by the EEC, or, if concluded with oil-producing countries, could improve the Community's balance of trade, concern quantities of commodities too small to jeopardize in any way the Community's proposals within GATT for worldwide agreements comprising the build-up of buffer stocks. The relevant mechanisms proposed by the EEC have been described by your rapporteur in the paper drawn up for the 1974 Florence meeting with the United States Congress Delegation, and the document is submitted to the present meeting again.

Your rapporteur was happy to observe at earlier meetings that the US Congress Delegation was in broad agreement with the views here propounded, but he is astonished at the slowness of the discussions in GATT on this subject, due, it appears, to the unforthcoming attitude of the United States, despite the fact that other delegates support the EEC's proposal.

Conclusion

18. In the face of the disparities to be seen in the agricultural domain, particularly the contrast between a world food shortage and the fortuitous, or sometimes structural, surpluses occurring at the regional level, and in view of the competition which may arise among developed countries for the conclusion of medium-term contracts, the logical solution still lies in multilateral contracts providing for the build-up of buffer stocks, in financing agreements, in pricereview clauses and, possibly, in joint action on conditions determining output. It is certainly not an easy solution and requires, moreover, the participation of all the countries concerned in the international agricultural commodity trade, both exporters and importers who pay their way. However, the details of this participation go beyond the purely economic and touch upon the political, a sphere on which rapporteur does not intend, in this working paper, to encroach.

POLITICAL ASPECTS OF THE WORLD FOOD SITUATION: U.S.-U.S.S.R. GRAIN AGREEMENT

Paper by Richard Nolan

On October 20, 1975, President Ford approved an agreement between the United States and the Soviet Union for the sale of at least 6 million metric tons of US grain a year over the next five years. The agreement commits the the Soviets to purchase a minimum of 6 million tons of wheat and corn annually and provides for consultation with the US government if the Soviets wish to buy more than 8 million tons a year. If the total US supply of grain falls below 225 million metric tons, the United States government may reduce sales to the USSR below the 6 million ton minimum. The agreement also forbids the re-export of US grain by the Soviet Union to other nations, although it does not affect shipments of Soviet grain surpluses. Only wheat and corn are covered by the agreement, leaving sales of barley, grain sorghum, oats, rice and other commodities unaffected.

At the same time the grain agreement was signed, a letter of intent was approved providing for the sale of Soviet petroleum and petroleum products to the United States. The letter of intent contemplated annual USSR sales of up to 200,000 barrels a day of oil with prices to be mutually agreed upon. At present, the negotiations have been suspended because of failure to ȧrgee on a shipping rate formula.

The agreement is scheduled to go into effect in October 1976. Serious questions remain regarding the impact of this agreement on the world food situation, on the developing nations, on America's regular customers, and on the ability of the American farmer to continue producing abundantly.

WORLD FOOD BALANCES

The United States remains the largest producer and exporter of agricultural commodities. The efficiency of our producers and the productivity of our farmland have permitted us to supply more than half the grain moving in world trade. During the 1975/76 marketing year, the US is expected to supply about 50 percent of the world's trade in wheat and 55 percent of the feed grains. US exports have accounted for nearly all of the increase in the world grain trade in the last five years.

During this same period, severe weather conditions in Africa, Asia and Australia have reduced the total world food supply dramtically. Grain stocks in the major food exporting nations declined 40 percent between 1972 and 1973. In 1961, world reserves were at a level which would provide for 95 days of world consumption. By 1975, that figure had been reduced substantially. At the beginning of the 1975/76 marketing year, reserve stocks in the five major exporting nations were down to 21 pounds per capita for the world's population. This is equal to only 3 days food at US rates of consumption and 21 days consumption at the rate of the world's poorest countries.

At the same time, inclement weather and the Soviet drive to increase livestock production have forced the Russians into the international grain market, thus causing enormous fluctuations in world prices. In recent years, the USSR had joined the European Community and Japan as a net importer of grain. While the Soviets have about 43 percent more land under cultivation than the US, total Russian farm production is less. Estimates of total farm output indicate that for 1966-71, Soviet output is 77 percent to 91 percent as large as US farm output. Large areas of Soviet agricultural land are subject to a short growing season and frequent droughts. Faced with unreliable crop production, there is every reason to believe that the Soviets will continue to contribute to an erratic and volatile world market.

