meet increased costs. If they suffered such pressure, they could still fall back on taxation to balance their budget. Taxation in such cases just as effectively increases the cost of living in these communities as would an increase in prices. That is why we say that the OPS program would be futile in such cases. It could force a choice of method by the municipality, but it could not prevent the increase from being collected in one way if not in the other.

Obviously a Federal price-control agency should not have the power to decide whether a municipality should charge users or tax the general public. A host of factors beyond the purview of OPS but within the scope of local government must dictate such a choice.

At the present time the OPS insistence that it has statutory power to regulate publicly owned utility charges is proving a constant source of vexation. Our member cities face the problem of deciding whether to tilt with OPS, whether to seek to justify necessary price increases under present permissive regulations, whether to come hat in hand for OPS permission on a hardship basis, or whether to absorb increases in costs by cutting down on some public service.

Believing as we must that Congress intended municipalities to be exempt from OPS regulation, we submit that we should not be forced to choose between these courses. Apparently only an unmistakable reaffirmation of the congressional purpose can avoid our dilemma. For that reason we respectfully submit the

urgent need for the prompt enactment of S. 2722.

Senator SPARKMAN. Mr. Chairman, let me say this. I am rather surprised to hear about this because I am positive in my own recollection that we deliberately worded the provision last year so as to exclude municipalities which owned and operated their own public: utilities. I know that we intended that to be so.

Senator CAPEHART. I would like to say, "Amen," because I was present at all times, and that was the intent.

Mr. SCHUCKMAN. I might just add this: We thought that had been clearly understood, and yet the question as to whether OPS-I might say it this way-OPS has raised the question as to whether that exemption applied to a utility which was not subject in its rates through a regulatory agency. They apparently have not been willing to concede that a city council, in the case of a municipal utility which is responsible to the people, and in the same relative position as a regulatory State agency would be-——

The CHAIRMAN. We had it in there for rent control. I do not know why OPS did not know that.

Senator SPARKMAN. I may say the reason I remember it so well was because so many municipalities in my State do operate their own power-distribution systems, and I know that they took it up with me, and we threshed out in committee and had a definite understanding that they were not covered.

Senator CAPEHART. The OPS evidently hasn't enough to do, so they have to look out for other fields to conquer.

Mr. SCHUCKMAN. I am glad to hear that suggestion from you, Senator.

The CHAIRMAN. Mr. Finch, will you come up, please.

STATEMENT OF HAROLD FINCH, NATIONAL-AMERICAN WHOLESALE GROCERS' ASSOCIATION

Mr. FINCH. May I say this very quickly. I will not read the statement because you have it. I am president of the Nash-Finch Co. in Minneapolis, and I represent the National-American Wholesale Grocers' Association.

We are in the wholesale grocery business, the middlemen. We are caught between, with our costs going up and our profits going down,

because OPS has applied the same margins of markup over cost as they did during OPA days.

Senator CAPEHART. Are they not applying the Herlong amendment to you?

Mr. FINCH. No; not to food. OPS says that does not follow the food line because there are so many items you cannot calculate your historic margin.

Senator CAPEHART. How do they get out of that one?

Mr. FINCH. We respect the people in OPS, but we do not always agree with them.

However, it is a fact; and, for the record, the profits of the wholesale grocery industry have declined 1.5 percent for the last half-now, this is before taxes-for the last half of 1951 as compared to the first half.

Our industry is hurt. We are not mortally hurt but we will be if it continues.

Our recommendation to Congress is that they instruct OPS to suspend present controls on foods at wholesale-and I think it means retail, also-until the Secretary of Agriculture defines what is in short supply and why it should be recontrolled.

Thank you, gentlemen.

The CHAIRMAN. We certainly appreciate your attendance. (The prepared statement of Mr. Finch follows:)

STATEMENT OF NATIONAL-AMERICAN WHOLESALE GROCERS' ASSOCIATION, INC.

