142. Briefing Memorandum From the Assistant Secretary of State-Designate for Economic and Business Affairs (Enders) and the Director of the Policy Planning Staff, Department of State (Lord) to Secretary of State Kissinger, Washington, undated.1 2
DEPARTMENT OF STATE
BRIEFING MEMORANDUM
To: The Secretary
From: EB - Thomas O.
Enders, Designate
S/P - Winston
Lord
Issues in Our Approach to the World Food Problem
You requested a paper on the international and domestic issues we face in developing a coherent approach to the world food problem and, separately, a comprehensive look at PL 480 priorities. This paper discusses PL 480 as one element in our overall food policy. A separate paper will examine in detail the specific problems of PL 480 criteria and priorities.
Pending your further guidance, we are working towards an Administration decision to double food aid in FY 1975 from the currently budgeted level of 4.5 million tons to 9 million tons. With wheat prices falling and a record US wheat crop in the offing, the main obstacle to this increase would be budgetary. Our strategy is thus to build for agreement with Butz on a program increase which you and he could then put to Ash. Enders is starting a country by country analysis with Agriculture next week in an effort to define areas of agreement. We will then come back to you to seal a bargain with Butz.
As we proposed in an 18 May memorandum to you on follow through to your United Nations General Assembly speech, our target is still for you to announce a substantial increase in food aid in a speech by July 15.
SETTING
A. Elements of World Food Security
Food security means that world production plus reserves are adequate to protect normal consumption against year-to-year variations in production within an acceptable range of prices. This is not currently the case. Food security requires rebuilding world stocks to a level adequate to cover the next bad crop year. In addition to stockpiles, world food security embraces three other major elements amenable to prompt international action: investment in agriculture, food aid, and trade relationships. A fifth element, population control, is critical in the longer term, but is much more resistant to governmental policy decisions.
B. Situation This Year
World food stocks are at the lowest level in two decades. World food security this year depends on record US production, which we now expect. Even so, severe production shortfalls this year or next in more than one major region would create a food supply crisis involving unacceptable price rises in the United States and starvation in the LDCs. The most threatened areas are those of chronic shortage -- South Asia, particularly India, and the African Sahel. USSR production for 1974 is still in doubt, but we think it will be about average and will not be a cause for major Soviet imports.
C. The Longer Term.
Normal, or better than normal, world crop conditions this year and next will permit some rebuilding of stocks. A global balance of commercial supply and demand through 1985 is likely -- but with the US and other developed countries providing most of the exportable surplus and the LDCs continuing to suffer malnutrition and pockets of starvation. Substantially increased investment in agriculture will be required if the LDCs as a group are to keep pace with rising consumption demands. Even so they will probably have to import more food, at higher unit cost than prior to 1973, while at the same time devoting more resources to agricultural development.
D. Dominant Position of the US
The US has the largest food production capacity in excess of domestic requirements. We dominate world trade in soybeans and feedgrains. We are the principal exporter of both wheat and rice. The US and Canada have carried a large part of the worlds grain reserves over the past thirty years. The US has provided 85 percent of all food aid.
Our commanding position with respect to food is an asset in our dealings with the LDCs and the importing DCs. It also imposes a humanitarian responsibility.
ISSUES
The two central problems in developing USG positions on specific food policy issues are:
-- What balance is to be struck between foreign policy considerations, including world food security and the problems of commercial agricultural trade, and the domestic policy requirements to maintain farm income at reasonable food prices?
-- What mix of policies and programs with respect to US production, agricultural development assistance, food aid, stockpiles and trade relationships best serves both our foreign policy and domestic interests?
Implicit in the second of these central problems is the question of how to harmonize, to the extent possible, US interests and policies with those, of other governments. Given our dominant position in the world food picture, the tactics of negotiating and implementing the international aspects of our food policy will be important in getting other governments to move in directions we believe necessary or desirable.
