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NET PROFIT AFTER TAXES AS PART OF THE SALES DOLLAR

(CENTS PER DOLLAR OF SALES)
PRC- CONTROL ERA

CONTROL ERA
MARKET

YCAR
CENTS

MARKCI

YEAR

CENTS

SO

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SOURCE: VARIOUS , FEDERAL, STATE AND UNIVERSITY STUDIES

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amendment to apply only to manufacturers. On May 5 the Emergency Court of Appeals ruled that it applies to retailers as well.

Here is a comment by a milk dealer operating in Texas as contained in a letter which he wrote to his Senator. He said in part:

The United States milk dealers are up in arms over the manner in which the OPS has messed up our industry. We operate, as you well know, on a very, very narrow margin of profit. Their theory to recognize our ability to absorb high costs simply

does not work. Since last September we have been attempting to get something out of the regional office that would provide our industry with a reasonable basis. When I say reasonable I mean the margins of profit which have been ours over a long period of years. We have wasted 5,4 months, and yet, have no relief. The amount of relief that we need is only one-half cent per quart, but this runs into tremendous amounts of money for those in our business. * Frankly, in my opinion the whole OPS ought to be kicked out the window.

Here is a partial quotation from a milk dealer in Montana who wrote to his Senator February 13:

The OPS theory of cost absorption is certainly hard for us to swallow. We have always prided ourselves on the fact that milk of the finest quality is available to our consumers at a price considerably lower than surrounding areas and less than the national average.

As the cost of caps, bottles, fuel, et cetera has risen we have tried to make a more economical operation so we could continue to sell a quart of milk for 19 cents. As an example we now deliver milk to each customer three times a week rather than every other day.

However we now have come to a point when our capacity to absorb higher costs has disappeared.

The OPS says that any increase of retail price must all be given to the farmers. We appreciate that the farmers can use all that is given to them but if the OPS would allow us a normal or average mark-up on even this small increase maybe we would have a normal operating profit. We do not expect to be in a position that 50 percent of our profits will go as taxes but we would like to remain in a solvent condition so we can continue to pay some income tax.

Some months ago the milk dealers in Bozeman applied to the OPS for a price increase. After long months of waiting they were erroneously informed that it had been granted. They immediately raised the price but were then informed that the price increase had not been granted. Immediately they lowered the price to the original ceiling price. They were above the ceiling price through error for 1 day and I understand the OPS has threatened to fine them for the violation.

Here is a letter from a small dealer in Ohio addressed to his Senator:

We operate about a medium-size plant owned by and myself and have always been very proud of our efficient, close margin operations which enabled us to pay a fair price to the farmer, charge the consumer a low price (lower than any other commodity), pay our help a livable wage, pay all other bills and have just a little left over. Now OPS regulations tend to squeeze us for this small margin and we just can't operate that way. We must have at least a small profit to stay in business and need your help to help us.

Here is a comment from a North Carolina dealer with respect to OPS, extracted from a letter to his Congressman:

We have found not only that SR 63 cannot be applied to an industry of our type, but that it is practically impossible to get any reliable advice from or about OPS Frankly their red tape and general vagueness has us in a position where we don't know what action we can safely take even under allowed adjustments for direct labor and containers.

The dairy industry of North Carolina badly needs some specific relief, set forth and administered in a clear cut manner, which will allow us a sufficient margin to cover cost increases which we cannot absorb.

Here is another comment from a dealer in Gadsden, Ala., written to my office. March 15. He says:

Our compnay, along with its competitors, have petitioned the Birmingham Office of Price Stabilization to grant a raise of 1 cent per quart in this market to place the plants and the farmers on an equal basis with other similar markets in this State that operate under the Alabama State Milk Control Board. This petition has been grinding through the red tape now for about 4 months and we don't even have a thing as to what the final decision will be.

Gentlemen, my conclusion, which is concurred in by all of my associates on the board of directors of the Milk Industry Foundation, is that the OPS cannot be relied upon to administer the Defense Production Act so that milk handlers receive fair and equitable ceilings and have prompt and over-all recognition of their unavoidable increases in costs. I have referred repeatedly to the costs which are required to be absorbed by our industry and I have no doubt that you are wondering what they amount to in actual unit costs. Here is a table received from an operator in Cranston, R. I. It is taken from a letter which he wrote to his Congressman, and presumably, his Senator. He says:

In the following schedule the first column shows the unit cost when only plant wages, delivery wages, and containers are considered while the second column shows the unit cost when all operating costs are considered.

Bear in mind, OPS only allows direct wages and container costs.

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OPS will allow price relief based on wages and container costs, but, from these figures, you can see this is not sufficient. All other costs must be considered also.

I am here therefore to propose eight amendments which I sincerely hope you will adopt, perhaps not in toto but in substance. I say in substance because the amendments are somewhat similar in nature. They were drawn with the idea that the wisdom and experience of this committee would result in the enactment of specific directions to the Office of Price Stabilization which would result in fair and equitable ceilings for the food handlers of the United States.

We recognize that Congress is reluctant to write administrative regulations but we believe a precedent was established when the Capehart amendment and the Herlong amendment were incorporated in the present law.

