The Reagan administration intends to sell surplus butter to foreign countries under specific restrictions that none of it be resold to the Soviet Union, according to White House sources.
These sources said Secretary Alexander M. Haig Jr. had convinced President Reagan and his top advisers that it would be "sending the wrong signal" to sell the Russians U.S. butter along with the bread provided them by the lifting of the Soviet grain embargo.
Haig's intervention, first in a telephone call to White House counselor Edwin Meese III and then in an appeal at last week's Cabinet meeting, blocked a plan of Agriculture Department officials to dispose of the rapidly mounting butter surplus on the world market, where its almost certain destination was the Soviet Union and Eastern bloc countries. One White House source who is not usually considered a booster of Haig described the secretary of state's Cabinet comments as "eloquent and convincing."
Reagan told the Cabinet after Haig spoke that he was taking the matter "under advisement," meaning he could decide it at any time without necessarily bringing the issue back to the Cabinet or to the National Security Council, which joined in opposing the sale. But the practical effect of the president's action was to send the Agricultural Department back to the drawing board while trade representative Bill Brock explored ways to reduce the butter surplus without sending it to the Russians.
Brock also opposed the sale and both he and Haig cited the unfavorable inpact it would have on New Zealand, Australia and European Common Market countries that are the chief exporters of butter.
The Reagan administration now hopes to overcome some of these objection by selling to nations which are not prime importers from these countries. A butter exporter mentioned both Poland, to which the United States provided $73 million worth of dried milk and butter in April in exchange for nearworthless Polish currency, and Mexico, where butter is reported in short supply.
Secretary of Agriculture john R. Block, while declining to specifically confirm the countries to which the butter would be sent, said there was "a general shortage of butter in the world right now" and a "broad spectrum" of potential buyers.
"It would be almost criminal to take good butter and turn it into dog food when there are people who want to buy it, but that's what will happen if We can't sell it," Block said.
Nonethless, several high-level administration sources said there will be no sale unless the buyer agrees not to resell or transship the butter to the Soviet Union. An Agriculture Department official cited precedence for this in the Nixon administration, which in 1969 and 1970 sold butter to Canada and the United Kingdom under specific conditions that it not be resold.
Haig's argument for attaching conditions to any butter sale was more persuasive than his opposition to the grain embargo for two reasons, according to administration sources. One is that the president had made no campaign promise on this issue, as he did to lift the grain embargo imposed by President Carter. The other is that dairy farmers, who in 1980 received far larger federal benefits than any other group of U.S. farmers, do not enjoy any special sympathy at the White House, which has been trying to reduce their subsidies.
However, the problem of storing the surplus better has become an acute one for the U.S. government; its surplus stocks totaled 411 million pounds at the end of May and are growing by 10 million pounds a week. Agriculture Department officials say that "reasonable cost storage" is limited to between 500 million and 550 million tons, a figure that would be reached in September if no sales are made.
The government buys the butter for about $1.50 a pound, 40 to 50 cents lower than its normal retail price and 45 cents higher than its current world-market price. It is stored in warehouses where it is frozen into blocks so hard that they shatter like ice cubes if dropped.