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butter before and after devaluation were as follows. (International Financial Statistics International Monetary Fund, April 1952.)
Before devaluation, Danish butter sold for 3 cents less in Denmark than our domestic price. Since devaluation, Danish butter has sold for 28 to 36.5 cents per pound less than United States butter,
An additional factor is that Denmark and other dairy product exporting countries establish different prices on exports to different countries without reference to cost or the relationship of prices of other dairy products. The case of blue-mold cheese is an example. It was brought out at a hearing on blue-mold cheese before the United States Tariff Commission on April 14, 1952, that Danish blue cheese prices quoted to United States cheese importers were set by a Danish quasi-governmental dairy export association at arbitrary levels on the advice of a representative stationed in the United States.
At this same hearing articles from Danish publications were read setting forth statements that the currency devaluations should greatly assist cheese exports.
At this hearing, the National Milk Producers Federation presented evidence showing sharp downward trends since 1947 in the production of blue cheese at a typical midwestern plant and in the United States as a whole (chart 1).
Domestic production of blue cheese has suffered because of two sets of adverse price relationships that have existed since late 1949. First, the price of imported Danish blue cheese moved from a differential of 11 cents above domestic blue in August 1949 to a differential 3.7 cents below in July 1950. This price relationship continued unfavorable to domestic blue cheese through 1951, with the Danish price to wholesalers in New York 2 cents under the domestic price in September 1951. Second, this depressed price of imported blue cheese has tended to hold the price of domestic blue cheese down during 1951 relative to prices paid farmers for milk for all manufacturing purposes. Domestic blue cheese prices, in terms of milk equivalent, rose 60 cents per hundredweight from June 1950 to December 1951. During the same period manufacturing milk prices rose $1.38 per hundredweight. This disparity has resulted in blue cheese being crowded out of the competitive market for domestic milk supplies in some areas (chart 2).
With these price relationships and no import restrictions what happened to imports and domestic production? From 1945 through 1951, total supplies of blue cheese were fairly constant, averaging about 10.5 million pounds (chart 3). In 1947 our annual total supplies were about 11 million pounds, with almost 100 percent supplied by domestic production. During 1948 and 1949 foreign milk production
apparently increased and about 13 percent of our total annual supplies of approximately 10 million pounds were imported, with a corresponding reduction in domestic production.
On September 18, 1949, Denmark devalued its currency 30.5 percent, and in May 1950, the tariff was reduced from 5 to 3 cents and from 25 to 15 percent advalorem on the signature of Denmark to the Trade Agreements Pact. In 1950, 3.5 million pounds of blue-mold cheese were imported, of which 3.2 million pounds came from Denmark. Imports represented 31.3 percent of our total supplies. In 1951, over 5 million pounds of blue-mold cheese were imported of which more than 95 percent came from Denmark. In 1951, imports represented about one-half of total domestic supplies.
Therefore, during the period 1945–51 our domestic market has absorbed an annual volume of blue cheese which has varied little from 10.5 million pounds, and as imports have increased domestic production has been forced to adjust itself downward to the total market demand. In 1947 the total market supply was 10.6 million pounds. We plied it all. In 1950, the total market supply was 11.1 million pounds. Îmports supplied 31 percent of it. Domestic production was 28 percent below 1947. In 1951, the total supply was 10.2 million pounds. Imports supplied one-half. But domestic production was only one-half that of 1947. The other half had been displaced by imports.
What has happened to imports and domestic production since import quotas were instituted in August 1951?
Actual imports of blue cheese in 1951 were 5.05 million pounds, or 98 percent of domestic production. But after August, imports were on a quota basis as determined by the Secretary of Agriculture under the provisions of section 104 of the Defense Production Act. Prior to the establishment of quotas, 1951 imports were at the annual rate of 6 million pounds, or about 50 percent of 1951 domestic production.
Also the annual quota rate is about one-half actual imports in 1951, but about equal to the average rate during 1937–41. The response of the domestic blue-mold-cheese industry to this changed policy is indicated by the fact that total United States production in January and February of 1952 was 30 percent above that of a year earlier.
In view of these developments let us speculate on what would happen to domestic blue-cheese production in the next 3 years if import quotas were abandoned. The decline of domestic production when imports have been restricted lend credit to the inference that without quota controls domestic production would be practically eliminated in the very near future (chart 4).
