Senator THYE. And the Department contends that they are paying more than 75 percent.

Mr. HEALY. That is correct.

Senator THYE. That is what I was trying to get you to give an explanation for. How does the Department hold a figure that is higher than your 75 percent?

Mr. HEALY. All right. Through April of 1954, the Department used a manufacturing milk parity equivalent of 88.5 percent. That parity equivalent is the relation of manufacturing milk, the price of it, to the price of all milk sold at wholesale.

This equivalent factor was developed from a base of 30 months between July 1946 and December 1948. That was a free market period after the end of price controls, and before price supports became operative.

In April of 1954, the Secretary of Agriculture redesigned his formula for computing the manufacturing milk parity formula by adding years beyond 1948, to his base data.

It resulted, first, in a depreciation of this factor to 84.1 percent of the price of all milk sold at wholesale, and then later it reduced its worth to 83.7 percent. By decreasing the parity equivalent and at the same time keeping the dollars and cents unchanged, it can be made to appear that dairy farmers are receiving a higher and higher percentage of parity but no increase in the support price.

The way these prices are computed, they first arrive at a parity for all milk. That is now $4.63. They then apply this parity equivalent factor for manufacturing milk, for which the Department now uses a figure of 83.7 percent.

They then apply the level of support which is now 75 percent and in April of 1954 when they first dropped support prices, the 88.5 percent was still applicable, and the 75 percent applied to that, gave us $3.15 per hundred for manufacturing milk.

In 1955 they did not recompute. Had they done so, it would have been somewhere below $3.

We in the federation talked to Jim McConnell, the Assistant Secretary of Agriculture, and got from him a commitment under which he would use the dollars-and-cents level instead of recomputing a dollarsand-cents level.

Senator THYE. They are not at 75 percent. In other words, they are back up from the support figure of 75 percent. If they had remained at the minimum at which they placed it when it was lowered

Mr. HEALY. That is right.

Senator THYE. In 1954, then you would have had less than $3 for your milk.

Mr. HEALY. That is right. I have computed them here.

Senator THYE. In some areas, I mean the surplus producing areas, they are not realizing $3 a hundred now.

Mr. HEALY. No; these are national averages.

Senator THYE. It includes these so-called Government-controlled major markets?

Mr. HEALY. That is right.

Senator THYE. Where you have a Federal order in existence that stipulates what the price to the producer shall be, and then, of course, your distributor governs what the consumer will be charged per quart. Mr. HEALY. Yes.

Senator THYE. And there was very little downward reflection in the price per quart of milk?

Mr. HEALY. That is right.

Senator THYE. Even though the supports dropped from the 90 to 75 percent in 1954.

Mr. HEALY. Correct.

Senator THYE. It did not reflect in the consumers price, but a very small reduction in most of these major markets?

Mr. HEALY. That is correct; they did not.

Senator THYE. Thank you.

The CHAIRMAN. What you are really asking for is a fixed price of $3.74 to all milk producers, no matter where they are located.

Mr. HEALY. That is right for manufacturing milk.

The CHAIRMAN. And it is to remain that, and the only way it would be upped is if the parity formula would make it rise.

Mr. HEALY. That is correct. We are asking for it during the coming marketing year, just starting next April.

The reason for that

The CHAIRMAN. You say this is the average price paid all through the country?

Mr. HEALY. For manufacturing milk; yes, sir.

The CHAIRMAN. $3.74?

Mr. HEALY. No, no; that was prior to the reduction in supports in 1954. That was the level at which the Department supported milk prices when they were supporting them at 90 percent of parity. The CHAIRMAN. What is the average price now?

Mr. HEALY. The average price now is just above $3.15.

Had the Department not continued its dollars-and-cents support level through the 1955 marketing years and had they recomputed parity as they are allowed to do under current legislation, the support level now would be $2.91 instead of $3.15, which means another 25 cents or 24 cents, or somewhat over $200 million out of the dairy farmers' pockets.

The CHAIRMAN. How would this price fixing affect the amount that is now being received through marketing agreements? Would it have the tendency of upping it?

Mr. HEALY. We think very little, Senator.

