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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 money, or 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 serinus 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
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.,
Rochester, N. Y., December 12, 1951. Mr. JERRY FOYTIK, Fruit and l’egetable 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. 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 bave 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. Ř. 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.
STATEMENT OF HON. C. W. VURSELL, MEMBER OF CONGRESS,
STATE OF ILLINOIS
Mr. VURSELL. Mr. Chairman and members of the committee, I come before your committee to suggest that if the Defense Production Act is to be extended, the act should be tightened up and that certain definite and mandatory standards or decontrols should be written into the act.
Unless this is done the OPS will continue to fail to carry out the purpose of the legislation and the intent of Congress in the future, as it has in the past, defeating the very purpose of the act, resulting in great damage to the economy, and impairing the defense of the nation.
The Defense Production Act specifically asks for the “expansion of productive facilities beyond the levels needed to meet civilian demand."
The OPS has flagrantly ignored this directive. The law also makes provision in section 402 (F) for the exemption from controls where such exemption is necessary to effectuate the basic objectives of the act. The expansion of production so necessary which was the intent of Congress, is completely ignored by officials of OPS. Congress should write into the act mandatory decontrol standards and not leave it to the whim of OPS.
The OPS has substituted for the word "exemptions," the word "suspension” of price ceilings.
Why suspension and what happens by suspension of controls? When commodities are exempted less people are needed on the OPS payroll. When price ceilings are suspended, the OPS in effect builds up "operation stand-by” meaning few if any employees are separated from the payroll. They argue they may need them again if the price of suspended commodities should again go up to the ceiling level.
It is estimated, over 12,000 employees are now engaged in the activities of OPS enforcement. It is obvious that when decontrols or exemptions are made, as the act contemplates, OPS personnel should be reduced.
The act in this particular should be strengthened by mandatory decontrol when commodities are exempted from price ceilings.
There are two bills before your committee-H. R. 6985 and 7807 which provide that the "ceiling price shall be removed (not not suspended) when the material is ample in supply or is selling below the ceiling price." I feel such amendment should be written into the act now before you for consideration as it would safeguard both the taxpayer and the consumer.
This amendment written into the act does not say to OPS do this if you see fit. It says "do it" period. Unless the Congress sets up definite standards, and mandates the OPS to follow them, the administration of OPS will continue in the future as it has in the past in failing to follow the intent of Congress. Let us take oil, for example.
The OPS controls on oil are slowing down oil production and exploration and expansion of our productive capacity of oil, in direct violation of the Defense Production Act written a year ago and now before you for further consideration.
There was no legal authority in the act for establishing present price controls as to petroleum. There is no economic or legal justification for continuing them. They will, however, keep these controls on unless Congress acts by amending the act along the line suggested by the Burleson or Rees amendments.
The Defense Production Act had two or more purposes, one to expand and increase production, the other "to control and stabilize prices and wages." The OPS has thrown the expansion and increasing production part of the act out of the window. They seem interested only in price ceiling, regardless of the intent of Congress plainly written in the act.
In the declaration of policy in section 2 of the act, the Congress said the task of opposing aggression and promoting peace “requires expansion of productive facilities beyond the level needed to meet the civilian demand."
Title III of the act deals exclusively with expansion of productive capacity and supply and authorizes the President to make provision for:
* the encouragement of exploration, development, and mining of critical and strategic minerals and metals.
Later, in granting authority to control prices and wages under title IV of the act, the Congress was careful to repeat this fundamental objective with the statement that:
It is the intent of Congress that the authority conferred by this title shall be exercised in accordance with the policies set forth in section 2 of this act, and in particular with full consideration and emphasis, so far as practicable,' on the maintenance and furtherance of the American system of competitive enterprise, including independent small-business enterprise
Even more specifically, the Congress directed in section 402 of this same title that, in administering price controls:
The President shall also give due consideration to the national effort to achieve maximum production in furtherance of the objectives of this act.
Finally, the Congress recognized that these purposes may require exemptions from price control. In section 402 (1) the President was given authority to provide exemptions from price controls where it is found that:
(1) such exemption is necessary to promote the national defense; or (2) it is unnecessary that ceilings be applicable to such materials
These expressions of policy, repeated again and again in the act, leave no doubt as to congressional intent. Yet the OPS moves in the opposite direction and by so doing slows down productive capacity of the entire oil industry. The suspension procedure established by OPS, as presented to you by Mr. Arnall, dealt only with the relaxing of what they judge to be unnecessary price controls. This suspension program is purely an administrative creation and in no sense carries out the congressional mandate for exemptions.
In order to insure this expansion the Petroleum Administration for Defense outlined a drilling program for the domestic oil industry of 25,000 wells for the last half of 1952 and for 55,000 wells in 1953.
This program has been approved by the Office of Defense Mobilization and the Defense Production Authority.