Would a foreign-trade policy which produces this result be a just or reasonable one? Quotations from a statement filed by the United States Department of Agriculture with the Tariff Commission in the blue-cheese hearings indicate that it would not be:
Recommendation of Secretary of Agriculture:
It is our belief that tariff concessions on blue-mold cheese and unforeseen developments in recent years have caused serious injury to domestic producers of this cheese prior to the control of imports under section 104 and threaten to cause further serious injury to these producers upon the expiration of that authority.
Under section 7, authority is provided for the withdrawal or modification of a tariff concession, its suspension in whole or in part, or the establishment of import quotas to the extent and for the time necessary to prevent or remedy injury to the domestic industry.
Import quotas would, in our opinion, give the most definite assurance that imports would not result in serious injury to the domestic industry. Quota limitations on imports would thus permit domestic producers to plan their production of blue-mold cheese on a basis of knowing the maximum quantities which could be imported and sold in competition with their supplies. Furthermore, quota limitations would make it impossible for foreign countries to negate the effect of a tariff increase by devaluation of their dollar-exchange rates.
In March, the Secretary of State filed a letter with the Senate Banking and Currency Committee in which he stated:
Italy's sensitivity to the possibilities which these cheese restrictions have created for Communist propaganda is due in part to the fact that southern Italy has been particularly hard hit by the restrictions. As you know, the widespread poverty and unemployment in southern Italy have created a fertile ground for Communist agitators. Before section 104 was enacted, one of the bright spots in the economy of soutern Italy was a growing export trade in cheese. Pecorino, romano, and other pungent cheeses of the area were coming to the United States in growing volume, giving employment to southern Italy, and giving dollars to the Italian economy.
As of March 1, 1952, Italy had supplied less than three-fourths of the cheese imports allocated to her for the August 1951 through June 1952 period. If Italy was hurt by these restrictions it appears that she would have used up these allocations as quickly as possible in order to be ready to take advantage of any additional allocations that may have been made available by congressional or administrative action. This is particularly true in view of the apparent encouragement given by the State Department that such action was possible.
There are those who have said that the only proponents of section 104 were 22 blue-cheese manufacturers. Recorded testimony, taken by the Senate Committee on Banking and Currency during March 1952, shows that representatives of the National Milk Producers Federation, the Dairy Industry Committee, the National Grange, and the National Council of Farmer Cooperatives urged the retention of section 104. Representatives of the American Farm Bureau Federation stated it was their opinion that the failure of the administration to act under other available, but nonmandatory, provisions to control imports was responsible for the enactment of mandatory section 104.
Under the standards established by section 104, the Secretary of Agriculture has ruled that importations of butter, cheese, nonfat drymilk solids, casein, peanuts, peanut oil, flaxseed, and linseed oil should be limited to protect domestic production goals and attendant implementing price-support programs. Does the Congress wish to censure the Secretary for bis action, or itself for making this action possible?
The Secretary of Agriculture in his findings under section 104 has ruled that ineffectively controlled imports of dairy products would unquestionably shrink our domestic dairy industry or greatly increase the cost of our support program designed to prevent the shrinkage of that industry. Under American standards and price levels and with the stage of technology existing for milk production, American farmers will not maintain the level of milk production that has been announced as being in the national interest at price levels which are competitive with the production of nations where currency is devalued, where costs are much less, and where standards of living are lower. Resultant prices for dairy products would mean that domestic pro
ducers would turn at increasing rates to more attractive alternatives than milk production.
In its recent action, the majority of the Senate Committee on Banking and Currency indicated that it was the consensus that the maintenance of the power to control the importations of the products mentioned was necessary. The committee differed only in method. Therefore, it appears that the issue of need has been clearly resolved.
It is now only a matter of form and to that I wish to address my remarks presently. But first, let me pause to say that the spurious arguments against need have been attempts to bemuse and befuddly.
There are those who have said that we had very large dairy exports which were two and one-half times our dairy imports, and that these imports were necessary to protect our exports. Let us review the background of this argument in arriving at an appraisal.
