-Caveat Lector-
An excerpt from:
Merchants of Grain
Dan Morgan�1979,1980
Penguin Books
ISBN 01400.5502 9
--[1]--
1
Glenas, Inc., of Panama
"Grain is the currency of currencies."
-LENIN
It was late June 1975, and Parisians strolled a little more casually than
usual past the bakeries, boutiques, and tiny art galleries on the Opera
district's rue Vignon. Thoughts had begun to drift from work to vacations at
the beach and in the countryside. But on the fourth floor of Number 28, rue
Vignon, the shipping broker jean Lerbret and his associates were as busy and
preoccupied as if it were still the middle of winter. The graying, crew-cut
Lerbret intently dialed telephone numbers in Denmark and Norway. There was
something about the bustle in the office-the hum and chatter from the bank of
telex machines, perhaps-that hinted at a big business deal in the offing.
Lerbret reached a shipowner in Copenhagen. After a few pleasantries he came to
the point. Some clients of his were interested in chartering freighters. He
regretted that these clients had requested absolute confidentiality and could
not be identified. However, Lebret was prepared to put the good name and
reputation of his half-century old family firm behind these particular
individuals. They had deposited impressive financial guarantees at leading
Swiss banks. Their credentials were impeccable.
The shipowner in Copenhagen was interested. Business was in a slump, and the
Russian merchant fleet had once again been grabbing contracts away from
Western shipping companies by offering to haul freight at discounts. Could M.
Lerbret please give at least the company name of his clients?
"Glenas, Incorporated, of Panama," was Lerbret's laconic reply.
As Lerbret. made these calls, his associates directed a flow of telex messages
around the world. The messages announced that Glenas wished to hire medium-
sized vessels for one to three years to carry dry, bulky cargoes to
unspecified destinations. If possible, these vessels should be "Lakes
fitted"�narrow enough to squeeze through the St. Lawrence Seaway into the
Great Lakes and equipped with special gear to stabilize them in the locks.
There was nothing unusual about this message tapped out from the obscure
office in the rue Vignon. It was one of hundreds that arrived that day at the
trading centers of New York City, Geneva, and Rotterdam and at the Baltic
Mercantile and Shipping Exchange in London's St Mary Axe.
The Baltic Exchange, 231 years old in 1975, is a picturesque relic of imperial
Britannic commerce. It has the look of an English gentleman's club that has
been accidentally situated in a cathedral. Its soaring marble pillars support
a high, domed roof. Uniformed doormen in gold-braided caps nod ceremoniously
at the people who come and go. Groups of men huddle in conversation, while
others walk arm in arm or doze in the adjoining library. The Baltic is a grand
bazaar-the central brokerage for the world's fleet of tramp steamers-vessels
that ply the oceans without any fixed routes. Representatives of charterers
and shipowners meet on the floor of the Baltic Exchange to confirm deals
involving tens of millions of dollars with no more than a handshake. On any
given day at the Baltic, a Greek ship may find a cargo of French flour to
carry to Egypt; an international copper company may locate a ship to haul its
ore from Zaire to Philadelphia; an old tramp steamer out of Hong Kong may be
consigned to a Japanese scrapyard; or a 50,000-ton tanker may be leased for
twenty years. The Baltic is also a marketplace of information, one of the
strategic listening posts in world trade. Economic recessions and recoveries
are often first detected in the slackening or quickening of chartering
activity there.
None of the dozens of cargoes handled by the brokers of the Baltic Exchange is
more unpredictable than grain. A harvest failure in one country can presage a
big grain deal-and big business for the tramp fleet. And in June 1975 some of
the brokers read in the Glenas cable a clue to just such a development.
"Lakes-fitted" vessels often are on their way to the wheat ports of Duluth,
Minnesota, and Thunder Bay, Ontario, in the center of the North American wheat
belt. But this was only guesswork. Only jean Lerbret and a few of his
associates knew for certain what the cargo and destination of the ships sought
by Glenas was�and they were not talking.
There has always been a grain trade, ever since men began to eat bread.* The
early civilizations of Greece and Rome imported wheat from their colonies, and
Socrates himself recognized that "no man qualifies as a statesman who is
entirely ignorant of the problems of wheat." From the fourteenth century on,
Mediterranean merchants (well paid by the grand dukes of the coastal city
states) -organized relief shipments of wheat from northern Europe in times of
famine. And in the eighteenth century, merchants gathered in the coffee houses
of London to trade information about the prices of wheat from the feudal
estates of Poland, east of the Oder River, wheat that flowed to London from
the port of Danzig.
But it was not until the nineteenth century that the modem grain trade came of
age. Southern Russia and North America became the great suppliers of wheat to
the new industrial cities
o "Grain: the edible, starchy fruits of the grasses." That is a dictionary
definition. In this book, I use the phrase "grain trade" loosely. Grain
traders also deal in soybeans, a legume of England and the Continent. The
Industrial Revolution, which drew tens of thousands of European farmers,
peasants, and laborers into factory towns and away from their food supply,
created an insatiable demand for wheat. And gradually, the international trade
in basic necessities-in wheat for bread, in cotton for cloth, and in tallow
for candles�overshadowed the ancient trade in luxury items for the rich
(spices, ivory, silk, and indigo) that had been the principal activity of
merchants until then. The growing international demand for wheat transformed
the world's trade routes. Russian peasants hauled wheat in wooden oxcarts to
Odessa, on the Black Sea, and California merchants loaded great clipper ships
full of bagged wheat and sent them on 14,000-mile journeys around Cape
Horn�all so that the new British workingman could eat wheat bread.
The first of the modem, long-distance grain traders were Greeks. This was not
surprising. They had the ships, the connections in the Mediterranean ports,
and the large, tightly knit clans that gave them advantages in a business
where trustworthy partners (or cousins) were a necessity. When at the end of
the eighteenth century the Russian empire reached down to the Black Sea and
Odessa became a major port for exporting the wheat grown in the coastal
steppes, the Greeks arranged the shipment of Russian wheat to London.
