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DEFENSE PRODUCTION ACT AMENDMENTS OF 1952

WEDNESDAY, MAY 14, 1952

HOUSE OF REPRESENTATIVES,
COMMITTEE ON BANKING AND CURRENCY,

Washington, D. C. The committee met at 10 a. m., pursuant to adjournment, Hon. Brent Spence (chairman of the committee) presiding.

Present: Chairman Spence (presiding), Messrs. Brown, Patman, Multer, Deane, Dollinger, Bolling, Fugate, Talle, Cole, Hull, Nicholson, and Widnall.

The CHAIRMAN. The committee will be in order.
The clerk will call the first witness.

The CLERK. The first witness is Mr. George Paul, representing the National Creameries Association.

The CHAIRMAN. You may proceed, Mr. Paul.

STATEMENT OF GEORGE PAUL, AND O. M. REED, WASHINGTON

REPRESENTATIVE, NATIONAL CREAMERIES ASSOCIATION Mr. PAUL, Mr. Chairman and gentlemen of the committee, my name is George Paul, of Brooklyn, Iowa. I am a dairy farmer, and president of the State Brand Creameries, a large cooperative butter and dairy product manufacturing association located at Mason City, Iowa. I am also a member of the legislative committee of the National Creameries Association, which has its headquarters at St. Paul, Minn., and its Washington offices in the Wyatt Building at 777 Fourteenth Street NW.

The National Creameries Association represents, and is directly supported by, over 300,000 dairy farmers located in the States of Iowa, Minnesota, Wisconsin, North and South Dakota, Nebraska, Montana, and Kansas. These farmers deliver milk and butterfat to 952 member dairy plants, of which about 85 percent are producer owned and controlled cooperative associations--the remainder local, proprietary concerns.

Since our members are largely manufacturers of butter and nonfat dry milk solids, and have such a preponderance of cooperative plant membership, we feel that we can speak with knowledge and authority concerning the position of both the producer and the processor with respect to H. R. 6546.

The National Creameries Association is opposed to the continuation of the price-fixing powers conferred upon the President by title IV of the Defense Production Act. In this respect, we support the position of the Dairy Industry Committee.

We favor the continuation of section 104 of title I of the act, which confers upon the Secretary of Agriculture the power to control the

imports of dairy products, among others, under certain conditions specified in such section. In respect to our desire that section 104 be continued, we also represent the desires of the Dairy Industry Committee.

With regard to section 104, which the House bill would eliminate from the extended Defense Production Act, we feel that the Congress is faced with a policy determination as to what it desires from the dairy farmer and the dairy processing industry in this unsettled period in world affairs. Briefly, the Congress must choose between the policies as to whether (1) we in this country have a strong, highly productive dairy producing and marketing industry to meet the needs of our rapidly growing population, or (2) it is not necessary to have such a strong dairy industry and it is good public policy to permit the serious weakening of this industry through permitting the competition of cheap dairy products from foreign lands—dairy products which are produced with cheap labor, and which are placed upon a favorable competitive price basis with our own industry through the manipulation of their currencies and through other means.

It is our purpose to indicate to you our reasons for our belief that sound public policy requires the continuation of section 104.

We believe that we should maintain milk and butterfat production at increasingly high levels, in order to meet the needs of our growing population, and that the Congress should follow policies in its legislation that will encourage such production.

We urge the Congress not to place hampering restrictions in the way of the dairy farmer and processor in utilizing to the fullest possible extent the labor, material, and equipment available for the production of milk and its products.

Accordingly, we oppose continuation of the power conferred upon the President to impose price ceilings on milk and its products, because we believe that such controls hamper production and marketing. We oppose termination of the power conferred upon the Secretary of Agriculture under title I, section 104 of the act, to impose controls on the importation of dairy products, because we believe that lifting these controls and permitting the importation of large volumes of butter and other dairy products will drastically reduce the incomes of our producers. This in turn will cause them to reduce production, interfere with orderly marketing and result in unnecessary expenditures under the price support program.

Our reasons for the preceding statements follow:

Milk production on farms is barely holding its own. Milk production is barely being maintained under present conditions, and would be seriously hampered by freezing or lowering of price levels.

Milk cow numbers are at the lowest point since 1930. As of January 1 this year, there were 23,407,000 cows and heifers 2 years old and over kept for milk on farms--a reduction of one percent from the preceding January and markedly lower than the peak numbers recorded in 1945 of 27,770,000 head. There does not appear to be any improvement in sight for this condition. (Chart 1 shows trends in cow numbers, and chart 2 the high rate of elimination of cows and heifers from dairy herds the last few years.)

On the other hand, the number of cattle on farms as of January 1 this year, reached an all time record of over 88,000,000 head. This large number, in the face of diminishing numbers of dairy cows, is

accounted for entirely by the fact that beef cattle numbers are very high. (For details as to numbers, see tables 1 and 2, appendix.)

