595 



commercial relations. Both the 1972-73 grain deal and the potential 

 gas deal have important implications for the U.S. economy and for 

 U.S.-Soviet diplomatic relations. 



THE 19 72-73 GRAIN SALES 



The experience gained in 1972 by private grain exporters and U.S. 

 Government officials should provide valuable guidelines for future 

 U.S.-Soviet transactions. With respect to U.S. economic benefits, the 

 grain sales raised an important question : How good a, market is the 

 Soviet Union? 



In the summer of 1972, the Soviet Union purchased an estimated 

 440 million bushels of wheat from the United States, about one-fourth 

 of the total U.S. crop. 112 From July 7, 1972, when the Soviet grain sale 

 was first announced, to September, when Soviet agents stopped buying, 

 the price of U.S. hard red winter wheat, the principal kind sold to 

 the Soviets, rose from $1.69 to $2.49 per bushel. The Soviet Union pur- 

 chased the wheat at approximately $1.63 per bushel. The difference 

 between the price paid by the Soviet Union and the U.S. domestic 

 price was made up by U.S. Department of Agriculture subsidy pay- 

 ments to grain exporters, which totaled approximately $300 million 

 for the July-September period. 



The U.S. Government's role in the sales caused considerable con- 

 troversy. For almost two years prior to the sales, the Department of 

 Agriculture had pegged the world market price of wheat at $1.63 a 

 bushel. However, because of a world shortage of wheat in 1972, the 

 competitive world market price judged by normal commercial prac- 

 tices should have been much higher. In fact, the world price without 

 price supports would have approximated the U.S. domestic price be- 

 cause the United States was the only country exporting significant 

 quantities of wheat. Inasmuch as the United States was the only source 

 for large amounts of wheat and as its domestic price equaled the 

 competitive world market price, the subsidies represented a net price 

 advantage for the Soviet Union. 



U.S. grain exporters had been involved in major grain sales to the 

 Soviet Union on one previous occasion in 1963-64. 113 In those sales, 

 as in the 1972-73 sales, the United States appeared to be a source of 

 last resort for the Soviets : Soviet buyers went into the U.S. market 

 only after their traditional sources were exhausted. In 1963 the Soviets 

 had already purchased large amounts of wheat from Australia and 

 Canada. 114 In 1972, France had exported to the Soviet Union, while 

 Canada and Australia had been unable to supply large amounts to the 

 Soviets. Moreover, in the period between the large U.S.-Soviet trans- 

 actions of 1963-64 and 1972-73, the Soviet Union had chosen to buy 

 from traditional trade partners rather than the United States. 114 (See 

 Table 9, p. 43.) 



112 For a discussion of Soviet agricultural purchases, see Humphrey and Bellmon, 

 op. cit. 



^ For details of the 1963-64 grain sales, see Leon M. Herman, The 1963-64 Wheat Sales 

 to Russia: A Summary of Major Developments. (Washington, D.C. : The Library of Con- 

 gress, Legislative Reference Service, Apr. 7, 1964.) 



u * Correspondence made public by Congressman John Melcher reveals that both the 

 Australian and Canadian Wheat Boards had advised the U.S. Department of Agriculture 

 as early as July 1972 to reduce U.S. export subsidies and allow world prices to rise. The 

 reduction came In September 1972 after most of the Soviet orders were placed. See the 

 Congressional Record, Apr. 9, 1973, H2501-2502. 



