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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.
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 bave 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 bealthy 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.
Other branches of the dairy industry are characterized also by numerous processing plants. The 1950 estimates prepared by the Bureau of Agricultural Economics, USDA, of manufactured dairy products, were based on reports received from over 3,000 plants making butter; over 2,000 plants making cheese; over 3,000 plants making ice cream for wholesale distribution, and more than 400 plants producing concentrated milk products. It is estimated that more than 24,000 plants in the United States process some type of dairy products.
These data are illustrative of some of the competitive forces in the dairy industry.
The dairy industry is primarily a domestic industry. Defense preparations have not required the diversion of milk products to other than normal uses. Consequently, the defense effort has not caused artificial scarcities.
Milk production takes place every day of the year. The same is true of the production of manufactured dairy products. Due to the seasonal production of milk, the excess output during the spring months is made into butter, cheese, and concentrated milk, and stored to supplement supplies during the period of low production, With continuous output, any change in price, regardless of when it occurs, does affect production.
I am familiar with the statement made by Mr. Haymes and I agree with the platform of the Dairy Industry Committee, which he has presented.
A program of price controls for dairy foods is the poorest way in which this important food industry can be prepared for the role it must play in the economy. The termination of price controls would not result in inflationary price advances. The price-control machinery is operating to diminish incentives for production and to weaken the industry's processing and distribution facilities.
Price controls should be ended on dairy products promptly so that production will be expanded and adequate industrial facilities maintained to meet the increasing nutritive needs of our country and to keep the industry prepared to help meet the food needs of our allies in case of war.
I trust that the data I have presented will be helpful to the committee.
That concludes my statement, Mr. Chairman.
Mr. BROWN. Very well. Are there any questions by the members of the committee?
If not, you may be excused, gentlemen. We are very glad to have your views.
The clerk will call the next witness.
The CLERK. Mr. Benjamin F. Castle, the Milk Industry Foundation.
STATEMENT OF BENJAMIN F. CASTLE, ON BEHALF OF THE MILK
Mr. Castle. My name is Benjamin F. Castle. I am the executive director of the Milk Industry Foundation, Washington, D. C., the national trade association of the fluid-milk-distributing industry. This industry, which as you know is active in every village, town, and
city in the United States, is ranked by the Office of Price Stabilization as the sixth largest
industry in the United States. The characteristic of this industry is the great number of small milk dealers operating less than 20 milk routes.
It is estimated by the Olsen Publishing Co., of Milwaukee, who for many years has been compiling industry statistics, that there are approximately 15,000 milk dealers in the United States of which slightly more than 5,000 have more than 4 routes. This is another way of saying that 10,000 milk distributors in the United States have less than 4 routes. The percentage composition in number of routes as shown by our membership substantially corroborates the Olsen figures.
I have before me the membership chart of the Milk Industry Foundation which shows membership by size as of the year 1949. This shows that approximately 24 percent of the total membership operate 10 milk routes or less and that 38 percent of the membership have between 10 and 20 routes. This indicates that 62 percent of our members are small-business men.
Before leaving the subject of the small size of the average milk handler, I would like to point out that the regulations of OPŠ in my opinion are causing a rapid disappearance of small milk handlers.
Only this noon, gentlemen, I received an authentic letter from the Iowa Milk Dealers Association in which they said that 75 of their members had sold out or gone out of business in the last year. That is a startling thing. That only confirms our general observations. We had hoped that we could bring to you an over-all national statement but we have not been able to get it. But we have very good evidence that the little fellow is being squeezed out. You will hear later, if you have time, which I hope you will have, what a very serious situation it is.
I do not believe that the gentlemen of the Congress intended that any form of price controls should put businessmen out of business.
Ỉ have a chart here showing the extent to which, prior to price controls by the Federal Government, our industry was controlled.
Now the red States are territories covered under the Federal Marketing Act. Where the Federal Marketing Act prevails—and you will see that it covers a very dense population of the United States, the minimum price that our people pay to the farmer is prescribed. So there is price control of the minimum price to be paid to the farmer.
In 12 States, there are State milk-control boards, which not only fix the fair price to the farmer, but fix the resale price to the consumer, and in 5 or 7 other States, there are State milk-control boards which protect the farmer by seeing that he gets a fair minimum price.
Competition takes care of the resale price, I assure you. It makes no sense to me to superimpose upon this excellent State organization of State milk-control boards, a Federal bureaucracy, which, by remote control, attempts to improve upon the work of the State milkcontrol boards. I assure you they do not improve upon it; they merely "gum” the works.
Mr. KILBURN. If that is true, why does our law put out of business so many small-business men?
Mr. CASTLE. Because, sir, the Office of Price Stabilization is committed, strange as it may seem, to a policy of cost absorption in our