264. Memorandum From the President’s Assistant for National Security Affairs (Kissinger) to President Ford 1

SUBJECT

  • Food for Peace Program for FY 1975

Roy Ash’s memorandum is a balanced and succinct presentation of the choice before you. Although the competing factors of inflation/fiscal control on the one hand and foreign policy concerns on the other are correctly described and the illustrative allocations accurately reflect our foreign policy priorities, the characterization of the options may be so cryptic as not to portray clearly the foreign policy implications of each. In my judgment, those implications are as follows:

  • The first (low) option, which reduced the commodity level by one-third, does meet the requirement in Indochina and is a minimal program for the Middle East and for humanitarian purposes. What remains cannot provide for sizeable programs in Korea, Indochina and India as well as smaller but still important ones in Bangladesh, Pakistan and Chile. We would face a choice in which our foreign policy objectives in two of the larger countries, and in one or all of the smaller triad, would have to be changed drastically. In addition, we would have no flexibility other than that provided by a later, upward revision of the budget level. It should be noted that the amounts indicated for Bangladesh, Chile, Pakistan and Indonesia under this option reflect residual, unfulfilled obligations from last year or first quarter shipments. [Page 934]In no wise can they be construed to make minimal provision for the achievement of our policy objectives in these countries.
  • The second (middle) option does make very minimal provision for all our foreign policy objectives, and thereby gains the advantage of avoiding a major revision of international posture, but only by accepting what I judge to be the considerable risk of failing in any one or several of the areas by spreading ourselves too thin. Alternatively, we could avoid this risk, but only at the cost of having still to eliminate one of the three large country programs (Korea, Indonesia or India) with corresponding effect on our policy objectives there. Moreover, however the resources of this option are allocated, we can assure a significant increase to at least partially offset the likely long Congressional delay in making other assistance available for any Middle East efforts only at the cost of serious disruption of those large high-priority country programs.
  • The third (high) option fully meets all foreign policy objectives and runs little risk of failure. It also provides the flexibility that has now become even more important given the unlikely, early enactment of this year’s foreign assistance appropriation. Were it not for the fact that, as you know, we likely face an extended period without an aid appropriation, the middle option could have afforded a helpful balancing of the fiscal/inflation imperatives on the one hand and vital foreign policy concerns on the other. The Continuing Resolution with which we have to live, however, provides no funds for our vitally important Middle East diplomacy and low levels of funding elsewhere, so that the capability to use food aid as a substitute has become even more important.

This is an important and difficult decision. Any increase of a major foreign policy budget item (and that goes for the middle option about as much as for the high option) would expose you for controversy on the Hill, when at the same time you hold the line on domestic expenditures.

For that reason and because of the possible price impact on the markets, it would be best not to announce a fiscal year total.

However, I recommend that you adopt the high option (Option III) for internal planning purposes with allocations to be made quarterly. This will give you the opportunity to make revisions should (contrary to expectations) the domestic food supply position gets tighter. Some other refinements such as a continuous effort to substitute rice (which is abundant) for wheat, and to scrub up some of the Title II Voluntary Agency programs, are also in order. Finally, I think that we should agree to phase out this year the Indonesia program as no longer appropriate to a major oil producer.

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Attachment

Memorandum From the Director of the Office of Management and Budget (Ash) to President Ford 2

SUBJECT

  • Food for Peace Program for FY 1975

Because of the possible desirability of announcing the United States position on food aid in your speech to the United Nations Wednesday,3 and the necessity for decision prior to the World Food Conference in November, this memorandum presents for your decision three alternative funding levels for 1975 P.L. 480 food aid:

(a)
The original budget dollar level of $742 million net4 outlays.
(b)
An increase above the budget level to $978 million.
(c)
The original budgeted commodity amounts, which would now cost $1.28 billion because of price increases since last December when the budget was prepared.

Key Factors in the Decision

Issues related to commodity availability and prices, possible export controls, the need for fiscal discipline, foreign policy objectives, and foreign aid funding problems will be key factors in your decision.

Commodity availability and prices.

Because of the Midwest drought and resulting pressure on supplies and prices, little corn or soybean oil will be available for P.L. 480. Rice and wheat, however, probably can be used as substitutes, although an early frost could still reduce estimated commodity availability. Since the 1975 budget was prepared, the P.L. 480 price of corn has increased 66%; that of soybean oil by 211%; and wheat prices have increased 28%. Technically, a program of the size contemplated by any of the options should [Page 936]have only a negligible further impact upon commodity prices, if wheat and rice are largely substituted for corn and soybeans. But against a backdrop of uncertainty about our crops, rapidly rising food prices, and a volatile futures market, announcement of an increased program could have a near-term psychological impact on futures prices. If actual prices should rise, the cost of commercial imports by less developed countries would increase, to some extent offsetting benefits of P.L. 480 aid and harming countries which do not receive that aid.

