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War II and that it should be applicable again now. One member said the OPA regulation was developed very painstakingly, and represents an enormous amount of work. MPR 426 was the result of considerable experience, both Government and industry, and in addition it has had the benefit of practical operation for a number of years, members said. Under it, grower-shippers and distributors were able to operate. The wording, however, should be studied carefully in order to have a regulation which would be applicable to conditions today."
OFFICE OF PRICE STABILIZATION,
Advance release for use in morning papers
RETAIL GROCERY CEILING PRICES (CPR 15, Amdt. 14-Increases in Certain Markups) (CPR 16, Amdt. 14-Increases in Certain Markups)
Director Ellis Arnall of the Office of Price Stabilization today announced increases in the percentage mark-ups which retail grocers may add to their net costs in determining ceiling prices for a selected list of dry grocery products.
Mr. Arnall acted on the basis of data which showed that 1951 earnings of food chains and supermarkets were below the OPS industry earnings standard, or less than 85 percent of the average of earnings in the best 3 of the 4 years 1946–49, before taxes and adjusted for changes in net worth.
It is OPS policy to grant price relief to an industry when it appears that ceiling prices have caused earnings to drop below the earnings standard.
Mr. Arall estimated the effect of the mark-up adjustments would be to increase the $31.6 billion annual gross sales of retail grocery stores by approximately $100,000,000
Translated into terms of the family budget, this would be an average increase of from 3 to 7 cents a week for the Nation's 45,000,000 families.
Although the information on earnings was obtained only from large chain stores and supermarkets (group 3 and 4 stores) mark-ups of group 1 and 2 stores (small independents) are also being adjusted to prevent price distortions between groups and to continue reasonable price relationships between the mark-ups for all groups.
The adjustments are granted by amendment 14 to CPR 15, which covers group 3 and 4 stores, and amendment 14 to CPR 16, which covers group 1 and 2 stores. The amendments become effective June 2, 1952.
OPS said the group 3 and 4 mark-up increases are designed to increase the overall realized mark-up over cost for these stores by approximately 1 percent.
Mr. Arnall said the new mark-ups will result in an increase in the price of some grocery items bearing on the cost of living.
“However,” he added, "the earnings data which OPS has obtained makes a clear and unequivocal showing that the chains and supermarkets have suffered such a decline in their net earnings before taxes that it would not be fair and equitable to require them to continue using the old mark-ups.”
The OPS Director emphasized that the increase in mark-ups is an interim step and will be reexamined in the light of results of Nation-wide surveys of food margins and earnings, now under way.
“If downward or upward adjustments are warranted on the basis of the results of the survey, they will be made," Mr. Arnall said.
The food margin survey, scheduled to be completed in late June, was undertaken to determine how mark-ups originally used by OPS compared with those used by retailers in the period before Korea. The survey is one of the most comprehensive of its kind ever undertaken.
The higher mark-ups announced by Mr. Arnall will apply to the following grocery items:
Breakfast cereals; coffee concentrates, but not coffee; cookies, toast and crumbs, but not crackers; processed fish, except salmon and tuna; 5-pound or less container sizes of flour, but not other sizes; frozen foods, except frozen juices; canned fruits and berries, except fruit cocktail, pineapple, peaches and pears; jams, jellies, preserves and honey; canned meat, except luncheon meat; oleomargarine; pickles and relishes; canned vegetables and vegetable juices, except corn, green beans, peas, tomatoes and tomato juice; vinegar, and cheese.
Explaining why they were selected for mark-up adjustments, Mr. Arnall said:
“OPS regards the industry earnings standard very seriously. If an industry is entitled to relief under that standard, it will get it. If, measured by the standard, no relief is called for, then an increase will be denied.
“In the present case, information available to us suggests a need for price relief. We have therefore made an honest effort to put food retailers in position to realize returns that meet the industry earnings standard. We have not provided a mere paper increase.
