Grain Becomes a Weapon
Carter uses it to pressure the Soviets, but U.S. farmers call for help
The singling out of food as a bargaining weapon is something that I would not do. If we want to put economic pressure on another nation under any circumstances ... I would not single out food. --Jimmy Carter, 1976
And sometimes they say that you eat the bear But sometime the bear eats you. --Jim Croce, Hard Time Losin' Man
It violated all Jimmy Carter's instincts --his political instinct for the charitable gesture, his personal instinct for compassion--to break his own campaign promise and cut off the golden flow of U.S. grain to the Soviet Union. But at the same time he was filled with rage and frustration at the Soviet invasion of Afghanistan, and particularly by what he felt was Communist Party Chief Leonid Brezhnev's lying justification of it. He stalked around the White House, bristling with anger. "Because of the way that I've handled Iran, they think I don't have the guts to do anything," he told one aide. "You're going to be amazed at how tough I'm going to be."
That was the mood in which Carter had gone on television to order an unprecedented series of retaliations against the Soviet Union, highlighted by an embargo on the sale of $2.6 billion worth of corn, wheat and soybeans. For the first time in two months the 50 American captives in Tehran faded into the background. Said one high U.S. official: "The hostages are a burning but historically insignificant issue." Instead, the world now focused its attention on the more important--and potentially far more dangerous --confrontation between the U.S. and the Soviet Union.
Whether Carter's move would have any serious effect on the Soviets remained a matter of strong debate, but it caused thunderous reverberations last week through the great grain belt of the U.S. Middle West. Grain prices plunged on the commodities markets and the politically powerful farmers protested mightily that they were being ruined. Most of Carter's rivals for the presidency denounced his embargo as unfair and ineffective, and there were some predictions that these criticisms would soon be translated into opposition votes in the Iowa caucuses on Jan. 21 and in early primary elections.
To limit the damage at home, the Administration announced that it would bail out U.S. farmers and exporters from their unfulfilled Soviet grain contracts. The Government will offer some of the grain to hungry Third World nations, use some in a stepped-up gasohol program, and store the remainder until it can be sold without disrupting markets. The price tag for the program may top $4 billion, including the cost of the exporters' contracts, storage fees, and extra support loans to farmers.
To give the industry time to digest the new moves, Washington suspended all trading in grain futures for two days; never in peacetime had such a move been necessary (see box). When the market did open, grain prices fell as much as the daily limit permitted, but by the weekend they appeared to be stabilizing. Still, Carter's critics charged that the embargo would severely damage the U.S. balance of trade, and that his efforts to soften the blow would seriously increase the inflationary budget deficit.
Still, the Administration pressed its efforts to let its fury over the Afghanistan invasion be plain for Moscow to see. Carter told a group of Congressmen that the Soviet attack was "the greatest threat to peace since the second World War."
> Government officials last week suspended all shipments to the Soviets of sophisticated machinery, such as computers and drilling bits, until they determine what items are covered by the President's ban on selling high technology to Moscow. Quipped an Administration official: "We will exempt nothing but shoes and ties."
> The Department of Transportation dispatched two big 378-ft. Coast Guard cutters, the Midgett and the Rush, to keep watch over Soviet trawlers fishing off Alaska. The Soviet catch in U.S. waters will be limited to the 75,000 metric tons allowed under permits issued by the U.S. in November; the Soviets had counted on netting about 435,000 tons of fish in American waters this year, about 3% of their annual consumption.
> The State Department withdrew an advance party of seven American consular officials from Kiev and expelled 17 Soviet diplomats from a temporary consulate in New York City.
> The Administration suggested that the Olympics now scheduled for Moscow this summer should be moved elsewhere, which would severely embarrass the Kremlin. Said Vice President Walter Mondale: "This would permit athletes from around the world to hold that important event without politics but not in a setting where we are in effect granting legitimacy to a country that has just committed an outrageous and indecent act of aggression."
