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and it is far worse than the conflicts that we sometimes have between one Federal district court and another in different parts of the country, which finally have to be settled by the Supreme Court.
With respect to price control, the position of our delegate body has been to remove control of producer prices of dairy products as far from OPS as might be possible. This is because of responsibilities previously vested in the Secretary of Agriculture with relation to milk and dairy product pricing.
There has consequently been developed within the Department of Agriculture a small but highly trained body of technicians familiar with normal production and pricing problems. It was believed that these matters should be exclusively under the Secretary's administrative authority. Fortunately, the Congress, in passing the Defense Production Act of 1951, incorporated all the provisions requested by us to vest minimum milk pricing authority exclusively with the Secretary of Agriculture.
I will now deal very briefly with the reasons why this committee should continue in the Defense Production Act the administration of these provisions by the Secretary of Agriculture. These provisions are concerned with:
1. The Agricultural Act of 1949. This act contains two most important provisions affecting the welfare of dairy farmers and the producers of certain types of perishable products including milk and cream. For these perishable or semiperishable products, it provides for a continuation of very reasonable support prices which can serve as a cushion in times of adversity when unmarketable surpluses have to be disposed of.
While the basic price support for these commodities does not exceed 90 percent of parity, a provision of the law allows the Secretary, after a public hearing, to increase minimum price supports to such levels above 90 percent of parity as he may feel are necessary to justify the maintenance of an adequate supply: In order to remove any conflict with OPS ceiling prices at parity, it is necessary to exempt the provisions of the Agricultural Act of 1949 from the Defense Production Act. We, therefore, urge the retention of the present exemption.
2. The Agricultural Marketing Agreement Act of 1937, as amended. Members of this committee are familiar with the fact that approximately 160,000 dairy farm families supplying 44 major and many secondary markets are served by what is known as the Federal milk marketing order system. This important law had its origin when the Agricultural Adjustment Act of 1933 was passed by the Congress. This was a time of great economic distress. During that period the price of fluid milk and cream going into urban markets was unduly depressed because of chiseling practices which created chaotic conditions with which the cooperatives could not cope. After many trials and as many errors on the part of all, this system was crystallized in the law of 1937.
Its administration has given general satisfaction. The law is so drawn that it encourages a cordial working relationship with respect to milk pricing in these milksheds between producers, industry, consumers, and the Department of Agriculture. Producers take the initial steps in securing milk orders and also the initial steps in obtaining amendments to them. In the course of these proceedings, the Department of Agriculture frequently offers its own suggestions both
in what are called the promulgation hearings and in the hearings relating to amendments. The Secretary holds public hearings and makes public his conclusions as to what is fair for a milkshed with respect to methods of arriving at producer prices and pooling returns. The producers then vote as to whether they will accept or reject the Secretary's decision. That provision of referendum acts in two ways: (1) It serves as a curb upon the administrative branch with regard to fairness of treatment, and (2) it serves as a curb upon extremists within the producer groups.
While there are many flaws and minor criticisms, the administration of the act is popular and has done a great deal for agriculture and the people. Beyond the naming of methods of determining producer prices and pooling arrangements the authority of the Secretary ends.
The Federal milk marketing order system is so imbedded into the economic structure and its workings are so satisfactory to producers and the public that the retention of this exemption now in the Defense Production Act is of vital importance.
3. The Cole-Ives amendment. This amendment was first incorporated into the Defense Production Act in 1950 and is generally considered to be one of the most important provisions of the act affecting dairy farmers.
The amendment sets up two simple congressional directives. They provide that in a non-Federal order market minimum producer ceiling prices of milk used for fluid distribution shall not be lower than the highest of two criteria: (1) parity, or (2) a price which in such market areas bears the same ratio to the average farm price of milk sold wholesale in the United States as the price for such fluid milk bore to the average farm price during the base period, as determined by the Secretary of Agriculture. It also contains another more important provision which I shall quote:
Provided, however, That whenever the Secretary of Agriculture finds that the prices so fixed are not reasonable in view of the price of feeds, the available supplies of feeds, and other economic conditions which affect market supply and demand for milk and its products in any such marketing area, he shall fix such prices as he finds will reflect such factors, insure a sufficient quantity of pure and wholesome milk, and be in the public interset, which prices when so determined shall be used as the ceiling prices to producers for fluid milk in such marketing areas
It is estimated that approximately 700,000 milk producing families may be affected by the Cole-Ives amendment when the time is ripe to make it effective. In its objective of insuring that minimum ceiling prices will not be below levels necessary to maintain production, it has some administrative advantages with respect to speed over the normal operation of the Federal milk marketing order system. It does not require a public hearing and it does not require a producer referendum. Undre its scope, the Secretary could move with great rapidity following a check of the actual conditions prevailing in a nonorder milkshed. It is extremely important that the ColeIves amendment be retained in order to assure a price balance between Federal order markets and non-Federal order markets.
