(The letter from the Dairy Industry Committee follows:) Hon. BURNET R. MAYBANK, THE DAIRY INDUSTRY COMMITTEE, Senate Committee on Banking and Currency, United States Senate, Washington, D. C. DEAR SENATOR MAYBANK: Your committee now has under consideration S. 1397 dealing with the extension of the Defense Production Act of 1950. The Dairy Industry Committee would like to present for the record of the hearings on this bill, our viewpoint regarding subsidies. The Dairy Industry Committee is composed of official representatives from the six national dairy associations, whose members are engaged in the various branches of the dairy industry. These associations are: American Butter Institute, National Cheese Institute, American Dry Milk Institute, International Association of Ice Cream Manufacturers, Milk Industry Foundation, and Evaporated Milk Association. It will thus be seen that the Dairy Industry Committee is speaking for a major segment of all business organizations, both large and small, engaged in the milk industry, whose interest is as vital as that of the farmers who produce the milk and the consumers who utilize the dairy products. Milk is produced on about 42 million farms upon which 231⁄2 million people live. Approximately 10 million people derive their livelihood from the dairy industry and this industry contributes about $10 billion annually to our com merce. Based on the experience to date, the question of subsidies is of great concern to us, as well as others. Accordingly, we are setting forth our statement of policy with respect to subsidies as follows: In a period of national emergency and defense mobilization, it is imperative that the nutritional needs of the population be met. Milk and its products are one of the most essential foods in meeting those nutritional needs. With an expanding population and a high level of consumption of dairy products, maintenance of a high level of milk production is imperative. Such a level of production may be maintained only if dairying returns to the farmer a fair return comparable to the return which alternative farm enterprises yield. In temporary periods of price control, such as the country is now experiencing, there are inevitably suggestions that production can be maintained, despite adverse price ceilings, by means of subsidies. It is the considered judgment and opinion of the Dairy Industry Committee that subsidies are economically unsound and cause serious injuries to, and dislocations in, our farm economy, which outweigh any possible benefits. Subsidies do not benefit the economy because: (a) The apparent lower price for dairy products conceals the higher cost which is actually paid since the subsidy plus an additional charge to cover the cost of administration of the subsidies program must be paid through taxes. (b) A false sense of values is created in the mind of the consumer, which results in a reaction to the higher price of the product when subsidies are removed and tends to reduce below the optimum nutritional level the consumption of dairy products. (c) Differences in subsidy payments on the products of alternative farm enterprises, or between different dairy products, tends to create false shortages by increasing demand, due to the apparent low price, and by shifting production between dairy products and alternative farm enterprises without regard to the normal consumer demand. (d) Subsidies do not increase production as directly and efficiently as the normal operation of supply and demand. (e) Subsidies, which are applied to create an abnormally low price for a product, attack the result of inflationary forces, and stimulate further inflation without eliminating or reducing the causes of such inflation. (f) They do not reduce the cost of production or handling of milk, but merely increase the record keeping and form work of the farm operator in collecting the subsidies. (g) The receipt of the subsidy by the producer, long after the milk has been delivered to and paid for by the processor or manufacturer, does not reflect in the mind of the producer a price for the milk which is adequate to encourage production, since he tends to think of the price received from the manufacturer or processor as the real return from the dairying activity. (h) The charge by Government for administering the subsidy program results in a greater spread between the price at the farm and the price to the consumer, and is therefore an added burden on dairying. Unquestionably, the consumer price must be considered as including its pro rata share of the tax load created by any subsidy program. (i) A subsidy program cannot be adjusted to quality as a buying price can be, with the result that the inefficient or marginal producer benefits to a greater extent than does the efficient producer. (j) The very nature of dairying, which involves a highly perishable commodity geographically widely distributed over the country with varying conditions of production and marketing of raw milk, makes administration and control of such a subsidy operation much more difficult than in other types of agricultural enterprises. (k) When subsidies finally end, as they always must, the rise in cost of dairy products to reflect the absorption of the subsidy into the buying price results in a consumer reaction adverse to the product, as in the case of butter after World War II. The consumer reaction invariably results in reduced consumption, thus creating surplus production and a lower price for milk, and shifts by dairy farmers from dairying to alternative farm enterprises. The resulting scarcity of raw milk thus results in an unsettled condition in the dairy sections of the country