legal minimum for his apples regardless of supply or other factors which influence the market. Furthermore, the lowest processor ceiling in the area will, in effect, determine the market. The processors with the low ceilings will of necessity sell at these ceilings. Because apple products will be on the market at the lower figure, other processors will be unable to demand the prices justified by their higher ceiling-except in case of a very short supply. The market for the processed product therefore, can be expected, under the regulations, to be established at close to the level of the lowest ceilings in the area; and the grower market can be expected to be, in effect, held at the level that these low ceiling processors can reflect under their ceilings. Yet, by definition, the fair price to both growers and consumers is parity, and under the Defense Production Act of 1950 ceilings shall not be established which will reflect a price to growers lower than the legal minimum for that product. The only relief under the OPS industry earnings standard is a procedure which will not, in practice, permit a grower to realize the legal minimum. That would appear to mean that grower prices will be pegged at distress levels. The 1951 season started off with prices for apples for processing at an abnormally low level. That was due to an unusual combination of circumstances that led to a demoralized market. As the season advanced, prices tended to recover somewhat, but never reached the level that would have covered cost of production and at its highest remained well below parity for apples for processing. To illustrate that point, the average price paid to growers in the United States for apples for canning in 1951, according to USDA figures, was $27.70 per ton; that figure compares with the parity figure for apples for canning as of April 15, 1952, of $67.30 per ton. As a result many growers in both belts are in a very weak financial position already as a result of these disasterously low prices. Evidence of the seriousness of the situation is the abnoramlly great removal and abandonment of apple orchards this past winter. In addition and on top of this, USDA, Bureau of Agricultural Economics figures show that in the past 12 months prices paid by farmers for wages have increased 6.5 percent, for taxes 4 percent, for fertilizer 3.3 percent, and for farm supplies 6.6 percent. With small stocks of canned and frozen apples in canners and distributors hands, the price for apples for processing should be expected to be higher this year. It must be higher if apple growers are to recover costs and stay in business. But it would appear that it is a practical impossibility for apple prices to recover to resonable levels under these regulations. Both orders, CPR 56 and CPR 82, discriminate against apples because of the manner in which apples for processing are procured commercially. As Mr. L. A. Putnam of the Western New York Apple Growers Association pointed out in his letter of November 17, 1951, to Mr. W. G. Carberry (copy attached), a processor who buys at a low price early in the season and sells part of his finished pack at that time--as is commercial practice is prevented under these regulations from paying a higher price for raw product later and reflecting in his ceiling the actual cost of the raw product in the finished product left to be sold. Conversely, if he pays more early in the season than he pays later, his profit is enhanced under the regulation. The regulations are therefore, not fair and equitable by OPS's own standards. In that same letter of November 17, 1951, to Mr. Carberry, Mr. Putnam called attention to the manner in which CPR 56 discriminates against grower processors and cooperatives as compared to independent processors. The same is true of CPR 82. Supplementary regulations in no way correct that inequity. In western New York, and to a lesser degree in the Appalachian States, freezers are a large and important outlet for apples. In New York State, for example, in 1949-50, 14,197,080 pounds were frozen; in 1950-51, 18,087,890 pounds; and in 1951-52, 8,575,404 pounds. Supplementary Regulation 2 to CPR 56 and Supplementary Regulation 5 to the same order gave some relief to canned-apple products. No such relief has been granted in the case of frozen apples which are tied to a severely depressed level of grower prices by CPR 82 and Supplementary Regulation 1 to that order. That fact was outlined to Mr. Jerry Foytik in Mr. Putnam's letter of December 12, 1951 (copy attached). Frozen apples are, therefore, being severely discriminated against under present regulations, and the inequities of the regulations can very well prevent freezers from securing supplies because the regulations prohibit them from paying as much for the same apples as canners. Immediate action is necessary if growers are to be granted any relief before the opening market for processing apples is established. A substantial proportion of the growers normally sell at these opening prices and these growers have no recourse if ceilings are adjusted for processors later as was done in 1951. more, the opening market has an important bearing on later prices. FurtherMere suspension of these ceiling regulations will not be sufficient because the regulations are not fairly and equitably designed to reflect commercial practices in the procurement and processing of canned and frozen apple products, and do not take into account the seriously distressed position of grower prices. It is the considered belief of the apple growers of western New York and the Appalachian States of Virginia, West Virginia, Maryland, and Pennsylvania that canned and frozen apple products should be decontrolled immediately for the foregoing reasons and because 1. 