Between July 5 and Aug. 9, 1972, the Soviet Union secretly contracted to buy 16.45 million metric tons of wheat, corn, barley and soyabeans from six multinational grain companies.
Details of the transaction - probably the largest commodity deal in history - were not made public by the U.S. government at the time. Senior U.S. officials testified subsequently that they did not posess the information.
However, these assertions of the government's ignorance of what was happening in the markets are contradicted by declassified documents of the Central Intelligence Agency.
The grain sales helped spur the fastest rise in food prices since the Civil War. U.S. grain stocks were depleted. In 1974, American food assistance to developing countries was reduced because of concern over the availability of grain for flour millers and farmers at home. Sen. Henry M. Jackson (D-Wash.) nicknamed the episode "the great grain robbery."
Secretary of Agriculture Earl L. Butz was to testify later that he did not know the magnitude of the transactions until they were disclosed by a senior official of Continental Grain Co. at a House Agriculture subcommittee hearing Sept. 19, 1972.
In a report issued July 9, 1973, the Government Accounting Office accepted the view that the Department of Agriculture did not know the volumes committed to the Russians.
"Early in September (1972), Argiculture was still unaware of the quantities involved," the 1973 GAO report said.
Officials of the Department of Agriculture also cited their lack of information to explain why they waited until Sept. 1, 1972 - nearly four weeks after the sales were completed - to discontinue paying subsidies to companies that exported U.S. wheat. (The subsidy program was devised to promote U.S. grain exports during the long period of sluggish commercial demand after World War II.)
Yet by Sept. 1, 1972, the USDA had received two reports from the CIA's office of economic research leaving no doubt about the magnitude of the transactions that had taken place.
A CIA memorandum to the USDA dated Aug. 11 stated:
"In July and August, the Soviet Union negotiated further purchases of unprecedented quantities of grain from U.S. companies. These new contracts, taken together with additional orders for Canadian and French grain, place total purchases for fiscal 1973 at more than 20 million tons."
On Aug. 31, an even more detailed report, this one stamped "secret," was transmitted to Assistant Secretary of Agriculture Carroll G. Brunthaver:
"Total (Soviet) contracts with all countries for delivery during FY 1973 now total 24.2 million tons worth almost $1.5 billion, three times the quantities imported in FY 1972 and more than twice the amount bought after the disastrous harvests of 1963 and 1965 . . . These imports of grain will be largely from the United States - 17.5 million tons - with the remainder from Canada, France, Australia and Sweden."
The CIA had obtained the detailed of the trading from the grain companies through its "domestic collections branch." But the details were not conveyed to farmers, flour millers and food precessors for whom grain prices and grain supplies are crucial.
Seven years after the events of the summer 1972, the grain trade is still one of the most mysterious of all businesses, and the multinational grain companies still are shadowy.
Since 1972, the government has instituted some modest controls over the activities of the companies. The Department of Agriculture now requires companies to report their sales of U.S. grain to foreign countries, and the department publishes this information weekly.
A new, independent agency - the Commodity Futures Trading Commission - oversees the exchanges where grain futures are traded. A new Federal Grain Inspection Service - established following indictments and disclosures of corruption and conflict of interest in the former mixed public/private system - certifies the quality of grain destined for customers abroad.
Yet the major international grain companies continue to operate with broad freedom and flexibility at the center of the global food system.
Information about the companies is as fragmentary as data on the global maneuverings of the major oil firms. As in oil, the grain houses know more than governments about the price of commodities at hundreds of locations, supply and demand for crops, and the loopholes in the myriad of local and federal regulations at home and abroad.
They are prototypes of the far-flung multinationals that are integral components of the world's economic power structure.
"The impression that governments are running the system is false," an official of the Organization for Economic Cooperation and Development said of the grain companies.
In the case of the grain multinationals, a uniquely private, closely held structure of ownership and control further complicates the task of policy-makers and regulators.
Only two of the leading five grain multinationals - Cargill of Minneapolis and Continental of New York City - have their headquarters in the United States.
Andre, which operates grain and other businesses in the United States, is based in Lausanne, Switzerland.
Louis Dreyfus, which handles between 5 percent and 10 percent of U.S. grain exports, oversees a vast empire of shipping and banking from a blue-tinted glass headquarters a few blocks from the Arc de Triomphe.
