Now, they estimate it will take some weeks for them to complete the survey and I want to tell you something about it, when it is completed, I do not think it will be fairly administered because back in the OPA days when they made a survey of canned foods they based the survey on peas, corn, beans, and tomatoes. When they gathered the material together, they used the evidence they got to fix the prices or margins on all canned foods, including baby foods, except peas, corn, beans, and tomatoes, and abandoned the figures they collected and put lower mark-ups on on those than they had demonstrated in their survey.

Now, as I say, here on March 28 they promised the survey. The next you heard of it the law had expired and been extended twice and on August 16 they announced it was getting under way. On October 1 they announced they were having pretests in two cities. On October 2 they said they were organizing the Nation-wide survey. Then they went over to December and announced this survey was going to get under way the first of next year. On January 19 they said they were in the process of running mark-ups and earning surveys.

At January 25 they issued an order on potatoes where they fixed prices, but they said that would be subject to reaction in the light of the forthcoming survey of pre-Korean margins.

February 29, the survey of grocery mark-ups in the period immediately preceding the outbreak of war in Korea would get under way on March 10 and on March 7 they said March 17.

In the emergency court of appeals in one case which is now pending there, the OPS stated it made no promise of a survey. In a statement of February 28 it said that this survey was made as a result of a promise which was made when CPR-15 was issued.

Take your choice as to which statement is correct. They are on record on both sides of the question.

I say that the amendments which have been proposed here in behalf of the industry are suggestions for decontrolling where you have a plentiful supply, recontrolling where you have short supply, providing for findings of fact as a part of every regulation and as a part of every order that is issued denying a protest, revamping your protest procedure, and giving fair and equitable review, instead, sending it to a court that is also tied up and cannot give relief.

If you can give consideration to those suggestions, I need take up no more of your time today, but I am available to your staff if they want to review them in the light of an experience that runs back for more than 10 years.

The CHAIRMAN. I cannot say what the committee would do, but I can only say this for my part, we will certainly give every consideration to it and I am going to ask the staff to confer with you.

Mr. HANSON. I am at your service.

Thank you very much, gentlemen.

(The prepared statement of Mr. Hanson and attached exhibits follow :)

STATEMENT OF SAFEWAY STORES, INC., ELISHA HANSON, ATTORNEY Safeway Stores, Inc., by Elisha Hanson, its attorney, has filed with the committee its request to be heard on S. 2645, extending the life of the Defense Productioi Act of 1950, as amended, from June 30, 1952, to June 30, 1953. Pursuant to the desire of the committee this statement is filed in support of the request to be heard.

Safeway is a corporation organized and existing under the laws of the State of Maryland, with its principal office in Oakland, Calif. It operates approximately 2,000 retail food stores in 23 States of the United States and the District of Columbia.

Safeway's gross sales in the United States in 1950 were $1,100,852,000.

In 1951 Safeway's gross sales in the United States were $1,320,919,000. Safeway's profits from all United States operations, after taxes and all other charges were: 1950, $12,286,889; 1951, $5,469,119.

Thus it can be seen that this one company during the period of price controls, notwithstanding an increase of more than $200,000,000 in dollar sales volume, had its profits reduced by nearly 60 percent.

Safeway's accounts are audited for each period of 4 weeks throughout the

year.

In 1950, Safeway's retail operations were conducted without loss in any one of these 4-week periods.

In 1951, Safeway's retail operations were conducted at a profit before taxes in but 3 of the 14 accounting periods, namely, the 4 weeks ending January 27, February 24, and November 3. In all others the losses ranged from $12,327 to $1,536,668.

Percentagewise, these losses ranged from 0.01 percent to 1.51 percent on

sales.

As is well known to this committee, the retail food distribution business historically has been operated on a low-margin-of-profit basis.

