1 1 Approved For Mease 2oo$Ji B l'RDP79T00429M00100020003-4 co OCI No 2357 63 r · Lil CENTRAL INTELLIGENCE AGENCY Directorate of Intelligence 26 September 1963 MEMORANDUM SUBJECT CIA Reporting on the Soviet Grain Situation 1 CIA has been aware for several years of the stagnation of Soviet agriculture and has reported in detail on crop leveli and their impact both on the consumer and on Soviet national policy Because the USSR apparently began in 1958 to inflate its annual claims for grain production it became necessary from that year on for CIA to make independent estimates based on weather conditions acreage and when possible direct observation of crop conditions by Western observers These estimates prepared by the Office of Research and Reports ORR are as follows Grain million tons 1958 1959 1960 1961 Soviet claim 141 2 125 9 134 4 137 3 CIA estimate 125 100 100 115 ---1962 1963 147 5 n a 115 105-115 tentative 2 These figures consistently far below Soviet claims have provided the basis for a conclusion accepted by the intelligence community that the failure of food production to keep pace with population growth when coupled with the demands of modern weapons technology was facing the Soviet leadership with serious problems of resource allocation 3 Crop estimates derived by these indirect methods are not exact however and this is equally the case with cons_umption estimates CIA has t_herefore been unable to produce even speculative figures on the Soviet grain stockpile on which no direct information is available An error of 1-2 percent in Approved For Release 200 l1 DP79T00429A000100020003-4 Approved For ease 200 i RDP79T00429Mb0100020003-4 either production or consumption estimates over the last five years would have a cumulative effect of 5-10 million tons in estimates of reserve levels As a result while CIA was able to surmise that reserve levels had been seriously drawn down by four years of poor to mediocre harvests to state that ''extraordinary measures would be required to prevent consumer dissatisfaction to identify some of these measures in the chemical industry and to predict that the 1963 harvest would also be mediocre at best it was not able to foresee specifically that the USSR would suddenly find it necessary to make massive purchases in the Western market 4 Estimative reporting on the Soviet economy over the last six months has been based specifically on the conclusion that agriculture has stagnated since 1958 While of necessity dealing with economic problems in fairly general terms it spelled out the dilemmas with which these problems presented to Khrushchev and discussed their implications for· Soviet domestic and foreign policy An account of Office of National Estimates reporting is attached as Appendix A 5 Current reporting has discussed more specifically--wltfiln the same analytic context--crop prospects the consumer and the various efforts made by the Soviet Government to deal with its agricultural problems CIA has reported that the food supply though judged to be generally adequate in terms of calories has failed to keep pace both with population growth and with the growing aspirations of the Soviet _people for a higher standard of living It has frequently pointed out that the Soviet diet is monotonous and that its quality has not improved significantly for several years It has shown that the Soviet regime is aware of these problems but that until recently it3 att mpts to solve them have been mainly concentrated on ineffective organizational gimmickry During the past six months Current intelligence in this field while published by the Office of Current Intelligence is primarily the responsibility of the Office of Research and Reports ORR Excerpts from this reporting are attached as Appendix B -2Approved For Release 200 t 9jfj 1 f DP79T00429A000100020003-4 Approved For Ptl 'fease 2o ii GR8 l'RDP79T0042 0100020003-4 it has reported frequently on signs that Moscow has grown sufficiently alarmed about the situation to make plans for significant resource reallocations in favor of agriculture and to develop its chemical industry in support of agriculture One aspect of the latter program is apparently to be imports of large amounts of chemical equipment from Western suppliers 6 The Current Intelligence Weekly Review CIWR of 30 November 1962 noted that food supplies would remain tight throughout most of the bloc during the winter of 1962 and the spring of 1963 The Central Intelligence Bulletin CIB of 19 December reported that the USSR's net agricultural output-that available for human consumption and as a raw material for industry--had declined to about the 1958 level Production of potatoes an important food for both man and beast in the USSR