CHINESE-CANADIAN GRAIN DEAL REFLECTS RISING CONCERN OF PEKING OVER FOOD SUPPLY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79T01003A002500130001-9
• Release Decision: RIPPUB
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• Document Page Count: 20
• Document Creation Date: December 12, 2016
• Document Release Date: January 29, 2002
• Sequence Number: 1
• Publication Date: April 5, 1966
• Content Type: BRIEF

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CHINESE-CANADIAN GRAIN DEAL
REFLECTS RISING ING
CONCERN OF P
OVER FOOD .SUPPLY_:
DIRECTORATE x OF INTELLIGEficE
Of ice o Research and Reports
GROUP I
~j excluded f;om aurgmati
CONFIDENTIAL dawngZading and-
r declassificat
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WARNING
This material contains information affecting
the National Defense of the United States
within the meaning of the espionage laws,
Title 18, USC, Secs. 793 and 794, the trans-
mission or revelation of which in any manner
to an unauthorized person is prohibited by law.
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CHINESE-CANADIAN GRAIN DEAL
REFLECTS RISING CONCERN OF PEKING
OVER FOOD SUPPLY
Summary
Peking, apparently concerned over the tightness of the
world wheat market and the prospects for its.winter wheat
crop, has purchased 1. 6 million tons of Canadian wheat for
delivery in the last half of this year and is seeking additional
amounts. Significantly, during the recent negotiations with
Canada, the Chinese exercised an option (provided in the
agreement signed last fall) to increase substantially the quan-
tity of wheat purchasable over the next three years. It is
also noteworthy that the Chinese paid premium prices for the
current purchase and also agreed to accept delivery of more
than one-third of the wheat via St. Lawrence ports, which
will increase shipping costs. Chinese wheat import require-
ments this year are unlikely to be less than the average of
6 million tons imported each year since 1960, at an annual
cost of about $400 million.
Despite sizable imports of grain over the past five years,
per capita food consumption has remained some 15 percent
below the level of 1957 / 58. Since 1.960, nongrain foods from
private plots have accounted for an increasing share of the
caloric intake, but further increases from this source are
unlikely. The task of maintaining present levels of food con-
sumption -- let alone regaining 1957 levels -- will require
a major program of support for agriculture. Although in the
past few years Peking has given somewhat greater emphasis
to improving agriculture, the Chinese do not have under way
an agricultural program which accords agriculture the pri-
ority that this crucial sector of the economy requires. Thus
* The estimates and conclusions in this brief represent the
best judgment of this Office as of 5 April 1966.
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China is likely to become increasingly dependent on imports
of grain from the West. These increased Chinese require-
ments, coupled with the continued import needs of the Com-
munist countries of Eastern Europe and the growing demands
of the less developed nations, may make competition for the
world surpluses of grain more acute. Such competition may
be particularly great in years when adverse weather forces
the Soviet Union to import significant quantities of grain, as
occurred following the poor wheat harvests in 1963 and 1965.
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On 5 April it was announced in Canada that a new contract with
Communist China had been concluded for the sale of 1. 6 million tons
of wheat, valued at over $100 million. Delivery is scheduled for the
last half of 1966. This contract is the first to be negotiated under the
new long-term agreement signed last fall, covering the period. 1 August
1966 - 31 July 1969. During the recent negotiations, China exercised
an option provided in the original agreement to increase the quantity of
wheat to be purchased in. the next three years. Under the new terms,
China will take a minimum of 4. 5 million tons and a maximum of 7. 5
million tons, compared with the original terms of 3 million and 5 mil-
lion tons, respectively. Thus the present contract represents fulfill-
merl-t of the minimum quantity for the first year of the agreement,
although sales may approach, or even exceed, the higher end of the
range (2. 5 million tons) before the end of 1966. The Chinese agreed. to
accept delivery of about one-third of the amount via St. Lawrence ports,
which will increase shipping costs. Chinese willingness to pay a premium
price for the wheat and also accept costlier shipments from St. Lawrence
ports may have been motivated both by concern over the outlook for their
forthcoming domestic wheat harvest and concern over a relatively tight
world wheat situation. Over the last five years, Chinese annual. grain
imports from the West have averaged almost 6 million tons -- valued at
about $400 million (see Table 1).
2. Negotiations for Additional Wheat
Chinese grain buyers have scheduled talks with Peking's two other
major suppliers, Australia and Argentina, but neither is in a position
to sell China the substantial amounts of wheat it did last year. The
wheat harvests completed several months ago in these two countries
were some 30 to 40 percent below the record levels achieved in the pre-
vious year, with the result that supplies available for export are sharply
reduced. An Argentine sale of 1. 5 million tons to China was announced
in November 1965, with delivery primarily in the first six months of
1966. The President of the Argentine Grain Board recently indicated
that his country lacked exportable wheat surplus to permit further wheat
sales to China. Australia also announced in November 1965 a sale of
500, 000 tons to China. When announcing the sale, the General Manager,
of: the Australian Wheat Board stated that he did not know whether more
of the new season's crop could be sold to China in the near future.
