Minneapolis at the published, multiple-car rate of 45 cents per hundredweight, which is 27 cents per bushel; this a regular, published tariff available to any shipper, not a section 22 concession to CCC. The fobbing cost, as stated, is about 3 cents per bushel. The Minneapolis market price that day was quoted at $2.37 to $2.40, track.

Commodity Credit Corporation actually realized $2.50% less a 722-cent subsidy, or $1.78 per bushel, f.o.b. east coast ports, for its Durum, that being the price at which it was necessary to sell in order to move this tremendous quantity into a market otherwise not available to U.S. wheat producers. Had CCC priced its wheat at full rail freight over Minneapolis, or $2.662 per bushel, the necessary export price would still have been $1.78, and CCC would have needed to pay a subsidy of 88 cents in order to facilitate its sale. Each year, CCC faces the problem of the higher export subsidy rates required to keep Durum and Northern Spring wheat competitively priced in foreign markets while the lakes are closed. It is impossible to effect this change prior to closing of the lakes without inviting windfall profits for exporters who move grain to seaboard by water in anticipation of the higher wintertime rates. It has been our policy, therefore, to maintain the lower subsidy rates, based on open lakes navigation costs, until later in the winter season; and, to facilitate sales during this period by pricing seaboard stocks of CCC Spring and Durum wheat basis open navigation costs. It was during this interval that Continental made its sale to Russia and purchased the Durum wheat from CCC.

Later, on January 16, CCC's prices were adjusted upward to reflect the cost of an all-rail movement beyond Minneapolis to east coast ports, and subsidies were increased in a like amount. That is the reason for the higher Durum subsidy applicable to the second Russian sale.

Mr. MICHEL. It is my understanding that on January 2 CCC owned approximately 24 million bushels of Durum wheat. Was there any problem in meeting the grade requirements for No. 2 Amber Durum on these shipments to Continental Grain Co?

Secretary FREEMAN. At this point (January 2) CCC had sold about 13 million bushels of Durum against Russian takings, and was obligated to supply certain minor quantities against earlier sales to other destinations. No problem in meeting the grade specified in our sale to Continental was anticipated, although this contract called for No. 2 Hard Amber Drum, not No. 2 Amber.

Later, CCC's sale of 7.5 million bushels of Durum wheat to Cargill served to commit virtually all of the Corporation's inventory. Minor problems were encountered in meeting grades on the shipments to Continental, but no serious difficulty has materialized. However, it is indeed unreasonable to expect that CCC's entire inventory would grade No. 2 Hard Amber or better.

Mr. MICHEL. It is my understanding that CCC is now in the process of calling all loans on Durum wheat-both 1963 crop and reseal loan Durum from the 1962 crop. The total involved is reported to be about 24 million bushels according to the Department's press release of February 7. Mr. Secretary, why was it necessary to call producer loans on 24 million bushels of Durum wheat? Didn't the CCC already own 24 million bushels of Durum and your sales to date to

Continental and Cargill total about 20 million bushels? How much Durum do you think you are going to require to fill out the balance of these sales? Are you going to skim off the best of 48 million bushels of Durum wheat in order to cover the Russian sales?

Secretary FREEMAN. At the time the decision had to be made to call outstanding Durum wheat loans, CCC's inventories had been. rather fully committed, and inquiries were being received with respect to availability of further substantial quantities for sale to Western Europe, as well as to Soviet Russia.

The decision to call Durum loans was not lightly made. It has been the Department's consistent policy to store wheat on farms where possible; and, in any event, as near the point of production as practicable. This continues to be our policy. At the same time, this administration is determined to find new markets for wheat, and we intend to use every resource at our command to sell wheat. Durum loans were called on the latter consideration.

In short, we believe the interest of the Durum producer will be served best by finding markets which will let him produce more wheat-not by a restrictive policy which affords him a subsistence from storing last year's surplus.

CCC has no facility to equitably prorate loans not yet defaulted; it must call them, or not.

Mr. MICHEL. Did the Russians really want Durum wheat in the first place and does it have to be our best quality Durum?

Secretary FREEMAN. It is our understanding that very little Durum wheat is consumed in Russia in the form of pasta products, such as macaroni and spaghetti, which is the principal use for Durum wheat in the United States. In Russia, Durum is used mostly for porridge. The traders who have made sales to Exportkhleb, the Russian buying agency, advise us that a considerable effort was required to persuade the Russians to take Durum, the only wheat which could be sold in the circumstances. Purchase of Durum wheat represented a concession on the part of the Russians; as has been pointed out elsewhere in these replies, Durum wheat was proportionally in greater surplus in the United States than any other class, with the possible exception of Hard Red Winter.

Mr. MICHEL. Was the whole Durum wheat special bargain price and increased subsidy just a device to cover up the higher cost of American ships?

