AUSTRALIA: POLITICS OF WHEAT EXPORTS TO THE SOVIET UNION AND CHINA

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP90T00114R000800760001-7
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 5
• Document Creation Date: December 27, 2016
• Document Release Date: May 24, 2012
• Sequence Number: 1
• Publication Date: July 25, 1986
• Content Type: MEMO

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Central Intelligence A,encv
Washington. D C 20505
DIRECTORATE OF INTELLIGENCE
25 July 1986
Australia: Politics of Wheat Exports to the Soviet Union and China
Summary
Australia's wheat exports to the Soviet Union and China
already have reached record volumes this vear--3.2 and 2.3 million
metric tons respectively--in line with the country's record
exports of wheat worldwide: We do not expect Australia to be able
to sell more wheat to the Soviet Union before the end of the
market year, 30 September, but Australia might be able to sell as
much as 200,000 more metric tons of wheat to China during the next
two months. Thus Australia could lose as much as $20 million in
revenues if the US Export Enhancement Program enabled the US to
capture that sale.
Australian Prime Minister Hawke is probably worried more
about the long term effects of the EEP on wheat prices and next
year's wheat sales than about immediate sales losses. Moreover,
with national elections less than 18 months away, Hawke
undoubtedly believes he cannot afford to ignore wheat farmers'
pleas to use his claimed "special relationship" with the US
administration to win them relief. Wheat farmers have been
hardest hit by declining commodity prices of all Australia's
aqricultural industries. Moreover, wheat farmers are
traditionally the most vocal of Australia's "militant farmers" and
protest most often in Canberra. Thus they exert more political
pressure than their numbers would indicate.
This memorandum was prepared by Southeast Asia Division,
Office of East Asian Analysis, and conomics Division, Office of
Global Issues. E - ~ Comments and questions are
welcome and should be addressed to Chief, Southeast Asia Division, OEA ,
EA M 86-20100
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Agriculture and the Economy
Agricultural products provide 37 percent of the country's export income,
even though only 7 percent of Australia's workforce is directly employed in
agriculture. Wheat is the most important crop in Australian agriculture,
involving 45,000 farms and about 25 percent of Australian farmers. Australian
agriculture is primarily directed toward the export market--this year, for
example, 98 percent of Australia's wheat production was exported--and is
almost wholly dependent on factors beyond Australian farmers' control, namely
international commodity prices and market access.
The USSR, China, and Egypt are Australia's largest wheat customers. A
considerable portion of Soviet wheat imports are high-quality (suitable for
breadmakinq), and Australian standard white wheat is the closest substitute
for high-quality US hard red wheat. China, on the other hand, imports little
high-quality wheat. China's demands for intermediate (noodle-making) wheat
can be met by US, Canadian, EC, or Argentine medium-quality wheats in addition
to Australian standard white wheat.
Table 1
Ranks of Soviet Union and China among Australia's Wheat Customers
USSR China
1980/81 1 3
1981/82 1 3
1982/83 3 2
1983/84 2 3
1984/85 3 1
1985/86 1 NA
The US wheat price acts as an umbrella price for the world wheat
market. The lowering of our price to China and the Soviet Union would lead to
a rachetinq down of prices by our competitors and a general lowering of the
world wheat price. Thus we forecast a $75 per metric ton price if the Dole
Amendment becomes effective. Although we do not believe the Soviet Union will
buy more Australian wheat before the 30 September end of the marketing year,
China might buy as much as 200,000 more metric tons. In this case, stralia
would lose as much as $20 million in revenues in the next two months.
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Table 2
Australian Wheat Exports to the USSR and China
Without EEP
1985/86 to date July-September 1986
Vol. Price Value Vol. Price Value
(MMT) ($/MT) ($mil) (MMT) ($/MT) ($mil)
USSR 3.2 128 410 0.0 100 0
China 2.3 133 306 0.2 100 20
With EEP
July-September 1986
Vol. Price Value
(MMT) ($/MT) ($mil)
0.0 75 0
0.0 75 0
Prime Minister Hawke, however, is probably worried more about the long
term effects of the EEP on wheat prices than about immediate US sales. We
believe Australian analysts are correct in saying world wheat prices probably
would not rebound to their current level of $90 per ton after September,
because wheat stocks are high worldwide and other grain competitors--the EC,
Canada, and Argentina--continue to expand production and aggressively export
their surplus. Thus Australia stands to lose as much as $245 million from
wheat exports in 1986/87. It is conceivable that Australia could lose even
more revenue--if quantities sold as well as price fall--but Australia so far
has competed aggressively with US sales under the EEP--by offering, for
example, liberal credit programs or discounts for cash purchases to its
customers. For this reason we expect Australia to maintain its current market
share .*
Table 3
World Wheat Prices
US
(Gulf #2 Hard
Red Wheat)
Australia
(Standard
White)
Canada
(Vancouver #1
Western Red Spring)
EC
French
Soft
Argentina
(Buenos
Aires)
1985
I
$149
$135
$128
$130
$109
II
146
140
129
130
113
III
130
125
118
128
107
IV
130
130
109
105
92
1986
I
130
120
110
100
91
II
110
108
101
95
90
*If the EEP is extended to the USSR, Australia's sales to the Soviets in
1986/87 could fall from an estimated 3.0 million metric tons to 1.5 million
metric tons. In this case, revenues from sales to the Soviets would fall by
$155 million.