In the second half of the nineteenth century, however, these Greek grain
traders were overshadowed by west European merchants, most of whom had
originally been established along the Continent's commercial artery, the Rhine
River. Leopold Louis-Dreyfus, born in an Alsatian village, completely
dominated the Odessa trade by the end of the century. The importers and
millers of Liverpool, which overtook London as England's major grain port,
looked not just to Russia, but to North America, Argentina, India, and
Australia for their wheat supplies�and the west Europeans slowly began to
dominate the trade routes.
The five enormous companies that controlled the global grain trade in the
summer of 1975 all had their origins in that period a century ago when the
cities of Europe, and of England in particular, needed foreign wheat. By 1975,
the founding families of those companies had meandered about and maneuvered
all over three continents, surviving wars, famines, economic crashes, and
revolutions, always moving, changing countries, trading their nationalities as
well as grain, forming alliances with kings, queens, and Communist rulers, and
disengaging when historical developments required it.
Yet the companies managed to stay in the shadows most of the time. Perhaps it
was the ancient nightmare of the middleman- merchant that made them all so
aloof and secretive-the old fear that in moments of scarcity or famine, the
people would blame them for all misfortunes, march upon their granaries, drag
them into the town square, and confiscate their stocks. And they had grounds
for concern. The Fribourgs of Continental were twice uprooted from their home
base by German armies, in 1914 and again in 1940. The Louis-Dreyfuses saw
their Black Sea assets seized in 1917. The Cargills and MacMillans, heirs of
the Cargill grain dynasty, were twice at the brink of losing every-thing.
Whatever the source of their anxiety, their secrecy was part of their means to
alleviate it, part of their knack for sur-vival. Throughout most of this
century the fact of the matter has been that most Americans have never heard
of the companies that distribute and sell American grain all over the world.
And the names are still, certainly, much less familiar than the names of the
"Seven Sisters" of oil. There is Cargill, Inc., of Minneapo-lis; the
Continental Grain Company of New York City; Andre of Lausanne, Switzerland;
the Louis Dreyfus Company of Paris; and the Bunge Corporation-companies that
all can boast, with Cargill, that "some of our best customers have never heard
of us.
These five companies have grown, diversified, spread their operations to
almost every continent and country so successfully that by the time most
Americans heard of them for the first time, during the grain sales to Russia
in 1972, the firms were among the world's largest multinational corporations.
Cargill and Continental probably rank as the two largest privately held
companies in the United States, and Bunge may be one of the largest in the
world. Cargill's annual net profits from its worldwide operations exceeded
those of Goodyear Tire and Rubber in 1974 and 1975, and its annual sales are
greater than those of Sears, Roebuck. The companies have interests in banking,
shipping, real estate, hotels, paint and glass manufacturing, mining, steel
plants, cattle ranches, flour milling, animal feed processing, and commodity
brokerage. Bunge has an estimated 50,000 employees, mainly centered in its
paint, textile, food-processing, and milling plants in Argentina and Brazil,
but scattered around the world, too. And the companies run their own
intelligence services all over the planet-private news agencies that never
print a word.
Grain provided the cash flow and capital for the postwar expansion of the five
grain giants, just as oil financed the vertical and horizontal integration of
the petroleum companies into uranium, coal, chemicals, and plastics.
Mysterious and obscure as the firms may be, they are near-perfect stereotypes
of the new global corporations that manage the distribution and processing of
basic resources in the late twentieth century. Earlier in their history they
had been middlemen-merchants�minor players in a colonial era when control of
natural resources was one of the main ingredients of corporate power. The
grain companies have never owned vast plantations, as United Fruit did in its
heyday in Latin America; and they do not control "upstream" oil "taps," as
Exxon does. The resource by which they live is grown by millions of farmers
all over the world. But in recent years this lack of control over sources of
raw materials has ceased to be a disadvantage. After 1960, most of the major
multinationals surrendered some or all of their control of resources to
increasingly nationalistic governments all over the world; yet the companies'
power did not diminish. They had made themselves indispensable because of
their control of the distribution systems, the processing plants, the
technology, the capital, and the communications with buyers and sellers. The
rubber plantations belonging to ten major tire and rubber companies, for
example, grew only 15 per cent of the world's natural rubber in 1970; but
these same companies consumed nearly 75 per cent of all natural rubber
produced on the planet. This was a world in which tens of thousands of rubber
farmers in Malaysia and Indonesia were growing rubber for half a dozen giant
tire manufacturers.
A similar, if not identical, situation exists in grain. It is no disadvantage
or sign of weakness that the companies do not produce grain. Quite the
opposite. Farmers take the risks of falling prices, bad weather, and
governmental policies that sometimes depress farm prices. The grain companies,
one stage removed from the production process, can make money whether prices
are rising or failing.
The Big Five are at the center of the global system by which grain is
distributed and processed. The grain companies invest in shipping, grain
elevators, communications, and processing plants�grain "refineries" which make
wheat into flour, soybeans into cooking oil or animal meal, and corn into
animalfeeding compounds or liquid sweeteners for soft drinks and ice cream.
They also operate the grain "pipeline"�all the way from farmer to foreign
consumer. Together, Cargill and Continental handle half of all the grain
exported from the United States-and the United States exports half of all the
grain in world trade (in some years, Cargill has even been the leading
exporter of wheat from France, the world's third or fourth largest wheat
trader). The Big Five dominate the grain trade of the Common Market; the
Canadian barley trade; the South African maize trade; and the Argentine wheat
trade. In the 1960s, these same companies expanded into trading in sugar,
meat, and tapioca. And the directorates of these firms channeled money into
facilities "upstream," closer to farms. Cargill runs 50-to-100-car freight
trains full of grain from the interior of the United States to the ports. And
the dollars circulating through the companies come in very large figures, or
so it seems to anyone except perhaps an analyst used to the statistics of the
oil industry. The companies dominated a trade in cooking oil, grain, and
animal feeds with a value of $38.3 billion in 1974, according to United
Nations figures.