The Cole-Ives amendment has been of incalculable value to every dairy farmer in the United States who produces milk in milksheds not under a Federal order. Approximately 8 out of 10 dairy farmers selling milk for fluid use do not operate under a Federal milk order. In the absence of the Cole-Ives amendment a wide gap in price ceiling
treatment would exist between dairy farmers under Federal milk orders and those not under such orders. This would result in an inequitable relationship between the two groups of dairy farmers.
Without the Cole-Ives amendment the imposition of price ceilings on dairy producers operating under a Federal milk order would be under the control of the Secretary of Agriculture, whereas dairy farmers in milksheds not under Federal orders would be subject to actions by the Office of Price Stabilization. On the basis of dollars and cents, dairy farmers, through the protection of the Cole-Ives amendment, have been benefited very materially.
Since the enactment of the Cole-Ives amendment last year the price to farmers for milk sold wholesale throughout the United States on a seasonably adjusted basis has increased 36 cents per hundredweight. On the basis of the alternative price provision of the Cole-Ives amendment these dairy farmers on the national basis were able to receive this 36 cents per hundredweight without the imposition of price ceilings. In other words, in absence of the Cole-Ives amendment these farmers could have been subjected to price ceilings at some level within the 36-cent increase.
Unquestionably the Cole-Ives amendment has affected favorably the interests of a very important segment of dairy farmers.
4. Pricing of milk for manufacturing purposes. This provision (better known as the Talle amendment) prohibits the establishment of ceiling prices for milk used for manufacturing purposes in nonFederal markets unless the Secretary of Agriculture has determined that such prices are reasonable in accordance substantially with the last provision quoted above. Also, it gives him the power to adjust minimum ceiling prices for grade, location, and season of the year. We urge that this amendment be retained.
I have described the four portions of the Defense Production Act which are concerned with the authority of the Secretary of Agriculture in his pricing of dairy products. I desire now to show that by the four powers above described the Secretary of Agriculture may coordinate and maintain in balance the prices and ceilings for milk going into all types of utilization. I wish particularly to emphasize the fact that in the Marketing Agreement Act, the Cole-Ives amendment, and the Talle manufacturing amendment the same principle can be brought to bear upon this coordination. That principle is described in the quotation from the Cole-Ives amendment.
Let us see how this would happen. If conditions should occur where ceiling-price controls for dairying would become general, the Secretary, in determining minimum ceiling prices for urban milkshed milk in excess of bottled consumption would be guided under this law by his previously determined minimum ceiling price of milk going exclusively into manufactured uses. That determination would be guiding both in relation to the Federal milk marketing order system and the non-Federal order system. It would of course be modified by territorial differentials.
I know of no other way in which a semblance of order can be pro- . duced and maintained under a far-flung network of price controls. So, in the presert law we have a closely interlocked minimum price authority given to the Secretary of Agriculture which starts with price supports of manufactured products then extends to minimum price ceilings for milk going into manufactured uses and to the prices of
fluid milk used in both the Federal order and the non-Federal order markets.
EQUITABLE HANDLING CHARGES FOR COOPERATIVES The National Milk Producers Federation has called to the attention of the Office of Price Stabilization the discriminatory nature of section 11 (b) (3) (iii) of the general ceiling price regulation.
Section 11 (b) (3) (iii) is discriminatory because it denies to cooperative organizations subject to its terms the flexibility with respect to margins that other types of business organizations enjoy under section 11 (b) (2) of the same order.
This results from the fact that cooperatives under section 11 (b) (3) (iii) must pass back to producers the total gross sales revenue resulting from price increases above base ceiling prices.