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Table 4
1985/86
Volume as
Base
WORLD
USSR
CHINA
Possible Revenues to Australia from Wheat Sales 1986/87
Without
EEP
With EEP
Vol.
Price
Value
Vol.
Price
Value
(MMT)
($/MT)
($mil)
(MMT)
($/MT)
($mil)
16.5
90
1485
16.5
75
1240
3.2
90
290
3.2
75
240
2.3
90
210
2.3
75
175
Revenue
Loss
($mil)
245
50
35
Political Considerations
For Hawke. Australia's farmers have been hurting the past two years.
The value of Australian agricultural production fell 21 percent in 1985,
largely because of low commodity prices, and, according to the Australian
Bureau of Agricultural Economics, probably will fall another 21 percent in
1986. According to our estimates, average farm income on family farms for the
year ending 30 June 1986 fell below $5000, less than an Australian family can
collect from welfare programs. Despite high yields, more than half of the
country's grain farms suffered net losses this year.
Farmers do not hesitate to use militant tactics to gain concessions from
Hawke. In July 1985, 40,000 farmers marched on Canberra. Five months later a
group from New South Wales dumped 30 tons of wheat on the Parliament steps to
protest low wheat prices ($135 a ton then versus $90 a ton now) and high
domestic interest rates. During the first quarter of this year, Hawke Granted
special tariff rebates on fertilizer imports and tax rebates on farm fuel,
primarily to prevent the Labor Party from losing office in several state
elections. The Prime Minister is vulnerable to farmers' dissatisfaction
because the loss of nine of the Labor Party's rural seats in the House of
Representatives would soell defeat in the next national election--which must
be held by January 1988.
Hawke is undoubtedly worried about his political future because
Australia's recession is spreading to non-farm sectors. Real economic growth
is likely to be less than 2.0 percent this year, falling from a high 4.5
percent last year. The current account deficit continues to widen, despite a
27 percent currency depreciation in the last year and a half. Inflation is
running over 9 percent annually and unemployment rose slightly in the first
half of 1986 to about 8 percent. In addition, after a three-year lull in
industrial turmoil--primarily due to the government taking an active part in
wage negotiations--Australia's trade unions last month began a series of
strikes that we believe is likely to continue until at least September.
For the US. Hawke's April visit to Washington disappointed many
Australian farmers, according to domestic press reports, because they believed
he achieved no concrete results. Likewise, Australian farmers are skeptical
of Hawke's claimed success in focussing discussion at the Tokyo Summit,
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together with President Reagan, on the need for reduced agricultural
subsidies. Thus Hawke would prohably view as a oersonal affront the
President's signature on a bill includinq the USSR and China in the EEP. In
our iudgment, the current US Senate proposal, if it becomes law, would confirm
Australian farmers' susoicions that Hawke is powerless to win relief from the
US government and that Australia's faithfulness to its responsibilities in the
ANZUS alliance is meaningless to the US administration.
Although Foreign Minister Hayden stresses that security issues and trade
issues will not be linked in talks with the US next month in San Francisco,
other members of Hawke's government--echoing widespread Australian sentiments--
say that Australia must and should use the US-Australian joint facilities as a
bargaining chip in attempts to thwart the Senate proposal. We do not believe
threats to close the facilities will be ventured seriously by Australian
participants in the San Francisco meeting, but if the Senate proposal becomes
law, tensions will be high and thoughts of making such threats will remain
just below the surface. Our worst case scenario, on the other hand, would
have the Australians refusing to negotiate a new ten-year agreement for the
Joint Defense Space Research Facility at Pine Gap near Alice Springs in the
Northern Territory (thus the facility would be subject to closure after
October 1987 with a year's notice) and ending negotiations on a new lease for
the Naval Communications Station Harold E. Holt at North West Cape near
Exmouth in Western Australia (the present lease expires in 1988). Even before
the issue of the leases came up, a linkage of trade and security issues almost
certainly would be apparent. For example, US Embassy officials in Canberra
who might try to win a better presentation of the ANZUS alliance in
Australia's White Paper on its Armed Forces--to be prepared from the much-
touted Dibb Report of Australia's defense needs--are unlikely to be welcomed
warmly.
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