Role of Foreign Pacts in Creating Demand for U.S. Grain Is Uncertain, GAO Reports

The Soviet Union and China are major buyers of U.S. grain, but a congressional report on Tuesday said that it is not clear how significant a role long-term grain agreements have played in building demand for U.S. grain.

Since 1976, grain trade between the Soviet Union and the United States has been governed by bilateral agreements. China signed one agreement with the United States--in the early 1980s--but now buys grain on the open market.

Long-term grain agreements have been lauded as a way to stabilize grain markets and grain prices by putting minimum limits, as well as a ceiling, on purchases. The first U.S.-Soviet grain agreement was written in the mid-1970s in response to large Soviet purchases that caught America off guard and cleaned out U.S. grain bins.

“The (grain agreements) appeared at the outset to provide a secure outlet for U.S. grain exports, but neither the Soviet Union nor China was willing to purchase U.S. grain when U.S. prices were significantly above those of other exporters,” the General Accounting Office, a congressional agency, said in a report to two farm-state leaders.

“Also, the potential of the (agreements) for increasing U.S. exports has been limited by U.S. foreign policy actions, most notably, the 1980 partial embargo of grain to the Soviet Union.”

The General Accounting Office said the Soviet Union and China have purchased significant amounts of U.S. grain since 1976, but “it is not clear how significant the (agreements) were in influencing these countries to purchase grain from the United States.”

The Soviet Union bought $1.9 billion in U.S. agricultural exports last fiscal year, including 14.6 million metric tons of grain. China is forecast to be the world’s largest importer of wheat this marketing year, with the United States as its No. 1 supplier.

China buys almost all of its U.S. wheat at subsidized prices. The Agriculture Department has also been selling wheat to the Soviets at marked-down prices.

When its grain agreement with the United States was in effect, China did not live up to all of the specifications for minimum purchases. Soviet purchases also fell below the minimum levels at points during the life span of the 1983-88 agreement.

In listing its conclusions, the General Accounting Office said the grain agreements “contributed to some stability in the U.S. and international grain markets, especially in tight supply situations.”

It also said: “Since the early 1980s, however, the worldwide grain markets have been in oversupply, and Chinese grain production has increased dramatically.”

During the first 7 years that the United States and the Soviet Union agreed on grain sale terms, the Soviets did not make any large, unexpected and disruptive purchases.