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diversified farm products. This would utilize more fully the agricultural production potential, since these farms usually require no outside labor. The family-sized farm is economically the most efficient food production unit ever devised by man. It must be remembered that 40 percent of all the beef and over 60 percent of all the veal comes from dairy cattle.

During World War II the price of butter was fixed at a level which was entirely out of line with other commodity prices, and an effort was made to compensate the producer through the payment of a Government subsidy. The effect was to give the public the erroneous impression that the consumer price was a fair reflection of butter's value. When this restriction was removed, and butter prices bounded up to a more realistic level, there was widespread protest from consumers that the butter industry was profiteering. This discriminatory treatment of butter during World War II and immediately thereafter can be principally blamed for weak consumer demand and resultant surpluses acquired by the Government during the past few years.

Members of the committee, during the opening part of this hearing, have referred to the high price of butter. We would like to point out that butter should not be regarded as high priced, when compared to a fair and accurate standard of value. From statistics received from the Bureau of Labor Statistics, it can be pointed out that it required 58.6 minutes of the average hourly wage in 1926 to purchase a pound of butter; it required 36.78 minutes in the 4-year period 1935-39. At the present time, it requires slightly less than one-half hour of the average workingman's hourly wage to purchase a pound of butter. The American Butter Institute strongly urges that price controls for butter and other dairy products be terminated on June 30, 1952. The American Butter Institute also supports the statement presented to this committee by the spokesman for the Dairy Industry Committee. That, Mr. Chairman, concludes my statement.

The CHAIRMAN. Now the representative of the National Cheese Institute may proceed, to be followed by the representative of the blue cheese industry, and then you will be interrogated as a panel.

STATEMENT OF E. W. GAUMNITZ, EXECUTIVE SECRETARY, NATIONAL CHEESE INSTITUTE, INC.

Mr. GAUMNITZ. Mr. Chairman, my name is E. W. Gaumnitz. This statement is submitted on behalf of the National Cheese Institute, Inc., with offices at 110 North Franklin Street, Chicago, Ill.

The National Cheese Institute is a nonprofit corporation whose members include manufacturers of cheese and process cheese and assemblers, wholesalers, and distributors of all types of cheese. Its members manufacture over 50 percent of the cheese produced in the United States and distribute between 80 and 90 percent of all cheese distributed in the United States.

The National Cheese Institute supports the renactment of section. 104 of the Defense Production Act of 1950, as amended. Reenactment is urged because it seems clear that a definitive congressional expression or directive is necessary regarding the importation of various dairy products if the production of milk and milk products in the United States is to be maintained or expanded. Section 104 of the Defense Production Act of 1950, as amended, contains such an expression.

It is clear and unmistakable. The standards contained therein regarding dairy products seem reasonable.

Section 104 states that import controls for certain products, including butter, cheese, and other dairy products are necessary "for the protection of the essential security interests and economy of the United States in the existing emergency in international relations." It also provides that no imports of any such commodity or product shall be admitted to the United States until after June 30, 1952, which the Secretary of Agriculture determines would (a) impair or reduce the domestic production of any such commodity or product below present production levels or below such higher levels as the Secretary of Agriculture may deem necessary in view of domestic and international conditions, or (b) interfere with the orderly domestic storing and marketing of any such commodity or product, or (c) result in any unnecessary burden or expenditures under any Government price-support program.

The declaration seems clear and the standards provided for imports seem reasonable.

Milk production in the United States in the years 1930 to 1951 is shown in the attached table. The data show that milk production on farms in the United States reached a peak in 1945 and in 1951 had been reduced to slightly under 116 billion pounds. Apparently, milk production has just about been maintained since the early part of World War II. There is clear indication, however, that currently milk production is tending downward. On a per capita basis milk production is obviously reduced.

Production of creamery butter in the United States reached its peak in 1951, when 1,872 million pounds were produced. In 1951 production had been reduced to slightly over 1,214 million pounds.

The production of cheese has been somewhat better maintained although the production of American cheese in 1951 was lower than production in either 1949 or 1950. The production of all cheese shows a similar change. The production of cheese by varieties for the years 1931 to date is shown in the attached table.

