Executive branch officials, in signing the agreement, claimed that it regularizes Soviet purchases, minimizes associated disruptions, and; Assures U.S. farmers a market in Russia for 6 million tons of wheat and corn a year for the next 5 years;

I think if you look at the record of Russian sales in the past, they were intermittent. So this gives some degree of the continuity to their purchasing plan.

It provides additional assured demand which will assist farmers in making planting decisions;

Protects U.S. livestock producers and consumers and other foreign customers from large Russian purchases of U.S. grain without prior consultation;

Provides the United States with $4 billion to $5 billion in potential foreign exchange earnings (at prevailing prices) over the next 5 years; and

Assures that sales under the agreement will take place at the prevailing market price through traditional exporter channels.

Critics of the agreement, including farmers, consumers, and Congressmen contend that it has created additional uncertainty rather than resolving the disruptions associated with massive grain purchases. They claim that the agreement:

Limits the President's authority to impose short supply export controls on corn and wheat;

Fails to include substitutable commodities, such as soybeans and soybean meal;

Fails to clearly cite the authority for such an agreement [a thorough legal analysis of the agreement was not completed until several weeks after it was signed];

Was negotiated and signed without the advice and consent of the Congress;

Is unenforceable because grain is a fungible commodity distributed by multinational corporations whose market activities are not regulated by the agreement;

Fails to provide for Soviet disclosure of forward estimates and stocks as promised in the 1973 Joint Agricultural Cooperation Agreement.

Senator BELLMON. Are we asking questions as we go along?

Senator HUMPHREY. Yes.

Let him run down these items, and then, Senator Bellmon, feel free to ask any questions.

Mr. FASICK. It fails to protect U.S. domestic consumer interests by not restraining the volume of Soviet sales in the event such sales create unacceptable high levels of inflationary food prices domestically;

Fails to comment on the potential for shipment of subsidized grain in the event market conditions change during the term of the agreement;

Represents increasing Government intervention in the market, gives the Soviets privileged market status, and establishes a precedent for government-to-government, long term grain purchasing contracts that may cause other major importers of U.S. grain to seek such agreements and privileged market status.

The controversy growing out of the grain agreement and the Government's voluntary export restraints in 1975 has concerned the Congress. Consequently, we prepared a legal analysis of the Government's actions in these two instances. From our analysis we concluded that:

The President has authority under the Constitution to negotiate international agreements affecting foreign commerce, notwithstanding the constitutional responsibility of the Congress "to regulate commerce with foreign nations";

The suspension of sales to the Soviet Union was based on voluntary action by exporters at the request of the executive branch. Since the suspension was not legally binding, it was a lawful exercise of executive branch authority;

The President has independent constitutional authority to enter into such an executive agreement as the long term Soviet grain purchasing agreement which affects foreign commerce and such action on his part is not precluded by the Export Administration Act. However, the U.S. Government does retain its statutory authority under the Export Administration Act to impose export controls should Soviet purchases be of such a nature to necessitate such action;

The President's authority to institute legally binding and enforceable export controls is derived from and dependent upon the authority delegated to him by the Congress in the Export Administration Act.

It is presently difficult to assess the extent to which the long term grain agreement is a viable and effective alternative to the traditional Soviet approach of substantial buying without prior notification. It has clearly raised additional uncertainties that may only be resolved as its application is tested under a variety of circumstances.

For example, concern will continue over the extent of Soviet responsiveness to the agreement's terms and conditions. And doubt will continue as to how the U.S. Government will manage possible extreme circumstances that may confront both signatories.

Such circumstances include unexpected changes in the market environment and possible difficulties in the foreign policy area that might necessitate reconsideration of the entire issue.

Even with the agreement in force, the 1975 Soviet grain experience clearly reflects a need for the U.S. Government to improve grain export policy decisionmaking and monitoring. U.S. forecasting of foreign supply and demand, particularly for the Soviet Union, is becoming increasingly important.