My name is Harold Finch, and I am president of Nash-Finch Co., a wholesale grocery firm with headquarters offices in Minneapolis. My entire business life has been devoted to wholesaling groceries.

I have been asked to present this statement before your committee on behalf of the membership of National-American Wholesale Grocers' Association. This organization is a national voluntary trade association with headquarters at 60 Hudson Street, New York City. The membership comprises wholesale grocery firms located in all parts of the country, and the annual volume of business done by our member firms constitutes an overwhelming part of the total sales of the wholesale grocery industry.

Time for this hearing before your committee was requested so that the views of our association could be expressed to you in substantially the same form as expressed in a resolution adopted unanimously by those members present at the association's annual convention held in Atlantic City 2 months ago.

The resolution recorded the eonvictions of our members that experiences over the past several months have demonstrated that price controls in the food industry have not been advisable or necessary to accomplish the essential purposes of the Defense Production Act.

Our business is a victim of inaccurate thinking, and actions based upon the premise that methods that were advisable and necessary and reasonably suecessful under Office of Price Administration are therefore wise today and for the foreseeable future under Office of Price Stabilization.

In OPA days America was engaged in a hot war, confronted with ever-present food, manpower, and production shortages that called upon all for daily and continuous sacrifices and distortions of normal methods of doing business. The demands were such that everything was considered in short supply. It was both necessary and advisable that controls of every nature be used-prices, rationing, subsidies, etc.

Now, under OPS, everybody has found plentiful supplies of food to be at hand. Prospects are there will be no shortages to speak of in 1952. Because of these food surpluses and the outlook for surpluses upon surpluses, we consistently have a violently competitive situation which never existed under OPA. It causes most foods to pass through wholesalers' hands at mark-ups well below those permitted and suggested by OPS last year in its price regulations controlling wholesaling of groceries.

On top of this, clauses in the present OPS regulations further distort normal operations of food merchants by arbitrarily requiring them to use the same mark-ups on great groups of foods, regardless of grade, historic selling policies, and of the supply situation. In addition, between the workings of OPS regulations, surplus supplies, fierce competition, the food merchant is left in the position all too often of having to absorb inventory losses when prices go down. He may not, except under difficult conditions, mark up inventories when prices rise on isolated items.

In free-enterprise operations it is standard practice for food merchants to offset their losses suffered as a result of market declines on some items by following the markets up on other items when they have made fortunate purchases by accurately appraising future trends. It is true that it is one of the economic services of the food merchant to buy and sell with an eye to the present as well as future trends.

If a merchant happens to make a bad buy, he must sell at a loss because competitors force him to. This remains true today. However, under existing OPS controls, if he makes a good buy, he cannot recoup on it except under conditions that are onerous in many cases.

Again, basing their thinking upon OPA days and conditions, some insist that, if foodstuffs in surplus supply and not now contributing to the inflationary spiral were exempted, the prices of such foods would immediately rise seriously because food prices did increase when ceilings were dropped after World War II. The conditions are entirely different today because of a plentiful supply position and merciless competition. A recent poll of expert opinion among wholesale grocers indicated by a 13-to-1 majority that, generally speaking, food prices would remain stable if those in plentiful supply were exempted from price control. A limited number of non-cost-of-living items now distorted out of the price line and historic relationships by OPS might advance slightly, but such brands, food items, and qualities would still have to meet competitive prices in an open market.

With plentiful supplies and keen competition prevailing, it can be regarded as a safe assumption that prices of food staples would not and could not rise much or for long if controls of foods in adequate supply were temporarily but promptly suspended.

Otherwise we wonder how long America must wait before restoring free enter prise and flexibility to operation in the food field. Assuming that the Communists continue their present threats for another decade, must we await their pleasure while the free-enterprise system deteriorates under severe regimentation as the days go by?

From the outset, price controls in the food industry have been based on the supposition that full employment and vastly increased purchasing power would inevitably create heavy demands for foods, thus leading to shortages, and that the scramble for available supplies would bring about constantly rising prices.