The production of nonfat dry milk solids reached a peak in 1949, but shows a very marked reduction in 1950 and 1951.

A review of the manufactured dairy products production data shows that the total production of these products on a milk equivalent basis is declining.

The United States exports of dairy products prior to World War II were quite small. Under the various relief and economic aid programs, following World War II, exports were abnormally large. Such exports were largely of a noncommercial character and there seems to be no reason to anticipate a continuation of such exports.

The United States has made grants to certain countries for one purpose or another. In the fiscal 1949 and 1950, for example, Economic Cooperation Administration grants resulted in payment for United States goods and services in an amount of $3,592,000,000 and $2,161,900,000, respectively. Commodity exports under such conditions are in no sense commercial and the volumes of the various types of goods taken are no indication of the quantities which might be exported under conditions of free trade. Under free trade it is practically certain there would be material changes in the character as well as the amounts of products exported.

The situation is similar to artificial shortages which appear under various maximum price-control experiments or under subsidized consumption schemes.

Under conditions of international grants and nonfree movement of gold the fundamentals of free trade are lacking. Arguments with reference to the prohibition of imports or the expansion of exports under such conditions as a means of promoting free trade, therefore, become meaningless.

An examination of the data as to imports for various dairy products in the United States shows that imports prior to World War II varied as between products. Imports of cheese prewar were around 54 million pounds. Imports in 1950 had reached the level of 56 million pounds and then were somewhat reduced in 1951. Imports of butter prewar ranged around 9 million pounds and imports of dry milk around 6 million pounds.

Import data for the years 1934 to 1938 and for the year 1950 are as follows:

United States imports and exports of specified dairy products, average for years 1934-38 and 1950

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United States import of cheese by varieties for the years 1931-52 are shown in the attached table.

It is to be noted that during the war periods imports were very low. Since that time they have expanded materially, with the expansion in imports being particularly marked in the case of blue cheese, the Italian types, and Edam and Gouda. Imports of cheese by variety by country of origin for the year of 1937 and for the individual years of 1947 to 1950 are shown on the attached table.

In connection with imports attention is directed to the fact that a considerable number of exporting countries have devalued their currencies. Such devaluation has ranged to more than 35 percent. These currency devaluations have been particularly difficult to anticipate since the exchange rates apparently have been determined very largely by arbitrary governmental action.

Whenever exchange rates do not have a common denominator which results in exchange rates being self-adjusted, international settlements are fictitious, and international trade is likewise arbitrary. Under such conditions "demand and supply" in terms of prices become meaningless terms. The volume of goods exported from the United States, for example, under such conditions are, in no sense, the result of free trade since such quantities may well have been moved under what to all intents and purposes are "hidden subsidies."

Were exchange free and gold movement free it is not only possible but probable that United States exports would be materially reduced

and limited. Export data as well as import data, under these conditions, are fictitious.

It is of interest to note that no counter actions were taken following such arbitrary devaluations on the part of countries exporting to the United States.

A somewhat new and unique element in international trade has recently become evident and should be given weight in considering section 104. Reference is made to the arbitrary and discriminatory export pricing arrangements of certain countries exporting to the United States. As examples of such arrangements reference is made to the specific pricing mechanisms of Denmark and the Netherlands. For example as to Denmark, in the public hearing before the United States Tariff Commission on April 14, 1952, in connection with the investigation regarding Blue Mold cheese under section 7 of the Trade Agreements Extension Act of 1951 at least one witness stated that export prices of Danish blue mold cheese are controlled by arbitrary action through a Danish Cheese Export Committee in which the Danish Government participates and through which it controls exports; that different export prices are arbitrarily established between countries; that such prices could be raised or lowered by edict; and that such export prices apparently are not related to the prices of other dairy products. As a matter of fact it was also testified that apparently a somewhat similar situation exists in Italy.