Typically, the grain companies (like other big multinational corporations)
see themselves as neutral in modern ideological and political struggles. They
see their main interests as residing in a non-ideological, non-nationalistic
world in which trade is unencumbered by regulations, and their lack of
national identi-ties distinguishes them from earlier merchant empires. There
is no comparing the modem grain companies with firms such as Baring Brothers,
the great British merchant banking house once described by Richelieu in the
eighteenth century as "one of the six great powers of Europe" (along with
France, England, Rus-sia, Austria, and Prussia). Nobody doubted that Baring
Brothers was British, and its Britishness in fact augmented its influence and
prestige. It was a bold, independent but sensible extension of imperial power
that would never have acted against the inter-ests of the Empire. Today, only
a few giant Japanese trading houses�Mitsubishi, Marubeni, Mitsui�are in any
way instru-ments of their country's foreign policy. Modem grain companies,
like other multinational corporations, have much blurrier loyalties. A
company such as Bunge seems to have no nationality at all. It grew up in
Holland in the nineteenth century, moved to Argentina, and in the 1970s its
high command,
the Born and Hirsch families, lived in Brazil and Spain.
What distinguishes the grain multinationals from their corporate
contemporaries is their uniquely private structure. Seven families are all-
powerful: the Fribourgs at Continental; the Hirsches and Borns at Bunge; the
Cargills and MacMillans at Cargill, and the Louis-Dreyfuses and Andres at the
companies with those names. Members of these families not only own most of the
stock of the companies, but also serve as board chairmen, presidents, and
chief executives at each of them. It is as if the Rockefeller family were
still in absolute, day-to-day control of Exxon, or the Carnegies still
dictated every major decision of U.S. Steel. In the grain companies, it is
possible to observe a social and economic phenomenon of some historical note:
a functioning oligopoly that has survived right into the contemporary, post-
industrial age. Not that there are no family dynasties left in business: The
Michelins still run the world's third-largest tire company; the Rothschilds
still have their bank; Henry Ford still wields influence over his company; and
a fourth-generation Weyerhaeuser rules the United States' largest timber
company. But these are exceptions. The descendants of nineteenth-century
business barons have for the most part drifted away to New York City or Palm
Beach, or into other pursuits altogether. The Firestones are gone from their
Akron, Ohio, tire company, and the Morgans no longer wield decision-making
power over banks and railroads. Descendants of most of the colorful founding
fathers and early go-getters have faded from the picture, though many of these
families may still derive wealth from the companies.
But the grain families, like Greek shipowners, manage to stay in control. And
every now and then, perhaps for the benefit of those employees who have been
tempted to doubt their authority and staying power, they demonstrate it with a
flair. When the prospering Louis Dreyfus company moved its Paris headquarters
into a modem glass office building half a dozen blocks from the Arc de
Triomphe in 1975, Pierre Louis-Dreyfus did not fancy the shade of blue glass
that had been selected. On a whim, it was all replaced with a shade that more
exactly suited his taste. That was Monsieur Pierre's prerogative. (When the
company regrouped after World War 11, it had interests in shipping and banking
as well as grain; fortunately there was an able Louis-Dreyfus to head each of
these divisions�Pierre, and his cousins jean and Francois. Responsibility was
divided among the three of them, a solution that was far more effective than a
power struggle.)
At Continental, company headquarters is wherever Michel Fribourg may
be�whether that is his art-filled New York town house, his Paris apartment,
his ski lodge, his home in Connecticut, or his hideaway in the Swiss
mountains. Continental is a company that has always attracted virtuoso
performers; it is said that there are "many egos but only one opinion"�that of
Michel Fribourg.
Family control is absolute. But the succession is a constant worry, for the
families remember what happened to the Bunges. The Bunges lost control of
their company early in the centurythere were no sons or heirs to fight for the
survival of the dynasty (one of the Bunge brothers had five children, all
daughters), so the Hirsches and Borns took control.
When the families began their long saga generations earlier, they could never
have dreamed that grain would come to play such a central role in the affairs
of nations as it did in 1975. The grain trade as a business involving billions
of dollars and millions of tons of commodities a year is a recent phenomenon.
Before World War II, the amount of grain that crossed borders, or oceans,
seldom exceeded 30 million tons a year. By 1975, this figure reached nearly
160 million tons, a growth only slightly less spectacular than the growth of
the oil trade. Countries such as Russia and India, which once exported grain,
have become big importers. Developing countries of Asia, Africa, and Latin
America have begun importing wheat on a major scale for the first time. Rice-
eating people have acquired a taste for bread, and governments find it
expedient to satisfy this taste. Bread has become the ideal food for the
millions who have been migrating to the cities from the countryside, away from
their traditional food supplies. One by one, countries have plugged into the
global system of commercial grain-trading. By the 1970s, imported wheat was a
costly factor in the trade of dozens of nations and one that often diverted
foreign exchange from other uses, including investments in domestic
agriculture.
In the richer countries, people copy the American diet. They eat more meat
from grain-fed beef, hogs, and poultry, and less potatoes, bread, or rice.
Trendy young Japanese consume "jyamba baga" (jumbo burgers) at
"Macudonarado's" and affluent South Americans step into restaurants serving
American-style fried chicken under giant plastic statues of the ubiquitous
Colonel Sanders. Fast-food chains have gone international. These food habits
all require vastly greater supplies of grain. By the early 1970s, animals ate
up about as much of the world's annual harvest of wheat, corn, barley, oats,
rye, and sorghum as humans did. Livestock and poultry in just two countries-
the United States and the Soviet Union�consumed one bushel out of five of all
this annual harvest of grain.
The sources of grain are considerably less diverse than those of other basic
resources. A number of different countries have surpluses of oil, or bauxite,
or iron ore. But grain surpluses are found in only a handful of nations, and
the United States is always one of them. In agriculture, there is only one
superpower. Iowa raises one-tenth of all the corn on the planet, and Kansas
and South Dakota produce more wheat than all of Australia. American farmers
are connected to Asians, Europeans, Africans, and South Americans by a moving
belt of grain. One bushel of wheat out of two, one bushel of rice and soybeans
out of three, and one bushel of corn out of four moves abroad. The grain flows
in all directions. Ohio wheat is made into flour for Indian chapatis;
Washington State wheat goes for Korean cookies; North Dakota durum wheat
becomes yellow pasta flour in Italy and couscous in Algeria; Iowa corn feeds
Europe's hogs and California rice fills Indonesians' supper bowls.
Americans, who moved off farms and severed their roots to their rural homes by
the millions in the 1950s and 1960s, have been only dimly aware of the growing
importance of their grain in the world economy. And they have felt comfortable
in their prosperity. Most of them have assumed that technology, chemical
fertilizers, and new hybrid seeds offer more or less permanent insurance
against a recurrence of the Dust Bowl-that historical interlude, now receding
in the national memory, when American agriculture was crippled by drought and
the United States was forced to import wheat.
There is much for Americans to be proud of in their agriculture and in their
generosity with food. American food alleviated misery all over the world after
World War II. It fed starving people in Europe and Asia, and it was credited
with building an economic bulwark against communism. Then the United States
began shipping millions more tons of food aid abroad through the "Food for
Peace" program. Dispensing this food seemed to satisfy a humanitarian impulse
in Americans; in the Marshall Plan aid to Europe there was something of the
old frontier tradition in which the more fortunate pitched in and helped the
less fortunate when barns burned down. But there was always a strong element
of self-interest and Realpolitik in this food aid. It helped to dispose of
mountainous U.S. surpluses, and the food went mainly to nations with
"friendly" governments. These fundamental aspects of the aid tended to be
obscured by the rhetoric of politicians in Washington, who indulged the
growing complacency and national hubris with assurances that Americans were
"feeding the world."
The Russians understand the realities of food politics better than any other
people in the world. They have been educated to this lesson by harsh, direct
experience. Virtually none of the elders in power in Moscow is a stranger to
the experience of actual starvation. People starved in Russia after World War
1; they starved again in the Ukraine in 1932 and 1933 during the chaos created
by forced collectivization of Soviet farming; and more soldiers and civilians
perished from hunger in besieged cities in World War II. It is not surprising
that harvests are front-page news in Soviet newspapers.
.By the 1970s, starvation was no longer an imminent danger. After Stalin died
in 1953, the Soviet government had allocated large sums of money to
agriculture, with impressive results. Soviet grain production doubled between
1955 and 1972, rising from 100 million tons a year to more than 200 million
tons, thanks partly to Premier Nikita Khrushchev's decision to order millions
of acres of steppe in western Siberia settled and planted with wheat. Although
production from this area was unpredictable, it added to the country's output.
But, as the Soviet leaders well knew, the truth was not so impressive as the
statistics suggested. Soviet agriculture was extraordinarily inefficient.
Russia's overall grain production lagged behind America's, and there were
awesome difficulties in making the collective and state farms more productive.
Thirty-seven million workers-almost one-third of the entire Soviet labor
force-were still employed on farms in 1972, yet agricultural productivity
lagged behind that of other countries.
And in addition to the structural and economic problems, Russian weather was a
constant worry. Two-thirds of the country's grain acreage was in areas that
could not depend on receiv, ing sufficient moisture. The main gains in Russian
agriculture occurred in just four years, 1969 through 1972, when a strong flow
of maritime air from the North Atlantic resulted in more rainfall, warmer
winters, and cooler summers, all ideal for growing crops.
The result of all this was fundamental: Russians ate less well than people in
most other developed countries-less well, in fact, than citizens of
neighboring Communist countries dominated by Soviet power. Six years after the
Soviet Army's 1968 invasion of Czechoslovakia to put down Alexander Dubcek's
experiment in "socialism with a human face," the conquered Czechs ate 173
pounds of meat per person a year while the conquerors consumed only 108
pounds. (Czechoslovaks looked so well-fed and prosperous that some of the
occupying troops refused to believe that they had invaded a socialist
country!)
The shortcomings of the Soviet food and agriculture system posed awkward
strategic and political questions. In 1971, the Soviet Union had commitments
to provide nearly 8 million tons of its own grain, or other countries' grain,
to Eastern Europe, Cuba, North Korea, North Vietnam, and Egypt. The leadership
was caught between these imperial obligations and its commitment in the Ninth
Five-Year, Plan (1971-75) to improve the diets of the Russian people.
Suddenly, its inadequate grain supply was a major weakness in the Soviet
Union's ambitions to become the most influential and successful nation in the
world. In other ways, it was a disturbing source of instability within its
empire. Communist leaders in Russia and Eastern Europe were under increasing
pressure to provide their-people with a standard of living commensurate with
their military and industrial development. That was demonstrated -in the
bloody rioting that occurred when the Polish government attempted to raise
food prices before Christmas, 1970. In purely economic terms, the increases
were justified. Polish food prices were heavily subsidized; there was no doubt
that food really was underpriced. Polish agriculture had failed dismally to
produce enough meat and grain to hold prices down; year after year, the Warsaw
government had covered this up with food subsidies paid for out of its budget.
But Polish dockworkers were not prepared to accept higher food bills,
regardless of economic logic. And so Communist leadership in Warsaw agreed to
withdraw the price increases after the infuriated dockworkers burned the party
headquarters in Gdansk and their comrades in Szczecin seized the shipyards in
that Baltic city.
Sometime between then and 1972, the Soviet government made a command decision
to cover its grain deficit with imports and to continue increasing the size of
Soviet cattle herds. This was in lieu of returning to the policy of austerity
that had made Eastern Europe such a cold and forbidding place for most of the
years since 1945. Whether the Polish riots were responsible for the Russian
grain-buying spree in 1972 is not known, but it seems likely that there was a
connection. If so, it was a striking example of global interdependence, for
the Polish dockworkers' action was to give impetus to unprecedented inflation
of American food prices.
Other events in 1972 in addition to the Russian grain purchases helped to
drain the United States of its surpluses and send grain prices to their
highest levels since 1917. Droughts occurred all over the world that year, and
prices would have risen with or without Russian buying. But the surprise in,
and the magnitude of, Soviet buying tipped the balance. As grain prices rose,
there was panic and hoarding on a planetary scale. The effect of the Soviet
buying was comparable to the quadrupling of oil prices by the OPEC cartel a
year later.
The United States, curiously, was both a beneficiary and a victim of this
"grain robbery." U.S. grain shipments increased from 34 million tons in 1971
to 82 million tons by mid-1975. U.S. earnings from its agricultural exports
grew from $7.7 billion to $21.3 billion, and these exports helped to offset
costlier foreign oil. But these developments were a two-edged sword that cut
at the American economy. Higher grain prices meant higher food prices. Nearly
$54 billion was added to the food bills of Americans between 1972 and 1975,
the most rapid increase in a century. Poor Americans were especially
disadvantaged because they did not have the option of making economies in
other parts of the family budget. Their choice was a cruel one: eat less, or
buy less nourishing products. For those low-income Americans in particular,
the Nixon administration's arguments about American food exports' helping the
balance of payments and trade offered little comfort. In the single year 1973,
Americans paid almost $2 billion more out of their pockets for food as a
direct result of the Soviet purchases the previous year. In January 1973, the
month the Nixon administration chose to loosen its controls on retail food
prices, the costs of beef, pork, and broilers were increasing at annual rates
of 54, 62, and 62 per cent respectively, compared with normal rates of less
than 10 per cent.
The land itself exhibited the scars of these developments in the grain
economy. Along the North Carolina coast, Italian and Japanese investors bought
tens of thousands of acres of marshy wetlands, cleared the trees with
bulldozers and Caterpillar tractors, installed drainage ditches, and announced
plans for "superfarms. "'The incentive was corn at $3.00 a bushel and soybeans
at $6.50; the world needed more food. But environmentalists in that state
expressed concern about the effect of the runoff of chemical fertilizers,
pesticides, and herbicides on the fish and wildlife in the coastal waterways.
Investors also purchased marginal farmland at the western edge of the Corn
Belt in Nebraska and ordered fragile grasslands set to the plow. Groves of
trees, planted under federal programs in the 1930s to prevent soil erosion,
were bulldozed so that spindly irrigation systems that wheeled around a
central well in 160-acre circles could move unhindered. The land irrigated by
these watering systems was plowed, disked, and planted to corn. After the corn
was harvested, the thin layer of topsoil blew away in many places, leaving
gashes of dunelike sand in the fields of Nebraska.
All this raised the question of governmental control over American grain
resources. The government had been operating under the complacent assumption
that American food supplies were virtually infinite. For at least a quartet
century, Americans had been conditioned to believe in a permanent surplus.
Suddenly, unexpectedly, it was gone.
As the Nixon administration attempted to maneuver through the economic storm
of unprecedented food price inflation, world food shortages, and a worrisome
trade deficit, it was caught in a bind. By philosophical inclination, the
Nixonians favored a minimum of government control and regulation. In June
1971, President Nixon had taken the step that made the big grain deals with
Russia possible, quietly removing the requirement that exporters obtain
licenses for these transactions, and by eliminating an earlier standing policy
that a minimum of 50 per cent of the grain be shipped on American vessels. But
the chaotic behavior of the grain markets made it difficult to stick to this
antiregulatory position: The dollar was in trouble, the balance of trade and
payments was worsening, and American economic hegemony was being questioned.
Moreover, Nixon's earlier decision left the United States exposed in another
important respect. All through the surplus years of the 1950s and 1960s the
Census Bureau and the Department of Agriculture had kept informal (and often
conflicting) statistics about American grain exports. Nobody was worried about
any "robberies." The problem was how to "get rid of the stuff," and accurate
statistics on what was going on in the grain markets were not considered
essential. In 1973, Congress finally did order the Department of Agriculture
to start collecting more up-to-date trade figures. Companies had to report to
the government sales of more than 100,000 tons of grain within twenty-four
hours of making them. But it was not until October 1974, in the face of
extraordinarily short food supplies, that the Ford administration tightened
this procedure to require the companies to get prior approval of sales of
50,000 or more tons in. a single day or 100,000 or more -tons a week. Then,
astonishingly, after so much grief in the matter of grain deals, this prior-
approval system was terminated in March 1975.
At this point, then, the American government's knowledge of what the Soviet
Union was buying was hampered. And at the same time its information about the
size of Russian cropswhich -might provide at least clues to what the Russians
might do in the markets-was also inadequate. The fact was that the American
government had no real substitute for sending its own experts into Russian
wheat fields for a firsthand look. And the Soviet Union was less than
cooperative in permitting these inspection missions.
On June 19, 1973, Secretary of Agriculture Earl Butz and Soviet Foreign
Minister Andrei Gromyko, in Washington, had signed an agreement on cooperation
in agriculture. Article 11 committed the two countries to "regular exchanges
of relevant information," including "forward estimation on production,
consumption, demand and trade of major agricultural commodities." But the
Russians subsequently refused to provide any such forecasts. They also refused
to approve trip itineraries requested by visiting American crop-inspection
teams, as provided for in the agreement. In the summer of 1974, for example,
an American "spring wheat" survey team had to cut its visit short when Soviet
authorities refused to permit the team to examine crops in several key growing
areas of spring-planted wheat in northern Kazakhstan and the southern Ural
Mountains. Agricultural attaches in Moscow were even more restricted. Their
travel was limited to the Intourist routes that were standard for all foreign
visitors. The attaches repeatedly asked to examine grain crops in the Volga
River valley, for example, one of the farming areas plagued by variable
output, but this permission was denied.
Starting in the summer of 1975, LACIE (Large Area Crop Inventory Experiment)
was to use special infrared sensing equipment aboard two civilian satellites,
Landsat I and Landsat II, to measure the light waves emitted from crops below;
these photographic "signatures" were supposed to help specialists at the
Johnson Space Center in Houston evaluate the condition of the world's wheat
crop. But this technology was still in its infancy.
In February 1975, the condition of that distant Soviet wheat crop was the
subject of a passing conversation in the White House mess between Under
Secretary of State for Economic Affairs Charles Robinson and Alan Greenspan of
the Council of Economic Advisers. As Greenspan consumed his chowder and
crackers, he remarked to Robinson that the Russians were selling unusually
large quantities of gold in Switzerland. "Something is going on, Chuck," he
said.
Both men thought the Russians might be raising cash to buy grain. Robinson was
concerned enough to mention this to Secretary of State Henry Kissinger, and
Kissinger authorized him to convene an informal meeting to consider if and how
the United States could exploit its agricultural advantage. But just as these
discussions were starting, the prior-approval requirements were abandoned at
the Department of Agriculture.
Wheat has been called a "desert plant" because of its stamina in extreme
climates. It thrives along the edges of the Sahara Desert, in the Asian
steppes, and in the prairies of North America. But there are limits even to
wheat's endurance. About half the Russian wheat crop is planted in September
and October of the year before it is harvested. The seeds of this "winter
wheat" sprout in several days and send out tiny roots that require moisture to
get established before the plants enter dormancy in the long Russian winter.
Once cold weather sets in, the roots benefit from a blanket of insulating
snow. Strange weather patterns over Russia in late 1974 and 1975 jeopardized
the root systems of the early grain. There was no snow at all in some places,
and irrigation equipment ran all winter in the Crimea.
In the final week of May 1975, several months after the Robinson-Greenspan
conversation in the White House mess, but several weeks before jean Lerbret's
messages about Glenas, Inc., of .Panama went out from his office in Paris, a
thirty-four-year-old American drove a black Chevrolet hundreds of miles
through the wheatlands of southern Russia and the Ukraine. Larry Panasuk, an
assistant agricultural attache at the American Embassy in Moscow, had grown up
on a wheat and cattle ranch in Montana. Later he studied agriculture at the
universities of Montana and North Dakota. Then he went to work for the
Department of Agriculture and joined its corps of economists and agronomists
assigned as agricultural attaches at American embassies abroad.
The Department of Agriculture's attaches once had been near the bottom of the
caste system at the American Embassy in Moscow. They read the farm news in
provincial Soviet newspapers, studied the statements of the Ministry of
Agriculture, briefed visiting officials from American farm organizations, and
sent re-' ports back to Washington on the state of Russian crops. The
glamorous work of the embassy took place in the political section, where
foreign service officers analyzed Soviet diplomatic and military intentions
and speculated on political alignments in the Politburo. Agronomy took a back
seat to Kremlinology. But in the summer of 1972, the status of the
agricultural observers in Moscow had suddenly changed. Their reports to
Washington were read not only by the ambassador and the diplomats in the
political section, but also by senior policy-makers in the White House.
Information about Soviet crops was seen as vital economic intelligence with a
bearing on the economic security of the United States.
Panasuk's knowledge of wheat and barley, crops that thrived in his home state,
made him especially useful to the U.S. government in Moscow. Now, in late May
1975, Panasuk was on his way through southern Russia on a U.S. government
mission to inspect the Soviet grain crop. When Panasuk set out from Odessa, he
was aware of the difficulties the early Russian wheat crop had had. He had
read the weather reports and the Soviet press. But as he traveled the
-Intourist route, Panasuk could observe only the fall-planted grain. Spring
grain, a little more than half the total annual Russian wheat output, would
not be ready for weeks. And in any case, most of this spring grain grew in
areas to the east that were off limits to Panasuk and other American
officials.
In Odessa, the weather was hot and sticky. Panasuk drove north to Kiev,
where it rained, and then turned east. At the Ukrainian city of Kharkov,
recent rainfall had been so heavy that puddles were standing in the fields. As
Panasuk started south again, the rain resumed. The wheat that he saw growing
along the road was in excellent condition�still green but nearly four feet
high. When he returned to Moscow in early June, he cabled the Department of
Agriculture in Washington: "The conditions for an excellent winter grain
harvest continue."
Viktor Pershin, chairman of the Soviet grain-trading agency Exportkhleb, had
no more precise knowledge of the size of the 1975 Soviet wheat crop at that
time than Panasuk did. Pershin was a dour, humorless, stiff personality, but
he was also tough and experienced; he had traded rubber and other commodities
during a stint in the Soviet trade mission in London years earlier, and he was
said to be a brilliant trader of diamonds as well. However, information in the
Soviet bureaucracy is disseminated on a need-to-know basis and Pershin was not
told what the conditions of the Russian crops were-only how much grain to buy
or sell.
Pershin was a member of an organization that is nearly unique in the Soviet
bureaucracy. Exportkhleb is the Soviet Union's grain company, and the people
who work for it are unusually privileged. They travel abroad, dine in the best
restaurants in Paris, London, and New York, are entertained by Western grain
merchants. They have authority to make quick decisions based on conditions in
the marketplace. In short, Exportkhleb operates like a Western grain company
in many respects: When Russia has some "surplus" grain to sell, as it often
did in the 1960s, men from Exportkhleb go to their friends in the, Western
companies. But Exportkhleb invariably is playing from a weak hand. The Soviet
Union never really has a grain surplus. Any exports are a sacrifice to help
political allies or earn foreign exchange. Still, Exportkhleb is adept at
exploiting the commercial rivalries of the private grain companies. It knows
that if Continental's price is not right, Cargill's might be. Also, the
merchant companies provide Exportkhleb with information about global trends in
the grain market, and give assessments of prices and grain supplies. In
return, Exportkhleb gives favored comparnies an opportunity to bid for Soviet
business.
Sometime in June 1975, Pershin received his instructions, and soon after that
he picked up the telephone and dialed London. For all the other shortcomings
of the Soviet economy, the telephone and telex service to Western Europe are
excellent. A few moments later, his party came on the line.
"Patrick," said Pershin, "get to Moscow as quick as you can."
Patrick Mayhew is a merry-eyed Englishman, blond, welltailored and full of
boyish enthusiasm. If the Fribourgs, Borns, and Hirsches are the kings of the
merchant business, men such as Mayhew are the knights. Mayhew is a, salesman-
but of a very glorious kind. Selling enormous quantities of grain for cash is
his speciality, and it requires unusual talents. It is not like selling Rolls-
Royce engines. Grain, has no brand name or trademark. Cargill's grain is the
same as Continental's, and a merchant cannot approach a customer and say, "I
am selling number two yellow corn, five per cent broken kernels," as if he
were selling an expensive wristwatch with a known trademark and ten-year
warranty. Anybody can acquire corn, so merchants have to resort to the oldest
selling technique�they have to sell themselves. Personality, contacts, and
connections sell grain. The best of the traders spoil their customers at
expensive restaurants, take them on trips to country resorts, and rush to
their side whenever they are called.
In addition to that, the traders need a good nose for knowing whether
customers are serious or just fishing for information, and they have to have a
good understanding of the technicalities: the depths of ports; the dates that
rivers and waterways freeze; the quality of rail freight service and port
storage in various countries; the ins and outs of insurance and shipping, not
to mention the tangle of customs and tax regulations that affect the price of
grain.
When it comes down to actually closing grain deals, poker skills are required.
A penny a bushel in price can be translated into millions of dollars in a big
deal. A trader out on hi's own in Algiers, Tehran, or Moscow has to know at
what price his company can acquire grain and then not let himself get pushed
beyond that point out of enthusiasm for getting the business. Traders who lack
that restraint do not last long.
All of the companies have their star traders�men who are better paid than star
athletes. Mayhew had earned his place among this select group with good luck
and hard work. He had become acquainted with Viktor Pershin in London in the
1960s, when the Russians were selling British millers small quantities of
their new, premium wheats from the cold, western Siberian steppes. Mayhew
worked for a London grain company then. But he went to work in the late 1960s
for Edward (Ned) Cook, president of Cook Industries, Inc., of Memphis, just as
Cook was building his small family cotton business into an aggressive rival of
the older, established grain firms. Mayhew never lost his boyish enthusiasm
for his work. He still got excited when he thought about flying off to Moscow
to talk grain, which is what he did that June of 1975.
As soon as his discussions with Pershin in the Soviet capital were over,
Mayhew boarded the first available plane back to Western Europe. He took care
to seem casual and he made no telephone calls to his home office until he
reached London. Cook was preparing to take his son to summer camp when Mayhew
reached him. "I can't talk on the phone," the Englishman told him. "Just pack
your bags and get on the next plane."
Then Mayhew relaxed long enough to look at the London newspapers, which he had
not seen for several days. One story in particular caught his eye. The
Financial Times and other papers were carrying stories about rumored Russian
grain purchases. The papers said that unidentified brokers at the Baltic
Mercantile and Shipping Exchange had identified a company called Glenas, of
Panama, as a front for the Soviet government in a rumored Russian plan to
charter dozens of freighters to haul North American grain to the ports of
Leningrad on the Baltic, Odessa and Novorossisk on the Black Sea, and Nakhodka
on the Pacific Coast of Siberia. The first clue had been a Greek vessel called
the Hellas in Eternity; the Baltic brokers had learned that the Hellas was to
ply from the Gulf of Mexico to Odessa�a grain route-in August. They checked
further. The Hellas was chartered to Glenas.
Cook could not get to Europe fast enough, Mayhew thought.
Pershin, meanwhile, was in contact with other European salesmen-buying
American grain without even leaving Moscow. He -eached Francis Turion of
Continental, back from a weekend at his villa in Saint-Tropez; and Milan
(Mike) Sladek, the Slovak-born trader who represented Cargill all over Eastern
Europe and the Middle East. Sladek was an avid tennis player who carried his
racquet with him on his travels. Tennis was an ice breaker, and some of his
customers played the sport. But it was clear to Sladek that there would be no
tennis for several weeks. The Russians did not play.
>From that moment on, developments picked up speed on both sides of the
Atlantic:
July 9: When Assistant Secretary of Agriculture Richard Bell stepped off a
plane at Des Moines Airport he had no special business on his mind, except for
the speech he was about to give at the annual meeting of the Iowa Corn
Producers Association. But a messenger handed him a note from his Washington
office that said, "Call Willard Sparks." Sparks was a senior adviser to Ned
Cook, and Bell knew him well. Sparks now confirmed what Bell suspected: Cook
had been summoned to Moscow and was leaving immediately.
Bell hung up and climbed into a government car for the onehour trip to Mason
City, where he was to give his address. It was high summer and the corn
growing beside the roads was ramrod straight and emerald green�a good crop,
thought Bell. No sooner had he arrived at Mason City than he was handed
another message, this one instructing him to telephone Clarence Palmby, a
vice-president of Continental Grain in New York City. Bell fidgeted as he
waited for a chance to make the call. Finally, after giving his speech, he
excused himself and found a telephone. Minutes later, he was talking to
Palmby. "Our Geneva people have opened negotiations in Moscow," said Palmby,
by which he meant Francis Turion. "At this stage it looks like five million
tons of feed grains-four corn and one barley. We'll keep you advised." This
was big news. But it was only an advisory. Under existing rules, Bell had no
obligation to report it to other branches of the government.
July 10: Vice-president William Pearce of Cargill notified Bell, by now back
in Washington, that his company was putting together a "team" of negotiators
for Moscow.
July 12: President Ford held a press conference in Washington, at which he
said that he had "no idea" about the size of any possible sale of grain to the
Soviet Union. Farm prices had been declining, the President had vetoed higher
price supports, and now the election was only a little more than a year away.
"I think the fact that we can make one is a blessing and I hope we do make
one," he said when asked about a sale.