In important respects the international aspects of US food policy in the post-war period have been a derivative, politically and economically, of domestic agricultural policies which produced chronic surpluses. Our capability to provide large amounts of food aid and to use it flexibly for foreign policy purposes has not been the result of foreign policy planning. As long as domestic agricultural policies encouraged or permitted excess production, for which food aid was a widely approved and low cost means of disposal, world food problems appeared less threatening. For a variety of reasons we do not favor a return to such an overwhelming US stockpiling and food aid role. Future world food security requires, therefore, a greater measure of international cooperation and burdensharing. For the US this means that foreign policy considerations must receive more explicit and important weight in our overall food strategy than has been true in the past.
A. The Domestic Issues: Income, Costs and Prices
There is no disagreement over the need to maintain farm income on a par with the rest of the US economy. Issues arise over how this is to be done. Until 1972, there were high budgetary costs for domestic and export subsidies and for storage of vast quantities of grain. With the disappearance of our surpluses through sales to the USSR and the PRC, even higher costs have been borne directly by American consumers and by our commercial and concessional customers abroad through sharply higher prices.
USDA prefers the present situation of high prices and unregulated output because it minimizes direct budgetary costs and, for the present at least, maximizes farm income. It receives support from Treasury because of the lower budget costs and because of the contribution of high priced commodity exports to our balance of payments. OMB also likes the reduced budget requirements. Conversely, CEA and the Cost of Living Council are interested in lower prices for American consumers -- even if this means agricultural support payments.
Under present circumstances all of these agencies, to varying degrees, will resist increased food aide. In a tight supply situation it detracts from commercial exports or increases pressure on domestic prices. However, the opposition of USDA, Treasury and OMB will diminish if food prices continue to fall and, particularly, if USG-held stocks begin to mount.
USDA under Earl Butz is strongly opposed to a return to USG-owned stocks. The acquisition of stocks supports farm prices; once in existence they have a price depressing effect. Because prices are then less affected by current production, increases in production in response to future US or world crop failures would be slower. However, with stocks, there is less need for a quick production response.
USDA favors privately held stocks -- by farmers or traders. Other agencies are less sure that such stocks would be adequate to ensure reasonable price stability or the US position as a reliable exporter.
B. Issues Deriving from Foreign Policy Considerations
1. Stockpiles
We have a strong foreign policy interest in world grain stocks adequate to prevent the crisis conditions of the past year. While the US gains some short-term political and economic advantages as the world’s principal food supplier in periods of short supply, we have larger political, economic and humanitarian interests in food security. Without reasonable supply stability, for which substantial stocks are necessary, importing countries will seek self-sufficiency, even if at high domestic costs, and US agricultural exports will decline. Food aid has been a major expression of the American humanitarian impulse.
As a form of economic assistance it has supported US security and other foreign policy interests. Without adequate world stocks food aid is least available when most needed. We have had to reduce food aid levels sharply this past year because of high domestic prices and in order to avoid export controls.
Determining a reasonable or desirable level of world grain stocks is primarily a statistical problem. What are the production and consumption trends? What are the maximum historical shortfalls from trend in one or a series of years? We can achieve a fair degree of international agreement on this question although, for obvious reasons, food importing nations will favor higher stocks and food exporters lower.
There are two major issues for US policy:
-- How should responsibility and the costs of stocks be shared among nations?
-- To what extent, if at all, should we rebuild USG-held stocks?
The optimal resolution of these issues from the US perspective would be for other countries to purchase and stockpile US grain. We would preserve and probably expand our export market, thus maintaining a high level of production and farm income. Under such conditions a return to USG-held stocks probably would not be necessary. This is the outcome strongly preferred by USDA. Secretary Butz has stated repeatedly that the USG will not again hold large stocks. He hopes that the implicit threat to cut back US production if stocks begin to accumulate will stimulate importing countries to build their own stocks. He accepts that US and other DC assistance to the LDCs for this purpose will be necessary.
