Mr. ARNALL. Well, if you have time, Congressman McDonough, and if the committee will bear with me, let me tell you the story, so far as I know it about newsprint and what we can do and cannot do. Mr. BROWN. Make it as brief as possible, because we want to give all the members a chance to interrogate the witnesses.

Mr. ARNALL. Well, we had a working arrangement with the Canadians that they were to advise us before they authorized a price increase on newsprint.

On the 12th day of May, Mr. Howe, who is in charge of their defense production, wrote me a letter, delivered on the 14th by the Canadian Minister of Economic Affairs, and the man in charge of their pulp and paper division under their defense program, saying they were increasing the price $10 a ton, or were considering doing it. One reason given was the weakening of the American dollar. interest you to know that in July 1951, the price of newsprint was $116 a ton in United States money, which at that time, was worth $123.40 in Canadian funds, and today it is worth only $113.50 in Canadian funds.

Mr. MCDONOUGH. They are not going to take any loss under any circumstance?

Mr. ARNALL. They said that by reason of the difference in exchange rate, which amounted to a $10 loss, their total loss was $20 a ton, but they were going to increase the price only $10 a ton.

I protested to the Canadians about it and called in the American Newspaper Publishers Association, and discussed the matter with them.

The Canadians put the increase through or allowed it to develop over our protest and over our objection. Then we were confronted with alternatives of what, if anything, we could do.

As I understand it, under the law, we could put an import ceiling price on Canadian newsprint, and I told the publishers that if they thought we ought to do that-I didn't want to hurt them but if they thought we should do it-I would be glad to entertain the idea.

Another alternative was to bargain with sulphur, for which the Canadians are very dependent on us. I have nothing to do with that, but there was some talk of that, and we could do it.

The American Newspaper Publishers Association polled its members, and Mr. Williams, who is general manager of ANPA, in New York, advised me over the telephone that the result of that poll was overwhelmingly that we do nothing about it, that they were afraid that if we put an import price ceiling on Canadian newsprint, the Canadians wouldn't send us the newsprint and many of our papers would be out of business, and they didn't want that done.

I have not pursued the sulphur arrangement, since that is something that the State Department and NPA would deal with.

Insofar as our domestic newsprint is concerned, we have 12 mills in this country; 90 percent of the output of those mills is more than $10 under the ceiling price anyway. There are only about three mills that cannot increase $10 a ton without any authority from us, and one of those can increase $7 a ton.

Mr. MCDONOUGH. How much over the ceiling is the $10 a ton increase? How much will that put the price per ton over the American ceiling?

Mr. ARNALL. It is not over the American ceiling. That is the point I am making.

Mr. MCDONOUGH. You mean the increase of $10 per ton, Canadian, will not boost the price of newsprint from Canada over the American ceiling price per ton of newsprint?

Mr. ARNALL. We have no ceiling on Canadian newsprint, but insofar as it relates to domestic

Mr. MCDONOUGH. I know you have no ceiling on the Canadian. Mr. ARNALL. It will not affect 90 percent of the domestic output. In other words, 90 percent of the domestic output is now selling below ceiling.

Mr. MCDONOUGH. What is the price per ton set by your office on American newsprint?

Mr. ARNALL. It is not an exact price. It is built up on a formula basis so that each mill has a price.

Mr. MCDONOUGH. Well, will the $10 additional for Canadian newsprint increase the price per ton above the highest price for ceiling that you have set in the United States?

Mr. ARNALL. It will for 10 percent of the American newsprint output. I mean their ceiling will not allow them to raise the price as much as $10 per ton.

Mr. MCDONOUGH. That is all.

Mr. BROWN. Mr. Betts.

Mr. BETTS. Governor, is it your office that issues slaughter licenses? Mr. ARNALL. Yes, sir.

Mr. BETTS. I was informed about some businesses that contemplated starting up and which were denied licenses because they had not been in business over some base period, and the reason given was that they couldn't prove satisfactorily to the office down here, that there wasn't sufficient slaughtering being done in the community now. That just does not square up with me, somehow, the right of any man in free America to start any business that he wants to, because it seems to me that in starting up a business he is creating more competition, which therefore would help in the natural process of supply and demand to keep prices down.

I just wondered what your views were on that. That seems to be clearly out of line.

Mr. ARNALL. I am very sympathetic with your expressions, Congressman, and your concern, but I think if you will check you will find that all of the controls programs that have been instituted in this country-for example our agricultural controls program-have been limited to a base period.

