Hearings, Reports and Prints of the Senate Committee on Agriculture and Forestry

STATEMENT OF CARL F. SCHWENSEN, EXECUTIVE ASSISTANT, NATIONAL ASSOCIATION OF WHEAT GROWERS

Mr. SCHWENSEN. What I would like to do, Senator Dole, is submit my entire statement which is not very lengthy but cover three or four paragraphs which deal specifically with your bill and the bill that has been introduced by Senator Bentsen.

The National Association of Wheat Growers supports the approach taken by S. 1354 and S. 1788, and feels that these bills represent a constructive step toward stabilizing and improving the Nation's agricultural export policy. The bills provide foreign buyers the opportunity to guarantee themselves access to necessary supplies of U.S. agricultural commodities, and would promote better supply planning which will benefit both foreign consumers and U.S. consumers and producers.

Importers would be able to "lockup" the level of farm commodities required to meet all or a portion of their food security goals, and they would not have to develop or maintain alternatives to U.S. supplies. Their increased confidence in the United States as a reliable source of supply will strengthen our marketing position and should build the confidence in demand that our farmers must have to continue accererated production.

Consequently, we favor a provision similar to that contained in S. 1354 which would require that commodities must be purchased and stored for a minimum of 12 months to gain exemption from export controls.

Senator Bellmon mentioned the possibility of a waiver for importers to obtain these commodities before they had been able to fulfill their 12-month period. Such a provision would be fine.

We recommend that a provision be written to require that foreign reserves held in the United States under exemption from export controls be ultimately exported to the country which gained approval from our Government to store the stocks. This step should close opportunities for speculative practices which might disrupt both internal and export marketing.

That concludes my remarks. I want to add at this point that there has been some discussion previously this morning and we certainly agree with the thoughts that you have expressed, Senator Dole, regarding concern over these reserves being sold into our market internally, but I do not think any of the witnesses covered the possibility that the reserves could be exports in competition with U.S. exports at some future point as well. We would want to see that type or practice prohibited. Here I am thinking of a situation where a country might establish a reserve, maybe acquire it at $3, then a tight supply situation develops and the price goes up to $6 or something, and they find they do not need all those reserves, so they could

sell our U.S. grain in competition with U.S. wheatgrowers and free market grain on the world market.

I want to also add the comment as a reaction to some of the remarks made earlier that our view of this bill, these bills, would be that the arrangements would be between governments and not between foreign or domestic trading firms. We cannot see at this point the need to provide for international trading firms the opportunity to establish strategic reserves for themselves, isolated from the market, immune from export controls. We feel the stocks should represent a conscious effort on the part of the importer and that is again why we feel your 12-month provision or something similar, maybe something less than that would be better, that certainly would get more thought, but the point is that there should be a real effort to incorporate this with a national responsibility to provide reserves and we would be facilitating that through our providing immunity from export controls. Senator DOLE. I think you raised a question that has been raised earlier and that is the danger that could possibly come about if it were sold back on the U.S. domestic market, but I am pleased that the National Association of Wheat Growers is in accord with the concept and would indicate again, as I have to other witnesses, that we are in the early stages of this proposal, and you did comment on both S. 1354 and S. 1788, Senator Bentsen's proposal. There will be further hearings and, hopefully, the National Association of Wheat Growers will continue to take a hard look at the proposal. Were you present when I raised a series of questions with Secretary Bell.

Mr. SCHWENSEN. Yes.

Senator DOLE. Do you have any comments on any of his responses or do you disagree with any of his responses?

Mr. SCHWENSEN. No. I think generally we agree with the comments made by Mr. Bell. The comments made by Mr. Shanklin regarding what involvement this system, however it might turn out, might have with our commodity futures markets concerns us at this point and we look forward to seeing what might be developed.

Again I might bring up the fact that we feel that the agreement should be between governments and not involve individual trading firms. We would want to avoid establishing a market to trade on reserve stocks. That would be the only area. And that was not fully developed in their comments but that would be the only area that we would have any concern about.

Senator DOLE. Senator Bellmon?

Senator BELLMON. Thank you, Mr. Chairman.

Mr. Schwensen, I am not quite sure I follow your reasoning as to why these commodities would need to be stored for a minimum of 12 months to be exempt from export controls.

Mr. SCHWENSEN. Well, the 12-month minimum is not necessarily firm-maybe it should be 5 or 6 months or whatever, but we wanted to get at the point that the reserves should be part of the importing country's responsibility to provide its reserves and not a marketing technique or something like this where they would be able to store here free from export controls some of their normal supplies. We wanted this to be a part of their national reserve policy and we could facilitate them in carrying out these responsibilities by providing storage here and making that storage under conditions exempt from any export controls.

Senator BELLMON. I cannot see why, if a customer abroad buys a quantity of grain today and if our Government decides to put on an export embargo tomorrow, I do not know why that customer who owns the grain should not have a right to do with it as he likes.

Mr. SCHWENSEN. Oh, he should, and in fact I do not know of anything right now that prevents a foreign government who owns grain here in the United States from taking delivery of it. Our point is that a system like this should not be used just to fulfill normal supply requirements, for example, to build up storage and then if prices went too high they could live off that storage for awhile and then when they came down they might rebuild. This is the type of thing that we thought the bill should avoid trying to establish. If it is just going to be a part of their normal supply practices we cannot see any reason why it should be exempt from export controls.

