Soviet purchase of American grain that increased global food prices
Soviet coat of arms, with prominent wheat bunches
|Also known as||Russian Wheat Deal|
|Cause||Russian purchases of grain|
|Motive||Lack of grain in USSR|
|Participants||United States and USSR|
|Outcome||Inflation of global grain prices|
The great grain robbery was the July 1972 purchase of 10 million tons of grain (mainly wheat and corn) from the United States by the Soviet Union at subsidized prices, which caused global grain prices to soar. Crop shortfalls in 1971 and 1972 forced the Soviet Union to look abroad for grain, hoping to prevent famine or crisis. Soviet negotiators worked out a deal to buy grain on credit, but quickly exceeded their credit limit. The American negotiators did not realize that both the Soviets and the world grain market had suffered shortfalls, and thus chose to subsidize the purchase. The strategy backfired and intensified the crisis with global food prices rose at least 30%, and grain stockpiles were decimated.
Due to the Soviet agricultural system, the cold climate, and frequent irregular droughts, crop failure was not uncommon in the Soviet Union. Soviet policies had led to disaster before, chiefly the 1932 Holodomor, in which at least 5 million died of disease and starvation. The problem was heightened by the fact that only a small fraction of the Soviet Union was able to be farmed, the majority of which was contained in an area known as the black earth belt. In 1972 there was a drought across Europe and Soviet mismanagement of the situation led to catastrophic wheat crop failure. Additionally the Soviets had suffered an extremely hot summer with similar temperature to the heat experienced during 2010 Northern Hemisphere heat waves. This caused the Union to look to the global market to meet their grain needs.
The main negotiations for the deal took place at The Madison in Washington, D.C. between two Russian teams, one led by Nikolai Patolichev and the second led by Nicolai Belousov. Multiple businessman and government officials negotiated on the American side, such Michel Fribourg the CEO of the grain trading firm ContiGroup Companies, and Carroll Brunthaver, the Under Secretary of Agriculture for Farm and Foreign Agricultural Services. The U.S. government negotiated a three-year deal that allowed the Russians to buy U.S. grain on credit. However, the Soviets quickly exceeded their credit limit, causing an economic crisis. The Soviets are thought to have spent up to USD$1 billion on grain from companies in the United States and more from other countries such as France, Canada, and Australia.
The U.S. government spent $300 million subsidizing the Russian purchases, still unaware that the Soviets had suffered massive shortfalls in crops in 1971 and 1972. Part of the reason for the American ignorance of the Russian situation is that many officials, such as Earl Butz, were convinced that the Soviets were only purchasing the grain to feed their animals. By not realizing that global wheat stocks were low, and discounting reports of Soviet crop failure, the United States inadvertently rose food prices domestically, and lost significant revenue by choosing to subsidize the purchase instead of offering it at market price.
Just weeks after this grain deal was announced, the Earth-observing satellite Landsat 1 achieved orbit. If the satellite had launched a few months earlier, the deal may have been reconsidered or might never even have happened at all, because American negotiators would have realized the scale of crop failures. This event helped lead the U.S. government to seek more information about global agricultural output via infrared satellite intelligence. After the deal, many Americans were concerned about businesses having advantages in similar situations due to their early access to information.
Global effects and legacy
In a ten-month span in 1973, global food prices rose by at least 30 percent. According to one Londoner, there was an 87% increase on the price of an 800 gram loaf of bread in British markets. Global wheat ending stocks decreased exponentially, Australia being hit the hardest with a 93% decrease by 1974 from 1971. Not all nations were equally hit; some, such as Canada, benefited from the Great Grain Robbery. Canadian farmers had sold their wheat to the Canadian Wheat Board, which helped them as it used a system called pooling.
Contemporary U.S. media referred to the event as “The Russian Wheat Deal” or “The Soviet Wheat Deal”. The term Great Grain Robbery is a pun referring to the “Great Train Robbery” novel. Author Martha Hamilton introduced the term as the title of Chapter VII of her book The Great American Grain Robbery & Other Stories, as part of an allegation that the U.S. government was robbing American taxpayers in order to support grain trading companies. Other sources claim that it was coined by Senator Henry M. Jackson.
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