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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 I can tell you that we have little criticism of the recommendations originally made by the Dairy Section of the Food and Restaurant Division of OPS.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%1⁄2 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

automatically increase his ceiling prices to reflect increases in labor costs. The experience which we have had with OPS demonstrates, beyond peradventure, that that agency either cannot, or will not, adjust its ceiling price regulations quickly enough to enable businessmen to meet increased costs which, in the final analysis, can only be met from the money obtained from the sale of their products. It literally takes months on end for the OPS to act with respect to even the simplest matter.

This is an intolerable condition of administrative chaos which, it is believed, the amendment in draft (H) would cure. If a seller of agricultural commodities incurs an increase in costs, he could immediately adjust his ceiling prices upward and begin to charge the new price upon notifying OPS by registered mail. That agency would then have authority to reject the increase, if it found that the cost increase had not actually been made. In this way, the burden flowing from nonaction would be placed upon the shoulders of OPS, and this feature alone might serve as a stimulus to make the agency act more expeditiously.

From what I have said, it is obvious that the basic concern of the fluid milk industry stems from the unwarranted action of the Price Administrator in requiring the industry to absorb costs. We believe that any of the bills designated as draft (A) to (G) would have the effect of alleviating this situation. As indicated, our choice is the bill in draft (A), which would prevent cost absorption unless sales volume has increased 10 percent.

An alternative approach would be our proposed bill in draft (B), which would specifically amend section 402 (d) (3) of the act so as to spell out, more specifically, what a "fair and equitable" margin for the processor and distributor of agricultural commodities would be.

Actually, the Congress would be well advised to adopt both of the amendments suggested in drafts (A) and (B). They are not inconsistent with each other and, together, would certainly prevent the OPS from unlawfully requiring cost absorption in this important industry.

The bill proposed in draft (C), which makes it clear that the Herlong amendment would apply to milk dealers, should also be adopted, in any event.

Drafts (D), (E), (F), and (G) are all alternative drafts and the Milk Industry Foundation recommends their adoption, in the order of preference indicated.

Draft (H) is a completely independent proposal, permitting the automatic increases in ceiling prices to reflect labor costs, and should be adopted, in any event.

Now, gentlemen, consider this astounding fact, the OPS now permits, in the area of price regulations, for fixing ceilings, increased costs for milk-obviously they would do that-the increased costs for direct labor and increased cost for containers.

We look at some of the other items that a milkman just cannot avoid--they are part and parcel of his picture. I know you will be astounded when I read this list. You will say, "Well, what kind of blank blank are they to do such a thing?"

Well, here are some of the things they do not allow us any increased mark-ups on. They do not recognize them: Repairs and repair parts, tires, tubes, chains, fuel --that is oil, coal, gasoline-outside trans

portation, indirect labor, including general office administrative labor by some magic we are supposed to absorb the higher costs of office labor-washing powder, refrigeration materials, building upkeep, credit losses, sales promotion expansion, traffic losses, laundry, depreciation taxes, taxes and licenses, purchased storage, rent, ice, communications, telephone, telegraph, postage, office supplies, dues, and subscriptions.

These are all not considered in establishing ceilings. They have said to some of you gentlemen in letters that I have seen, "Why we are allowing them 85 percent of their costs."

I do not believe that you gentlemen intended that the Office of Price Stabilization should say to a businessman, "Well, we will fix the ceiling, we will allow you 85 percent"-and we showed them a chart to indicate that all these other items went up, just exactly as the items they allowed us-and they would not allow us.

Mr. KILBURN. Have you given any Member of Congress your amendments?

Mr. CASTLE. I am including them in my statement, sir.

Mr. KILBURN. Have you seen any member of the committee? Mr. CASTLE. Yes, I gave Mr. Rains, I think, the other day, or one of his constituents, these amendments.

Mr. KILBURN. The point is will they be brought up when we consider the bill in executive session?

Mr. CASTLE. Yes, sir, I think they will, and I would like to say that we realize that in submitting eight or nine amendments, we might perhaps have contributed a little to confusion, therefore not later than next Thursday we are going to have one amendment that we will say we think is probably the most suitable remedy.

Mr. GAMBLE. Will you see that we get it promptly?

