru 1872-1876), needed fresh revenues to replace the declining guano income, and imposed new taxes on saltpeter, wool, sugar, cotton, etc., as well as an inheritance and property transfer tax. Opposition to the new taxes (see cartoons), combined with the weak Peruvian economy and its bureaucratic inefficiency, the new taxes yielded much less than expected. Prado resigned in 1868 and most of his new taxes were subsequently abolished.
In July 1869 the new government contracted with a French businessman, Auguste Dreyfus to sell two million tons of guano over a six-year period. This contract gave Peru access to the international financial markets and enabled President José Balta (1868-1872) to raise loans of £36 million in Europe. However, the proceeds were spent on unprofitable public undertakings and prestige projects such as the sumptuous Peruvian Exposition of 1872. As a result, Peru accumulated a large internal debt and a serious budget deficit. The quality and quantity of guano exports also declined over these years, and from the 1860s saltpeter exports competed with guano in the international markets. Unlike the production and marketing of guano, which was in the hands of the government, the saltpeter industry was privately owned and operated. In June 1876, the Peruvian Guano Company, owned by the Peruvian Raphael Holding, became the consignee for Europe through the Raphael Contract.
There are several benchmarks or dates for the crisis. The second administration of President Prado (1876-1879) had six Finance Ministers, none of whom lasted a year. Contreras Carranza cites 1873 as marking the crisis. The Dreyfus organisation suspended the payment of guano export revenues to the Peruvian State, because all the money was spent in debt service. Guano exports fell from 575,000 tons in 1869 to less than 350,000 tons in 1873, and the Chincha Islands and other guano islands were depleted or almost depleted. Also, the quality (nitrogen content) of the guano fell. By contrast, saltpeter was increasing its share in the export market: while some 1.7 million tonnes had been shipped from Tarapacá between 1860 and 1870, in the following decade the figure rose to over 4.4 million tonnes.Blackmore, "The Politics of Nitrate in Chile", p 288
The falling income from guano was outweighed by the increasing volume of saltpeter sales and also by the increasing sugar exports; Contreras states that the real cause of the crisis was the debt contracted in 1870-1872. He specifies the failure of Balta's railroad plans as the origin of the disaster: from 1868 to 1875, 130 million soles were invested in eleven railroad lines, but only four were completed between places of commercial importance, and only one of these according to plan. The annual revenue of 600,000 soles represented a yield of only one-tenth of the usual 5% or 6% per annum interest on South American investments at the time.
Proposals By 1872 the declining income from guano was insufficient to service state debts. On 28 September Manuel Pardo, now Peru's president, announced in his inaugural address that the state was bankrupt and that he had to apply long-term solutions: administrative decentralization, an increase in customs duties, and an export duty on nitrate. He began his administration in the conditions he had warned about in 1866 when he was finance minister: rising debts and falling guano revenues.
The discussion of Pardo's proposals produced two options for increasing revenue. The nitrate producers, who wanted to keep control over production volume and costs, favored a new tax on exports depending on the international price. A second idea, promoted by the guano traders who were eager to participate in the nitrate business, was to create a state monopoly on nitrate sales. An ad hoc senate committee advocated an export tax or, alternatively, a nationalization of the nitrate fields, which would stop competition between the two fertilizers and bring the nitrate profit directly into the government treasury.
The guano traders, who had been displaced from the guano commerce by the Dreyfus Contract, were interested in a state control on the nitrate industry – control of production and output quotas, or even the expropriation of the salitreras, in the hope of earning a greater part of the new lucrative business. They therefore supported the Civilista Party, and its state control law (Ley del Estanco). The nitrate producers were represented by Nicolas de Pierola, who voiced a prevailing public mood against the guano traders and the elite of Lima. Carlos Contreras writes: