CCC exports credit sales program disbursements by country, fiscal year 1972

Mr. VANIK. Was any of that supplied for the Soviet wheat deal? Mr. BRUNTHAVER. Yes, sir. The agreement with the Russians stipulated that we would provide standard GSM-4 credit to them in amounts of $750 million, a maximum of $500 million to be open, the maximum that would be available at any point in time. This is a credit program in which they repay one-third plus interest each year. Mr. VANIK. At what rate?

Mr. BRUNTHAVER. The interest is currently at 6% backed by a U.S. bank letter of credit; otherwise it is 71% percent interest. [The following information was submitted:]

On May 16, the 6% was changed to 74 for credits of 12 months or less on that portion backed by a U.S. bank; otherwise, it is 84. For credits of more than 12 months, the rates were changed to 72 and 8% respectively.

Mr. VANIK. In other words, you reduce the rate if they have a letter of credit from a bank that guarantees payment for them?

Mr. BRUNTHAVER. Yes; if it is backed by a U.S. bank, a guaranteed letter of credit.

Mr. VANIK. Now tell me this: Is there any Export-Import Bank money in the Soviet transaction?

Mr. BRUNTHAVER. Not that I am aware of, no.

Mr. VANIK. Now I will go back to Secretary Butz, Can you tell me what the total combined costs were for the Soviet transaction, including the export subsidies, the shipping subsidies, and now we have the CCC credit? Are there any other public costs that were involved?

Secretary BUTZ. No, sir; I am not aware of any. The CCC credit comes virtually at cost.

Mr. VANIK. It doesn't come at cost because the Treasury is borrowing money above 6 percent.

Secretary BUTZ. The shipping subsidy, of course

Mr. VANIK. That is Maritime.

Secretary BUTZ. That subsidy goes to any commodities like this that are carried in U.S.-flag vessels, not only to the Soviets. Mr. VANIK. I understand.

Secretary BUTZ. The same way with the export subsidy. That was available to anybody who bought, including the Japanese.

Mr. VANIK. My question is, what is the total. Do you have the total? Secreary BUTZ. I think Mr. Brutharer has some figures.

Mr. VANIK. How much per bushel and what was the total? Mr. BRUNTHAVER. The export subsidy varied from a low of 4 cents a bushel to a high of 47 cents. The total export subsidy on wheat and flour for all countries this past year was $284 million. If you would like we can break out the part of that that applied on the Russian transaction.

[The material referred to follows:]

Based on present estimates, the export subsidy on wheat sales to the Soviet Union will approximate $124 million. The exact total will not be known until all claims for payments have been submitted at the close of the export period.

Mr. VANIK. Yes. I think that is important. The Soviets are apparently trying to raise $1 billion in Europe now to help complete payments on some of their purchases. Is there a possibility that we might have to extend credit to an even greater extent of more than is anticipated here

Mr. BRUNTHAVER. No, sir.

Mr. VANIK [continuing]. To complete the transaction?

Mr. BRUNTHAVER. No, sir, we don't think so. No.

Mr. VANIK. The General Accounting Office indicates they didn't think we did very well. As I remember, we lost a half billion dollars in the subsidy and supplemental cost programs in carrying out the transaction.

Secretary BUTZ. The GAO examined that whole transaction and made a preliminary report. It was a question of judgment. There is considerable evidence that had we not had this export subsidy at the time we had it the Soviets would have bought less grain. Like the GAO my hindsight is 20-20 without glasses. Had we known at the time of the transaction everything we know now about it we too might have done something a little differently. We might have ended the

subsidy sooner. But at that juncture we had to operate on the basis of information available then as would the GAO, had they been doing the same thing.

I venture the opinion that had they been in our shoes they would have made precisely the same decisions we did at the time.

Mr. VANIK. But as far as their findings are concerned, you find no disagreement with them? Is there any dispute?

Secretary BUTZ. Well, yes, we do. First they indicate, or they infer at least that this was a bonanza for the Russians, but it was no more so than anybody else buying at the same time. Other countries buying at the same time did precisely the same thing. They indicate the subsidy was continued longer than needed. That is a moot question, a question of judgment. Perhaps it was. I don't know. I am not prepared to say.

Mr. VANIK. Do you expect to use the Export-Import Bank for any sales in the future?

Secretary BUTZ. To the extent that Export-Import Bank can finance on a legitimate basis the sales of agricultural products we certainly would have no objection to it.

Mr. VANIK. The thing that concerns me is that taxpayers subsidize the interest rates. The criteria for trade has an awful lot to do with credit and availability of credit and the terms on which credit is available. What I am hoping that we get out of this trade bill, Mr. Secretary, is some sort of a bringing together of the whole problem so that some responsible voices can look over the whole thing and know the impact of a sale of such a dimension as the Soviet transaction and fit it into the whole program. Because even in your department, there were scattered reports of what the facts were. They didn't seem to all be coming out of the same place.

Secretary BUTZ. Yes, sir. Let me point out that out of the total of nearly $11.5 billion in agricultural exports ending June 30, less than $1 billion involve concessional sales. The rest was for hard dollars. Of the hard dollars, less than $1 billion involved credit. The great bulk was cash. At the moment we make no use of export subsidies. We are cutting credit to a minimum. I think we are moving precisely along the route you suggest.

Mr. VANIK. That is encouraging. What do you have to say about the work of the Senate committee? The other day they passed out a new 5-year program. I see among other things that they provide minimum supports of 80 percent for dairy price supports. I try to fit that alongside of today's announcements that the import quota would be increased for dry milk. I find these two policies kind of at tangent with each other.

Secretary BUTZ. Our position is that we don't endorse that provision in the Senate bill. This is reported out by the Senate Agriculture Committee. It has yet to be acted on on the floor. The House committee under Chairman Poage is having hearings. We must have new farm legislation this year. We will oppose mandatory dairy price support levels at 80 percent of parity. At the present time we are at 75 percent and 80 percent would be above the current market price levels in dairy products.

With respect to the rather high minimum price goals that the Senate bill encompasses for corn, cotton and wheat, they are simply too high.

Under the provisions of that bill the cost of this program could conceivably run as high as $5 or $6 billion a year, which is very substantially above anything we have ever done in our most costly years.

Mr. VANIK. There are consumer concerns that the dairy herd may be slaughtered for beef and milk prices could just escalate and we might find ourselves facing higher prices for milk products as a result of one of the aftermaths of this policy. What are the prospects for that? Is there any danger?

Secretary BUTZ. There is always some culling of dairy cows. We have gone through a 22-year period with a substantial reduction in dairy cow numbers. But we have increased the productivity of the cows. The milk production is up substantially. We have moved into more efficient units. Of course you are always culling dairy cows and replacing them with heifers. This is a normal process.

Mr. VANIK. I hear a lot from bakers. They are complaining about the so-called tax they have to pay on wheat out of which they make cookies and bread. They tell me they are not asking to take this subsidy from the farmers, but to transfer the tax to the Treasury. The bread tax amounts to $400 million. How do they pay it?

Secretary BUTZ. Well, every domestic miller pays a processing tax of 75 cents a bushel on wheat processed for domestic consumption. Mr. VANIK. Would that apply to a foreign baker?

Secretary BUTZ. No, sir. This is domestic. This is used to pay the so-called certificate payment to the wheat producers on that portion of their wheat that goes into the domestic market.

Mr. VANIK. Why should the baker pay a tax on flour?
Secretary BUTZ. Because the Congress passed the law.
Mr. VANIK. We ought to change that; shouldn't we?
Secretary BUTZ. I won't argue with you.

Mr. VANIK. You didn't tell me whether we ought to change that. Secretary BUTZ. I think it should be. We are recommending a phase out of the income supplement payments of our farm program which would automatically eliminate the need for this. At the moment that produces $400 million which pays approximately half of the cost of our certificate payments to our wheat growers.

Mr. VANIK. They told me there were some terrible problems. They talked about caraway seed which is pretty important to me. I like rye bread. They tell me it has gone up from 38 cents a pound to $2.78 a pound. They tell me cinnamon has gone up, all the ingredients that go into cakes and cookies have gone up through the sky. They also say, if this tax is not abated, the baking industry is going to be a monopoly headed by ITT-Continental Bakery.

Secretary BUTZ. Part of the problem now is that the four big national bakeries, I am told, are so much in the production of bread that it makes it difficult for the industry to compete and you can only have a uniform price on the shelf as long as buyers are price conscious and the small bakers do have a problem, there is no doubt about that. I think their problem is one of the competitive structure within the industry itself.

Mr. VANIK. But they are entirely different products. The bread I buy is generally made by an independent. It is quality bread which is made a little differently. It doesn't squeeze from one end to another. Secretary BUTZ. Some people like bread that squeezes.

96-006-73-pt. 2- -16

Mr. VANIK. Yes; I know it.

Mr. CORMAN. Did I understand correctly that four bakers control most of the market for bread?

Secretary BUTZ. No. I said there were four large national baking concerns that are pretty efficient in the baking and distribution of bread. On-the-shelf bread is largely a price-competitive item. Either they must differentiate their product so they can charge more and in the absence of the ability to differentiate their product at a uniform price it is a difficult competitive situation. They are facing somewhat the problem the small grocery store faced and others faced. It is very real.

Mr. CORMAN. Does anybody have an estimate of how much of the total bread market is filled by those four?

Secretary BUTZ. Yes, sir. I can't give it to you. I can supply it for the record.

Mr. CORMAN. Thank you.

[The information requested follows:]

CONCENTRATION IN MANUFACTURE OF BREAD, CAKE, AND RELATED PRODUCTS

Source: U.S. Bureau of Census, a survey of manufactures: 1970; value of shipments and concentration. Publication: M 70 (AS)-9, USGPO, Washington, D.C., November 1972.

Mr. VANIK. In view of your plans and your very bold proposals to provide maturity to the agricultural industry, I would like to provide an amendment to this whole bill that would provide that wherever the word "articles" appears, I would like to add the language "and agricultural products". I want to give full recognition to the maturity of your industry.

How would you feel about wherever in this bill we use the word "articles" we use the words "and agricultural products"?

Secretary BUTZ. Aren't they an article?

Mr. VANIK. I don't know. A great deal of the programs are run in your department rather than in the framework of this bill. I want to make it clear that what we intend to do in this bill is provide an umbrella for the entire trade program of this country so all of it can be handled in one specific way with an overall management concept.

Secretary BUTZ. That was our intention. We didn't intend to separate agriculture.

Mr. VANIK. If that is the conception I think we ought to plan on transferring from your department the foreign sales section and putting it over into Commerce, so we have one department that handles the foreign trade business. Wouldn't that be a good idea, so that we can get a broad overall conception of the problem of trade?

Secretary BUTZ. Let's make the record clear that my department doesn't sell anything abroad. This is done through private trade, as in the Commerce Department.

Mr. VANIK. I know, but I want the program to have an overall administration. I don't want agricultural trade to be run separate and apart from the total trade of the country.