More recently, however, another member of the Wheat Board has said
that all Australian wheat for export from the recent harvest has now
been committed for export.
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To make up for the likely shortfall in supplies from traditional
sources, China probably will have to rely on minor suppliers such as
France and Mexico. China already is making arrangements to meet
with French grain traders. France harvested a record wheat crop in
1965, although much of the crop was of poor grade and will be used for
feed. Total French wheat exports are expected to equal last year's
record level of 4. 6 million tons. About one,-half of this amount had
already been sold or committed for sale by late February, with the
Soviet Union, Poland, and the EEC countries being the largest pur-
chasers as of that date.
3. Current Crop Prospects
Although it is too early to predict the total production of grain in
Communist China during 1966, prospects for the harvest of winter
grains-, were not favorable as of mid-March. These crops account for
almost 20 percent of the country's annual grain harvest (see Table 2).
Production of winter wheat, which accounts for more than one-half
of the winter grain harvest, is unlikely to be much better than the very
poor crop of 1965, despite improved growing conditions in some areas
(see the map). Prospects are better than last year in Szechwan (in
Southwest China), most of Northwest China, and in the important winter
wheat areas south of the Yellow River. In these areas, precipitation
was generally favorable for autumn sowing, and soil moisture levels
have remained well above normal. These favorable conditions, however,
have been partly offset by an apparent reduction in the acreage sown to
winter wheat in the major producing areas of North China -- a reduction
caused by a very late harvest of crops last fall, which prevented the
sowing of winter crops in some areas. In addition to this acreage reduc-
tion, growing conditions for winter wheat have been very poor in the area
north of the Yellow River, because of persistent drought since the spring
of 1965. It is doubtful that even above-normal precipitation during the
remainder of the growing season could compensate completely for the
poor growing conditions to date.
Prospects for the winter crops of miscellaneous grains, which pre-
dominate in the southern areas of the country, were improved in the
Yangtze Valley of Central China. The acreage of these crops, however,
Including crops such as winter wheat, miscellaneous grains, and
tubers which are sown in the fall and. early winter and harvested during
the spring of the following year.
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appears to be less than last year in many areas -- the result of the
late harvest last fall and an expansion in the acreage of green manure
crops.
4. Food Situation
Another poor winter wheat harvest will further aggravate the grain
supply situation -- particularly in North China, where wheat is a main
staple in the diet. Since 1958, total grain production has not kept up
with the growth in population. Despite imports of large quantities of
grain since 1960, per capita food consumption has remained well be-
low the level of 1957/58. It is estimated that the average caloric intake
per capita currently is about 2, 000 calories per day. During the
1957/58 consumption year (July-June) the average per capita intake
was estimated. to be 2, 300 calories per day -- considered adequate for
Chinese requirements -- and in 1960/61, when malnutrition was wide-
spread, it was about 1, 600 calories per day. Most of the improvement
since 1960/61 is attributed to a substantial increase in the availability
of subsidiary foods (pork, poultry, fruit, and vegetables) obtained pri-
marily from the private plots of the peasants. Significant increases
from this source are unlikely in the future unless the regime is willing
to increase substantially the area in private plots at the expense of the
socialized sector; such a move now appears improbable.
There is little evidence that the Chinese are introducing the funda-
mental measures with respect to support for agriculture that are neces-
sary for significant improvement in the per capita availability of food-
stuffs in the future. The rate of growth of the Chinese population is such.
that an additional 4 million tons of grain are required each year simply
to maintain present levels of consumption. Although China, has embarked
on a massive program of birth control, there is virtually no prospect
in the next five years that it will have a significant dampening effect on
the growth of the rural population -- and more than 80 percent of the
population lives in rural areas. It appears likely, therefore, that the
need for grain imports will increase. The likelihood of larger Chinese
requirements of grain from abroad and the increasing demands of the
developing nations for imported foodstuffs raise the possibility that
competition for world surpluses of grain may become more acute.
This will be especially true should the USSR and/or the Communist
countries of Eastern Europe experience unfavorable crop years c:on-.
currently with poor crops in Communist China.
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5. Effect on Foreign Exchange Position
The failure of the Chinese Communists to improve domestic grain
production significantly and the ever-present danger that production may
be sharply reduced by adverse weather conditions together with the pro-
gressive tightening of the world grain market must represent a serious
concern for the Chinese and must lend added urgency to procurement
activities abroad. Since 1960 the unfavorable domestic food situation
has forced China to spend increasing amounts of its scarce foreign
exchange for imports of grain and chemical fertilizer, thereby reduc-
ing its capacity to import Japanese and Western European plants and
equipment.
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Communist China,: Retained Imports of Grain a/
Consumption Years 1960/61 Through 1965/66
Consumption Volume Value J
Years (Thousand Metric Tons) (Million US $)
1960/61
1961/62
1962/63
1963/64
1964/65
1965/66 c/
2,660
5,978
5,425
5,854
5,350
6,300
170
390
360
400
370
420
a.. Not including Chinese purchases for reexport to
other destinations. Rice exports, which have
averaged about three-fourths of a million metric
tons per year, have not been deducted from these
totals.
b. Including transportation charges.
c. Preliminary estimate.
