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stymie production. OPS restrictions on cutting carcasses, both for packers and retailers, have seriously prevented efficient distribution and marketing of lamb and mutton. What effect have these regulations had on the sheep producer? Just this: When lamb meat could not be distributed properly, not only was the wholesale price of that product affected, but the live lamb producer, was immediately affected by lower prices and less bids for his product.
It is true that the OPS realized the errors of its ways and did modify some of these cutting and distributing restrictions on March 7, 1952. These amendments have alleviated, to some extent, the merchandising problems. It is, however, and is as usual with OPS, a case of "too little, too late".
It is also true that the OPS temporarily suspended section 12 of CPR 92 from February 5 to March 22, 1952. Temporary suspension of this provision lifted the restrictions on the percentage of primal cuts of lamb which packers could sell in relation to total carcass sales. This order was temporarily lifted to take care of a heaver-than-usual volume of marketing of fed lambs. This action was taken after injury was already done. However, it again went into effect March 22 and every time we have a problem of too many lambs hitting the market, must we again go to Washington and plead with OPS for suspension of this order?
It is interesting to note that during the last 13 months the prices received by farmers for sheep, lambs, and wool have been declining. Prices received by farmers for lambs have declined from $35 per hundredweight on March 15, 1951, to $26.40 on April 15, 1952; wool in the same period from $1.19 to $0.499 per pound; sheep in the same period from $19 to $13.60 per hundredweight. For the past 6 months prices received by farmers for both sheep and lambs have been below the legal minimum which dressed ceilings are supposed to reflect. Prices received by farmers for wool have been below the legal minimum ceiling for the past 10 months.
What, then, has been the justification for spending taxpayers' money to enforce ceiling prices—to police an inflation spiral which just does not exist? And by the same token, what is the justification for hampering packers and retailers with merchandising restrictions which prevent proper distribution of our products and which consequently restrict the returns possible for the producer? " Is it within the province of the OPS to reduce returns to livestock producers even when their products are selling below ceiling?
OPS actions with regard to wool have also been not only needless but have discouraged production. In spite of the fact that wool prices have been dropping continually and drastically since March 1951, the OPS on January 9, 1952, announced it was reducing by slightly over 20 percent the average price levels established by Ceiling Price Regulation 35. This announcement was made at a time when wool was selling approximately 45 to 55 percent below the ceilings established in May 1951, and 35 to 40 percent below the ceilings which went into effect April 8, 1952. What savings did this roll-back mean to the consumer in lower clothing prices? Absolutely none. Finished wool goods were already below existing ceilings. What effect did this move have on curbing inflation? Absolutely none, because it had no effect on price. The only possible effect this order could have would be to reduce the confidence of the sheep producer in the profitability of raising wool under stricter Government regulations and consequently discourage production of this needed commodity. Now, after 13 months of a continuous and drastic price decline in wool, the OPS has finally decided to "suspend” ceiling prices on wool, and, as we have mentioned, subject to reinstatement at the will of this agency.
Congress last year was successful in its efforts to prevent further roll-backs in beef prices. However, because of the fact that the price of wool has been in a continuous decline since March 1, 1951, and because of the provision that no price ceiling shall be established or maintained below 90 percent of the price received by producers (by grades) on May 19, 1951, the OPS was permitted and did roll back wool ceilings an additional 20 percent beyond the first roll-back of 14 percent. This illustrates that because of the great complexity of agriculture and its products that an action which may prevent a roll-back in one commodity permits a roll-back of 20 percent in the case of another commodity. Therefore, while the consumer receives no benefit from this roll-back, as we have pointed out, the OPS demonstrated that it was going to injure an industry to the limit of the law, regardless of the benefits, proving that OPS action is so confusing as to further discourage production.
Last year the OPS stated that unless they were permitted to impose slaughter quota limitations on livestock, that the whole price-control program would be in jeopardy. Quotas were removed on July 31, 1951, and in the case of sheep and
lambs, as we have already pointed out, prices have declined considerably and almost constantly during the last 13 months. Why must our industry be called upon to justify its position, especially when our past testimony has shown that our position is sound? Has the time not come that the OPS should be called upon to justify its existence? We do not believe that as yet they have done so.