was the lowest since the early post-war years In January CIA wrote in the CIWR that extraordinary measures to compensate for the poor harvest in 1962 would be required to prevent rising consumer dissatisfaction in the coming months Winter wheat and rye are important in the USSR and poor weather during the winter of 1962 led CIA to the conclusion reported on 21 February that an outstanding agricultural perfor ance in 1963 could not be expected even if the weather improved considerably later in the spring By June it seemed clear and ORR so reported that the bloc could expect at best a mediocre harvest The CIB of 15 August reported that the Soviet grain harvest would apparently be mediocre Finally the CIWR of 6 September concluded that the grain harvest may be even smaller than last year's 7 A corollary of reporting on crop conditions has been reporting stemming from Khrushchev's desire to improve the consumer's lot Over the past year CIA has pointed to growing consumer dissatisfaction with the wide disparities between Khrushchev's glowing promises and the actual performance of the economy Beginning in April CIA reported what appears to be a new commitment by Khrushchev to make a major increase in investment in the chemical industry particularly in support of agriculture On 12 April CIA noted that several Soviet agencies had met on the problems of improving public services and increasing the quality and variety of consumer goods and -3Approved For Release 2001ffit ' DP79T00429A000100020003-4 Approved For Rffl ease 2oo fi DP79T00429 o100020003-4 related this to concern over stagnating agriculture and the need to provide greater incentives to the workers There has also been a considerable volume of current reporting on the numerous overtures made by Moscow for the purchase of chemical equipment from the West ORR has also reported on possible new goals for agricultural chemicals and evaluated their effect on the economy Excerpts from this reporting are attached as Appendix C -4- Approved For Release 2001§ DP79T00429A000100020003-4 Approved For ase 2oo'l W- i DP79T00429 100020003-4 APPENDIX A 26 September 1963 ONE Coverage of Soviet Economic Problems 1963 1 The Office of National Estimates was sufficiently impressed with Soviet economic problems at the beginning of the year to produce a National Estimate concerning the Soviet economy the first of its kind Indeed its interest in this area prompted it to concentrate specifically on problems as such rather than seek to produce a comprehensive study of the economy as a whole accordingly this estimate was titled Soviet Economic Problems NIE 11-5-63 concurred in by USIB on 20 March 1963 2 In the conclusions to this paper it was noted that competing demands generated by a broad array of objectives had generated increasingly severe pressures on Soviet resources Military · and space spending had grown at a considerably faster rate than the economy as a whole and the resulting impact has been felt both in industry where growth rates have declined and in agriculture where output has failed to rise above the 1958 level It foresaw accumulating difficulties in the USSR's efforts to raise living standards and perhaps a further slowdown in the tempo of general economic advance The drafters were not at the time sanguine about prospects for major changes in the pattern of resource allocation but noted that this problem will probably be a central issue in the political contention which we anticipate after Khrushchev's departure 3 In a staff initiated memorandum of 24 June Staff Memorandum No 37-63 Khrushchev's Comeback'' ONE dealt at some length with a number of problems which had been agitating the Soviet leadership during the winter and spring months among them economic problems of crucial importance It adduced that by April and May there had been a return to more conventional Khrushchev-oriented policies specifically those aimed at agriculture the chemical industry and the consumer It was ONE's opinion that a number of leaders had sought to impose on Khrushchev a set of more conservative economic policies stressing the primacy of heavy industry and defense needs but that ultimately such efforts had failed Approved For Release 200 1JitiJ RDP79T00429A000100020003-4 Approved For M'lease 2o JiGR Ei7-'RDP79T0042W00100020003-4 4 Next in a paper which became a CIA Memorandum Soviet Policies and Problems on the Eve of the Moscow Negotiations 3 July 1963 ONE reflected in part the analysis discussed above and in addition devoted three fairly lengthy paragraphs to economic problems per se It noted that these problems had occupied a central position in the disputes agitating the Soviet leaders during the winter and ear·ly spring that the