association man to be on a committee-but I do know what the statement said. I have not got it here, but it said, in effect; "We have a responsibility to our Government. We have a responsibility to our industry, and we do not go along wtih what you are doing." That is about what it boiled down to.

In my opinion, the OPS would very much like to have an advisory committee come in and be faced with an accomplished fact, and have the advisory committee agree to it, and then they tell you, "why, we had an advisory committee, and they agreed to it."

Well, I do not believe our advisory committee has agreed to the form of Supplementary Regulation 63 to which we are objecting.

Mr. BETTS. Is it our contention that you cannot get an adjustment of an individual hardship case?

Mr. CASTLE. Well, I would not say we cannot, but my colleague here, Mr. Merrill, will respond to that in a very graphic way, if you will permit me now to pass your question to him, sir.

Mr. Merrill can right now answer that question and go into his statement later.

Mr. GAMBLE. First, Mr. Castle, may I ask you, getting down to the basic of cost absorption, this is a form of profit control, is it not?

Mr. CASTLE. I think it is, sir. I do not believe it was intended in the act, either.

Mr. GAMBLE. I do not see how it can be anything else in the light of your statement. In other words, you are not allowed practically any overhead costs at all.

Mr. CASTLE. That is the way I look at it, sir.

Mr. GAMBLE. It does not make sense to me.

Mr. HAYS. Let me ask you this, sir: Would you say, then, that this amendment A which you have submitted would take care of your troubles, if we could get that into the bill?

Mr. CASTLE. Well, I think B would probably do a little better job. A would help, but I think amendment B would, and as I say, on Thursday, we will, after some further study, come through with what we believe would be a completely practical amendment.

Now, we realize that we are not experts at drawing things up, but we will have the essence of it there.

Mr. HAYS. From my experience with these bureaus downtown, it would seem that A is more specific in saying what you can or cannot do, and you have a lot of language in B and when they get through twisting it around, the Lord only knows what they will have it meaning.

Mr. CASTLE. Well, I agree with you on that, sir. I should say, that where we say "sales," we do not mean dollar sales. We slipped on that one. We should have said "tonnage sales" or "unit sales" wherever we use the words "sales volume" in those amendments, by the way. Someone has just kindly called my attention to that.

Mr. BETTS. Can we come back to the possibility of obtaining an adjustment?

Mr. CASTLE. I will ask Mr. Merrill to answer that. This is Mr. Ariel Merrill, manager of the Arown Guernsey Farms in Eeverett, Wash.

Mr. BROWN. Mr. Merrill, you may proceed, and when you are through, the members of the committee will ask both of you questions.

STATEMENT OF ARIEL C. MERRILL, MANAGER, AROWN
GUERNSEY FARMS, INC.

Mr. MERRILL. Now you asked about individual hardship, Mr. Betts. I had the experience of attempting to go get relief under individual hardship. Additional information that the Office of Price Administration required from an operation our size made the preparation of the material that they were going to require so technical and voluminous that I couldn't supply it. That was No. 1.

No. 2 is, I was doing it to test and see if I could get any action out of OPS. I knew in advance that action on an individual basis could do me no good because I could not raise my prices unless my competitors could also raise theirs, so granting me higher ceilings, without granting my competitors higher ceilings, made the thing useless to me had it been granted and I say to you that I was doing it merely to test their error further on response to an application.

Now I will present my statement.

I am manager of Arown Guernsey Farms, Inc., a small dairy in Everett, Wash. Our dairy is owned by local people and most of them dairy farmers. It will be my purpose to present a point of view that to my knowledge is shared almost unanimously by small dairies throughout the United States. These opinions, I am about to present are probably shared by dairies of all sizes and kinds.

The ability of the small dairies to withstand the impact of OPS' orders is less than that of the larger dairies. This because of: (a) Generally larger cash reserves; (b) other sources of income; and (c) in most cases more facilities for making adjustments of operations where money from profits is not available for maintaining a normal equipment maintenance and replacement level. This difference in the position of dairies of different sizes, as they are affected by OPS, is presented so that you will understand that the OPS' orders as they are now established are not necessarily price controls but may be liquidation procedures starting with the small dairies as the first victims.

