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"Price controls mean quality deterioration and standing in line for scarce items, and put a premium on “knowing the right people.'

“6. Price controls curtail production. Price controls do not permit the price system to exercise its legitimate function of distributing goods and guiding production.

"Price controls set prices at levels below those that would be determined by a free market, and thus prevent production of necessary items. The meat industry, the dairy industry, and the lumber industry are but a few examples of the perpetuation of shortages that resulted from price control during and after World War II.

"Price controls are not flexible. Inequities between products and between industries are the result.

"Price control is, in effect, profit control, since profits are the basic determination in the adjustment of price ceilings.

“7. Price controls lead to a lowering of moral standards. Willful and nonwillful violations result from price-control regulations. Many businesses are forced to ignore ceilings in order to stay in business. Others, through confusion and difficulty of interpretation, unconsciously 'break the law'. Consumers are driven into black markets and 'paying under the table' for needed items. Lawabiding citizens are thus encouraged to evade the regulations.

“8. Price controls are largely ineffectual in fighting inflation. Inflation is primarily a monetary phenomenon. Price controls cannot reach the sources of inflation; they deal only with the symptoms.

“9. The after effects of price controls are a potential danger to our economy. Price controls only cover up inflation. By helping to bottle up excessive purchasing power, a postemergency boom-bust situation is created.

"This disproportionate burden of price controls on small business can seriously weaken its future position in our economy.

“Price controls are another step in the direction of a Government-controlled economy. 'Emergency' controls may tend to become 'normal controls.

“10. While there is something to be said for price controls, on net balance they do more harm than good. This is especially true during a long defense and mobilization period or a time of one-quarter war when the patriotic appeal is less effective."

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1900 1920 1940 1960 *HEIFERS & CALVES NOT FOR MILK, AND ALL STEERS & BULLS 02 YRS. & OLDER NOT FOR MILK + cows & HEIFERS 2 YRS. & OLDER FOR MILK DATA FOR 1952 ARE PRELIMINARY

U. S. DEPARTMENT OF AGRICULTURE

NEG. 47147A X X

BUREAU OF AGRICULTURAL ECONOMICS

The CHAIRMAN. Are there any questions?
Mr. TALLE. Mr. Chairman.
The CHAIRMAN. Dr. Talle.

Mr. Talle. Mr. Haymes, you pointed out very appropriately that increased production is essential.

Mr. HAYMES. Yes, sir, that is correct.

Mr. TALLE. By culling herds and scientific feeding and careful husbandry, it is possible to increase production, is it not?

Mr. HAYMES. Yes, sir.

Mr. TALLE. However, as I pointed out a moment ago, there is a limit beyond which you cannot go?

Mr. HAYMES. That is correct.

Mr. Talle. Now may I ask you, is this another way of asking for termination of price controls so that prices may be increased substantially to stimulate production?

Mr. Haymes. No. As to any price adjustments, they would be very moderate.

We were gaining on production for 2 years, in 1949 and 1950, until price controls were imposed, and in 1951 our dairy production turned downward, due, in great measure, to the fact that we had no flexibility, we had a freeze period, no price flexibility, to prevent the diminishment of production or to stimulate new production.

With a downward trend for the last 14 months in dairy production, total, in the United States we think we have reached a time where it is necessary to reverse that trend and get another balance between supply and demand, such as we have always been able to hold in free pricing

We need that flexibility that comes with free pricing, and we can't have it if we bave rigid controls.

Mr. Talle. Another question: Are you saying that milk production has decreased because of price controls, even though there is a parity pass through, and there has been no ceiling on the farm price of milk and butterfat?

Mr. HAYMES. Yes, sir, the production has decrease 1, and the record shows clearly that we have had a downward trend, and it is that trend that we are trying to reverse.

The comparison of 1 month of 1951, with the corresponding month of 1950 shows a decrease right straight down, except for a couple of months in the entire year, and the trend, from the beginning of 1951 down to the present time, has showed that corresponding monthly decreases right along.