For example, insofar as cotton controls are concerned, controls on any agricultural commodities, they are limited to a base period. Certainly it is true insofar as our slaughter law is concerned. If a man was not in the slaughtering business during the base period, and unless he can show a need for additional facilities by reason of failure of service in the area affected, we have to deny him the permit.

Then he can appeal to the Meat Distribution Board.

Mr. BETTS. Well it seems to me that, by denying him the right, you are just allowing a monopoly to exist which could be broken up by more competition. You yourself say that you are not approving of monopolies.

Mr. ARNALL. The theory behind our action is that you have got to have control of the distribution of meat; that if you let every man go out and slaughter a few cattle or hogs you will soon develop a system that you cannot control because of black markets and other things. Although I tell you, in all candor, that there is something about that particular approach that is a little hostile to my fundamental views, it has to be done, under the circumstances.

Mr. BETTS. Well, it is certainly hostile to mine, and I was wondering what your views were.

Mr. ARNALL. I regret it very much, but that is the only way I know in which we can control the meat situation. We have got to maintain those ordinary, normal channels of distribution.

Mr. BETTS. Well, that is an ordinary channel of distribution; isn't it?

Mr. ARNALL. Well, let me show you that, no matter how much we try to avoid it, we run into some hardship cases. Of course we do. Suppose a man was in some business when the price freeze went into effect, and he had one price, and his competitor was having a sale on, or some other situation where he had a lower price. Those prices were frozen at that time, and we have had a lot of complaints from people who say that their prices competitively are out of line with other prices. We have tried to remedy those situations.

But in the slaughter business it is different. If a man does not have a slaughter license, and cannot show a need for it, we deny him that license, because we try to control the channels of distribution.

Mr. BETTS. I appreciate your views, but I do not agree with them. Mr. ARNALL. I will tell you there are a lot of things that we do today that give me fundamental concern, but the theory behind the Defense Production Act is that there is an emergency, and a necessity to do these things, and naturally there are some hardships that result. I would not be fair if I did not tell you that.

Mr. BROWN. Are there any other questions? Mr. Hays.

Mr. HAYS. I do not want to belabor this point, Governor, but I have found this testimony that I was looking for, and this particular man is from the State of Washington. He is the same man Mr. Nicholson was talking about, and he says that his profit has been 1 percent, and that when he was asked to absorb part of the price cost without an increase in volume, which he has not had and which the milk business generally has not had, he just cannot do it.

Mr. ARNALL. Does the testimony show what his historical profit was, or his profit during the base period?

Mr. HAYS. Well, I think it does, but his testimony is quite lengthy. Mr. ARNALL. Well, I will digest it for you. We will have that done and I will furnish you with an analysis.

Mr. HAYS. But I did have them furnish me with some statistics on that, and they took a study by the Indiana University of 316 milk distributors, and I was amazed to find that the average profit was 0.2 cent per quart on retail milk distribution. I always thought it was much higher than that. And if that is true, and if that is a fair study, you could not expect them to absorb very much of a price increase if they have an increase in costs. Two-tenths of a cent on a unit is not going to permit them to absorb very much.

Mr. ARNALL. That is right. I agree with you.

Mr. HAYS. And they even went so far as to make the statement here that they would gladly submit to price control if the unit-price profit ever got to 1 cent, which it never had. They say historically it never has been that much.

Mr. ARNALL. I will be delighted to analyze that and give you the facts. Let me ask you this: Have you bought a quart of milk recently? Mr. HAYS. I buy it very day.

Mr. ARNALL. I do not do much grocery shopping, but my wife sent me down to the store to get a quart of milk, and, just to show you how much I am behind the times, I gave the fellow 10 cents. He looked at it like I was trying to play some kind of trick on him. I think it was 28 cents. Is that about right-28 cents?

Mr. HAYS. I want to tell you, Governor, that I know a little bit about that. I happen to know that the producer on the farm is being paid more than 10 cents a quart, when they come there and pick it up. Mr. ARNALL. Oh, yes; I am sure of that.

Mr. HAYS. But I could not understand, until I saw this breakdown, where the rest of that money went. But, of course, labor takes a good slice of it, and another thing that is yery interesting is that the housewife does not want to set a bottle out on the doorstep any more, and a lot of the companies have been forced into this paper-container thing— some of them against their will-in order to stay in business, and the price of containers is quite an item because the housewife wants this paper container that she can throw into the incinerator when she is through. They do not want to put them outside the door any more. All of those things have entered into it and have beaten these small distributors down to the place where, according to this testimony -May 15-they are just not able to exist any more.

