Office of the Historian

239. Memorandum From the President’s Deputy Special Assistant for National Security Affairs (Bator) to the President’s Special Assistant for National Security Affairs (Bundy)1

Washington, October 16, 1964.

SUBJECT

  • Sugar

Agriculture, State and B.O.B. came to terms this morning on an interim regime for sugar. It is not too bad—in fact, marginally better than the straight 6-months extension compromise which died on the Hill. Better, in that Agriculture will impose a 5–1/2% cutback in acreage without raising the domestics’ marketing allowance—at least not now. Straight extension would have involved neither acreage cutback nor marketing relief. (There is one other change, which Budget dislikes but the Latinos will love. There appears to be no legal basis for continuing to levy an import fee. Foreign sellers of cane who get a share of the import quota will now pocket the entire difference between the protected U.S. price and the world price.)

Relative to what we were ready to settle for three weeks ago, this looks and is pretty good: no cut in the absolute level of imports and a cut in next year’s acreage. But in relation to next year’s fight over a new bill it is nothing to cheer about. The acreage cut is much too small to avoid a piling up of excess inventories (it would take a 15–20% cut to hold inventories in line). Also whereas the restriction appears to freeze the foreign/domestic ratio, it does so only pro tem. Any increase in ’65 consumption over the ’64 level will be up for grabs next spring, at the pleasure of the Congress. (The old formula will only apply to Agriculture’s “consumption estimate”. Murphy proposes to “estimate” no increase over ’64—in fact, a small, insignificant decrease.) However by late next spring it will be evident that actual consumption will exceed the “estimate” by a good margin and Agriculture will then announce a revised estimate. By then, however, Murphy hopes to have legislation which will have changed the formula in favor of the domestics—specifically, the parameter which governs relative shares at the margin. [His excuse for announcing a low consumption estimate now is that the near term market is in need of support. A low estimate will boost the support price, because it is not really an estimate of demand but a marketing allowance, i.e., a ruling about [Page 641] maximum supply, which speculators will compare with their own predictions about demand.])2

B.O.B. and State tried to get Murphy to agree to a larger acreage cut, but Charlie really dug in. (He has a point. Freeman promised the beet producers that he would not restrict acreage unless the beets themselves want restriction. They are prepared to ask for 5%.) At any rate, Murphy told State to go ahead and fight it up to the President, but that he would reply to contrary orders from the White House by sending his resignation by return mail. Schultze tried to finesse by suggesting that no decision and announcement be made until, say, Nov. 10. Murphy insisted that an announcement be made now, to keep the sugar market from going to pot. (It is a little soft: the support price is ȼ 6.2/lb. as against the “estimate” of ȼ 6.5. However, the forward price is higher than the spot: evidently the market expects a good package from Murphy soon. If he doesn’t come through, there may be a slide.)

FMB 3

Feldman has Murphy memo & State & BOB concurrence. I said, O.K.4

  1. Source: Johnson Library, National Security File, Subject File, Trade—General, Volume II [2 of 2], Box 47. No classification marking. An attached handwritten note from Bator to Buddy reads: “You need not read all this. 1st paragraph enough. Dictated just before leaving.”↩
  2. Brackets in the source text.↩
  3. Printed from a copy that bears these typed initials.↩
  4. The postscript is handwritten.↩