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 1 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 accurate. 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. BETTS. 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. HAYMES. 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?

Mr. HAYMES. I don't think there would be any question but what it would not. There isn't any design or pattern of decontrol formula that anybody could figure out that would fit the dairy business or that would ever catch up to it. It is a fast-moving business. It is constantly changing. It can't wait.

It can't start an action to consider decontrolling a commodity in March, and then settle it in August without teriffic disruption in the industry.

We had a sample of that last year when the windfall order came out by the OPS, towards the end of May last year, limiting the increase of price on any inventories. It came out just at the beginning of the pasture season. It said that you could not accumulate stocks and then sell them at any higher prices later on than the prices at which you held them, and that frightened the butter storers, and they didn't store butter.

The result was that then we had only 10 percent as much butter at the end of the butter season, in March of this year, as we ordinarily have, and the prices went out of sight-temporarily, until there were more supplies coming into the market.

Those things point up the fact that there isn't any consideration that you can take up in the dairy industry but what has to be acted upon instantly. You have to have flexibility. You have to have the responsibility back where it happens.

That order that came out on the 29th of May last year was a mistake, and it was so admitted by the OPS, but it wasn't canceled until 7 weeks later, in the middle of July, and in the meantime, the pasture came and the pasture went and the butter didn't go into storage. Mr. GAMBLE. That is all, Mr. Brown.

Mr. BROWN. Are there any other questions, gentlemen?

If not, you may be excused, Mr. Haymes.

Mr. HAYMES. Dr. Pierce has a short statement.

Mr. BROWN. You may proceed, Mr. Pierce.

STATEMENT OF C. W. PIERCE, PROFESSOR OF AGRICULTURAL ECONOMICS, OF THE PENNSYLVANIA STATE COLLEGE

Mr. PIERCE. My name is C. W. Pierce and I am a professor of agricultural economics at the Pennsylvania State College. For the past 15 years practically all of my work has dealt with economics of the dairy industry. My appearance here is at the request of the Dairy Industry Committee, to which I am glad to respond.

Our economy has become great in an atmosphere of economic freedom, in which both producers and consumers have been free to make their own production and consumption decisions in the light of whatever prices their individual decisions collectively have caused. If we observe our record and believe in its meaning, a decision to extend price controls will have to be fortified by the most compelling of

reasons.

In the brief time at my disposal, I want to present and interpret some of the factual material which relates to the question of price controls for dairy products.

Total milk production in the United States in 1951 was 115.6 billion pounds. This was 1 billion pounds less than in 1950 and 1950 production was 3 billion pounds less than the peak reached 5 years

earlier in 1945. During this same period population grew rapidly. The increase from January 1951 to January 1952 has been estimated by the Bureau of the Census as being 2.7 million people. In 1951 we had less milk produced per capita than in any of the previous 25 years.

During the period between the termination of price controls after World War II and the institution of the price controls under the Defense Production Act, the dairy industry did a remarkable job in adjusting a declining milk supply to the needs of an increasing population.

Remember, that in an attempt to maintain adequate milk production during World War II, subsidies were introduced within a year following the first price ceilings for dairy products in 1942. Price controls during World War II left the dairy industry in a state of maladjustment as far as the domestic peacetime economy was concerned. At the end of World War II our market milk areas were inadequately supplied with milk. Since 1945 milk production has increased in those areas; for example, in New York State and Pennsylvania, by 10 percent. Production of milk and sales of bottled milk have been brought into reasonable balance in such areas, with some scattered shortages this past fall.

At the end of the war we were exporting sizable quantities of whole milk manufactured dairy products, concentrated milk and cheese. These products were produced largely in the Midwest. With little change in milk production in the midwestern area, in Wisconsin and Michigan, for example, the excess of supply for a disappearing export market has been absorbed into domestic uses.

In the areas where butter has been the chief market for milk, the production of milk has declined and meat animals have increased as the American consumer has in the market place expressed a preference for other products.

The output of milk from farms during 1952 and in the immediately following years will depend on several factors. These factors include the feed supply, the proportion of feed that will go to dairy cows, the number of dairy cows, and the availability of labor to care for producing dairy herds. The price of milk will be of major importance in determining how well dairy farmers will be able to compete for a share of the feed and labor supplies.

Numbers of dairy cows have been declining for several years. There are an increased number of young stock in herds now. Whether or not these young stock will result in increased dairy-cow numbers, however, will depend on what dairy farmers think of the outlook for the price of milk, the cost of feed, prices of animals culled for beef, and the opportunity to compete successfully for farm labor.

Our needs for an increased milk supply are obvious. Milk and dairy products are highly desirable foods if we are to have a healthy people. Because of the balance of food nutrients, milk has frequently been referred to as "Nature's most nearly perfect food."

Calcium, of which three-fourths is supplied by milk products, is one of our most critical elements. Our population is growing rapidly. Much of this population growth is due to a high birth rate. Growing children, more than anyone else, need adequate supplies of milk.

Earl J. McGrath, United States Commissioner of Education, in a recent article, stated:

By 1957-58, it is estimated that the total enrollment, kindergarten through secondary schools, will reach more than 32 million, or 6 million more children than are currently going to school.

The Bureau of the Census estimates a population of 190 million people by 1975. Agricultural Secretary Brannan states that to maintain our present rate of per capita production we will then need an additional 30 billion pounds of milk. This is a greater increase than occurred during the past 25 years. These statements as to needed increased supplies do not consider that present rates of consumption are less than nutritionists recommend for good diets.

Returning to immediate needs, 1 year's growth in population requires an additional 2 billion pounds of milk. Milk production requires long-term planning by dairy farmers because it takes several years to raise a cow.

Retail prices of dairy products have increased less since before World War II than has the average of food prices. Fresh fluid milk has increased less than three-fourths as much as the index of all food prices.

On a dry-weight basis dairy products are inexpensive foods when compared with prices of other livestock products. In terms of each of several highly desirable food nutrients, there is no other food in which these nutrients can be purchased at as low prices as in fresh milk, cheese, and concentrated milk. Even at somewhat higher prices than now exist for dairy products, especially fresh milk, these products would be relatively inexpensive as compared with prewar; as compared with other livestock products on a solids basis; or as compared with per capita disposable consumer income. In 1939, the average factory employee worked 12 minutes to buy a quart of milk. Now, he works only 9 minutes.

Milk is produced on more than 2 million farms in the United States. Milk is processed and the different products manufactured in thousands of plants throughout the country. I would like to supply you with one illustration of the competitive situation in the fluid-milk industry.

In my State of Pennsylvania, we have a milk-control commission which requires licenses of each processor and distributor of fluid-milk products. In 1949, the commission issued 691 licenses to fluid-milk dealers. This does not include more than 500 producer-distributors of fluid milk. The State is divided into 14 marketing areas. The least number of licensed dealers in any one of these marketing areas is 22 in the York market.

The commission licensed 32 distributors in the Philadelphia market plus an additional 32 in the suburban Philadelphia area and 140 handlers of fluid milk in the Pittsburgh market.

The fluid-milk industry has for years followed a policy of obtaining a low rate of profit per unit of product, depending upon volume and turn-over for dollar profits. The average rate of profit earned in 1950 by 529 fluid-milk distributors for whom the Pennsylvania commission had records was 4.3 cents per dollar of sales before income taxes and 2.7 cents after taxes. Of 565 distributors for whom 1949 records were available, 127 operated at a loss.