The CHAIRMAN. But it would; do you not think it would?

Mr. HEALY. No; I don't think to any appreciable degree; no, sir; I don't. Certainly, the reduction in supports did not affect the production of milk as was anticipated.

The CHAIRMAN. The sliding scale made you produce more, did it not?

Mr. HEALY. That is correct. That is correct.

The CHAIRMAN. That is what the record shows-almost 2 billion pounds more, as I remember the figures, or a billion and threequarters.

Senator THYE. It is on the increase, Mr. Chairman.

Mr. HEALY. It is on the increase.

Senator THYE. Indeed it is, and as long as cheap feed is there, it will increase more and do not ever think but what it will. You go out into any dairy barn, you will find too many heifer cows out there to indicate anything but that; as long as you have cheap feed, you will have more milk.

Mr. HEALY. That is correct. That, connected with the cheap price for cull cattle which does not allow the farmer to cull his herds properly, and thereby keep production down.

The CHAIRMAN. Have you folks devised any way by which you could curtail the production of milk, if you are given a fixed price? Mr. HEALY. No, sir.

The CHAIRMAN. Have you ever worked on it?

Mr. HEALY. Yes, sir.

The CHAIRMAN. In other words, why should you come to your Government and ask that it support your milk at so much, if we do not have some way by which we could curtail the production of that milk? Mr. HEALY. We have worked on that as hard as we have worked on anything that has come to our attention. We have had committees that have worked on it, composed of men knowledgeable in their fields for 2 years, and they can arrive at no way to impose production controls that will control a 3-percent surplus.

Mr. Chairman, we are not dealing here with the basics which run to 25 or 40 or 50 percent surplus production each year, which can be controlled down to maybe within the surplus we are producing. But when you try to control surplus, to cut off 3 percent or 22 percent, it is very difficult to do and still maintain your adequate supply of milk.

The CHAIRMAN. Suppose you had a continuation of this cheap feed that you speak of, and then fix your price at $3.74, how much more would you increase it? You would keep every old cow that produces half a gallon of milk, 4 or 5 pounds; you would be tempted to keep them.

Mr. HEALY. I do not think that the difference between $3.15 and $3.74 would have that much effect upon milk production, because that much-that 60 cents or 59 cents, is certainly needed to keep the farmer producing at all. He is at the place now where he over the country is losing money.

The CHAIRMAN. You mean manufacturing milk of the farmer because we went in the Northeast and that does not happen to be the case there.

Under marketing agreements they seem to be faring pretty well and we found that to be the case in and around Oregon and also in the South.

Where you get into marketing agreements, you sell most of your milk in a raw or fluid state at more or less a fixed price. There is no complaint. How many States are really affected?

Mr. HEALY. Every State is, Senator, because the fluid-milk price, the class 1 price, rests upon this support level.

The CHAIRMAN. That is what I asked you awhile ago, if you fixed it at $3.75 it is bound to increase it; will it not?

Mr. HEALY. It will increase the price of all milk.

The CHAIRMAN. Why, sure, it will.

Mr. HEALY. But I do not think it will increase the production of milk, no more than the reduction in

The CHAIRMAN. When I asked you a moment ago about the effect it would have on increasing it, I was speaking not of the production but the price-—

Mr. HEALY. Excuse me, I thought you were talking about produc

tion.

The CHAIRMAN. The question I meant to ask you was, what effect would fixing the price of manufacturing milk have on the consumer prices for fluid milk in an area where you have these marketing agreements?

Mr. HEALY. Well, it will probably have a direct effect on it but it should not. There was no effect on the consumer prices when farm prices were reduced in 1954. There was no effect on consumer fluidmilk prices, but there probably will be an effect from any increase in farm milk prices.

The CHAIRMAN. Would that not be a way to control the production of milk if this committee should decide to provide for supports, in saying to a farmer, "Now, if you milk a cow that does not produce so much milk, that is uneconomical; if you keep a cow of that kind, why you do not get the support"--would that not be a way to do that, because it is my judgment that unless we find some way to curtail production, to keep your supply and demand in line, why we will get into a lot of trouble as we have in the past.