1 A metric ton is 1000 kilograms or approximately 2,200 lbs.

IMPACT OF U.S.-U.S.S.R. GRAIN AGREEMENT

It was in the face of the dramatic drop in the world grain reserves that the United States and the Soviet Union entered into this major grain agreement. Proponents of the agreement argue that it will stabilize the world market, that increased stability will assist American farmers in setting production goals and will encourage increased production in the U.S. Additional stability, it is contended, will provide other industrialised and developing nations with greater confidence in the US as a source of supply. In addition, it is argued, the agreement will encourage the Soviets to establish their own grain reserve by obligating them to purchase grain in years in which they have a domestic surplus.

In my judgment, there is serious question whether the US-USSR grain agreement will achieve the goal of stabilising world markets, increasing production, and encouraging additional grain reserves. In addition, it could have serious detrimental effects on the international market and upon the American farmer. There is no doubt that the recent large purchases by the Soviet Union have contributed substantially to a volatile world market. However, it is likely that the agreement will serve only to stabilise the market between the United States and the Soviet Union. It may smooth out price fluctuations for those countries who make their purchases solely from the United States or the Soviet Union, but in the event of a world-wide shortfall, it could encourage even greater fluctuations in prices between other countries.

It is naive to believe that we can stabilise the world market with a bilateral agreement which represents only a small portion of the total world grain trade. In 1975/76, the total world trade in grain is estimated to reach 158.8 million metric tons. The 6 million ton purchase agreed to by the Soviets represents only 3.8 percent of that trade. In addition, it represents only 7.2 percent of United States grain exports.

The U.S.-Soviet agreement might induce the Russians to build a grain reserve, but it does not require them to do so. The Soviets have set a goal for themselves of increasing their grain storage capacity by 40 million tons over the next five years. While the agreement encourages the use of this capacity in years of surplus by preventing re-sale of U.S. grain, it does not prohibit the Soviets selling their own surpluses to other nations. Unless the agreement actually encourages the Soviets to build a reserve, it will not substantially reduce the volatility of the world market.

Some members of the United States Congress have questioned whether the Soviet Union will meet its obligations under the agreement. I am confident that they will do so. Soviet crop production is susceptible to enormous fluctuations. It was revealed recently that the Russians proposed a long-term agreement in the summer of 1973, but the offer was rejected by the U.S. This is a clear indication they have long believed it was in their best interest to enter into such an agreement.

LEVERAGE MAY HAVE BEEN LOST

The United States, on the other hand, may have forfeited its principal source of leverage with the Soviet Union for the next five years. The United States may have sacrificed the opportunity to force Soviet cooperation with the U.S. and the international community in other areas.

Absent this advantage, it is questionable whether such an agreement can be justified by U.S. policy-makers considering the adverse impact it could have on the American farmer. The 8 million ton limitation in the agreement may act as a ceiling on Soviet grain purchases. It is possible the Soviet Union may have purchased the amounts of grain specified in the agreement in any case since the average Soviet purchase over the last four years has been well over 6 million tons. In addition, there is fear that the 225 million ton level for U.S. stocks may act as a trigger for government intervention in all export sales. American producers worry that the U.S. may be prepared to reduce exports from all other countries when the trigger level is reached, and that a policy of close control of exports could serve as a mechanism for imposing a price ceiling in the U.S. The American farmer is rightly asking whether any advantages have accrued to him as a result of this agreement and whether these advantages are worth the intervention in the market place which is likely to result.

Because the American farmer has interpreted this action on the part of the United States Government as a move toward imposing a price ceiling, he is requesting U.S. policy-makers to provide him with a reciprocal promise of a guaranteed price floor. Until such time as the U.S. Government is willing to assure its domestic producers that they will receive a price which will cover their cost of production, the American farmer is going to be unwilling to engage in all-out production. In my judgment, it will be difficult to encourage the American farmer to engage in the maximum production necessary to meet world food needs until he is assured of stable and profitable prices for his product.

MULTINATIONAL AGREEMENT

World hunger not only haunts our conscience but it threatens our world's long-range stability. The World Food Conference established an annual food aid target of 10 million tons beginning in 1975. The U.S. alone plans to ship 60 percent of the target in 1975/76. However, world food supplies remain dangerously low.

The vulnerability of our total food supply indicates that we must work together to attack the problem of world hunger. This problem will not be solved by increasing the number of bilateral agreements such as that between the US and the USSR. The stability of the world market will not be substantially increased through a series of such one dimensional agreements, nor will we have improved the international balance of food. There is a serious question whether an agreement between two of the world's major producers of food is appropriate when so much of the world's population is in need of food assistance. Without a rational plan to balance world food needs, we may discover that the sum of the parts is greater than the whole. We may find that a series of bilateral agreements between the developed nations of the world has pre-empted the food supply necessary to meet the needs of the world's hungry.

