ASIAN RICE PROBLEMS AND THE COLD WAR

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP64-00014A000100130029-7
• Release Decision: RIFPUB
• Original Classification: C
• Document Page Count: 9
• Document Creation Date: December 9, 2016
• Document Release Date: June 23, 2000
• Sequence Number: 29
• Publication Date: January 18, 1956
• Content Type: REPORT

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DEPARTMENT OF STATE
Intelligence Report
No. 7087 January 18, 1956
Office of Intelligence Research
ASIAN RICE PROBLE14S AND THE COLD WAR
Abstract
Intervention in distress situations created by burden-
some crop surpluses is the latest weapon employed by the
Communists in their political and economic offensive against
the underdeveloped countries. The most recent such action has
been the large purchase of surplus Burmese rice.
These purchases have been accompanied by Communist
propaganda playing up the role of the bloc as the benefactor
of the Burmese economy. Prominent Burmese leaders have reacted
with expressions of deep appreciation.
Prior to 1955 no significant amounts of rice were imported
by the Communist countries, On the contrary, Communist China had
been exporting rice to Ceylon as part of the ive~tea USSR,
ice
rubber agreement. But, in 1955, Communist China, Czechoslovakia., Hungary, East Germany, Poland and Rumania
negotiated agreements for the purchase of rice in Burma. Part
of this rice is going to other destinations -- principally
North Vietnam, The bloc rice purchases have been focused on
Burma,, which is "neutral" in the East-West struggle. Agreements
negotiated in 1955 cover at least one-quarter of Burma's rice
exports and indications are the scale of such purchases will be
increased in 1956. No rice has been purchased from the other
major rice exporting country of Asia;, Thailand, which is aligned
with the West., although offers to purchase have been made.
The Communists can move in to support the Burmese rice
market at little economic cost relative to the possible political
gains. The quantities of rice involved can readily be absorbed
by the bloc. The consumer goods, capital equipment and technical
assistance which would have to be supplied in exchange would impose
no great drain on the_ oc
CONFIDENTIAL
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I. INTRODUCTION
Rice is the principal crop and staple food of almost all countries
of Asia within the arc stretching from Japan to India. Although most of
the rice produced is consumed locally, foreign trade in rice plays a major
role in the economies of a number of countries of the region.
Since 1953, the Asian rice situation has shifted from a condition of
relative shortage to one of oversupply. Prices have slipped substantially
from their postwar peaks and major exporters are plagued by surpluses and
difficulties in finding satisfactory export markets.
The Soviet Bloc recently has moved into the rice market to relieve
the distress of exporters as a part of its economic and political offensive
in South East Asia. Questions have been raised as to whether or not the
blocts principal objectives may not be the infiltration of the economic life
of the non-Communist countries,, the weaning of Asian countries from the West
and toward closer relations with the bloo, and the creation of dissatisfac-
tion with East-West trade controls.
This study reviews the present rice position of Asia and examines
the recent Communist efforts to exploit the situation to its on advantage,
particularly in Burma.
II, THE RICE PRODUCTION AND MARKETING SITUATION IN ASIA
Rice was in relative short supply and high priced from the end of
World War II through 1952. This scarcity largely resulted from the wartime
and postwar dislocation of production in the rice growing regions of Asia.
It was not until 1952 that Asian rice production reached prewar levels and
by 1955 production still lagged behind the increase in population,
The recovery of Asian rice production has been accompanied by a
substantial increase in exports. However, by 1953 Asia's rice exports were
still less than half prewar (see Table 1) and rice surpluses began to
accumulate in the major exporting countries of Asia,
A number of factors contributed to this situation of oversupply., of
which the shift to other cereals has been particularly important. When rice
was in short supply in Asia., wheat was imported on a large scale chiefly from
North America. Rice imports by Asian cereal deficit countries represented
only 32 percent of total cereal imports from 1951 to 1953 as compared with
This report was prepared by the Division of Functional Intelligence
from information available through December 15, 1955.