Milk production has been fairly well maintained during the last few years at figures not much below the wartime peak, but this has been accomplished by a steady increase in production per cow as a result of better husbandry practices. In 1950, production per cow was 5,314 pounds as compared to 4,589 in 1939. There is a limit, however, to the extent to which increased production per cow can be made to offset declining numbers.

Prices for milk and butterfat received by farmers in this country are low relative to the prices of beef cattle-the major competitor of dairy cattle for the use of farm labor and capital. (See chart 3, and table 3, appendix.) As a matter of fact, prices of beef cattle have been much higher relative to parity than milk and butterfat prices for the last several years. This price relationship alone explains why the dairy herd continues to decrease while the beef-cattle herd continues to increase.

I should like to digress for a moment to give you a concrete example.

In my own personal experience, about 4 months ago, I sold a large Holstein cow. She weighed 1,785 pounds, she brought $458.

If I had tried to sell this animal for a dairy animal, the most that I could have gotten for this cow would have been in the neighborhood of $300 to $325.

So you can see that even our dairy cattle, a lot of them, have been sent to slaughter simply because it is more profitable to send them to slaughter than it is to keep them for dairy production. The labor situation has had quite a bit to do also with sending these dairy cows to slaughter.

During the war when we had full-scale price control on the one hand, and the drive for very high dairy production on the other, prices for milk and butterfat were not only permitted to reach levels considerably above parity under the price ceilings, but in addition, the Government paid out subsidies to the individual farmers to increase their returns even more. We are most assuredly not asking for subsidies on the contrary we opposed them during the last war and oppose them now. We do ask, however, that Government recognition of the need of, and its request for, continued heavy milk production on the farms of this country, should also recognize that this need cannot be met with dairy prices unfavorable to prices for competing agricultural commodities.

In the butter industry, we have lost a great portion of our prewar business. Per capita supplies of other dairy commodities have been kept ample by shifting milk from butter to other uses. We in the butter business are not crying wolf-it has already happened to us, and we do not want the trend accentuated.

World price levels are considerably below price levels in this country. Prior to the last war, there were a number of fairly important butter-importing countries, of which England was the most important. Since the war, with the vast changes that have taken place in the government structure in Europe, this pattern has changed somewhat, but England is still by far the most important importer.

Major exporting countries are New Zealand, Australia, Denmark, and the Netherlands.

Cents

. 35

Prices for butter in this country, and as a result the prices of milk and butterfat to dairy farmers, are considerably higher than the prices prevailing in the foreign countries just mentioned. The most recent figures which we have been able to compile indicate that butter could be laid down in this country, all costs and duties paid, for about 60 cents per pound.

Calculated as follows: Butter prices, f. o. b. Copenhagen, as of Jan. 3, 1950 (per pound). 48. 90 Ocean freight (per pound).

2. 88 Insurance (per pound)

. 50 United States tariff duty

7. 00 Trucking (American ports) Storage (month)

47 Total costs ---

60. 10 These prices refer to high quality butter, and are based upon the so-called free butter originating in Australia, New Zealand, and Denmark.

I would like to explain just what I mean by free butter. England has negotiated purchase contracts, on a government-to-government basis, with New Zealand, Australia, and Denmark. Such contracts name the purchase price, and presumably the volume covered. However, some of the exportable butter of these countries is left free of the contract, and the exporting countries are permitted to sell it wherever they desire. It is estimated that about 15 percent of the exportable surplus is free butter.

The price of the contract butter is quite low, both in relation to our own prices, and the prices for which the free butter recently has been selling in countries other than England. At present, these contract prices range from 36.3 cents per pound for Australian butter to 39.3 cents per pound for Danish butter. If this butter were available to our importers at the same prices, it could be laid down in the United States at about 46-48 cents per pound.

The vast manufacturing milk and butterfat producing states represent the sole remaining reservoir of large milk supplies upon which fluid-milk markets can draw for their expanding needs. Destroy this reservoir and you destroy our future fluid milk supplies. Cows which have in effect been exported to Denmark, or Australia, or New Zealand will furnish us little help in this problem.

Section 104 does not prohibit imports—it merely sets up reasonable standards for import control. Section 104 does not prohibit imports of dairy products. It merely provides that imports may be regulated by the Secretary of Agriculture if he finds that imports would have the effect of

(a) Impairing our domestic sources of supply;

(6) Disrupting our storing and marketing system during the season of flush production;

(c) Resulting in unnecessary expenditures under the price-support program.

Under the standards listed above, the Secretary of Agriculture has issued an order, FDO 3, which places an embargo on imports of butter and nonfat dry milk solids, and limits imports of cheese to the average of the period 1948-50. In issuing the order, the Secretary of Agriculture found that any imports of butter and nonfat dry milk solids,

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