way to Texas, Florida, and the Atlantic coast. We have not been able to discover any significant number of instances in which that milk was not safe and sanitary at its distant destination. But with an increase in local milk surpluses since the war, Minnesota milk handlers have experienced a renewed vigor in the enforcement of the local sanitary requirements. The conclusion is inescapable that local economic advantages, rather than considerations of public health, account for many of the artificial barriers to the interstate movement of milk.

The movement of milk is obstructed by local sanitary regulations in four principal respects, viz (1) absolute prohibition of milk from outside sources; (2) differences between the requirements of different jurisdictions; (3) discriminatory application of the requirements; and (4) excessive duplication of inspections. Examples of absolute prohibition of outside milk are those ordinances which forbid the sale of milk which is produced on a farm more than so many miles from the city limits or which is pasteurized at a plant which is located outside of the city limits or more than a specified number of miles from the city. That type of ordinance has been declared unconstitutional by the United States Supreme Court, but it nevertheless is still enforced in several cities. The most common prohibition of outside milk is found in those jurisdictions which flatly refuse to admit milk which was produced or processed in another jurisdiction having substantially the same standards.

Differences between the requirements of different jurisdictions are important in two principal respects. They constitute the basis for one city's refusal to accept inspection by another city; and the excessive expense or utter imposibility of complying with both sets of standards limits to one city or the other the market for the milk from a particular farm.

There is evidence that there is discrimination in applying sanitary standards. While confessions are understandably rare and absolute proof is difficult, there is evidence that distant farms and plants are inspected more rigidly than those nearby or that the inspections of outlying farms become more strict when local supplies of milk are more abundant or in surplus.

Finally, the excessive duplication of inspections is an undue burden in some cases. The duplicated inspection expense militates against qualifying milk for all possible markets. Some farmers and handlers experience difficulty in determining which markets to seek approval in the absence of assurance that they will be relatively constant and substantial outlets.

The consequence of such prohibitions, differences, discriminations, and duplications is that qualified milk is not free to flow from one market where it is not needed to another market where it could be used. Rather, each market tends to create its own high-cost surplus while low-cost milk of equal quality backs up in the areas of best production and creates in those areas a surplus of manufactured milk.

Thirty-three years ago, the Federal Government recognized the effect of those local health ordinances. In 1923, the United States Public Service created an Office of Milk Investigations. A study then disclosed the wide variance between the many State and local milk regulations. It showed that the public health basis for certain requirements was questionable, that others were either unnecessary or impractical, and that there were extreme differences with respect to the same sanitation item. In 1924, a recommended milk ordinance was published by the Public Health Service; and in 1927, it issued a code which listed the public-health reasons for each requirement and described satisfactory compliance. That recommended ordinance and code has periodically been revised to include modern techniques and developments, the latest revision being that of 1953.

The United States Public Health Service has also developed a system for rating city milk supplies and a cooperative program for the certification of interstate milk shippers. That recommended ordinance and code are now in effect in approximately 2,000 municipalities and counties, and the milk-plant ratings published quarterly are a ready reference to sources of acceptable milk. We know of no responsible authority who questions the reliability of that recommended ordinance and code or its adequacy to protect the public health. Unfortunately, however, there is no Federal law which requires the application of those standards to milk and dairy products in interstate commerce.

The States' power to regulate milk is, of course, an exercise of the police powers reserved to the States by the Federal Constitution. It is true that the courts, in a number of cases, have declared unconstitutional many State and municipal restrictions which are not reasonably related to the protection of the public health. However, legal actions to invalidate burdensome sanitary

ordinances have not effectively eliminated those artifical barriers to the free flow of milk. The cost of carrying to the Supreme Court a legal case to establish the unconstitutionality of a single city's ordinance usually far exceeds the total revenue which the successful plaintiff can expect to receive from its additional sales in that city for many years. Furthermore, there are just too many such ordinances. The extermination of them by individual lawsuits partakes too much of attempting to ward off a rainstorm drop by drop.

On the other hand, the Federal Government has authority under the Constitution to control milk shipped in interstate commerce. It has at hand both an ordinance and a code and also a rating system of demonstrated practical value and validity. Its strength has resulted from the need which it fills and the consequent voluntary adoption of it in 2,000 jurisdictions which conscientiously safeguard the health of their inhabitants. In thousands of other jurisdictions, however, the sanitary protection of that ordinance and code is not available and those walled cities will continue to obstruct the Nation's commerce in milk until the Congress provides the only effective remedy.

