SOME IMPLICATIONS OF THE INADEQUATE SOVIET WHEAT HARVESTS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79T01003A002400010001-3
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 17
• Document Creation Date: December 9, 2016
• Document Release Date: February 8, 2001
• Sequence Number: 1
• Publication Date: September 1, 1965
• Content Type: BRIEF

SOME IMPLICATIONS
Office of Research and Reports
GROUP 1
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downgrading and
declassification
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CIA/RR CB 65-51
September 1965
Copy N
OF THE INADEQUATE SOVIET WHEAT HARVESTS
DIRECTORATE OF INTELLIGENCE
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This material contains information affecting
the National Defense of the United States
within the meaning of the espionage laws,
Title 18, USC, Secs. 793 and 794, the trans-
mission or revelation of which in any manner
to an unauthorized person is prohibited by law.
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SOME IMPLICATIONS
OF THE INADEQUATE SOVIET WHEAT HARVESTS
The failure of Soviet agricultural policies was dramatized again this
August, when a sharp drop in wheat production forced the USSR to con-
tract for the purchase of almost 7 million metric tons (mt) of wheal: and
flour from Free World suppliers for delivery in the 1965/66 crop year.
The cost of these recent purchases is almost $500 million. Even if the
USSR purchases no more grain before 1 July 1966, its foreign exchange
outlay for grain in the past three years will amount to $1. 5 billion.
To pay for these imports, the USSR has resumed selling gold and
appears to be cutting back on imports of machinery and equipment from
the West. At the same time, Soviet industry is badly in need of Western
technology to assist in stemming the recent decline in the effectiveness
of investment and the consequent marked slowdown in economic growth.
Since 1960 the USSR has faltered badly in its drive to overtake the US
economy -- indeed, the absolute gap has widened in favor of the US -- and
the Brezhnev-Kosygin regime no longer gives publicity to the goal of
"overtaking and surpassing" the US, perhaps because of a more realistic
view of Soviet prospects.
The timing of the new wheat purchases is awkward for the Soviet
leaders. They are currently engaged in the final shaping of the new Five
Year Plan (1966-70) and in attempting to resolve the conflicts in resource
allocation which have been heightened by the escalation of the war in
Vietnam, the challenge of US space programs, the need to achieve self-
sufficiency in food production, and the search to find investment resources
to shore up the sagging economy.
The present agricultural failure, because of its widespread effects on
domestic and foreign policy, could increase tensions among the members
of the collective leadership. The regime as a whole probably has no desire
for major overhauls of resource allocation or of economic institutions, but
the need is urgent. Recent agricultural events reflect a basic strategic
vulnerability of the USSR, not merely a threat to the present welfare of its
people. Thus the hands of leaders or potential leaders who propose or
may propose radical solutions to Soviet problems probably have been
strengthened.
C-O-N-F-I-D-E-N-T .I-A-L
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The recent purchase of almost $500 million worth of wheat (7 million
mt) from the West is another dramatic manifestation of the chronic failure
of Soviet agricultural policies. The recent expenditure follows a Soviet
outlay of about $200 million for wheat in the 1964/65 crop year (July-
June), in spite of an above-average harvest during that period, and of
nearly $830 million in the 1963/64 crop year following the 1963 .grain
disaster. Even if there are no further Soviet grain purchases in the cur-
rent grain year (19651'66), the USSR will have paid Western suppliers an
unprecedented $1. 5 billion in three years to feed its population. More-
over, the Soviet diet remains a dull one by Western standards -- heavily
weighted with grains and potatoes.
The foreign exchange loss from the grain purchases will directly
limit future Soviet imports of Western machinery and equipment. The
technical superiority of such imports is of key importance to the USSR
in its effort to modernize industry and improve living standards while
still funneling the best of its own technical resources into military and
space development.
II. Impact on Imports of Machinery and Equipment from the Industrial
West
The foreign exchange burden of these grain purchases is reflected in
the trend of new contracts placed in the Free World for machinery and
equipment. In 1963, reported contracts for machinery were valued at
$554 million, in 1964 they fell to $319 million, and as of 31 August 1965
they stood at only $170 million. Unless new orders for machinery and
equipment rise sharply in the near future, the current level of machinery
imports from the West (about $600 million in 1963 and again in 1964)
cannot be sustained. The types of machinery most desired by the USSR
have a long production leadtime. For example, orders for chemical
equipment accounted for about two-thirds of total contracts placed in 1965
and usually required the Western supplier to manufacture equipment for
a complete plant.
