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Mr. HAGEN. Did they make any assurances that they wouldn't deliver any other wheat to Cuba?

Mr. JOHNSON. No.

Mr. HAGEN. They could substitute it.

Mr. JOHNSON. Yes, sir.

Mr. DOWNING. Mr. Secretary, you will find out what the wharfage fees are over there so that that can be a stable factor.

Mr. JOHNSON. Yes, sir.

(The following data was supplied in response to the above request :)

PRESS STATEMENT BY THE U.S. EMBASSY, Moscow, FEBRUARY 6, 1964 "Soviet authorities informed the Embassy on February 6 that U.S. ships calling at Soviet ports will be given preferential treatment in the payment of tonnage dues and expressed the hope that steps will be taken by U.S. authorities to remove any discrimination against Soviet ships entering U.S. ports."

Mr. DOWNING. Under the Continental charter they allowed $2,500 demurrage per day and the shipowners don't know whether that is exactly equitable or not.

Mr. JOHNSON. This won't, I don't think, relate to the demurrage. Mr. DOWNING. Wharfage we are talking about.

Mr. JOHNSON. Yes.

Mr. DOWNING. Would the Russians be adverse to letting us know how deep these Russian ports are?

Mr. JOHNSON. No. I think that the difficulty is, as I understand it, that there is a variation in the depth of the ports, depending on the season and the weather, and it is unfortunate that the particular ports involved, particularly those on the Black Sea, happen to be at this breaking point of 31, 32, 33 feet. It may very well be that a 31-foot depth is the only one that they can guarantee at all times. They have indicated that there is some variation, depending on weather and

season.

Mr. DOWNING. Do they use the figure 31 feet?

Mr. JOHNSON. They have used the figure 31 feet, yes, sir, not in our talks here, but when the matter was explored in Moscow.

Mr. DOWNING. Mr. Tollefson?

Mr. TOLLEFSON. Just one question. I may have asked it, but I don't recall.

I think I asked you whether or not you had anything to do with the setting of the guidelines. Would that have been discussed with you?

Mr. JOHNSON. That was discussed in the sense that we had a strong interest in facilitating the arrangements for making American ships available. The validity of the guidelines or the technical aspects of the guidelines obviously are not matters we are competent to deal with. Mr. TOLLEFSON. That is all.

Mr. DOWNING. Thank you, Mr. Secretary, for coming down. You have been very helpful.

Mr. JOHNSON. Thank you.

Mr. DOWNING. Now we will hear from Mr. Clarence R. Eskildsen, the Acting Administrator of the Foreign Agricultural Service of the Department of Agriculture.

STATEMENT OF CLARENCE R. ESKILDSEN, ACTING ADMINISTRATOR, FOREIGN AGRICULTURAL SERVICE; ACCOMPANIED BY ROBERT G. LEWIS, DEPUTY ADMINISTRATOR, COMMODITY OPERATIONS, AGRICULTURAL STABILIZATION AND CONSERVATION SERVICE; EDWARD M. SHULMAN, DEPUTY GENERAL COUNSEL; JOSEPH A. RYAN, JR., CHIEF, OCEAN TRANSPORTATION BRANCH, PROGRAM OPERATIONS DIVISION, FOREIGN AGRICULTURAL SERVICE, DEPARTMENT OF AGRICULTURE

Mr. ESKILDSEN. Mr. Chairman, I have with me this morning Mr. Robert G. Lewis, on my right, who is the Deputy Administrator for Commodity Operations of the Agricultural Stabilization and Conservation Service under which most of our wheat sales work is done, Mr. Edward M. Shulman, Deputy General Counsel, and Mr. Joseph A. Ryan, Jr., who is Chief of our Ocean Transportation Branch in the Foreign Agricultural Service.

With your permission, Mr. Chairman, I have a prepared statement. If you would like I could read it for the record.

Mr. DOWNING. Yes, sir. Suppose you go ahead with your state

ment.

Mr. ESKILDSEN. Mr. Chairman and members of the committee, we may export a billion bushels of wheat this marketing year-which would far exceed any year in the past. Add to this the fact that almost two-thirds of those exports will be commercial sales for dollars and 1963-64 becomes quite a high point in the history of the Nation's trade in wheat. The United States is traditionally a great wheat exporting nation, with wheat ranking as an important contributor to farm income and an essential earner of foreign exchange.