Mr. ARNALL. I will give you a report, and if there is anything we can do or ought to do about this case we will surely try to do it. Mr. HAYS. Thank you.

(The information referred to above is as follows:)

Hon. BRENT SPENCE,

Chairman, Committee on Banking and Currency,
House of Representatives, Washington, D. C.

JUNE 3, 1952.

W

DEAR CONGRESSMAN SPENCE: On May 15, 1952, Mr. Ariel C. Merrill, manager of Arown Guernsey Farms, Inc., of Everett, Wash., a firm engaged in the distribution of fluid milk and other dairy products, testified before the House Banking and Currency Committee concerning H. R. 6546. He testified, in essence, that a combination of the substantive provisions of OPS regulations dealing with the milk industry, together with the administration of those regulations by OPS personnel, had forced his firm into a loss position.

An effort to ascertain the factual basis of Mr. Merrill's expressed conclusions has revealed that (1) Arown, although claiming that its ceilings were unreasonably low and causing it serious loss, was in fact, during a good part of the period complained of, selling its products at prices below ceiling; and (2) Arown, although claiming that OPS was making it difficult to stay in business, has in fact expanded its operations by the acquisition of four other dairy companies between August 1951 and April 1952.

The following is a presentation of Mr. Merrill's major contentions as expressed to your committee, together with the factual materials which I believe relevant to an evaluation of those contentions:

1. Mr. Merrill told the committee that Arown Farms had attempted to obtain relief from OPS on the basis of individual hardship. This attempt, which Mr. Merrill described as a "test" of OPS response to a hardship application, was unsuccessful because, Mr. Merrill stated, Arown was unable to furnish the "technical and voluminous information" required by OPS in addition to the information contained in Arown's original letter of application.

On June 25, 1951, Arown filed an application for relief of individual hardship under General Overriding Regulation 10. GOR 10 is an OPS regulation that protects processors from being placed in a loss position caused by OPS ceiling prices. On June 28, 1951, OPS replied to Arown's letter of application asking that Mr. Merrill furnish six items essential to the consideration of the application. A copy of OPS's reply is attached for your information.

Arown's letter of application for relief contained a schedule of prices on milk and milk product items which Mr. Merrill referred to as both the firm's selling and ceiling prices. Mr. Merrill requested upward revision of these prices in order to relieve Arown's financial hardship. The following is a listing of the prices on which Arown requested adjustment, together with Arown's ceiling prices e Tective at the time that the hardship adjustment was requested:

It is apparent from a comparison of the foregoing prices that if Arown was in a hardship position at the time Mr. Merrill submitted the GOR 10 application such hardship was not caused by Arown's ceiling prices. Rather, the facts would seem to bear out Mr. Merrill's statement to the committee that the application was merely a "test."

2. Mr. Merrill testified that OPS, by "flagrant inefficiency," imposed a deliberate price squeeze between January 26, 1951, the effective date of the general ceiling price regulation, and September 24, 1951, the effective date of Supplementary Regulation 63 to the general ceiling-price regulation. Implicit in this statement is the suggestion that during the period January 26 September 24, 1951, Arown was compelled to absorb costs that, were it not for its ceiling prices, could have been recovered by an upward adjustment in selling prices. Of course, if Arown elected not to reflect increased costs by adjustment of selling prices up to its legally established ceiling prices, then clearly it is not a case of cost absorption compelled by OPS ceilings.

Further, on August 31, 1951, Arown notified OPS of an increase in its raw-milk cost that permitted an increase in its ceiling prices of 2 cents a quart. This was in accordance with OPS regulations permitting a 100-percent direct pass-through of increased milk costs. However, Arown added that it would increase its actual selling prices only 1 cent a quart for reasons of competition.

3. In his testimony Mr. Merrill pointed out that, although Supplementary Regulation 63 to the general ceiling-price regulation was effective on September 24, 1951, it was not until December 21, 1951, that OPS issued an area milk price regulation in Arown's area. Mr. Merrill refers to the period September 24, 1951-December 21, 1951, as another example of "unnecessary delay" by OPS with further compelled cost absorption.

About November 1, 1951, Arown and other sellers of fluid-milk products in western Washington petitioned OPS for the issuance of an area milk price regulation pursuant to Supplementary Regulation 63. The petition submitted by Arown at that time was so inaccurately and deficiently prepared that, after unavailing conferences with Mr. Merrill, it ultimately became necessary for OPS accountants to secure personally the information on Arown's operations necessary to the issuance of the area milk price regulation. This chore was completed approximately December 1, 1951, and the area milk price regulation was issued