CIA REPORTING ON THE SOVIET GRAIN SITUATION

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79T00429A000100020003-4
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 14
• Document Creation Date: December 9, 2016
• Document Release Date: September 5, 2000
• Sequence Number: 3
• Publication Date: September 26, 1963
• Content Type: MEMO

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OCI No. 2357/63
CENTRAL INTELLIGENCE AGENCY
Directorate of Intelligence
26 September 1963
SUBJECT: CIA Reporting on the Soviet Grain Situation
1. CIA has been aware for several years of
the stagnation of Soviet agriculture and has reported
in detail on crop levels and their impact both on the
consumer and on Soviet national policy. Because the
USSR apparently began in 1958 to inflate its annual
claims for grain production, it became necessary from
that year on for CIA to make independent estimates,
based on weather conditions, acreage, and, when possi-
ble, direct observation of crop conditions by Western
observers. These estimates, prepared by the Office
of Research and Reports (ORR), are as follows:
Grain
(million tons)
1958
1959
1960
1961
1962 1963
Soviet claim
141.2
125.9
134.4
137.3
147.5 n.a.
CIA estimate
125
100
100
115
115 105-115*
*tentative
2. These figures, consistently far below Soviet
claims, have provided the basis for a conclusion, ac-
cepted by the intelligence community, that the fail-
ure of food production to keep pace with population
growth, when coupled with the demands of modern weap-
ons technology, was facing the Soviet leadership with
serious problems of resource allocation.
3. Crop estimates derived by these indirect
methods are not exact, however, and this is equally
the case with consumption estimates. CIA has there-
fore been unable to produce even speculative figures
on the Soviet grain stockpile, on which no direct in-
formation is available. (An error of 1-2 percent in
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either production or consumption estimates over the
last five years would have a cumulative effect of
5-10 million tons in estimates of reserve levels).
As a result, while CIA was able to surmise that re-
serve levels had been seriously drawn down by four
years of poor to mediocre harvests, to state that
"extraordinary measures" would be required to pre-
vent consumer dissatisfaction, to identify some of
these measures in the chemical industry, and to
predict that the 1963 harvest would also be medi-
ocre at best, it was not able to foresee specif-
ically that the USSR would suddenly find it neces-
sary to make massive purchases in the Western market.
4. Estimative reporting on the Soviet economy
over the last six month been based specifically
on the conclusion that agriculture has stagnated
since 1958. While of necessity dealing with eco-
nomic problems in fairly general terms, it spelled
out the dilemmas with which these problems presented
to Khrushchev and discussed their implications for
Soviet domestic and foreign policy. An account of
Office of National Estimates reporting is attached
as Appendix A.
5. Current reporting* has discussed more spe-
cifically--withi n the same analytic context--crop
prospects, the consumer, and the various efforts
made by the Soviet Government to deal with its agri-
cultural problems. CIA has reported that the food
supply (though judged to be generally adequate in
terms of calories) has failed to keep pace both with
population growth and with the growing aspirations
of the Soviet people for a higher standard of living.
It has frequently pointed out that the Soviet diet
is monotonous and that its quality has not improved
significantly for several years. It has shown that
the Soviet regime is aware of these problems but
that, until recently, its attempts to solve them
have been mainly concentrated on ineffective organ-
izational gimmickry. During the past six months
urrent intelligence in this field, while published
by the Office of Current Intelligence, is primarily
the responsibility of the Office of Research and Re-
ports (ORR). Excerpts from this reporting, are at-
tached as Appendix B.
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it has reported frequently on signs that Moscow has
grown sufficiently alarmed about the situation to
make plans for significant resource reallocations
in favor of agriculture and to develop its chemical
industry in support of agriculture. One aspect of
the latter program is apparently to be imports of
large amounts of chemical equipment from Western
suppliers.