The effect of price controls as administered by the Office of Price Stabilization under the present act is discussed in the annual report of Safeway which shortly will go to all of its stockholders and be released to the public for its information in part, as follows:

"Comparative figures for the third quarter of 1950 and 1951 show that Safeway's United States profits before taxes dropped 110 percent from $7,318,760 to a loss of $773,698 and that the rate of profits before taxes dropped from an average of $2.88 per $100 of sales to a loss of $0.25 per $100 of sales. The effect of discriminatory price regulations on Safeway's operations is even more pronounced when we look at the results of the United States retail operations by 4-week periods during 1950 and 1951. The following table shows clearly the impact of price controls imposed in early 1951 on profits before taxes in dollars and as a percentage of sales:

"Profits before taxes-United States retail operations, 1950, 1951

Figures in parenthesis indicate loss. Others indicate profit.

In the course of its business, Safeway procures, warehouses, and distributes through its retail outlets only, products which are commonly sold in grocery stores. In some cases, these products are manufactured or processed by it. At the present time practically all operations of Safeway are controlled by the Office of Price Stabilization acting purportedly under authority of the provisions of title IV of the act here under study by this committee.

It is because of the belief of Safeway that OPS has openly and intentionally disregarded the criteria established by Congress and the requirement of the act for fair and equitable treatment of all subject to its orders, that this company

now lays before you the record of OPS in relation to Safeway and requests that, if it be the judgment of the Congress that controls should be continued in a time of plenty when there is absolutely no shortage of any foodstuffs and no shortage in sight, then title IV be completely rewritten to make certain that the expressed desire of the Congress for fair and equitable treatment of all subject to price control shall be observed by those charged with the administration of the law. First and foremost of the changes deal with the protest and court review sections of the act. Such changes are imperative to make certain that the provisions of the act are fairly administered at the administrative level and if not, then that prompt relief may be had in the courts. To this end we are submitting for your consideration proposals for a complete overhauling of the protest and court-review procedures now provided in the act.

Before discussing these proposals in detail, it is pertinent to inform you as to the reasons therefor.

BACKGROUND OF CONTROLS

From the date of the enactment of the act in 1950 until January 26, 1951, no direct controls were exercised over retailers under the provisions of title IV. Rather, all sellers were asked to exercise voluntary restraint in the matter of increasing prices.

Then, on January 26, 1951, the Director of the Office of Price Stabilization issued general ceiling price regulation by the terms of which he froze all prices at retail at the highest price charged by any seller during a base period of December 19, 1950-January 25, 1951. At the same time the same technique was used to freeze the prices of wholesalers and other suppliers.

Nothwithstanding the requirements of the act, there was no consultation with members of the affected industries prior to the issuance of the regulation. Nor was there any provision therein for the adjustment of hardships or inequities. Even worse, there were no findings of facts made to support the regulation. Neither the Director who issued it nor those affected by it had the slightest idea at the time as to what its effect on the economy of this country would be. The requirements of section 402 (c) of the act were ignored.

Still further, the Director, in respect of one agricultural commodity, hogs, deliberately ignored the mandate of section 402 (d) (3) and fixed ceilings on pork products when hogs at the time were selling below parity as determined by the Secretary of Agriculture.

No comment by anyone affected by the regulation can better illustrate the arbitrary and capricious action of the Director than the remarks he himself made in his statement of considerations accompanying its issuance.

In that statement, he said that the situation confronting him required bold and drastic action. Further that

"In this emergency, we cannot be confronted with partial measures. The problem which confronts us to day is not the result of price increases for a few commodities or groups of commodities; prices have been going up all along the line. We must therefore take broad-gaged, sweping action to halt the spiral in prices. Because of the comprehensive character of this action and the need for speed, it has not been practicable to establish committees of representatives of the persons substantially affected by this general ceiling price regulation and to consult with them." [Emphasis supplied.]

Still further in his statement of considerations the Director said:

"In the formulation of this regulation special circumstances have rendered impracticable consultation with industry representatives, including trade-association representatives."

