Chapter CLXV: Spanish Oranges Are Not The Only Fruit.
In the autumn of 1937 the British authorities found themselves grappling with the always sticky issue of marmalade. Delightful as marmalade is their concern was not the substance itself, or even the marmalade factories of Dundee and Oxford, but the raw material they required; oranges. Autumn is not marmalade making season, however if you wish to have industrial quantities of oranges available for the actual marmalade making season it is the time of year to start purchasing them. This was an issue as many believed the best fruit for marmalades were Seville oranges, named after the region in which they were almost solely grown. The late autumn was also the time when British importers of eating oranges began switching from South African and Brazilian suppliers to the in-season fruit from Palestine and Spain, they also increased the volume of imports considerably as the lack of any other cheaply available fruit meant orange sales spiked enormously over the winter months. Thus the seemingly innocuous and minor matter of orange supply could legitimately be restated as a concern about the impact of the citrus trade and the international fruit industry credit financing on the Spanish Civil War. The matter also required the British government to address some very fundamental questions about the war in Spain that it had been diligently ignoring and had hoped to continue ignoring until the war was over. Stated in those terms it should be apparent why the matter attracted such high level attention, particularly given the magnitude of the problem; prior to the outbreak of war fully half of Spain's exports to Britain had been oranges, £5 million being spent on the fruit alone with the shipping, insurance and other costs further increasing the value of the trade. For context, and taking examples that were very relevant to the Spanish and British authorities, £5 million would pay for 2,500 Vickers Cervantes SPGs or 1,300 Spanish Venom fighters at list prices and in practice far more if ordered in anything like those quantities.
Bananas being loaded onto LNER fruit wagons at Canary Wharf, part of the sprawling network of docks on the Isle of Dogs in the Port of London. Canary Wharf had opened in 1937 to support the growing volumes of fruit being imported by the Norwegian owned Fred Olsen Fruit Lines shipping company, the name of the new wharf indicating the source of much of that fruit, the Spanish owned Canary Islands. Rather than using the opportunity of the war to squeeze the Norwegian lines out of the Iberian trade, London had taken the wider view and instead allowed them under the aegis of the Royal Navy provided they co-ordinated their sailings through the Admiralty. This offer was keenly taken up the Norwegians and the other neutral shipping lines, not to gain protection from the Republican raiders but as a defence against from the crippling insurance rates being charged to unescorted operating in a war zone.
It would be unfair to say the British government had hoped to ignore the matter, but only because that implies they were in any real sense aware of it, at least outside a few specialists in the Board of Trade. The government did not have an orange or indeed citrus fruit policy, beyond the usual Empire Free Trade preference for Imperial suppliers where ever possible, and had contentedly left the things to the free market (or as free as any market got in the period). In the case of trade with Spain the Monarchist government had retained the Clearing Office system to intercept any foreign currency earned and collect it in Madrid. However instead of being used to repay outstanding debts, as was the intent of a Clearing, the money was spent on the priorities agreed by the Military Council, the body that was de facto running the country in the name of King Javier. As Britain had accepted that repayment of pre-war debts was suspended due to the war, and carefully avoided the question of what happened post-war, there was nothing for Britain to do and no need for any policy on the subject. The problem with this conclusion was that it assumed the theory translated into reality, which it regularly does not. To begin with the marmalade, the orange groves of Seville were all safely within the Monarchist sector and the transport network remain mostly intact, both sides conviction that they would "soon" win making them reluctant to attack non-military targets. Seville and the rest of the Monarchist south was under the mixed control of General Yagüe's Army of Africa and the German supported Falangist militias under Manuel Hedilla and this was where the diversion from theory began. Hedilla and his German backers had put together a somewhat labyrinthine scheme to bypass the centralised system and divert the hard currency away from Madrid and towards their own purposes. The Falange would take their share of the military budget in Pesetas and use it to buy the oranges, these would then be traded to Germany in a barter deal for the tanks, artillery and various other equipment to arm the expanding militias and re-build the 2nd Armoured Division 'Primo de Rivera'. Germany would then sell the fruit onto British traders and use the earned Sterling for her own imports. While Britain may have lacked an orange policy it absolutely had one about trade and understandably this scheme was not what they had in mind. Given the priority that Berlin had attached to building Anglo-German friendship the scheme came as a surprise to the British, it threatened to undo much of the limited progress that had been made to build relations. That it was even contemplated is a testament to the growing foreign exchange/strategic materials crisis in the German economy. While the sums involved were relatively small in the context of Germany's total import bill they were in hard currency, something which was increasingly being demanded by the oil companies and other suppliers of strategic materials who had no interest in complex barter arrangements. It was also hoped the scheme would serve as a template that could be used to expand the trade with Spain, not least to vital minerals and strategic materials. This was the context of Berlin's instruction that the immediate demands of the economy took priority over longer term plans for a British alliance; diplomatic relations could be fixed later but re-armament could not be delayed.