Senator BELLMON. Why it should be exempt?

Mr. SCHWENSEN. Japan might be an example to use. Say, for example, if they had in the pipeline a 3-month supply and a reserve of 4 months' supplies, and price conditions changed and they found that the prices were higher than they wanted to pay they could dip in and live off these reserves for awhile to extend their supply line until prices came down to a different level. Now, we cannot understand

Senator BELLMON. Would you object to that?

Mr. SCHWENSEN. We do not object to it but we cannot understand why that type of operation should be exempt from export controls since that would be part of, really part of their marketing programs and would not be a reserve program.

Senator BELLMON. It would seem to me if any foreign buyer bought grain and paid for it, regardless of whether they owned it 24-hours or 24-months, it is their grain. It should no longer really be under the control of our Government regardless of whether it is stored here or some place else.

Mr. SCHWENSEN. Well, yes, we agree with you that previous controls like the soybean embargo cut across contracts and that is the type of thing we feel these bills would prevent by providing the exemptions. The difference as we see it is as to whether this immunity that is provided from export controls should be extended just to normal supply purchases and operations or whether it should be designed solely to provide for the reserves that they establish in case of world shortages or whatever.

Senator BELLMON. I have no further questions, Mr. Chairman. [The prepared statement of Mr. Schwensen follows:]

STATEMENT OF CARL SCHWENSEN, EXECUTIVE ASSISTANT, NATIONAL ASSOCIATION OF WHEAT GROWERS

Mr. Chairman and members of the subcommittee: The National Association of Wheat Growers is pleased to have this opportunity to present its views on legislation to exempt foreign-owned agricultural stocks stored in the United States from export controls. My name is Carl Schwensen. I am a member of the Washington, D.C., staff of the wheat growers.

meet all or a portion of their food security goals, and they would not have to develop or maintain alternatives to U.S. supplies. Their increased confidence in the United States as a reliable source of supply will strengthen our marketing position and should build the confidence in demand that our farmers must have to continue accelerated production.

We believe that the storage programs which would be authorized by these bills should take the form of conscious reserve efforts on the part of foreign nations which are made in addition to their normal supply programs. Consequently, we favor a provision similar to that contained in S. 1354 which would require that commodities must be purchased and stored for a minimum of 12 months to gain exemption from export controls.

We further feel that reserve stocks which might be established under these bills should be completely isolated from the marketplace to prohibit foreign nations from influencing prices or competing for markets through resale of these stocks. We recommend that a provision be written to require that foreign reserves held in the United States under exemption from export controls be ultimately exported to the country which gained approval from our Government to store the stocks. This step should close opportunities for speculative practices which might disrupt both internal and export marketing.

The soybean embargo of 1973, export grain controls and Government efforts to curtail foreign demand for U.S. wheat and other commodities during 1974 and early 1975 are recent and compelling evidence of the need for legislation such as S. 1354. Of course, domestic price considerations were major factors in these decisions, but the desire to limit purchases during tightening supply conditions was also a major justification for Government intervention in the marketplace. We were told that the administration "learned a lesson" in basic economics with the failure of the soybean embargo, but it nevertheless embarked on another program of "export restraint" the following year. It turned out that this program, combined with efforts to discourage purchases of U.S. farm commodities, was so effective in restricting demand and sabotaging prices that policymakers did not want to give it up. At the insistence of congressional agricultural leaders, the NAWG and other farm organizations this program was finally moderated on March 6, 1975, to discontinue the requirement for prior approval of export sales by USDA.

Of course, these strong Government reactions to tightening farm commodity supplies should have been avoided in the first place. Still, we feel that had our foreign customers had the opportunity to purchase and store a reserve of U.S. farm commodities here, free from any controls, the pressures to take these steps would not have been nearly as persuasive as the administration found them to be. Moreover, we are serving our own interest by helping customers establish a reserve system within our framework. Past export control programs have fractured our relationships with valuable foreign customers, and many of these markets have been developed and cultivated through the hard work and money of U.S. producers and their organizations. Government interference in U.S. agricultural exports has also significantly lowered U.S. trade earnings, reduced producer income and demoralized farmers across the Nation who have been encouraged to follow a "market-oriented" farm program which supposedly reduced Government involvement in agriculture.

In addition to the marketing and supply improvements that could be generated by the bills, we also recognize that this bill should provide U.S. jobs, bring better utilization of storage facilities, yield storage revenues and produce needed balanceof-payments earnings as soon as the reserve stocks were acquired.

In conclusion, the NAWG feels that these bills represent a positive step toward improving U.S, agricultural export policy by enabling our customers to establish supply planning and management programs within the framework of our system. We support enactment of bills similar to S. 1354 and S. 1788 which incorporate an amendment requiring that foreign reserves held under the program be ultimately exported to the country which obtained Government approval to store the stocks.

Senator DOLE. I have no further questions. There are no further witnesses. The hearing record will remain open for 1 week in the event anyone desires to submit statements. I hope to have further hearing sometime late next month.

The hearing is adjourned.

Whereupon, at 11:08 a.m., the subcommittee adjourned, subject to call of the Chair.J

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