The Administration also pointedly paid court to the Soviets' bitter foes, the Chinese. While on a trip to Peking that had been scheduled some months before, Defense Secretary Harold Brown suggested that, despite their obvious differences, the U.S. and China might seek "complementary actions" to counter Soviet expansionism. Brown announced that the U.S. would provide Peking with a ground station for receiving signals from satellites --the sort of high technology that is being denied to the Soviets. Further, Brown and his hosts indicated that they would hold future talks on military affairs, which signaled Washington's interest in creating an important new element in the strategic balance of power by linking U.S. and Chinese security interests. As a symbolic touch, Brown even posed in a Chinese-made T-59 tank.
The Administration quickly found itself with some unofficial support. Acting on its own, the International Longshoremen's Association declared a boycott in ports from Maine to Texas on all cargo to or from the U.S.S.R., leaving Moscow with no way to obtain the 3.4 million metric tons* of U.S. corn that is exempt from Carter's embargo. The corn is part of the 6 million to 8 million tons that the U.S. had promised to sell to the U.S.S.R. each year under a long-term agreement signed by both governments in 1975; at least an additional 4 million to 6 million tons have already been delivered.
The U.S. also found some support among governments in its anger at the Soviets. Delegates from 17 Muslim countries attending a conference on Islam in Kuala Lumpur condemned "the dastardly crime by the Soviet Union against the Afghan people." At the U.N., scores of nations denounced the U.S.S.R. before both the Security Council and the General Assembly (see WORLD). -
When it came to taking direct action in support of the U.S. embargo, however, many U.S. allies proved skittish. Two of the other major grain exporters--Canada and Australia--agreed not to increase their sales to the Soviets, but they would not cancel any existing contracts. The other big exporter, Argentina, refused to cooperate at all with Washington. The West Europeans are not selling grain to the Soviets, but refused to curb their sales of high technology. Said French Foreign Minister Jean Franc,ois-Poncet: "We have no intention of modifying our commercial relations with the U.S.S.R." Added a German Foreign Ministry official with a keen sense of national 'priorities: "Which is more important to the West as a whole--West Berlin or Kabul?"
Only Britain's Prime Minister Margaret Thatcher proved truly resolute. She announced that Britain would stop supplying the Soviets with high technology, would refuse to negotiate new trade agreements with them and would suspend visits by Soviet officials, including Foreign Minister Andrei Gromyko. In private she scoffed at the continental allies as "bloody wets," meaning, roughly, drips.
Even if America's allies were more enthusiastic in their support, the brunt of Carter's campaign would still have to be borne by the U.S. grain industry, which has long been one of the wonders of the world. A century ago, when the enormous fields of the West were first being sown, Frank Norris marveled at the richness of the wheat crop: "There it lay, a vast silent ocean, shimmering a pallid green under the moon and under the stars; a mighty force, the strength of nations, the life of the world. There in the night, under the dome of the sky, it was growing ..." In the decades since, production has doubled and redoubled until today the U.S. grows almost half of all the world's corn, two-thirds of its soybeans and more than a tenth of its wheat. Producing food is the nation's most efficient and most productive industry.
Until World War II, the burgeoning U.S. population still needed to import more food products than it exported, but starting in the mid-1940s, American agriculture was revolutionized by better technology, better seeds, and better use of chemical fertilizers and pesticides. Farms grew larger and the number of people on them dwindled--to less than 5% of today's population, compared with 23% in 1940. One farmer in the U.S. now feeds 75 people. By comparison, in the Soviet Union, which has less rainfall, less arable land, a shorter growing season and a far less efficient agricultural system, one farmer feeds only ten people.
Though most American farm products are still consumed at home, ever increasing quantities are sold overseas. US. food exports grew at a steady pace in the 1950s and 1960s, then quintupled in the 1970s, from $6 billion to $32 billion last year, thus holding down the deficit caused by $70 billion in oil imports. The U.S. now exports more wheat, corn and other coarse grains (barley, oats, sorghum) than all the rest of the world combined. About one-fourth of America's 413 million acres of crop land are planted for export, and foreign demand is expected to keep on growing for the foreseeable future.