The situation which now, and has for some time, confronted our industry overturns this premise. In addition to the fact that there has been generally an abundance of most of the products sold by wholesale grocers, our industry has not experienced, nor have any other elements in the food distributive trade experienced, a sales volume which would lead one to conclude that per capita sales of foods are on the increase or that buying in food was being stepped up in such fashion as to make for any appreciable change in the balance of supply and demand. As a matter of fact, any increase in tonnage sales recorded as of last October showed a mere one-half of 1 percent increase over pre-Korean figures, an increase more than accounted for by the increase of our population.

We submit to this committee the considered conviction held by our industry that there is little evidence to support any belief that tonnage sales of food did or would increase proportionately with the creation of added purchasing power through stepped-up defense spending. The human capacity for consump tion of foods will remain relatively stable, since the past several years have been ones in which most of the Nation has been eating well. We cannot expect once more, as in OPA days, that individual food consumption would vastly increase. OPA came at the end of a depression. The failure to take this fact into consideration has been a great mistake.

Today's abundance of foods has resulted in a sharp competitive situation which requires that wholesale grocers sell many if not most of the commodities they handle below permissible ceilings established by present control regulations. It is this fact. combined with the inflexible provisions which prevent compensa

tory gains which the market would allow on other items, that contributes to the dilemma of the food-distributive trades today.

For the most part, satisfactory earnings were possible during the control period of OPA simply because permitted maximum prices served rather as actual minimums for most commodities at all distributive levels. This, of course, was due to the continued short supply of most items handled by grocers. With the situation reversed today, there are relatively few operators who can escape the punitive effects of the complete loss of merchandising flexibility.

As these seemingly needless controls hamper normal marketing practices at every turn, it would be well to explain that the wholesale grocery industry, in addition to being a major factor in the steady marketing of products produced by hundreds of thousands of farmers, growers, processors, and manufacturers, is also the principal supplier of hundreds of thousands of sellers who form the backbone of the Nation's greatest retailing industry, the independent retail food store.

This means that the wholesale grocer in most instances carries a burden of dual responsibility. He can never be satisfied by taking care only of his own wellbeing. He is obligated to aid his retailer customers to stand up in their struggle for survival. On both counts, his own success and his retailer's success, astute and resourceful adjustment to merchandising opportunities in his greatest stock in trade.

The wholesale grocer cannot go to his retailers' aid today with suggestions to make up for his many below-ceiling sales by suggesting unusually profitable buys that would make the retailer's profit margin average out at pre-Korea levels. He can no more help his retailers in this respect than he can take advantage of his own ability to discover and use special purchasing opportunities. With his retailers curtailed in their chance of maintaining pre-Korea returns for their labors, he is also affected saleswise in his opportunities at the wholesale level. The accumulated effect of restrictions imposed on his customers' merchandising ability, plus the limitations imposed on his own ingenuity in moving extra lots or special buys, make for sharper inroads into his chances for success than would be present if he were dealing with a situation that affected the wholesale grocer on his own trading level only.

Operating under today's control regulations produces another strain on capital and facilities of distributors in the food trades which requires this committee's attention for corrective action. Many distributors are required, day after day. to actually purchase losses--those staple commodities which decline in price between the time of purchase and the time of delivery to the wholesaler's warehouse. The only thing the seller can do in today's competitive market is to go down immediately. But what if the market rises? Can any advance be taken? The answer is that it cannot unless a new cost is established by an additional purchase in a "customary quantity," from a "customary supplier." It is here, gentlemen, that another inequitable strain is placed on the capital and facilities of an industry which must have some latitude to adjust advances and declines beyond the narrow regulations presently prescribed.

An added argument for the request for suspension is the complexity of the wholesale grocer's ordinary inventory. Not only does it exceed, in most instances, 4,000 items, but also is it of infinite variety as to types and sizes and grades. The canner and processor has a host of problems to calculate individual ceilings for every type, size, grade, quality, etc., but the food distributors, wholesalers and retailers, are given broad category groupings which completely ignore and disrupt normal marketing and merchandising practices developed by years of effort on the part of sellers that recognize sales velocity, consumer demand for special grades, can sizes, and special tastes.