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Table 1. ASIA H RICE T RADF, 1931:-3u AVER,1LGE, 1946-50 AVERAGE MTD 1951 TO 1954
(thousand metric tons, milled equivalent)
Country
Burma
1 0 3 4 - 3 ' 0 average ~~ b-50 average 19,51 1 52
1953a lg5Ls; -
Exhorts Imoorts Exports Imports Exhorts Imports Exports Imports Exports Imports Exports Imports
3,070
974
1,260
--- 1,326 --- 971 --- 1,451 ---
Ceylon - 530 1 368 -- 402 1 406 2 410 15 402
Communist
China 17 704 1 227 120 20 193 --- 272 --- 263 ---
India
277 23,160 ---- 564 -- 941 -- 734 --- 193 -- 678
--
226 202 .. .- 35
03
4.09 --- 766 --- 358 ---- 259
792 1 979 5 1,079 -- 1,429
---- 1-1428 -- 1, 336 --- 1,183 ---
1,256 1,355 1,273 246 1,345 273 75C
3,820 3,530 4,158 3,034 3,385 3,543 3,526
Indochinab 1,320 -- 112 --- 333
Indonesia --- 281 1 197 ---
Japan --- 1,757 -- 176 ---
Thailand 2., 3U8--- ` 71 --- 11612
All other 2,018 1,478 143 X49 447
Total 8,990 6,x'10 2,103 2,3`'1 3,780
NOT In some cases data are for crop years rather t~h.an calendar years.
Preliminary.
b. 1934-3L" average for associated States of Laos, Cambodia and Vietnam; 1948-51 data for Cambodia a-d
South Vietnam only,
Sources : 1934-38: FAO, Commodity Report : Rice, December 1954; - nd
1946-54: USDA, Foreign Crops and i-t?rkets, July 4, 1955.
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83 percent in 1931-38. Even though export availabilities had increased
considerably by 1952-53 the shift to imports of wheat was not readily
reversed. The continued high price of rice relative to other cereals,
favored imports of wheat despite a marked preference for rice in most
Asian diets, Important also in the reduced demand for rice has been the
significant expansion of cereal production in traditional deficit areas
like India. The burden of rice surpluses was most aggravated in Burma
where the government marketing agencies strongly resisted the downward
trends of cereal prices.
At the present time a surplus of rice beyond normal stock levels
exists in Burma and, though to a much lesser extent, in Thailand. The
United States is also faced with; record rice stocks. The Asian rice sur-
plus position improved substantially in 1955 from the heavy carryovers in
1953 and 1954. This was the result of deliberate and successful efforts in
Thailand to reduce rice stocks and less successful disposals in Burma. A
significant improvement in the quality of rice in stock has also occurred
with disposals of low grade, old crop rice.
The rice market in Asia (as in the world as a whole) is definitely a
buyers market at this time, and is likely to remain so for the next few
years. Favorable crops, expanded acreage, and greater supplies throughout
the area in both exporting and importing countries, emphasize the fact that
the competition for export markets will be intense.
The rice trade is of major importance to Burma and Thailand. It
yields 70 to 80 percent of Burma's export earnings and about 50 percent of
Thailand's. Government revenue in both countries depends heavily on the
rice trade. In Burma the Government markets the rice through a State
Agricultural Marketing Board and profits from the transactions become
Government revenue,, in Thailand =various levies such as export taxes accrue
to the government.
III, THE RICE TRADE BETWEEN COMMUNIST AND NON-COMMUNIST COUNTRIES
In volume terms trade in rice between Communist and non-Communist
countries has not been large. Until 1955 the only significant shipments
were from Communist China to Ceylon within the terms of the rubber-rice
trade agreement. Small exports of rice from Communist China to Japan..
India, and Hong Kong also have taken place, and Iran has exported rice to
the Soviet Union in exchange for sugar.