Communist China: Estimated Production of Grain
1957-65
1957
1958
1959
1960
1961
1962
1963
1964
1965
180
200
165
160
165
180
175
175
170 to 175
a.. Including tubers on a. grain-equivalent basis
of 4 metric tons of tubers to 1 metric ton of
grain.
b. Preliminary estimate.
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C-O-N-F-I-p-E-N-T-I-A-L
 r l eN; UJ NORP4 e
VIETNAM ? ?~
LAO
III
/r Mekong r_. _.
2 0 400 Miic_
I / I R HA I N AN
0 200 400 Kilometers \
MAINLAND CHINA
Growing Conditions for Winter Crops,
Major Growing Areas
October 1965-Mid March 1966
Better than normal growing conditions
Normal growing conditions
Poorer than normal growing conditions
MONGOLIA
1 AST
(J11111EA.
SI'A
(p rt) r
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 C *I T t,
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8 April 1966
MEMORANDUM FOR: Chief, Dissemination Control Branch,
DD/ OCR
FROM: Chief, Publications Staff, ORR
Transmittal of CIA/RR GB 66-9,
Chingos -Canadian Grain Deal
Reflects Rising Concern of Peking-
,.. _._.,,.
t3-ver Food Supply, Confidential.
1. It is requested that the attached copies of subject report be
forwarded to the recipients indicated on the attached covering memo-
randa. A list of the addressees is attached for your records.
2. It is further requested that this transmittal be handled as
expeditiously as possible.
25X1A
Attachments:
Copies #245 - 257
1
Excluded from automatic
dowugrading and
jpD L _ decl~csiflcatlon
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CENTRAL INTELLIGENCE AGENCY
WASHINGTON, D.G. 20505
C-O-N-F-I-D-E-N-T-I-A-L
SUBJECT Chinese-.Canadian Grain Deal Reflects Rising
Concern of Peking over Food Supply
1. The attached report was prompted by the conclusion a
few days ago of a grain purchase contract between Canada and
Communist China. I believe that you will find it of special
interest,
2. The report not only discusses the grain purchase, but
also current Chinese crop prospects, the present food situation,
and present and probable future Chinese activities in the inter-
national grain market. One of its key conclusions is that
Communist China is likely to become increasingly dependent upon.
imports of grain from the West, and that the competition for
grain surpluses may sharpen.
25X1A
WILLIAM N. MORE LL, JR.
Director
Research and Reports
Attachment:
CIA/RR CB 669 (Subject Report)
25X1A
25X1A
O-N-F-I-D-E-N-T-I-A-L
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Zvi
Mr. Cis %to
Deputy Special Assistant to the President
for Kati .i amity Affairs
' l tte House
Washington, D. C.
2.. (er . Wait IT. Rostov
whiter ftaff
Whin ton, D. C.
2-,S-0
for Eeonomie Affairs
C( j' The Hon able i reilyn E. 'fin on
nt Of ate
Waohington D D. C .
2 q Mr. Henry D. Can
Acting Chia
Po cat Plying Comei
2 S-
2 5'--z-
3
'2-6-4
Washington, D. C.
ptrent of State
United. S ,tea rnfo Lion A ncy Rom 808, 1750 Pa. Ave., N-14.
Washington, D. C.
ive---6ffice Dui
tngton, D.
,u of intelli
7th fI
79:34
Root 7261
and Resewch Rc
ant of St ats
Washin, D. C.
Mr. Richard T. Dayi0s
Brea`
Soviet tTnirwa erA Aas
Mr. Eugene Olson
fteeial Assistant to the Secretsxy
Deq&rtment of Agricultu
Wajhington, D. C.
3sBh Cage,
ble Thomas C- Nan
,ment of State
Washington, D. C.
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-De 'ense #tudy Group on Communist Chi
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5-6
The Honorable John T. McNaughton
Assistant Seeretwy
l 9iermatic ? Security Mf tr,j
`2 "tment of Defe"Am
Na8hingtozz, D. C
frt. nerrl Joeeeh F. Var ol.l
di
reer
Defense intelligence A ,aency
Del x" merit of Defense
gton, D. C.
s- 7 .. 'm'at A. J.
Zola Chief$ 'St ff-
DOPU*tment of Defe ge
Shington, D. C.
Rom 4 E
Room-4 E
: The Pentagon
73, The Pentagon
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MEMORANDUM FOR: Chief, Dissemination Control Branch, DD/CR
FROM Chief, Publications Staff, ORR
SUBJECT Transmittal of Material
It is requested that the attached copies of CIA/RR CB 66-9,
State, INR Communications Center,
Room 6527, State Dept. Bldg.
Suggested distribution for
Embassies in CC, Wsraawa Pao
Wellington, Canberra, Mialbournes
Ottawg, Hong Kam, ftigon, Singapo
Taipei, Tear Bev Dalai, and
Buena Aires
25X1A
Attachments:
Copi f W4 - 2OT CB 66-
(with COW 428T)
ACTION COMPLETED
The dissemination requested by
this memorandum has been completed,
BY:
date: /3
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6 APR
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25X1A
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25X1A
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