The circumstances surrounding the 1972 sale of U.S. wheat to the Soviets, the first such sale since 1963, were quite different from those surrounding the recent administration decision to expand the Export Enhancement Program to include limited offers to subsidize Soviet purchases.
The current decision was indeed a political one, but it deals only indirectly with the fall elections. It was reported in Washington to have been instituted in an effort to buy votes to defeat the then highly possible House override of the president's veto of a textile bill. Just as the Export Enhancement Program, which subsidizes exports to selected countries, was itself instituted to buy votes for a tax measure, neither of them was instituted directly for agriculture.It is incorrect, at least as yet, even to speak of subsidized sales to the Soviets, for there have as yet been no sales. The offer that was made includes an insufficient subsidy amount to make U.S. wheat competitive with other world wheat, and the Soviets are reported to have turned up their noses at it. The Soviets have, furthermore, issued a new list of shipping terms that are considered by the exporters to be at the very least extremely difficult if not impossible for the United States to live with. It is doubtful that any U.S. exporter would be able to offer any wheat - or other grains, for that matter - unless these terms can be modified.
The concept of a subsidy is, furthermore, a cloudy issue and one that is very little understood. Is it a subsidy when world prices are lower than the domestic prices, and the United States maintains the domestic price but makes its export prices compatible with the world wheat prices by paying the difference from the Treasury? And, who is actually paid the subsidy if it is not the farmer who continues to receive the domestic price when his grain is sold abroad at a lower price? The customer pays a price for the grain that is the same as the price he would pay for wheat from any other country in the world. And in the current instance, there are many who not only have grains available but are anxiously attempting to sell it to the Soviet Union.
The U.S. government's Export Enhancement Program also has had mostly unfortunate results. It has offended certain buyers of U.S. grain for whom the subsidy does not apply. These customers are, in turn, buying from the U.S. competitors at the lower prices, which they then bid to undercut the prices quoted under the Export Enhancement Program.
It has been suggested that the Soviets have reneged on their agreement to buy wheat from the United States. This agreement calls for the Soviets to buy specific quantities at world prices. The Soviets maintain that the United States has not been offering them the lower world prices but a higher U.S. price.
One of the most significant differences today as compared with early 1972 is that the United States is no longer in control of the agricultural market. Back in 1972, the United States had virtually the only stocks left in the world. Other countries' stocks were reduced to almost nothing. The United States stocks were large and could easily have accommodated even large purchases had the Soviets bought more than the 400 million bushels. U.S. prices did not rise appreciably until well after the Soviets had finished buying, and they rose then on the sharply increased buying from other U.S. customers. Japan, for example, increased its buying from the United States by more than 100 percent that year, and other countries all rushed here to buy
grains. The big mistake the United States made was in the large and very expensive acreage reduction program it undertook for the 1972 crop. It was farmers who had pressured the U.S. Department of Agriculture to do this. And, subsequently, it was a farmers' organization that then criticized the administration for having exercised poor judgment in enacting the acreage reduction program.
Today the United States has lost control. Other nations have expanded their farm production and have surpluses that they offer at lower prices than ours. The world's competition has been so fierce that wheat prices have been quoted as much as $40.00 a ton under U.S. prices.
The United States can no longer force an issue in the world grain trade. But this is not apparent from the U.S. attitude toward the world markets. The problem stems from the U.S. pride in its agriculture. The incorrect understanding that "we feed the world. That the world cannot eat without us. The arrogance here that by withholding food shipments we can make other nations conform to the United States' wishes. That might have been the case in the past. But it is not true today. Even the balance of U.S. trade in agriculture is now deficit, whereas in the past agriculture was one of the most important earners of foreign exchange for the United States.
Problems began for the United States when it began export embargoes principally against the Soviet Union, although the first one in 1973 was practiced against all nations. Following that, there were the embargoes of 1974 and 1975. Finally after the 1975 embargo, the United States entered into a long-term agreement with the Soviet Union.
U.S. production continued to increase and so did our trade in grain with the Soviets. This reached its peak in 1980, when the infamous embargo in which the United States in one fell swoop decided it would not permit the export of about 17 million tons of grain already on order from the Soviets.
The U.S. grain industry - and, indeed, world agriculture - has not yet recovered from that blow. It took the other nations one year to increase their production to cover the quantities the Soviets were then buying from them plus sales to their "traditional" customers. The United States finds that it has since that time been left out in the cold more and more, chiefly because of the restrictive practices of its own government. When a nation declines to sell food to another nation that needs it, that nation and the other nations immediately increase their production to make up the shortfall. This is what has happened in the world, and it is why the world is awash in grains.
Joseph Halow is executive director North American Export Grain Association, Washington, D.C.