177. Action Memorandum From the Director of the Policy Planning Staff (Lord) to Secretary of State Kissinger 1
Grain Drain on Détente
As you are well aware, détente diplomacy is in trouble. With suspicions piqued by the Helsinki Summit, the US press and public seem [Page 723] set to attack any policy construed as capitulation to the Soviets. Many who saw the CSCE as surrender of Eastern Europe to Moscow now blame rising meat and bread prices on grain sales to the USSR. Yet, latest estimates of the Soviet grain crop make it a virtual certainty that the Soviets will try to make large additional purchases of U.S. grain.
Because such purchases could spur the most immediate domestic challenge to the overall strategy of rapprochement with the Russians—with implications for the MBFR, SALT, and elsewhere—I believe you can follow through on your expressed desire to get a handle on the grain situation and turn it to the mutual advantage of Washington and Moscow. You can do so by (1) helping persuade the President to announce continuation of the present moratorium on grain exports to the USSR for the time being, and (2) assuring that all options are thoroughly explored before any further sales to the Soviets occur.
Here, as elsewhere, perceptions may be more critical than reality. If détente suggests more give than get to Americans, that view could prove crucial—particularly as we approach the presidential election. Both the President and our foreign policy could suffer unless we act quickly to change perceptions.
Grain sales to the Soviets provide the most conspicuous current case in point. They are seen increasingly as part of a larger interrelated program for détente. That strategy also encompasses interaction with the Soviets on the CSCE, MBFR, SALT, creation of an international food reserve system, and the Mideast. Negative US reaction to the Helsinki Conference, compounded by charges of a second “great grain robbery” à la 1972, could grow and prompt a costly political backlash—particularly if our negotiations in Geneva and Vienna do not meet domestic expectations. Should grain exports lead to price hikes (as seems likely), U.S. ability to meet world-wide needs for concessional food sales and aid will suffer. The Administration could then draw additional fire from Congress which will condemn subsuming humanitarian concerns to a Soviet sell-out.
Failing to convey more of the tough Yankee trader stance to the Soviets does more than lose U.S. domestic support for détente. Perceived weakness in bargaining with the USSR can undercut our clout with Moscow itself and undermine Soviet incentive to be more forthcoming in the MBFR, SALT and elsewhere. In short, there may be a détente penalty, rather than payoff, for giving the Soviets what they want on grain without exacting a quid pro quo that is clear to them and the American public.
Indeed, seizing the situation of Soviet need for US grain could help reverse anti-détentist momentum. With some foresight and fast action, we might strike a balance among divergent domestic and international in[Page 724]terests. We could thus effect a compromise which could mollify (if not please) all parties—farmers and consumers, Washington and Moscow.
To do so, we must first come to grips with both the perception and reality of previous and projected Soviet grain purchases this year. Although the economic and political truth of the matter probably lies somewhere between Earl Butz and Arthur Burns, the important point is not necessarily who is right but whom most people believe. At this juncture, most consumers believe that sales to the Soviets are contributing to double-digit food inflation. They think that the Soviets will be back for more and that demand-pull pressure will intensify.
Latest CIA and CEA projections tend to bear out these fears and suggest a scenario reminiscent, in some ways, of 1972. Effects of drought have cut prior estimates of the Soviet crop from 215 to below 170 million metric tons (that drop equals over one-third of total world grain exports last year). Moscow seems certain to seek further substantial quantities of grain abroad, whatever belt-tightening measures are taken at home, and need could amount to 30–50 million metric tons. It is likely that much of that additional demand will go for US grain, since non-US stocks are low. Crop losses in Eastern Europe and parts of Africa may create additional pressure on the US market. Even with a record U.S. harvest, the CIA predicts that available grain supplies cannot satisfy Soviet needs without “drastic increases in world prices.”2
Should the Agency prove right, someone in the White House needs to look more clearly at USDA’s political rationale for the grain sales—again, because it bears directly on our foreign policy objectives.