As mentioned the British government was not impressed with this scheme, it managed to annoy almost everyone except the few Anglo-German Fellowship types who were reduced to unsuccessfully arguing the scheme was small and insignificant and pretending there was no unfavourable precedent being set. A large portion of the opposition was just to the idea of British imports so nakedly funding German re-armament, though this was kept fairly quiet; just because the government and Foreign Office didn't share Berlin's dream of alliance didn't mean they wanted to openly antagonise Germany. The complaints instead focused on the impact on the British consumer (all the extra hops in the trade meant the final price of the fruit would be considerably higher) and the long standing opposition to government level barter deals. Unfortunately while the British establishment was united on the matter, this had very little direct impact in Spain. The Monarchist Military Council had ruled against government level barters in favour of a somewhat open market export of commodities (subject to various taxes and duties) and the proposed trade was mostly within the letter of that ruling, even if it completely violated the spirit. As Hedilla had was taking his claim on the central funds in Madrid in local currency not rarer hard currency none of the other factions felt like they were losing out and did not fancy a bruising internal fight over the seemingly trivial matter of fruit. The British could have applied enough pressure to force the matter at council level, but their main allies were the Carlists who lacked the local influence in southern Spain to actually enforce things if Hedilla just ignored the council. There was of course another faction the British had good links with, the Army of Africa under General Yagüe who were very appreciative of the 2pdr anti-tank guns and other supplies that they had received over the summer. The British liaisons had reported favourably on the professionalism and competence of the Army of Africa, but were concerned about their lax attitude to acceptable collateral damage and the uncertainty over quite what Yagüe wanted for post-war Spain. In an ideal world London would have kept channelling support through the Carlists and kept Yagüe at arms length, but having been forced into working with him earlier in the year the Army of Africa now presented an opportunity. Yagüe and his commanders were happy to work with the British, on the reasonable basis that the money earned from the sales was spent on arms for them and not just put into central funds in Madrid, something the British reluctantly accepted. A more positive side effect of the deal from London's perspective was to deepen the fractures in the Falange between the pro-German group around Hedilla and the self proclaimed Legitimist faction, both groups claimed the legacy of the conveniently dead former leader José Antonio Primo de Rivera but the strong support of the German ambassador had seen Hedilla's faction in the ascendency. The failure of the deal, and the German reluctance to supply equipment without the 'adequate compensation' that Hedilla could no longer provide, would force much of the militia and membership to abandon him and look elsewhere for the support they needed.
Juan March, by some counts the 6th richest man in the world in the late 1930s, certainly the richest man in Spain and a key figure on the Monarchist side of the war. Aside from being one of the main financial backers of the cause, both directly and through his banking connections, March was also one of the unofficial channels between London and Spain. In the Orange Affair he would help link up the British representatives with the Army of Africa leadership, he would later arrange talks between the disgruntled Legitimstas Falangists and the Carlists. While never officially a British agent, March's first loyalty was always to himself, he would work hard to ensure the British aligned factions came out on top in Spain, not for their benefit but to avoid other, less business friendly, groups winning out. It is also highly likely his own Great War experience had left him reluctant to openly being on the opposite side to London again.
