Foreign Relations of the United States, 1969–1976, Volume XXXI, Foreign Economic Policy, 1973–1976

281. Memorandum From the Assistant Secretary of State for Economic and Business Affairs (Enders) to Secretary of State Kissinger¹

Washington, December 7, 1974.

FULL YEAR PL–480 DECISIONS

The OMB-chaired PL–480 meeting December 6 decided to send four PL–480 options to the President. (Tab A² is the dollar option. Tab B³ the quantity option.) OMB expects to get the decision memorandum (not yet done) to the President December 9; they anticipate a decision Tuesday, December 10.

It is essential that you discuss this matter with the President before he makes his decision.

The Four Options

All agencies agree on the formulation of the low and high option. The low option must be essentially political; the high can accommodate both political and humanitarian programs. At the mid range OMB wants to give the President a choice between a political and a humanitarian stress. Their mid range option emphasizes large programs to Bangladesh and India: ours (which you approved this last week) gives at least equal priority to funding for major political clients (Chile, Pakistan, Korea, and Indonesia).

The Availability Problem

Under the terms of PL–480 legislation food assistance must be a residual after domestic consumption, expected exports, and at least minimal carryout have been taken care of.

On December 4, responding to increasing estimates of export demand (including commercial demand from India and other LDCs), USDA revised its official estimates of PL–480 availabilities for wheat downward from 4.0 to 2.7 million tons.

The current USDA estimate of wheat availabilities for PL–480 formally constrains the President. In fact, however, the estimate can be revised to suit whatever policy decision is made (this has often occurred in the past). The significance of the estimated lower wheat availability lies in its price implications. If we take the estimate at face value, there is clearly some risk that programs exceeding USDA projected availabilities (our mid option and the high option) would cause domestic price to rise. USDA believes that by careful management price increases can be avoided. Treasury disagrees. CEA is in the middle. You should allude to this issue in your discussion with the President, making the following points:

• —It must be recognized that the market is tighter now than it was in September. But the USDA figures have a spurious specificity. Export estimates are probably inflated by our registration system, and USDA agrees that we can get by with a smaller carryout than planned. USDA experts told the interagency group that they would be comfortable with any figure for PL–480 wheat availability up to 3.8 million tons. That is the amount of wheat programmed into the high option.
• —We cannot expect to run a major foreign policy program such as PL–480 only as a residual disposal after all commercial opportunities have been satisfied. If the PL–480 goals stand on their own, we should be willing to run some price risk. At the levels we are talking about, the risk is no doubt small.

Budget Implications

At the September meeting⁴ Butz made the argument that he was still on continuing resolution authority (CRA) and thus that the overall level of USDA spending could not go above the FY 1974 figures. Butz still has no budget, although the expectation is for Congressional passage before the end of the session. However the tie to CRA is specious. USDA has authority to borrow up to $12 billion on CCC account: these funds will be available to support PL–480.

The more troublesome issue is Butz’s fear (which Ash has been entertaining) that he will have to take cuts elsewhere in the USDA budget to offset increases in PL–480. We discussed this in the interagency group, agreeing that such a linkage is unacceptable. You should raise this issue with the President, saying:

• —We recognize that the President has just completed an extraordinary effort to cut close to $5 billion from spending. Any increase in PL–480 must be weighed very carefully. Whatever the President decides to do, however, should not be tied to offsetting decreases in the USDA or any other budget. It will be helpful to make this assumption explicit when recording agency votes.

Humanitarianism in Congress and the Humphrey Amendment

There has been repeated evidence of rising Congressional concern that our PL–480 program is now balanced too heavily on the political/security side. Both the House and the Senate have attached amendments (Johnson and Clark) to the USDA budget constraining our ability to give food assistance to political recipients. The most recent such amendment Humphrey appended to the Senate version of the FAA three days ago. It limits Title I allocations to countries that are not among the most seriously affected (MSA) to $350 million. Our middle option calls for $439 million for non-MSAs: the high option calls for $509 million for non-MSAs.

OMB’s middle option meets this problem by shifting funds away from Chile, Korea, Indonesia, and Pakistan to the subcontinent.

Points you should make to the President on this issue are as follows:

• —The push on humanitarianism from the Congress is serious and growing. Basic cause is the dip in total PL–480 allocations in the last two years: our hard core security commitments have taken a larger and larger portion of available funds.
• —Answer thus is not so much to abandon those political commitments, but to restore food aid to a level at which we can respond to both political and humanitarian requirements.
• —In our judgment we will have no great difficulty in talking Humphrey out of his amendment if we can program at the high option.
• —OMB middle option requires major substitution of rice for wheat in India and Bangladesh, but makes no increase in total India program and little in Bangladesh. India doesn’t want rice. OMB option is thus inferior to ours on three counts: it gives no more food to subcontinent, it short-changes our political clients, and it degrades our India program.

Agency Positions and Argumentation

This is the current line-up. OMB wants the low option. CEA and Treasury want the OMB middle option, because it uses less wheat than ours and thus has less potential price effects. USDA can go along with our mid option, which moves large amounts of rice into Korea, for which Butz has particular affection. USDA’s position, of course, is conditional on not having to take countervailing cuts elsewhere in its budget.

For the President, the choice will be between the middle and high options. You may wish to use these arguments:

• —Difference between mid and high option is more to India, Bangladesh, Israel.⁵
• —Real foreign policy benefits to generosity in a year of need.
• —Commodity amounts in the high option are ten percent less than the high option the President tentatively agreed to last September.
• —Since then it has become apparent that we must send more grain to Bangladesh if the Bengalis are to make it through to next November when their rice harvest comes in (otherwise there will be famine).
• —It is politically desirable, and there is also a strong humanitarian argument, for doing more than the minimum 500 thousand tons which is in the middle option for India. The high option includes 750 thousand tons. This compares with a still uncovered grain import need of roughly 3 million tons.
• —Including Title II donations, total PL–480 to India under the high option would be about a million tons.
• —As continuing Congressional pressure for humanitarian assistance indicates, there is a very real constituency for helping needy overseas.

Fallback

If it appears the high option will not fly, you may wish to suggest the following alternatives:

• —Take the State middle option; add to 150 thousand tons of rice to be divided between India and Bangladesh (with rice in long supply, price effects will be helpful; political effects with Passman are also helpful).
• —Commitment of additional 500 thousand tons of wheat for India and 250 thousand tons of wheat for Bangladesh from FY 1976 funds (these grants would enable both countries to get through to the next crop without serious difficulty, and maximize our political gains with them. It would be a real concession, in that PL–480 funds are seldom budgeted before August, and commodities could not be moved before September or October. Decision would also be in line with our efforts to obtain long-term increase in PL–480. Obviously if the next harvest also is weak, we would have mortgaged a significant element of our flexibility).

Thomas O. Enders

⁶

1. Source: Ford Library, National Security Adviser, Presidential Subject File, Box 17, PL–480. Limited Official Use.
2. Attached but not printed at Tab A is an undated chart entitled “PL 480 Funding Alternatives and Country Programs.”
3. Attached but not printed at Tab B is an undated chart entitled “PL 480 Tonnage Alternatives.”
4. Apparently a reference to the September 19 meeting of the Cabinet Committee on Food. See footnote 5, Document 264.
5. Enders added this sentence to the memorandum by hand.
6. Enders signed “Tom” above his typed signature.