We believe that these amendments showed a lack of confidence in OPS which is more than justified by the experience which we have had. In conclusion let me say that we made a thoroughgoing, factual, and unrebuttable presentation to the Office of Price Stabilization, De

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cember 12, 1951. In this presentation we suggested amendments to Supplementary Regulation 63 which, in our opinion, would have resulted in fair and equitable ceilings. We were told by Mr. DiSalle and his associates that we had made an excellent presentation and that early attention would be given to it, and today we have not had any manifestation of a change in the regulation which has been so unfair and burdensome to our great industry. We have been patient, we have furnished them with a succession of documents based on the facts under which our industry operates. I can tell you that we have little criticism of the recommendations originally made by the Dairy Section of the Food and Restaurant Division of OPS. We know that they recommended the inclusion of increases in seven different classifications of costs. We know that "higher authorities' cut these down to three items, namely, cost of milk; direct labor; cases, cans, and containers. Compare this meager and fantastically inadequate allowance of increased costs with the partial list which I previously recited to you.

The present price orders affecting the fluid-milk industry are invalid because they do not permit the milk dealers to price their products at a level which will return to them their reasonable costs of operation and a fair and equitable margin, to which they are entitled under the law. No price order is valid if it fails to carry out the express policies of the Congress, as set forth in section 2 and section 401 of the Defense Production Act of 1950, as amended. These policies explicitly require pricing orders to be designed to maintain the military and economic strength of the country and to promote the expansion of production facilities beyond the needs of civilian demand. These policies also require that price controls be so designed as to promote the maintenance and furtherance of a sound agricultural economy. None of these great objectives are accomplished by the pricing orders affecting the fluid milk dealers because the dealers cannot, as a class, continue to operate without a fair and equitable margin over and above reasonable costs. Under similar provisions of the Emergency Price Control Act of 1942, the Court of Emergency Appeals declared pricing orders invalid under which whole industries could not live. Here, it is perfectly apparent that the Director is thwarting the will of Congress, and the only remedy is for the Congress to enact legislation which the Director cannot ignore.

Gentlemen, if the Defense Production Act must be continued, and we think that it should not be continued, we beg of you to adopt one or more of the amendments (presented here as appendices) as the only assurance we shall have of a square deal. A square deal is all we ask.

I have here eight proposed bills, each containing an amendment to section 402 of the Defense Production Act of 1950, as amended. For purposes of discussion, I have designated these eight proposed bills as drafts (A), (B), (C), (D), (E), (F), (G), and (H), and I request permission to have these proposed bills copied into the record of this hearing as part of my testimony. Attached to each of the drafts is an explanatory statement, in nontechnical language, of what it is designed to accomplish.

To assist in understanding the eight amendments which I am proposing, I think it would be helpful for me to summarize each of them at this point.

Draft (A) contains a proposed bill which would amend section 402 of the Defense Production Act of 1950, as amended, by adding a new subsection (1). The new section would prevent the Director of Price Stabilization from requiring an industry to absorb costs in the absence of a finding that the sales volume of the industry has increased 10 percent over the base period of May 24, 1950, to June 24, 1950. I may say that, of all of the bills proposed by the Milk Industry Foundation, this is the bill which it would prefer to see adopted by the Congress. But, as will be noted, we are also proposing some alternative bills by which the same objective could be accomplished.

Draft (B) is an alternative draft designed to meet the same basic problem which the bill in draft (A) is designed to meet. But the bill in draft (B) would change the first proviso appearing in section 402 (d) (3) of the act, which now provides that processors of agricultural commodities must be allowed a fair and equitable margin, by spelling out a standard for measuring such fair and equitable margin.

It would also guarantee a fair and equitable margin to distributors of agricultural commodities. For processors, the "fair and equitable margin” would be the highest margin prevailing between January 1, 1950, and June 24, 1950, adjusted for increases or decreases in all costs, and for distributors, the "fair and equitable margin" would be the percentage margin prevailing during the period May 24, 1950, to June 24, 1950, or such other representative date as may be determined, under section 402 (c). Next to the bill proposed in draft (A), the Milk Industry Foundation would prefer this particular bill.

Draft (C) contains a bill which would make some important changes in the Herlong amendment, namely section 402 (k) of the act. In the first place, it would amend the Herlong amendment by eliminating the reference to "customary" percentage margins wherever a reference is made to percentage margins in that section, and would thus remove certain ambiguities from this amendment. In the second place, it would add a new sentence to the Herlong amendment to make it clear that the mere bottling and packaging of milk does not substantially alter the form of the product, so that, as a result of the proposed amendment, the OPS would have no excuse for denying fluid milk processors the benefits of the Herlong amendment. This bill, in effect, constitutes the third choice of the Milk Industry Foundation.

Draft (D) contains a bill which would amend section 402 of the act by adding a new subsection (1), which would provide that OPS may not require a seller to absorb costs where the percentage profit before June 24, 1950, was less than 3% percent per dollar of sales after all taxes.

Drafts (E), (F), and (G) are identical save in one particular, to be noted. Each of them would add a new paragraph to section 402 (k), the Herlong amendment, which would make it unlawful for the Director of Price Stabilization to issue or maintain any price control which would have the effect of denying to“fluid-milk dealers","processors of agricultural commodities," or "processors of food commodities," respectively, their historical percentage margins over costs.

Draft (H) is designed to meet another situation, and is not to be considered as an alternative to any of the foregoing measures.

The bill set forth in draft (H) would amend the Defense Production Act by adding a new provision to the pricing sections of the law, which would provide that a processor of agricultural commodities might

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