domestic economic difficulties faced by the Soviets became evident in the slowdown in rate of growth which appeared by 1960 in all sectors of the civilian economy and attributed this phenomenon to ''past reductions in the workweek stagnant agricultural production and most important the impact of growing military expenditures ONE examined the failure of the Soviet leaders to anticipate a period of increased pressures on available resources and cited some of the more or less ineffectual steps taken by the leaders to remedy the situation Finally ONE thought that as a consequence of all this the Soviets were likely to undertake a review of all priorities Again it w as not optimistic that such a review would lead to a reduction in military and space spending but noted that Khrushchev has apparently already decided to allocate greater resources to agriculture and to those branches of the chemical industry which support agriculture and produce consumer goods 5 In another CIA Memorandum The New Phase of Soviet Policy 9 August 1963 we sought to tie together a diverse set of problems which led to the signing of the limited test ban treaty and to what appeared to be a ·major turn in Soviet foreign policies We assigned a principle role in this causal relationship to internal factors most notably economic problems Present evidence suggests that an important eason for Khrushchev's acceptance of a llmited test ban is the desire to ease the military burden on the Soviet economy so that more resources can be devoted to urgent civilian programs Khrushchev we concluded wishes to be able to point to an improved international atmosphere in order to forestall objections that his shift of resources endangers Soviet security -2Approved For Release 200 JtlAJRDP79T00429A000100020003-4 Approved For Mlease 2008EtGR6AlR oP79T00429Mb0100020003-4 APPENDIX B 26 September 1963 Excerpts from Current Intelligence Reporting 1 Crop prospects reports November 1962-September 1963 a The Current Intelligence Weekly Review CIWR 30 Nov 62 Food supplies will remain tight throughout most of the Sino-Soviet bloc during the winter of 1962 and spring of 1963 In the USSR agricultural output in 1962 made almost no gain for the fourth straight year and grain output is no larger than the mediocre 1961 crop food shortages will probably develop in some parts of the country Qrain production in Communist China will be only slightly better than the poor 1961 harvest and the Chinese consumer is in for another hard winter Since 1958 the gap between Soviet claims and US estimates has widened appreciably perhaps because of some form of statistical manipulation or falsification by the Soviets A directive on determining the grain harvest was issued by the Soviet Centr l Statistical Administration early in 1958 but its contents have never been made public b The Central Intelligence Bulletin CIB 19 Dec 63 Recent Soviet statistics suggest that this year's net agricultural output--that available for food and as raw material for industry--declined to about the level of 1958 Production of potatoes a mainstay in the Soviet diet was the lowest since at least 1950 While caloric intake will not be deficient there will be shortages that will increase popular disillusionment with Khrushchev's promises for a continuously improving outlook for the consumer c CIWR 18 Jan 63 Extraordinary measures to compensate for Ti'st year's poor harvest will be required to prevent rising dissatisfaction among Soviet consumers in the months ahead Civil unrest reported to have broken out in some localities last year may occur on a larger scale d CIWR 21 Feb 63 Poor weather ti is winter-with its potential consequences for the economy--is causing concern throughout the Sino-Soviet bloc It is too early to assess the likely effects on farm output for the entire year but it seems clea r that an outstanding performance is not likely even if favorable weather ensues Approved For Release 200 DP79T00429A000100020003-4 Approved For Jlik fease 2001 08 14 CIA-RDP79T00429Mt 0100020003-4 e Current Support Brief 17 Jun 63 ' urrent prospects are that the harvest for 1963 in the Sino-Soviet Bloc probably will not be any better than the mediocre harvest of last year although weather conditions during the remainder of the crop season will be most significant in determining the final outcome Fall-sown grains in the USSR as well as in some of the European Satellites were adversely affected by a dry fall and a severe winter As a result there have been higher than normal rates of winterkill of fall-sown crops in some areas Consequently prospects for grain crops sown in the fall of 1962 in the USSR are judged to be only fair and range from fair to poor in the European Satellites