—The argument that large grain sales to the Soviets are politically necessary to get the farm vote won’t wash. This is not a simple situation of farmer versus consumer. The farm bloc itself is split, with dairy and livestock farmers angry about higher feed costs. The electoral votes of the dairy states (New York, Pennsylvania, Michigan, Wisconsin and Minnesota) far surpass voting clout from the Great Plains grain states.
—By any electoral calculus, of course, consumers outnumber grain farmers.
USDA’s position on the economic impact of large grain sales to the Soviets has been comparably misleading. Although Butz is correct in claiming that grain price increases are just one of several factors contributing to inflation, CIA and INR analyses suggest that their effect is far from “minimal.” Depending on whether record-breaking U.S. crops materialize and how much grain the Soviets seek on their second round of [Page 725] purchases, CEA concludes that the grain deals amount to “an income transfer from the U.S. to the USSR” and that they are certain to push up the Consumer Price Index (amount still unpredictable)—just when consumers might well have expected prices to drop. We understand that Alan Greenspan is increasingly worried about losing control of domestic economic recovery in general and about facing skyrocketing costs for welfare and the food stamp program in particular, since higher food prices hit the poorest hardest.
Given these domestic realities, there is an urgent need to counteract growing reaction against what is seen as a sop to the Soviets at consumer expense. There is more room for manuever in that respect than many in the U.S. Government admit—if we act quickly.
The next benchmark is August 11 when the next U.S. crop reports are due. Further grain sales to the Soviet Union are reportedly being deferred at least until their release. There may also be informal understandings for a standstill beyond that date. We hope so, for we concur with others within the Government who oppose any reopening of the export flood-gates until there has been a thorough review of what courses serve more general U.S. interests.
Extension of an export moratorium would enable us to modulate sales and effect more constructive leverage with the Soviets. That bargaining power is considerable and need not be viewed as punitive or extortionate by Moscow. Should the President agree to extend the present “gentleman’s agreement” with the export firms to withhold exports—by whatever means—we could then launch a comprehensive review of the tools at our disposal. There is, we understand, already considerable sympathy in the White House for this course, although we do not believe the President has yet reached any decision.
Although we can provide elaboration on potential leverage with the Soviets, you should be aware of some preliminary thinking in this regard—inside and outside State. The diverse scope of leverage includes such illustrative items as linking U.S. grains sales to:
—Quid pro quo—food for fuel—does not appear feasible, given the low level of Soviet oil now available for export, the long lead-time needed to get reasonably-priced access to Siberian natural gas, and Soviet allegiance to the OPEC bloc.
—Jewish emigration—would probably only antagonize the Soviets further.
—Larger political negotiations (SALT, MBFR, etc.)—could be counterproductive if attempted directly; we gain more from the implicit leverage provided by Soviet vulnerability on grain.
—Other measures—such as increased grain prices for the Soviets, drastic cutbacks on sales, or establishment of an international grain clearing mechanism—may deserve further exploration.[Page 726]
At this juncture—reserving elaboration for task force scrutiny—we believe that one of the more fruitful areas for exploration lies in increased US-Soviet cooperation on stabilizing grain supplies and prices. Such a plan might stipulate an annual quota of U.S. grain sales to the Soviets which they could either channel for immediate consumption or move into reserve stock. Provision for a pre-determined level of U.S. grain sales to the USSR could offer the following advantages: please U.S. grain farmers who seek assured, long-term export outlets to sustain or expand production; give Moscow latitude to pursue its own consumer-oriented agricultural policy without undue worry over drought-induced short-falls; provide grounds for greater sharing of information on projected crops and purchases; spur Soviet commitment to a global food watch or international reserve system (a potentially helpful catalyst to follow-up on the World Food Conference); encourage greater and more constructive Soviet participation in a range of multilateral economic arrangements; and contribute to long-term stabilization of grain prices and supplies.
Soviet participation in a grain reserve arrangement may well depend on our making the imposition of export controls a more credible threat. Moscow is not likely to opt for involvement in an international reserve scheme unless and until we make clear that the USSR cannot rely on open access to random, large-scale purchases from the U.S. grain market.
