397. Memorandum From the Chairman of the Council of Economic Advisers (McCracken) to President Nixon 1
- Wheat Export Prices and Foreign Policy
Yesterday the Agriculture Department announced a new schedule of wheat export prices. This was the first action since you ordered wheat prices frozen upon the receipt of the Aide-Mémoire from Prime Minister Gorton.2 In the meantime there was a meeting of the five wheat exporting nations, on which I reported in my memorandum of July 14.3
The new wheat export prices are 12 cents per bushel below the old one on the standard grade included in the International Grains Arrangement. (There were cuts of different magnitude in other grades.) These moves have been made in consultation with Canada and Australia, though not necessarily with their full approval. A special provision was made for Argentina in order to prevent any problems in Latin America.
Although these are considerable price cuts they are not nearly as deep as the Agriculture Department wanted. They represent a compromise between our desire not to be blamed for the collapse of the IGA and the need to make our wheat more competitive in order to avoid a very restrictive wheat allotment.
It is possible, however, that the troubles of the Wheat Agreement may not be over. Despite the consultation with Canada and Australia the latest move may be considered as excessive by some countries. The European Economic Community in particular may feel aggrieved because it made a somewhat conciliatory offer to us which was not taken up. In Canada, moreover, the Trudeau government is in trouble with its western wheat growers, who have staged serious incidents during the last few days. If the IGA breaks down, and Canadian wheat growers are hurt as a result, we are likely to be blamed.
These troubles over wheat export prices illustrate two things:
- The impossibility of preserving an international commodity agreement based on unrealistic assumptions concerning supply and demand.
- The difficulty of reconciling domestic and foreign policy interests.
The Task Force on Agricultural Trade worked out the U.S. position for the ministerial exporters meeting4 and has continued to discuss the situation as it develops. Although the State Department is represented on the Task Force, it has unfortunately been quite difficult to determine where our foreign policy interests lie, and these may not have been fully taken into account. It might be desirable for you to reaffirm, to the agencies concerned, your interest in the foreign policy aspect of wheat negotiations.