Bunge, which was believed at one time to be the largest privately owned company in the world, was based in Buenos Aires until two of its executives were seized by guerillas in 1974 and released for a reported $60 million ransom. Today, Bunge's high command is said to reside in Madrid and Sao Paulo.
In 1978, a sixth large grain firm, Cook industries of Memphis, sold its major grain depots and upstream elevators to the huge Japanese trading house Mitsui - thereby giving Japan a crucial foothold in the U.S. grain system.
Several years ago, Cargill sold Swiss Credit Bank a 50 percent interest in its major overseas grain trading subsidiary, a Geneva-based company called Tradax Export.
These developments have put foreign companies in control of much of the global grain trading system - a fact that complicates the task of U.S. regulators, tax collecters, information gatherers and policymakers.
To this problem is added the structure of family control of the companies - a relic of old-style entrepeneurism that has survived into the era when other baronial capitalists with the names Ford and Firestone have surrenderedm or are surrendering, direct control over the modern multinationals that still bear their names.
Seven families own most of the controlling stock and exercise management authority over the five major companies: the MacMillans and Cargills at Cargill, the Fribourgs at Continental, the Borns and Hirsches at Bunge, and the Louis-Dreyfuses and Andres at the companies with those names.
All these family companies began in the 19th Century as "middlemen" and "merchants."
But the grain companies long ago outgrew this period in their development, channeling grain profits into other enterprises and evolving into giant conglomeratss with a wide variety of interests in milling, paint, glass, mining, steel making, shipping, banking and insurance.
The Paris house of Louise Dreyfus, for example, owns businesses as diverse as restaurants in France, hotels in Brazil, real estate here in Washington, a meat-packing plant in the Midwest and irrigation systems in the Middle East.
Since 1972 the companies have used industrialization and expansion into food processing to limit their risks and exposure in the unusually volatile and unstable commodity markets.
None of the companies has posted more impressive growth than Cargill, the Minneapolis firm that is the world's largest grain company.
In the 14 years since William W. (Will) Cargill staked out an interest in a wooden grain elevator in Conover, Iowa, Cargill has grown purposefully and relentlessly. As American grain and food has increased in political and economic value in the last decade, Cargill has strengthened its position in this sector of the economy.
Its sales for fiscal 1978 were $11.6 billion - a figure that would rank it 18th in the world and 13th in the United States, ahead of such giants as U.S. Steel and Du Pont on Fortune magazine's list of leading manufacturers. (Cargill is a manufacturer; it began building steel barges several years ago, and in 1978 it broke ground for a $70 million steel mill.)
Company assets have increased from $300 million to an estimated $1 billion in the last nine years, and returns on equity have ranged as high as 30 percent. (Earnings in 1978 were $121 million.)
The primary beneficiaries of this economic acitivity are members of the MacMillan and Cargill families - brothers and cousins who are all descended from Will Cargill, himself the son of a Scottish sea captain.
Among public-spirited, community-minded Minneapolitans, these families long have been considered somewhat standoffish - perhaps because they are Scots in a community of transplanted Yankees and immigrant Germans and Scandinavians.
But while old milling families such as the Pillsburys and Heffelfingers now share control of their firms with public stockholders and professional managers, the Cargill families are still in undisputed command.
In 1977, Will's great grandson Whitey MacMillan became chairman of the board. The current president and chief executive officer is nonfamily - M.D. (Pete) McVay, a career Cargill man and son of a Kansas wheat and cattle rancher.
But the family is in control.
The principal stockholders are eight members of the two related families. Whitney's cousin, W. Duncan MacMillan, is also a member of the board of directors, and two other cousins, Cargill MacMillan Jr. and James R. Cargill, are senior vice presidents.
If their company never traded another bushel of grain, or if it gave up all its foreign operations, it still would be a very large agribusiness industry. Recent acquisitious have made Cargill the ninth largest flour miller and one of the four leading soybean crushers (crushed soybeans make animal meal and vegetable oils used in margarine and other products). Cargill sells hybrid corn seeds, poultry, starch and corn sweeteners, and owns four feedlots in Texas and Oaklahoma capable of fattening 185,000 steers a year.
