The Embargo's Bitter Harvest

By Edward E. Scharff

U.S. farmers are angry, and the Soviets eat more black bread than meat

There was a long queue last week at the bread shop on Leningrad's Nevsky Prospekt. "They are selling special holiday loaves," explained a woman in line, as she stamped her feet against the cold. Yes, she knew about the U.S. grain embargo, imposed a year ago this week. "But it hasn't affected us," she insisted.

Most agricultural experts agree with her. The embargo declared by President Carter on Jan. 4, 1980, in response to the Soviet Union's invasion of Afghanistan has yet to cost the Soviet peasant his beloved loaf of black bread or cause serious disruptions in the Soviet economy. Yet the experts add that the limit on farm sales to Moscow may still have a long-term impact on the development of Soviet agriculture, especially on meat production.

It is no mystery how Moscow coped with the grain embargo. Once the Soviets were cut off from all but 8 million of the 27.5 million metric tons of grain they wanted from the U.S., they simply began offering premium prices to other grain-exporting countries. Argentina, which refused to honor the embargo from the beginning, increased its export earnings last year by an estimated 30% through sales to the Soviets. In November, Canada and Spain announced that they were stepping up exports to the Soviet Union. The Canadians originally supported the boycott but then withdrew from it because they claimed that American grain merchants were selling crops formerly bound for the Soviet Union to traditional Canadian clients.

The embargo disrupted Soviet imports noticeably for only a few months. By the end of 1980, the Soviets had been able to buy elsewhere all but about a few million tons of the grain they wanted. A U.S. Department of Agriculture official now quietly concedes that what began as a "powerful political statement" ended as an "economic failure."

The major question in the minds of both agriculture officials and U.S. farmers last week was whether President-elect Ronald Reagan would soon lift the grain embargo, which he denounced in his campaign. Asked about the matter last week, Reagan said only that it would require "a great deal of study." Privately, Soviet officials think that Reagan may not end the sanctions. One indication: a declaration two weeks ago by John Block, Reagan's nominee for Secretary of Agriculture, that "food is a weapon." But in an interview with TIME last week, Block softened his words, calling the embargo a "ridiculous charade," and adding that food shipments should be withheld from foreign countries only as a "last resort."

It seems highly unlikely that Reagan will end the restrictions swiftly, since that might enable the Soviets to snap up large amounts of U.S. grain, as they did in 1972. Observes Agricultural Economist Don Paarlberg of Purdue University: "Lifting the embargo would say to consumers that we are exposing ourselves to another great grain robbery by the Soviets, and the price of food in this country would go through the ceiling." World food stocks are now unusually low because of a combination of poor crops and rising demand. Chicago Grain Analyst Conrad Leslie believes lifting the Soviet grain embargo would lead to 18% to 20% price hikes for commodities such as meat, corn, beans and wheat in the U.S. this year, rather than the 12% to 15% increase now expected.

Farm experts were betting last week that Reagan will delay action on the embargo. The President-elect might well leave it in force at least temporarily as a way of helping to dissuade the Soviets from interfering in Poland. That decision would not please farmers, who continue to protest the boycott on the grounds that such tactics hurt long-run sales because they drive customers like the Soviet Union to other, more reliable suppliers. But few farmers can still contend that the embargo seriously hurts their profits. Indeed, the outlook for the American farmer has seldom seemed brighter. Prices have been rising fast, and the market for U.S. grain continues to expand. Says Agriculture Department Analyst Paul J. Meyers: "The long-term trend is for growth in the export trade and for relatively higher prices." Meyers predicts that the U.S. will export 1.53 billion bu. of wheat in the current fiscal year, compared with a record 1.38 billion last year. The average price is expected to climb from $3.82 per bu. to more than $4. Exports of corn and other coarse grains are likely to increase from about 73 million metric tons in fiscal 1980 to 76 million in 1981.

The success of the 1980 harvest is especially pleasant because the year began so poorly when the grain embargo temporarily disrupted commodity markets and drove prices down. The Federal Government was forced to buy up some 16.5 million metric tons of grain to stabilize prices.

By summer, however, the farmers' plight had vastly improved. The drought in the U.S., plus bad harvests in Argentina and Australia, gave farm prices a big boost. The cost of grain suddenly shot up by as much as 50%; at that point, buyers snapped up all of the grain in sight and the result was a bonanza for farmers who had been able to ride out the early months of the embargo. "For the first time in 35 years, I'm out of debt," said Clarence Adams of McHenry, Ill. He had sold 30,000 bu. of corn at more than double the $1.50 per bu. price he had expected.

In recent weeks, though, farmers have become concerned. Commodity markets have again fallen. The main reason: high interest rates are forcing speculators to sell. Early last month, futures prices on the Chicago Board of Trade nosedived. Says Maurice Van Nostrand of AGRI Industries, a giant Iowa grain coop: "There has never been anything like it in the history of trading."

Farmers face three major hurdles this year: sharply higher prices for farm machinery, stiff anticipated hikes in the price of diesel fuel, and, of course, the weather. The grain belt's perennial Cassandras are already predicting terrible weather for the spring and summer. This time, though, they have real reason for worry. Last summer's drought left the subsoil in the lower wheat-growing states of Kansas, Oklahoma and Texas seriously dehydrated. Another dry summer would cut yields in these areas significantly, and the outlook for rain is not good. Says Iowa's agricultural climatologist Paul Waite: "When a dry spell goes over a year, it is likely to run on to two years."

Although the U.S. grain embargo is yet to have a major impact on Soviet consumers, American farm experts say that the U.S. action may still have an effect on long-term Soviet plans for increasing meat production. For the second year in a row, the Soviets in 1980 had a mediocre crop. Moreover, while the government has so far been able to buy sufficient grain for bread, it is having increasing difficulty finding enough for animal feed. Says one Midwestern grain-industry analyst: "That situation is more difficult [for them] than during the first nine months of the embargo."

As a result, Soviet production of beef and pork has fallen significantly, say U.S. observers. If the Soviet winter-wheat crop this spring is as poor as expected, Soviet economic planners may face the uncomfortable choice of increasing costly grain imports from Canada, Argentina and Australia or trimming back further on cattle herds and poultry flocks. That could mean years of less meat for Soviet consumers, a prospect that should cause some concern for Kremlin leaders. While Soviet citizens are hardly as restless as the Poles, it was last summer's meat shortages and price hikes that touched off the worker demonstrations in the shipyard of Gdansk.

--By Edward E. Scharff

Reported by Simmons Fentress/ Washington and Barry Hillenbrand/Chicago

With reporting by Simmons Fentress/Washington and Barry Hillenbrand/Chicago

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