What we need is an international commodity agreement in which the entire international community participates and for which the entire international community takes responsibility. Rather than a series of bilateral agreements between nations, we should encourage the importing and exporting countries of the world to clearly set forth their reciprocal benefits and obligations. We need to reach a world agreement which will clearly set out our international needs so that American farmers, and our foreign customers know where they stand. If the American farmer is to continue to engage in all-out production so that the United States can remain a reliable supplier of food, he must be assured that his own increased production will not be used to depress world prices. The European Community has done an effective job of insuring that its producers and consumers are protected from harmful fluctuations in world markets. This has permitted European farmers to continue producing food for European tables. If we are to ask farmers around the world to engage in maximum production and to contribute to a world food reserve, we must provide them with similar assurances that they will realize a price which will cover their costs and permit them to plant new acres. American farmers are willing to participate in a plan which will provide an abundant supply of food even in years of a world shortage if they receive a reciprocal guarantee that their prices will not be depressed in years of surplus.

We cannot ignore the problem of world hunger. If the United States, the Soviet Union or the European Community is going to enter into international food agreements, it must be with full consideration for the needs of all the nations of the world. We must all take the responsibility of assuring that no man goes hungry. We are talking about a two-fold obligation. First, to assure once and for all that no person in this world is without food, and second, to assure that our agricultural producers receive the compensation they need to make that end a real and possible goal. Eliminating hunger must be a world effort, a goal all men pursue, and it will be an end from which all men will benefit.

POLITICAL ASPECTS OF THE WORLD FOOD SITUATION

Paper by Steven Symms1

I am thankful for the opportunity to speak to this distinguished gathering today on the subject of agricultural trade with the Soviet Union. I expect to learn a great deal from our exchange of ideas and hope I can offer something fresh and worthwhile to these discussions.

The world has approximately 4.2 billion people, and we are increasing our population by 70 million per year, or put in different terms, every year enough people are born to equal 20 times the population of the Republic of Ireland Of these billions, about 4.6 million are suffering from the effects of malnutrition and 40 percent of these people are children.

For at least 60 known centuries, this planet that we call Earth has been inhabited by human beings not much different from ourselves. Their desire to live has been just as strong as ours. They have had at least as much physical strength as the average person of today, and among them have been men and women of great intelligence. But down through the ages, most human beings have gone hungry, and many have always starved.

Sales of agricultural products to the Soviet Union in recent years have been an important factor in keeping the Russian people from going hungry and in making US agriculture one of the most fully-employed and productive areas in the nation's economy. Our agricultural exports have shot up from $7.6 billion in 1971 to $22.6 billion in 1975, enhancing our balance of trade. In buying grain from us, the Soviets are paying in US dollars which they are getting by selling large amounts of their gold on world markets. On the whole, many think the sales have been helpful to both parties. They could, if put into proper perspective, be a model lesson for the world and the feeding of all its people.

A MIXED BLESSING

Of course, these transactions have been a mixed blessing from the American viewpoint. American farmers were enthused about the prospects of new markets, and the sales helped the US balance of payments. Many of us still vividly recall the first US-Soviet grain sale in 1972. At that time our taxpayers were obliged to finance $300 million in export subsidies and another $400 million in transportation subsidies to insure that while Americans were buying domestic wheat at $2.12 per bushel, the Soviets would only pay $1.65 per bushel. Our Commodity Credit Corporation financed the deal with $750 million in American taxes at an interest rate slightly lower than what the US must borrow at in the marketplace. In addition, the sales to Russia created massive shortages in the US grain supply which were partly responsible for the food price increases that followed. American consumers ended up paying at least $2 billion more for their food during the nine months following the 1972 election year grain deal.

While Americans were paying 49 cents for a loaf of bread, Russian housewives were paying 23 cents for US grain-enriched two pound loaves on the streets of Moscow. In fact, the Russian people were feeding the cheap bread to their cows. The Kremlin permits individuals to own one cow, but feeding the animals presents a problem because most of the pasture land is held by collective or state farms. So Russians were feeding their cows cheap bread made with US grain, while their government carefully censored from them the fact that they were purchasing US grain at all.

The total cost of the Russian grain deal to the American public was close to $4 billion. Some Americans said, “That's a high price to pay for a $1 billion credit transaction!”

This paper was summarized for Mr. Symms, in his absence, by Mr. Nolan. See p. 39.