"To give real relief, we had to choose those products on which it is believed retailers can obtain higher mark-ups than those that have been permitted.
"If we had selected a product on which retailers could not realize a higher mark-up it would have been meaningless, insofar as enabling food retailers to meet the earnings standard is concerned.”
Increased earnings retailers will realize on products with the higher mark-ups, Mr. Arnall emphasized, will depend upon the "effectiveness" of the new markups—the ability of grocers to obtain them under competitive conditions.
In computing the adjustments, the Director said OPS recognized that "some of the individual items will not bring the authorized ceilings."
"In determining the extent to which the adjusted mark-ups will probably be applied,” he added, "we used the estimates of OPS consultants and industry representatives.
“At the same time, however, we gave recognition to the real possibility, in view of unsettled international conditions, that there may be a sudden tightening on retail food prices in the future.
"Any significant change in international conditions could result in a greater application of the mark-ups than is now estimated."
Mr. Arnall said it was the agency's judgment that the new mark-ups meet the requirements of the Herlong amendment to the Defense Production Act. This amendment requires OPS to give retailers and wholesalers the customary percentage mark-ups over cost they had during the month immediately before the outbreak of hostilities in Korea.
The adjustments are being made by splitting certain food categories into two groups with a higher mark-up provided for one of the groups, and providing slightly higher mark-ups for some other categories.
Changes in the group 1 and 2 store mark-ups are not quite so extensive as those for the group 3 and 4 stores.
The following table compares the new mark-ups with the old ones for food items where adjustments are being made:
1 Does not include canned fruit cocktail, pineapple, peaches, and pears.
OPS emphasized that the effect of the higher mark-ups on prices paid by consumers will depend upon the cost of the product to the retailer and competitive conditions.
It is the agency's opinion that selling prices to consumers will not change on all the products affected due to competition and the fact that some of the percentage increases are so small that when applied to a low cost product the increase is not sufficient to raise the ceiling price due to fractional breaks.
Increase in cents
As a result, the ceiling prices in a few instances are expected to remain the same. On. other products the ceilings may be increased by 1 cent a package. On some merchandise with a relatively high cost, ceilings may be increased as high as 2 cents.
The following table lists OPS estimates of possible increases in ceiling prices (not selling prices) for supermarkets:
ceiling price Packaged breakfast cereal, 10-ounce.
(1) Coffee concentrate, 4-ounce
2 Processed fish, except salmon and tuna: Maine sardines, 374-ounce.
1 Codfish cakes, 10-ounce-
1 Flour, 5-pound bag (does not apply to sizes above 5 pounds).
1 Frozen foods (except frozen juices): Peas, 12-ounce
1 Strawberries, sliced, 12-ounce
1 Fruits, berries, canned' (except fruit cocktail, pineapple, peaches, and pears): Grapefruit juice, No. 2 can.
0 Applesauce, 17-ounce..
1 Preserves, honey: Strawberry preserves, 12-ounce
1 Honey, strained, 16-ounce
1 Canned meat (except luncheon meat) spaghetti and meat balls
1 Oleomargarine, l-pound package, 44-pound prints..
1 Pickles, relishes: Dill pickles, quart.
1 Relish, 16-ounce..
1 Vegetables and juices, canned (except corn, peas, green beans, tomatoes, and tomato juice):
Pork and beans..
0 Vinegar, cider, quart.
1 Cheese: 72-pound package American cheese..
1 5-ounce jar cheese spread..
0 i None in most instances.
Estimated expenditures on new plant and equipment by United States business
1 In terms of physical volume the change over this period is expected to be almost as great. Source: Securities and Exchange Commission, Washington, D, C,
Index of prices paid by farmers
Mr. BROWN. Mr. Patman.
Mr. Multer. Just one thing, Mr. Chairman, I think you have covered this, Governor, but I would like to have you state it again, if you did, to emphasize the point.
Is it possible to have effective price controls on fresh fruits and vegetables?