In this presentation the position will be taken: First, that the dairy industry, specifically the fluid fresh milk industry should be decontrolled. Here are my reasons for this statement:

There is no historical or current evidence to indicate that price controls are needed. Please note (1) the fresh milk plants average from 2.0 percent to 2.5 percent profit per sales dollar year after year. This is approximately one-half cent per quart of milk. Obviously, price controls are not needed to control profits.

I will now challenge this committee or any other group to produce evidence to show that as much as 5 percent of the fluid milk industry in the United States could reduce the price of milk 1 cent per quart, anytime during the past 20 years, without putting that segment of the industry in a position of operation at a loss. Figures are available for such studies. Certainly an industry that is historically this competitive needs no controls on the price at which it sells its products. On the contrary, the thing the industry needs, and has secured in many States, are price floors that will protect them against losses and permit the continued function of milk plants so that milk which is so closely associated with public health may continue to be supplied to the consumers.

(2) Approximately 62 percent of the consumers' milk dollar goes for the purchase of its milk supply. Under the GCPR the cost of this supply can be automatically passed on to the consumer through the parity provision of the order. Since this is a cost which OPS has has admittedly allowed to be passed on until the price of milk reaches parity, then there is no need for further control on this important cost factor.

(3) While our statement concerning profits in the dairy industry establishes the ambiguity of price controls it may be contended that the theory of cost absorption should apply. It should be obvious to any thinking man that an industry which is as highly competitive as the dairy industry has no room for cost absorption. It is apparent that if the industry had an opportunity for reducing costs it would do so and increase its profits to a higher level.

This reasoning involves the very principle of free enterprise in which we all believe and which we all see working every day in exactly this manner. The cost absorption theory is based on the very principle that historically some industries through scarcity of supply and demand for their product has created unjustifiable profits. I might add, particularly in times of emergency.

You have been challenged to establish that the fluid milk industry has ever been in this category. The theory has been advanced that increased volume will permit cost absorption. In simple language, the Korean situation has not increased the size of the human stomach, nor has it appreciably increased the number of milk drinkers. The increase in the consumption of milk over the pre-Korean period is less than 2 percent. It can be readily seen that this small increase would be insignificant in cost absorption even if other costs remained normal, which they have not.

I represent the statements made above to be facts and do so under oath. If you are willing to accept them as facts or confirm them to be truth, then we have a clear cut case against price controls in the dairy industry.

If I represented the entire industry, I would prove my sincerity by making you a proposition. This is it:

Select any 100 fresh milk plants throughout the United States and ask them to submit sworn operating statements each month. Have them also give their profits per unit sales. If at any time, for even 1 month, the average profits for these representative dairies reach as much as 1 cent per unit, then, price controls become automatically effective. This would bring price controls, if they were needed and eliminate the waste of money, time and effort on the part of both the Government and the dairies in the meantime.

That is given only as a test of sincerity and is not practical because they will never reach that, never have.

Now, if for some reason, I don't understand or have never had presented, Congress feels that the dairy industry must be burdened with price controls, then an obligation on your part remains to see that they do not liquidate the small-business man in this great industry. In case you have not already become acquainted with the conditions under which price controls are imposed on the dairy industry, I will review a few facts.

The second part of my argument has to do with cost absorption through delay.

97026-52-pt. 2--13

(1) The GCPR was issued January 26, 1951. It was not until September 24, 1951, that a milk price regulation SR 63 was issued. During this period of nearly 8 months many wage increases were granted througout the United States and all other costs continued to increase. In our particular market the increase in wages alone amounted to approximately one-third cent per unit sold. This was the first example of flagrant inefficiency, a deliberate price squeeze through delayed action.

(2) In the Puget Sound area of the State of Washington, relief was not granted until December 21, 1951. Here is another example of unnecessary delay in granting relief, and by delay forcing more of the so-called cost absorption on an industry that has no room for cost absorption.

(3) On March 1, 1952, wages were again increased the equivalent of approximately one-fourth cent per unit sold. It is now the middle of May and no relief has been granted. On May 1, the price paid the producers for milk was reduced. On May 5, announcement was made by the Market Administrator of a further reduction. OPS was very prompt in notifying the public that the dairies would reduce their price by one-half cent on both occasions. No red tape, no delay, no confusion in reducing or announcing the reduction in price. The speed at which it is done is an amazing example of efficiency.