Grain farmers had bin-bursting harvests in 1979, and that was for the fifth year in a row. Farmers raised a record 7.6 billion bu. of corn. Much of it, 60%, will be used as animal feed; only about 10% will be consumed directly by Americans, usually in bread, breakfast cereal and fructose (a sweetener). The remainder, before Carter's embargo, was destined for export, along with 36% of the 1979 crop of soybeans and 60% of the year's wheat. The embargo is expected to reduce overall exports from the '79 grain crop by 8%. Most export grain travels by barge or railroad car to ships in New Orleans and the Texas Gulf ports. At Houston, Cargill Inc., one of the world's biggest grain exporters, receives up to 300 railroad cars of grain a day. The grain is transferred by a conveyor system to towering, 125-ft. elevators (capacity: 4 million bu.), then poured into ships from twelve spouts at the rate of 70,000 bu. an hour.
Since the Depression, the U.S. Government has protected farmers from disastrous drops in grain prices. Until the early 1970s the Agriculture Department bought farmers' surpluses and stored them temporarily in huge and expensive granaries. The department also paid farmers millions to take some of their land out of production--perhaps the biggest and most expensive support program the U.S. ever had. This all changed when Agriculture Secretary Earl Butz took advantage of the worldwide grain shortage to sell the Government's storage facilities and urged farmers to plant from "fence post to fence post." At the same time, Congress rewrote the farm-support law so that nearly all crops would end up being sold on the private market, not to the Government.
But the law still provides farmers with considerable protection from the vicissitudes of the marketplace. Washington makes cash payments to them if prices fall below Government-set "target prices." In addition, the Government encourages farmers to store on their own land, partly at taxpayers' expense, any crops that they do not sell immediately. These can be used as collateral for low-interest loans from the Government, which annually sets a "loan price."
When Carter decided to intervene in this enormous agricultural machine, Treasury Secretary G. William Miller was vacationing in the Bahamas, and nobody summoned him back home. "The economics of this thing were simply not paramount in anyone's mind," says one White House economist. Observes another Carter aide: "I really think the President is tired of economists theorizing about what the U.S. can and cannot do."
But the White House seems not even to have known where most of the embargoed grain was, or what its owners would do when they heard that their sales were being canceled. Administration officials did not even plan to meet with grain exporters until last Tuesday. By then the grain market would have been in a state of anarchy. Saturday, the day after Carter's announcement, about 20 representatives of large grain exporters rushed to Washington to give the Administration the bad news: they owned most of the embargoed grain and would have to dump it on the market Monday morning. That would send prices through the floor. Washington officials huddled hastily and decided to suspend trading in corn, wheat and soybeans for two days. Then, with Carter's blessing, the officials announced that the Government would buy all the grain held by the exporters, at an estimated cost of $2.25 billion. This stopped all talk of a fire sale of grain contracts,
The 17 million tons of embargoed grain is now in the U.S. agribiz pipeline, stretching from the Dakotas to the Gulf of Mexico. A large quantity is in the huge elevators of New Orleans and the Texas ports. Some is aboard barges and railroad cars that were still moving south last week, while the rest is in the elevators of Midwestern farm cooperatives or in farmers' storage bins. When trading reopened on Wednesday, prices dropped immediately.
Still undetermined is where the Government will store the grain it buys. Midwestern elevators and storage bins are already bulging with the largest grain stockpiles since 1972-73, when sharp-eyed Soviet traders cleaned out most U.S. reserves at bargain-basement prices in what has been known ever since as the great grain robbery. Some Administration critics predict that the excess grain will wind up rotting in sheds or under plastic tarps.
The Administration also took action to protect the farmers from price drops. It increased support loan prices from $2.35 to $2.50 a bu. for wheat and from $2 to $2.10 a bu. for corn. It also increased the storage fee that it pays farmers, from 25-c- to 26.5-c- a bu. for corn and wheat. The intent of both steps, which will cost an estimated $409 million this year, is to enable farmers to withhold their crops from the market. In addition, the Administration is considering paying farmers to take land out of production this spring, which some experts estimate will cost taxpayers about $950 million.