f CIB 15 Aug 63 The Soviet grain crop apparently will7 e mediocre this year for the fourth year in a row 25X6 Moscow announced that the 1962 crop was the largest in history 1 but actual production probably was well below the amount claimed g Economic Intelligence Report Sept 63 In November 1962 Party-State Control Committees were established at all administrative levels of the Soviet economy to ··•·re-establish Leninist principles of organizational control ' These committees which collectively resemble the organization of the old Stalinist State Control Ministry have a charter to pry into every aspect of economic activity and the power to punish those guilty of 'bureaucratic administration ' fraud bribery and violation of partygovernment regulations Although these committees are not confined to agricultural organizations the need for their establishment may have arisen out of the agricultural situation The stagnation of Soviet agriculture during the past 4 years has limited the incentives of both agricultural and industrial workers and the regime may have been forced to resurrect this elaborate control mechanism as an alternative means of improving productivity h Special Report 6 Sept 63 Current prospects are that the 1963 harvest in the Communist world will be little if any 1 better than the mediocre one of last year In the USSR this year's prospective disappointing grain crop--the fifth in a row--may be even smaller than 2 Approved For Release 2001 08 14 CIA-RDP79T00429A000100020003-4 Approved For'Mease 2001 08 14 CIA-RDP79T00429W00100020003-4 last year's In Eastern Europe the harvest of small grains is unlikely to be larger than in 1962 but prospects vary considerably among the various countries i Current Intelligence Digest l 18 Sept 63 The Soviet regime may be preparing the population for an increase in the price of bread and other grain products The US Embassy has reliable information that meetings have been held recently in plants and apartment houses to hear a note from the party central committee describing difficulties with the harvest The note is said to indicate that because of poor harvest prospects grain collections are likely to reach only 75 percent of the plan It also said that the regime was making efforts to buy extra grain abroad Soviet citizens are apparently interpreting the note as a move to soften up consumers for price rises on bread and bread products About half of the diet is made up of grain products which have long been available at low prices v j CIB 17 Sept 63 The Soviet Union may be preparing to admit publicly to one of its poorest harvests in recent years On 12 September a TASS commentator said that the state procurement of grain--about one third of total production and a fair indicator of production trends --would be about equal to that for 1959 and 1960 This would mean nearly an IS-percent decrease over last year in procurements although a 21-percent increase had been planned 9 3 Approved For Release 2001 08 14 CIA-RDP79T00429A000100020003-4 Approved For l'tt lease 2oodJ 8 4RB «l RoP79T00429M 0100020003-4 APPENDIX C 26 September 1963 Excerpts from Current Intelligence Reporting 1 Khrushchev the Con'sumer and Agricultural Priority March-September 1963 a Special Report 22 March 63 While the consumer has always been the stepchild of the Soviet economy his fortunes have been improving since World War II Khrushchev has boasted of this improvement and has made sweeping prornises for the future Al though resources allocated to consume·r interests have not been significantly increased more consumer durables have been produced each year the food situation has improved and the official promise to end the critical housing shortage has seemed attainable At the same time rising incomes have enabled workers and peasants to take advantage of the increased opportunity to improve their standard of living · In 1961 and 1962 however the rate of improvement in consumption levels slowed down and in 1962 the consumer experienced several shocks unprecedented in the Khrushchev era and unlikely to increase his confidence in promises for the fu ture A 30-percent rise in retail prices for meat and butter the temporary suspension of income-tax cuts and the news that for the third year running the housing plan would be underfulfilled by a large margin all came in quick succession The year-end reports on plan fulfillment while better than in 1961 still showed a particu larly spotty performance in the consumer sector Khrushchev's reason for adding to the woes of the already discouraged consumer apparently lies in the inflationary trend over the past two to three years Consumer industries and agriculture have not been able to keep up with the demand