of repeal of section 104 has not provided the assurance to domestic producers which is needed if they are to continue as sources of specialty types of cheese.

The 5 year, 1945-49, average domestic production of blue cheese is approximately 10%1⁄2 million pounds, and should closely represent the capacity of domestic producers of this style. The average production of domestic producers of Blue Cheese in the 3 years, 1948-50, the period used in Defense Food Order 3 is approximately 8 million pounds, 22 percent below the 1945-49 average.

Domestic production of blue cheese in 1950 declined 33 percent below the 1945-49 average and in 1951 declined further to 50 percent of the same 5-year average. These declines were in direct relation to the increased rate of blue mold cheese imports. While our own sales in 1950 and 1951 declined somewhat less than the average of the domestic industry, our cost of production other than milk increased 31⁄2 cents per pound. The increased costs are a direct result of spreading fixed and semifixed costs over decreased production and sales. This has made it even more difficult to meet the low price of imports. The provisions of section 104 should be included in H. R. 6546 the continuation of the Defense Production Act, and the clause (a) impair or reduce the production of any such commodity or product below present production levels should be defined so that domestic production will be considered as the average of the 5-year period January 1945 through December 1949, and that it will not be reduced or impaired below 75 percent of that average.

It is unfortunate that much of the previous controversy on the matter of import restrictions has been centered around the case of blue cheese; because it is only part of the problem. A review of reports from Denmark and conversations with those who have firsthard information and experience in the Danish dairy industry indicates:

1. That 1950 Danish exports of blue cheese to the United States represented about 5 percent of their total exports of this commodity. 2. That they could probably sell all of their cheese and other dairy products in Europe, except that they are desirous of obtaining dollars. 3. That they import oleomargarine and export butter.

I would like to read a report that comes from Denmark. This is the situation that existed then:

The milk production at the moment is approximately 10 percent lower than at the same time last year. It is a conspicuous feature that although the cattle are slowly recovering from the effects of the mouth and foot disease, it seems to take a very long time until the milk yield will reach its normal peak. Furthermore, several farmers discontinue-dairy farming because of the low return caused by the price policy of the main purchasing countries.

CHEESE OUTLOOK

The production of all types of cheese is quite high, but the demand is very active, and stocks are diminishing. It may be estimated that the balance between production and demand may not be on level until approximately June-July.

In other words, they are able to sell all of the product that they have. They have a home for it. That is more than we can say in the specialty group in this country today.

They go on and point out that the United Kingdom, France, and Germany, all showing increases, and then make this specific note about overseas:

United States and Canada: In a way it is fortunate that the United States is not drawing larger quantities right at the moment because of the present situation. Canada is buying regularly and any reasonable orders can be covered.

I think that is very significant.

Now, No. 4: That Europe probably does not have exportable surpluses of food, and will always be an importer of agricultural products.

5. That they were disturbed when the United States Commodity Credit Corporation sold surplus Cheddar to England.

6. That they had increased their production of blue cheese about 50 percent in 1950 and 1951.

7. That restrictions of European countries and price, not quality, would make it impractical for American producers of specialty types to find a market in Europe.

Understand, these points that I am pointing out are from things that we have learned from people in those countries from first-hand knowledge.

8. That European countries and governments will not import what they have in abundance.

9. That European countries impose trade restrictions and tariffs to protect their industries.

10. That the price of Danish exports is regulated nationally.

11. That there are advantages in producing more butter and keeping their skim milk and buttermilk for supplemental feeding of livestock. Blue cheese is historically French. Research, development, and production was almost simultaneous in both Denmark and the United States. United States Department of Agriculture Bulletin No. 82 indicates that work on blue cheese was being done in this country prior to 1906, and subsequent publications of the United States Department of Agriculture and various State universities show increased interest up through the early 1930's and on to the present.

From 1919 until about 1934 Grove City Creamery, in association with the United States Department of Agriculture, produced an average of 6.tons per year of American Roquefort. This was the first commercial production of domestic blue cheese.

Prior to 1935 when Italy invaded Abyssinia, England purchased large quantities of Gorgonzola, another variety of blue mold cheese, from Italy. When England stopped her trade with Italy, Danish producers got their real chance to increase their production of blue cheese. It is noteworthy that 1936 is the first year that United States import records show blue cheese from Denmark in excess of 1 million pounds. Imports of this item increased until 1940 when they declined, and from 1941 to 1947 there were no imports of Danish blue cheese. In 1948, we imported less than 1 million pounds of this commodity from Denmark. Economic Cooperation Administration funds helped make possible the expansion of Danish cheese production. Devaluation and tariff reductions have made possible the importation of blue cheese at prices which were below the cost of domestic production; thus threatening the price-support program.

