Foreign Relations of the United States, 1964–1968, Volume XIV, Soviet Union

124. Memorandum From the Under Secretary of the Treasury (Barr) to President Johnson¹

Washington, August 27, 1965.

SUBJECT

• Wheat Sales to Russia

1. Estimate of Situation

On August 11, 1965, the Canadians announced a sale of five million tons of wheat to Russia for approximately $345 million. This brought total Canadian sales to Russia this crop year to $415 million and for the last three crop years to $945 million (all figures expressed in U.S. dollars). The latest Canadian transaction was widely publicized and has generated queries from the Congress, the financial community, industry and farmers as to why the United States is not getting its share of this business. The Congress is acutely aware of our balance of payments problems, and industry and banking are participating in our voluntary balance of payments restraint program. So it is only natural they should raise this question. It is equally understandable for the American wheat farmer to ask why he is being held back when his Canadian counterparts are being asked to increase their production.

The answer, of course, is very simple. The administrative regulation of the Department of Commerce issued at the time of the 1963–1964 sale to Russia stipulated that 50 percent of all wheat sales to Russia must be shipped in American bottoms. This jumps the delivered price of the wheat by $6 per ton (for the wheat delivered in American ships), and it is our conviction that short of a catastrophe the Russians will never agree to this discriminatory treatment.

2. Balance of Payments Potential-Long-Range

Estimating in this area is tricky and difficult because future U.S.S.R. wheat purchases depend on such variables as weather, Russian attitudes, availability of wheat in other countries, and the unknown factor of Russian gold reserves. However, in the judgment of those who have analyzed the Soviet agricultural picture most closely, there appears to be a sales potential for the United States in certain years of up to roughly one to two million metric tons. The direct U.S. balance of payments gain from such sales would be in the range of $60 to $120 million a year. (This assumes that the Russians would buy U.S. wheat only after having exhausted all other sources of supply.)

3. Balance of Payments Potential-Fiscal Year 1966

For the current fiscal year there is an outside chance of a one million ton or $60 million sale to Russia. This estimate is based on the possibility that the U.S.S.R. may contract for another two to three million tons in addition to the eight million tons already under contract. The U.S. and France are the only nations with wheat available for export. France could spare up to two million tons, but if this did not fully meet Russian requirements, they would be forced to turn to us for anything over that amount. We think this is an outside chance, but it is a chance. There is a very remote chance of a two million ton sale.

4. Budgetary Savings

If we use the potential sales range of one or two million tons per year, the budgetary savings to Commodity Credit Corporation would amount to $50 to $100 million annually in storage, acquisition and related costs.

5. Outlook for the American Farmer

Based on the U.S. Department of Agriculture’s current wheat export estimate, the farm price of wheat may be five to ten cents per bushel above the $1.25 per bushel Government support price in 1965–1966. A one to two million ton wheat export to the U.S.S.R. under these circumstances could increase prices slightly and thus raise wheat farmers’ income by about $25–$50 million over the presently estimated level of $2.2 billion.

6. Jobs and Freight Revenues

The Commerce Department estimates that a two million ton export of wheat to Russia would provide 12,300 man-months of employment.

Commerce estimates that the movement of this wheat across the country would generate $14 million of revenues to U.S. railroads.

7. U.S.-U.S.S.R. Relations (Supplied by Under Secretary of State George W. Ball)

It would be a substantial contribution to the improvement of relations between the U.S. and U.S.S.R. for us to be in a position to sell on a competitive basis because it removes an abrasive element of discrimination.

Conclusion

(1) We recommend that it should be an Administration objective to remove by administrative action the current Department of Commerce regulation involving the commercial shipment of grain to the U.S.S.R. and the Soviet bloc with the 50 percent U.S. bottoms limitation. We further recommend that our target date be as soon as possible but, in no event, later than the next four months.

(2) There are two routes of attack in reaching the objective of eliminating the Commerce regulation and getting out of the commitment to organized labor:

A. You could negotiate directly with Mr. George Meany and possibly with Mr. Hall and Mr. Gleason.²

B. This issue could be wrapped up in an Administration package proposal on national maritime policy. As you know, negotiations are proceeding on this package in the Department of Commerce at this time.

(3) We recommend that the Administration follow alternative B at this time for the following reasons:

A. There is only an outside chance of substantial wheat sales to the U.S.S.R. this year.

B. This issue could well be a bargaining item in the total package on which the maritime unions could recede without serious difficulty. (We believe that Mr. Gleason and Mr. Hall are fairly relaxed on this problem, but that it is a matter of concern to Mr. Meany.)

(4) We ask to reserve our option to come back to you and urge your personal intervention with Mr. Meany if—

A. Substantial sales of wheat (two million tons or $160 million) appear a real probability in the next few months.

B. No progress is made in resolving the issue within the framework of a maritime policy package in the next four months-the latest reading indicates that probably no progress will be made in this direction. (Supplied by Secretary Connor.)

Joseph W. Barr ³

1. Source: National Archives and Records Administration, RG 59, Central Files 1964–66, INCO-WHEAT USSR. Confidential. The memorandum bears no drafting information. Copies were also sent to the Secretaries of Agriculture, Labor, and Commerce, and to the Under Secretary of State.
2. Paul Hall, president of the Seafarers International Union, and Thomas Gleason, president of the International Longshoreman’s Association.
3. Printed from a copy that indicates Barr signed the original.