until a normal balance between supply and demand in a free market is accomplished. Respectfully yours, M. H. BRIGHTMAN, The CHAIRMAN. Mr. Jones, will you come forward, sir? Will you proceed in your own way, Mr. Jones, and if you can make it as brief as possible, we will appreciate it, sir. STATEMENT OF ROWLAND JONES, JR., EXECUTIVE VICE CHAIRMAN OF THE PLANNING COMMITTEE OF THE RETAIL INDUSTRY COMMITTEE AND PRESIDENT OF THE AMERICAN RETAIL FEDERATION Mr. JONES. I won't read the entire statement, Mr. Chairman. The CHAIRMAN. Without objection, your entire statement will be made a part of the record at the end of your oral testimony. Mr. JONES. My name is Rowland Jones, Jr., president of the American Retail Federation with offices at 1625 I Street NW., Washington, D. C. The American Retail Federation is a federation of 23 national retail associations and 32 State-wide retail groups. I am also executive vice chairman of the planning committee of the retail industry committee, an emergency committee organized shortly after Korea to coordinate the retail industry on a wide basis in the handling of issues and problems arising out of the defense effort and to make available to Government the experience and technical knowledge of the industry. It is on behalf of the retail industry committee that I appear here today. Rosters of the member groups of the federation and of the retail industry committee are made a part of this statement. The owners and operators of the 1,771,000 retail stores of the United States fear inflation as an enemy as dangerous as any we face in this emergency. Retailers, generally, also fear inflation because as the quartermaster of the American people they are first to feel its direct effects on the price level, in unit sales, and on the costs of doing business. Similarly, they are the first to feel the destructive effects of the deflation which sooner or later must follow inflation of the price level, inflation of inventories, and the decrease in the purchasing power of money. It should be stated that retailers are far more interested in the total of unit sales of the products they distribute than they are in the dollar total of their sales. They have learned through experience that high unit sales mean more production, more jobs, and a stable economy, while increases in dollar sales which outrun unit sales are simply the signal of trouble ahead for all of our people. When the tragedy of Korea created price flurries in the commodity markets, and a wave of scare buying, Congress was faced with demands to impose controls to attain economic stability and to prevent runaway inflation. At that time our industry took no position for or against price controls because retailers, along with Members of the Congress, could not predict the courses of inflation sparked by the Korean tragedy. However, the experience under price control during World War II showed all too clearly the futility of controlling prices without at the same time controlling all costs in the economy, and the basic causes of inflation. This experience prompted the retail industry to recommend to Congress last summer that: If and when enacted, price-control legislation shall recognize the necessity of controlling simultaneously all the elements of cost entering into the seller's price, including raw materials, agricultural commodities, wages, and transportation costs. They took this position in spite of the fact that there was little positive assurance in the legislative proposals, which became the Defense Production Act of 1950, that the necessary corollary actions essential to effective control of inflation would be taken by the admin. istrative and legislative branches of our Government. They knew from experience that interference with the free decisions of millions of Americans creates the very real danger of damage to production which retailers know to be the only long-range, effective brake on inflation. Ever since the Korean War started the retail industry has recognized the threat of uncontrolled inflation as the greatest internal danger facing our Nation and menacing the success of our entire rearmament plans. Retailers are particularly sensitive to the danger of inflation, for they depend for their existence on the purchasing power of consumers. Being closest to the consumer level in the economic structure, the retailers' good will is endangered by the resentment invariably engendered by rises in the cost of living. Retailers have now lived under price control for a period of 4 months. These controls were invoked 5 months after the grant of authority to control by this committee and the Congress. It is idle to discuss the delay in their imposition and the time required to construct a system of controls. No more difficult task can be imagined than the development of a system of price controls in a complex economy. It should be said that in spite of the fact that the necessary corollary actions have not been taken, those in charge of the development of price controls have, in all probability, done as good a job thus far in this difficult field as could any group of people which could be assembled. However, the difficulty lies in the fact that with out the stabilizing benefits of the essential corollary actions the control of prices is an impossibility. The events of recent months reaffirm the truism of World War II experience that in our complex interrelated economy, all elements which enter importantly in the cost of living must be stabilized or the cost of living cannot be stabilized. The Retail Industry Committee believes the Defense Production Act of 1950 is a useful part of the Nation's fight against inflation only if