Mr. WELLS. These dollars I am talking about are simply the actual dollars that prevailed in the market, Mr. Chairman.

Mr. WHITTEN. The actual dollars available in the market.

Now I believe Mr. Wells testified the farmer got less for his market basket, yet Dr. Paarlberg wants to say that he got more dollars. Mr. PAARLBERG. I am comparing with 1956. Mr. Wells is comparing with 1947.

Mr. WHITTEN. I see.

Mr. WELLS. This is the first year since 1951 that this has happened, you see.

Mr. WHITTEN. And that is the first year of the soil bank. Do you think the soil bank has reduced total production, or did it increase production last year?

Mr. WELLS. I should think the soil bank reduced production, Mr. Chairman.

Mr. WHITTEN. Well, farm production was higher than it had ever been before for certain crops.

Now we get back to this market basket. Give us all the facts that you can in connection with that.

Mr. WELLS. I was simply giving these overall figures because of your earlier statement.

Mr. WHITTEN. Now starting with that let's go into it, Mr. DeLoach, just to see what you have gotten to see where that went.

REASONS FOR INCREASE IN MARKETING SPREAD

Mr. DELOACH. Well, I don't know whether the order of my statement is going to be according to your wishes or not, but what we have tried to do is to focus our attention on some of the reasons why this marketing spread is increasing and

Mr. WHITTEN. Of course, your record showed that the market prices were increasing, the farmers income was decreasing, and his share of the consumer dollar was decreasing. We want to know where the money went. That is the primary purpose of our inquiry. Mr. Wells has given us some figures. I am not trying to preclude you from offering any explanations or supporting evidence or anything else, but I do think it should follow the facts.

Mr. DELOACH. We will start right in on that phase of price spread trends and given you some conception of what has gone on.

The total food marketing bill has risen without interruption since 1938, Mr. Chairman. The average is 6 percent higher in 1957 than in 1956. A small increase seems likely for 1958. Marketing costs accounted for 60 percent of the retail costs of food in 1957. You might be interested in having this chart inserted in the record.

DATA ARE FOR MARKET BASKET OF FARM FOODS BASED ON AY. 1952 PURCHASES BY URBAN FAMILIES

U. S. DEPARTMENT OF AGRICULTURE

AGRICULTURAL MARKETING SERVICE

Mr. DELOACH. During the period 1952 to 1956 the marketing bill rose an average of 4 to 5 percent each year. The farmer's share of this in 1957 was 40 percent. This was the first year since 1951 that the farmer's share did not decline.

Retail food prices were higher last year as a result of both an increase in marketing charges and higher farm prices. The major increases, however, came from increases in marketing charges. The retail store costs for a year of a market basket of farm food products for the average sized family went from $972 in 1956 to $1,007 in 1957, an increase of $35. Of this increase, $10 went to the farmer and $25 went to marketing agencies.

I should like to cite certain price spread statistics to bring out more completely the changes in farm-to-retail costs between 1947 and 1957. This table provides the detailed information in summary form and you might like to have it for the record.

(The table referred to follows:)

Retail cost, farm value, farm-retail spread for selected commodity groups, 1947–57

Mr. DELOACH. Despite the increase in recent months, retail prices of farm products are well below the peak reached in 1952. This is in marked contrast to the substantial rise in most cost-of-living items since 1952.

Lower prices at the farm level have more than offset the steady increases in the spread between farm and retail prices of food products.

EFFECT OF AWAY-FROM-HOME EATING ON TOTAL FOOD BILL

Consumers are spending more money for food purchased in restaurants and other away-from-home eating places and this, by the way, is one of the reasons why you are having this additional increase in the spread between the farm and the consumer.

The foods that are purchased in this manner now account for approximately one-fourth of the total dollar outlays for food consumed by civilians. Because of the heavy service charges, this type of expenditure is having an increasing effect on the total food bill. Furthermore, it is causing some very basic adjustments in food handling practices, in market channels, in order to meet the requirements of such establishments with respect to kinds, qualities, and the preparation of food purchased.

The impact on marketing costs is very great.

Mr. WHITTEN. Could I interrupt you there. And I do it to clarify this matter.

Have you taken it that this committee would be interested in trying to determine what the facts were in connection with food served in restaurants? Or did you understand that we were talking about the prices of food as it left the retail store.