6. The Current Intelligence Weekly Review
(CIWR) of 30 November 1992 noted that oo supplies
would remain tight throughout most of the bloc dur-
ing the winter of 1962 and the spring of 1963. The
Central Intelligence Bulletin (CIB) of 19 December
reported that the USNR's net agricultural output--
that available for human consumption and as a raw
material for industry--had declined to about the
1958 level. Production of potatoes, an important
food for both man and beast in the USSR, was the
lowest since the early post-war years. In January,
CIA wrote in the CIWR that "extraordinary measures"
to compensate for the poor harvest in 1962 would be
required to prevent rising consumer dissatisfaction
in the coming months. Winter wheat and rye are im-
portant'in the USSR and poor weather during the win-
ter of 1962 led CIA to the conclusion, reported on
21 February, that "an outstanding agricultural per-
formance in 1963 could not be expected" even if the
weather improved considerably later in the spring.
By June, it seemed clear, and ORR so reported that
the bloc could expect at best a mediocre harvest.
The CIB of 15 August reported that the Soviet grain
harvest would apparently be mediocre. Finally, the
CIWR of 6.September concluded that the grain harvest
may be even smaller than last year's.
7. A corollary of reporting on crop conditions
has been reporting stemming from Khrushchev's desire
to improve the consumer's lot. Over the past year CIA
has pointed to growing consumer dissatisfaction with
the wide disparities between Khrushchev's glowing
promises and the actual performance of the economy.
Beginning in April, CIA reported what appears to be
a new commitment by Khrushchev to make a major in-
crease in investment in the chemical industry, par-
ticularly in support of agriculture. On 12 April
CIA noted that several Soviet agencies had met on
the problems of improving public services and increas-
ing the quality and variety of consumer goods, and
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related this to concern over stagnating agriculture
and the need to provide greater incentives to the
workers. There has also been a considerable volume
of current reporting on the numerous overtures made
by Moscow for the purchase of chemical equipment
from the West. ORR has also reported on possible
new goals for agricultural chemicals and evaluated,
their effect on the economy. Excerpts from this
reporting are attached as Appendix C.
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APPENDIX A 26 September 1963
ONE Coverage of Soviet Economic Problems,. 1963
1. The Office of National Estimates was suf-
ficiently impressed with Soviet economic problems
at the beginning of the year to produce a National
Estimate concerning the Soviet economy, the first
of its kind. Indeed, its interest in this area
prompted it to concentrate specifically on problems
as such, rather than seek to produce a comprehensive
study of the economy as a whole; accordingly, this
estimate was titled, "Soviet Economic Problems"(NIE:
11-5-63, concurred in by USIB on 20 March 1963).
2. In the conclusions to this paper, it was
noted that "competing demands generated by a broad
array of objectives" had generated "increasingly
severe pressures on Soviet resources." Military
and space spending had "grown at a considerably
faster rate than the economy as a whole" and the
"resulting impact has been felt both in industry,
where growth rates have declined, and in agriculture,
where output has failed to rise above the 1958 level."
It foresaw "accumulating difficulties" in the USSR's
efforts "to raise living standards, and perhaps a
further slowdown in the tempo of general economic
advance." The drafters were not at the time sanguine
about prospects for major changes in the pattern of
resource allocation, but noted that this problem "will
probably be a central issue in the political conten-
tion which we anticipate after Khrushchev's departure."
3. In a staff initiated memorandum of 24 June
(Staff Memorandum No. 37-63, "Khrushchev's Comeback"),
ONE dealt at some length with a number of problems
which had been agitating the Soviet leadership during
the winter and spring months, among them economic prob-
lems of crucial importance. It adduced that by April
and May there had been a. return to more conventional
Khrushchev-oriented policies, specifically those aimed
at agriculture, the chemical industry, and the consumer.
It was ONE's opinion that a number of leaders had
sought to impose on Khrushchev a set of more conserva-
tive economic policies, stressing the primacy of heavy
industry and defense needs, but that, ultimately, such
efforts had failed.