CONCLUSION We, therefore, submit that titles IV and V of the Defense Produetion Act must be eliminated if confidence is to be restored in the sheep industry and needed production increases are to be made. A year ago we took the position that although we were opposed to title IV, that because of the specific bills, S. 1397 and H. R. 3871, before committees, we should attempt to aid in perfecting, so far as possible, the amendments to the Defense Production Act of 1951. We also made every effort, as is evidenced by our testimony of a year ago, to assist the OPS in formulating the rules and regulations applicable to our industry. However, we have definite proof that we were not wanted nor were we ever permitted to work with this group. The OPS made ceiling reductions on wool against the advice of at least three different segments of the industry and we were never consulted on any rgulation or price ceiling established on lamb.
The latest statistics available show that the cost of the Office of Price Stabilization is running at the rate of $65,316,000 a year. On January 1 there were 11, 404 people on the OPS payroll, drawing salaries at the rate of $55,822,800 a year, and there are now 12,000 people on that payroll. This is an expenditure of time and money which produces absolutely nothing, increases the burden of additional time and expense toward all businesses, and stymies production.
In our opinion it has been conclusively proven that direct price controls will not work, are of no benefit to consumers, are a handicap to production, and are a waste of the taxpayers' money. It is, therefore, our firm conviction that titles IV and V should be stricken from the Defense Production Act. We also firmly believe that inflation should be controlled by giving every encouragement to increased production of needed agricultural products, by a reduction of Federal expenditures, by wise management of the public debt and by stricter credit controls.
STATEMENT OF THE AMERICAN MEAT INSTITUTE ON THE EXTENSION OF THE
DEFENSE PRODUCTION ACT AFTER JUNE 30, 1952 The American Meat Institute is a trade, research, and educational association of the meat-packing industry with a membership comprised of more than 500 meat-packing companies and sausage manufacturers, of all sizes, located throughout the United States. This group of companies processes and distributes more than 85 percent of the meat produced commercially in the United States.
The opportunity of presenting this statement on behalf of our members is much appreciated. It is our sincere feeling that the authority for price controls on livestock and meat should not be extended beyond June 30. The inflationary pressures which accompanied the early period of the Korean war have subsided. and prices have returned to normal levels relative to consumer income and purchasing power. This has been recognized by the Government itself in the suspension of its regulation W on consumer credit. Numerous products, including meat, are selling below ceiling prices and the OPS reluctantly has suspended the ceilings on some of these items.
All the evidence indicates that price controls not only are unnecessary but have been harmful to public interests by reducing consumer meat supplies and thereby holding prices higher than they otherwise would have been. Attempts to continue ceiling prices on livestock and meat ignore the experience of the past year, which once again has demonstrated that price controls
1. Distort meat distribution;
3. Can't be enforced. In view of this situation, which is amply documented on the following pages, it is our sincere belief that the present program of direct price controls is not a sound way of dealing with inflation, and should be abandoned.
PRICE CEILINGS FORCE ESTABLISHED PACKERS OUT OF CATTLE MARKET Shortly after the imposition of price controls in early 1951, it became increasingly apparent that meat was being diverted away from regular commercial channels.
This was especially noticeable in the case of beef. And with the imposition of dollars and cents ceilings for cattle and beef at midyear the situation became
For example, as table 1 below clearly shows, a serious dislocation of cattle slaughtering operations developed in early June, coincident with the effective date of compliance prices for live cattle. During 1950 cattle slaughter by 99 plants of established firms had consistently represented approximately 60 percent of the weekly total slaughter under Federal inspection. This percentage dropped moderately in March, Apıil, and May, then plunged to only 44 percent of the total in June.
As a group, these 99 plants were forced to reduce their cattle slaughter in the 5 months June through October 1951, by 33 percent from a year earlier, while the balance of the federally inspected industry actually showed a 12 percent gain compared with the previous year.
Although the situation has improved somewhat since last summer, this group of established meat packers has not regained the ground lost when the OPS ceilings caused drastic reductions in their slaughter last year. Table 1.- Total cattle slaughter under Federal inspection and percentage slaughtered
by 99 plants-1950, 1951, and 1952
This diversion of cattle away from normal channels is further illustrated by the accompanying map of the United States showing regional changes in total commercial cattle slaughter, for 1951 as against 1950.
