Lessons To Be Learned From Offsetting the Impact of the Soviet Grain Sales Suspension

On January 4, 1980, the President announced that, for foreign policy and national security reasons, the federal government was suspending the shipment of about 18 million metric tons of agricultural commodities to the Soviet Union. The President directed the Department of Agriculture (USDA) to take actions to offset the suspension's impact on farmers. These offsetting actions, most of which were concerned with stabilizing market prices, included removing the suspended grain from the market by increasing the wheat and corn price-support loan rates, adjusting the farmer-owned reserve program, purchasing grain directly from farmers and country grain elevators, and purchasing exporters' undeliverable grain contracts with the Soviet Union.

Because of the short time between the decision to suspend shipments and the suspension's announcement, USDA was not able to analyze thoroughly the suspension's potential impact and to develop a comprehensive plan of offsetting actions. The lack of adequate planning caused USDA to: (1) erroneously anticipate that the farmer-owned reserve would efficiently remove the undeliverable grain; (2) purchase the exporters' Soviet contracts valued at about $2.4 billion with little documentation that such purchase was necessary; and (3) implement inefficiently the offsetting actions. Since any future suspension of the export of agricultural commodities may have a severe effect on the grain production and marketing industries, it is important that the potential effects of the various actions that could be taken to offset the potential impact of any further suspensions be identified and analyzed. USDA purchase and resale of the exporters' Soviet contracts and its purchase of corn and wheat from farmers were implemented in a manner which led to federal losses or increased federal costs. A government monitoring program set up to identify illegal shipments to the Soviet Union was reasonably successful in identifying and discouraging direct shipments from U.S. ports to the Soviet Union. However, it was not feasible to closely monitor for possible unauthorized transshipments. The Soviet Union was able to substantially offset the suspension's impact by increasing imports from other countries and drawing down its reserves.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

Director: Brian P. Crowley Team: General Accounting Office: Community and Economic Development Division Phone: (202) 512-9450