Moving to the east of Spain we find the orange groves of Valencia which predictably enough produced Valencia oranges, unlike their brethren from Seville they were sweet and soft, suitable for eating and juicing not being processed into marmalade. As Valencia remained firmly within the Republican sector their export was being routed through the French quasi-guarantee system for Republican agricultural goods, this was unfortunate for Britain as Valencia oranges made up the other half of the Spanish-British citrus trade. On a practical level this was not a concern, discreet discussion between the main fruit importers and the French Agricultural Export Board had indicated they were very willing to sell to British firms; Britain was the largest orange market in the world so it would hard to find anyone else that would want so much fruit and, though the French would vehemently deny it, an injection of several million pounds of Sterling would be very helpful in supporting the recently re-valued Franc and rebuilding the Bank of France's reserves. The importers were quick to complain that this system would also result in higher costs, British consumers paying the price for the guarantees Paris had given to the Spanish, but it was the broader impact that concerned Westminster. In a parallel with the German plan the intent was that Paris kept the hard currency and paid back Spain in the form of weapons, ammunition and the like, thus it would be fairly simple to draw a line from British consumers buying a glass of orange juice to new Hotchkiss H38s tanks heading to the armies of Republican Spain. A similar logic applied to other Spanish agricultural exports and indeed non-agricultural exports that France was involved in facilitating, a hurried investigation discovered that the problem was widespread but fortunately at a far smaller scale.
The efforts to stop the trade soon hit problems, all of which revolved around the British government's decision to keep the status of the conflict ambiguous. Monarchist Spain had been diplomatically recognised to allow trade, transfers and loans but it was far from clear what it had been recognised as; the legal successor to Spain, something temporary or something else entirely. Informal pressure could be applied but this had limits, the relevant example would be if an importer had a contract with a Spanish firm now in the Republican zone then they would need a legal reason to cancel it or risk being sued for the breach. Indeed given the UK's dominant position in the relationship such contracts tended to be governed by English law and so the case would be in a British court, making the matter even more awkward and public. The government would soon discover the problem extended just beyond physical imports as a number of firms had, in the absence of any definite legal requirement, continued to trade with the Republicans or even started new relationships, though almost always through a non-UK based subsidiary or allied firm. Informal inquiries were met with the response that the firm had a contract or other legal commitment and no basis in law to not fulfil it, which was generally true although greed, indifference and even occasionally politics were doubtless motivators as well. As mentioned at the start of the chapter there was a financial dimension to the problem, mostly concentrated around credit financing. The London based Anglo-South American Bank had been the largest foreign owned bank in Spain and the third largest overall prior to the war so was heavily involved on both sides. While the bank had not directly funded anything, perhaps the reason it's operations had escaped official notice until that point, it had provided the backing, contacts and foreign exchange access that the Republican banks and co-operatives that did the financing relied upon. The Bank of England, while admitting it had failed to notice the banks activities, did question exactly what issue they were supposed to have noticed; no UK or Empire funds had been sent to Republican Spain, indeed the flows had been the other way with profits coming back to London, and legally the Anglo-South American directors hadn't broken any laws, regulations or even official guidance. Given that the Anglo-South American was still in severe trouble after some disastrous ventures in Chile earlier in the decade an attempt to keep a profitable and legal business going in order to pay off their creditors was in fact exactly what many thought they should be doing. This part of the affair is sometimes highlighted as a failure of the informal, unofficial method of government and regulation, which while somewhat true misses the point, the problem was not that the informal system was incapable of stopping trade with Republican Spain from happening, the problem was that it had worked too well and allowed the government to fudge and delay some of the difficult question of what to do about Spain. Ultimately it was not the enforcement mechanisms but the lack of a firm government position and policy to enforce that had allowed that state of affairs to develop.