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4. Next, in a paper which became a CIA Memo-
randum ("Soviet Policies and Problems on the Eve of
the Moscow Negotiations," 3 July 1963), ONE re-
flected in part the analysis discussed above and,
in addition, devoted three fairly lengthy paragraphs
to economic problems per se. It noted that these
problems had occupied a "central position in the
disputes agitating the Soviet leaders during the
winter and early spring," that "the domestic econ-
omic difficulties faced by the Soviets became
evident in the slowdown in rate of growth which
appeared by 1960 in all sectors of the civilian
economy," and attributed this phenomenon to "past
reductions in the workweek, stagnant agricultural
production, and, most important, the impact of
growing military expenditures." ONE examined the
failure of the Soviet leaders to anticipate a
period of increased pressures on available resources
and cited some of the more or less ineffectual steps
taken by the leaders to remedy the situation. Fin-
ally, ONE thought that, as a consequence of all this,
the Soviets were likely to undertake a "review of
all priorities." Again, it was not optimistic that
such a review would lead to a reduction in military
and space spending, but noted that "Khrushchev has
apparently already decided to allocate greater re-
sources to agriculture and to those branches of the
chemical industry which support agriculture and
produce consumer goods."
5. In another CIA Memorandum ("The New Phase
of Soviet Policy," 9 August 1963), we sought to
tie together a diverse set of problems which led
to the signing of the limited test ban treaty and
to what appeared to be a major turn in Soviet for-
eign policies. We assigned a principle role in
this causal relationship to internal factors, most
notably economic problems: "Present evidence sug-
gests that an important reason for Khrushchev's
acceptance of a limited test ban is the desire to
ease the military burden on.the Soviet economy so
that more resources can be devoted to urgent civ-
ilian programs." Khrushchev, we concluded, "wishes
to be able to point to an improved international
atmosphere in order to forestall objections that
his shift of resources endangers Soviet security."
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APPENDIX B 26 September 1963
Excerpts from Current Intelligence Reporting
1. Crop prospects reports, November 1962-September 1963
a. The Current Intelligence Weekly Review (CIWR),
30 Nov 62: "Food supplies w1ll remain tight throughout most
of the Sino-Soviet bloc during the winter of 1962 and spring
of 1963. In the USSR, agricultural output in 1962 made al-
most no gain for the fourth straight year, and grain output
is no larger than the mediocre 1961 crop; food shortages will
probably develop in some parts of the country. Grain produc-
tion in Communist China will be only slightly better than the
poor 1961 harvest, and the Chinese consumer is in for another
hard winter.
Since 1958 the gap between Soviet claims and US
estimates has widened appreciably, perhaps because of some
form of statistical manipulation or falsification by the
Soviets. A directive on determining the grain harvest was
issued by the Soviet Central. Statistical Administration early
in 1958, but its contents have never been made public."
b. The Central Intelligence Bulletin (CIB), 19 Dec
63: "Recent Soviet statistics suggest at is year's net
agricultural output--that available for food and as raw
material for industry--declined to about the level of 1958.
production of potatoes, a mainstay in the Soviet diet, was
the lowest since at least 1950.
"While caloric intake will not be deficient, there
will be shortages that will increase popular disillusionment
with Khrushchev's promises for a continuously improving out-
look for the consumer."
c. CIWR, 18 Jan 63: "Extraordinary measures to
compensate for last year's poor harvest will be required to
prevent rising dissatisfaction among Soviet consumers in the
months ahead. Civil unrest, reported to have broken out in
some localities last year, may occur on a larger scale."
d. CIWR, 21 Feb 63: "Poor weather this winter--
with its potential consequences for the economy--is causing
concern throughout the Sino-Soviet bloc. It is too early
to assess the likely effects on farm output for the en-
tire year, but it seems clear that an outstanding performance
is not likely, even if favorable weather ensues."
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e. Current Support Brief, 17 Jun 63: "Current
prospects are that the harvest or 1963 in the Sino-Soviet
Bloc probably will not be any better than the mediocre har-
vest of last year, although weather conditions during the
remainder of the crop season will be most significant in
determining the final outcome.