Soviet production estimates for 1975 were continually revised throughout the summer of 1975. By the end of the crop year, the Soviets released data showing they had produced approximately onethird less than U.S. and Soviet agricultural economists had forecast earlier that year. Poor weather conditions in 1975 and in previous years had been the primary causes for revising Soviet grain production in past years. U.S. officials persisted in portraying the Soviet's 1975 crop in optimistic terms until its production shortfall became obvious.

Agriculture's original forecast of 1975 Soviet grain production was 210 million metric tons. This was less than the 215.7 million metric tons planned by the Soviets, but equal to estimated Soviet utilization requirements. The Soviet Union's poor weather conditions were not considered serious by Western agricultural experts then in Moscow.

USDA production forecasts were revised downward to 200 million metric tons in early June with imports expected at around 10 million. metric tons. Forecasts were again revised downward in early July to 195 million metric tons with 14 million metric tons of imports expected. Poor weather caused late July forecasts to be revised to 185 million metric tons of total grain. By this time the Soviets had already purchased 14 million metric tons including 10 million from the United States and were estimated to need 6 million more tons.

Early August estimates were 180 million metric tons produced and 25 million metric tons of imports. By late October production estimates were down to 160 million metric tons. The early December estimates was 137 million metric tons. A period of 7 months saw production forecasts go down over 70 million metric tons for a near record high to a 10-year low.

Senator HUMPHREY. Senator Bellmon, if you want to interrupt at any time, you may.

We have been informal.

Senator BELLMON. We have passed the point I wanted to raise. Let us go ahead.

Senator HUMPHREY. I just wanted to mention that the CIA, in its forecast on the Soviets in 1975, was much more accurate. They were the first to forecast this low figure constituting a major crop disaster.

Mr. FASICK. As a general statement, the information we have is that the CIA was more accurate in their 1974 and 1975 estimates of Soviet production than the Department of Agriculture.

On the other hand, that is considered classified information by the agency. Only a limited amount of it was made available to us at the time.

Senator BELLMON. Why should it be classified?

Senator HUMPHREY. That is ridiculous. That is my point.
Does the Department of Agriculture get that information?

Mr. FASICK. They do get it, and they use it. They also have to treat it in the sense that it is classified.

Senator HUMPHREY. Does the CIA have a better track record insofar as your review indicated?

Mr. FASICK. In the brief amount of material we saw, we would say yes, and it would make some sense. I think they are in a better position. Senator HUMPHREY. It would seem to me that the Department, if the CIA does have a better track record, would give more weight in its forecast to Central Intelligence Agency estimates.

Mr. FASICK. We believe that the Department is concerned with this problem. The Department is working closely to improve its data and remedy its forecasting problem.

We have seen improvements since 1973, when the Export Reporting System went in. I think they are still concerned, and still working hard trying to improve their data base and their forecasting ability. We do have reason to believe that they are working closely with the CIA material received and the data received from other agencies. Senator BELLMON. The crop forecasting system in this country leaves a lot to be desired, Mr. Chairman.

Mr. FASICK. We wrote a report on that also, not our particular division, but we pointed out that problem, indeed. It is very difficult

to forecast, but we think forecasting can be better. Everybody believes that.

There is room for improvement, although you cannot be precise. Senator HUMPHREY. Well, the forecasts have such a tremendous impact on the market. It is not only the forecasts that may be off, but economically it can have a very serious impact.

Senator BELLMON. There was one released, an unusual one, in April this year, and wheat prices went down 40 cents a bushel.

Sometimes I get the impression they are put out for some deliberate purpose.

Senator HUMPHREY. You do?

Senator BELLMON. I do.

Senator HUMPHREY. Go ahead, sir.

Mr. FASICK. If the United States is to improve its ability to forecast Soviet grain production, develop an appropriate early warning system, and manage Soviet grain sales effectively, it must endeavor to gather more and better data on Soviet production.

This objective can be partially realized by insisting that the Soviets provide the forward estimates called for under the 1973 U.S.-U.S.S.R. Agricultural Cooperation Agreement.

