The CLERK. Mr. Haymes and Mr. Pierce, representing the Dairy Industry Committee.

The CHAIRMAN. You may proceed, Mr. Haymes.

STATEMENT OF P. L. HAYMES, REPRESENTING THE DAIRY INDUSTRY COMMITTEE

Mr. HAYMES. My name is P. L. Haymes and I am an executive of the United Milk Products Co., of Cleveland, Ohio. In appearing before your committee I am representing the Dairy Industry Committee with offices in the Barr Building, Washington, D. C. This is a central committee composed of official representatives of national associations whose members are engaged in the dairy manufacturing, processing, and distributing fields, and has been in existence since 1934 as an organization concerned with major problems confronting the entire dairy industry. The member associations are as follows: American Butter Institute, National Creameries Association, National Cheese Institute, American Dry Milk Institute, Evaporated Milk Association, Milk Industry Foundation, and International Association of Ice Cream Manufacturers.

Price controls are a deterrent to production and we believe that price controls on all foods in general and dairy products in particular should be terminated not later than June 30, 1952. However, I am going to limit my remarks to the dairy industry, in which I have spent my life. The dairy industry produces, manufactures, processes and distributes milk and all forms of dairy products to our 150 million people every day.

Milk and cream are produced on about two-thirds of the Nation's farms every day. These farms are located in every State of the Union and because of the highly perishable nature of the product it must be handled everyday without interruption.

This industry employs full time, at least one and a half million people and provides a livelihood for at least 10 million persons.

The dairy industry contributes more than $10 billion annually to our national commerce and aside from milk and cream, supplies approximately 40 percent of our beef. Housewives spend about 15 percent of their food budgets on dairy products and for this they get nearly 30 percent of the food consumed annually in this country. About one bite out of every three on our national menu is a dairy product.

The dairy cow is unique in its contribution to our economy. She makes this contribution in two distinct ways. First is conservation. The dairy cow can consume the various grasses, ensilage and other unpalatable vegetation and convert this into proteins, fats, vitamins and other human health-giving nutrients. The manure from the dairy cow is returned to the soil to maintain fertility for the production of needed crops.

The second is food. Bottled milk and cream, evaporated milk, butter, cheese, ice cream and many other nutritious products are provided from the milk of the dairy cow. Some of the calves go to market as veal and provide about 60 percent of the veal used. Other calves are raised to replace older cows to maintain the milk producing herd while the older cows go into the beef market.

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As a major contribution to our economy, the dairy farmer is unique in that he can produce and sell many thousands of dollars worth of dairy products each year and still have as good if not a better farm than before.

To maintain and expand this great industry to meet the increased demands of an increasing population, we need maximum production, which can be achieved expeditiously and effectively only if price controls are removed from milk and dairy products, for the following

reasons:

1. A program of price controls for dairy foods is the poorest way in which this major food industry, with its important contributions to the health and morale of the nation, can be prepared for a national emergency in this period of rearmament. All of the arguments against price controls are sound-none of the arguments for price controls carries weight-when applied to the dairy industry.

2. The present supply of dairy foods is sufficient for current domestic demands, so that arguments for price controls based on scarcity are not valid.

3. The lifting of price controls from dairy foods at this time will not result in inflationary price advances, so the arguments for controls based on runaway prices are not valid.

4. The price-control mechansim is operating to diminish production and to weaken the processing and distribution facilities of the industry. A continuation of price controls will magnify these problems.

5. Price controls should be ended on dairy products promptly to restore incentives and to permit flexibility within all branches of the industry, so that production will be expanded and adequate industry facilities maintained to meet the ever-increasing nutritive needs of the Nation.

There is a strong case against the imposition of any price controls on the economy, even in a period of national emergency, which has been clearly presented by the United States Chamber of Commerce, in the monograph of its committee on economic policy, entitled "The Price of Price Controls." A partial digest is attached as annex A. Reading the entire monograph is recommended.

Congress has recognized the dangers in such a law by enacting it as temporary legislation.