In the first quarter of this year, we have a decrease, as I pointed out in my statement of ninety-three one-hundredths of 1 percent-in round figures 1 percent--and it has been pretty much that way in each of the months so far this year.

In the month of April, just reported, we have a similar decrease. It is not quite as much as that, but it is lower than it was a year ago, the total volume of production coming off the United States farms. That is the trend we want to reverse.

Mr. TALLE. Milk and other dairy products are very important in the consumers' market basket.

Now will not a modest adjustment in price injure consumers substantially with dairy products occupying the place they do in the market basket?

Mr. HAYMES. No, any adjustment that will take place will be fractional. It will be very small and very moderate.

As a matter of fact, the American housewife spends about 15 percent of her food budget for dairy products, and gets 30 percent of her food consumption.

Dairy products have always been a bargain, and should be maintained in plentiful and abundant supply at all times so that there is no curtailing or cutting back.

Consumer resistance is the best price control that we know of. We have learned that from experience. And the keen competition in the industry, coupled with consumer resistance, would always prevent anything more than small moderate adjustments that are bound to be necessary, season to season, and time to time, and we must have some latitude, some leeway there, to make those adjustments if we are going to maintain the production adequate to the needs.

Mr. TALLE. Just one more question: There has been some talk of decontrol. There has been talk of setting up some kind of formula for decontrol. Of course I don't know what the committee will do; nor do I know what the Congress will do. But I would like to ask this question: If Congress should prefer to continue price controls temporarily, with appropriate formulas for decontrol or suspension of products, under certain conditions, what sort of decontrol formula would help the dairy industry? Mr. HAYMES. I don't know of any. There isn't any.

There isn't any. There isn't any formula at all that would help. The need of the dairy industry is to have flexibility of pricing, so that they can meet local, immediate conditions, and meet them immediately, instantly, wherever they happen to occur, whether it is in the New England States or Oklahoma or Tennessee or Wisconsin, wherever it may be in the dairy regions.

There isn't any decontrol formula that could be attempted that would work. The only time that a decontrol formula should ever even be considered in our total dairy picture is if we had to approach a time of rationing of milk, and so far as we can see, there is no need for that.

In the same way, we feel there is no need for controls.
Mr. TALLE. Thank you, Mr. Haymes.
The CHAIRMAN. Mr. Hays.

Mr. Hays. Did you, Mr. Haymes, somewhere in your statement, mention anything about how much of an increase in costs the industry has absorbed in recent years?

Mr. Haymes. I didn't mention that specifically, sir.
Mr. Hays. There is an indication of it.

Mr. HAYMES. Oh, yes; there is an indication of it in my statement, by showing the reduction in income of dairy companies as compared with the preceding year's period.

One of our witnesses will give you some very detailed information on that today.

Mr. Hays. Can you answer this question: What is the probable profit per quart of fluid milk that is delivered or bought by the general consuming public? What is the profit that the dairy company makes on it, per quart?

Do you have any statistics on that?

Mr. HayMEs. Well, the average profits have been shown in lots of literature, and in some information that you will receive today.

In order for a milk company to operate successfully, replace its equipment, maintain itself, and do a good job for the consumers and for the dairy farmers who supply the milk, and still have some degree of security, they should earn at least 3 percent on their sales.

Mr. GAMBLE. Is that gross or net, sir?

Mr. HAYMES. The earnings last year were right around 2 percent, and in some cases were nil.

Mr. GAMBLE, Is that before or after taxes? That has become an important question,

Mr. Haymes. There are no earnings, sir, until after taxes.
Mr. GAMBLE. That is what I thought.

Mr. Haymes. We are operating in the industry just now where the Government has issued support prices for the 12 months' period from April 1 this year, to April i next year, and current selling prices are just about where those support prices are.

That shows you that there is no great surge in the situation, and it shows you that the Government still feels the necessity of posting support prices and making purchases to keep those prices up, at the point where they just about exist now.

Mr. Hays. I have one more question. Your chart shows that the number of dairy cattle have been declining, and I think that is aceurate. But do you maintain that that is all because of price control, or could part of that be attributed to the fact that the average number of pounds per cow has been increasing, number of pounds of milk per cow per year?