During World War II, when imports of blue and Roquefort were negligible, domestic producers doubled the demand by producing high

It is

quality blue cheese which received good consumer acceptance. interesting to note that in the early 1930's the wholesale price of imported blue cheese was two and one-half to three times that of "short held" Cheddar; during most of 1950 and 1951 the wholesale price of imported blue was about equal to or 10 percent above "short held" Cheddar. It is reasonable to assume that, without restrictions on imported cheese, domestic producers would be forced to discontinue production, and a situation comparable to that which developed in rubber would be facing us.

During official hearings, and during debate in the Senate and in House of Representatives, the matter of devaluation and tariff have been mentioned. The disparity of currency values resulting from devaluation is the most important reason why domestic producers have not been able to meet the price competition of foreign producers. The matter of tariff is secondary in importance.

Among the purposes of the Bretton Woods Agreement was: "Promote exchange stability." The Economic Cooperation Act of 1948, directed by the Secretary of State, concluded bilateral agreements whereby the countries receiving aid would agree, among other things, to: "Establish and maintain a valid rate of exchange.'

On September 18, 1949, the United Kingdom submitted to the International Monetary Fund a change in their currency (pound) from $4.03 to $2.80 in terms of United States dollars. This devaluation amounted to 30.5 percent. The fund hastily concurred 2 days later on September 18, 1949. Comparable devaluation was made in the Danish krone and other Scandinavian countries. The Netherlands followed with 30.2 percent devaluation and the Argentina peso declined 30.5 percent.

All of this was done under the concept of correcting fundamental equilibrium at a time when the wholesale price of Danish blue cheese in New York was only 4 cents per pound above that of domestic blue cheese; a difference of 8 percent. Compare that with the 30.5 percent devaluation, and Danish blue cheese could have declined 12 cents per pound to be 8 cents below domestic. While other Danish-made cheese declined 7 cents per pound to reflect part of the devaluation there was no change in their price of blue cheese until June 1, 1950, when it declined 4 cents per pound to reflect the tariff concession in the Annecy agreement. This put their price in line with domestic, but sales did not increase as they had expected; so they began to use the advantage of devaluation and dropped the price 5 cents per pound to undersell domestic by that amount.

Domestic producers tried to meet the price, only to close the gap to 1 cent and the Danes dropped another 1 cent to hold a 2-cent price advantage, which was enough to give them the edge and accelerate their sales. When domestic milk prices began to advance sharply in the closing 3 months of 1950, American producers were forced to increase their prices which gave the Danes added advantage. Domestic producers were eventually forced to lower their prices below replacement costs in an attempt to hold some reasonable volume and lighten their inventory load.

If provisions of section 104 of the Defense Production Act of 1950, as amended, are not included in H. R. 6564, and the Danes decide to take full advantage of their currency devaluation and tariff reductions, they could sell their cheese in New York at about the cost of

milk to domestic producers. Currently domestic producers are paying close to parity for whole milk.

Free trade may be possible, but only where there is free economy. Controlled economy with price supports, embargoes, tariffs, devaluated currencies, and other artificial programs, is not free economy.

The provisions of section 104 are fair and reasonable, and restrict imports of cheese, butter, and other dairy products along with other agricultural products only to the degree that imports of these commodities may be absorbed without peril to domestic producers.

The case of blue cheese, and other specialty types is not only part of the problem, but no segment of an industry can be sacrificed without harmful effect on the whole industry. It follows that no industry as important as the dairy industry can be harmed without effect on our whole economy.

We sincerely urge the continuance of the provisions of section 104 in continuance of the Defense Production Act so that the dairy industry may continue to produce the food so vital to defense and peace.

I would like to read a couple of other points from the statement of the Department of Agriculture that Mr. Gaumnitz read:

This investigation is necessary in order to prevent serious injury to the domestic blue mold cheese industry. It is the view of the Department of Agriculture that unrestricted imports of blue mold cheese which would otherwise occur after June 30, 1952, would result in further serious injury to the domestic blue mold cheese industry.

I would also like to point out that they state:

Unrestricted imports threaten to cause serious injury to the blue mold cheese industry. Consumption of this type of cheese in the United States has been maintained at an average of about 10,300,000 pounds during the last 5 years. However, the proportion of this consumption met by domestic production has continually declined. The decline received its initial impetus from devaluation, but was accelerated by tariff concessions of May 1950. This is demonstrated by the data of monthly imports and the wholesale prices of imported cheese in New York.