Another example as to the Netherlands: In response to an inquiry addressed to the Under Secretary of Agriculture recently, the assistand to the Under Secretary under date of April 23, 1952, made reply. Two paragraphs of that letter are as follows:

Apparently some misunderstanding has developed over his reference to the policy followed by many of the foreign countries of selling specialty cheeses strictly as luxury products at prices substantially above those for comparable types of cheese produced domestically. The particular example he had in mind was Dutch cheese, as the Netherlands Government sets minimum prices for exported dairy products, based upon production costs plus a small amount charged to make up for certain domestic subsidies. As it happens, the export prices of Dutch cheeses so far have been higher than the prices of American Gouda and Edam. If this situation should change, the Netherlands Embassy informs us, it is contemplated to raise the price of Dutch cheese so it will remain above the price of the American product.

Roquefort exporters also maintain complete control over prices to keep them substantially above the market for domestic Blue cheese.

It is certainly apparent from these illustrations that international trade is not being conducted under conditions contemplated by any concept of free trade. Very apparently pricing at arbitrarily high levels is merely one of transferring funds.

In connection with imports it should be noted that under the Trade Agreements Act import duties on practically all dairy products have been reduced materially from the levels established by the Tariff Act of 1930. In the case of most dairy products these reductions on a dollars-and-cents basis have amounted to about 50 percent. For example, the rate on whole milk has been reduced from 61⁄2 cents per gallon to 2 cents per gallon for not more than 3 million gallons in any calendar year. The rate on butter has been reduced from 14 cents per pound to 7 cents per pound up to 60 million pounds-the quantitative limitations relate to specific periods of the year. The rate on dry skim and buttermilk has been reduced from 3 cents per pound to 11⁄2 cents per pound.

Rates of tariff for the various types of cheese are shown on the attached table. For the most part, the rates provided in the act of 1930 were 7 cents per pound but not less than 35 percent ad valorem. Currently, the rates range from 3 to 5 cents per pound and from 15 to 25 percent ad valorem.

Under the Agricultural Act of 1949, the United States Department. of Agriculture is required to support the prices of milk and butterfat at between 75 and 90 percent of parity and under certain conditions prices may be supported at above the 90 percent level. Currently support prices are in effect for butter, cheese, and nonfat dry milk solids. While the method of support is through the offer to purchase butter, Cheddar cheese, and nonfat dry-milk solids through such support prices, the prices to producers for milk for all uses is supported regardless of product.

The situation is well stated in a letter from the Secretary of Agriculture to Senator Fulbright on September 17, 1951, and appearing in the hearings before the Committee on Banking and Currency on S. 2104. The Secretary's statement on this point follows:

Since all dairy products are manufactured from milk or butterfat, there is a very close relationship between the prices at which the various dairy products are purchased under the price-support program. Purchases of any one of the major dairy products tend to support the returns to farmers for milk and butterfat sold. It is, therefore, reasonable to expect that imports of cheese on an unrestricted basis would result in increased purchases of dairy products under the price-support program.

The law states that import controls are necessary for cheese and makes no distinction as between types of cheese. The different types are competitive with each other in varying degrees. In view of the recent substantial increases in imports of most types of cheese in combination with recent decreases in United States production of most types of cheese, and also in view of the probability of having to purchase supplies of Cheddar cheese under the price-support program, the Department determined that import restrictions would be applied in the same manner to all types of cheese.

With the present situation in international trade it is apparent that the unrestricted entry of dairy products into the United States, during a period when milk and butterfat prices are being supported by the United States Government, could well result in an attempt to support or underwrite world prices of dairy products.

In hearings before the Committee on Banking and Currency regarding S. 2104 several witnesses indicated, and the committee stated, that section 104 was unnecessary because alternative statutes were in effect under which necessary protection of domestic industry could be afforded. At the same time it was argued that action under section 104 was contrary to certain provisions of the General Agreement on Tariffs and Trade.

It is difficult to understand how it can be argued that action under section 104 would violate the General Agreement on Tariffs and Trade without action under any of the suggested alternative statutes having the same effect. As a matter of fact it appears that action under section 104 is within the exceptions provided in article 21 of the General Agreement on Tariffs and Trade, in view of the congressional declaration contained in section 104 stating broadly that import controls of certain products are necessary for the protection and essential security interests and economy of the United States in the existing emergency in international relations.

97026-52-pt. 2- -4

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