Thus it is obvious that those affected by the regulation were not consulted as the law requires.

In respect of the requirement of the law, section 402 (c), that provision shall be made for adjustments to prevent or correct hardships or inequities, the Director had this to say in his statement of considerations:

"No general provision for the adjustment of individual hardship cases is included in the regulation. This is because it is virtually impossible to predict the specific types of hardship situations which an order of this scope may create and which can be relieved consistently with the effectuation of the fundamental stabilization objectives of the Defense Production Act of 1950."

A promise was made that at a future date the Director would issue such provisions and standards for adjustment as may be necessary and proper under the statute, but the fact remains that when he issued the regulation he issued no such provisions.

Now it is pertinent to inquire further into his intentions. The regulation itself was issued on January 26, 1951. From time to time thereafter the Director issued certain interpretation of the provisions thereof.

HOW GCPR WORKED

Safeway, along with others similarly situated, soon found how GCPR worked. The prices of its suppliers were not fixed at the highest price those suppliers sold Safeway.

Safeway purchases many products in carload quantities for delivery to its warehouses from which in turn such products are delivered in Safeway's trucks to its retail stores. This was true before the base period and during the base period. It is still true.

Safeway's suppliers during the base period, as before and since, had other customers who purchased in small quantities, with the suppliers performing the delivery function performed by Safeway. The higher price charged by the supplier for the merchandise plus the added service of delivery to its other customers thereafter became Safeway's cost under GCPR.

Also, during the base period many suppliers had advanced their prices immediately before January 26. Where Safeway had made no purchases from these suppliers at the higher prices, the advanced prices nevertheless became Safeway's costs, notwithtanding its retail prices as frozen by GCPR did not reflect suppliers' increases.

Still further, OPS by amendment 5 to General Ceiling Price Regulation provided that a seller's ceiling price must represent at least 10 percent of his dollar volume during the base period to a class of purchaser. This amendment enables a seller to Safeway to select for ceiling purposes a small fraction of his sales which were most costly to him in terms of service rendered in connection therewith and use this price for buyers who purchased in carload or truckload units with a minimum of selling and delivery expense.

Through the operation of General Ceiling Price Regulation, Safeway's costs advanced on many items to the point where in a few weeks they equaled if they did not exceed Safeway's frozen selling prices.

Safeway had been one of those who exercised the restraint requested by the Government.

It found itself in a squeeze between cost and selling price.

It found itself in an unfair competitive position with respect to competitors who had not exercised the voluntary restraint.

But notwithstanding representations by industry advisory committees and also notwithstanding the urgent pleas of consultants from industry called in by the Director, no substantial relief has been granted to this date.

The attitude of OPS toward this squeeze between increasing costs and frozen selling prices can be stated no better by a critic of OPS than it was stated by that agency itself.

On May 4, 1951, General Ceiling Price Regulation Interpretation No. 3 was issued (32A CFR, ch III, 16 FR 4192). In that interpretation the following question and answer appeared:

"Question: (3) Seller A, purchased a commodity from his supplier, X, early in the base period at $1 and resold it at $1.25. However, his supplier, X, made deliveries to other purchasers of the same class later in the base period at $1.25, which thus became supplier's ceiling price. Seller, therefore, now has to pay $1.25 for the commodity but his ceiling price for resale remains $1.25, the highest price at which he delivered the commodity during the base period.

"Answer: In all such 'squeeze' situations, involving sellers who are still subject to the General Ceiling Price Regulation and whose problem is not solved by amendment 5, the answer is that the seller's ceiling price is determined under section 3 as the highest price at which the commodity was delivered during the base period to a purchaser of the same class, regardless of any resulting hardship." [Italics supplied.]