For the entire year of 1951 commercial cattle slaughter in the United States totaled about 16.4 million head, 1.5 million or 8 percent less than in 1950. However, as this map shows, this reduction was not equally distributed throughout the country. Slaughter in the Corn Belt (which normally represents 55 to 60 percent of the total) was down 15 percent, while on the east and west coasts it was up 4 and 5 percent respectively,
During the period of greatest diversion (June-October), the reduction in the Corn Belt amounted to 24 percent, while the east and west coast States registered gains of from 8 to 9 percent over a year earlier.
Illustrative of the uneconomical results of this diversion in cattle slaughter is the experience of the Army in procuring beef during this period. It is reported that the Chicago market center found it necessary to purchase practically its entire beef requirements from west coast plants. Some of this beef was moved all the way across the country to eastern points, despite the fact that it was from some cattle which had been purchased at Corn Belt markets.
It is worth noting also that this uneconomical shift in cattle slaughter was not entirely a matter of price violations on the part of some packers. The price regulations, even when observed, were such as to favor the shipping of live cattle from major producing areas to other points for slaughter. Although the regulations have been amended several times, it has been impossible to correct all the faults which crop up one after another and which are inherent in man-made regulations designed to replace the economic laws.
TABLE 2.—Commercial cattle slaughter, 1951 and change from 1950
HOG PRODUCTION REDUCED BY PRICE CEILINGS According to the USDA pig crop report of last December, the number of pigs raised during the 1951 fall season was 2 percent larger than that of 1950. However, the estimates of sows farrowing by months show that a downward trend in hog production actually began early last summer. This was at the same time that cattle feeders were greatly disturbed by the OPS action with respect to cattle and beef prices. The deterioriation in the corn crop and the decline in the hog-corn price ratio (which undoubtedly has affected breeding for the 1952 spring crop) did not occur until later in the year. Furthermore, the April and July stocks of corn and other feed grains, although less than a year earlier, were still relatively large.
As table 3 shows, the substantial increases in summer farrowings were not maintained; September-November farrowings were reduced compared with a year earlier. Since the breeding season for hogs precedes time of farrowing by slightly less than 4 months, the decisions to reduce hog production actually were made during the months of May, June, and July. As of mid-May we are now beginning to feel the impact of this reduced production.
Since cattle feeding is closely associated with hog production, particularly in the Corn Belt, it is easy to understand how hog producers may have become alarmed by the attitude taken by the OPS toward cattle prices last summer. They may also have remembered the action taken by the OPS last January when pork prices were frozen at levels below the equivalent parity prices for hogs.
As a matter of fact, in the period from January, 1951, through March 1952, average prices received by farmers have equaled legal minimums during only 2 months. The Defense Production Act requires that ceiling prices for products processed from agricultural commodities be set at levels to reflect legal minimums to producers. Even when most pork products were selling at ceilings, the aggregate value of hog products did not warrant live hog prices as high as the legal minimums. This situation undoubtedly is a factor in the apparent decision of farmers to raise fewer hogs for the 1952 spring crop. The USDA estimated last December that the 1952 spring pig crop will be 9 percent smaller than in 1951, and many observers now believe that the decrease may be even much greater. TABLE 3.-Sows farrowed and hog-corn price ratio at breeding time, 1950 and 1951
CEILINGS AND ROLL-BACKS REDUCED CATTLE FEEDING OPERATIONS Probably the most direct effect of the price controls upon meat production during 1951 was that experienced in the case of cattle feeding. As already mentioned, cattle feeders were greatly alarmed by the threats of price roll-backs issued by the OPS on April 30. As a result of this announcement, many cattle feeders greatly reduced their feeding operations.
This is borne out by the USDA figures on cattle feeding in the three States of Iowa, Illinois, and Nebraska for the April-June and July-September periods. As will be noted from table 4 below, the number of cattle on feed in these three States as of April 1, 1951, was slightly above that of a year earlier. But on July 1, the number was 9 percent smaller. What happened, of course, was that producers reduced their feeding operation as rapidly as possible during the AprilJune period. Many loads of cattle were sold at relatively unfinished weights while purchases of feeder cattle were sharply curtailed (minus 19 percent). This naturally reduced the supply of grain-fed cattle during the subsequent quarter (July-September). Marketings of fed cattle in these 3 months were 19 percent less than a year earlier.
With the elimination of the threat of further price roll-backs on July 31, cattle feeders replenished their feed lots during the past fall. In the meantime, however, substantial harm was done to the meat industry-cattle feeders, meat packers, and consumers alike.