Possible commodity export controls.

Next Thursday the cabinet level food committee will meet to consider the crop situation and export policy, and discuss the possible future need for export controls.5 If you should decide to control exports of specific agricultural commodities, those commodities could not be shipped under P.L. 480. If wheat is controlled, none of the options presented here would be possible, and a radically smaller program, consisting largely of rice, would be necessary.

The need for fiscal discipline.

Because of price rises, a commodity shipment program similar to that originally planned would increase P.L. 480 outlays to $1.28 billion, $533 million over budget. Although the P.L. 480 budget can be increased by administrative action, without congressional appropriations, such a move would be contrary to our announced fiscal policy of reducing 1975 outlays by $5 billion with congressional cooperation. President Nixon vetoed the agriculture appropriations bill, which included P.L. 480, in part for exceeding the budget by only $150 million. A major increase in outlays in support of foreign policy objectives at a time when you are calling upon government and the American people to employ restraint in spending, will be inconsistent with our programs to combat inflation and subject to considerable criticism.

High priority foreign policy objectives.

There are, conversely, strong foreign policy reasons to increase P.L. 480 over the commodity levels originally planned—even beyond the highest option presented. The United States took the lead in initiating the forthcoming November World Food Conference. In April Secretary Kissinger stated in the U.N. that efforts would be made to try to increase food aid. Many poor countries have been hard hit by food shortages, natural disasters, or rising import prices for oil and food. Food [Page 937]aid is considered a vital part of our Mid East diplomacy; Israel and Egypt in particular have requested large programs. Further, recent floods in Bangladesh have increased the need there, India will have a significant grain shortfall this year, and recipients like Korea, Indonesia, Chile and Pakistan expect commitments (even though conditional) to be made good.

Foreign aid funding problems.

There is a real possibility that Congress will not enact Foreign Assistance legislation before spring 1975 at the earliest. If this occurs, we will be confined to a continuing resolution at a funding of about $2.5 billion, without any authorization for vitally important Middle East aid, compared to the $3.4–$3.6 billion range now being considered by Congress. Under this circumstance, higher levels of food aid will probably become necessary, particularly in the Middle East.

Options for Decision

A general consensus has been reached among the key agencies involved on three optional program levels. Implications of meeting six basic priorities are discussed in terms of both foreign policy and domestic fiscal policy. These priorities are: Indochina, Middle East, humanitarian, South Asia, traditional political commitments, and flexibility to respond to changes and provide for other countries. Illustrative country allocations are shown in Tab A.

  • Option I holds to the budget outlays of $742 million. It is the only option consistent with your fiscal policy, and contributes to the credibility of fiscal discipline in other government programs and to a broad anti-inflationary policy. It meets fully requirements in Indochina, and provides adequately for humanitarian programs and the Middle East. Option I however provides only minimally for traditional political recipients and the Asian subcontinent, including no new aid for Pakistan and low levels for Chile and Bangladesh. It will also require a difficult choice among (a) Indonesia—not a recipient last year—which we have agreed to provide substantial food aid, although it has no economic need because of rising oil revenues; (b) Korea—to which P.L. 480 has been promised—but also was not delivered last year—in exchange for restraint on textile exports to the U.S.; and (c) India—which has a severe food shortage. A major program for only one of those countries could be undertaken, and—because of the limited reserve possible under Option I—this would not be possible if Middle East requirements were significantly increased.
  • Option II, totaling $978 million or $236 million over budget, builds upon Option I. It provides fully for requirements in Indochina and the Middle East, and distributes the balance of available funds among traditional [Page 938]political recipients, countries in the Asian subcontinent and humanitarian programs so that all requirements are met in a manner than can be characterized as minimal to adequate—as shown in Tab A. No reserve to provide for other countries or meet increased requirements is retained in this option. Because Option II exceeds budget levels, it runs the risk of damaging the chance of congressional cooperation in reducing 1975 outlays elsewhere. However, since actual commodity shipments will be lower than budgeted levels, this option can be characterized as a more austere program than planned.
  • Option III, a commodity program about the size originally planned, totals $1.28 billion, $533 million over budget. It fully meets all major security, political, and humanitarian objectives, short of making a major gesture of leadership at the World Food Conference or responding massively to severe food shortages in India. It also permits modest programs for a number of small countries of political importance, and an adequate reserve to deal with unforeseen developments.