1951 grower prices for apples for canning were, according to USDA figures, at 41 percent of parity. Also canned apple products are among the lowest priced fruits on grocers' shelves. 2. A reasonable size crop is expected over the Nation in 1952-no apparent danger of very short supplies. 3. Therefore, there appears to be no prospect of processing apple prices reaching parity this year, and there is no need for ceilings. Should the legal minimum for apples for processing be approached at some future date, any ceiling regulation imposed should take into consideration the peculiarities of the normal commercial practices of procurement of apples for canning and freezing. It is the further considered belief of the growers of the two areas that decontrol must be immediate to permit the normal functioning of the market without interference so as to permit growers to receive fair and equitable prices for their apples warranted by the supply and other marketing condition. WESTERN NEW YORK APPLE GROWERS ASSOCIATION, INC., W. G. CARBERRY, Chief, Fruit and Vegetable Branch, Food and Restaurant Division, Office of Price Stabilization. DEAR MR. CARBERRY: This letter will confirm the questions we raised in your office, Friday, November 16, with respect to apparent injury to apple growers resulting from CPR 56 and amendment 6 to that regulation covering processed apple products. This fall (1951) prices for apples for processing opened in a demoralized market at abnormally low levels-actually representing about one-third or less of the cost of growing and picking apples. Processors purchased a substantial quantity of apples at those prices. To illustrate, one major processor in western New York agreed to pay for the best processing varieties-grower's entire crops of those varieties as picked-the following schedule of prices: Apples below 24 inches in diameter. 1 No payment. Per 100 pounds (1) $0.65 .90 1. 15 1.40 He agreed to pay for the other desirable processing varieties at a lower rate. I am enclosing information showing representative schedules of prices for the western New York area at harvest time. I am also enclosing figures prepared by Cornell University from data collected on costs of producing apples. These figures are enclosed simply to indicate the degree to which the early market was demoralized. Since then the market for apples has begun to assume a more nearly realistic level. Prices are still below cost of production, however, and well below parity which we understand to be approximately $3.50 per 100 pounds. To show the importance of processing of apples in western New York, in 1950, for example, about 7 million of an estimated 10 million bushel crop went into canned applesauce, canned slices, baby food, frozen slices, and apple juice (not cider or vinegar). Processors buy growers' entire crops and put emphasis on the higher quality crops. Apple processing is no longer a salvage industry in western New York. Here is the first example of apparent injury to producers. Processors tell us that it is impossible for them to buy apples from growers at the present level of prices because their ceiling will not permit them to sell at a price sufficiently high to cover costs. We illustrated the point to you with this representative hypothetical case: A processor buys 75 percent of his apples for an average price of $1 per 100 pounds. As customary in the industry historically, he sells a major portion of that 75 percent of his pack at harvesttime. His ceiling on that part of his pack sold is therefore based on the $1 raw product cost. At the present level of prices, he buys a remaining 25 percent of his requirements at $2 per 100 pounds. His average raw product cost for all apples purchased is then $1.25 per 100 pounds. His ceiling on the finished product he has left to sell then is based on his average raw product cost of $1.25 per 100 pounds. But the actual raw product cost on the product left to sell is close to $2 per 100 pounds. He points out that he must take a loss on every case of the remaining finished product of the difference between the average raw product cost at $1.25 and the actual raw product cost at close to $2 for that remaining portion of his pack. He points out that, therefore, he can't under the regulation buy that last 25 percent of his requirements because to do so would mean he would lose moneyor conversely, it appears that growers are prevented by the regulation from selling, through their regular marketing channels at the market level even though that level is well below parity. Here is the second example