We, therefore, respectfully urge that the Congress enact legislation that the production, transportation, processing, handling, sampling, examination, grading, regrading, and sale of all milk and milk products sold for ultimate consumption in any State of the United States or in the District of Columbia during or after the transportation of such milk and milk products in interstate or foreign commerce; the inspection of dairy herds, dairies, and milk plants; the issuing and revocation of permits to milk producers, haulers, and distributors; and the fixing of penalties, shall be regulated only in accordance with the terms of the unabridged form of the ordinance in Milk Ordinance and Code-1953 Recommendations of the Public Health Service, a certified copy of which shall be published in the Federal Register.

2. Federal Milk Marketing Orders

The other major category of artificial barriers to the free shipment of milk is certain provisions of many milk-marketing orders issued under the Agricultural Marketing Agreement Act of 1937. We emphasize that we are not opposed to Federal milk-marketing orders. On the contrary, we support them. We endorse the concept of orderly marketing conditions which is the proper goal of those orders. We concur in the purpose to equalize the cost of milk to all handlers who sell in the same market. We recognize that proper compensatory payments are essential to effective functioning of marketwide pools. One Federal order now regulates the Minneapolis-St. Paul market. Another Federal order now regulates the Duluth-Superior market. A third order is being proposed for the Fargo-Moorhead area. Thousands of Minnesota farmers now sell their milk in federally regulated markets. Their experience by and large, has been good. In short and most emphatically, we are for Federal milk marketing orders.

We do believe, however, that certain cancerous tissues have developed in the body of Federal orders; and we think that the life of the Federal order system ultimately will depend upon whether those cancerous spots are cut out. Our concern for the life of the patient impels us to recommend prompt surgery to eliminate those cancerous spots. That interest in the patient should not be misconstrued as an intention to kill the patient.

We identify as the cancerous spots in the body of Federal regulation the following four specific areas: (a) pricing formulas which create uneconomic surpluses rather than an adequate supply; (b) performance requirements which discriminate against handlers who must sell a substantial portion of their milk in other markets; (c) allocation requirements which arbitrarily discriminate against outside milk, and (d) compensatory payments which penalize nonpool milk by establishing its cost higher than the cost of pool milk instead of equalizing the costs of both nonpool milk and pool milk.

(a) Pricing Formulas.-We think that all four of those areas of criticism stem from a single source, that is, a disregard or distortion of the fundamental purposes of the Agricultural Marketing Agreement Act of 1937. Prior to 1937, prices of agricultural commodities were disastrously low. One of the most important price depressing factors was the practice of processors playing off individual producers or producer groups against each other when negotiating the price to be paid for their products. The entire structure of the Marketing Agreement Act is based upon the achievement of fair prices to producers by eliminating that practice by prescribing uniform prices to be paid for all milk delivered by all producers either to the same handler in the case of individual handler pools or

to all handlers in the case of marketwide pools. In either event, the whole regulatory scheme is bottomed on rendering it impossible for any handler to buy milk from one producer or group cheaper than from another producer or group. That's fundamental.

That concept of equal cost to the handler for the protection of producers is coupled with a second fundamental concept. For the protection of the handlers and consumers, the act required that, "Whenever the Secretary (of Agriculture) finds *** that the parity prices * * * are not reasonable in view of *** conditions which affect the market supply and demand for milk and its products * * *, he shall fix such prices as he finds will *** insure a sufficient quality of pure and wholesome milk, and be in the public interest."

Consequently, the twin concepts of uniform prices and adequate supply must be related to each other. Disregard of that relationship is the root cause of the milk-order gimmicks which may be the seeds of the destruction of the whole Federal order system.

What constitutes an adequate supply of milke admittedly may be different for various markets and may be different for the same market at different seasons of the year. On the one hand, it must be recognized that a perfect balance where the supply exactly equals consumption is not an adequate supply. Some margin of supply over demand must be allowed to provide for inventories and situations in which one handler has more than enough milk lest another be short. Furthermore, it must be recognized that a supply slightly in excess of demand during the flush season will not be adequate during the season of low production. On the other hand, it must be recognized that a supply which is adequate during the period of low production in the autumn almost certainly will be more than adequate during the flush season in the spring months. Variations also may occur from year to year. However, there does appear to be substantial agreement that a supply which ranges between 105 and 120 percent of the demand for fluid milk in the season of short supply will be fully adequate for the entire year.

