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STATEMENT OF JOHN C. YORK, EASTERN MILK PRODUCERS COOPERATIVE ASSOCIATION, INC., SYRACUSE, N. Y.

Mr. YORK. Mr. Chairman and members of the committee, I am John C. York, economist, representing the Eastern Milk Producers Cooperative Association, Inc., Syracuse, N. Y. I have a statement that I - should like to give.

The CHAIRMAN. Have you anything new in it that has not been stated here this morning?

Mr. YORK. Yes. I believe our program is quite new.

The CHAIRMAN. Proceed.

Mr. YORK. I wish to thank the chairman and members of the committee for the opportunity to appear at this time, and present our views concerning the present dairy situation and the need for new measures to assist the dairy industry.

I represent Eastern Milk Producers Cooperative Association, Inc., which has a membership of approximately 10,000 dairy farmers in New York, Pennsylvania, and Vermont. The milk of our producermembers reaches consumers in New York City, Boston, northern New Jersey, and other northeastern population centers. We pride ourselves in being the largest milk cooperative of the bargaining type in the United States.

ECONOMIC CONDITIONS IN THE DAIRY INDUSTRY

The outstanding economic fact about the dairy industry today is that, while the industrial economy of the Nation is enjoying unprecedented prosperity, the dairy industry is in a difficult economic situation. This is also true of other major segments of the agricultural economy.

I am reluctant to use the word "depression," since this has become a controversial term. But, whatever term is used, dairy farmers feel that they are in a different situation, and they ask that something be done about it.

During last February and March a hearing was held in the New York milkshed on a petition by producers for an increase in prices under the Federal milk order operating in the New York market. In the course of that hearing considerable testimony was presented as to the economic hardships being experienced by dairymen in this milkshed. This was summarized in the following words in a decision by the United States Secretary of Agriculture:

Testimony presented indicates that producers are experiencing considerable difficulty in meeting operating expenses. Farm machinery and implement dealers reported an increasing difficulty experienced by farmers in paying for supplies, equipment, and machinery. Feed dealers reported an increase in the volume of accounts receivable for feed purchases. Representatives of banks and other lending agencies reported an increasing demand among milk producers for production credit and for refinancing and the conversion of short-term loans to longer term financing arrangements. Producers experiencing the most difficulty appear to be those who invested in dairy farms and production equipment at relatively high prices during a period of several years prior to 1952. The average net income of dairy farmers in the milkshed has declined materially during the past 2 years.

Basically, the difficulty is that dairy farmers, like other agricultural producers, have been caught in a cost-price squeeze. Their costs of production have been going up, while the prices they have been receiv

ing have been going down. The continuation of this process will inevitably bring serious distress among dairy farmers.

In the New York milkshed, the cost-price squeeze has been particularly pronounced. During the calendar year 1949, which was the year preceding the attack on South Korea, the average New York index of cost of dairy farming was 304, while the average blend price received by producers was $4.13 per hundredweight of milk. Since then the index of cost of dairy farming has increased to 339 for the 12 months ending September 30, 1955, while the average blend price went down to $4.01.

These relative changes have created real hardships for dairy farmers, and particularly for veterans who have gone into dairy farming since the end of the war. With substantial obligations to meet, these men are faced with serious difficulties.

The conditions just described are typical of the dairy industry the country over.

In the New York milkshed, of course, prices paid by dealers are established by the milk order issued under the Agricultural Marketing Agreement Act of 1937, but these are not altogether free of the effects of lower prices for dairy products in the open market. Prices for milk used for fluid consumption are based on economic conditions in the New York area, while prices for milk used for manufacturing purposes are based on market prices for butter and skim powder. During the 12 months ending September 30, 1955, 44.8 percent of milk deliveries by dairy farmers in the New York milkshed was utilized for manufacturing purposes. Thus, it can be seen that market prices for manufactured dairy products have an important bearing on returns to New York milkshed dairymen, as they do to most other dairy farmers.