Secretary FREEMAN. The price at which CCC sold its Durum wheat has been the subject of more detailed comment in an earlier reply. To avoid repetition, suffice it to say that CCC's price was a duly announced price as required under its payment-in-kind export program (GR-345)-a price available to anyone who wished to redeem payment-in-kind certificates, and for shipment to any eligible destination. It was in no sense a "special bargain price."

The considerations which led the Department to accept subsidy bids tendered for export of Durum wheat to Russia likewise have been recounted in detail in an earlier reply.

Mr. MICHEL. And finally, Mr. Secretary, since waivers have now been granted on the 50 percent in U.S. bottoms requirement, will the Government recover from the private companies what they have given them in increased subsidies to meet the higher cost of shipping in U.S. bottoms?

Secretary FREEMAN. If Continental Grain Co. received a subsidy on its sale of 12,862,500 bushels of Durum to Russia which was 14 cents higher than subsidies accepted on sales to other destinations, as Mr. Michel has suggested in his earlier questions, then that sum of money is $1,800,750. Further assuming that Continental obtained the full world market value of this wheat from Exportkhleb, then this sum of money was available to Continental to offset whatever unusual costs may have been attached to delivering this enormous quantity of wheat to Black Sea ports.

One of these costs was the premium for American-flag freight, which was $6 to $7 per long ton depending on whether shipment occurred from Atlantic or gulf coast ports. At an average premium of $6.50 per long ton, 277,000 long tons would amount to $1,800,500. Since Continental is known to have chartered not 277,000, but 373,700 long tons of American-flag freight, there are 96,700 tons which cannot be accounted for by Durum subsidy payments. This sum which exceeds $600,000 could only come out of Continental's pocket.

LOSSES OF WHEAT IN EXPORT

Mr. WHITTEN. Mr. Secretary, turning now to some things we haven't asked you about, our committee had its attention called some time ago to this diversion of grain shipments to Austria. Later our investigators made an interim report and we will go over this and take out the names, and this will be inserted in the record. My purpose in taking these names out is the fact that the Department of Justice has advised the committee that in some instances it might affect the ability of the Department of Justice to bring criminal action and might play some part in the results.

Subsequent to that we have had a continuing investigation and the findings are even more serious than in the earlier interim report. Insofar as this latter report is concerned, we first distributed it to the members of the committee and then we had it called back. It is available for any member of the subcommittee to look at, but they went so far in that report as to state that some information could not be made available. So while we have that information here from the final report, we are not at liberty to put it into the hearings ourselves.

I do ask for the record, on what we have here, to relate to us what in your opinion, what neglect, if by any person or agency, might have contributed to this, as well as any corrective actions that may have been taken by the Department to prevent it from occurring again. You may submit that for the record, if you will. (The information referred to follows:)

Memorandum for the chairman.

December 11, 1963.

Re Diversions of feed grain shipped to Austria under barter program, Public Law 480, U.S. Department of Agriculture.

Reference is made to the staff's memorandum dated December 6, 1963, setting forth a brief summary of principal findings in connection with the items in captioned directive. Supplemental thereto is the following background information relative to the barter program and discovery of the diversions. This information, as well as that in the earlier memorandum, will be amplified in considerably greater detail in the staff's report to be delivered in about 30 days.

1. The barter program

The barter program, although established under Public Law 480 (section 303, title III), is not in any sense a relief measure. It has the dual purpose of (1) disposing of surplus agricultural commodities which are perishable and are stored at great cost to the U.S. Government, and (2) obtaining in return strategic materials for stockpiling which are not perishable and can be stored much more inexpensively. When the Commodity Credit Corporation (CCC) determines that certain agricultural commodities are available for export under the barter program, it advertises for offers from U.S. companies which are in the business of importing the strategic materials that are desired under the program. These companies are normally metal or mineral importers and have no experience in the export of agricultural commodities such as feed grains. They will make an offer to supply certain quantities and qualities of materials at specified prices and agree to accept in exchange a quantity of the agricultural commodities equal in value to the strategic materials obtained for the Government. Following the Government's acceptance of this offer, the importer, known hereinafter as the barter contractor, notifies CCC of its appointment of a particular U.S. grain merchant to act as its agent in disposing of the agricultural commodities. The commodity agent and the barter contractor normally enter into an agreement to pool their costs and their expenses and to share the profits of the joint venture. As a result, the grain merchants can make bartered agricultural commodities available on the world market at prices lower than what would be possible on a straight commercial transaction because the profit from the sale of strategic materials provides a sufficient margin of profit to offset the discounted barter price of the agricultural commodities. Thus, U.S. commodity agents were able to sell feed grains to Austria under the barter program although they previously had been unable to meet the competition from suppliers in Eastern countries whose transportation costs were so much less than those of the U.S. suppliers.

The commodity agents may take delivery of the feed grains in any quantity and at such times as they see fit, within the period of the barter contract which is usually 1 or 2 years. They will thus take delivery at such times as the world market price (on which the CCC price is based) is lowest or when they have available markets abroad for the feed grains. Under open-end barter contracts, neither the barter contractor nor the Government attempts to dictate to the commodity agent the identities of the countries to which they may sell the feed grains, except to the extent that the Government requires the importing country to be a friendly Nation and to be eligible under the U.S. Department of Agriculture (USDA) designations of eligibility described in the next section of the memorandum.

