been little snow cover during the winter in the southern Uk- REPORT TO THE PRESIDENT Upon his return to Washington, Secretary Butz prepared a report on the Russian trip for President Nixon. Transmitted to the President April 17, 1972, the report said that the Soviets wanted to buy large amounts of grain from the United States over the next few years but they felt the interest rates offered them on the line of credit from the Commodity Credit Corporation were too high. Secretary Butz added: The Russians acknowledged their need for grain and frankly stated that purchases from the United States in the level of $250 million did not scare them. Mr. Butz said the Soviets were offered credit line for three years with a maximum exposure of $500 million. The offer required the Soviet Union to agree to buy at least $750 million United States grain over a three year period. The offer was not accepted, but it remained open. (P. 17.) RUSSIA FACES SPRING DROUGHT On April 24 and April 25, 1972, the U.S. Embassy in Moscow sent Washington reports warning of the possibility of a spring drought in Russia. The reports, drafted by the Agricultural Attache, said the weather in Moscow was unseasonably warm and dry and there was some evidence that warm and dry weather also existed in farming regions. Those factors were not encouraging for grain farmers, the Attache said. REPORTS OF TWO FARM JOURNALS Wheat production in the U.S. would be big this year and unless wheat exports were increased sharply there would be a huge increase in the carryover of stocks on hand at the end of the 1972-1973 marketing year. This prediction was made in the May 1972 edition of Agriculture Department's publication, "The Wheat Situation." (Pp. 17, 18.) In another farm journal-the May 8, 1972 issue of "Foreign Agriculture"-Secretary Butz reported on the recent Moscow meetings. Describing the problems the Russian farmers were having with their high winter wheat losses and the lack of moisture in their soil, Secretary Butz went on to say: It might well be that we will be negotiating for annual sales in excess of $200 million worth of coarse grains and soybeans. This is based upon our best calculations-and frank discussions with General Secretary Brezhnev and Minister Matskevich of the amount of grain Russia will need to boost her meat supply enough to keep the commitment made to the PALMBY, RUSSIANS MET AGAIN Assistant Agriculture Secretary Palmby met in Washington May 9, 1972 with Soviet spokesmen to renew high level talks about the proposed grain sales. The discussions, which lasted an hour and 15 minutes, were described by Mr. Palmby in a May 9 memorandum for Secretary Butz, Commerce Secretary Peterson, and Presidential Assistants Kissinger and Flanigan. Mr. Palmby said the meeting focused on the credit terms the United States would give the Russians to enable them to buy the grain on time and the desire of the Soviet representatives to win a reduced interest rate. Mr. Palmby said: There were brief references to the possibility of (1) purchase under the barter program, (2) direct purchases from U.S. Government stocks, (3) some relationship between natural gas and grain. Mr. Palmby said he told the Russians that the idea of a barter transaction was neither useful nor applicable in the grain negotiations. He said he told the Soviets that they would have to buy the grain through private commerical exporting firms and this would be the case whether the grain they bought came from stocks owned privately or controlled by the American government. (P. 18.) The terms the Russians wanted were 2 percent interest over 10 years. The United States offered them 6 and 1% percent interest for three years. (Pp. 138, 142.) PALMBY RESIGNATION On May 12, 1972 Clarence Palmby notified Secretary Butz of his intention to resign as Assistant Secretary. He was succeeded by Dr. Carroll G. Brunthaver. (P. 25.) AN EARLY U.S. POSITION On May 18, 1972, Mr. Palmby sent Secretary Butz a memorandum of understanding which the team of American negotiators had taken to Moscow for the grain talks in April. This memorandum, which was not shown to the Soviets in April, called upon the Russians to buy at least $750 million worth of grain in three years. (P. 18.) THE MOSCOW SUMMIT The summit meeting between President Nixon and Soviet leaders was held in Moscow from May 22 to May 29, 1972. The grain sales were discussed at the summit. On May 26, the Department of State told the Department of Agriculture that the Russians were willing to buy $130 million worth of grain from the United States in 1972 but were unwilling to commit themselves beyond that. Agriculture Department officials were told that the Russians would talk about 1973 grain sales in 1973. (P. 18.) There was no discussion of subsidies which would have to be paid by the government on the wheat exports under the existing program. NEW FARM REPORTS FROM RUSSIA Cables from the American Embassy in Moscow continued to forecast bad news for Soviet farmers. The Agricultural Attache reported June 16, 1972, that spring grain appeared to be fair to poor along the entire route from Moscow to the Ukraine and Moldavia. On June 26, 1972, the Attache reported to Washington that about one-third of the Russian winter grain acreage-some 27 million acres― had been killed by adverse weather conditions. (P. 18.) TALKS BEGIN IN WASHINGTON High level negotiations on the grain sales, which had received new impetus at the summit meeting in Moscow in May, were taken up again in Washington in late June. The Soviet Minister of Trade, M. R. Kuzmin, was already in Washington for discussions on American-Soviet trade. On June 27, 1972, the Department of State reported to the Agriculture Department that Mr. Kuzmin would soon be joined by Russian experts who specialized in grain sales, maritime shipping and financing. The experts, including N. A. Belousov, Chairman of Exportkhleb, the Soviet Trading Agency; L. N. Kalitchenko, Director of the Grain Department, Exportkhleb; and Pavel I. Sakun, Chief of Administration, Ministry of Foreign Trade, flew from Moscow to New York June 28 and then came directly to Washington. (P. 19.) In preparation for the new round of negotiations, the Department of Agriculture wired the American Embassy in Moscow June 29 and asked for the latest estimates on the Russian grain harvest according to individual grains and with projections on both winter and spring wheat crops. The reply came July 5. (P. 19.) Meetings began at the