Since mid-1954, however, there has been a marked increase in Communist
Bloc interest in the rice trade.: This has taken the form, principally, of
Bloc commitments to buy rice from Burma, at a time when Burma anxiously
seeks markets for its rice surplus. At the same time rice continues to be
a part of the Ceylon-Communist China rubber agreement, although the rice
element of the agreement has been modified. Communist China has made sales
of rice to Japan and is reported to be seeking other Far Eastern markets,
CONFIDENTIAL
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and the rice trade has become a problem in Soviet-Iranian relations.
A. Ceylon--Communist China Rice-Rubber Agreement
The Ceylon-Communist China trade agreement covering the five-year
period from 1952.53 to 1956-57 provided for the exchange of 50,000 long
tons of Ceylonese rubber annually for 200,000 tons of Communist Chinese
rice. The prices were to be negotiated each year and Ceylon received a
premium for its rubber and paid favorable prices for the rice.
At the time the agreement was negotiated rice was still in short
supply and Ceylon therefore gained both the advantage of an assured supply
of rice and a guaranteed market for rubber at a price premium. Communist
China, for its part not only secured needed supplies of rubber but at the
same time managed to breach the United Nations embargo on sales of strategic
materials to Communist China. Communist China apparently considered these
economic, military, and political benefits of sufficient importance to war-
rant diverting rice from domestic supplies which though inadequate would
not be seriously affected because of the small quantities involved.
With good crops in 1953-,54 and 1954-55, and increased availabilities
abroad,, Ceylon's rice supply position improved to the point where carryovers
were high. As a result Ceylon sought to reduce its purchases of rice from
Communist China. An additional consideration was the signing of an agree-
ment to buy Burmese rice which is preferred in Ceylon because of its quality.
However, Ceylon was still interested in selling rubber to Communist China.
The prime stumbling block was Communist China's professed inability to
bridge with sterling the increased gap between the cost of rubber and the
lower returns from rice sales. At the same time, however, Communist China
recognized that a failure to reduce rice exports to Ceylon could lead to a
reduction of Ceylon's imports from Burma, thus complicating the friendly
relations which the Communists seek to develop in Burma. As an alternative
it was suggested that the rice--rubber bilateral agreement be broadened to
include Burma which would supply rice to Ceylon, and in return could take
rubber which would be transferred to Communist China. This proposal did not
materialize however and the final arrangements for the 1955-56 period pro-
vided only that Communist China would reduce its exports of rice to Ceylon,
with Burma making up the difference and increasing its imports from China.
In addition, Communist China has been using rice purchased under its bilateral
agreement with Burma to make shipments to Ceylon.
B. Burma's Rice Trade with the $ino--Soviet Bloc
During the postwar period of rice shortage Burma had no difficulty
finding markets for rice at high'prices. But beginning in the 1953-54
marketing year surpluses of rice began to back up in Burma. In the face of
falling prices, increasing stocks of inferior quality rice, and inadequate
storage facilities, Burmese hesitancy to reduce export prices further aggra-
vated the situation. As carryovers rose and sales prospects declined the
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Burmese began to anxiously cast around for export markets.. and entered
into trade agreement negotiations with almost all Communist Bloc countries.
The first agreement negotiated was with Communist China which agreed
to purchase 150,000 long tons of rice.in the 1954.-55 marketing year. In
return Burma was to receive 80 percent of the value of the rice in specified
goods (20 percent to come from Eastern Europe) and 20 percent in open account
sterling. The ability and willingness of Communist China to supply goods
wanted by Burma may be questioned. However Burmese purchasing missions have
been to China and it is rumored that textiles and steel materials will be
purchased. Burma's current anxiety to dispose of rice is such that she may
be willing to accept goods without strict attention to commercial consider-
ations. There is also some evidence that Burma is considering taking goods
for possible resale in other markets.
Further sales of rice to Communist China by Burma are under active
negotiation. There is no reason to believe that an agreement will not be
negotiated for 1956.
In 1955 Burma also negotiated a number of agreements for the sale of
rice to the European Communist Bloc countries. In each case the agreement
covers a period of three years with the quantity of rice to be determined
separately each year. For 1955 these agreements covered from 250,000 to
300,000 tons of rice. The USSR agreed to take 150,000 to 200,000 tons,
Czechoslovakia about 25,000 tons, Hungary 20,000 tons, East Germany 502000
tons, and some rice was to go to Rumania, Not all shipments under these
agreements will be completed before the end of the year, partly because of
transportation bottlenecks.