In March, Cargill donned still another hat. It became the second largest meat packing company in the nation. For $67 million cash, it purchased MBPXL Co. of Wichita, which owns plants that can slaughter up to 750,000 beef cattle a year - about 5 percent of the national total.
Cargill presides over its global domain from a 63-room, replica French chateau hidden away in the woods outside of Minneapolis (known in the grain trade by the somber nickname, "the castle."). As a concession to growth, a $15 million, pagoda-shaped office building designed by Philadelphia architect Vincent G. Kling recently was built nearby.
From there, Cargill's high command watches over a far-flung confederacy of 140 affiliates and subsidiaries employing 30,000 persons in 36 countries.
One example illustrates Cargill's vast reach.
A Cargill subsidiary in Galt, Ontario, regularly calculates the most economical feeding rations for Philippine chicks, and telexes this information to a company in Manila that sells laying hens or chicks from Cargill's hybrid line under a franchise arragement.
(In the Philippines, Cargill also buys sugar from planters and brokers, processes copra at a plant in Mindanao and hauls steel in the coastal trade.)
Cargill's grain trading operations moved abroad after World War II - following the vast expansion of U.S. grain exports.
In 1955, Cargill set up a subsidiary called Tradax in a residential canton of Geneva, after obtaining tax concessions and guarantees against financial snooping by Swiss authorities.
Today, Switzerland has become a major center for all the grain companies. Continental's offshore trading base is also in Geneva, and Socef and Zurfin perform similar functions for Louis Dreyfus and Bunge in Zurich.
In the early 1960s, the Cargill and MacMillan families established the Salevia Fountation in Switzerland. The foundation took a 30 percent interest in Tradax international of Panama, a tax-haven company which operated through "management contracts" in Switzerland with Tradax, the operating arm of Cargill abroad.
Some of the dividends accruing from Cargill's overseas operation were channelled into the family foundation and sheltered from U.S. taxes until they were distributed to family members. In 1976, the beneficiaries of the foundation were 33 members of the MacMillan and Cargill families.
In 1975, Congress passed a tax reform act that eliminated some of the tax-haven provisions in the existing law, making it more difficult for foreign subsidiaries of U.S. companies to defer paying taxes on income earned abroad.
But as Congress was working on this legislation, Cargill was taking a step that excluded Tradax Export in Geneva from the provisions of the tightened tax law: It sold Swiss Credit Bank a 50 percent interest.
Cargill officials will not comment on the sale other than to acknowledge that it was done for "reasons of taxation."
Tradax's extensive global operations caused the Senate subcommittee on multinational corporations to ask questions in 1976 about the company's impact on U.S. policy.
In the early 1970s, Tradax was sole agent for the Australian Wheat Board, selling Australian wheat to Iran in competition with American wheat.
In 1975, Soviet traders dealt with Swiss-based multinational grain companies - including Tradax - in secretly lining up delivery of almost 10 million tons of U.S. grain. The Ford administration subsequently put a moratorium on additional sales, and Secretary of State Henry A. Kissinger attempted to hold up delivery of the grain in return for Soviet delivery of its oil at a special discount. The scheme failed in part because the multinational companies continued to supply the Soviets with grain from non-U.S. sources.
From 1968 on, multinational grain firms have handled the exportation of at least $250 million worth of Rhodesian maize (corn) in contravention of United Nations trade sanctions. U.N. investigators charge that Swiss companies have been involved in the Rhodesian maize trade.
If Switzerland provides special conveniences for handling grain woldwide,it offers even more inducements for moving money around.
Enormous amounts of money flow through the companies as grain is bought and sold - a fact that has led to comparisons with international banks.
Grain is a highly liquid asset which can be converted into money and back into grain in no more time than it takes to buy or sell a cargo of wheat of soybeans on the telephone.
"Hedging" grain - buying or selling futures contracts in places such as Chicago or Minneapolis to protect against changing grain prices - involves moving huge volumes of foreign exchange to and from Europe.
Tradax, buying a cargo of corn in Europe, might need to see $1 million of futures contracts in Chicago to "hedge" this purchase, a sizable shift of foreign exchange, but all in a day's work for the great modern merchants. CAPTION: Picture 1, Gantry can load two vessels at once; Picture 2, Buckets scoop 50,000 bushels in 30 minutes. Cargill Inc. photos