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quality blue cheese which received good consumer acceptance. It is 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 i 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 3%-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 on 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
improved the quality, and have maintained the high standard, of every form of Italian cheese made.
In addition to the pioneers named in this great industry, many others are presently engaged in the same business, thus causing keen competition in the markets of the United States. This business consumes annually, in excess of 850,000,000 pounds of milk, the market value which, computed at the average milk price, is in excess of $34,000,000 (computed at $4 per hundred pounds).
The investment of the various manufacturers in this machinery, and in equipment, is in excess of $10,000,000. More than 5,000 persons are directly employed therein. Various items of supplies, equipment, and machinery furnish labor to untold numbers of additional persons furnishing the industry indirectly. Thousands of acres of farm land, occupied by some 20,000 families, are thus gainfully employed away from the concentrations of our larger cities. The annual earnings of the labor employed in such manufacturing plants are approximately $15,000,000 (averaged at $3,000 per year).
Formerly, consumption of Italian cheese was largely by the Italian population of the United States. Time has wrought many changes, until today, Italian cheese is used quite generally by the American public. Because of such increased use, the production of Italian cheese has increased from a low of 3,500,000 pounds, in the early days of the industry, to 47,000,000 pounds in 1947, and to approximately 50,000,000 pounds as of today. This progress was made possible by the protection afforded the industry through import duties levied by the United States. Any let-down in that protection will be fatal to a vital industry, operating especially as it is, under the high standards, and the stringent supervision of the public health authorities.
The welfare of the many small communities depends on the small businesses, and the smaller industries, none of which separately may be too important, but all of which, taken collectively, furnish important markets to the farmers, and gainful employment to the many persons not congregated in the larger cities.
This industry in the United States is under a severe handicap when required to meet the competition of Argentina and Italy, for these reasons:
In both of these countries the cheese is produced by anyone who will: (a) without inspection of utensils or manufacturing plants; (6) without any standard requirement of the product as to moisture or fat content or solids; (c) without test of cattle for disease; (d) with low labor cost; (e) without competition with other users of milk; (f) without government inspection of the cheese, and is sold at the arbitrary price fixed by the Italian Government.
The Government of Argentina has devalued its currency 46 percent with action has the effect of reducing the import duty of the same extent. Its purpose is to get American dollars, at the expense of American producers, and at the expense of the Italian cheese industry in the United States.
On the other hand, the American manufacturers of Italian cheese must (a) compete with other users of milk such as the creameries, condenseries, manufacturers of other types of cheese, including the sale of fluid milk; (b) maintain a Government fixed standard as to the moisture content, fat and solids content; (c) maintain both factories, utensils, and milk under inspection, sanitary conditions; (d) pay the cost of inspection; (e) pay taxes on cheese made, and especially that in long storage; (f) pay top price for fluid milk in competitive market; (g) pay its labor union established prices--a living wage; (h) sell in competition with other manufacturers, not at an arbitrary Government fixed price, but at the price fixed by its competitors.
The Italian cheese industry is fighting the battle of survival. It asks only that foreign imported cheese be required to meet the same high production standards as required in the United States.
To quote from hearings before the Committee on Banking and Currency, United States Senate, Eighty-second Congress, first session, part 4, on page 3061, statement by E. W. Gaumnitz, secretary, National Cheese Institute:
"The statement is commonly made that imports are of no importance since they represent only 5 percent of domestic production. However, if figures are examined, it will be found, as in the case of blue cheese, importations amount to more than 40 percent and practically 50 percent. If we speak of Italian cheese, bulking all the various types of Italian together, it is around 40 percent. So, the importation of 5 percent of total United States production is not very much, but it is very important when we speak of particular varieties. The varieties which are particularly important and which have been injured in the last year are blue, the Italian types, and the Holland types, particularly.”
Hence, from the above it is seen that 40 percent of the Italian production here in the United States is equal to the imports from outside; or, to rephrase it,
the imports constitute numerically over 40 percent of the domestic production in the States.
(P. 3070) by Mr. Gaumnitz, half way down the page:
"The imports of all Italian types for the period of 1938 to 1950 averaged 14,313,000 pounds per year. In the same period United States production of Italian types of cheese averaged 42,037,000 pounds per year. Average imports for these types were 34 percent.
We respectfully submit that 40 percent is definitely a ruinous figure to us.
The same rational thought is contained in letter of L. D. Schreiber & Co., Inc., to Hon. Paul Douglas, on page 3073 of said hearings, dated September 5, 1951.
(P. 3074, fourth paragraph) letter of L. D. Schreiber & Co., Inc., to Carl D. Corse, Acting Director, Office of Economic Defense and Trade Policy:
"In all Italian cheeses imports listed 40 percent, but if the last item, “Other cheeses,” about 4,000,000 pounds, should happen to be Italian type, this would make Italian imports approximately 50 percent of our production.”
(P. 3079 is to a similar effect.)
Hence, it is respectfully, but sincerely, submitted that the imports from Italy and Argentina, in particular, actually do constitute 40 to 50 percent of the domestic production of Italian cheese, and sufficient to create havoc with domestic industry. Section 104 of Defense Production Act of 1950, as amended should be retained.
FRIGO BROS., CHEESE CORP.,
By P. FRIGO.
Mr. DoLLINGER. Mr. Gaumnitz, you represent the National Cheese Institute, do you not?
Mr. GAUMNITZ. Yes, sir.
Mr. DOLLINGER. The position your organization takes is that section 104 be extended; is that correct?
Mr. GAUMNITZ. Yes, sir.
Mr. DOLLINGER. I note that another group that will testify, I think right after you, representing the Cheese Importers Association of America, takes the position that section 104 should not be renewed. I note there is a difference of opinion between the two groups that deal only in cheese and I am interested to find out how the consuming public in this country will fare, by either in the repeal or continuation of section 104. I am curious to find out the position of your organization on that question.
Mr. ĞAUMNITZ. First, let me say that the National Cheese Institute includes in its membership manufacturers of cheese in the United States. It also includes distributors and importers. So we have some importers who are also members of the National Cheese Institute.
Mr. DOLLINGER. Do those importers also manufacture cheese?
Mr. GAUMNITZ. Yes, some manufacture, import, distribute, and process cheese.
Now, going to your question as to what will be the effect upon consumer prices, over a period, in the first instance, I think it would be quite clear that if section 104 were not continued, and if there were no alternative action, that the first reaction would be for a decline in price.
The particular Defense Production Act, however, bas as one of its purposes the maintenance of production or the increase of production, and particularly in section 104, it is noted that certain products, including dairy products, are deemed to be necessary. That is a finding made by the Congress.