Foreign Relations of the United States, 1977–1980, Volume III, Foreign Economic Policy

343. Memorandum From the Special Representative for Economic Summits (Owen) to President Carter¹

Washington, January 17, 1980

SUBJECT

• International Program Uses of Excess Grain (U)

1. Introduction. In your speech announcing the cutback in Soviet grain purchases, you said that “we will also increase amounts of grain devoted to the alleviation of hunger in poor countries”. To fulfill this pledge Cy Vance, Jim Williams,² and Tom Ehrlich recommend, as do I, an increase in PL–480.³ OMB is opposed. (C)

They also recommend, as do all your advisers, pressing ahead with our existing proposal to establish the Food Security Reserve, an earmarked four million ton portion of CCC holdings of wheat, for restricted use in meeting severe food supply shortages under our PL–480 food aid program. (C)

Agriculture recommends, in addition, increasing commercial term export sales under the CCC credit program. (C)

Memoranda from Vance, Williams, and Ehrlich on the PL–480 proposals and from Williams on the Food Security Reserve and CCC credit sales proposals are at Tabs A, B, and C, respectively.⁴ Jim McIntyre is submitting an analysis of the budget implications.⁵ (C)

If you approve any of these recommendations, we would like to announce on Saturday.⁶ (U)

2. Food Security Reserve. All of your advisers believe that we should try to use the present situation to reinforce our previous request to the Congress to establish the Food Security Reserve. It would not increase the federal budget. It is a long-sought assurance of US readiness to respond to food crises and to maintain our food aid to needy countries when there is a short US grain crop. The Reserve will not work to depress US wheat prices because releases from it are restricted to situations of severe shortages. (C)

Establishment of this reserve will not generally be seen as fulfilling your pledge to “increase amounts of grain devoted to alleviation of hunger in poor countries”; it would simply assure that we will be able to meet our minimum food aid commitments, whatever may be agricultural conditions. (C)

3. PL–480. All of the agencies concerned, except OMB, agree that increased PL–480 food aid should be part of our disposition of the excess grain. It is important that this not be seen as reversion to the discarded policies of using PL–480 as a dumping ground; therefore the increment should be limited to clear cases of need, especially humanitarian programs and food imports that will not displace domestic production in developing countries. In order to avoid displacing grain exports by other countries whose cooperation we need in implementing the Soviet embargo, the increase in PL–480 should not radically exceed recent levels of about 6.8 million tons. Any PL–480 increase should be largely in food other than wheat, because wheat is the primary grain export of these other countries. (C)

I believe that the 800,000 ton add-on proposed by the agencies, which would get us back to the recent level of 6.8 million tons, meets these criteria. Most of it is corn. Such an expanded program can be managed without sacrificing the PL–480 emphasis on development that you have directed. It is true that sizeable PL–480 reserves already are planned, but these reserves are for unforeseen emergencies, not for programmed needs such as proposed by the agencies. (C)

The agencies illustrate the possible uses of this additional 800,000 tons for FY 1980 ($160 million) and FY 1981 ($200 million) by listing specific possible Title I and II FY 1980 and 1981 programs; they also suggest an FY 1981 effort to help LDCs build up national stocks, which I believe makes good sense. (C)

The agencies’ attached memorandum lists two other options which none of them recommends: PL–480 aid for Israel, which would displace commercial sales and lead to Israeli expectations of continuing PL–480 aid in future years; and increasing existing PL–480 programs by 1.3 (FY 1980) and 1.5 (FY 1981) million tons, instead of 800,000 tons, including a mention of possible needs in India and Bangladesh. Cy notes his objection to such an allocation; in fact, no one recommends this. (C)

To the extent that increased PL–480 exports are additional to otherwise likely US commercial exports, they strengthen US prices and thus reduce CCC’s net grain acquisitions and outlays. I believe that at least two-thirds of the proposed add-on in FY 1980 and FY 1981 meet this additionality test: all of the Title II add-on, most of the Title I increase for poor African and Latin American countries, and the increased vegetable oil for Pakistan. Shipments for overseas food stocks in FY 1981 would also meet the additionality test. Thus the real cost of 800,000 additional tons would be very small—perhaps $50–$75 million annually; the rest of the nominal cost would be offset by reduced CCC outlays. Unfortunately, OMB concludes that it cannot show an offsetting reduction in the CCC outlays and therefore must score 100% of any PL–480 increase as an additional overall budget outlay. This means that the course recommended by the agencies would add nominally $150 million to the FY 1980 budget and $200 million to the FY 1981 budget. (C)