resulting from increased disposable incomes b Current Intelligence Weekly Review 12 April 63 The Supreme Soviets of several of the USSR's republics met early this month to discuss means of improving public services and increasing the quality and variety of consumer goods These meetings as well as other signs of regime concern for the consumer probably stem from a realization that agricultural failures and the near stagnation in the production of many consumer goods are increasingly serious problems affecting not only worker incentive but also the image of abundance the Communists are striving to create in the underdeveloped countries Approved For Release 200YftfJl ¥DP79T00429A000100020003-4 · Approved For ease 2001 08 14 CIA-RDP79T00429'W00100020003-4 However such improvements as are achieved through the present efforts will--like others in the past--probably be inadequate to meet planning goals or the aspirations of the Soviet public There is no indication that national resources are to be shifted away from defense and heavy industry The equipment needs of both the chemical industry and agriculture continue to receive considerable press attention On 15 March the chairman of the USSR's agricultural equipment supply organization emphasized the importance of meeting the 1963 plan for a 22-percent increase in output of agricultural equipment On his 'vacation' trip last month Khrushchev visited several plants specializing in agricultural chemicals and synthetic fibers Near Tula he visited a urea plant one of four being supplied by the Dutch and said that fertilizer would receive a 'top priority' from the state He ordered that four more urea plants be purchased from the Dutch c CIWR 17 May 63 Investment in Soviet agriculture in 1962 registered the largest annual increase since 1955 This was probably the greatest investment gain allotted any major component of the economy While there is no real basis for determia ing that this is a firm trend the relative increase in priority for agriculture in 1962 might be a forecast of the course of agricultural investment in 1963 Khrushchev on the other hand has been stressing the importance of resource-cheap expedients and has steered clear of new commitments Recent decrees - n certain aspects of farming--e g increasing potato output- have stressed the bootstrap approach for the current season In any event the needs of agriculture are clear Farm production has been virtually stagnant since 1958 but the population has increased by about 14 million The plowing up of millions of acres of fallow and grass lands a program introduced last year has greatly increased needs for equipment and fertilizer d Current Intelli ence Memorandum 17 July 63 Khrushchev in a serious attempt to overcome the stagnation of Soviet agriculture is embarking on a course which if pursued will boost sharply agriculture's claim on economic resources This apparently will be at the expense of priority industrial objectives possibly including those of defense support over the past year there have been indications of a significant increase in agricultural investment including a stepped-up program for production of agricultural machinery n 2 Approved For Release 2001 08 14 CIA-RDP79T00429A000100020003-4 Approved ForWlease 2001 08 14 CIA-RDP79T00429111800100020003-4 e Special Article 26 July 63 Khrushchev appears to be advocating a program which if implemented could profoundly alter Soviet economic priorities In sum he would sharply increase investment in the chemical industry particularly for chemical fertilizers in the hope this would solve his agricultural problem Since the costs of such a program could probably not be fully met by altering priorities within heavy industry or cutting consumer-oriented programs the government might resort to significant constraints on military spending The potential results for agriculture--limited by institutional restraints as well as climatic conditions and the type of soil involved--would be far less than Khrushchev seems to expect and too small to justify a program of the scope he apparently plans f Economic Intelligence Memorandum Aug 63 In a series of statements to Western visitors Khrushchev bas expressed in strong and clear language his proposal to stop the growth of Soviet defense spending and to increase by large amounts spending for agriculture for chemicals in general and for fertilizer in particular The shift in allocation of resources advocated by Khrushchev is primarily responsive to the continuing stagnation in agriculture that began in 1959 Since March 1963 it has become increasingly evident that the Soviet leadership is reviewing plans and priorities for 1964 and 1965 There have been many indications that the