That was one of the main reasons why the Congress at first gave preference to the basic crops in providing support prices, because you could first curtail the production through acreage allotments, and you could store the commodity.

Mr. HEALY. Yes.

The CHAIRMAN. Those are the two principles that we always have in mind. We got into trouble when we proceeded to support commodities that were perishable and that were not readily controllable, or were subject to being stored only for a while.

Mr. HEALY. Again, I can only say that the dairy farmer is not categorically opposed to production controls, if one could be found that was workable within the small tolerance of production that they would have to work on. That is really where the problem begins. The CHAIRMAN. Proceed, sir.

Mr. HEALY. The current support program of 75 percent of parity or $3.15 per hundredweight for manufacturing milk has failed to accomplish either of the objectives which it was claimed would result from lowering the support price the full amount permitted by law.

The CHAIRMAN. Are we to understand that the cost to the farmer of producing milk since the time that you say you were receiving a fair price, has not increased?

Mr. HEALY. No.

The CHAIRMAN. The cost of producing?

Mr. HEALY. The cost of producing has gone up, but we think—well, let us say he is better off at $3.75 than at $3.15.

The CHAIRMAN. You would settle for that?

Mr. HEALY. Yes, sir.

The CHAIRMAN. Go ahead. I understand.

Mr. HEALY. These objectives were a reduction in production of milk and an increase in its consumption. In 1953 under 90-percent support levels production was 121.2 billion pounds of milk.

In 1954 when support levels were dropped to 75 percent, production rose to 123.5 billion pounds. This record production continued through 1955 under the 75-percent support level, reaching an all-time peak of 124.5 billion pounds.

The United States Department of Agriculture estimates that 1956 production under the current support program will run from 126 to

127 billion pounds. We therefore can see that the first objective of reduced supports was not obtained.

In 1952 when milk supply and demand were in relative balance, the domestic commercial per capita consumption in milk equivalent was 688 pounds. In 1953 the per capita consumption declined 2 percent to 674 pounds and since that time has recouped only about one-half

this loss.

Certainly, these per capita consumption figures do not justify the tremendous cost to the American dairy farmers of the reduction in supports which has amounted to about $600 million per year.

While it is true that there is considerable more milk being consumed now than heretofore it can be accounted for since 1953 as follows: 4.2 billion pounds are consumed by the increase in population that has accrued since then; 2.4 billion pounds go into the special school-milk program and into the Armed Forces and veterans' milk programs and into domestic donations and Government sales at reduced prices. It is through these two outlets that we are keeping more in line with production than we did heretofore.

It is our belief that reduction in support prices did not accomplish what it was designed to do. It is our further belief that an increase in prices paid farmers for milk would not materially affect production or consumption.

Therefore, the return to $3.74 support level could provide badly needed assistance for the farmer without materially increasing Government burdens in price-support operations.

Senator THYE. That would not necessarily affect the entire total production of dairy production in the United States-that increase. Returning to the figure you have just cited, it would only take in the milk produced in the surplus areas, because your milk markets here in the East, the South, like Memphis, Tenn., and so forth, they are paying that amount and plus that amount at the present time. Mr. HEALY. That is correct.

Senator THYE. So that it would only affect the area where the surplus milk is produced and where it has to go into manufacture, such as butter, cheese, powdered milk, casein, and other byproducts? Mr. HEALY. That is not the complete story.

Senator THYE. It is not?

Mr. HEALY. Because this manufacturing milk price in some way goes into almost every class 1 formula-most formulas include a Chicago butter, powder price, or a price from 18 condenseries, or in some way this manufacturing milk price is included in almost every class 1 formula.

Senator THYE. The condensery would be surplus producing area? Mr. HEALY. Yes.

Senator THYE. Anything that goes into a condensed can is not fluid milk?

Mr. HEALY. That is correct.

Senator THYE. I was speaking about the fluid milk under a Federal order, and that constitutes a big percentage of your total overall milk.

Mr. HEALY. Yes, sir; that is correct.

But the formula for arriving at the class 1 price under the Federal orders generally includes as a factor the manufacturing milk price.