Our export markets are dependent far more on many other factors than on the repeal of the provisions of section 104. We are presenting documentary evidence that the abnormally high level of our dairy-product exports in the last few years has been due to a wide variety of subsidies.
Already these exports have begun to show very marked declines because of reduction of subsidy funds, recovery of the dairy industry in nations receiving exports, the resurgence of historically important dairy-exporting countries in their own dairy production and in their efforts to regain their own prewar markets. These efforts to recoup markets are materially aided by long existing political and economic ties and favorable conditions of import controls as between these countries.
For the one dairy product, nonfat dry milk, in which expansion of domestic demand has fallen farthest behind, production expanded under the impulse of government during World War II, and for which we have been most interested in finding export markets, we have been the least successful in finding paying export customers. Our exports of this product have been relatively large, but they have been subsidized to about 90 percent of their domestic support-price value (chart 6 and table 2).
The history of the United States dairy industry is that it has been on a self-sufficient basis, neither exporting nor importing in any sizable volume. From 1925 until the beginning of World War II, our imports of dairy products exceeded our exports, but neither equaled an annual volume of 1 percent of our total milk production or 1 billion pounds in terms of milk equivalent. Beginning with lend-lease and other foreign-aid programs, our dairy exports increased. But with the reduction of these export subsidies in 1950 and 1951, our dairy exports have shown very marked declines (chart 5). It appears that from 1948 through 1951 that the United States paid out of its own pocket approximately $300 million for dairy products exported and shipped abroad, and whose commerce-reported value was less than $600 million (table 2).
In recent years, our dairy exports have been a repetition of OPA tie-in sales, but in reverse.
For every dairy product unit we have sold, we have given a second unit to encourage the recipient to take the first. In some products, we have paid the recipient to take both units. Under such conditions, the false impression of expanded dairy-product exports has developed.
Even if dairy imports had anything to do with dairy exports, which is extremely doubtful, does the Congress favor maintaining imports of dairy products for the purposes of maintaining this type of export market?
To better understand our dairy-product export program and its subsidization, let us briefly review the nature of these export outlets. In 1949-51 13 countries received 76 percent by value of all United States dairy products exported as reported by our Commerce Department (table i). These 13 countries represent four distinct categories. These are:
1. Former Allies or potential Allies whom we have been aiding toward economic recovery, such as Belgium, France, Greece, and the United Kingdom, and whose exports in recent years have been furthered largely by ECA, or similar appropriated allotments. In 1949-51 this group received 30.1 percent of our total dairy exports. Normally they do not import from us. In 1939 they took less than 4 percent of our exports.
2. Conquered and occupied countries as Germany and Japan, in which the United States Government has engaged in extensive civilian relief feeding. In 1949–51 these two countries received 10 percent of our total dairy exports. In 1939 it was less than one-tenth of 1 percent. These first two groups received 40 percent of our exports in 1949–51, but less than 4 percent in 1939.
3. Countries with which the United States has close trade and political ties, as Cuba and the Philippines. In 1949-51 these two received 18.1 percent of our dairy exports, and in 1939, 22.8 percent.
4. South American countries as Peru and Venezuela with which we have natural commerce in oil and other products. These two in 1949–51 received 17.9 percent of our exports and promise to be good markets in the future, particularly for dried whole milk.
Commercial exports of dairy products to countries which have protested restrictions under section 104, as Canada, Denmark, France, Italy, the Netherlands, New Zealand, and Switzerland have been insignificant, and most of these countries are in direct competition with the United States for the small volume of legitimate commercial dairy export business that we now have.
Immediately following World War II the volume of United States dairy exports as reported by the Commerce Department showed relatively large increases. However, these increases were directly associated with various types of export-subsidization programs. These export programs took a variety of forms, among which were the following:
1. Purchases with funds appropriated for foreign-aid programs, such as ECA, UNNRA, and Army relief feeding.
2. Purchases for export by agencies to which the United States has contributed funds, such as the United Nations Children's Fund, and the International Refugee Organization of the United Nations.
3. Negotiated sales for export of dairy products by the USDA in disposing of Government purchases.
4. Donations of the USDA to relief agencies for foreign distribution. These agencies were the Christian Rural Overseas Program, Israel Government, and various other foreign governments and relief groups.