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In order to contribute a maximum to the Nation's health and morale in case of a continuing emergency, the dairy industry's greatest incentive is price flexibility.

Price flexibility directs milk in proper volumes and proportions to different milk products and to different markets; price controls create maladjustments in production and distribution and interfere with the normal flow of milk to meet consumer needs.

Price flexibility is needed because production gains on dairy farms can only take place slowly. Milk cows that have gone to the butcher cannot be brought back nor can they be replaced within less than 3 years' time. An incident in contrast to that is the potato situation at the present time. This potato famine can be relieved in maybe 6 months, maybe 12 months, by another crop. We have about two crops a year in the North and South. But it takes 3 years to replace an extinguished dairy herd.

Mr. TALLE. If I may interrupt, a cow is equipped with only one udder so the possibility of increased production is limited by that physical fact.

Mr. HAYMES. That is true. Their productive capacity is distinctly limited.

In the competition of our diminishing feed reserves dairy farmers, in making their necessarily long-time plans, must not believe that price incentives will be lacking. Without question, prices of dairy products are low, relative to prices of many other livestock products.

Just as price controls and allocations may have helped to get the Nation's armament program under way, the incentive of flexible prices in the absence of price controls would help the dairy industry to supply, process, and distribute its products.

Price controls should be terminated on dairy foods at this time to restore incentive, restore necessary flexibility within the industry and expand production to meet the ever-increasing nutritive needs of the consuming public. Price adjustments, where required, would be moderate. Under no circumstances should price control of dairy foods be extended beyond June 30, 1952. The burden should be on those who would extend price control to show its necessity-and none exists. Our free institutions are in jeopardy if Government continues to control for control's sake. Actually, everything possible should be done to maintain this industry as a great source of strength to our country.

The dairy industry stands definitely opposed to further extension of price controls on dairy foods. Termination of price controls on dairy foods is in the public interest. Adequate supplies and keen competition in a free economy will do a better job for consumers, farmers and the industry than will controls.

Mr. Chairman, we have an appendix and a chart which we would like to have included in the record. I would like to call your attention to the chart, which is taken from the Department of Agriculture, which gives you an idea of the increase in all cattle, and particularly in beef cattle in recent years, as compared to the decrease in dairy cows kept on farms in the United States.

You will note that for the past 75 years our total number of cattle has continued to increase at a slightly greater increase than the total number of milk cows, and at the extreme right-hand side of the chart you see that beef-animal numbers have been continuing steadily upward since the last war, while our dairy-cattle numbers have been decreasing.

The CHAIRMAN. Without objection, the chart and appendix may be included in the record.

(The information is as follows:)

APPENDIX A

The committee on economic policy of the United States Chamber of Commerce, in its report entitled "The Price of Price Controls," develops the inadequacies of price controls as a means of combating inflation in digest about as follows:

The price system in a free economy performs three basic functions. It guides the consumer in choosing what he buys with his income. It facilitates the movement of goods and services from producer to consumer. It conveys the wishes of consumers to producers and distributors, indicating to them what to produce and supply.

For a short-run emergency, there may be a case for emergency control over prices during a period when supplies of certain resources are unavailable for sudden and large changes in demand and the price system in a free market economy cannot correct the situation in a reasonable period of time. But such conditions do not lessen the long-run adverse implications of price controls with the market distortions they bring about.

What happens when prices are held below market levels?

1. Restraints upon consumption are lifted and the consumer is encouraged to buy.

2. But producers are not encouraged to raise production. In fact, the. restraints placed upon prices serve notice on producers to reduce production. Consequently, shortages develop and available supplies have to be rationed.

3. With artifically restrained prices encouraging consumption and discouraging production, inevitably subsidies to producers have to be adopted in order to maintain incentives.

If price controls are imposed over any length of time, rationing and subsidies become inevitable. As Professor Paarlberg phrases it:

"Ceiling prices, rationing and subsidies are the three-legged stool of an economy which endeavors to hold prices below the equilibrium level. A stool will not stand

for any length of time on one or two legs, but needs all three.

"In England, they understand this better than we do for they have been at it longer. They fix prices, ration, and subsidize agricultural commodities pretty well across the board; they have had to do this to make the system work. We will have a similar experience if we stay with it long enough. If we don't let the price system function, we shall have to step in and do the jobs that the price system formerly did for us." 1

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Price controls are at best a temporary stop-gap measure. legitimate long-term means for combating or handling inflation. record, as quoted from The Price of Price Controls:

"1. Price controls have never worked for any length of time. These controls can be no more than a short-term expediency. Even with the patriotism of World War II, it didn't take long for price controls to break down.

"Contemporary experience of other countries suffering from inflation shows that the use of direct price controls and drastic penalties did not prevent prices from rising.

"2. Price controls exact a heavy toll on our resources. Price controls involve tremendous costs that are both measurable and less definitely measurable. These costs are spelled out in manpower, money, diversion of resources; in costs to the taxpayer, the consumer, the businessman-and the entire economy.

"3. Price controls mean heavier burdens for the taxpayer. Price control machinery necessitates a Nation-wide organization and the diversion of manpower and other resources from productive channels.

"4. Price controls involve heavy burdens on business and industry. Compliance with the flood of control regulations, often times conflicting and confusing necessitates additional labor, diverting regular employees to handle the added workload, and a waste of management's time. The heavy compliance costs hit smaller enterprises particularly hard.

"5. Price controls delude the consumer. Price controls do not guarantee adequate amounts of any product, but, in fact, present the consumer with evershort supplies. The shortages during and after World War II testify to this. "Price controls mean black market in which prices are higher than those determined by a free market.

1 Price Freedom-The Key to Economic Freedom, from an address by Professor Don Paarlberg, Purdue University.

"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. abiding citizens are thus encouraged to evade the regulations.

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"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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#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

1960

NEG. 47147A XX 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 have 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 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, ves; 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?

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