Notwithstanding that agreement, there is evidence that the uniform prices in some markets have been so high that they have stimulated production of substantial surpluses instead of only the adequate supply contemplated by the act. A recent study by the United States Department of Agriculture disclosed that, in a significant number of markets, the volume of milk received from producers in months of low production substantially exceeded the quantity of milk used in fluid form. Furthermore, the trend appears to be in the direction of surplus rather than adequate supply in an increasing proportion of the federally regulated markets.

Table 1: Utilization percentages: Milk received from producers as percentage of milk used in fluid form or forms requiring equal health approval, in the months of October and November in 1954, 1953, and 1952 in 48 Federal order markets.

Source: U. S. Department of Agriculture, "Regulations Affecting the Movement and Merchandising of Milk," Agricultural Marketing Service, Marketing Research Report No. 98, table 18, p. 47 (June 1955).

The pricing formulae of too many Federal orders are creating surpluses rather than "adequate" supplies of milk when nearly one-half of all Federal markets (47.92 percent in October 1954) receive in the season of low production more than 120 percent of their fluid-milk requirements. Significantly, too, the trend (except for the one month of November 1953) has been both uniformly and substantially in the direction of larger surpluses. The percentage of Federal markets receiving more than 120 percent of their fluid-milk requirements in the short supply month of October was 15.55 percent in 1952, 33.33 percent in 1953, and 47.92 percent in 1954.

Section 8c (18) of the Agricultural Marketing Agreement Act of 1937 now directs that the Secretary of Agriculture "shall fix such prices as he finds will *** insure a sufficient quantity of pure and wholesome milk." Manifestly, we think, the Secretary has not done so. We respectfully urge, therefore, that that section of the act be amended so as to provide for immediate, automatic, and substantial reductions of uniform prices for fluid milk for the following year whenever any market's receipts in October or November of any year exceed 115 percent of the milk used in fluid form in that market during such month.

Parenthetically, we point out that while our advocacy of lower fluid-milk prices in surplus markets may reduce the retail price of fluid milk to consumers, it certainly does not follow that a reduction in fluid-milk prices will result in lower prices being paid to farmers. It must be remembered that farmers do not receive the fluid-milk price. Rather, they receive a "blend" price which is a composite of the fluid-milk price and the manufactured milk price. The excessively high fluid-milk prices have brought forth large surpluses which can be sold only for manufacturing. Consequently, as fluid price has gone up, the manufacturing price has gone down. If the rise of the dollar amount of fluid purchases equaled the decline of the dollar amount of manufactured milk purchases, the farmers' blend price would remain the same. They would neither gain nor lose; but the consumers would pay more and the milk manufacturers pay less. What actually happens, however, is that as fluid prices increase, they temporarily pull up the farmers' blend price but ultimately bring forth additional surpluses which go into manufacturing, depress the manufactured milk price, and pull down the farmers' blend price. When that happens, the consumer pays more, the farmer receives less, and the local milk manufacturers gain the advantage of reduced manufactured milk costs.

That situation points up a price relationship which some Federal orders have ignored to the serious detriment of producers of manufacturing milk. That is the spread between fluid-milk prices and manufactured-milk prices. Prior to 1953, the "parity equivalent” of manufactured milk was 88.5 percent of all milk sold wholesale by farmers. Since 1953, that has been dropped to 83.7 percent. While we strongly favor returning that ratio to 88.5 percent, either of those ratios represents a more fair and realistic relationship between manufacturedmilk prices and fluid-milk prices. In the Minneapolis-St. Paul market area, the Federal order has maintained a reasonable and realistic spread between the fluid price and the manufactured price. The relationship between a reasonable class I price and a fair manufactured-milk price in the Twin Cities has resulted in a comparatively satisfactory blend price for fluid producers. With a reasonable class I price in the Twin Cities, one of the richest dairy areas of the United States, we have not suffered under excessive surpluses of class I milk, and the percentage of fluid utilization of producers' milk is increasing. Last month, the class I price was $3.957, and the class II price was $3.010-a spread of only $0.947. Percentagewise, the manufacturing price was 76 percent of the fluid price.

By contrast, for example, the class I-A price in New York last month was $5.52, and the manufactured price was $2.898-a spread of $2.722. Percentage wise, the manufactured price in New York was only 522 percent of the class I-A price. Si nificantly, New York has a burdensome surplus of fluid milk, and it is steadily getting worse (fluid utilization of producers' milk is decreasing each year).