The effects of these increased imports on the proportion of the United States market supplied annually by domestic production are shown in the table below. In 1947, domestic production supplied the entire market. In 1949, it provided 86 percent of the market, and in 1950 domestic producers supplied 69 percent of the market, and in the first 7 months of 1951, prior to the imposition of import controls, the share of the market supplied by domestic producers dropped to 50 percent resulting from imports of 3,400,000 pounds. Since the imposition of controls, the share of domestic producers has increased.

I would like to point out that the quota average was not an embargo, it was an average, and taking those 3 years, you get 1,900,000 pounds as a quota. However, we do have figures that from August 1951, until February 1952 and these are department figures-that 2,497,000 pounds were imported. Yet the average of the quota base period that they set was 1,900,000 pounds. That was through the leniency and other provisions that they put into it. So actually they have imported over their quota.

In spite of the fact that import controls of blue mold cheese were put into effect on August 9, 1951, total imports for the calendar year reached 5,050,000 pounds, an all-time record. Had import controls not been instituted, it is certain that 1951 imports would have been much larger.

It should also be emphasized that imports of blue mold cheese during 1951 were almost twice as large as the average annual quan

tities imported during the prewar period, 1936 to 1940, which was 3,754,000 pounds.

Domestic production of blue mold cheese, on the other hand, is very steadily declining since 1947. The decline by year is very closely approximated by yearly increases in imported supplies. If this trend is resumed-which could be expected if the imports are permitted on the unrestricted basis-it appears likely that domestic production of blue mold cheese could soon be largely supplanted by imports.

I will state this from our own experience that when our production declines to 75 percent, we had this terrific 31⁄2-cent increase in cost of production. If we go below that, we are practically out of business. I do not know how we can continue in business losing more than threequarters. Yet foreign producers have supplied 50 percent of the cheese. We have been fortunate in being able to hold that percentage.

Now, if there is any intention to give relief under other legislation, it is difficult for us to understand why the objection to the continuance of section 104. I would like to thank you for your interest and consideration and will be pleased to answer any questions.

The CHAIRMAN. What is the import duty on blue cheese?

Mr. SWAIN. Fifteen percent ad valorem at the present time. The cargo value is around 40 cents, roughly. We have about 6 cents duty o import cheese. The valuation amounts to 12 to 14 cents, depending on their value of the cargo.

Mr. Chairman, may Mr. Frigo submit his statement for the record? The CHAIRMAN. He may submit his statement for the record, and the panel will be subject to interrogation.

(The statement referred to is as follows:)

STATEMENT OF FRIGO BROS. CHEESE CORP., IRON MOUNTAIN, MICH., TO RETAIN SECTION 104 OF THE DEFENSE PRODUCTION ACT OF 1950, AS AMENDED To the House Banking and Currency Committee, Hon. Brent Spence, Chairman: Members of the committee, this statement is presented to you in behalf of the Frigo Bros. Cheese Corp., Iron Mountain, Mich., manufacturers of Italian cheese in the United States, so that you may consider their predicament, and their welfare, as pertaining to the importation of Italian cheese, as affected by section 104 of the Defense Production Act of 1950.

The manufacture of Italian cheese, in the United States is located entirely in dairy States, the principal ones being, Wisconsin, Michigan, Minnesota, Illinois, Ohio, Indiana, Colorado, New York, and California. Frigo Bros. have plants at Lena, Crivitz, and Florence, Wis.

Italian cheese originated in Italy. Italians who emigrated to this country brought with them the art of making the cheese here, under conditions here existing. Since the development of the industry, it has been placed under the watchful eye of our health authorities, which have established sanitary codes, and right inspections, not only of the manufacturing plants, but to the cheese itself. All such are under constant surveillance of the health authorities, State and Federal, as well as local.

The business of manufacturing Italian cheese, in various forms, and under various names, has been expanded in recent years, so that today it has become a major industry in the United States, consuming millions of pounds of milk, and supplying healthful food to the populace. At the same time, it furnishes employment to thousands of persons, not only in the field of ordinary labor, but in that of skilled labor as well, and a ready market to dairy farmers.

Among the founders of the industry, are Frigo Bros. of Michigan and Wisconsin, who are engaged in the manufacture of the various forms, or kinds, of Italian cheese, known in the trade as Romano, Reggiano; Parmesan; Provolone; Incanestrato; Asiago, and of every well-known brand of Italian cheese made anywhere. These pioneers, through constant study, and with the help of the colleges of agriculture, and by the use of improved machinery and American methods, have