Another Soviet Grain Sting

How the Russians again outfoxed the experts--and the eye-in-the-sky

To the sharp-trading stereotypes of the Philadelphia lawyer, the Greek shipowner and the Swiss banker must now be added a new model of shrewdness: the Russian grain buyer. In the celebrated "Great Grain Robbery" of 1972, Soviet agricultural agents bought up whole shiploads of U.S. wheat, managing not only to secure it at bargain prices but also to get the U.S. Government to foot part of the bill through a farm subsidy program. Now, much to Washington's embarrassment, the Russians have struck--and stung--again.

The sting came to light when Soviet President Leonid Brezhnev announced that the 1977 Soviet grain harvest would amount to 194 million metric tons--the lowest since 1975. That bland statistic caused tremors of shock through not only the U.S. Department of Agriculture but the Central Intelligence Agency as well. All summer long the Agriculture experts and the CIA operatives who try to keep track of conditions on Soviet farms had forecast a fat 215 million-ton harvest, indicating that Moscow would not need to buy much foreign grain this year. But the bulletin from Brezhnev meant precisely the opposite: the Russians would be buying a lot of grain--some 10 million to 15 million tons more than anyone had expected--and the bulk of it would be coming from the U.S. More embarrassing still, they turned out to have already made most of their purchases--skillfully skirting some provisions of a U.S.-Soviet trade agreement for buying grain--and chartered ships to move it at the lowest possible cost. By the time Brezhnev told all about the poor harvest, the Russians had secretly signed contracts for 18 to 20 million tons of grain from Australia, Canada and India--as well as the U.S.

In the grain deal of 1972, the Russians bought large quantities of U.S. wheat and corn at a time when American farmers were already fairly scraping their silos to meet heavy domestic and foreign demand. Prices of some grains more than doubled as a result, giving a sharp upward kick to inflation. Even more annoying was the fact that, because U.S. officials were not aware of the big Soviet purchases, the grain was sold under a Government subsidy program, which meant that U.S. taxpayers paid for much of the Russian grain bought in the U.S. To avoid a replay of that fiasco, in 1975 Washington got Moscow to agree to a long-range sales arrangement intended to stabilize Russian grain purchases and do away with at least some of the secrecy surrounding them. Under the plan, Moscow is required to buy at least 6 million tons of U.S. grain every year; if its purchases rise above 8 million tons, it is supposed to report the fact to Washington.

So why were U.S. officials caught by surprise? The sting seems to have been the result of a combination of Soviet duplicity and U.S. gullibility.

In mid-July agents acting for the Russians arranged for food deliveries through both European subsidiaries of U.S. grain dealers and European companies with offices in the U.S. The purchases were heavy and--under the letter of the U.S.-Soviet agreement--did not have to be reported to Washington. "Official" purchases are continuing at a modest rate.

During talks at the department only a few weeks ago, a Soviet grain team insisted that it had reported all the purchases it had to. Rasped an Agriculture official: "That was a technically accurate statement. But it also was a goddamn lie. They hornswoggled us."

For months, Soviet farm experts in Moscow had spoken of average and possibly even record harvests. Agriculture Department inspectors visiting the U.S.S.R. were taken out to collectives to see sturdy stands of corn and wheat--fields that they now know to have been exceptions. Even the CIA was taken in. It has been trying to keep tabs on Soviet agriculture with eye-in-the-sky photo satellites, and its findings have been reasonably accurate in the past. But this time the photo interpretations went awry, because of what the agency calls bad 'ground truth" data--information from the observers escorted by the Russians.

Actually, there were ample signs this summer of trouble in the Soviet harvest. In Chicago, grain traders heard reports of big Russian purchases eight weeks ago. And in mid-July the Russians were chartering grain-carrying ships. This was done secretly, through Soviet front companies in Paris; bills of lading were rewritten at sea from "Destination Rotterdam" to "Transshipment Rotterdam, Destination U.S.S.R." Not only was the Russian demand for ships an omen that the U.S.S.R. planned to buy more gram than would be necessary with a good harvest, but it lifted world freight rates by 15%,which should also have produced alarm. Finally, U.S. prices of wheat and corn took a slight upward tick from August through October, a rare happening at harvesttime, when prices are almost always depressed. The only explanation: large foreign purchases.

Agriculture Secretary Robert Bergland insists that the poorer than anticipated Soviet harvest was "probably" caused by a late period of bad weather and does not simply reflect poor intelligence. Indeed, Agriculture picture analysts say they were revising their estimates of the Soviet harvest downward before Brezhnev made his announcement.

Bergland says that he intends to "ask the Soviets to be more precise in the future about their gram requirements." He adds: "They don't always tell us exactly what their needs are." Evidently. But no major damage seems to have been done by the latest Soviet caper in the gram markets. This time the Kremlin does not stand to make as big a killing on its U.S. purchases, because they are not subsidized by the Government. The Russians will pay for their grain in cash at prices agreed to at the time of purchase. Yet their savings could be as much as $100 million--the difference between what they will actually pay and the higher price they would have paid had then" true needs been known.

Grain belt farmers are pleased with the Russian purchases. Record harvests this year have already depressed prices to the lowest levels since 1972. The Soviet buys should eat into the surpluses and help lift farm incomes.

The Soviet purchases should have little, if any, impact, however, on prices at the supermarket. With grain prices so depressed, it would take a huge jump in the farm cost of wheat, for example, to add even 20 or 30 to the price of a loaf of bread. Stung most by the Russians' ploy will be the big grain speculators, who were selling grain futures contracts short this spring and summer in the expectation that prices would fall even lower. The Soviet shortfall changed all that and taught the speculators--as well as Washington officials--a little more about the cagey Russian grain buyer.

This file is automatically generated by a robot program, so viewer discretion is required.