Fall-sown grains in the USSR as well as in some
of the European Satellites were adversely affected by a dry
fall and a severe winter. As a result, there have been
higher than normal rates of winterkill of fall-sown crops
in some areas. Consequently, prospects for grain crops
sown in the fall of 1962 in the USSR are judged to be only
fair and range from fair to poor in the European Satellites."
f. CIB, 15 Aug 63: "The Soviet grain crop ap-
parently will-Ve- mediocre this year for the fourth year in
a row.
Moscow announced that the 1962 crop was the lar-
gest in history, but actual production probably was well
below the amount claimed."
g. Economic Intelligence Report, Sept 63: "In
November 1962, arty-State Control Committees were estab-
lished at all administrative levels of the Soviet economy
to "re-establish Leninist principles of organizational con-
trol.' These committees, which collectively resemble the
organization of the old Stalinist State Control Ministry,
have a charter to pry into every aspect of economic activ-
ity and the power to punish those guilty of 'bureaucratic
administration,' fraud, bribery, and violation of party-
government regulations. Although these committees are not
confined to agricultural organizations, the need for their
establishment may have arisen out of the agricultural situ-
ation. The stagnation of Soviet agriculture during the
past 4 years has limited the incentives of both agricul-
tural and industrial workers, and the regime may have been
forced to resurrect this elaborate control mechanism as an
alternative means of improving productivity."
h. Special Report, 6 Sept 63: "Current pros-
pects are that the arvest in the Communist world will
be little, if any, better than the mediocre one of last
year. In the USSR this year's prospective disappointing
grain crop--the fifth in a row--may be even smaller than
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last year's. In Eastern Europe the harvest of small grains
is unlikely to be larger than in 1962, but prospects vary
considerably among the various countries."
i. Current Intelligence Digest, 18 Sept 63: "The
Soviet regime may be preparing the population for an increase
in the price of bread and other grain products.
The US Embassy has reliable information that meet-
ings have been held recently in plants and apartment houses
to hear a note from the party central committee describing
difficulties with the harvest. The note is said to indicate
that because of poor harvest prospects, grain collections
are likely to reach only 75 percent of the plan. It also
said that the regime was making efforts to buy extra grain
abroad.
Soviet citizens are apparently interpreting the
note as a move to soften up consumers for price rises on
bread and bread products. About half of the diet is made
up of grain products which have long been available at low
prices."
j. CIB, 17 Sept 63: "The Soviet Union may be
preparing to admit publicly to one of its poorest harvests
in recent years. On 12 September a TASS commentator said
that the state procurement of grain--about one third of
total production and a fair indicator of production trends
--would be about equal to that for 1959 and 1960. This
would mean nearly an 18-percent decrease over last year in
procurements although a 21-percent increase had been
planned."
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APPENDIX C 26 September 1963
Excerpts from Current Intelligence Reporting
1. Khrushchev, the Consumer and Agricultural Priority,
March-September 1963.
a. Special Report, 22 March 63: "While the consumer
has always been the stepchild of the Soviet economy, his for-
tunes have been improving since World War II., 'Khrushchev has
boasted of this improvement and has made sweeping promises for
the future. Although resources allocated to consumer interests
have not been significantly increased, more consumer durables
have been produced each year, the food situation has improved,
and the official promise to end the critical housing shortage
has seemed attainable. At the same time, rising incomes have
enabled workers and peasants to take advantage of the increased
opportunity to improve their standard of living.
"In 1961 and 1962, however, the rate of improvement in
consumption levels slowed down, and in 1962 the consumer ex-
perienced several shocks unprecedented in the Khrushchev era
and unlikely to increase his confidence in promises for the
future. A 30-percent rise in retail prices for meat and butter,
the "temporary" suspension of income-tax cuts, and the news
that, for the third year running, the housing plan would be
underfulfilled by a large margin all came in quick succession.
The year-end reports on plan fulfillment, while better than in
1961, still showed a particularly spotty performance in the
consumer sector.