Since the purchases of grain in early August and the concomitant
renewal of large-scale sales of gold, the USSR has not placed significant
additional orders for machinery in the West. During August 1965 there
were two major contracts under consideration. One of these involved a
huge petrochemical complex, estimated to cost $150 million to $250 mil-
lion, to be supplied by a consortium of 23 companies in West Germany
and France, headed by Salzgitter of West Germany. Negotiations on this
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complex had been renewed in the early spring of 1965 after a lapse of more
than a year. In addition, the recent Soviet agreement in principle with
Fiat of Italy to cooperate in the production of automobiles was expected
eventually to result in contracts in the neighborhood of $500 million. Now
these potential orders may not be placed; at a minimum they are likely to
face protracted delays.
III. Soviet Technology, Machinery Imports, and Economic Growth
Soviet technological inadequacy is highlighted most dramatically by
the current strident press campaign for "raising the quality of Soviet products
to world levels. " For many decades, enterprise managers, under the
relentless goading of the economic plans, concentrated on increasing; the
output of a limited range of standardized products. This policy of building
more capacity in the metals, fuel, and standardized machinery industries
served the Party objective reasonably well in the 1950's. But in the 1960's,
there has been a declining trend in the effectiveness of investment and a
markedly slower growth as the Soviet leaders have tried to transform their
economy from one based on coal and steel to one with a chemical-electronics
base, The slowdown in Soviet growth contrasted painfully with a renewed
burst of growth in the US. Whereas in the 1950's the growth of Soviet GNP
averaged some 6?-1/2 percent annually, or nearly twice that of the US, since
1960 the average growth rates in the two countries have been about equal,
with the result that the absolute gap between the sizes of the two economies
has widened in favor of the US.
Recognizing the key role of technology, Khrushchev in 1958 sponsored
programs of shifting emphasis to technologically advanced industries --
modernizing and diversifying through automation, more rapid replacement
of obsolete equipment, and high-speed special-purpose machines to replace
general-purpose machines. The modernization program has produced a
high percentage of failures, primarily because of technological inadequacies
and the traditional emphasis on quantity as opposed to quality. A host of
badly designed new products are chronically beset by breakdowns, short-
ages of spare parts, and higher costs. Product quality thus far has not
responded to exhortations. The demand for spare parts for agricultural
machinery was so great that a number of specialized spare parts plants
were built. Nevertheless, agricultural machines as well as the spare parts
are still riddled with defects, and the number of unrepaired machines re-
mains as large as ever.
Khrushchev's palliative was to draw down Soviet gold reserves in order
to pay for advanced types of equipment from Western suppliers. As a con-
sequence, Soviet imports of machinery from the Free World tripled between
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C-O-N-F-I-D-E-N-T-I-A-L
1958 and 1962. Given the prospect that payments for the recent grain
purchases could, by 1966, force Soviet gold reserves to a new low for
the past decade, and given the more conservative nature of the Brezhnev-
Kosygin policy with respect to imports from hard currency countries, the
Khrushchev solution apparently will not be adopted by his successors.
Partly as a result of this policy, there will be a continued lag in the rate
of introduction of new technology in Soviet industry and car ? ;ems aei_tl
greater difficulties in attempting to revive the flagging rate of economic
growth.
Should Soviet growth rates remain unimpressive, the propaganda
image of Communism as the "wave of the future" will be further tarnished.
The absolute size of the gap between the economies of the US and the USSR
will continue to widen in favor of the US, and the Soviet leaders will lose
ground in their self- appointed drive to "overtake and surpass" the US. It
is significant that the new regime has not hinted at endorsing the goal of
catching up with the US, perhaps because of a more realistic view of
Soviet prospects.
The timing of the recent purchase of grain is awkward from the stand-
point of the Soviet leadership. It comes at a time when the leaders are
engaged in the final shaping of the new Five Year Plan (1966-70) and are
considering economic reforms. Difficult questions have been tabled by
the course of events -- whether to raise military expenditures as a result
of Vietnam; how to meet the challenge of US space programs; where to find
the investment resources to shore up the sagging economy; and how to live
up to a number of promises made to consumers on improving the supplies
of food, consumer durable goods, and housing.
At the very least, the poor 1965 wheat crop will make it difficult for
other priority claimants to receive additional funds at the expense of the
ambitious agricultural program unveiled by Brezhne in March of this
year. This program, through a combination of higher farm prices and
additional machinery and other ii,::_ was estimated to cost considerably
more than the nearly $80 billion* of direct planned investment for agri-
cultural purposes during the period 1966-70. If defense maintains its
present priority, the investment most likely to be cut is that in nondefense
industry (other than that necessary for agricultural support).
* Seventy-one billion rubles converted at the official rate of exchange.