PRESENT DAIRY PROGRAM

In recent years, aid to the dairy industry by the Federal Government has been extended primarily in the form of price-support purchases of butter, cheese, and skim powder. Beginning April 1, 1955, the support prices have been established at 57.5 cents per pound of butter at Chicago, 3314 cents per pound of Cheddar cheese, and 16 cents per pound of spray-process skim powder. These prices were considered by the Department of Agriculture to be equivalent to 80 percent of parity for manufacturing milk, and 76 percent of parity for butterfat in farm-separated cream.

From what has been said above, the current support prices are not producing satisfactory returns to dairy farmers or a satisfactory rate

of income.

NEED FOR A NEW PROGRAM

Our organization believes that new measures are required to deal with the problem that is confronting the dairy industry. We do not claim to know all the answers, but we have formulated a suggested program, which we respectfully submit for the consideration of your committee. The program embodies five points, as follows:

1. Establish marketing quotas for milk or butterfat sold from farms.

2. Permit butter and cheese prices to find their levels in the market, so that the total supply of these commodities would clear the market,

and make payments to butter and cheese plants at a rate equal to the difference between the support prices and the average market prices.

3. Buy such quantities of butter, cheese, and skim powder as would be needed to meet the requirements of the school-lunch program, the Armed Forces, the Veterans' Administration hospitals, and other institutional recipients of surplus commodities.

4. Support prices of skim powder through payments to feed mixers for any quantities utilized by them in making animal food.

5. Establish a support level for milk and dairy products at 100 percent of parity.

I should like to take a few minutes to discuss each of these measures in detail.

First, with respect to marketing quotas for milk and butterfat:

We are proposing this measure because we feel that it represents the only solution to the surplus problem in the dairy industry. Milk production on farms continues to set new records each month. During September it was 3 percent above last year; and for the 12-month period ending September, the production was 0.3 percent above the same 12-month period a year ago. In these circumstances some form of production control is essential, just as it is for the basic crops.

I do not know whether dairy farmers as a group are in favor of marketing quotas, and I do not believe that anyone knows. We can only find out if a program is formulated and presented to milk producers for their approval. I personally do know many producers who would favor marketing quotas.

Marketing quotas of a special type have, of course, been in effect in many fluid-milk markets for a number of years. They are generally referred to as base-surplus plans or base-rating plans. Oftentimes these plans have been adopted to even out seasonal fluctuations in milk production. But frequently they have been used to limit total annual production. In either case, marketing quotas have long been known to many milk producers, and have been accepted by them.

Under our proposal, sales quotas would be established for each milk producer, and penalties would be imposed on sales above the quota. The adoption of the plan would be contingent on approval by twothirds of the producers voting in a referendum. The total national sales quota would be established at a level equal to the desired supply, taking into account other phases of this program. Some administrative problems would undoubtedly be involved in a plan of this type, but I do not believe they would be insurmountable. The Department of Agriculture has now had many years of experience with production control plans, which should be of help in the successful operation of a plan for the dairy industry.

PLANT PAYMENT PROGRAM

The plant payment program we are recommending would apply only to butter and cheese. Under this plan, price-support purchases as such would be discontinued. Butter and cheese prices would be 'allowed to decline to a point where the total available supplies would clear the market. The difference between the average prices and the respective support levels would be paid to the butter and cheese plants. The plants would then be able to pay producers a price equivalent to the support level.

Under our plan, butter and cheese consumption, and particularly butter consumption, would increase. Consumers would again be buying butter in something like the quantities they used to buy in former years. Furthermore, consumers would be getting a larger proportion of the better quality butters, which are now going into storage under the Government's purchase program.

No payments under our plan would be made to plants making evaporated milk, ice cream or other products. Prices for these products, on a milk equivalent basis, would therefore be higher than prices for butter and cheese. Price relationships among producers would, however, not be disturbed. Returns to producers delivering milk to an evaporated milk plant, for example, would be about the same as to a butter or cheese plant, except for quality and location differentials.

