561.311F1/108: Telegram

The Acting Secretary of State to the Ambassador in Great Britain (Bingham)

161. For Morgenthau from Wallace: Our wheat program announced today provides for payment of benefits to wheat producers on 1933, 1934, and 1935 crops, on a domestic allotment basis, of full differences between farm price and parity price, now approximately 30 cents per bushel, on their domestic consumption quota. Cooperating farmers sign up to reduce acreage planted for harvest in 1934 and 1935, up to 20% below their average acreage for past 3 years. Amount of reduction which will be required will not be determined until your negotiations are completed. If no agreement is reached, no reduction may be required.

With reference to press reports that Australian representatives are reluctant to agree to wheat acreage reduction, you might call attention to the fact that if efforts toward international cooperation fail, this government has the power to sustain returns to our wheat farmers through the processing tax and payment of benefits to farmers on domestic allotments, regardless of how low world market prices might go, and at the same time we could force our surplus on world markets. This would be particularly true in Oriental and perhaps Russian markets, where cheap wheat from this country would be welcomed, rather than meet further restrictions. In this connection you might call attention to the following sections of the farm relief bill: Sec. 8, subsection (1), last two sentences; subsection (2); section 12, subsection (b), first sentence. These provisions give the Secretary of Agriculture sufficient authority to take effective steps to prevent excessive exports, by arranging to store surpluses on farms, by purchase and storage, or by agreements with exporters. They also give the Secretary authority, however, to use funds to expand markets. This might be done by provision of long-term credits to foreign customers, by special arrangements to sell at the world price regardless of domestic prices, or even to sell at discounts below the world price, if necessary to move supplies.

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We have the legal authority and the economic resources to engage in competitive export dumping to an extent which would drive world market prices of wheat in Australia and Argentina, down to zero. We hope such action will not be necessary. Unless other exporters will cooperate with us in correcting the present situation, we may be forced to take such steps to protect our own interests in world markets, and to bring other countries to the realization of the eventual need for world cooperation.

For your information, State Department informs, June 14, the Argentinian Senate voted, 16–2, their hostility to any agreement restricting the expansion of cultivated acreage. [Wallace.]

Phillips