Mr. CASTLE. Yes, sir, I will. It will be in here Thursday morning. (The amendment referred to above is as follows:)

A BILL To amend the Defense Production Act of 1950, as amended

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That section 402 of the Defense Production Act of 1950, as amended (Act of September 8, 1950, ch. 932, title IV, section 402, 64 Stat. 803, as amended by the Act of July 31, 1951, ch. 275, title 1, section 104 (a-h), 65 Stat. 134), is further amended by adding at the end thereof the following new subsection:

"(1) Notwithstanding any other provision of this title, no rule, regulation, order, or amendment thereto shall hereafter be issued or maintained under this title which shall have the effect, directly or indirectly, of preventing a seller of any material from selling such material at a price which will reflect all increases in all costs occurring subsequent to June 24, 1950, if the volume of the sales of all such sellers of the material, measured by the amount of the product sold on a Nation-wide basis, has not increased at least ten per centum over that which prevailed during the period January 1, 1950, to June 24, 1950.

"Any seller or group of sellers of a material may increase the ceiling price of such material in accordance with this subsection, and charge the resulting new ceiling price upon mailing, by registered mail, to the President (or such agency as may be designated to administer the provisions of this title) the following information: (a) the existing ceiling price of the material; (b) the amount by which such seller or group of sellers proposes to increase such ceiling price pursuant to this subsection, including an explanation thereof; and (c) the new ceiling price to be charged for the material pursuant to this subsection. In any case where such information is submitted by a group selling more than 70 per centum by volume of the material sold in a national or regional competitive marketing area, the resulting price increase authorized hereunder may be put into effect by all sellers of the material in that area.

"If the President finds that such seller or group of sellers has not incurred the increases in costs upon which the new ceiling price authorized by this subsection is based, or that the volume of the sales of all such sellers of the material, measured by the amount of the product sold on a Nation-wide basis, has increased ten per centum over that which prevailed during the period January 1, 1950, to June 24, 1950, the President may disapprove the new ceiling price and establish such ceiling price for the seller or group of sellers of the material as may be appropriate under this subsection."

EXPLANATION

The attached bill would amend section 402 of the Defense Production Act of 1950, as amended the price-fixing provision of the law-by adding an entirely new provision at the end, under which sellers or groups of sellers would be permitted automatically to increase their ceiling prices in industries where the volume of sales since Korea has not increased more than 10 percent, as measured on an industry-wide basis of the volume of material sold.

Sellers of the industries affected (on a Nation-wide or regional basis) would be permitted automatically to increase their ceilings by the amount of all cost increases which have occurred since June 24, 1950, the date of the outbreak of the Korean conflict, upon mailing to the Office of Price Stabilization their old ceilings, the amount of the proposed increases (with an explanation), and their new ceilings. Thereupon, they could start charging the new ceilings and could continue to do so unless the OPS disagreed and required new ceilings to be set. It should be noted that this provision is an overriding provision which would apply notwithstanding any other provision of the law, but it is applicable only in cases in which there has not been more than a 10 percent increase in the volume of sales in an industry. Where the increase in the volume of sales has been more than 10 percent since June 24, 1950, the other provisions of the act would continue to control. The provision is based upon the fact that, where there has been less than a 10 percent increase in volume turn-over in an industry, there is no real justification for requiring such industries to absorb any costs out of profits.

Mr. BETTS. Is there anyone in OPS who understands the milk industry problem?

Mr. CASTLE. Yes, sir. When this emergency came and people were imbued with a feeling that we had to contribute to the administration of the problems, a plea was made that industry send its best men down here.

Our industry took that very seriously, and there are men in the Dairy Section of the Food and Restaurant Division of OPS, experienced in the industry-men of integrity, men who in my opinion have due regard for their oaths of office, but who know the problems of the industry.

Well now, let's see what happened: I have no hesitation in divulging this fact, because I think it is so important to this committee to know it.

I saw the recommendation that that Dairy Section passed up to what they call their clearance committee. It allowed for seven different items. Just the same as you gentlemen would have done if you had been in the dairy industry. You would have said, "These are all essential costs."

It went to the great minds above and they came out allowing us, cost of milk, direct labor, and containers. So they eliminated four that had been recommended by the Dairy Section. The present head of the Dairy Section is resigning as of today.

Now I might ask, I think, Mr. Congressman, where is the Fluid Milk Advisory Committee. Well, they have been called in two or three times, and I can tell you that they made a statement the last time they came in that was rather devastating. I am not a member of that committee-and by the way, they do not permit any trade

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