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The present regime apparently feels some urgency in improving the
lot of the Soviet consumer. This concern is vividly illustrated by recent
purchases of equipment abroad, despite the very tight foreign exchange
position. About 66 percent of the chemical equipment for which new orders
were placed in 1965 was for consumer-oriented synthetic materials plants.
In addition, the discussions with Fiat on cooperation in greatly increasing
Soviet automobile production indicated a serious intention to break with
Khrushchev's policy of "no automobiles. "
V. Stability of the Collective Leadership
The present agricultural failure, because of its widespread effects on
domestic and foreign policy, could increase tensions among the members
of the collective leadership. The regime as a whole surely does not want
to reopen the question of agricultural allocations or of major organizational
overhaul at this time, but the need is urgent. To be without grain reserves
after the above-average harvest of 1964 and to be forced again to reduce
gold reserves represent a strategic vulnerability of the USSR, not merely
a threat to the present welfare of its people. The failure of agriculture
(and, to a lesser but important extent, of the economy as a whole) to respond
to present programs strengthens the hands of those who are now making
radical proposals for change, such as a sweeping reorganization of the
central administrative apparatus or a shakeup of the kolkhoz system of
collective farming. Unresolved problems increase the likelihood of leaders
with radical programs coming to the fore. The direction that these changes
might take is unpredictable, however, since it would depend on political
infighting and highly subjective political judgments.
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CONFIDENTIAL
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 I DOME E p
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St/A/DS Distribution of Current Support Brief No. 65-51, Some
Impitcatiioue of the inadequate Soviet Wheat Harvests (CONFIDENTIAL)
September 1965
Copy No.
Recipient
1 O/DDI, Room 7E32, Hq.
2 O/DDI,
25X1A
3 D/ORR (hand carried by St/P/C. 9 Sep 65)
4 DD/ORR (hand carried by St/P/C, 9 Sep 4S)
5 SA/RR
6 Ch/E
7-8&1?l D/ONE
9 - 14 St/CS
15 St/PR
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21 - 27 D/T (1 each branch)
28 - 34 D/R (1 each branch)
35 MRA
36 - 40 D/P (1 each branch)
41 - 46 D/F (1 each branch)
47 St/PS
48 - 53 D/I (1 each branch
54 - 55 GD/OBI
56 - 57 CD/OBI
58 CD/X/OBI
59 - 64 RID/SS/DS, Unit 4, Room 1B4004, Hq.
65 St/P/A
66 St/FM
67 Analyst/Branch ,D/A)
68 GR/CR
69 BR/CR
70 FIB/SR/CR, Room 1G27, Hq.
71 Library/CR
72 IPI/CR
25X1A 73
74 Chief, OCR FDD
75 DCS/SD
76 OCI/SA/R, Room 5G19, Hq.
77 DDI/CGS, Room 7G00, Hq.
78 - 79 DDI/CGS/HR, Room 7G00, Hq.
80 DDI/RS, Room 4G39, Hq.
LCOFDETAL
I
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81 - 83
84
85
86 - 87
88
89
90 - 98
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108 - 109
110 - 121
122 - * 125
1Z4 170
9101003A002400010001-3
Recipient
D/OSI
D/OBI
DD/S&T/SpINT
OTR/IS/IP, Room 532, 1000 Glebe (1 - OTR/SIC)
NPIC/CSD/REF, Room 15518, 25X1A
NSAL, Room 3W136, Ft. Meade (via GB31, Hq.)
OCI Internal (via SDS/DD/OCR)
NSA _(via GB31, Hq.)
National Indications Center, Room 1E821, Pentagon
State, INR Communications Center, Room 6527, State
Dept. Bldg.
USIA, IRS/A, Room 1002, 1750 Pennsylvania Avenue,
N. W., Attn: Warren Phelps
Defense Intelligence Agency, DIAAQ-3, A Building,
Arlington Hall Station
St/P/C/RR, Room 4F41, Hq. (held in St/P/C, 13 Sep 65)
Records Center
ONFIDENVAL
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17 September 1965
MEMORANDUM FOR: Chief, Dissemination Control Branch, DD/CR'
FROM Acting Chief, Publications Staff, ORR
SUBJECT Transmittal of Material
It is requested that the attached copies of CIA/RR CB 65-51, Some
Implications of the Inadequate Soviet Wheat Harvests, September 1965-#
Confidential, be forwarded as follows:
State, INR Communications Center,
Room 6527, State Dept. Bldg.
Suggested distribution for
Embassies in Berlin, London,
and Moscow
25X1A
Attachments:
Copies 34 - #236 of CB 65-51
cc: Cl f RB
FED
91, m~mor r urn ha been cumPletadr
B Y
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Dafe:
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Project No. 00. 5275
Report Series CIA/RR CB 65-51
Some Implications of the Inadequate Soviet Wheat Harvests (Confidential ..