Mr. HAYMES. Well, the number of pounds of milk per cow has been increasing steadily for about 15 years, but the cow population has been declining quite rapidly, and the milk production, after we had reached a high point in 1945, then slumped off after the war, and rose again in 1949 and 1950, just a little. But the trend was in the right direction.

True, we had 15 or 20 pounds more per cow production and less cows. One offset the other. But beginning in 1951, the trend was downward, despite the fact that we had in 1951 a little higher increase per cow.

Mr. Hays. I wanted to get that into the record because I anticipated that question might be raised, because a great many agricultural publications are featuring the fact that through artificial breeding rings, culling, and other practices in animal husbandry, that the average production per cow is increasing, and I wanted your observations on whether that could be the answer, or whether it was pricing, and I think you have answered the question.

Mr. HAYMES. Had it not been for the fact that the productive capacity per cow has increased steadily—there is a terrific reduction in cow numbers, from 27 million cows to 22 and a half million cowsand that would have placed this country's dairy supply in jeopardy. There is no question about that.

Scientific evidence shows that we have made great strides in the production per cow, and in dairy management and improvement of dairy facilities, and also continuous improvement in the quality of milk.

This nation has the finest quality of milk in the world, and it has an industry that operates on about the keenest competition in the world, as well as the lowest margins.

Mr. BROWN. Are there any other questions?
Mr. Betts.

Mr. Betts. I noticed here, Mr. Haymes, that you represent about seven organizations. Are they all national in scope?

Mr. HAYMES. Yes, sir; the Dairy Industry Committee represents the American Butter Institute, the National Creameries Association, the Evaporated Milk Association, National Cheese Institute, American Dry Milk Institute, International Association of Ice Cream Manufacturers, and the Milk Industry Foundation, which deals with delivery of fluid milk all over the country.

Mr. Berts. Do you feel that you are speaking for the majority of the members of each of these organizations?

Mr. HAYMES. Yes, sir, we are confident that we have the concensus of opinion of the dairy industry.

Mr. BETTS. Would you give us some idea about the extent of the membership?

Mr. HAYMES. Well, the associations that I just named are the representative associations of each of the six branches of the dairy industry, and they comprise the entire industry.

For example, the Evaporated Milk Association comprises over 95 percent of the entire evaporated milk industry, and the figures are somewhat comparable in each of those associations, so that it is representative of the entire industry.

Mr. BROWN. Are there any other questions, gentlemen?
Mr. GAMBLE. I have one.
Mr. BROWN. Mr. Gamble.

Mr. GAMBLE. It is your contention, is it not, sir, that the Agricultural Marketing Agreement Act and the laws affecting these 16 States would tend to stabilize the price of milk even if controls were taken off; is that correct, sir? I mean that is your contention?

Mr. HÁYMES. The answer to your question is "Yes", sir. There are 44 areas where Federal milk marketing orders exist, and 16 States where State control exists.

Mr. GAMBLE. Yes, sir.

Mr. HAYMES. Those areas are designed to set minimum prices to producers. They weren't designed to fit into milk control.

On top of that has come the OPS, which has set ceilings, or has patterns to set ceilings, whereas the milk marketing orders in the Federal areas set prices to producers. But they have a stabilizing effect in every one of those areas. They offer a facility in fluid milk areas for inserting incentives in milk prices at times when production is very low; at times when alternative farm enterprise is attracting dairymen to go over to beef-raising, or to hog-corn, instead of dairying.

Mr. GAMBLE. In other words, these marketing acts in these 16 States more or less regulate the price anyway, do they not?

Mr. HAYMES. Yes, sir; competition does the rest, Mr. Gamble.
Mr. GAMBLE. Yes, sir, it is good competition.

Mr. HAYMES. Yes, sir, they set the price to the producer and competition sets the price to the consumer.

Mr. GAMBLE. Now just one question on decontrol. If there was an automatic decontrol provision put into this bill, would that tend to help stabilize the situation from the milk standpoint?

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