Attached to this statement, marked exhibit A and asked to be read as a part hereof, is a documented record from the National Association of Food Chains presented to Lambert S. O'Malley. Special Assistant to the Director, Office of Price Stabilization, on November 26, 1951, detailing the plight low cost food operators find themselves in. If it be said that this is a self-serving document, then for even stronger proof of arbitrary, capricious disregard of the law let us turn to the record of OPS itself and to its statements as they have been made from time to time in respect of subsequent, regulation orders, as those

statements appear in "Statements of considerations" accompanying new regu lations, amendments thereto, revisions thereof, supplementary orders bearing thereon and general overriding regulations, as well as publicity statements issued from time to time by the Director and his associates.

Before referring to them, however, it is pertinent to point out that at no time since January 26, 1951, when general ceiling price regulation was issued has OPS made any findings of fact as to prices in effect, customary margins realized, or any of the other criteria of the pre-Korean period required to be used by it in its price fixing activities either by the act as originally enacted or by the 1951 amendments. Furthermore, as will be shown herein, when such data has been submitted by industry it has been rejected, and OPS guesses utilized rather than basic facts essential to regulation as provided in the statute.

SO WE COME NOW TO CPR 15

On March 28, 1951, the Director issued Ceiling Price Regulation 15. This regulation fixed new ceiling prices on dry groceries and perishables for all stores of the type Safeway operates. The act required the Director, so far as practicable in the exercise of his authority to "ascertain and give due consideration" to comparable prices, margins, etc., in effect during the pre-Korean period.

The Director made no study of pre-Korean prices and margins before issuing CPR 15 but full information in respect thereof was furnished him, in so far as those affected by CPR 15 were concerned, by the industry itself.

Completely disregarding the mandate of the statue and the information supplied, the Director went back to margins used during OPA days of World War II, made a slight adjustment thereof, and directed their application to all subject to CPR 15. Then he glibly expressed the opinion that his adjusted OPA margins would substantially equal the pre-Korean margins.

In other words he made a guess as to what would be proper margins, after rejecting the evidence offered by the industry.

A statement of considerations accompanied the issuance of CPR 15. In this statement the Director said that at the time general ceiling price regulation was issued he recognized it was not well adapted to the long-range control of prices in many parts of the economy; that the freeze technique used in general ceiling price regulation rewarded those who had increased their prices most; that the distortions in cost-freeze relationships and the chance abnormalities that existed in the base period were frozen into the price structure; and that the contrast between the inadequancies of a "freeze" regulation such as the general ceiling price regulation in controlling prices for food distributors and the success of the margin type regulation used by the OPA in World War II made it imperative that distributors' ceiling prices on dry groceries be fixed on a mark-up basis at the earliest possible date; and that the best mark-ups available were those used by OPA in effect from 1943 to 1946; and in order to act promptly he had employed those mark-ups for most food categories for most food distributors. The Director admitted in his statement of considerations that he had been furnished facts by the retail food industry to disprove the fairness of his margins. On his point he said:

"The chain stores and super markets, however, have insisted that the OPA mark-ups would be inadequate and have presented calculations to show that their application to pre-Korea operations would reduce by approximately 3 percent on sales the grocery department gross margins experienced at that time. They urge that their operations are conducted on a low net margin of profit to sales and fear that these ceilings will mean loss operations. This position has been given very careful consideration by the Director of Price Stabilization, An examination of the data submitted by the chains and super markets indicates that there is a substantial basis for these figures. In most food cate gories the OPA mark-ups conform generally with normal pricing practices. In some categories, however, it has been indicated that mark-ups have changed substantially since the war. In issuing these regulations, therefore, the Director has made some adjustments in these food categories. These adjustments will be carefully checked against the results of the survey.” [Italics supplied.] Earlier the Director said in the same statement of considerations: "The Office of Price Stabilization is now organizing a study of margin and earning figures for food distributors in order to obtain more recent compre hensive data. If the study should indicate that the ceiling prices established under this regulation are either too low or too high, the regulation will be promptly revised to reflect the results of the survey."