Responsible Analyst and Branch , D/A 25X1A
RECOMMENDED DISTRIBUTION TO STATE POSTS
-`merlin, Germany
Bucharest, Romania
Budapest, Hungary
--Moscow, USSR
Prague, Czechoslovakia
Sofia, Bulgaria
Warsaw, Poland
Europe
Belgrade, Yugoslavia
Bern, Switzerland
Bonn, Germany
Brussels, Belgium
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;co
UNTIAL
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OF ORR PUBLICATIONS FOR SECURITY/SANITIZATION APPROVAL
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25X1A
A.%:rt~~~v} `t ' 1 A ta.
ILLEGIB
rnli1rr for iage n ` f 'r ro is
t i`?..I?' ,.? -?... s._r ..;._- r - e s r a-. rat .!~`C'.~.f;. J- ed
me }+~eair .r
.4 no.gj- ?le 4f the ~di reran entitled Sotrie im^ is Tian s of
ogim { e 3o'ai f-t `neat P. r-TTe {3
TO: LS/CR 25X1A
if the second sentence of the first paragraph under U. page 2 is changed
to read as follows, the brief may be used as unclassified without attribution to
CIA:
"In 1963, reported contracts for machinery were valued at more than
$500 million, in 1964 they fell to about $300 million, and as of 31 August 1965
they stood at less than $200 million. "
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6 October 1965
MEMORANDUM FOR: Chief, St/P/C
THROUGH: Chief, ERA 1/i' /~
SUBJECT: Release of Current Support Brief to USIA
1. With reference to the request of USIA for unclassified
use of CB 65-51, Some Implications of the Inadequate Soviet Wheat
Harvests, the following changes in the text are proposed:
On page 2 of the CB, the second sentence of the first
paragraph under II, should be changed to read:
"In 1963, reported contracts for machinery were valued
at $554-mA:11iei3 more than $500 million, in 196+ they
fell to $319- 11i-ee. about $300 million, and as of 31
August 1965 they stood at e~~ - 1 Q- i11 9 less than
$200 million."
Everything else in the CB may be considered unclassified.
25X1A
25X1A
Distribution:
Orig. & 1 - Addressee
1 - OCh/E
1 - OD/RR
1-D/A
ORR/D/A/ :ec/5913
Jam.. ,.1'.;_ ii S4i:c~t
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 11 CENTRAL INTEL.LIGF NCE AGEN\CY
WASHINGTON 0 ,,\i. 20505
OFFICE OF THE DEPUTY UIRE4(OR FOR INTELLIGENCIE
10 September
MEMORANDUM FOR: *See Reverse Side
or Release 2001103/16 CIA-RDP79T01003A002400010001-3
1965
Implications of inadequate
Soviet Wheat Harvests
1. Earlier this week I sent you an
intelligence memorandum on the USSR's faltering
in its economic race with the U.S. You may
also find of interest the attached related,
but somewhat more narrowly focus o, paper,
"Some Implications of the Inadequate Soviet
Wheat Harvests."
2. To pay for needed wheat purchased
abroad, the USSR has resumed selling gold
and appears to be cutting,,- back on imports
of machinery and egtuipment from the West .
This comes at an awkward time for the Soviet
leaders, and the present agriculture failure
could increase tensions among them.
STATINTL
RAY S/'~LINE
Deputy Director ,f r Intelligence
Attachment
CIA/RR' CB 65-51
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*Td ntj_ca1 Memos s!,nt tco:
1'72 - 1Iubc.z l II. HutnpIiI y 185-Thomas L. Hughes
1.73 ---Dean frisk 186-Lt. General Joseph Carroll
174---R -sbert S. McNamara 187-Lt. Gen. Mrshall Carter
17'j,---McGeorge Bundy 188-Bromley Smith
176---Cyrus R. Vance 189-Francis Bator
1.77----John T. McNaughton 190-Gardner Ackley
178---Lt. General A. J. Goodpaster George W. Ball -191
179----Charles L. Schultze 192-Thomas C. Mann
180----Henry H. Fowler 193-Llewellyn Thompson
181----Leonard H. Marks 194-W. Averell Harriman.
182---David E. Bell 195-Walt W. Rostow
183---John T. Connor 196-John M. Leddy
184-----Orville L. Freeman 197-Anthony Solomon
STATINTL O/DDI:
Distribution:
Original - Addressees w/att
4' - D/ORR w/o att
1 -- OCR/Liaison w/o att
1 - O/DDI Chror.o w/o att
1 - Policy Dissem w/o ''At
1 - Exec Chrono w/o att
1 - D/BPAM w/att
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