In the week-long confusion, farmers, exporters, transport operators, equipment manufacturers--everyone touched by the grain industry--tried to figure out whether they were winners or losers. Almost none of them came up with any final answers. Few could even keep up with the drum roll of announcements from Washington. Complained Charles H. Fields, a spokesman for the American Farm Bureau Federation: "The Government just hasn't made clear what it is going to do. How can we operate when the rules change every day?" Not only farmers were confused. Members of the Carter Administration also had not figured out the ramifications of the President's new policies. Sniped Robert Russell, a Senate expert on international finance who attended two Administration briefings on the embargo: "They are still trying to decide what it is that they are doing and what it is that they have done."
In the absence of any solid information on the embargo's effect on them, farmers did what they normally do in times of uncertainty: assumed the worst. So did many farm economists. Most experts predicted that the embargo's long-term effect on U.S. grain prices will be bad for the grain farmer. However, this may eventually mean somewhat lower food prices for the general public. It would also be a benefit to those U.S. farmers who buy grain for their livestock. Says Sung Won Son, senior vice-president and chief economist for Northwestern National Bank in Minneapolis: "Having the grain overhang the market will psychologically and actually depress market prices. The grain exporters and elevators are large enough to survive the crisis. The real hardship will be down on the farm." Experts figure that the embargo will cut farm income this year by 10%. The loss will ripple through the farm economy, affecting rural bankers, storeowners, feed companies and fertilizer manufacturers.
That prospect--though it may not actually come true--filled many farmers with indignation. Some of them gathered glumly at local grain elevators, the first stop for much U.S. grain after it leaves farm storage bins. At Secor, Ill., four farmers watched the prices fall on a TV screen. "I don't think the shock has hit them," said Manager John Aeschliman. Just before the embargo he bought corn at up to $2.96 a bu.; his first purchase last week was from a scared farmer at $2.12 a bu. At the Pro-Farmer elevator in Cedar Rapids, Iowa, two farmers were willing to sell corn at $2 a bu., compared with $2.25 a bu. before the embargo, but found no takers.
Members of the American Agriculture Movement, which sponsored a tractor drive-in to Washington last year to protest low farm prices, demonstrated in front of Government agriculture offices in more than half of Oklahoma's 77 counties. In Sharon Springs, Kans., angry AAM members mounted their tractors and surrounded the office of the U.S. Agricultural Stabilization and Conservation Service. Protest Leader Paul Wilson accused the Government of betrayal. Said he: "We planted fence post to fence post like they wanted, and now this is what happens." Said Wheat Farmer Lysle Davidson Jr. of Johnson City, Kans.; "We think of ourselves as patriotic. We want to do what we can. But we shouldn't have to go broke being patriotic."
Some farmers rallied to Carter's cause. One was Ronald Johnson, 41, who farms 1,100 acres in Eureka,Ill. Sitting in his kitchen, with a view over his winter brown fields, Johnson declared: "All that people like the Russians understand is raw, naked power. I just hope the American farmer doesn't have to be the goat." Most Eureka farmers have not yet sold 75% of their 1979 crops. But Johnson was luckier than his neighbors: he contracted to sell his record 1979 harvest of corn and soybeans even before the seed was in the ground, when prices were fairly high. Just a few days after Carter's announcement, Johnson loaded part of his production, about 8,000 bu. of soybeans, aboard a truck bound for the Ralston Purina Co. plant in Bloomington, 20 miles to the south. Says he: "I've covered my expenses. Now I've only got 15,000 bu. of corn that hasn't been marketed--my profit."
In the Red River Valley of western Minnesota, Tom Sinner, 51, who farms 2,000 acres with his family, was also in a quandary. "I don't like what the Russians are doing," he said, "and I don't like selling them high technology, or food for that matter. But we have no illusions about it not costing us. We would like to see everyone else sacrifice too." Sinner has yet to sell most of his 1979 crop and has yet to decide on his spring planting. He could switch more of his land to durum wheat --all of which is sold to domestic manufacturers of spaghetti and macaroni--or to sunflowers and sugar beets. But sunflowers are in oversupply, and sugar-beet processors are working overtime to absorb the 1979 harvest. Said Sinner: "Probably there's going to be some crop switching. But I figure it's a big guessing game every spring anyway."