July 15: Secretary of State Kissinger, in Cargill's home town of Minneapolis,
defended Soviet-American detente in ringing phrases. "The world's fear of
holocaust and its hope for a better future have both hinged on the
relationship between the superpowers," he said. In its edition dated the same
day, the Milling and Baking News, organ of America's flour, milling, and grain
trade, disparaged the rumors emanating from the Baltic Exchange; there were
"increasing doubts over the reliability or credibility" of the reports of
Soviet grain buying, it wrote.
At that point, the Agriculture Department had predicted a Soviet harvest of
195 million tons, a shortfall from the planned 215 million tons, but still a
respectable yield. But the Commodity News Service was reporting that the
Russians had chartered an armada of thirty-nine vessels to haul grain, and
Agriculture itself was becoming less sanguine. It dispatched an urgent cable
to Moscow ordering the agricultural attaches to ask Soviet authorities for
permission to reinspect important grain-growing areas.
July 16: The Department of Agriculture announced that Cook had sold the
Russians 2 million tons of U.S. wheat and Cargill's Geneva subsidiary, Tradax,
had sold another 1.2 million tons.
July 17: The Canadian Wheat Board announced a sale of 2 million tons of red
spring wheat to the Soviet Union. At the same time, a spokesman for
Continental denied to a reporter of the Commodity News Service that it had
made any sales to Russia.
July 21: The Department of Agriculture announced that Continental had sold 4.5
million tons of corn and 1.1 million tons of barley, most of it to come from
the United States, to Russia. This was a $640-million deal at prevailing
prices, perhaps the largest single grain transaction of all time.
July 22: The department announced Cook's sale of another I million tons of
wheat.
July 24: The Canadian Wheat Board reported selling I million tons of durum
wheat to the Russians. By now the Soviet Union had bought 12.8 million tons of
North American grain-more than in their first round of purchases in the "great
grain robbery" of 1972.
By this time, the Agriculture Department had lowered its estimate of the
Soviet grain harvest to 185 million tons. But department officials conceded
such estimates were only "judgments." Soviet authorities approved only part of
the itinerary of the American spring-wheat inspection team that arrived in
Moscow the day after those revised estimates came out. Suspicions that they
were covering up the real extent of the grain harvest's failure were
strengthened by the Soviet Foreign Ministry's postponement of travel visas for
members of a House Agriculture Committee delegation that had planned to visit
Russian farms in August.
In the steamy July days in Washington, the highest economic planning body in
the United States government, the Economic Policy Board at the White House,
already had a fairly heavy summer agenda that included the financial
condition. of Pan American World Airlines, New York City's fiscal
difficulties, foreign aid, the Law of the Sea, and the public's response to
the new two-dollar bill. Suddenly, these concerns were put aside as the
government riveted its attention on the grain markets.
To many, it all seemed like a painful reenactment of 1972.
When grain is exported, less is left behind. As the selloff of American stocks
continued through July, prices of corn and wheat futures advanced in the
trading pits of the Chicago Board of Trade. Consumer organizations and labor
union leaders began to attack the administration's handling�or nonhandling�of
the grain sales and warned that Americans would pay for this mismanagement
with higher prices in supermarkets. Chairman
Arthur Bums of the Federal Reserve Board gave credence to these fears by
saying on July 29 at a hearing before the joint Economic Committee that the
grain selling "frightens me." Two days later in Chicago, President George
Meany of the AFL-CIO charged that the grain sales were a product of "a
calamitous, one-way detente." The International Longshoremen's Association,
with Meany's approval, announced its intention to boycott the loading of grain
bound for Russia.
At the CIA, a task force was assembled to reevaluate the Soviet crop
situation. The CIA's Bureau of Economic Research had been skeptical for a long
time of the crop estimates the both the Soviet Union and the Department of
Agriculture. The CIA felt Russia's grain estimates were biased, as well as
padded by inclusion of water, weed seeds, and extraneous material.[*][* The
late Premier Nikita Khrushchev also was skeptical of Soviet agricultural
estimates. He said Soviet bureaucrats' figures on crop yield reflected
"Wishful thinking rather than reality." In his view, Soviet statistical
experts were "the kind of people who can melt shit into bullets." (Khrushchev
Remembers [Boston: Little, Brown, 1974], p. 131.)] It revised its computer
model of the Russian agricultural situation to reflect more complete data on
the previous winter's rainfall and soil moisture, and to utilize information
in the first LACIE satellite pictures. The figures that emerged from the new
model shocked even the CIA analysts. It appeared that Soviet grain had
suffered not just a setback, but a calamity. The agency lowered its
esimates[sic] to 165 million tons and left room for further downward
revisions.
This new knowledge came late for President Ford. The merchant companies
already had sold almost 10 million tons of American grain. The government's
early warning system had malfunctioned. Once again, the United States was
dealing with a fait accompli in the grain markets.
Beyond the immediate situation were other questions. Should private companies
or the U.S. government control the disposition of American grain? Was it
feasible for the government to establish the same kind of monopoly over grain
as the OPEC cartel had over oil resources? Should the laws of the marketplace
allocate American grain around the world, or was a more planned, bureaucratic
system necessary in an era when the supply of grain was finite? What ends
should the American grain surplus serve-the requirements of diplomacy, the
incomes of domestic farmers, the needs of consumers, or the hopes of
humanitarians? Would some kind of effective international control, such as
international grain stockpiles, help to stabilize the world's grain economy?
That the questions were even being asked showed how much the world had changed
from the time-so few years before when America's food supplies had seemed
boundless. Our perception of grain resources had been distorted by the glut.
To recover a sense of proportion and perspective, it is necessary to go back
in history to a time when grain held the key to industrial development in the
modem era.
pps. 25-52
--[cont]--
Aloha, He'Ping,
Om, Shalom, Salaam.
Em Hotep, Peace Be,
Omnia Bona Bonis,
All My Relations.
Adieu, Adios, Aloha.
Amen.
Roads End
Kris
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