I cannot conceive of this committee providing that money so as to let you get into what the consumer might pay at the Waldorf Astoria in the swankiest room they have where they have dancing and all the rest of the entertainment that goes along with it. I gather that you are intimating here that a part of this picture that you have given us has to do with the retail price of completely cooked and serviced meals in restaurants. I cannot believe that you could have ever thought we would have that in mind.

Mr. WELLS. Mr. Chairman, I do not think that you completely understand one another.

To the extent that we check our figures against the United States Department of Commerce estimated expenditures for food, it is necessary that we have some idea as to how much goes into restaurants versus how much is sold over the retail counter.

None of our costs and margins money goes into the study of restaurant foods as such. The Department of Commerce estimates consumer expenditures for food, including consumer expenditures in restaurants. Most of our research has to do with the cost of food in retail stores as the housewife buys it.

It is necessary, I think, that we have some idea of what is going into cafeterias and restaurants. We are not interested in the kind of restaurant as the Waldorf Astoria.

Mr. WHITTEN. I am very much disturbed about this and I will say it frankly-if he is using restaurant prices in this picture

Mr. WELLS. He is only using this to the extent that we have to reconcile our estimates with the Department of Commerce food expenditure estimates.

I do not think, Mr. DeLoach, you have any study which deals directly with restaurants as such.

Mr. DELOACH. No; we do not.

Mr. WHITTEN. I am not adverse to that study being made, but I cannot conceive that it is being made at the direction of the committee. Mr. WELLS. No.

Mr. WHITTEN. You might proceed.

Mr. WELLS. When we estimate the total food marketing bill, if we go back to the charts which I have presented to you people earlier— I presented 2 different charts, 1 which shows the increase if you look only at the retail price, and 1 the increase in Department of Commerce figures which gives what happens if you look at expenses in restaurants and cafeterias as well as in the retail market.

Mr. WHITTEN. Mr. Wells, since I have been on this committee. everybody has shied off finding out where this consumer dollar goes that the farmer is no longer getting. That has been true all along. It has been extremely difficult to get anybody to give this any thought, because they did not want to tell the answers when they got them. I put you in a little better category than that. But this presentation by Mr. DeLoach looks as if a lot of attention has been given

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to providing the ifs, ands and whys, and providing the defensive type of thing. I say that very frankly. We would just as soon get rid of this section if it is not going to come up with better answers. Mr. WELLS. We have the answers, sir.

Mr. WHITTEN. Let's proceed.

SPECIFIC FACTORS IN THE WIDENING FARM-TO-RETAIL SPREADS

Mr. DELOACH. We have continuing increases in the cost of performing marketing operations that are the causes of widening farm-toretail spreads. We have increased wages, taxes, utilities and supply

costs.

In fact, the cost of almost everything bought by marketing agencies has shown large increases in recent years. Increases in productivity of most of our marketing operations have kept actual cost rises in many cases to relatively modest amounts. For example, average hourly earnings of employees of firms marketing food products have risen 25 percent in the last five years. But because of increased output per man-hour, labor costs per unit have increased by only 6 percent in the same period.

This increase in labor productivity reflects the effects of substantial capital investments that have been made by food marketing firms since the end of World War II. A part of the savings in labor costs likely has been offset by increases in capital costs. Interest rates have also risen. Larger capital investments have added to the depreciation charges.

Also, rapid advances in technology have taken place and, Mr. Chairman and gentlemen, this has increased the cost rate of obsolescence by a tremendous amount. Whether it is good, bad, or indifferent is something else.

The costs making up the farm-to-retail spread always have been relatively inflexible in relation to farm and retail prices, particualrly when prices start down. In recent years, however, this inflexibility has tended to increase. More and more wages are established by contracts and are not subject to change until renegotiation. Wage rates in the food marketing industry generally have followed the overall wage trend. Wage rates have increased steadily since the end of World War II, including the recessions of 1948-49, and 1953-54. Freight rates and most utility rates which are controlled by Government agencies have also gone up rapidly. Taxes, which are as much a part of the marketing bill as anything else, have increased rapidly. Upward pressure is being put on Government expenditures at Federal, State and local levels. It makes it appear that there is no likely reduction of the tax rates. Profits have kept pace with prices and costs and in some instances have exceeded them.

The widespread use of the labor contract and leasing arrangements for space and facilities, along with higher overhead charges for management have introduced many rigidities into food distribution and processing cost. The result is that any reduction in consumer prices has tended to be passed on to farmers, rather than being divided between the farmer and the marketing agencies.

In other words, we are developing these rigidities as a result of the contract system that is present in the labor field. They are intro