THE BIG SOVIET WHEAT DEAL

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP80-01601R000300340010-4
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 1
• Document Creation Date: December 9, 2016
• Document Release Date: January 8, 2001
• Sequence Number: 10
• Publication Date: October 29, 1972
• Content Type: NSPR

WASHINGTON STAR
Approved For Release 2001/639/004 8 A2RDP8%TGDJ1TR00
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By JOHN FIALKA
Star-:,ews StaZ Writer
The 1972 Russian wheat deal, now
the 'target of at least a half dozen in-
vestigations, is emerging as a James
Fond-like intrigue which may prove
to be an expensive lesson in internation-
al trade for the United States.
A Star-News study of the Russian
purchase-one of the largest and most
This is the first of four articles on the
U.S.-Russian wheat deal.
complex short-term commercial trans-
actions in history-shows that:
e A fast-dealing Russian grain buying
team was able to corner one-quarter
of this nation's 1972 wheat crop operat-
ing in almost total secrecy. Incredibly,-
the highest officials at both the Agricul-
ture and Commerce Departments insist-
ed later they did not become aware of
the magnitude of the Soviet 'purchases
until after their completion.
o The secrecy, which led many U.S.
farmers to sell their wheat cheap,
1 was actually assisted by the Depart-
ment of Agriculture. which suppressed
two reports detailing Russian wheat crop
disasters that were prepared in July
and August.
o News of the immense purchases
finally broke in August only after a
trade publication received a series of
strange telephone calls from one "John
Smith," who claimed to below to a
British intelligence unit. His true ident-
ity and nationality remains a mystery.
o While belated public interest in
the wheat deal has centered on charges
of inside information and windfall prof-
its within the grain trading industry, the
greatest manipulation of the U.S. mar-
ketplace may have been carried off by
the Russians.
The impact of the trade: Demolish-
ed a federal export subsidy system; pit-
ted U.S. trading companies against each
other; has sent 30 bread and food prod-
ucts companies before 11-0, Price Com-
mLssion seeking immediate increases;
and may be the reason why Russian
ships are reported to be unloading flour
in Chinese ports for shipment to Hanoi.
Some investigators believe that $500
million in benefits to taxpayers result-
ing from the trade, touted by the ad-
ministration, will soon be substantially
exceeded by the costs of the sale, in-
eluding subsidy payments and retail
price increases. Baking industry spokes-
men believe that consumers. may even
be in for a small bread shortage as part
of their share of the deal.
IT ALL BEGAN quietly, very quiet-
ly, on June 29, with a few phone calls
from a suite in Washington's Madison
Hotel.
'I`tyo teams of Russir n unex etfid-
ly had at{?PiQV00>nl r Rem
One team was headed by Soviet Foreign
Trade Minister Nikolai S. Patolichev.
Its mission was to work out the final
terms for a three-year credit agree-
ment under which Russia Would prom-
ise to buy $730 million worth of U.S.
grain.
While Patolichev's team began call-
ing on U.S. officials, members of the
second Russian group swung into ac-
tion. Their mission, as it eventually de-
veloped, was to buy over Si. billion
worth of grain immediately and most-
ly on a cash basis.
The second team was beaded by
Nicola! )3elousov, a tall, rugged, 50-year-
old trading expert who, in the words of
one U.S. grain trader, has "as intimate
a lmowledge of our grain farming sys-
tem as any man I've ever met."
Beloitsov is the president of Ex-
portkhleb, the Soviet trading organiza-
tion that in normal years, exports
wheat. For the Russian farmers 1972
was decidedly not a normal year.
A draught in the Ukraine had left
much of Russia's winter wheat crop
without its usual protective cover of
snow. An unusually severe cold snap in
January may have frozen as much as
30 percent of the crop in the'fields.
BAD WEAThIER had also delayed the
planting of the spring wheat crop in
the so-called "new lands" area in wtest-
ern Siberia, which would make complete-
harvesting difficult before winter closes
in.
The phone calls made by the Belou-
sov team went out to executives of four
of the world's largest grain trading
firms, one of the most secretive busi-
nesses in the United States..
Most of the huge grain trading firms
are privately held, not listed on any
stock exchange. Because trading in agri-
cultural commodities is often highly
competitive, secrecy is fight and. rela-
tively little is known of the firms' ac-
tivities.
One of the calls went to an elegant,
French-style chateau on the outskirts of
Minneapolis, headquarters of Cargill,
Inc. W. B. Saunders, Cargill's vice
president and chief trader, was in
Chicago at the time.
Ile placed a return call to Leonid
Kalitenko, Belousov's assistant, and
asked him what was on their agenda.
"Oh, we just want to talk, and talk,
and talk," replied Kalitenko, who
speaks almost flawless English.
Another' call had gone out to a rich-
ly furnished suite of offices in a sky-
scraper at the foot of Manhattan, over-
(According to a consensus of industry
sources, Cargill controls 5 percent of
the export market and Continental domi-
nates about 20 percent.)
MICIIEL FRIBOURG, Continental's
president was finally located at a busi-'
ness meeting in Paris. He and a group
of company officials, including Gre-
goire Ziv, a Russian-born customer-re-
Jations man, quickly boarded a plane
for New York.
By the time Saunders' recrotiating
team from Cargill arrived in Washing-
ton on Saturday, Jan. 1, the Russians
had also talked with the officers of two
other trading companies, the Bunge
Corp., an Argentine-owviied firm, and
Cook Industries, Inc., which has head-
quarters in Memphis.
Saturday, as Saunders recalled later,
was a frustrating day for Cargill. "They
kept talking about corn-and barley. I
mentioned wheat and they just changed
the subject hack to corn."
Finally, after tai:ing the Russians to
lunch, Saunders said the Cargill was
prepared to negotiate. The Russians
replied "We'll call you," and the Car-
gill team went back to Minneapolis.
On Sunday, Ziv from Continental
called at the Madison and offered to
take the Russians on a tour of the city.
One of the first people they met on the
tour was Clarence Palmby, who had re-
signed as assistant secretary of agri-
culture on June 8 to become a vice
president of Continental.
As Palmby remembers that clay, no
business was discussed. Because Ziv
was all "old friend," he agreed to help
him show Kalitenko and another Rus-
sian, a Mr. Goldobenko, the sights of
Washington.
"WE DROVE AROUND the Washing-
ton Monument and up Pennsylvania
Avenue, past the White House. It was a
clay off for them," Palmby recalls.
Palmby has since come antler severe
criticism for his alleged role in the
wheat deal, mainly because on April 5,
sho tly before he headed a U.S. credit
neflotiating team to Moscow to attempt
to i.argain for grain sales, he bought an
exi ensive condominium apartment In
Nc York, using Fribourg as a refer-
once,
. continued
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