377. Memorandum From the President’s Special Assistant (Rostow) to President Johnson 1
SUBJECT
- New Indian PL 480 Agreement
The last shipment of wheat under the current agreement is now scheduled to leave the US by 31 October. It should arrive in India about 1 December, give or take a few days. These October shipments will include 327,000 tons of wheat and 150,000 tons of milo. Milo shipments will continue with 150,000 tons each in November and December.
[Page 734]It takes about 9 weeks between Washington decision and arrival in India for negotiation, procurement, movement of grain to port and transit (30–40 days). Counting back 9 weeks from the beginning of December indicates there will be a gap in December arrivals if we don’t go ahead with the new agreement in the next week.
A 1–2 week gap probably wouldn’t cause difficulty. The Indian government would begin to get nervous but could chalk the slippage off to bureaucratic delay.
But somewhere between 2 and 4 weeks from now, it will become obvious to the Indian grain dealers and politicians that there will be a gap in December. With arrivals of US wheat running about 345,000 tons in October and 202,500 in November, little or no wheat arriving in December would raise questions.
No one argues that Indians would starve. Not even the Indian government knows how much food may be tucked away in that vast nation. But the one clear indicator we have shows that government grain stocks have been drawn down from 1 million tons on 1 June to 738,000 on 1 September. This is a little more than one month’s average off-take (600,000 tons).
This indicator operates in the Indian market much like our carryover here. When it drops, speculation increases and prices rise. The government, with short stocks, has no large quantities to release to force prices down.
Even harder to measure is the effect of unexplained delay on the high-level Indian’s view of our dependability. Mrs. Gandhi’s reliance on US and World Bank advice has become a major political issue. We don’t want to give her opposition an opening to argue that we don’t back our promises with performance, especially since the World Bank consortium is already falling $20 million short of its $900 million target.
The ideal on pure foreign policy grounds would be to go ahead now. But if you are still uneasy about U.S. prices, I’d suggest this course:
- —Wait 1–2 weeks to confirm what now looks like a break in U.S. price levels. The price in the Kansas City wheat market fell 12 per bushel in the week of 16–23 September. The price had hung around $1.97 since mid-June (a jump from the $1.79 of 10 June) until last week’s drop to $1.85.
- —Then if we have to delay longer we ought to give the Indians confidentially some hint of why we’re delaying (though we wouldn’t want this to get back to our farmers). We might also let the Indians begin purchasing against the new agreement and promise to reimburse them later (Agriculture has a procedure for this). This may come up at lunch tomorrow. However, if not, we will need your decision on whether (a) to go ahead now with the original [Page 735] Freeman-Rusk-Gaud proposal of 1.2 million tons of wheat and 800,000 tons of coarse grain, or (b) to hold off for another couple of weeks.
Go ahead now with Freeman-Rusk-Gaud proposal
Keep an eye on wheat prices and come back in a week2
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