The government reluctantly accepted that what was required was either to accept the status quo or pass legislation to change the legal position and outlaw trade with the Republicans. This was not as straightforward as it may seem, for while the government retained a healthy majority there were concerns on the backbenches that the country was on something of a slippery slope, one which could well end up with Britain being dragged into the actual fighting, indeed arguably the Royal Navy was already involved. Such a move would also be another blow to Anglo-French relations and a smaller one to the trans-Atlantic relationship with the US, both of which had been somewhat recovering (or at least no longer getting worse) after the currency market co-operation earlier in the year. In the end though the cabinet decided to make the changes, British interests were now tied to a Monarchist victory and it was too late for regrets or a change of course. The specific legislation was straightforward enough, essentially being an updated version of the Trading with the Enemy Act from the Great War with Republican Spain officially cast into the role of the 'enemy' who should not be traded with. Pressure from the whips, along with very public commitments from Eden about Britain not joining the conflict, headed off a back bench revolt so it was the opposition benches that had the most issue with the legislation. Labour uniformly voted against the Act due to their sympathies for the Republic though not without grumbling from some of the industrial unions who's members were making a good living fulfilling Monarchist orders but who had not see a penny from the Republic, but with the rest of the party united on the issue it was not seen as worth a fight, a telling indication of where it actually sat on the priority list. The Liberal Social Democrat leadership had the toughest time of it, starting with when they realised they didn't have a policy on Spain and so had to scrabble together a position of being against the legislation as it was an escalation while never actually saying what they would do instead, thrashing out an actual policy would involve some internal fights which the party hoped to keep private. Such politicking aside the Act would make it's way through Parliament relatively rapidly, though the debates would still prove bruising for both sides as the unsavoury allies of their preferred faction were played up for maximum rhetorical effect. For all that outside of the question of fruit prices the Act had minimal domestic impact, for much of the public the war in Spain was something that happened in the newspapers or on the radio and not something that impacted their daily lives or their voting plans. In general though the public favoured the Monarchist side, not out of any particularly deep seated analysis of the conflict but because the Republicans had shot at the Royal Navy and so were 'obviously' the villains of the affair. The government's decision to further support the Monarchists was therefore mildly popular, the mildness being due to a general disinterest in a foreign war than anything specific about the policy.
A contemporary sketch of the secure vaults beneath the Banque de France (BdF). While not quite as full of gold as some in France would prefer the contents had at least stabilised after the dramatic events of the summer. The BdF had idiosyncratically chosen to manage the 1930-31 banking crisis by prioritising support for connected banks, that is those who were shareholders in the BdF, on the basis they were more important and also more likely to be able to repay. This had not quite worked as intended, in large part because the resulting bank failures of unconnected banks had just exacerbated and prolonged the panic, even spreading to the connected institutions and overwhelming the BdF's reserves, requiring a government bailout. While the major banks survived 15% of banks in France failed, unfortunately for Paris this included all the banks that had operated in Spain and the surviving banks remained too weak to even think about international expansion. While many in France were pleased they had not bailed out bankers (BdF excluded) and ensured they had suffered along with the rest, one unfortunate consequence was that the French state lacked any bank like entity that could replace the British institutions pulling out of Republican Spain.
As previously noted the British government did not have an orange policy and would have been happy to continue not to have one, unfortunately they were forced to develop one to deal with the question of where the winter oranges would come from if not Republican Spain. The preferred option was of course an Empire source, however South Africa was just at the end of their season, the West Indies orange unpopular with the public, and the other sources were all too small to make any meaningful difference. The exception was Palestine, which we shall look at in more detail in the next chapter, but suffice to say it too could not fill the gap in the short term. A Sterling Area supply was next on the list, but here again there were issues as an outbreak of the Tristeza virus had all but wiped out production in Latin America and nowhere else in the official area was or could be a major exporter. This left external options, all of which had their own economic or diplomatic problems; Italy, the US and Japan. Aside from the obvious problems of turning to Italy for a supply Italian oranges had been forced off the European market by the lower price and higher quality of Spanish fruit, so there was a reluctance from the importers to return to them even if the other difficulties could be overcome. Japanese mandarins, while eminently suitable for the British winter fruit market, were also a potentially more expensive option due to the considerable shipping distance and the need to use a reefer (refrigerated cargo ship) to ensure they arrived in good condition, the alternative of canned oranges would be cheaper but another market disruption as it was a noticeably different product. Finally there was the US where the navel oranges of Florida were good 'eaters' and just coming into season in considerable volume, all the major fruit lines had well established routes and it was felt that the very low price of US agricultural products would somewhat offset the extra cost of trans-Atlantic reefers. The issue therefore was diplomatic and political, fruit had been one of the areas where the American government had been pushing for British trade concessions and the Board of Trade had long identified that it was an area of opportunity; the US agriculture sector had a political importance completely disproportionate to it's economic heft and the US farm lobby was desperate for more export markets to offset domestic surpluses and so low prices. There was therefore a reluctance to 'throw away' such a good bargaining chip without getting some American tariffs lowered in exchange, something that the Embassy in Washington confirmed was still vanishingly unlikely given the makeup of Congress and the priorities of the President.