A program of this size would, however, seriously undermine your fiscal policy and risks damaging chances of cooperation from Congress in reducing FY 1975 outlays elsewhere. Further, this program could risk contributing to price increases, because of the larger shipments of wheat it entails.

Decision

Options for decision are listed below. Your decision will permit detailed interagency country-by-country programming and determination of commodity composition to proceed, recognizing that any decision can be revised to respond to major changes in crop availabilities, prices, or requirements.6

  • Option I—Budget level of $742 million (recommended by OMB, CIEP, CEA, Agriculture).
  • Option II—Increase program to $978 million (Treasury).7
  • Option III—Original commodity level budgeted costing about $1.28 billion (recommended by State, NSC, AID).
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Decision Announcement

Your decision as to program level will influence the timing of announcement of the decision, another important question.

If you believe the probability of commodity export controls to be high, no decision should be announced until that issue is resolved. Announcement of a greatly increased program will make it domestically more difficult to impose controls, and conversely if controls are subsequently required, severe cutbacks or cancellation of our announced program at any level will severely distress recipient countries.

If you decide on Option I (the present budget level and thus the lower commodity level) there would be no advantage to be gained in any announcement and positive disadvantages in terms of pressures from the voluntary agencies for greater allocations and from the world at large for greater participation on our part. Thus it would be preferable in that circumstance to merely proceed with regular quarterly allocations at the decided levels.

If you select Option II or III, you should consider emphasizing in your speech at the United Nations the increased dollar commitment to dealing with world food problems which these options entail. Any announcement defined in specific terms or strongly characterized (e.g. major) could lead to price increases impacting adversely in this country and on the program itself. Thus if you wish to announce a decision to increase the program, it should be done in a low key and in general terms. Possible foreign policy advantages which an announcement may offer, must also be weighed against two considerations:

  • • The highest option is in fact no larger—in terms of food actually shipped—than provided in the budget.
  • • Announcement of an increased program is directly contrary to your efforts to control inflation and balance the budget.

Decision8

Announce immediately (at U.N. or World Food Conference).

Do not announce, but adjust country programs and shipments.

  1. Source: Ford Library, National Security Adviser, Presidential Subject File, Box 6, Food (2). Confidential. A stamped notation on the memorandum indicates the President saw it. A September 16 covering memorandum from Kennedy and fellow NSC staff member A. Denny Ellerman to Kissinger reads: "We have worked closely with OMB, State and Agriculture in the development of the Ash memorandum (Tab A). It fairly presents the core issue which must be decided—the fiscal/inflation question as balanced against the foreign policy concern. We were not able, however, to fully explore in the paper the foreign policy ramifications and believe that the way they are now stated, although for the most part accurate, is too cryptic. The memorandum at Tab I would inform the President more fully as to the real ramifications in the foreign policy sense of the three options. It clearly points out that short of the high option (Option three), there are significant policy costs which must be accepted."
  2. No classification marking.
  3. On Wednesday, September 18, President Ford addressed the 29th Session of the United Nations General Assembly. For the text of his remarks, see Public Papers: Ford, 1974, pp. 156–161.
  4. Each of the optional dollar levels is the cost of commodities, plus freight costs, minus repayments from prior year food shipments. Thus actual program levels will be about $75 to $130 million higher than these net outlay estimates, as shown in Tab A. [Footnote is in the original. Tab A, an undated chart entitled "Illustrative Distribution of Option P.L. 480 Funding Levels Among Priorities and Country Programs," is attached but not printed.]
  5. Briefing papers for the September 19 meeting, as well as a memorandum on the meeting’s decisions, are in the Ford Library, U.S. Council of Economic Advisers Records, Alan Greenspan Files, Box 45, Subject Files, Food (2).
  6. President Ford did not indicate his approval or disapproval of any of the three options.
  7. Treasury will support Option II with the understanding that no decisions will be announced but programs will be adjusted upward, and a maximum effort will be made to substitute rice for wheat. [Footnote is in the original.]
  8. President Ford did not indicate his approval or disapproval of either option. In his September 18 speech to the UN General Assembly, the President said: "Finally, to make certain that the more immediate needs for food are met this year, the United States will not only maintain the amount it spends for food shipments to nations in need but it will increase this amount this year." He also said that the United States would offer "comprehensive proposals" at the November World Food Conference. (Public Papers: Ford, 1974, p. 160)