With these things in mind, it might be easy to overlook the fact that we are in an era of growing competition for the world's wheat markets. Exporting countries are increasingly ready to cut prices and to bargain with every tool available—including credit, special transportation arrangements, and state trading. The European Economic Community has included wheat in its system of variable import levies which favor producers within the Common Market, even though their grain be more costly to produce.

The current export situation, glowing as it is, should not cause us to forget that during the 1950's the U.S. share of the commercial world wheat market declined-from 30 percent in 1951-53 to 17 percent in 1960-62. U.S. dollar exports of wheat remained fairly constant during the 1950's at about 140 to 150 million bushels a year. But the world market expanded substantially, and U.S. wheat growers failed to share in that increase.

If the United States is to hold its position in the world wheat trade and improve its standing as I think it should-then this is a critical time. We must either be prepared to really compete for world wheat markets, or to take a back seat. The latter would be a poor alternative indeed for a great trading nation and a great wheat producing nation.

We are, therefore, taking action on several fronts to gear our export trade to the more highly competitive world market of the present and future. For one thing, we are active in market development work,

utilizing the foreign aid programs and cooperating with trade groups in fairs and other promotions. Also, we have just announced a revision in U.S. grade standards for wheat, which will assure a competitive product in terms of quality and cleanliness.

Prices must also be competitive, and that is the reason for the export subsidy we have on wheat, as well as on other commodities. The export subsidy is necessary because prices for many farm products are higher in the United States than they are in world trade. This is not to say that our domestic prices are always higher than prices in other countries; some importing countries pay their own wheat farmers as much as 50 percent or more above our prices.

But most countries reduce the price of their commodities for export, and if the United States is to sell these farm commodities for export we must also sell at a lower price than in our domestic market. So the export subsidy makes up the difference to the exporter between what he can get in the world market and what he has to pay here in the United States.

Under the price-support program, our wheatgrowers have been getting an average of about $1.80 to $2 a bushel of wheat. For the past several years, the world-trade price has averaged roughly onethird lower than this. Obviously, U.S. wheat would not move into world trade without export assistance; this is provided through the export subsidy, which is paid in kind. It enables the exporter to pay the farmer the difference in order to buy his wheat at a higher price and sell it at a lower world price. In effect, therefore, the export subsidy ends up in the pocket of the wheatgrower.

Last fall, it became known through the trade that the Soviet Union, following a poor crop in that country and in all of Europe, was interested in buying wheat in the Western Hemisphere. In fact, the Soviets quickly completed a purchase from Canada.

On October 9, President Kennedy announced that the U.S. Government would issue export licenses for export of wheat and wheat flours by private traders to the U.S.S.R. and Eastern European countries. Until that announcement, wheat had not been on the list of commodities approved for export to the Soviet Union, although we had been exporting small quantities of other farm products.

It was apparent that a policy which would enable large sales of wheat to the Soviet bloc would benefit the United States:

(1) It would help our balance of payments. A sale of 150 million bushels of wheat, for example, would mean an inflow of $240 to $260 million.

(2) It would benefit the Federal budget through a reduction in acquisition storage and other costs. A 150-million-bushel reduction in Government inventories would mean a net reduction of around $225 million in budget expenditures during fiscal year 1964, and another saving of about $30 million in storage and other carrying charges in fiscal 1965.

(3) It would benefit farm prices. In fact, just the prospect of exports to Russia brought improved market prices for wheat during the fall and winter.

(4) It would cause an important share of the Soviet's gold or dollar exchange to be expended for food rather than for arms.

(5) It would aid America's standing as a humanitarian people, permitting no one to say that we withheld wheat we don't need ourselves and denied food to a hungry people which was ready to spend dollars. (6) It would dramatize to the world the superiority of America's family-farm free-enterprise agriculture.

So the decision was made to issue export licenses to U.S. commercial traders for wheat shipments to the Soviet bloc, when requested by those traders for sale on normal commercial terms, at prevailing world prices, on U.S. ships to the extent available. Use of the export subsidy would, of course, be necessary in order to move the wheat at prevailing world prices.

As of now, one sale of U.S. wheat to the Soviet Union has been completed. On January 3, the Continental Grain Co., of New York City, completed the sale of about 37 million bushels of wheat. It will benefit the U.S. balance of payments by $65 million, plus payments for U.S.-flag freight, and will effect important savings; storage alone for 1 year would amount to $5 million on this much wheat.

