MONTHLY REPORT

• Document Type: CREST
• Collection: Library of Congress
• Document Number (FOIA) /ESDN (CREST): LOC-HAK-320-4-4-7
• Release Decision: RIFLIM
• Original Classification: C
• Document Page Count: 8
• Document Creation Date: January 11, 2017
• Document Release Date: June 4, 2010
• Sequence Number: 4
• Publication Date: April 14, 1976
• Content Type: MEMO

No Objection to Declassification in Full 2010/06/04: LOC-HAK-320-4-4-7
DEPARTMENT OF STATE
CONFIDENTIAL
BRIEFING MEMORANDUM
S/S
ON FILE DOS WAIVER
INSTRUCTIONS APPLY
7607855
April 14, 1976
To: The Secretary
From: EB -- Joseph A. Gre nwa d
ON-FILE USDA WAIVER
INSTRUCTIONS APPLY
Monthly Report
International Food Policy Moves to USDA
Farm organizations have made it unmistakably
clear that they want the Department of Agriculture
and not the State Department to make international
food policy. The President has responded by estab-
lishing the new Agricultural Policy Committee.
Chaired by Secretary Butz, it will "formulate,
coordinate, and implement" all food and agricul-
tural policy, both domestic and international.
The new Committee was unveiled in a way that
highlights both the leadership role of the Agri-
culture Department and the subordination of inter-
national to domestic policy.
"Who's the chairman means a heck of a lot,"
said Assistant Secretary Bell according to the
Journal of Comu-merce, because he initiates action and
shapes the way in which information is presented.
"The old groups were chaired by the State and
Treasury Departments."
"Under the new structure," says the Journal,
"Bell doesn't think an instance could take place
like the request to Poland not to purchase U.S.
grain, made last fall at the initiative of the State
Department."
CONFIDENTIAL
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Agriculture's Priorities
Agriculture's highest priority is promoting
maximum production and consumption of U.S. agri-
..-cultural products to increase U.S. farm income.
For practical purposes, this has meant expanding
the production of U.S. grains for export. ?Viewed
in this light, present domestic agricultural
policies (reinforced by coincidental world pro-
duction shortfalls) have been a huge success.
World trade in grains has doubled over the
last five years--with the U.S. supplying 95 percent
of the increase until it now is the source of half
of all grain traded internationally. This has meant
a doubling of net farm income ($12.8 billion in 1971;
$24 billion in 1975) .and a tripling of agricultural
export earnings. Even discounted for 29 percent
general price inflation, this is a remarkable per-
formance.
It is these gains for the U.S. farm sector that
Agriculture wants to further and to protect. The use
of food to further our foreign policy interests is
not a USDA objective.
What does the primacy of USDA, and its single-
mindedness, mean for your food initiatives at the
World Food Conference and for other elements of our
international food policy?
World Food Conference Initiatives
The November 1974 World Food Conference was the
high water mark of global concern about the adequacy
of the world food supply. The reasons have been
often stated: exhaustion of the North American
grain surplus--the largest absolute decline in world
grain output in more than a decade--increasing
population pressure in food deficit LDCs--a lull in
technological advances.
While food-population pessimists believe we are
entering a period of chronic scarcity with soaring
demand for food outrunning the productive capacity
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of the world's farmers and fishermen, less alarmist
assessments by USDA and UN experts stress the largely
transitory factors in the sudden shift in the global
supply-demand balance, and foresee world food produc-
tion, in total, keeping ahead of population growth
for the next decade or more. The problem will not
be production but distribution. "And there will be
times and places of critical shortage."
To meet these problems, you emphasized at Rome
three main lines:
--- Increasing food production in food deficit
LDCs;
-- Providing a reasonable level of food aid as
an interim measure to meet minimum MSA needs
until per capita production increases;
-- Establishing world food security based on an
internationally coordinated system of
nationally held grain reserves.
Where do Our Substantive Proposals Stand and What
Support Can we Expect From USDA?
Agricultural development in the LDCs and food
aid are more or less on track. A world food reserve
system and agricultural liberalization in the MTN are
stalled. USDA has been foot-dragging on both issues
and the US-USSR grains agreement pretty well signaled
the end of our effort on reserves.