The law was adopted at the commencement of our rearmament program in the belief that a program of price controls and allocations. would help prepare our economy for full-capacity operations with the output of goods geared to defense and wartime needs. It was necessary for many industries to shift from peace to wartime goods. Temporary artificial scarcities may have justified temporary price controls and allocations.

But the dairy industry had no problem of shifting from peace to wartime goods and presents a complete contrast to those industries where temporary price controls and allocations may have been in the public interest. The dairy industry's contribution to the rearmament effort must be a continued steady and adequate flow of dairy foods which are so essential to the health of the Nation. And we must face the possibility that the domestic agricultural economics of our overseas allies may again be disrupted and that dairy foods must be available for export. We must have a program which encourages in every way

and discourages in no way an expanding production of milk and milk products.

The Dairy Industry Committee favors the continuation of import restrictions on fats and oils because we are convinced it is another means of stimulating the increase in farm milk production so necessary in this country. If farmers believe fats will come in unlimited from abroad, domestic production will be curtailed.

Europe provides the logical market for these world supplies.

The Congress should place no obstacle in the way of increased domestic production of milk.

The philosophy of decontrol or suspension formulas as advocated by many, based on decontrolling or suspending price ceilings, if the product remains below some specified price level for a given period of time, is valueless to the dairy industry for the simple and cogent reason that these prices are supported virtually at ceiling levels by statutory requirement. As evidence of this, we give below the farm price of butterfat and manufacturing milk in June 1950 and January 1951, compared with the support price:

We need price-control termination on dairy products as an added stimulus to increase production. Without such termination, this industry may be irreparably harmed for years to come, and our entire Nation injured far beyond any good the supporters of price control can ever conjure.

The present supply of dairy foods is sufficient for current domestic demands, so that arguments for price controls based on scarcities are not valid.

Generally speaking, there are no present shortages of foods or feeds in the United States, although feed production has been less than feed consumption, so that we are eating into our feed reserves. Crops have been ample.

Dairy products are not now in short supply. Every year, to be sure, during the period of seasonally low production, a few spots experience shortages, which are met by shipments of milk from other areas. In contrast to conditions in the last World War, there is now no significant demand for export of dairy products to foreign countries. The bulk of our national production is available for domestic consumption.

The USDA expects that the total milk production in 1952 will be about the same as the 115.6 billion pounds in 1951 and states that the pattern of milk use probably will continue to change in 1952. The Department expects consumption of butter to decline to a new low and consumption of fluid milk, ice cream, and some of the other manufactured dairy products to show slight increase over 1951.

The end of price controls on dairy foods at this time will not result in inflationary price advances, so the arguments for controls based on runaway prices are not valid. The industry does not foresee any abrupt and pronounced rise in dairy products prices. The price regu

lation by the Federal milk marketing orders issued under the Agricultural Marketing Agreement Act, whose influence spreads far beyond the areas regulated, will keep prices in line with economic conditions.

Laws in effect in 16 States further regulate the price of milk in accordance with the economic conditions of those States. In addition, the perishability of dairy foods, the customary low-profit margin per unit, and the keen competition among processors and distributors guarantee reasonable prices. This is illustrated by the fact that profits after taxes of 15 dairy companies were 2.2 cents per dollar of sales compared with 6.2 cents for all companies in 1951, as reported in the monthly letter on economic conditions of the National City Bank for April 1952. In the previous year the comparison was 3 cents and 7.7 cents. Price adjustments, when required, would be moderate and no more than necessary to promote needed adjustments in production, utilization and capital requirements of the industry. Dairy foods are certain to remain cheap in comparison with foods in general and with the increased consumer purchasing power.

The price-control mechanism diminishes and weakens the processing and distribution facilities of the industry. Postponement of the termination of controls will magnify these problems.