"Khrushchev's reason for adding to. the woes of the al-
ready discouraged consumer apparently lies in the inflationary
trend over the past two to three years. Consumer industries
and agriculture have not been able to keep up with the demand
resulting from increased disposable incomes."
b. Current Intelligence Weekly Review, 12 April 63:
"The Supreme Soviets of several of the USSRys-Fepublics met
early this month to discuss means of improving public services
and increasing the quality and variety of consumer goods.
"These meetings, as well as other signs of regime con-
cern for the consumer, probably stem from a realization that
agricultural failures and the near stagnation in the production
of many consumer goods are increasingly serious problems affect-
ing not only worker incentive but also the image of abundance
the Communists are striving to create in the underdeveloped
countries."
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However, such improvements as are achieved through
the present efforts will--like others in the past--probably be
inadequate to meet planning goals or the aspirations of the
Soviet public. There is no indication that national resources
are to be shifted away from defense and heavy industry.
The equipment needs of both the chemical industry
and agriculture continue to receive considerable press attention.
On 15 March the chairman of the USSR's agricultural equipment
supply organization emphasized the importance of meeting the
1963 plan for a 22-percent increase in output of agricultural
equipment.
On his 'vacation' trip last month Khrushchev visited
several plants specializing in agricultural chemicals and syn-
thetic fibers. Near Tula he visited a urea plant, one of four
being supplied by the Dutch, and said that fertilizer would re-
ceive a 'top priority' from the state. He ordered that four
more urea plants be purchased from the Dutch."
c. CIWR, 17 May 63: "Investment in Soviet agri-
culture in 1962 registered the largest annual increase since
1955. This was probably the greatest investment gain allotted
any major component of the economy.
While there is no real basis for determining. that. this
is a firm trend, the relative increase in priority for agri-
culture in 1962 might be a forecast of the course of agricultural
investment in 1963.
Khrushchev, on the other hand, has been stressing the
importance of resource-cheap expedients and has steered clear
of new commitments. Recent decrees an certain aspects of
farming--e.g., increasing potato output--have stressed the
bootstrap approach for the current season.
In any event, the needs of agriculture are clear.
Farm production has been virtually stagnant since 1958, but the
population has increased by about 14 million. The plowing up
of millions of acres of fallow and grass lands, a program in-
troduced last year, has greatly increased needs for equipment
and fertilizer."
d. Current Intelligence Memorandum, 17 July 63:
"Khrushchev, in a ser opus attempt to overcome the stagnation
of Soviet agriculture, is embarking on a course which, if pur-
sued, will boost sharply agriculture's claim on economic re-
sources. This apparently will be at the expense of priority
industrial objectives, possibly including those of defense
support. Over the past year there have been indications of a
significant increase in agricultural investment including a
stepped-up program for production of agricultural machinery."
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e. Special Article, 26 July 63: "Khrushchev appears
to be advocating a program which, if implemented, could pro-
foundly alter Soviet economic priorities. In sum, he would
sharply increase investment in the chemical industry, particu-
larly for chemical fertilizers, in the hope this would solve
his agricultural problem. Since the costs of such a program
could probably not be fully met by altering priorities within
heavy industry or cutting consumer-oriented programs, the govern-
ment might resort to significant constraints on military spending.
The potential results for agriculture--limited by institutional
restraints as well as climatic conditions and the type of soil
involved--would be far less than Khrushchev seems to expect and
too small to justify a program of the scope he apparently plans."
f. Economic Intelligence Memorandum, Aug 63: "In a
series of statements to western visitors, Khrushchev has ex-
pressed in strong and clear language his proposal to stop the
growth of Soviet defense spending and to increase, by large
amounts, spending for agriculture, for chemicals in general,
and for fertilizer in particular. The shift in allocation of
resources advocated by Khrushchev is primarily responsive to
the continuing stagnation in agriculture that began in 1959.