While most government departments were happy to ignore the matter as being someone else's problem, the Foreign Office actually engaged and came out in favour of the Italian and Japanese options, in both cases hoping to use trade to increase contact between the parties and improve relations. Notably this was one of the first twitches within Whitehall of a desire to engage with post-war Italy with the hope of re-establishing at least a functional diplomatic relationship with Mussolini. Scarred after appeasement the Foreign Office was careful to emphasise this was not about making any concessions but about the benefits to Britain of having more normal interactions with what was still a European Power and major player in Mediterranean and Balkan diplomacy. As Mussolini's government was considered unlikely to make the first move it would fall to London to do so, the orange matter was considered a good choice as it was low profile and strategically unimportant, but with enough economic weight behind it to be worthwhile. In contrast the Japanese option was supported as a measure of balance, while Britain had heavily committed to Nationalist China the Foreign Office was still trying to keep relations with Tokyo at least cordial and a large trade deal rarely hurt relations, especially with Japan needing to find extra Sterling to support it's quasi-barter deals with Germany. The US option did not attract much favour as Anglo-American relations were not seen as particularly bad, the Canton Island Incident was being diplomatically buried and the Presidential equivocation over 'Moral Neutrality' had convinced most observers the Landon Administration was having second thoughts over engagement with Spain, so would not be that concerned about further British involvement. The Board of Trade and Imperial Trade Council were united in their view that it didn't actually matter as it was probably only a short term issue, once the Monarchists won then the trade would be restored so this was a temporary blip; unspoken was the corollary that if the Republicans won then Britain had far bigger problems to deal with than citrus supply. In the end the Foreign Office viewpoint won out and the cabinet decided they might as well try to get some benefit out of the whole affair. The Board of Trade and Foreign Office began the talks to allocate a nil tariff quota to Japan and Italy, the decision being that both nations would respond better to serious talks than unilateral gestures. In deference to the strong views of some of the cabinet a brief effort was made to talk to the US State Department, however this merely confirmed the Americans had not departed from their unique definition of 'reciprocal' when it came to trade. It also emerged that Britain more formally coming out as opposed to the Republicans, as oppose to supporting the Monarchists, had caused the 'Spanish Credit' market on Wall Street to crash as traders bet against a Republican victory, further imperilling the American firms selling to the Republicans on credit and the banks that had financed them. This further damaged the prospects of any form of trade talks while also causing the government and Foreign Office to revise their view on the actual state of Anglo-American relations.
Once the decision on suppliers had been made the matter vanished from the political agenda and sunk into the depths of Whitehall, even the relevant minister were more than happy to delegate the matter to lower level functionaries. With London keen to get the fruit, both Tokyo and Rome very keen to earn some more hard currency and nothing strategic involved the small scale deals were duly thrashed out, the Board of Trade even managed to carve out some concessions in the form of small reductions in the tariffs those nations were imposing on British Empire imports. In practice however little came of this as those nations imports were in practice centrally directed; all their earnings from the citrus trade were poured into 'strategic imports' such as oil, iron ore and rubber, the positive view would be that all those imports were from either Britain or the Empire and the talks and ongoing contact required did provide another channel for communication and other activities. It is possible that had Cabinet or Parliament been aware of how the trade flows would develop they may have deliberated more and made a different decision, but political attention had moved elsewhere long before this became apparent. How much the officials in the Board of Trade and Imperial Trade Council had known, or even suspected, about the outcome is a different question, the evidence suggests they were somewhat clearer eyed about the realities of trade and the non-financial costs of having a widely used reserve currency. In any event the most politically noticed ramifications of the whole affair would not be the any international response, but events within the Empire.