The United States Department of Agriculture says that 1952 milk production may be slightly smaller than 1951, because: (a) Feed concentrates will continue high in price; (b) decline in feed supplies relative to livestock numbers; (c) supply of dairy farm labor will be no greater; (d) and wages will be higher. This apparent shrinkage in milk production in 1952 is in the face of an increase in the human population at the rate of 2.5 million annually. It is our belief that production will shrink more than the Department indicates, unless dairy foods are freed from price controls.

Since the price freeze in December 1950, the price of milk at the farm has not been directly controlled because of the parity passthrough. But farmers do not know what the Secretary of Agriculture and the Director of Price Stabilization may do under the law, which provides that ceilings cannot be placed on the farm price of milk when it is below parity or below prices of June 1950. Milk and butterfat have been at parity most of the time since January 1, and it is the fear that ceilings may be placed on farm prices at any time. Farm prices of milk at 103 percent of parity and butterfat at 96 percent of parity are in a position of disadvantage compared with meat animals which are at 131 percent parity. The United States Department of Agriculture reporting on an index number basis shows the farm price of dairy products at 291 compared with meat animals at 372. All kinds of livestock compete for the common feed supply. Under free pricing, there is a continuous balancing of the numbers of different classes of livestock when one class gets out of fair relationship with the others. This is one of the principal factors determining the long-time trend of milk production. Controlling the farm prices. of milk at this time would freeze those prices in an unbalanced competitive relationship to other livestock products where competition. with alternative farm enterprises exists.

Cost absorption, as applied to the processor, manufacturer, and distributor of dairy foods, both proprietory and farm cooperativesis injuring dairy products business enterprises, particularly small business.

As stated in an editorial appearing in the New York Times on February 21, 1952, the general approach to stabilization by the authorities seems to be that, while escalation is to be the guiding principle in the case of wages and agriculture, cost absorption should be the key to policy in the field of business and industry.

The 1951 Eric Johnston so-called profits test holds that ceilings are fair and equitable if an industry's dollar profit before taxes is running at 85 percent of the best 3 years of the 4-year span 1946-49. The Putnam modification adds that an industry must earn before taxes not less than 10 percent of its net worth.

Neither of these formulas makes adequate allowance for the inordinately large proportion of the post-Korea tax rise borne by business nor for the declining value of the dollar. Earnings before taxes are used by the Government as a guidepost, despite the fact that a business concern has no real profits until after it has paid its taxes. And earnings on net worth are used as a guidepost, although net worth is based essentially on original value, which has little relation to reproduction costs in terms of the buying power of the present dollar.

Cost absorption, as practiced under OPS price orders, squeezes earnings to a point of danger for the maintenance of business. Price controls interfere with the normal and efficient functioning of the industry. Controls create additional costs, deplete financial strength, work against proper maintenance and expansion of facilities, and lead to deterioration of quality and service. In the dairy industry, where profit margins have always been small, exemption of dairy foods from price control is imperative if the processing industry is to continue to be the strong, able tool providing the greatest share of food on American tables.

Price controls should be ended now on dairy products to restore incentive and to permit flexibility within all branches of the industry, so that production will be expanded and adequate industry facilities maintained to meet the ever-increasing nutritive needs of the Nation.

One of the many important nutritional elements is calcium, of which nearly three-fourths is supplied by dairy products. Even now, a considerable share of our population does not receive a sufficient quantity of calcium and other vital nutrients, because dairy products are not more abundantly available.

Milk production in the United States reached a peak in 1945 and has since declined, although not drastically. Production in 1951, with the advent of price controls, was less than in 1950, before price controls. During the first quarter of 1952, daily production of milk was 0.93 percent less than in the first quarter of 1951. Meanwhile, population has been growing at a rate of 22 million persons a year. Production of milk per capita in the United States was the lowest in 1951 of the past quarter century.

In the last few years the per capita consumption of fluid milk, cheese, evaporated milk, and ice cream has been maintained by diverting milk to domestic use which was previously exported and by expanding production in the market milk areas to offset the drop in milk production areas where butter is the important outlet. From now on, unless milk production is expanded, the per capita consumption of those products will have to decline as has butter because there are no longer substantial export surpluses available for diversion to domestic use,