The Russians have provided much of the information agreed to, but one thing they have not provided is the forward grain estimates, and through many efforts on the part of the Department of Agriculture and the State Department they have not gotten it yet.

I think this is very important.

Senator BELLMON. Does your study convince you that the Soviets could provide this information?

Is their internal crop forecasting system better than ours?

Mr. FASICK. I would believe, Senator, with the type of condition that existed in 1975 that we could have come much closer, and it would have been much better off if the Soviets had provided the data forward estimates to us.

I suspect, for political, indeed, even embarrassment reasons, it was not provided at that time because of the policy of the Soviet Government.

Senator BELLMON. I can imagine in a bureaucracy such as theirs, that if I managed one of those State farms, and I was asked how much I was going to produce, I probably would be optimistic.

Senator HUMPHREY. I think that is true. They do not want to have to admit failure for any reason, which is understandable.

Mr. FASICK. On the other hand, the Soviets are becoming, I think, much more enlightened as to the wisdom of good data forecasting, and I think also, as we put more pressure on them, they will recognize our need for the information, and possibly the information will be forthcoming. I think it is an area where we have to continue pressuring them to fulfill their part of the agreement.

A 1975 report, released by the Office of Technology Assessment, on agriculture, food and nutrition systems expressed concern over the increasing importance of the Soviet forecast problem. The report attributed most of the instability in world food supplies in past decades to the Soviet Union's variation in crop yields and changes in national policy. An internal agriculture study on the problem concluded that:

Examination of forecasts for U.S. wheat prices and utilization in 1972-73 suggest that most of the forecast errors were directly attributed to export market factors. More precise and timely knowledge about possible Russian purchases and estimated world grain supplies outside the United States would have improved forecasting accuracy for domestic usage and prices in the wheat economy. Following the Soviet's initial large purchase of U.S. grain in 1972, the U.S. market situation shifted from an abundant surplus to a tight supply situation and back to a relative surplus. Throughout this volatile period, the importance of improved forecasting has grown. The Central Intelligence Agency, Council of Economic Advisers, Economic Policy Board, State Department and other executive branch agencies have become more involved in forecasting foreign supply and demand.

In recent years, it has become clear that trend analyses do not provide reliable forecasts because of inability to interpret the impact of severe weather variations and a variety of nonmarket variables.

Forecasters in various agencies are now attempting to make more detailed analyses of the numerous factors that determine production and consumption, both domestically and internationally.

I think what we are saying here is the State of the art still has much need for improvement.

Export promotion objectives in the Department of Agriculture and throughout the executive branch have traditionally subordinated improved data collection and forecasting. Often, forecasting was employed for export promotion and market development objectives, not to provide high quality data analysis for Government decisionmakers. Given forecasting's limited role in the past, executive branch officials have indicated interest in strengthening the application of forecasting to the management of foreign agricultural policy.

Senator BELLMON. Are you saying in that statement that these forecasts are, to use the bad word, manipulated, when you say forecasting was employed for export promotion and market development objectives?

I do not quite understand what your meaning is there.

Mr. FASICK. Well, the term "manipulation" might be a little strong. Do you want to comment?

Mr. THOMAS. In our view, forecasting of foreign supply and export demand in agriculture over the past 3 or 4 years has been influenced by the operational orientation of the Foreign Agriculture Service which has responsibilities for management of export programs. It seems to have a heavy influence on forecasting foreign demand and U.S. export levels, and ERS, which is primarily an economic analytical unit which also does a lot of forecasting, seems to have its objective analytical role subordinated to the objectives of FAS, which is export promotion.

There is disagreement and conflict between these two departmental subagencies.

Senator BELLMON. If the Foreign Agriculture Service wanted to project whether we had an adequate supply for export, would ERS manufacture a forecast and support that objective?

Mr. THOMAS. Let us just say this. I think the pressures serve the operating group, and do not serve the analytical group within the Department of Agriculture.