Various wholesalers are geared to serving differently selected groups of either retailers or institutions or both. The continuous improvement in the American standard of living over the past several years is particularly manifested in the added variety of items and grades of items which our members offer to the consumer. The need for adjustment to varieties of tastes is more conspicuous on the wholesale level than at the retail end or within the individual institutions. be it hotel, restaurant, summer camp, hospital, etc. There is no comparison between customers' insistence on broad choice from his supplier's warehouse at the wholesale level today as compared with the period of OPA. This insistence may complicate inventories, but not nearly to the degree that the seller's role is complicated by the broad categorizing of the products which precludes merchandising along accepted, time-tested rules.

The key to the success or failure of any control program is, in our opinion, the extent to which the productive capacity of our Nation can be adjusted to match the demands placed upon it. We feel that present Government machinery embodied in existing facilities of the United States Department of Agriculture can be effectively used to certify the short-supply status of any major commodity or group of commodities.

It is probable that none of the adverse circumstances touched upon above would be present if we were not operating in a period of plentiful supplies that in many instances depresses obtainable prices far below their permitted ceilings. It cannot be stated strongly enough that the complete reversal of the supply situation, as contrasted to the conditions prevailing during OPA days, is the main source of all affliction that compels wholesale grocers to take a firm stand against the extension of present control legislation.

We feel that the foregoing considerations should convince your committee that the temporary suspension of controls for all plentiful foods should be made mandatory.

We repeat at this point that we are not objecting to the continuation of a revised and improved Defense Production Act, for we feel that such an act is needed because of the uncertain international situation. But we cannot emphasize strongly enough that the wholesale grocery industry requests stipulations that will embody into the law the measures called for in the interest of a wholesome and efficient functioning of all factors in the food manufacturing, processing, and distributive trades.

Our suggestions call for temporary suspension of control provisions on all foods that are not in short supply. We now add recommendations for provisions that should govern any controls that are (1) kept in force for those foods which are deemed to be in short supply and (2) recontrolled in case an acute crisis in foreign relations might necessitate such action.

For such an emergency we recommend:

(1) Because, forces of nature will continue to influence supply, factors in the food fields more drastically than many others-even in a national emergency— safeguards preventing stark dislocations and destructive damages to food distributing factors should be provided in the new law. For those groups of food that are not subject to mandatory suspension of controls immediately, or would have to be recontrolled because of impending shortages or because of general national emergency, provisions should be written into the law that will put industry consultants, sworn in by the administration as expert advisers, into the position to guide and assist in the writing and shaping of detailed regulations.

(2) Even under "national emergencies" we can come up against situations in which certain agricultural commodities may actually be in an oversupply position. Allowance should be made in advance for the specific requirements needed to meet this problem.

Farmers' marketing groups and other growers and processors' organizations are continuously appealing to our association to assist in moving agricultural commodities into consumption channels in order to prevent the destructive effects of heavy oversupply. There is not enough flexibility in present regulations to permit the mobilization of helpful assistance that our wholesaler members had provided in such instances in the past. The new law should contain clauses that will correct-even in case of a reversal of general control suspension-the reimposition of the present type of inflexible controls.

(3) Present regulations have their most damaging effect where they force dealers to accept losses occurring because of competitive pressures, while preventing the recovery of margins on other items which could be merchandised to advantage. It can be assumed as certain that this situation would again be present if controls, once suspended, should be reimposed.

Wise foresight should write into the law clauses requiring the active participation of sworn-in industry consultants in devising formulas that will, under any circumstances, enable, and mobilize, active distributor versatility to move foods through established channels to the best advantage of the producers, with full recognition of the consumer's interest but without destructive consequences for those who render the service of distributing at wholesale.

The CHAIRMAN. The next witness is Mr. Dratt.