Since March 1963, it has become increasingly evident
that the Soviet leadership is reviewing plans and priorities
for 1964 and 1965. There have been many indications that the
leadership, or at least Khrushchev, has been considering in-
creased emphasis on consumer goods and investment. Published
sources have been ambiguous and uninformative on both the
magnitudes of new resource commitments to these uses and the
relative priorities and trends planned for investment and de-
fense. Most recently, Khrushchev in a conversation with Henri
Spaak, the NATO emissary, disclosed some goals purportedly
planned for the next several years--specifically, goals for in-
dustrial investment, fertilizer and other chemical outputs, and,
in vague terms, defense.
In the light of the performance of agriculture in
the USSR over the last 4 years, a shift of resources in the
general direction indicated would be reasonable. The magnitude
of the shift implied by Khrushchev, however, is large and would
have a considerable short-run impact on the economy. These
statements clearly perform a useful propaganda service on be-
half of Khrushchev's current line of peaceful coexistence and
thus are open to legitimate suspicion."
g. CIWR, 16 Aug 63: "Khrushchev continues to tell
Western officiates privately that he is about to undertake
massive new investments to solve the USSR's pressing agri-
cultural problems and to promote consumer welfare. In his most
recent conversation along these lines--with US Secretary of
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Agriculture Freeman on 30 July--Khrushchev linked his new course
directly to a reduction in military spending. 'We are fed up
with rockets, we have enough rockets,' he said. 'We are going
to divert this money to agriculture.
A program of the magnitude and diversity now being
promoted by Khrushchev does not yet appear to be actually under
way. Agricultural and chemical investment are growing fairly
rapidly and imports of chemical equipment are increasing, but
neither of these on a scale commensurate with the stated pro-
gram. However, the seriousness of Khrushchev's intentions may
be indicated in the widespread Soviet press campaign which seems
to be preparing the way for the announcement of a major new
chemical program this fall. Likewise, in his coversations with
Western officials, Khrushchev has seemed keenly aware of the
detailed cost factors--which suggests that planning work is
well under way.
In pushing the new program Khrushchev will need for-
eign technological assistance and equipment. He has already
lauded the US, German, and British fertilizer programs and
suggested that the Soviet Union could learn from these. While
noting the high prices of American equipment, he nonetheless
expressed a willingness to buy 'whole plants' from the US,
adding, however, that if the US would not sell, Great Britain
and West Germany would. He noted that the USSR has already
purchased fertilizer plants from Germany and Holland and has
placed orders in Czechoslovakia, Poland, and East Germany for
fertilizer equipment."
h. CIWR, 20 Sept 63: "Recent Soviet purchases of
some $500 million worth of wheat probably stem in large part
from a drastic reduction in stockpiles caused by four success-
ive disappointing harvests and a need to forestall a critical
grain shortage in the Soviet bloc. There are indications that
this year's crop will be one of the poorest in recent years.
Moscow radio implied on 12 September that state procurement of
grain--approximately 40 percent of the crop--will be well below
last year.
necessity
To
for
ensure better crops in the future and reduce the
such stopgap purchases, the USSR has begun ne-
gotiations
to
purchase chemical fertilizer plants from the West.
On 13 A
st
uest
submitted on Soviet re
25X611
ugu
,
q
proposals for what appears to be one of the largest lists of
chemical facilities ever offered to the USSR. It includes five
urea plants with a capacity equivalent to about 2 million tons
of fertilizer by Soviet standards--60 percent of capacity
planned for 1965--and ten complex fertiliza,plants with a
combined capacity of 4 million tons. The increase in capacity
planned for 1963 is 7 million tons."
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i. CIB, 24 Sept 63: "The Communist youth organiza-
tion, Komsomol, has been called upon to assist in the comple-
tion of more than 50 mineral fertilizer plants before the end
of 1963, according to a TASS announcement. TASS compared the
call-up with the mammoth 'new lands' campaign of 1954-58 during
which hundreds of thousands of youths were pressed into service.
While the 'new lands' program could make good use of inex-
perienced labor, the effectiveness of such labor in the con-
struction of chemical plants is questionable."
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