The United States is seriously considering putting large quantities of surplus American butter on the world market where it would probably be bought by East Europeans and perhaps the Soviet Union, administration sources said last night.
The current world-market price for butter is about $1.05 a pound, which is roughly half a dollar less than the Department of Agriculture has paid for the 375 million pounds of government-owned butter now in storage. If 200 million pounds of butter could be sold on the world market, this would mean earnings to the government of about $200 million and savings of future storage costs.
But the Reagan administration is concerned that such a sale could also be interpreted as a $50 million "subsidy" by U.S. taxpayers for butter consumption in the communist bloc. This conclusion could be drawn because the butter will be sold not just for less than the government paid for it, but also for about a dollar a pound less than Americans currently pay for butter.
On the other hand, the Agriculture Department sees no prospect that it can sell any of its mountain of surplus butter in domestic markets, leading to the possibility that it would eventually have to be sold off at even bigger losses to make such products as lard.
The administration was earlier at the brink of a decision to go ahead with the butter sale, but now has stepped back a little. Though the State and Treasury departments have given what one senior official called "begrudging approval" to the plan to sell butter, the Agriculture Department is now hesitating out of concern that such a transaction might make Agriculture Secetary John R. Block look too friendly to the Soviet Union and its satellites.
Block was the principal agitator inside the administration for lifting the partial grain embargo against the Soviets, a controversial step President Reagan decided to take last month.
"It has turned into a political decision," one senior administration official explained. A positive decision to sell the butter is still possible, perhaps as soon as today, but more likely next week, the official said.
Wednesday's Des Moines Register carried a report that the administration was planning a huge sale of butter to the Soviet Union, a report that was close to the truth, but the Agriculture Department apparently considered it sufficiently wide of the mark to call the story "false."
In fact the department would sell its surplus butter to American firms who could export it. The butter would be sold on the condition that it be resold anywhere in the world except the United States.
Agriculture Department officials say there is an unusual shortage of butter in the world market this spring. Traditionally the European Economic Community has had a "butter mountain" of surpluses, but for a variety of reasons the EEC mountain has been flattened. Australia and New Zealand, traditional exporters, are also out of butter. East Europe, meanwhile, it anxious to buy, these officials said.
The United States does not normally sell much butter internationally, partly because of the stiff competition, partly because U.S. butter is salted, while most foreign markets prefer unsalted butter. The EEC, Australia and New Zealand can be counted on to protest against a big American sale on the grounds that Washington is "dumping" butter at prices far below the U.S. market level. (In retail markets, butter is selling here for $2 a pound and up.)
The interest of these foreign countries explains why the State and Treasury departments had to clear the proposed sale.