Given the direct impact of Soviet grain purchases on détente and the need for fast action to limit further anti-détente backlash, we recommend that you:
—Urge the President to declare publicly before the release of the August 11 crop report that there will be a continued moratorium on further grain exports to the USSR. That hold should remain in effect until the U.S. Government has had an opportunity to assess final U.S. crop returns (most harvests will be covered by the September 15 crop report) and to assure that U.S. consumers do not suffer from large-scale exports. Your support for such a move by the President, with emphasis on the foreign policy implications set forth above, would complement other informal efforts within the Administration to defer additional grain sales to the USSR until the State Department has explored options for maximizing our overall national interests.3[Page 727]
—Encourage the President, along the same lines, to use his Iowa speech on grain export policy, August 18, as an occasion to achieve both the appearance and actuality of U.S. control over grain sales to the Soviets. A strong statement in that regard could help mollify U.S. consumer concern and thus defuse domestic discontent with détente.4
—Launch a State Department Grain Export Task Force to evaluate available options and prepare recommendations for a Presidential decision on grain sales to the Soviets by mid-September.
—Backstop this approach to the President and initiation of a State Department review with attention to the Hill. Early consultation with key members of the Congress concerned with foreign policy and farm interests could help clarify understanding of our interrelated foreign policy objectives and deflect criticism of détente.
—Assure the Soviets at the highest level at the time we publicly announce the extension of the moratorium that we are seeking mutually satisfactory arrangements on grain which can buttress the process of détente for both nations. Focus for leverage with the Soviets and choice of approach will, of course, emerge more clearly after the Grain Export Task Force completes its options study.
We suggest that you:
—Proceed to act on the above package.
—Or—call a meeting with Robinson, Enders, Hartman and me to discuss this matter further.5
- Source: National Archives, RG 59, Lot File 77D112, Policy Planning Staff (S/P), Box 354, Director’s Files (Winston Lord), 1969–77, Aug. 1–15, 1975. Secret; Nodis. Drafted by S. Giltner and Sandra Vogelsang in S/P and cleared by Charles R. Frank, Jr., in S/P. In a separate memorandum to Kissinger on August 8, Robinson added: “Attached is an excellent memorandum from Win Lord to you on Soviet grain purchases. I am in complete accord with the recommendations that he makes, except for his dismissal of the food for oil proposal.” (Ibid.)↩
- The CIA paper “Prospects for Soviet Grain Output,” which includes this estimate, was sent to Butz on August 5. Copies were sent to, among others, Kissinger and Robinson. (Central Intelligence Agency, Electronic Reading Room)↩
- Ford did not make a public declaration before August 11. Despite a “good crop report,” Butz announced that day that he was calling on the grain companies to refrain temporarily from any additional sales to the Soviet Union. (William Robins, “Butz Calls for Suspension of Grain Sales to Moscow,” The New York Times, August 12, 1975, pp. 1, 39)↩
- During his speech in Des Moines on August 18, Ford declared: “Looking ahead—and I use these words advisedly—we anticipate further purchases of grain by the Soviet Union. While our crops look good and we expect a record harvest, it is still premature to confidently predict our final production. Accordingly, as Secretary of Agriculture Butz said, we have asked American exporters to temporarily—and I emphasize ‘temporarily’—delay further sales to the Soviet Union. Additional sales to the Soviet Union must be in our best national interest—in the interest of all Americans, farmers and consumers alike.” (Public Papers: Ford, 1975, No. 490)↩
- Kissinger indicated neither approval nor disapproval of these recommendations. During a telephone conversation that evening, however, Kissinger and Robinson discussed a possible “grain for oil deal” with the Soviets. According to a transcript, the conversation included the following exchange: “R: We are saying that we will let you [Soviets] in if you give us a discount. We don’t know what the market prices for the grain will be or the price for the oil. K: My understanding from Dobrynin is that it is easier to agree on a swap. R: We can work that out. It makes it more complicated. However, it is a way they can avoid the political disadvantages of saying they are giving us a discount. K: How can we work it out? R: On a volume basis. We will take our chances that grain and oil move the same percentage in the same way. We should take that chance.” (Department of State, Electronic Reading Room, Kissinger Transcripts of Telephone Conversations)↩