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Notes:
As has long been threatened it has now come to pass. The impact of the citrus trade and international fruit industry credit financing on the Spanish Civil War. Who else would dare to combine such words, let alone write a chapter on it? Probably best not to answer that.
Fruit import numbers are right for the early 1930s, I've changed the equivalence based on my best rough estimate of how much the kit being sent to Spain in Butterfly would cost. Military costs are always a bit witchcraft as they depend heavily on what is/isn't included, how far along the manufacturing run is and (for wartime numbers) how bad war inflation was both in general and for that sector. Also worth pointing out the obvious that those costs don't include fuel, ammo, supplies, spares, uniform and all the other things that turn a tank or aircraft into something militarily useful.
The Canary Island fruit runs and the history of Canary Wharf are OTL. In an attempt to keep on track I did not mention the apparently obligatory trivia about that, but here in the notes there is space. The Canary Islands are named from the Latin Canariae Insulae, which translates as Islands of the Dogs, the area of London Canary Wharf sits in is called the Isle of Dogs.
There is a whole load of complex politics about the Falange that I decided not to include because this is not a Spanish AAR so it's out of scope. Very broadly the Falange had some big internal fractures that didn't matter when Franco was running the show and merged everything together, without him those fractures have split open. German support remains lukewarm as they are much more worried about an assertive France (want to keep good kit for themselves) and aren't getting paid (no big barter deals as per OTL). The other relevant point is that the British are having to spread their support which they know is probably not going to end well but feel they have to. Juan March remains an interesting character, certainly he would have had his fingers deep into this sort of scheming.
The Anglo-South American Bank is a fun, to me anyway, little story. It only ended up in Spain in 1916 when the British government decided having a British bank in Spain would be useful for various reasons. They turned this into being the biggest foreign bank in Spain, but then had serious problems in the 1930s and ended up a Bank of England quasi-supervised 'bad bank' which limped along until it's main rival was encouraged to buy it. My feeling is with more money to be made in Spain they are still in a mess but the profits from Spain are helping to keep them healthier, which means they are around to make more of a mess about government (lack of) policy. I also liked the contrast with France, who let their banks in Spain go to the wall or be brought by foreign rivals which was morally cleaner but is coming back to bite them. A sub-theme I'm exploring in Butterfly is "If you want to be a global financial power there are costs you must pay" and this is part of that. I also really liked the BdF vault sketch.
The public opinion is pretty much the opposite of OTL, but given all the changes and the reasons mentioned I think such a swap would have occurred. I am reminded of the OTL Nov 1937 survey where given the choice between fascism or communism a quarter went for each and the other 50% had no opinion. Most people not really caring was probably the default unless something major happened, like one side shooting at the Navy.
Dangling my toes far too close to current affairs I will note that the US attitude to trade at the time were messy but a bi-partisan one, so I doubt it would change much with Landon in the White House. The US was in the position of being a major exporter who's markets were cut off by tariffs and quotas, but due to domestic pressure couldn't/wouldn't offer any real concessions. This made any talks a waste of time, at least until the infamous master negotiator Neville Chamberlain got involved. Fortunately he is nowhere near this, so it remains at a deadlock.
Finally the question no-one was asking, how did this get dealt with in OTL? Well mostly by Britain just buying from whichever side controlled the oranges at that point. But also by buying a lot of canned oranges from Japan, several hundred thousand cases of it a year and that was while Japan was at war in China, money that as mentioned was used to lubricate Japan's barter deals and foreign trade. The fundamental interconnectedness of all things is never to be under-estimated.
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