leadership or at least Khrushchev has been cor sidering increased emphasis on consumer goods and investment Published sources have been ambiguous and uninformative on both the magnitudes of new resource commitments to these uses and the relative priorities and trends planned for investment and defense Most recently Khrushchev in a conversation with Henri Spaak the NATO emissary disclosed some goals purportedly planned for the next several years--specifically goals for industrial investment fertilizer and other chemical outputs and in vague terms defense In the light of the performance of agriculture in the USSR over the last 4 years a shift of resources in the general direction indicated would be reasonable The magnitude of the shift implied by Khrushchev however is large and would have a considerable short-run impact on the economy These statements clearly perform a useful propaganda service on behalf of Khrushchev's current line of peaceful coexistence and thus are open to legitimate suspicion g CIWR 16 Aug 63 Khrushchev continues to tell Western officii'I'ir-privately that he is about to undertake massive new investments to solve the USSR 's pressing ·agricultural problems and to promote consumer welfare In his most recent conversation along these lines--with US Secretary of 3 Approved For Release 2001 08 14 CIA-RDP79T00429A000100020003-4 Approved For'Wlease 2001 08 14 CIA-RDP79T00429M00100020003-4 Agriculture Freeman on 30 July--Khrushchev linked his new course directly to a reduction in military spending 'We are fed up with rockets we have enough rockets ' he said 'We are going to divert this money to agriculture A program of the magnitude and diversity now being promoted by Khrushchev does not yet appear to be actually under way Agricultural and chemical investment are growing fairly rapidly and imports of chemical equipment are increasing but neither of these on a scale commensurate with the stated program However the seriousness of Khrushchev's intentions may be indicated in the widespread Soviet press campaign which seems to be preparing the way for the announcement of a major new chemical program this fall Likewise in his coversations with Western officials Khrushchev has seemed keenly aware of the detailed cost factors--which suggests that planning work is well under way In pushing the new program Khrushchev will need foreign technological assistance and equipment He has already lauded the US German and British fertilizer programs and suggested that the Soviet Union could learn from these While noting the high prices of American equipment he nonetheless expressed a willingness to buy 'whole plants' from the US adding however that if the US would not sell Great Britain and West Germany would He noted that the USSR has already purchased fertilizer plants from Germany and Holland and has placed orders in Czechoslovakia Poland and East Germany for fertilizer equipment h CIWR 20 Sept 63 Recent Soviet purchases of some $500 million worth of wheat probably stem in large part from a drastic reduction in stockpiles caused by four successive disappointing harvests and a need to forestall a critical grain shortage in the Soviet bloc There are indications that this year's crop will be one of the poorest in recent years Moscow radio implied on 12 September that state procurement of grain--approximately 40 percent of the crop--will be well below last year 25X6 • To ensure better croQs in the future and reduce the necessity for such stopgap purchases the USSR has begun negotiations to urchase chemical fertilizer plants from the West On 13 August submitted on Soviet request proposals for w a appears to e one of the largest lists of chemical facilities ever offered to the USSR It includes five urea plants with a capacity equivalent to about 2 million tons of fertilizer by Soviet standards--60 percent of capacity planned for 1965--and ten complex f ertilizax plants with a combined capacity of 4 million tons The increase in capacity planned for 1963 is 7 million tons '' 4 Approved For Release 2001 08 14 CIA-RDP79T00429A000100020003-4 Approved For l tn'ease 2001 08 14 CIA-RDP79T00429M00100020003-4 1 CIB 24 Sept 63 The Communist youth organization Komsomol- -iias been cal led upon to assist in the completion of more than 50 mineral fertilizer plants before the end of 1963 according to a TASS announcement TASS compared the call-up with the mammoth 'new lands' campaign of 1954-58 during which hundreds of thousands of youths were pressed into service While the 'new lands' program could make good use of inexperienced labor the effecti veness of such labor in the construction of chemical plants is questionable 5 Approved For Release 2001 08 14 CIA-RDP79T00429A000100020003-4