Foreign Relations of the United States, 1977–1980, Volume II, Human Rights and Humanitarian Affairs

259. Memorandum From the Director of the Office of Management and Budget (McIntyre) and the Special Representative for Economic Summits (Owen) to President Carter¹

Washington, September 7, 1979

SUBJECT

• 1980 PL 480 Budget Increase

Several communications to you and OMB propose supplemental appropriations for PL 480 food aid in 1980.

1) Secretary Bergland has requested that the original PL 480 commodity volume, 6.8 million tons, planned in the 1980 budget be maintained, despite large increases in commodity prices and shipping costs.

This would require a $346 million increase in the budgeted $1,399 million program level and an equal increase in outlays (Tab A).

2) Secretary Vance seeks an additional $41 million for Egypt added to any supplemental request to offset price increases. State indicates support for a total increase of $273 million including Egypt (Tab B).

3) IDCA Director Ehrlich favors a $206 million increase, but opposes the Egyptian add-on (Tab C).

Each proposal would call for an immediate supplemental. A January transmittal would be too late, because by the time Congress acted on it, probably next June, logistical constraints would not allow shipment of the full amount requested. Action now could also take into account that the House has added $59 million to the 1980 Title I appropriation request; there is no Senate PL 480 add-on. The appropriation bill will probably be in conference next week. By supporting the House position then, the Administration might avoid formally seeking a supplemental for the amount of the House increment.

There are strong arguments in favor of the proposals. Many developing countries, particularly the poorest, have been hard hit by rising food and oil prices this year. (USDA has provided the analysis of developing country food needs at Tab A). It will appear particularly insensitive for the United States, with good harvests and record food export earnings this year, to accept the cut in planned PL 480 volume from 6.8 to 5.3 million tons caused by higher prices. There will be strong criticism of significant tonnage cuts from both the farm bloc and from humanitarian groups, particularly those voluntary agencies implementing Title II food donations. Finally USDA points out that reductions in PL 480 will create pressure for a supplemental to finance higher CCC short-term export loans.

Nevertheless, we remain concerned about the impact of such large increases on budget restraint. Approving a PL 480 supplemental to allow for price inflation can only intensify pressures for similar add-ons to domestic programs where we have been trying to hold the line. We note that while LDC harvests overall appear down from last year, there seem to be few extraordinary shortfalls. The planned 6.8 million tons for 1980 is well above the 6.2 million tons that will be shipped in 1979 when most major needs have been met. Finally, there is a risk that a supplemental now for the popular food aid program may lead to partial offsetting reductions in regular appropriations for AID and the multilateral development banks (sharply cut by the House) during Senate committee mark-up late this month. These points lead us to conclude that some reduction in the agencies’ requests would be both feasible and desirable.

Key Issues

We believe that there are three key issues related to the proposal.

1. Title II—The donation program is the most purely humanitarian element of PL 480 and the main source of U.S. response to natural disasters. It has strong public support centered around the voluntary agencies and is normally backed by large majorities in Congress. As a result, a 1.6 million ton minimum annual volume for Title II is specified in authorizing legislation (subject to appropriations override). If the Administration does not propose a budget increase to maintain the minimum, Congress may well provide it. All agencies agree on an increase of $103 million to offset price increases.

2. Additional PL 480 Aid to Egypt—State proposes two increases for Egypt: (a) a $60 million increase in the dollar amount of the program to maintain it at the promised 1.5 million tons of wheat despite price inflation; this would be funded by either a supplemental or reduction of other country programs; and (b) $41 million for an additional 230,000 tons of wheat (about half of Prime Minister Khalil’s request last May), raising the total to 1,730,000 tons or from 25% to over 31% of the worldwide Title I concessional sales program. The issue is whether both of these increases are essential to evidence U.S. reliability in the peace process and to provide tangible reassurance to Sadat. The case for more aid is not strong on economic grounds; Egypt’s balance of payments is improving despite Arab sanctions, and it has a $550 million pipeline of AID commodity import funds.

3. Title I Tonnage—For the remainder of the Title I program, all agencies (State, IDCA, OMB, NSC and Owen) believe that the USDA request can be substantially reduced. The question is how much to cut back. The options are presented below. Our flexibility is limited by the facts that deeper cuts could a) limit our ability to meet pressing needs in Africa and Nicaragua not included in the original budget, b) unacceptably reduce the unallocated reserve for contingencies, $142 million at current prices, and c) create pressures for substantial reductions in the large scale programs for Indonesia, Korea and Portugal which will probably have enough foreign exchange to do without PL 480 next year.

Reductions in the latter programs could create problems because i) Indonesia believes that it has a firm $101 million PL 480 commitment based on statements made by the Vice President last year, which have been further defined by our Ambassador; ii) Korea receives PL 480 as a quid pro quo for voluntary textile export restraints; and iii) Portugal sees our aid as an earnest of U.S. support for its moderate democracy. USDA believes, moreover, that cuts in Korea and Indonesia shipments could endanger U.S. commercial exports for wheat and rice.

Options

PL 480 Food Aid Shipments²

(in $ millions and millions of metric tons)

	1980
	Option	Option	Option	Option	Option
	1979	I	II	III	IV	V
		(USDA)	(State)	(IDCA)	(OMB, Owen)	(1980 Budget)
Title	842	1087	1013	946	901	843
Tonnage	(4.6)	(5.2)	(4.9)	(4.7)	(4.2)	(3.9)
Title II	539	659	659	659	659	556
Tonnage	(1.6)	(1.6)	(1.6)	(1.6)	(1.6)3	(1.3)
Total Program	1381	1745	1672	1605	1560	1399
Tonnage	(6.2)	(6.8)	(6.5)	(6.3)	(5.8)	(5.3)
Outlays	998	1339	1266	1199	1154	993

(All options above except V include the $60 million inflation increase for Egypt. None except Option II includes the $41 million Egypt add-on. If the $41 million increment were added to other options, totals would be as shown below.)