of apparent injury to producers by the regulation. Cooperatives and grower-processors have operated in the apple-processing deal for a number of years. They are a regular part of the normal marketing system. Our understanding of the regulation is that, at the present time, cooperatives or grower-processors who did not purchase applies in 1948 or 1951 at ascertainable prices, are required to borrow average raw material costs from other processors. We illustrated the apparent injury to growers in this manner: A grower did not sell his crop at the $1 level of prices because he realized that he could not continue in business at such selling prices. The present higher level of prices confirms his judgement that the earlier level was unrealistic. He now wishes to market his applies through a cooperative or under a grower-processor set-up which may be his normal market. However, the average raw product costs of the processors in the area are close to $1 since they purchased a substantial portion of their apples at that average price. A borrowed raw product cost must, therefore, be close to $1. It appears then that a grower marketing his apples through a cooperative or in a growerprocessor set-up, using such a borrowed raw product cost, can realize only about $1 for his apples even though the market is at a $2 level now, and even though the present level is well below parity. In such a situation, the independent processor is interested directly only in his margin. He has no financial interest in the raw product beyond the actual cost to him which is included in his ceiling. The cooperative or grower-processor as such is in a similar position and is protected so far as manufacturing costs are concerned. The only party injured is the grower who, it appears, is prevented, by the regulation, realizing on his apples the market level even though such market level is well below parity or legal minimum. Growers are not directly concerned with processors' margins. They are concerned, however, if processors are so regulated as to be prevented from making a reasonable business profit which in turn forces them to restrict or discontinue operation. Processors tell us that the base period is unfavorable. They state that during the base period the selling prices of their products was lower than it was later in the season and lower than their average selling price for the season. They also state that their selling prices during the base period were below the break-even point in many cases considering the prices paid for the raw product during that season. We are not in a position to determine the accuracy of those statements, but from our knowledge of the 1948 season they would appear to be true. If they are true, we are concerned as growers with the use of such a base period because processors are an essential part of the apple-marketing system, and it would be serious indeed for growers if the processors were forced to discontinue operation because of losses. I mention this in passing only, simply to indicate to you our interest. It is our understanding that the law provides that ceilings shall not be imposed on products at below the legal minimum. It appears that, in effect, this regulation does prohibit growers from selling their products within that limit. We appreciate that your job and the job of OPS is a complex one. However, we wished to give you the facts from the standpoint of the apple grower and ask for your assistance 97026-52-pt. 2- -51 in relieving the situation. Well informed responsible growers have expressed the opinion that this situation has already caused serious losses to growers and that adjustments must be made if the apple industry is to survive. Very truly yours, L. A. PUTNAM, Executive Secretary. WESTERN NEW YORK APPLE GROWERS ASSOCIATION, INC., Mr. JERRY FOYTIK, Fruit and Vegetable Branch, Food and Restaurant Division, Office of Price Stabilization, Washington, D. C. DEAR MR. FOYTIK: This letter is concerned with Supplementary Regulation 1 to CPR 82 covering frozen fruits and berries about which I telephoned you the forepart of the week of December 3. It appears to us that this supplementary regulation is injurious to growers of apples in the same manner as the original regulation, CPR 82. That apparent injury to growers by CPR 82 and CPR 56 (Amendment 6) was outlined by our group in Mr. W. B. Carberry's office on November 16, and confirmed by my letter to Mr. Carberry dated November 17. I am enclosing a copy of that letter for your information. In our conversation with Mr. Carberry and his associates we pointed out that in discussing apples for processing we had reference to apples sold to freezers or canners. That point is also implied in the last paragraph on page 1 of the letter to Mr. Carberry. Freezers are an important outlet for apples in western New York and western New York is a major factor in the apple freezing industry. As I pointed out to you on the phone, the frozen apple pack in 1950-51 was large. In the spring of 1951, fresh apple prices slumped badly. As a result, fresh apple slicers bought fresh apples out of cold storage at prices far below the prices paid in the fall of 1950 by