its original intent is carried out intelligently and consistently with the philosophy of our free-enterprise system. Attempts to check inflation on anything short of an over-all basis, including the necessary indirect controls, become a national liability by dislocating the intricate balances of our economy, retarding production, and ultimately destroying public confidence when promised results are not realized. For these reasons, the Retail Industry Committee is convinced that price controls cannot be workable and effective, but on the contrary will be damaging to the economy and the national defense program unless measures are taken to control the basic sources of inflation. Retailing's position favors a completely integrated anti-inflation program, the points of which are set forth herein. The Retail Industry Committee in common with all business interests is alarmed at the recent introduction by the ESA of a profit-control formula into price-control regulation. The Defense Production Act of 1950 clearly intimated that economic controls would recognize the established historic practices of industry. The formula of profit limitation introduces a concept of Government regulation which could threaten our free-enterprise system. We feel sure that no such standard has been intended by Congress as a means of control. The CHAIRMAN. Now, what could you suggest Mr. JONES. Mr. Chairman, we do have some suggestions, and our committee within the next few days The CHAIRMAN. I have read ahead of you, and you say further down in your statement we didn't set up a profit-control organization. We had hoped the act would be used for production and to stop inflation. Mr. JONES. We will have in a very few days an amendment to offer for the consideration of the committee, which we think will prevent the imposition of the test of profits as a technique of price control, because we think it is dangerous, and will not work, and actually has harmed price control up to this time because of the terrific reaction of businessmen throughout the country. The CHAIRMAN. From my information, a good many business people have told me this profit-control formula is seriously curtailing income taxes. Mr. JONES. There is no doubt about that. We don't see how it can be implemented, because the Eric Johnston formula provides that the test shall be profits of an entire industry and that those profits are up to the 85-percent test, then there will be no relief in any squeeze or hardship case. What happens to the lower one-third of an industry in that case? Of course, there will be X number of people completely put out of business if the technique is used, because they can't meet the average of the whole industry. Senator BRICKER. It ssems like another result will be the complete destruction of any interest in economy or efficiency in the conduct of one's business. Mr. JONES. Exactly. Senator BRICKER. It was for that reason that the Senate took the control of profits entirely out of the bill. The CHAIRMAN. That is right. It will lessen income-tax collections not only to the Federal Government but to the States. I am glad you say you will have some sort of amendment to offer. Of course, we haven't had a chance to start writing up the bill yet, but I think it is desirable for the committee to look carefully into that. Mr. JONES. We will have a suggested amendment for the attention of the committee. Also, it is my recollection that the Senate itself specifically rejected a profit amendment during the debate on the bill last summer. The CHAIRMAN. I don't remember who introduced it, but somebody did have a profit amendment. Senator BRICKER. It was in the original bill, the power to control profits, but we took it out on the Senate floor. Mr. JONES. That is right; on the Senate floor it was rejected. Retailers recognize the duty of the Government under authority of the act to take the actions necessary to achieve effective stabilization of the economy during the emergency period. However, retailers believe that any attempt by government to limit profits by any arbitrary formula of control should be recognized as revolutionary, destructive, and self-defeating. The specific recommendations of the retail industry committee are divided into three parts: (1) Support of specific sections of the Defense Production Act of 1950 which have been carried forward in the present bill. (2) The essential parts of a national stabilization program which must dovetail with price control if the emergency effort is to be successful in controlling inflation. (3) Recommended amendments to the pending bill, which I have said we will present to the committee in a few days. The following are the provisions of the present act which the retail industry committee recommends be retained unchanged: 1. The Joint Committee on Defense Production provided for in section 712 should be continued in view of the fact that recourse to the courts is difficult, if not impossible, for the majority of those concerned. We hope the "watchdog committee" will meet. we The CHAIRMAN. I think you can be assured of that. Of course, have had little chance to have meetings; it was 5 months after we passed the law before there was any attempt to put it into effect. We met several times in February and March, and of course in April we had started with a new bill. There wasn't much use in meeting on past history. Mr. JONES. That is right. The procedure for appraising the administration of the act, which the creation of this watchdog committee provides, is an assurance to business and consumers that their interests will be given consideration in accordance with the intent of Congress. It is hoped that this |