Because the commodity agent normally accepts delivery of the feed grains before the barter contractor turns over the strategic materials to the General Services Administration, the barter contractor is charged interest on the value of the feed grains after the passage of 30 days. He is also required to establish an irrevocable letter of credit in a U.S. bank, payable to the CCC, against which he receives credits as he delivers the strategic materials, with interest charges being applied only to the balance outstanding.

Although the price for the sale of the agricultural commodity by CCC to the barter contractor is based on the world market price at the time of release of the commodities from CCC warehouses and the amount credited to the barter contractor for the strategic material is based on the world market price at the time of delivery, the commodity agent of the barter contractor can usually make the feed grains available at a price below the existing world market price because of the greater margin of profit involved in the purchase of strategic materials on the world market.

2. Austria as a barter country

The earliest barter transactions involving Austria as the importer of agricultural commodities began in fiscal year 1955, when Austria imported 12,400 metric tons of wheat and flour and 14,100 metric tons of feed grains. (One metric ton is equivalent to 2,204.6 pounds.) In 1957, USDA established regulations placing requirements of eligibility on the countries receiving barter commodities because it became obvious that surplus agricultural commodities were going to countries which were capable of purchasing these commodities as a straight commercial transaction for cash in U.S. dollars. Between November 14, 1958, and May 15, 1959, USDA established four different designations of eligibility as follows:

"A" Designation.-Countries so designated were eligible to receive bartered agricultural commodities either under bilateral contracts (where the strategic material received in exchange for the exported commodities had to be supplied by the country receiving the agricultural commodities) or multilateral contracts (where the strategic materials could be supplied by a third country under a direct causal relationship with the country receiving the agricultural commodities), provided USDA had made a special study and found that the specific shipments of the agricultural commodities proposed would be in addition to normal imports for dollars.

"B" Designation.-Countries so designated were treated exactly in the same manner as A countries without the requirement that the special study be made relative to "additionality."

"C" Designation.-Countries so designated were eligible to receive barter commodities under open-end contracts whereby there is no requirement that the strategic material received in barter must come from the country receiving the commodity or from a third country casually related to it. Any number of intermediate transactions and friendly countries may be involved.

"X" Designation.-Countries so designated were ineligible to receive bartered agricultural commodities under any circumstances.

Under these regulations, a country could be designated a C country either because (a) it had a relatively weak economic condition and was not able to acquire the agricultural commodities for dollars, or (b) it had not been historically a major market for the particular commodity as an export from the United States and therefore it could be presumed that shipment of the commodity to such country under the barter program would not disrupt regular dollar sales.

The designations were placed on countries with respect to each of the surplus agricultural commodities made available under the barter program. Until May 15, 1959, Austria was designated as a B country for feed grains. On that date it was redesignated a C country, not because it was economically weak, but for the reason that there was no history of substantial imports of U.S. feed grains into Austria for dollars. Under conditions of normal and free trade, Austria historically has fulfilled its requirements for feed grains from the Eastern countries, now all located within the Soviet bloc. Other Western European countries on the other hand are mostly designated as A or X countries because they are economically strong and have been traditional markets for U.S. feed grains. It is USDA's position that by the redesignation of Austria as a C country, the United States might create a new market for future commercial sales of feed grains to Austria. The barter program in Austria with respect to feed grains greatly expanded after May 15, 1959, when there was no longer a requirement that such transactions be limited to situations wherein Austria supplied the strategic material or was related to the supply thereof by some exchange with the supplying country.

3. Discovery of the diversion of feed grain shipped to Austria

The U.S. agricultural attaché at Vienna, Austria, had been furnishing reports for a number of years setting forth the quantities of feed grains imported into Austria from the United States, which statistics were the official Austrian import statistics made available by the Central Statistical Bureau of the Austrian Government. USDA statistics as to the quantities of feed grains shipped under the barter program were not available to the U.S. officials in Vienna and were never furnished them by USDA. However, USDA maintained such statistics and was aware that all shipments of feed grains to Austria after May 15, 1959, were barter transactions. Therefore, a comparison of the U.S. export figures with Austrian import figures could have been made at any time during this period by the Foreign Agricultural Service (FAS) of USDA.

In the fall of 1960, a proposed program was formulated in FAS for the sale of feed grains to Austria under long-term credit arrangements under title IV of Public Law 480. The program used as its basis the requirement that Austria import feed grains in the same proportion that it had imported them during the previous 4 or 5 years. A schedule showing such imports was drawn up and sent the agricultural attaché in Vienna for presentation to the Austrian Government. Thereafter, the Austrian Government, in reviewing this schedule, pointed out that it had not imported nearly the quantity of feed grains as indicated in the U.S. export figures. Upon submission of this information to Washington, FAS compared official Austrian import figures with U.S. export