freezers, and sold fresh slices in competition with frozen slices. The price of frozen apple slices was forced down, the movement of frozen slices was very slow, and the frozen apple market was at a depressed level during the spring, summer, and into the fall of 1951. As a result, the option offered in Supplementary Regulation 1 would appear to tie prices of frozen apples to this depressed level, and if used would in effect prohibit a grower from selling his apples to a freezer at the market level for apples even though that level is far below parity and below cost of production. In that letter to Mr. Carberry I outlined two examples of apparent injury to producers. It appears to us that Supplementary Regulation 1 in no way relieves that apparent injury to growers as set forth in either example. Of primary concern here is the fact that processors are interested in their spread or margin. They have no immediate financial interest in the price of the raw product beyond its actual cost to them. Basically, the level of prices is of minor concern to the processor as long as he is assured of an adequate spread. The grower is the only one with a direct interest in the price of the raw product. It is our understanding that the law provides that ceilings shall not be imposed on agricultural products at below the legal minimum. It appears that, in effect, these orders do restrict the prices at which growers can sell their apples to a level far below parity and far below cost of production. We feel that such cannot be the intent of OPS, and we request that immediate consideration be given to the adjustment of these orders to relieve the injury to growers. Sincerely yours, L. A. PUTNAM, Executive Secretary. Mr. HARRISON. I would like to thank you, Mr. Chairman. Very little good to the public comes from imposition of ceilings on a commodity that sells below 1950 prices. I do ask the committee to decontrol fruit. Mr. BROWN. We are very glad to have your statement. Mr. HARRISON. Thank you very much. Mr. BROWN. Congressman Ramsay, of West Virginia, is our next witness. STATEMENT OF HON. ROBERT L. RAMSAY, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF WEST VIRGINIA Mr. RAMSAY. Mr. Chairman, I have introduced H. R. 6843 to attack a problem faced by many of our industries which, although involving imports, comes about directly by the workings of the controlled materials program. Under the controlled materials program, production of some civilian products is curtailed. In many instances this creates a vacuum, which is being filed with imports from foreign countries. History has shown that when our domestic industries may again obtain all the materials. they need, they have a great deal of difficulty recapturing their share of the market. What I am trying to do in H. R. 6843 is to provide machinery whereby the domestic industries, once they have shown injury, may be granted relief. To do this, I suggest a quota limitation. This: principle, I believe, is emminently fair. Nationzl Production Au-thority, in allocating scarce materials, follows the principle of dividing proportionately. In other words NPA attempts to maintain a domestic producers competitive position. This bill merely extends that principle so that it may be applied to foreign competitors. To do this, I suggest the utilization of the escape-clause machinery which the Congress has approved for trade agreements. Since any injury from the controlled materials program is not an injury directly resulting from trade concessions, the escape clause of the reciprocal trade agreements does not apply. It is apparent, then, that legislative action is necessary. Now, as to H. R. 6843 itself. I have no particular pride in authorship. I admit that changes may be necessary. The base period might well be changed, after study. The quota limitation as written in the bill now may be too great, or too small. But, Mr. Chairman, I believe the principle set out in this bill is fair, and is necessary. You may recall that I introduced a bill a year ago which this committee incorporated into the Defense Production Act amendments of 1951, but which was killed on the floor. That bill provided for an automatic embargo on goods containing materials which were under allocation in the United States. It was designed to meet the same problem, but I believe perhaps the automatic embargo may have been too severe. In the present bill, nothing is automatic, and no quota may be established until an industry seeks relief and makes out a case of suffering injury. I believe I have sufficiently protected those imports which are necessary to our defense program. I would not want any legislation. which would not carry such protection. Last year, on the floor, it was said that such legislation would harm the reciprocal trade program. Such is not the case. Our trade agreements were all made under the circumstances of normal flow of materials to fabricators. Congress itself has interfered with that normal flow. Congress should, therefore, take steps to protect the markets of our domestic producers to the extent that its own actions have upset those markets. Thank you, Mr. Chairman, and members of the committee. |