Navistar History 1881-1915 — Extortion and Binder Twine in the Yucatan

Tom Clark, Navistar's Corporate Historian

August 1, 2016

 

Written by Tom Clark, Navistar’s Corporate Historian, this story was originally published in Cornbinder Connection Magazine. The images are used with Navistar’s permission. Reference materials include a 2011 article “The Early 20-Peso Notes of the Reguladora: Revolutionary Intrigues and a Major Hoard” by professor Peter S. Dunham, PhD of Cleveland State University, and a 1982 book, “The Revolution from Without” by Gilbert M. Joseph.

In the early 1880s when McCormick adopted twine binding as a replacement for wire, a new chapter in the company’s history was born. Whether motivated by a concern for the well being of livestock, or as a way to better compete with its arch-rival, the Deering Harvester Company, this change started a chain reaction few could have anticipated.

 

For farmers, the ability to cut and safely bind their grain crops in one pass was the ultimate in efficiency. This new technology created an insatiable demand for binder twine and the required raw materials.

 

For nearly 15 years Manila hemp was the fiber of choice for binder twine. Plantations in the Philippines produced sufficient quantities to supply all of McCormick’s twine mills and most of the competition. When the Spanish-American War broke out in 1898 (including hostilities in the Philippines) prices quickly escalated driving the business away. The beneficiaries of these events were the henequen growers on Mexico’s Yucatan peninsula. Henequen (hen-uh-kin), sometimes known as Sisal, with its long fibers, was the perfect raw material for twine.

 

The city of Merida became the epicenter of the twine industry. In a few short years Merida was transformed into one of the wealthiest communities in the world and the Yucatan into the wealthiest state in Mexico.

 

International Harvester’s interests in the region were represented by independent agent Alvelino Montes. IH was the dominant buyer controlling 80 percent, and sometimes more than 90 percent of the market. Working with American banks, Montes put together financing deals for many of the growers — deals that gave him powerful leverage when it came to pricing. Eventually claims of price fixing surfaced and in 1912, a federal court convicted International Harvester of having a monopoly on the binder twine market.

 

After this, the pendulum swung to the opposite extreme — The State of Yucatan formed the Regulating Commission of the Henequen Market (Reguladora). This new cartel now controlled the market and raised prices as it pleased. Conveniently, the governor of the Yucatan, Abel Ortiz Argumedo, was also president of the Reguladora. Argumedo, a general in the Constitutionalist Army, had ousted former governor Toribio de los Santos on February 12th of 1915. This move was typical of the ongoing political chaos in Mexico at the time. On his way out of the country, Santos emptied the state treasury and local banks, leaving Argumedo without funds to purchase weapons and munitions. As a solution, Argumedo issued millions of new pesos — backed by both the Yucatan government and the growers.

 

By this time Montes had a contract for IH in place with the Reguladora for 100,000 bales of henequen. In a desperate move they threatened not to deliver unless Montes “loaned” them $500,000 for arms and munitions. Intimidated by the looting of the Banco Peninsular and afraid of loosing the 100,000 bales, Montes had one of his employees provide a letter of credit for $480,000 from a New York bank. Another check and gold made up the balance. Montes then was reimbursed with the newly printed pesos.

 

By March 19th, Argumedo was replaced by yet another governor — General Salvador Alvarado. On March 20th Alvarado declared the recently printed pesos to be counterfeit and owning them punishable by death. Upon hearing the news, Montes fled the country with his henequen and cash. Although not considered a hero, Montes delivered for the company under extreme circumstances. Failing to do so would have been catastrophic to farmers across the globe and to the company.

Today, more than 100 years later, a portion of the original counterfeit pesos paid to Montes, some 24,000 counterfeit notes totaling 480,000 pesos, are preserved in the McCormick/International Harvester Collection at The Wisconsin Historical Society.

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