Department of Commerce June 29 between Soviet and American officials. Representing the Department of Agriculture was Dr. Carroll G. Brunthaver, who had replaced Clarence Palmby as Assistant Secretary for International Affairs and Commodity Programs. Dr. Brunthaver was accompanied by Claude Coffman, the Department's Deputy General Counsel. The memorandum of understanding which Clarence Palmby and his team of negotiators had taken to Moscow in April had called for the Soviets to agree to buy at least $750 million worth of American grain within three years. This proposal was never shown to the Russians at the negotiations but Presidential Assistant Peter Flanigan had taken it to the summit meeting in May and the Soviets saw it there. Now, in Washington at the Commerce Department meetings, the Russians said the memorandum of understanding was generally acceptable to them. (P. 19.) Meanwhile, the Russians contacted the Continental Grain Company and asked the firm to submit fixed price quotations for the sale of large quantities of wheat and corn. (P. 55.) On July 3, 1972, Continental did submit quotations as requested and negotiations were begun between Continental and Russian officials in New York City. (P. 55.) AMERICA'S LARGEST GRAIN SALE IS COMPLETED On July 5, 1972, in New York, Soviet negotiators signed contracts with the Continental Grain Company to buy 4.5 million tons of corn, 3.65 million tons of hard winter wheat and 350,000 tons of soft, white wheat. This was the largest grain sale in American history. (P. 56.) REPORTS ON RUSSIAN GRAIN SITUATION The Agricultural Attache at the Embassy in Moscow reported to Washington on July 5, 1972, that the 1971-72 Soviet grain production totalled 181 million tons and that the estimate of 1972-1973 production was 171 million tons, 10 million tons less, because of the crop losses due to weather and soil conditions. In addition, he said that wheat production would be 20 million tons below the previous year, with increased production of other grains making up part of this deficiency. Subcommittee investigation revealed that these estimates were received in Washington with some skepticism because they foresaw such significantly poor Soviet harvests. (P. 19.) GRAIN AGREEMENT IS ANNOUNCED President Nixon announced from San Clemente on July 8, 1972, that the Soviet Union had agreed to purchase a minimum of $750 million in American grown grains over the next three years; and that the Soviets would buy at least $200 million in grains the first year. In return, the United States agreed to extend $750 million in credit over the three-year period with no more than $500 million outstanding at any one time. (P. 19.) The White House announcement said the agreement had been signed on July 8 by Secretaries Butz and Peterson and M. R. Kuzmin, First Deputy Minister of the Soviet. (P. 232.) The Soviets had already bought 4 million tons of wheat and 4.5 million tons of corn worth nearly $500 million. (P. 56.) JULY 8 PRESS CONFERENCE While announcement of the grain sales was made at San Clemente, Earl L. Butz, the Secretary of Agriculture, and Peter G. Peterson, the Secretary of Commerce, held a press conference at the White House July 8, 1972 to discuss the trade agreement with the Russians. (Pp. 232-240.) Assistant Agriculture Secretary Dr. Carroll G. Brunthaver, Mr. Palmby's successor, also participated in the press conference. Both Butz and Peterson were enthusiastic about the grain agreement. Secretary Peterson called it the "largest agricultural transaction in history." He said the sales should be viewed in the light of President Nixon's overall "strategic context" and that they were "in the best interests of our country" and the Soviet Union where Russian leaders needed the American grain to meet a national goal of increasing protein 25 percent over the next five years. S. Rept. 1033 0, 93-1- -2 Stressing that the credit terms given the Soviet Union were "identically the same" as those the United States would give "any other trading partner," Secretary Butz said: At a going rate this does not involve subsidy to the Mr. Butz said he thought the sales would increase American exports by about 17 percent over the next three years as compared to the previous three. But that estimate, he said, was based on the assumption the Soviets would, "buy only the minimum quantities of grain.” Actually, the figures could be higher Mr. Butz said, explaining: They can buy more than that and they don't have to buy it all for credit. It can be cash at their option, as long as the total amount of credit outstanding does not exceed $500 million. As for which individual grains the Russians would buy, Secretary Butz said it was up to the Soviets "whether they take it in corn or wheat, barley, rye or grain sorghum or oats." Mr. Butz added: No doubt the bulk will be corn and wheat. Secretary Butz said it had been "obvious" to American officials for sometime that the Russians would want to buy large amounts of grain from the United States. He said President Nixon had discussed the proposed sales with the Russians at the Moscow summit in May. Referring to Russia's "bad wheat year," Mr. Butz said Soviet officials, in their dealings with American leaders, had "made no effort to hide the fact they had a short wheat crop." The Secretary said: They have plenty of wheat for now but they will be eating the current wheat crop in the year ahead. It is obvious they are going to have to buy wheat beyond that for which they have a commitment from Canada. Secretary Butz said that when he was in Moscow in April, Leonid Brezhnev had told him "very frankly" that the Soviet Government had publicized its intention of increasing the protein component in the people's diet by 25 percent and that this goal could not be met with domestic production. Mr. Butz said that Mr. Brezhnev said: It is a goal we hope to achieve and to achieve it we must import coarse grains and protein supplements. Secretary Butz said the Russians had been assured they could always turn to the United States to buy grain. He said he advised them they would be "absolutely safe" in counting on American grain being avail able to them. Asserting that American farmers, agricultural resources and climate were excellent and guaranteed that grain "production will always be there," Secretary Butz said: I made the point and Brezhnev got it clearly that they are absolutely safe in building up the livestock population based on a grain supply from this country. |