Mr. ARNALL. Congressman Multer, I think without question, if we have the power to put in controls on fresh fruits and vegetables, we can use that power effectively to hlep stabilize prices and to prevent runaway prices.
Now then, when I say effectively, that is a relative term. I mean, we can do a better job, relatively speaking, for the people in dealing with prices of fresh fruits and vegetables, with that power, than we could without it.
Now, of course, you never have 100-percent effectiveness in any human operations, but I think we need the control power badly; and one of the things that I want to point out to you is the fact that you have got, it gives some assurance to the people that before prices run completely away you are going to do something about it.
Moreover, I cannot understand how we can be expected, without the power to deal with prices on fresh fruits and vegetables, to deal at all effectively with prices on canned fruits and vegetables, or frozen fruits and vegetables; because if the price in the fresh market gets high, we couldn't stop diversion from the frozen or canned market, without raising ceilings for canned and frozen fruits and vegetables.
So I think that you ought to leave it as it is, and if you have got any problems about it, or if any problems develop, we will talk it out and try to do what is wise and right.
In that connection, you could point to our experience with potatoes—and I don't want to get into that because all I hear is potatoes, I do not know how I can make more potatoes. I got a letter from somebody the other day who said, "You have got a lot of people working for OPS. Why don't you get out, you included, and plant some potatoes.”
Well, I do not think you want us to do that. But anyway, I want to point out that the potato shortage came about before we put in any ceilings. We started out with a bad situation. And we have
tried to hold the price down. We are doing enforcement all over the country. Of course, it is hard to catch everybody who is violating a regulation or a law, and there are some inequalities. That is the nature of the beast. We cannot get around that. But if we did not have those controls, with the shortage of potatoes, their price would be out of all reason, and the purpose of this act, as I understand it, is, when items are in short supply, for example, you want prices put in that will enable poor people, and middle-income people, as well as wealthy people, to have their share or their chance of getting some of the items on the market.
If you did not have controls, my people tell me that the price of potatoes would be so high that only a very few of our citizens, relatively speaking, could pay those prices.
Yes, I want to urge you to retain the authority for us to control ceilings on fresh fruits and vegetables. I want to tell you, too, if any man on this committee or any Member of the Congress has a real problem about that, I want to work with him. Just give us the authority. We have not used it except once. We try not to use it. But I think we ought to have it; yes, sir.
Mr. MULTER. Thank you.
Mr. COLE. You say that prices are rising under the controlled economy which we now have, and therefore if we decontrol, prices will continue to rise.
Is it not possible that the controls themselves have so thrown out of balance our economic structure that your observation might not be correct? Mr. ARNALL. Congressman Cole Mr. Cole. Let me add one more thing. Mr. ARNALL. Yes, sir.
Mr. COLE. That it is possible that if controls were off, and if we permitted the economy to work in a free atmosphere, provided that we retained some of the indirect controls to take care of the fiscal side of the inflationary impact, that it could work?
Mr. ARNALL. Congressman Cole, let me say in all candor, as you well know, there is a diversity of opinion on the question you asked. I accord to every American in this free country of ours the right to express his views, or to pose as a prophet, an economic expert, or a business expert. I do that. You do it. We all do it. That is one of the things we do, and that is wonderful.
There is a division of opinion, however. Only the future will tell what is right and what is wrong. As far as I am concerned, it is my view that we need controls, and without controls, prices would rise, and without controls, the economy would get further out of balance and into a much more chaotic state. That could be wrong. I am only human. But based on the best information I can get, the best statistics, the best viewpoints, I am forced to that conclusion, based on experience, past and present, based on what happened in 1946, and based on the inherent dangers today.
But please understand, Congressman, that is my viewpoint. It is an honest viewpoint, and I ascribe to you or anyone who differs with that viewpoint just as sincere and honest motives as I profess.
Mr. COLE. Well, of course, in 1946 many people complained about the rise in prices after the repeal of price control, but the economy,