Under the various agreements negotiated at least one-fourth of
Burma's estimated rice exports in 1955 will go to the Sino-Soviet Bloc.
Not all of the rice is destined to go to the original purchasing country.
Some and possibly most of the Soviet Union's purchase is going to North
Vietnam, part of Hungary's purchase has been resold in French West Africa,
and some of Communist China's purchases are going to Ceylon and North
Vietnam.
Negotiations for sales of rice to the Bloc in 1956 are under way
and involve greater quantities than in 1955, Burma is seeking to raise its
sales to the Soviet Union to 300,000 tons, and to Czechoslovakia to at least
50,000 tone. A three-year trade agreement has been signed with Poland which
agreed to purchase 50,000 to 60,000 tons of rice in 1956. The Burmese are
convinced of the need to encourage sales of rice to the Bloc and, are will-
ing to accept technical assistance in partial return. Although there is no
reason to believe that the European Bloc purchases of rice are intended to
cover urgent domestic needs, the short-run outlook is for a continuation
and expansion of Burmese exports to the Bloc. This trade will help Burma
maintain a high level of exports and to resist or at least limit the down-
ward pressure on rice prices which might otherwise result. The prices
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received from Bloc countries fdr the substantial quantities of rice in the
1955 contracts were roughly equivalent to prices under other contract sales.
The dependence of Burma on rice sales to the Bloc is significant and in-
creases the willingness of Burma to foster closer economic relations with
the Bloc.
Most of the trade agreements include the sale of other materials by
Burma, lead, zinc, copper matte, and rubber being most prominent. For the
first seven months of 1955 exports to the Bloc were 7.3 percent of Burma's
total exports compared to less than one percent in 1950-54. Shipments for
European Bloc account did not become significant until toward the end of
1955, so that the percentage for the entire year will probably be higher.
C. Other East-West Trade in Rice
In recent years Iran has shipped rice to the Soviet Union in exchange
for sugar. This rice trade is small but provides a market for surplus rice
produced in the Caspian region of Iran. Until recently there has been no
indication that the Soviet Union considered this trade as anything more than
normal commercial intercourse. However, since Iran's adherence to the
Bagdad Pact, Soviet purchases of Iranian rice have ceased. Iranian author-
ities look upon this as political retaliation and have prepared a government
rice purchase and storage agreement to assist producers who would otherwise
suffer fran the Soviet action.
There is little rice trade between the Bloc and non-Communist countries
outside of formal bilateral agreements. Communist China has exported rice
to Japan and has indicated that rice could be a part of expanded trade between
the two countries. Rice also moves from Communist China to Hong Kong and
Macao.
At various times Communist China has made unsuccessful overtures to
supply rice to Indonesia in return for raw materials, ecp?.ialLy rubber.
There have also been indications that Communist China scc1a to buy rice
from Thailand, and the Soviet Union and Czechoslovakia are reported to have
offered to buy Thai rice in 1952 and 1954. So far Thailand has not agreed
to enter into trade agreements with Bloc countries.
IV. EXPLOITATION OF THE RICE TRADE BY THE COMMUNIST BLOC
The above described rice dealings very prob h:?y have yielded political
if not economic gains to the Communist Bloc a'i though. the cxa(-ct extent of
these gains is difficult to assess. The fact tha-'G Ceylonis Rubber-Rice
contract with Communist China prevented Ceylon from receiving US economic
aid, undoubtedly created some anti-American sentiment. On the other hand
the prime m lister of Ceylon was the most outspoken defender of the West at
the Bandung conference in April 1955. Bloc purchases of rice from Burma
have been accompanied by a marked increase in Communist political and
economic activity intended to weaken Burma's ties with the West. These
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purchases have been recognized in thankful expressions by Burmese leaders.