The chief discrimination, however, results from the fact that organizations pricing under section 11°(b), (2) need not reduce their ceiling prices as the amount paid to producers for raw agricultural products declines. This gives them a chance, particularly in the milk industry, to offset in seasons of low milk costs the losses which they suffer in their margins during the seasons of high milk costs.
Section 11 (b) (3) (iii) was not in the original general ceiling price regulation. Prior to the time it was added, cooperatives were pricing under section 11 (b) (2) and treating their current payments to producers as their most recent customary purchase. They were thus in exactly the same situation as other groups, and there was no unjust discrimination against them. The sharp competition, particularly in the dairy industry, kept prices charged by cooperatives closely in line with those charged by others and also kept the prices paid producers in line with the buying prices of other organizations. The original order had some advantage of greater simplicity in that it set up one rule instead of two.
In order to correct the inequities which now exist in section 11, we suggested the following points to OPS on February 21, 1952:
1. That cooperatives pricing under section 11 (b) (3) (iii) be permitted to compute their ceiling prices under section 11 (b) (2), treating the prices currently paid to producers as their most recent customary purchases. This should be done immediately to relieve the unfair discrimination that now exists;
2. That in any revision of section 11 (b) (2), or in any new pricing formulas applied to the dairy industry, reasonable adjustments be provided to cover increased costs, and
3. That an appropriate general order be issued approving price increases made by cooperatives during the time section 11 (b) (3) (iii) was in effect, provided all net margins are allocated or returned to producers. This would relieve to some extent the harm already caused by section 11 (b) (3) (iii).
We now point out to the committee that to date we have not been advised of any satisfactory action taken on these recommendations.
It appears that there are two major proposals of revision in OPS policy that are of major concern to our people. The first is concerned with the earnings standard. It has been the policy of OPS to establish resale prices of dairy products at levels which would reflect 85 percent of average profits enjoyed by the entire industry during the three best
of the last 4 years. It is now proposed that this criterion be applied to individual firms rather than to the industry as a whole.
An illustration of the effect that such a change in policy may have is as follows: Suppose the producer price of milk went up from $5.50 to $5.96 per hundredweight. Under past policy OPS would be required to allow a l-cent-a-quart increase to fluid distributors. Under the proposed policy the profits of the individual firms would be examined and if a full cent increase resulted in profits in excess of the 85 percent standard the full cent increase would be denied. This, of course, would have the effect of basing increases in the resale price on profits of the more efficient firms, since, even though granted, the less efficient firms could not stay in business with a resale price above that charged by the more efficient firms.
The second matter of concern deals with the proposed amendment to Fluid Milk Price Regulation 63 which has delegated the establishment of resale prices to local offices. Under this regulation the base period is January to June 1950 (with provision for more representative periods in areas where necessary). Price adjustments will allow up to approximately 85 percent of cost changes in each of these areas. Now it is proposed that an examination be made of the base period selected in each area to determine whether profits during that period were higher than necessary.
In cases where that situation would be found to exist it is presumed that the usual price increases necessitated by cost changes would not be permitted.
The National Milk Producers Federation feels that these two changes would have the result of discriminating against the more inefficient plants, and would place OPS in the position of attempting to revolutionize the marketing system by forcing the weaker plants out of business. We do not believe that these are the objectives that the Congress had in mind as being a proper field of action for OPS. We therefore favor an amendment to the Defense Production Act that would prevent these two described changes in OPS policy.
Why are import controls necessary? Import controls for dairy products entering the United States have been made necessary because of the various forms of trade barriers that have been instituted by foreign countries. In a recent speech made by Secretary of State Dean Acheson before the National Conference on International and Economic Development, Mr. Acheson said that for 12 years he had worked to reduce international trade barriers, but that today there were perhaps more such barriers than 12 years ago.
Of the nine principal countries from which the United States receives cheese imports, eight have some form of control over all or certain imports from the United States.
Argentina, Canada, Denmark, France, Italy, New Zealand, and Norway all require import licenses for some or all goods imported from the United States (appendix A). The Netherlands and the British Commonwealth each have their monetary areas, exchange controls, preferential tariff rates, and political ties.
In September 1949 Denmark, the Netherlands, Norway, and New Zealand, all heavy exporters of dairy products, devalued their currencies more than 30 percent (appendix A). What has been the effect of this devaluation? The effect may be illustrated by Danish butter and cheese. The comparative prices of Danish and United States