Agricultural Development
There is unanimous agreement at home and abroad
that accelerated agricultural development among food
deficit LDCS is the long-term solution to the world
food problem. The prospect of LDC grain imports of
100 million tons by 1985 .(as compared with about
45 million tons annually today), while well within
the capability of the exporting countries to provide,
would place a. heavy financial burden on the poorer
developing countries, even if prices dropped to
levels closer to production cost.
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We are giving top priority to agriculture in
our bilateral aid programs. The IBRD and IDA are
devoting one-third of their commitments to agri-
culture (as compared with 15 percent in 1972) and
additional resources to fertilizer plants. If and
when the International Fund for Agricultural
Development is established, a further $1 billion
may become available (see page V below). There
are formidable technical, economic, and institu-
tional obstacles in the LDCs that need to be over-
come; but the potential for increasing production
and crop yields is great.
USDA fully subscribes to this objective,
supports it on the Hill and in international orga-
nizations where it has the lead, such as FAO. USDA
support is not surprising, although it may appear
inconsistent. The economic development of LDCs is
good for U.S. agricultural exports. As income
increases, the poor seek to improve their diets, even
in the LDCs. Rapidly developing LDCs are important
new markets for U.S. food and feed.
USDA is sensitive, however, to providing produc-
tion assistance that could promote LDC exports in
competition with American farmers. The current flap
on palm oil imports is an example, but there may be
others as our development initiatives gain momentum.
Food Aid
The food shortage psychology of the past few
years radically changed the complexion of our food
aid programs from a means of disposing of surplus
U.S. commodities to a means for providing balance-of-
payments support in selected cases. Foreign policy
interests on one hand and market development interests
on the other underlie these programs. These interests,
represented by State and USDA, are generally, but
not fully, complementary.
USDA is beginning to press for a stronger lead
role (at State's expense) in PL-480 decision-making.
It has a greater concern about the reappearance of
agricultural surpluses in the short-run than about
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shortfalls, It wants to be able to expand and con-
tract PL-480 programming to suit its objective of
sustaining commodity prices at about current relative
levels. This means not only budgeting in a
procyclical manner (making more available when there
are surpluses and prices are low and less when supplies
are tight and prices high) but also concentrating on
large food importers where food aid can be'used as a
bargaining device to capture or maintain the entire
import market.
There are three problems:
-- our foreign policy priorities change over
time whereas the massive intake capacity of
South Asia is likely only to grow;
--Often the foreign policy return on a small
food aid program at the right time and place
is greaterthan a massive one in a country
with practically unlimited needs;
-- Wedding the bulk of our food aid to South
Asia, to an even greater extent than at
present, neutralizes its political impact
and puts the leverage we should exercise as
a donor in the hands of the recipients.
USDA's newly won bureaucratic leverage makes sustaining
a balance between domestic and foreign policy interests
more difficult, but we should be able to maintain our
position.
Food Security
Our grain reserves proposal was an-attempt to
develop urgently, apart from more general trade issues,
a system to assure adequate food supplies in the event
of major shortfalls. Such shortfalls, involving poor
crops in several of the large producing countries,
occur perhaps once each decade--although some analysts
believe the frequency is increasing. In the absence of
large world reserves, the industrial countries will
face economic shocks from sudden sharp jumps in food
prices. The poor countries will face starvation, which
they can avoid only by food aid transfers paid for by
the large exporters--principally the U.S.
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Our proposal for a large grain buffer stock has
ancient antecedents--the Old Testament--as well as
later proposals for an ever-normal granary. In the
50s and 60s the U.S. and Canada assumed the responsi-
bility for maintaining an adequate world grain
reserve, mainly for domestic agricultural policy
reasons. With the exhaustion of the North American
grain surplus, we have been seeking a world grain
reserve agreement that would distribute the burden
of carrying stocks more fairly--and that would include
the USSR which is a major source of instability in
the world grain market. (With the conclusion of the
US-USSR grains agreement, the Soviet incentive to
join an international food reserve system has con-
siderably diminished.)
The USDA sees little merit in a world food reserve.
