The great grain robbery was the July 1972 purchase of of grain 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 other crisis. Soviet negotiators worked out a deal to buy grain on credit, but quickly exceeded their credit limit. American negotiators did not realize that both the Soviets and the world grain market had suffered shortfalls, and thus subsidized the purchase. The strategy backfired and intensified the crisis: global food prices rose at least 30%, and grain stockpiles were decimated.
Background
Due to the Soviet agricultural system, the cold climate, and frequent irregular droughts, crop failure was common in the Soviet Union. Soviet policies had led to disaster before, chiefly the 1932 Holodomor, in which at least five million died of disease and starvation. The problem was heightened by the fact that only a small fraction of the Soviet Union was arable land, the majority of which was contained in an area known as the black earth belt. In 1972 there was a drought across Europe. Soviet mismanagement of the situation led to catastrophic wheat crop failure. Additionally, the USSR had suffered an extremely hot summer with temperature comparable to the heat experienced during 2010 Northern Hemisphere heat waves. This caused the Soviet Union to look to the global market to meet their grain needs.
Event
The main negotiations for the deal took place on June 20th 1972 at The Madison hotel in Washington, D.C., with two Russian teams, one led by foreign trade minister Nikolai Patolichev and the second led by Nicolai Belousov. The Americans were negotiated for by multiple businessman and government officials. This included Michel Fribourg, the CEO of 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. The original deal had the Soviets buying around $750 million worth of grain during a 3 year span. However, the Soviets quickly exceeded their credit limit, spending the $750 million in only one month. The Soviets are thought to have spent up to US$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 crop shortfalls in 1971 and 1972. American ignorance of the Russian situation was due in part 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 contributed to domestic food prices rising, and lost significant revenue by choosing to subsidize the purchase instead of offering it at market price.
Aftermath and international consequences
Weeks after the 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 never have happened at all, because American negotiators could have realized the scale of crop failures. The 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. In a ten-month span in 1973, global food prices rose by at least 30 percent and some sources claim up to 50%. In some British markets there was a reported 87% increase on the price of an loaf of bread. Global wheat stocks decreased exponentially; Australia was 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 were able to pool stocks and sell as a collective. 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 and it is generally accepted that it was coined by Senator Henry M. Jackson.