Secretary of Agriculture Bob Bergland delivered much the same message to farmers in Iowa, where many of them last year planted extra acres in corn, expecting to sell it to the Soviets. He told an audience in Harlan: "They knew they were taking a risk. Risk taking is part of farming. I have the tough and brutal decision: Do I accommodate those people who have made the wrong decision? Well, no, I don't think we should."
Bergland's tough talk caused Duane Linden to rise in protest, his voice quivering with emotion and anger. Said he: "We were told that we would have a free market. I was told that we would not have an embargo. I'm an enemy of the Soviet Union just as much as the President is. But you are damn unfair to make me take such a loss on the crop." The crowd applauded. After the the meeting, Linden told neighbors: "If I don't get more for my crops, I'm finished."
If grain sales volume drops substantially because of the embargo, elevator operators will be hurt along with the farmers. Richard Goldberg, who owns an elevator and feed firm in Fargo, N. Dak., figures his profits will drop 50% this year. Said he: "It took us years to get a foot in the door of Soviet grain sales. U.S. agriculture is getting kicked in the shins be cause it was doing a good job."
The large companies that handle the grain on the next step in its journey abroad -- the railroads, the exporters and the shippers -- all will suffer too. Said Rod Turnbull, spokesman for the Kansas City board of trade: "There is grain on barges, in train cars, in elevators and on farms that is contracted for overseas delivery. We will have a terrific problem straightening it all out." Said John Lambert, a barge operator in St. Paul: "We're concerned, particularly about our debt service. You can tie a barge to the shore, but you can't shut off bankers."
Though the Government will reimburse the exporters for the embargoed grain that they hold, they note that they will still have to absorb the cost of canceled transport contracts, a total of $300 million. Cargill Inc. has invested about $100 million in export facilities recently, partly for shipments to the U.S.S.R. Its newest elevator, a 6 million-bu. behemoth in Reserve, La., cost $50 million. Since Cargill is a heavy seller to Japan, which buys about 17 million tons of U.S. grain a year, the investment is hardly a total loss. But Cargill Spokesman Stuart Baird predicts that it will take from two to five years for the U.S. to find new markets for the embargoed grain. Says he of the lost Soviet sales: "It filled out the pipeline, added to our productivity and profitability all the way down the line. Taking it out will have a significant impact."
In the grain ports along the Gulf, shippers had the additional headache of finding storage space for the grain that keeps arriving. Said a Cargill official in Houston: "It's a madhouse right now, changing every five minutes. What do we do with all that grain?" At first, it was loaded aboard ships destined for the Soviet Union; under normal circumstances, it would take four months to ship the grain that the U.S.S.R. is still entitled to receive. But then the International Longshoremen's Association refused to handle Soviet shipments at all. I.L.A. President Thomas Gleason vowed that the union boycott would last "as long as the Soviets insist on being international bullyboys." The black-hulled Droman, loaded with 33,000 tons of wheat, was the last Soviet-bound ship to leave Houston loaded.
Exporters and farmers are also concerned about the future. For the time being, the Soviets cannot go elsewhere for large shipments of corn and wheat because nearly all of the world's large grain exporters have promised not to undercut the U.S. embargo. But some major grain producing nations could eventually change their minds and start filling the gap. Says Economist Sung Won Son: "Some countries will get the message through to the Soviets that they, not the U.S., are reliable suppliers. Then the U.S. will get only residual sales." American farmers still are paying the penalty for the Nixon Administration's embargo of soybean exports to avoid a livestock-feed shortage in 1973. Backed by Japanese and West German investors, the Brazilians plunged into soybeans for the first time and now have about 25% of the world soybean market. Said Morton Sosland, publisher of the Milling and Baking News in Kansas City, of the grain embargo: "America has just shot itself in the foot."
Nor did most food supply experts believe lower grain costs resulting from the embargo would have much effect on retail food prices. Fully 87% of the price increases in food since 1973 have reflected the rising costs of transportation and processing. Farmers receive only about 30% of the money spent in food stores. Thus, according to farm economists, a 10% cut in the price per bushel of corn would lead to retail price reductions of only a penny per pound for pork and four-tenths of a penny for poultry.