The Continental Grain Co. sale included three classes of wheat: No. 2 Hard Red Winter; No. 2 Hard Amber Durum; and No. 2 Western Soft White. Export subsidy rates for the Winter wheat and the Soft White wheat were determined by USDA specialists as usual from the difference between the domestic price and the world market price, as of that day. The export subsidy for Durum was determined on a bid basis, which has been the procedure for Durum exports since last July 12.

The bid system was adopted at that time, because the old system was not working effectively to move U.S. Durum into world trade. The Durum export market is sporadic, and the bid system provides the flexibility the United States needs in order to compete with other exporting countries which have repeatedly moved Durum in large quantities at prices negotiated to accomplish individual sales. It enables the Department to consider all the elements in a transaction, including its size.

Size was the predominant consideration in the decision to accept the Continental Grain Co.'s bids of 72 and 73 cents as the export payment rates for 12.9 million bushels of Durum. The Department has rejected smaller bids, both before and after the Continental bid, because the amounts were small and would tend to depress the world market while offering none of the advantages of this big transaction.

The Continental sale of 12.9 million bushels will not result in any reduction in world Durum prices, and it will not reduce demand in our regular markets.

This Durum sale is, we believe, the largest Durum transaction in history. This one sale is within 3 million bushels of the previous record U.S. total exports for an entire year. It is equal to about a half year's domestic requirements in this country, and about one-fourth of the 2-year supply of Durum that the Department had expected to carry over at the end of this crop year. It is virtually impossible that any export market for Durum wheat would have developed anywhere else in the world within the next several years that would have used up the Durum sold to Russia.

The added carrying charges of keeping this much Durum in storage until sufficient sales opportunities would arise to provide another out

let for this wheat would far exceed the increase in the export subsidy that was granted on this transaction. The CCC thus found it in its best interest to accept that bid in order to facilitate the transaction.

The CCC has broad authority under its Charter Act to promote the export of farm commodities through any type of operation it considers can be effectively employed. The Corporation is specifically authorized to "remove and dispose of or aid in the removal or disposition of surplus agricultural commodities" and to "export or cause to be exported, or aid in the development of foreign markets for agricultural commodities."

In announcing the possibility of wheat sales to Soviet bloc countries, President Kennedy stated that the wheat "will be carried in available American ships, supplemented by ships of other countries as required." To implement this policy, "Current Export Bulletin No. 883," which fixed the conditions under which licenses to export wheat to Soviet bloc countries will be granted was issued by the Department of Commerce on November 13, 1963. It requires, in part, that at least 50 percent of the wheat and wheat flour to such countries be transported on U.S.-flag vessels. The bulletin also provides that:

If a U.S.-flag carrier is not available at reasonable rates, the exporter must obtain prior authorization from the Maritime Administration to ship less than 50 percent on U.S.-flag carriers.

At the same time, the Maritime Administration issued "Voyage Charter Rate Guidelines" applicable to bulk grain moving to Soviet destinations. These rates were predicated on the same formula employed in 1956 and 1957 when NSA ceiling rates were established. Effective November 8, 1963, rates for vessels of 10,000 to 15,500 total deadweight tonnage (t.d.w.t.) for what from U.S. gulf and North Atlantic ports to Black Sea and Baltic ports were published. Rates for vessels of 15,600 to 30,000 total deadweight tons for the trade were set at 20 percent less than rates for the smaller ships.

The Maritime Administration also decided at about the same time that in order to assist American grain traders to quote prices acceptable to Soviet buyers for wheat landed at Soviet ports, maximum employment of American vessels in the range of 15,600 to 30,000 deadweight tons would be desirable.

In order to support this policy which would facilitate export sales of wheat to the U.S.S.R., it was decided that, in the Department of Agriculture's Public Law 480 programs, we would use U.S.-flag vessels of 15,500 deadweight tons and smaller to the maximum extent practicable in order to allow larger vessels to remain available for movement of grain to Russia.

This policy recommended itself to us also on the grounds that by maximizing the use of U.S. vessels we would achieve the greatest possible benefit from a balance-of-payments standpoint and would provide maximum employment for U.S. shipping and related industries.

It should be emphasized, however, that the policy of using smaller vessels wherever available does not categorically exclude the use of vessels larger than 15,500 deadweight tons in the Public Law 480 program.

In fact, we have now in the program at least 13 vessels in the 15,600to 30,000-ton range. In that connection we are guided by advice of the Maritime Administration. When that agency determines that a

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