If importing countries are concerned about their
future access to supplies, they can build their own
stocks or enter into long-term contracts. For the
rest, traders and farmers can carry working stocks.
The USDA reflects the view of the American farmer
who wants no buffer stock "overhanging" the market.
(If prices were to soften---let us say, two record
crops back-t.o-bac.X---the Government-might begin to
accumulate stocks.)
h
With the dissipation of the crisis atmosphere of
1974, the decline in grain and fertilizer prices, and
the resumption of trade rivalries, other exporters and
importers--including LDCs--have become more concerned
with price stabilization than with the question of
availability of supply. The chief concern of other
exporters is that we will continue to seize the lion's
share of exporting markets at their expense. A price
stabilization agreement which sets a floor, as well as
a ceiling, price would prevent the more efficient U.S.
producers from out-competing them. The affluent
importers believe they can buy what they need, while
the poor importers believe they can exercise sufficient
political and moral pressure on the rest of the world
to assure that their emergency needs will be met.
The food security issue has thus become a trade
and aid issue--linked to grain negotiations in the MTNs
and locked into their schedule.
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Always ambivalent toward the grain reserves
proposal, USDA has fostered the present standstill.
It may be possible to address the question of
grain price-stabilization after the coming election
because a failure to reach some measure ofagree-
ment on grains would threaten the entire M'N. Even
Earl Butz admits privately that next year the U.S.
will probably be prepared to negotiate a grains
agreement with a price element in it.
Where do we Stand on the New Institutions Created
or Endorsed by the World Food Conference?
Judged in terms of efficacy or accomplishment,
some of the Food Conference follow-up institutions
are likely to fail---if not this year, then
next.
Those most likely to go are, first, the
Consultative Group on Food Production and Investment
(chaired by Ed Martin). It has the difficult, if
not impossible, task of advising on allocation of
foreign investment and assistance to LDC agriculture
on the basis of voluntary examination of performance
in using these resources. It suffers from non-
cooperation and sniping by at least one of its
sponsoring agencies (FAO).
Second, the World Food Council (chaired by
Egyptian Vice President Marei with John Hannah as
Executive Director) had a nearly disastrous first
session last year and seems bent upon indulging its
impulse for self-destruction by repeating most of its
earlier mistakes in the session now being planned
for June. We are trying now, and will press further
at a preparatory meeting in May, for a tighter focus
on issues with which the Council might be able to deal
effectively.
The USDA looks to the FAO to provide technical
assistance in food deficit countries. It believes no
new international agencies are needed and it sees
the Conference follow-up institutions as redundant
as well as ineffective.
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.w i
The International Fund for Agricultural Develop-
ment (IFAD), which the OPEC countries proposed at the
World Food Conference and which we strongly endorsed,
is at a crucial stage. Draft articles of agreement
establishing the Fund have been negotiated. The UN
Secretary General is supposed to set a date for a
plenipotentiary conference, when indications are
received that pledges in an amount of $1 billion would
become available. OPEC countrAs have made no firm
pledges, only vague noises and Iran is walking away
from its earlier commitment. The French have blocked
an EC contribution; the eight are considering individual
contributions. The Japanese have been silent but can
be expected to come through in the end.
The next six weeks are a make or break period.
We may ultimately have to scale down the whole project.
What are the Prospects After Election?
Trade and related issues, including grain reserves,
cannot be dealt with until the political climate
cools.
It is possible that in 1977 we may be able to
accede to the demands of other major grain importers
and exporters for a loose price stabilization agree-
ment in the MTN...an agreement with a very broad price
band that would trigger consultations among the
participants and appropriate action. Such an agreement
would have to contain some trade liberalization features
and possibly food aid commitments to be.acceptable to
USDA-and the Congress.
The Russians have made clear their interest in
negotiating a market stabilization arrangement for
wheat in the International Wheat Council (IWC).
Understandings affecting grain trade agreed in the
MTN could be given practical effect in a new wheat
agreement negotiated in the IWC.
The Russians have scaled down their livestock
targets in their new five-year plan and are planning
a substantial expansion of storage capacity. The
likelihood is that their imports will continue to
grow but at a slower rate.
EB Staff:da 4/14/76
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