There would be no problem with fluid milk, which would command a price commensurate with the support level, since this milk is marketed on the basis of special arrangements. Insofar as milk intended for fluid consumption is utilized for making butter or cheese, the plant doing the processing would be entitled to a payment on the quantities manufactured.

I should emphasize again that we are not proposing that payments be made on all milk and dairy products, but only on butter and cheese; nor are we proposing production payments to producers. We believe that these commodities, and especially butter, represent a special case, justifying the use of the plant-payment method. Butter and cheese are the two commodities which have been absorbing the milk surplus all along, and it would be desirable to permit this process to continue. Also, butter represents the one commodity in which a special effort, pricewise, needs to be made to increase consumption.

CONTINUATION OF SOME PURCHASE OPERATIONS

The adoption of the marketing quota plan and the plant-payment plan would not entirely do away with the need for some purchases by the Commodity Credit Corporation. Purchases should continue to be made to meet the needs of the school lunch program, and the other similar programs. These purchases would be limited to current requirements, however. Commodities purchased would not be stored for indefinite periods as they have been in the past. Also, it is possible that temporary and unforeseeable situations might arise which would make it advisable to make some price-support purchases.

PAYMENTS ON NONFAT MILK SOLIDS

Nonfat milk solids, or skim powder, as it is frequently called, presents a special case, and calls for a special program. Production of this commodity exceeds consumption in normal channels by very large amounts. During the calendar year 1954 total production of skim powder was 1,288 million pounds. Purchases by the Commodity Credit Corporation during that period amounted to 650 million pounds, or slightly over half of total production. The difference between production and consumption is so large that there can be no real prospect for normal consumption to catch up with production in the near future.

A substantial portion of the quantities of skim powder acquired by the Commodity Credit Corporation during the last 3 or 4 years has been sold for use as animal feed. We believe, however, that the purchase and storage for long periods of time of skim powder which is eventually sold at a lower price for animal feed involved some un

necessary expense.

We therefore propose that the feed mixers should be permitted to purchase the skim powder in the open market. They should receive a payment equal to the difference between the prevailing price of the skim powder and its value for animal feed. The transaction could be properly administered by requiring feed mixers to enter into contracts with the Commodity Credit Corporation.

ESTABLISHMENT OF SUPPORT LEVEL AT 100 PERCENT OF PARITY

Finally, we propose that the support level for milk and dairy products be raised to 100 percent of parity. The present support price for manufacturing milk is equivalent to 80 percent of parity; for butterfat in farm-separated cream, to 76 percent of parity. In view of the fact that, under our marketing quota plan, supplies would be reduced, the increase in the support level to 100 percent of parity is a reasonable and practical goal.

Through the marketing quota plan, producers themselves would make the necessary sacrifices to bring about the increase in the support level. Under our plan, funds which would otherwise have been used to make price-support purchases would be used to make payments under the plant-payment program, to make payments for the diversion of skim powder to animal feed, and for making purchases of dairy products for school lunches and similar uses.

In conclusion, I should like to say that there is almost a universal recognition of the fact that some action must be taken to assist the dairy farmer in the present difficult economic situation, and we appreciate the committee's coming here to receive the views of representatives of dairy farmers. We believe that some new approach to the dairy problem must be sought. It is in this spirit that we are offering our suggestions for the consideration of the committee.

The CHAIRMAN. Thank you ever so much, sir. Would your marketing quota plan place a quota on raw milk to be sold?

Mr. YORK. No.

The CHAIRMAN. How would the distribution of the amount of milk that you deem necessary, say, in an area, where the fluid milk that is sold to the consumer be done taking that into consideration as well as the amount devoted to butter and cheese-how would you differentiate that would you have to establish quotas for both the fluid milk that is used for consumption, as well as a quota for the milk that is devoted to or to be converted to butter and cheese and other products?

Mr. YORK. No. The differentiation would take place in the plant where the milk is used for either fluid purposes or for manufacturing

purposes.

The CHAIRMAN. Some places it is not handled that way. It is sold direct in many places. How would you treat a case of that kind? We have many little dairies in my area and in other parts of the country where they sell direct to the consumer. How would you handle that?

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