		(USDA)	(State)	(IDCA)	(OMB/Owen)
Total Program	—	1786	1672	1646	1601	—
Tonnage	—	(7.0)	(6.5)	(6.5)	(6.0)	—

In the options described below, we do not seek specific decisions on individual country levels except for Egypt. State requests that the $41 million for Egypt be added to any supplemental amount proposed by other agencies. If you approve this $41 million, we believe it should be additive to the IDCA and OMB/Owen options, rather than absorbed within them by cutting back other countries.

Option I (USDA)—Request a $346 million supplemental maintaining volume at the planned 6.8 million tons. While no firm country breakdown is available, some of the tonnage under the country plans in the budget would be reallocated to the neediest countries based on current crop estimates. This option would be welcomed by farm and humanitarian groups and by developing countries.

Option II (State and USDA as a second choice)—Request a $273 million supplemental maintaining the 1.6 million ton minimum for Title II, reducing Title I volume but including both requests for Egypt. Total volume would be about 6.5 million tons, about 5% above last year. State believes that all major diplomatic and other program objectives can be accomplished with a budget increase 20 percent below USDA, but would go no lower. Tonnage cutbacks would fall on the middle income countries and on the reserve which State would reduce by one-third. State would add $35 million for Africa programs not in the January budget and strongly urges approval of the Egypt add-on.

Option III (IDCA)—Request a $206 million supplemental maintaining the Title II tonnage, holding most middle income Title I recipients to the original dollar levels, and excluding the Egypt add-on. Total volume (6.3 million tons) would be very close to the 1979 level. IDCA Director Ehrlich believes this is the maximum needed to achieve humanitarian and developmental objectives in light of budget stringencies. IDCA would cut back Korea slightly, thus extending further the past practice of stretching out the textile payments. IDCA would maintain a higher reserve than State, which would leave room for some but possibly not all of the new Africa initiatives. Ehrlich questions the need to increase the Egypt program by $60 million to maintain tonnage and opposes the $41 million add-on as turning the program away from the greater emphasis on development objectives that you previously have encouraged.

Option IV (OMB, Henry Owen)—Add $161 million to the budget by seeking a $103 million supplemental to maintain Title II tonnage and supporting the House’s $59 million add-on for Title I in the upcoming appropriations conference. Thus, the supplemental request would be limited to Title II, defensible on humanitarian grounds and meeting the statutory minimum tonnage. Total volume would be about 5.8 million tons, about 5 percent below last year. Programmatically, we would maintain Indonesia at the level that the Indonesians believe was pledged by the Vice President, accept most of the cuts proposed by IDCA, but would reduce the reserve IDCA seeks from $110 million to $80 million, taking smaller cuts in a few other countries. This would be a tight reserve for a year of rising prices. Although there would be little room for the new Africa initiatives, we believe that small cuts in a few countries, possibly including Portugal, plus a further reduction in the reserve could accommodate most of them at this total Title I level. We doubt that reductions of this magnitude would cause major diplomatic problems. This option includes $60 million to maintain the Egypt program at 1.5 million tons but rejects the $41 million add-on for Egypt. We believe that the political objectives stressed by Vance can be met by having Ambassador Atherton announce publicly that the U.S. is increasing food aid to Egypt by $60 million, reducing other countries in order to do so. This would give Sadat visible evidence of U.S. support.

Bob Strauss states that although he is not familiar with the economic considerations, if the $60 million would clearly establish that the U.S. is doing something unique for Egypt that is not being done for other countries, he would be satisfied and would not insist on the additional $41 million. This is essentially the case, since no other recipient of Title I aid (including Israel and Jordan) would be given significant increases to offset rising prices.

NSC staff supports this option except for preferring to provide the additional $41 million for Egypt.

Option V (original January budget dollar level)—Request no increase for the program reducing volume to 5.3 million tons. This option would contribute most to holding the budgetary line not only in foreign aid but also, by example, for all other programs. It would still leave open the possibility of a January supplemental (though much less than the USDA request), which could be decided on in light of the overall 1980 budget situation. Because of the diplomatic costs, the necessary reductions in developmentally sound activities and the domestic political furor it would raise among farm and humanitarian groups, no agency favors this option.

Decision

Option I Accept the USDA proposal, a $346 million supplemental.

Option II Accept the State Department recommendation, a $273 million supplemental including the $41 million add-on and $60 million inflation adjustment for Egypt.

Option III Accept the IDCA position, a $206 supplemental excluding the $41 million Egypt add-on.

Option IV

(a) Accept the OMB/Owen recommendation, a $103 million supplemental for Title II and support of the House on $59 million more for Title I but excluding the $41 million Egypt add-on.⁴

(b) Add the $41 million for Egypt raising the supplemental to $144 million.

Option V No supplemental.⁵

1. Source: Carter Library, National Security Affairs, Brzezinski Material, Subject File, Box 49, PL 480: 11/77–1/80. Confidential. The President wrote “Jim” and his first initial in the top right-hand corner of the memorandum. Brzezinski also initialed the memorandum. None of the tabs are attached.
2. Detail and illustrative country breakdown at Tab D. [Footnote in the original. Tab D is not attached.]
3. The President circled the Title II Tonnage figures under Options III and IV.
4. The President added 103 and 59, totaling 162, in the left hand margin next to Option IV (a).
5. The President did not indicate his approval or disapproval of any of the options but added a handwritten instruction: “To OMB/Owen add enough not to cut Portugal & to increase Egypt by 100 thousand tons. Consult with Ehrlich to bring total tonnage up to 6.0 mil. J.”