These budgetary constraints, plus the desirability of minimizing use of wheat, suggest an additional option below the agencies’ recommendation, that is, an increase of $100 million in FY 1980 and the same in FY 1981, or 450,000 additional tons annually (instead of 800,000 tons). Another reason for this more modest option is to avoid overloading the international affairs account, thus prejudicing rapid Congressional action on foreign aid, including Pakistan. This is my recommendation and Bob Beckel’s.⁷ (C)

4. CCC Export Credits. Some of the same international considerations apply to expanding CCC credit sales as to PL–480. Budget analysis of USDA’s options here is more complex. From a foreign policy perspective, the USDA proposal contains assurances that avoid serious disadvantages. Your decision on this can be based on other considerations. (C)

RECOMMENDATIONS

1. Food Security Reserve

That you reiterate your strong support for this long-standing Administration proposal and seek its early enactment. Suggested by all the agencies concerned.⁸ (C)

2. PL–480. OMB disapproves of the recommendations below.

a. That you approve an increase of approximately 450,000 tons, $100 million, in the FY 1980 PL–480 request for such uses as those indicated in the State-IDCA–USDA memorandum, with priority for programs likely to increase US grain exports. (This is my recommendation.)⁹ (C)

Alternative: That you approve the State-USDA–IDCA proposal to increase the FY 1980 program from 6 million tons to 6.8 million tons. This, too, would use commodities other than wheat, where possible. (C)

b. That you approve an increase of approximately 450,000 tons, $100 million, in the FY 1981 PL–480 budget request, for such uses as those indicated in the State–USDA–IDCA memorandum, with priority for the emergency feeding program and the building of stocks in developing nations if feasible stocking programs can be arranged. (This is my recommendation.)¹⁰ (C)

Alternative: That you increase the FY 1981 program by 800,000 tons, $200 million, as proposed by State-USDA–IDCA.

c. That you not now pass on the allocation of PL–480 among specific countries, but require that all such proposed allocations be reviewed by the Executive Office (OMB, NSC, and me), with any dif-ferences of view being brought to you, if necessary, for resolution then.¹¹ (C)

3. CCC Credit Sales

a. Continue with current CCC credit program for FY 1980 as planned. (Recommended by OMB.)¹² (C)

b. Provide additional direct CCC financing for additional exports to Korea and selected other countries: $150 million. (Recommended by Agriculture and opposed by OMB.)¹³ (C)

c. Be prepared to offer additional direct credit for financing of additional corn exports to China if this turns out to be necessary to consummate additional sales: $240 million. (Recommended by Agriculture and opposed by OMB.) (C)

4. Announcement

That you authorize us to announce on Friday any decisions you make on the basis of this memorandum.¹⁴ (U)

Bob Beckel, Congressional Liaison, supports my recommendations.

1. Source: Carter Library, Records of the Office of the Staff Secretary, Presidential File, Box 166, 1/21/80 [2]. Confidential. Sent for action. Brzezinski wrote at the top of the page: “I concur. ZB.”
2. James Williams was the Deputy Secretary of Agriculture.
3. Documentation on the Food Security Reserve is in Foreign Relations, 1977–1980, vol. II, Human Rights and Humanitarian Affairs.
4. Annexes A–C are attached but not printed. Annex A is a January 17 memorandum from Vance to Carter entitled “PL 480 Allocations.” Annex B is a January 17 memorandum from Vance, Williams, and Ehrlich to Carter entitled “Request for Additional PL 480 Food Assistance.” Annex C is an undated memorandum from Williams (as the Acting Secretary of Agriculture) to Carter entitled “Options for Using CCC Credit and Credit Guarantees to Expand Exports and Help Offset Effect of the Soviet Sales Suspension.” A January 18 memorandum from Eizenstat to Carter entitled “P.L. 480—Food Assistance” is also attached but not printed.
5. An undated memorandum from McIntyre to Carter entitled “1980 and 1981 Budget Increases for PL 480” is in the Carter Library, Records of the Office of the Staff Secretary, Presidential File, Box 166, 1/21/80 [2].
6. January 19.
7. Robert Beckel was Carter’s Special Assistant for Congressional Liaison.
8. Carter indicated his approval of this recommendation.
9. Carter indicated his approval of this recommendation and his disapproval of the alternative below.
10. Carter indicated his approval of this recommendation and his disapproval of the alternative below.
11. Carter indicated his approval of this recommendation.
12. Carter indicated his approval of this recommendation.
13. Carter did not indicate his preference with respect to recommendations b and c.
14. Carter wrote “Sat.” above the word “Friday” and indicated his approval of this recommendation. On the January 19 White House announcement see, for example, Robert Reinhold, “U.S. Will Purchase Much of Grain Owed to Soviet but Halted at Docks,” The New York Times, January 20, 1980, p. 1, and J.P. Smith, “U.S. Will Buy Grain Union Refuses to Load,” The Washington Post, January 20, 1980, p. A-4.