These are only a few examples of the tactics of delay practiced by OPS. My files are loaded with correspondence regarding different approaches to relief. It is unfortunate that all Members of the House could not read my files and the files of other small dairies throughout the United States who have pleaded with OPS through various channels for relief. The information required by OPS is utterly impossible for most small dairy farms. The policy used by OPS to repeatedly ask for further information which they have been told in the beginning is not available has been, indeed, discouraging. It is one of the tragedies of the future economy of this Nation that smallbusiness men who have devoted their lives, their earnings, the earnings of their associates to build a sound business are bureaucratically liquidated. It is a pity to the pride and self-respect of any citizen to have to plead and beg from the personnel of a hurriedly thrown together bureau for the right to stay in business.

If price controls are to be imposed on this great industry, then the problem of delay can be solved by giving the dairies the privilege of passing through their increases costs automatically. The solution is just that simple. Determinations of accuracy can be made just as easily after the increased cost has been created and injustices will be prevented. Surely it is not too much to ask our Government to trust us that far when it means so much to perpetuating our business. Since we know we "cannot squeeze blood out of a turnip," let us not destroy the turnip while we try the impossible.

The third phase of my argument has to do with the unreasonable and unfair provisions of SR 63. If and when relief is granted under SR 63 there are many cost items which have been arbitrarily omitted. I say arbitrarily because OPS was told, time and time again, and in everlasting detail what the costs were that went into a quart of milk. Why should OPS take the position that these costs are not real and that this industry should not have them allowed in their price? Was it the intent of Congress that the increased cost of fuel, repairs, and

repair parts, tires, indirect labor, washing powder, power, and water, building upkeep, uniforms, and a myriad of other items should not be considered in price adjustments? This group of cost items, all of which are necessary, have been deleted from SR 63. This is 15 percent of our total costs. In most markets the milk costs which represents 62 percent of the sales dollar is established for by Federal or State order. It is only on the other 38 percent of our costs that we have any control. This means that 40 percent of the items of expense over which we have any degree of control are nonallowable.

Studies show that the cost increases on the nonallowable expenses are almost exactly the same as those on the allowable expenses. If costs increase only 15 percent on the nonallowable expenses, our entire normal operating profit has vanished. Was this the intent of Congress, or is it an arbitrary position taken by OPS, when SR 63 was written?

Yes, this is the case of the missing 15 percent. The small dairies throughout this great country join me in protesting against this injustice. We believe it is the intention of Congress to permit the small-business man to price his products at a level which will return all of his costs reasonably and necessarily incurred in the operation of his business, plus a fair and equitable margin to which he is entitled under the Defense Production Act of 1950, as amended.

As a representative small milk dealer conveying the opinions of thousands like myself, I wish to urge you to act with the greatest possible speed in doing:

First, remove price controls from the dairy industry, which has established such an enviable record of service to the consumers with a minimum profit to itself.

Second, if price controls are to be continued, to insist that OPS provide pass-through orders to expedite the recovery of costs.

Third, to demand that all costs are included in these pass-through orders, as was obviously the intent of Congress.

Your prompt consideration and action on our plea will give thousands of small milk dealers renewed hope and faith in our Government which has so vigorously upheld the principle of the rights of the individual and free enterprise.

Mr. BROWN. Does any member desire to interrogate these witnesses?

Mr. HAYS. Mr. Chairman.

Mr. BROWN. Mr. Hays.

Mr. HAYS. You say that your profit is about a half cent per quart? Mr. MERRILL. I say that a normal profit is about a half cent per quart. We have continued in our business without a profit ever since OPS came into existence.

Mr. HAYS. What do you sell your milk for per quart?

Mr. MERRILL. Twenty-two cents, in that market.

Mr. HAYS. How much of that 22 cents are you paying to the producer?

Mr. MERRILL. The producer gets approximately, in our particular case, 64 percent.

Mr. HAYS. That would be in excess of 13 cents a quart, then?
Mr. MERRILL. Yes; 14.08 cents.

Mr. HAYS. How much is that a hundred pounds?