The rice deals also have been used in Communist propaganda directed toward
both the public and officials, playing up the role of the Bloc as a bene-
factor of the Burmese economy and painting a glowing picture of the possible
future gains from closer relations between the Bloc and Burma.
The rice trade with Burma also has given the Bloc countries the
opportunity for introducing Communist goods into the Burmese economy. This
may serve to increase Burma's economic dependence on the Bloc, although to
date the flow of Bloc goods to Burma has not been great. The way has been
opened, however, for the introduction of Communist officials into Burma on
an expanded scale.
There is evidence that the Bloc's economic interest in trade with
Burma extends beyond rice, which is not particularly in demand for European
Bloc consumption, There is greater interest in other Burmese goods,
especially such things as zinc, lead, tungsten, and rubber. At any rate
these materials have been tied into Bloc agreements to purchase rice.
The political and economic vulnerability of Burma offers an opportun-
ity for Communist penetration which the Sino-Soviet Bloc can-seek to.
exploit. The Communists, when the opportunity presents itself, can move in to
support the Burmese rice market at little economic cost relative to the pos-
sible political gains. The amounts of surplus commodities involved are
small and can easily be absorbed by the bloc. The capital equipment and
technical assistance which would have to be supplied in exchange would not
impose any significant drain on the bloc economy.
Bloc economic penetration of Thailand through means of the rice
trade is also a possibility. The Government of Thailand so far has stayed
clear of deals with the Bloc. Thai marketing problems have been less acute
than in Burma. Furthermore, Thailand is more definitely aligned with the
West and with an anti-Communist government is not as fertile a field for
Communist penetration. Whether or not this would be the case if rice
marketing problems increased and the Thai economy jeopardized is not known.
Attractive Bloc offers at such time could be a source of difficulty to the
Free World. This stage may be close at hand, fragmentary reports indicate
increasing Bloc overtures to Thailand and prospects of Bloc rice purchases
in 1956.
US surplus disposal of food grains which is alleged to be depressing
the Asian rice market has been disturbing US relations with rice exporting
countries. The US surplus disposal programs have been decried by Burma and
are a source of sane dissatisfaction in Thailand. The grievances engendered
by surplus disposal programs are real and subject to Communist exploitation.
Although recent sales of rice to Asia by the US have been, small, the Asian
exporters fear the surplus overhanging the market. In addition, US disposal
of surplus wheat in Asia is believed to cut into the rice market.,
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CONFIDENTIAL
In this connection the role of Japan as Asia's most important
importer of rice and major potential consumer of Burmese and Thai rice is
significant. Japan has become an important purchaser of Burmese and Thai
rice since the war because its major prewar sources, Korea and Formosa, no
longer are rice exporters. At the same time, in contrast to other rice
deficit areas, Japan's production of rice has not increased over prewar
levels. The impact that Japan's import reouirements could have on the
Asian rice exporters has not been fully felt, however, because the US
entered the rice market as a major exporter and because Japan has been sub-
stituting wheat imports for rice (the US supplied rice in the early postwar
period through the GARIOA appropriation and at the present time is supplying
it through PL 480 and ordinary commercial sales).
Asian rice marketing problems probably stem much less from US dis-
posal programs than from other factors. The unwillingness of some rice
exporters to reduce prices, the inefficiency exhibited by Government control-
led marketing authorities,,increased cereal production in importing countries,
and the high proportion of low grade rice produced, have all contributed to
the current marketing difficulties. The economic impact of US disposal
programs on the rice exporting countries is not easy to assess within the
confines of this report.. To the extent that US surplus disposal increases
the marketing problems of rice exporters the opportunities for further
Soviet incursions through the rice trade may be increased. Soviet assistance
geared to easing the rice surplus problems of Burma (and possibly Thailand)
is a fruitful talking point for communist purposes. The US is in a weak
position to take direct measures to relieve foreign marketing difficulties
in a crop which is in surplus domestically, and faces the accusation that
the US surplus contributes to those difficulties.
CONFIDENTIAL State - FD, Wash., D. C.
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