The Butz position is tactically attractive. Because of this, and because the support of USDA is important more generally in developing a food policy that gives adequate weight to foreign policy interests, we probably should avoid a direct confrontation with Butz on these issues at this time. But, there are strong grounds for doubting that the Butz approach will succeed, or succeed in the manner
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and population control assistance. A still broader frame might take into account all forms of economic development assistance to the LDCs and relative DC performances measured as a percentage of GNP.
SUMMARY ANALYSIS
The costs of accommodating foreign policy objectives in food policy are mainly budgetary. Additional funds will be needed for a continuing and flexible food aid program. The US, as the world’s largest agricultural exporter, will need to carry a substantial level of stocks. The private sector probably will not hold enough to ensure reasonable stability in food aid levels and to cover exceptional commercial demand. Some return to USG-held stocks is likely. But we can and should seek a wider international sharing of stock costs than has been true in the past.
The domestic policy objectives are to maintain farm income with high production and reasonable prices. A sustained food aid program and stockpiling can complement these objectives. Food aid channels some US production to those who need it but cannot afford commercial purchases. Food stocks can be managed to smooth out extreme supply and price fluctuations.
Of course, the US has the potential for prolonged overproduction. In that case, recourse must again be made to reducing production through acreage set-asides. Here too we can seek cooperation of other major producers in making production adjustments to share the burden equitably.
In agricultural trade, we should continue to seek improved market access for US products. While we can and probably should move more quickly on reaching international agreements, at least in principle, regarding food aid and stocks, the US positions on these questions should be compatible with our trade objectives -- which we hope to negotiate in the MTN. But, because prospects for improved market access are not now very bright, we should avoid making this the sine qua non for US positions on other food policy elements.
There are several foreign policy positions, leading to courses of action, which we believe should be adopted. Assuming that the USG adopts a policy of holding some food stocks, we should press for USSR agreement at the World Food Conference to participate in a multilateral system of national stockpiles and in an information exchange that could greatly improve producers ability to forecast and meet production shortfalls. Soviet cooperation is critical to the success of efforts to improve world food security because they alone account for a large part of production shortfalls.
As a corollary to establishing a nationally-operated stock system for world food security, we should insist upon contributions from other DCs (and perhaps the oil exporters) to finance food stock for the poorer LDCs. This position is likely to draw criticism as an effort to obtain financing from others for storing US-produced surpluses. But we should argue that we will be forced to reduce production if international cooperation is not attained.
We can anticipate a need for relatively high (pre-1973) levels of food aid for the next several years -- perhaps the rest of the decade. International cooperation is desirable. But US production potential and efficiency argue for a continuing dominant US role -- with other DCs and wealthy LDCs contributing proportionately more in other types of aid, including agricultural development and population control assistance. This course would preserve our ability to use food aid for specific political objectives, as necessary and desirable.
In framing a comprehensive food policy, one of our main foreign policy objectives should be to increase the world’s per capita output of food -- especially in the LDCs. Currently, food production in these countries is barely keeping pace with population growth. Eventually we might confront the Malthusian dilemma of a physical inability to feed the world’s population. But long before arriving at that point the food exporters would have reached the tolerable limit of resource transfers in the form of food for LDC populations. Food aid should be viewed as a necessary but temporary device. Greater food production in developing areas is imperative.
- Source: Department of State, S/WF Files, Lot 90 D 313, Memos to Secretary Kissinger Related to Meetings With Him on World Food Problem, 7/1/74 to 12/1/74. Confidential. Drafted by Placke, Service, and Boeker on June 7; and concurred in draft by Martin and Birnbaum. Printed from an uninitialed copy. An attached routing slip, dated June 9, indicates that Kissinger took this memorandum with him as he accompanied Nixon on a June 10–19 Middle East trip. The separate paper concerning P.L. 480 and the May 18 memo were not found.↩
- The memorandum discussed the relationship between food policy, international trade in agricultural goods, and general U.S. foreign relations goals.↩