We think that it is plain that the New York consumers' payments of high class I prices constitute, in effect, a subsidy of the New York milk manufacturers in the form of unduly low manufacturing milk costs, and with no advantages to New York dairy farmers whose blend price is being pulled down by the low manufactured price.

We question whether it is justifiable Federal policy to subsidize by force of Federal law the manufacture of dairy products from high-cost but low-priced New York milk to the competitive disadvantage of dairy products manufactured

from low-cost but higher priced Minnesota manufacturing milk. We, therefore, urge that the Marketing Agreements Act be amended to require that the uniform price for manufacturing milk must not be less than a specified percentage of the uniform price of milk for fluid use.

(b) Performance requirements.-Federal orders commonly include two kinds of performance requirements for handlers' participation in a Federal market pool. They require that all of a handler's milk (whether sold in the order market or elsewhere) must be pooled and paid for at the market's uniform prices either (1) if the plant sells any milk for bottling or distributes any milk in the market, or (2) if the plant sells a specified minimum proportion of its milk or a specified minimum quantity of milk in the market. As a consequence of such performance requirements, each handler who sells part of his milk for fluid use in an order market and part in unregulated markets must decide whether he can get high enough prices in the unregulated markets to enable him to pay all producers for all of their milk the uniform prices prescribed by the order market. If he cannot get such prices in the unregulated markets, then he must either abandon his unregulated outlets and try to sell all of his milk in the order market or else abandon his business in the order market and confine his sales to the unregulated markets.

Instead of insuring a sufficient quantity of milk for the order market, the plain effect of those requirements is to drive out of the order market the volume of milk previously supplied by a plant which cannot afford to pay its producers that market's uniform prices for other milk which must be sold elsewhere in competition with unregulated plants' unpriced milk. The unfairness of requiring a plant to pay one Federal market's prices for milk which it sells in other markets is most acute in the case of plants which regularly have supplied several markets. With the rapid increase in Federal orders in recent years, such performance requirements can successively squeeze such a plant out of several markets. If the plant happens to be a farmers' cooperative, it is particularly ironic that a law which was intended to bolster the producer's prices for his milk should be abused to drive his milk out of his best markets. It is no secret that the larger handlers in Federal markets value those requirements for their effectiveness in squeezing out their smaller competitors rather than either for insuring a sufficient supply of milk or for protecting the producers' prices.

The decision of the Secretary of Agriculture with regard to the St. Louis, Mo., Marketing Agreement (18 F. R. 4123, July 10, 1953) attempted to justify such exclusion on the grounds (1) that "plants selling primarily to other markets or * * * shipping milk on an opportunity basis to any market which happens to be short, do not represent reliable sources of milk" and (2) that if such in-and-out plants can sell a "token quantity of milk" in the order market when their class I sales are low and withdraw when their class I are high, they would gain an advantage by paying blend prices while selling at class I and by drawing equalization payments while selling more at class II. It is false to assume that a plant is not a "reliable source of supply" or that it is an in-and-out plant simply because the volume of its sales in an order market are not large enough to enable it to pay that market's uniform prices for milk which is not sold in that market. A plant may supply 10 percent of its milk to a particular market just as regularly and reliably as another plant delivers 90 percent of its milk to the same market. We are not aware of any legitimate justification for one market pricing milk which never goes to that market. Yet that is a common practice which clearly obstructs the free movement of milk.

(c) Allocation requirements.-Every Federal order in the country provides that a pool handler's receipts of nonpool milk from an unregulated handler must arbitrarily be assigned to the lowest available use classification regardless of the actual use which is made of that milk. Conversely, all pool milk must arbitrarily be classified in the higher use classification before any outside source milk can be so classified. The result of such arbitrary use classification is to require the handler to pay into the pool, in addition to the actual price of the outside milk, a compensatory payment equal to the difference between the class II price and the class I price. Because that difference and, hence, the amount of the compensatory payment is usually more than the difference between the actual price of the outside milk and the class I price, the sum of the actual price plus the compensatory payment makes the total cost of outside milk more than the class I price. Consequently, the effect of such arbitrary classification is to bar outside milk from the market except when the market is so short of pool milk that a handler must incur the excessive cost of outside milk (actual price plus compensatory payment) in order to get enough outside milk to supply his needs.