Apart from its effects in the Midwest, will the embargo actually hurt the Soviets? Not in the short run. And not even in his moments of greatest optimism has Carter thought that it will remove a single Soviet soldier from Afghanistan.
Economic sanctions have rarely been successful. There are too many middlemen for supplies to be effectively shut off --they can simply be routed through friendly countries. There is no global shortage of grain for those who can afford to buy. The Soviets do not really need wheat. They already produce more than they consume; they contracted to buy U.S. wheat only because it is a cheaper way of supplying some western and northern Soviet cities than transporting grain from central Asia. Of far more importance to the Soviet economy is U.S. corn, all of which is fed to livestock. Of the embargoed grain for which the Soviets had signed contracts, 65% was corn. CIA studies show that without U.S. corn, the Kremlin's schedules for increasing meat output would be set back by a decade.
Reports TIME Correspondent Bruce Nelan from Moscow:
"During the last three months of 1979, the Soviet Union imported 9 million tons of feed grains, enough to keep the embargo from being felt for three months. Soon, however, agricultural officials will begin making plans for a preliminary cutback of their flocks and herds --first poultry, which can be replaced quickly in better times, and then pigs, which also can be brought back fairly fast. This will result in more chicken and pork in the stores, but because the country lacks enough freezers, the supply will run out in a few months. Western experts believe the Soviets will try not to reduce their cattle herds by much because they are hard to rebuild and beef is the meat that every Soviet citizen wants most. The winter has been mild so far, and there is a good chance that by May the grass will be up and cattle can be sent out to graze.
"The eventual result will be a meat shortage, but there is always one in the U.S.S.R. Soviet per capita meat consumption is about 121 Ibs. annually. While meat and fish account for about 20% of the average American diet, they provide only 8% of the Soviet diet. Demand in the U.S.S.R. is intense, but the current Five-Year-Plan calls for increasing it only 27% by 1985. That target probably could not be reached even without the embargo. But no one will go hungry because of the embargo. Russians are breadeaters, and there is no concern on that score."
Carter's ban on sales of high technology and strategic items also faces an uncertain prospect. For the most part, Moscow has avoided buying significant amounts of sophisticated American equipment precisely because it looks on the U.S. as an unreliable supplier--one result of Carter's cancellations of sales of some advanced computers to the Soviet Union in 1978 and 1979. Less sophisticated equipment can easily be bought in Western Europe. There are a few categories, like oil-drilling equipment, for which the Soviets badly want U.S. products. If no substitutes can be found, Moscow will probably try to circumvent the embargo by buying American machinery through a satellite or a smaller country. As one expert remarked last week, "If all the computers shipped to Vienna were really there, the city would sink."
Still, the results of the U.S. embargo are not by any means negligible. Though Soviet citizens are accustomed to deprivation, more meat is one of their basic demands, and one of the major promises that their leaders have made to them. It symbolizes, in a way, the success or failure of the system. A slight decline in Moscow's ability to feed its people will not be a cataclysm, but it will be felt by Soviet citizens.
Economic warfare may be an uncertain weapon, its consequences hard to measure in economic terms, but it is ultimately a form of political warfare and must be assessed in that connection too. Carter's judgment was that a Soviet invasion of a neighbor could not go unanswered, lest the Soviet army soon be standing guard over the oilfields of the Persian Gulf. Any reaction that conveyed the U.S. outrage in practical terms was better than mere handwringing. Nor are the reprisals necessarily over. A boycott of the Olympic Games remains a definite threat, and there are other means of inciting the world's anger. Indeed, by taking action, even at a considerable cost to its own citizenry, the U.S. becomes a rallying point for other nations that look to it for guidance and inspiration. In that, it carries out, in the most fundamental way, the demands and obligations of world leadership.
* Grain exports are measured in metric tons, equal to about 2,205 Ibs. A metric ton of soybeans contains about 37 bu., of wheat about 37 bu., of corn about 39 bu.
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