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The outrageous result of such arbitrary classification has been to provide, in some orders, for the suspension of those allocation requirements during periods of short supply. We submit that the act must plainly prohibit arbitrary alloca. tion of other source milk to the lowest use classification. Otherwise, the market orders will be the foundation for an economic Chinese Wall around each market

area.

(d) Compensatory payments.—Perhaps no aspect of the Federal market orders has provok more controversy than the subject of compensatory payments. They are not specifically authorized by the act. The Department of Agriculture has attempted to justify them under the provision of section 8c (7) (D), which provides that milk orders may include provisions which are “Incidental to, and necessary to effectuate the other provisions of such order.” It appears to be the Department's position that the compensatory payment provisions are incidental or necessary to render effective the classification and pooling provi. sions of the orders. We confess some difficulty in justifying compensatory par. ments as necessary when there are no compensatory payments in four Federal order markets with marketwide pools.

Handler pools have no provisions for compensatory payments, because they have no equalization payments to attract unneeded plants. In marketwide pools, however, each handler whose payments to producers are less than the classified use value of his milk must pay the difference into an equalization fund. Each handler whose payments to producers are more than the classified use value of his milk receives a payment from the equalization fund equal to such difference.

When a pool-plant handler buys milk from an unregulated plant, it pays the nonpool plant a negotiated price. There must be some method of integrating that outside milk into the use classification and equalization payment operations of the pool. The purpose of the compensatory payment provisions is to provide that method.

The objective in determining the rate of the compensatory payments is said to be, "to prevent the undermining of the classification and pooling plan in the market without unnecessarily discriminating against unregulated milk." Actually, however, the rate of the compensatory payment is usually the difference between the class I price and the class II price.

If the handler actually bought the outside milk at the class II price, the addition of the amount of the compensatory payment would make his total cost of the outside milk equal to the class I price. In such a situation, that cost could not undermine the uniform price structure of the market. Nor could that cost operate either in favor of or against either pool milk or nonpool milk.

In practice, however, the negotiated price of the outside milk tends to be higher than the class II price of the pool. In addition, freight charges frequently must be added to the negotiated price. Under those circumstances, the further addition of a compensatory payment equal to the difference between the class II price and the class I price results in the handler's total cost of nonpool milk (negotiated price, plus freight, plus compensatory payment) being in excess of the class I price of pool milk. Consequently, the effect of such a compensatory payment is the same as a protective tariff at a prohibitive rate. It effectively bars outside milk from the order market. Since 38 of the 42 orders which provide for marketwide pools also provide for compensatory payments, and since Federal orders are rapidly expanding into additional markets, the result is a paralyzing Balkanization of the United States.

We have the impression that most people in the dairy industry are either for or against compensatory payments, usually, with more than a little feeling, too. It seems to us that there is evidence of a need for compensatory payments which are actually compensatory. On the other hand, to the extent that compensatory payments increase a pool handler's total cost of outside milk above the class I price for pool milk, the payment is a penalty rather than compensation. To that extent, the compensatory payment is a protective tariff which enables the pool producers to monopolize the order market to the exclusion of all other producers in the United States.

We respectfully urge, therefore, that section 8c (7) of the act be amended both (1) so as to authorize compensatory payments to the extent necessary to equalize a handler's total costs of nonpool milk and pool milk, and (2) so as to plainly prohibit so-called compensatory payments in an amount greater than the amount necessary to equalize the cost of pool milk and other source milk

The CITAIRMAN. Thank you, Governor.
Governor FREEMAN. I appreciate your time and courtesy.

The CHAIRMAN. The next witness is Mr. Myron Westrich.
Will you step forward.

Mr. Westrich, will you kindly give your name in full and your occupation, please.

** STATEMENT OF MYRON H. WESTRICH, ILLINOIS STATE CHAMBER

OF COMMERCE, CHICAGO, ILL. Mr. WESTRICH. My name is Myron H. Westrich. I am supervisor of the farm equipment department of Sears, Roebuck & Co., Chicago, Ill., and chairman of the farm policy subcommittee of the agriculturebusiness relations committee of the Illinois State Chamber of Com

merce.

This statement is presented on behalf of the Illinois State Chamber of Commerce and the views expressed herein represent the farm policy of that organization.

The Illinois State Chamber of Commerce is a statewide business organization. It has a membership of over 14,000 businessmen from all sections of Illinois representing every size and type of business.

The agriculture-business relations committee is a 95-man group of leading Illinois businessmen and farmers who concern themselves with many problems of mutual interest to farmers and their urban neighbors.

The committee has worked for 13 years in Illinois to assist in the formation of local agriculture-business cammittees in every county of the State. By means of this and other programs we have helped to establish a better understanding between the rural and urban businessmen in our State.

We have also, through the years, maintained a close relationship between our State and local agriculture leaders and ourselves. By frequent counseling with them we have come to know and understand their views and problems on important agricultural matters.

Because of the economy of Illinois and the well-being of her citizens depend to such a great extent on the strength of agriculture in that State as well as throughout the United States, it is understandable that the Illinois State Chamber of Commerce should be interested in the development of a sound Federal farm program.

The recommendations I am about to outline are the results of many hours of study and deliberation by members of its agriculture-business relations committee, board of directors, and staff.

Briefly, the recommendations which I shall discuss more fully in my testimony are:

1. Reduce the inflow, and eventually eliminate, Government-held surpluses by lowering support prices so that the Government ceases to be a market for farm commodities.

2. Apply the modernized parity formula to all price-suppported · commodities as soon as practicable.

3. Enact legislation for a soil-bank plan which will take sufficient land out of production to reduce surpluses and store fertility in the soil. The plan should be voluntary, required participation in it as a requirement for eligibility for price supports, and do not result in transferring difficulties of one farm product to another.

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4. Increase public and private efforts to expand marketing of farm products at hame and abroad. This should include liberalizing restrictions on sales of farm commodities to Iron Curtain countries.

5. Repeal the agricultural products provisions of the Cargo Preference Act and ease any other restrictions which may retard the morement of surplus farm commodities into foreign trade channels.

6. Adopt a policy to coordinate the interrelated functions of Federal agencies responsible for management of Government-owned land, price-support activities, soil-conservation work, and land reclamation and development projects. Development of future irrigation portions of Federal multipurpose power projects should be discouraged until such additional acreage is needed.

7. Expand and encourage public and private agricultural research programs to reduce production and marketing costs, on new uses and new markets, and in other fields which will assist in the long-range improvement of agriculture.

8. Encourage farmers with limited opportunities to move into more rewarding pursuits so as to better their standard of living.

WHAT IS THE FARM PROBLEM?

Following is an analysis of the current problems of agriculture as viewed by the Illinois State Chamber of Commerce. A constructive farm program should recognize these problems and their causes and offer some short and long range possibilities for their solution.

PRODUCTION GREATER THAN CONSUMPTION

With the advent of mechanized farming, improved technology, and the vastly increased knowledge of better farming practices available to farmers, production per farmworker has increased tremendously.

This increase in productivity has enabled fewer farmers to increase overall production at a faster rate than the population has grown. The vast increases in production during the past 25 years have been accomplished on a relatively stable acreage of farmland.

At the same time that this increase in production was taking place, the continued decline in draft horses used on farms has released large quantities of feed crops for other purposes.

While the effects of this overproduction in relation to consumption caused some difficulties prior to World War II, it became an asset during the war. High price supports encouraged greater and greater production on existing cropland and some additional marginal land was brought into production.

The overproduction was not a problem immediately following the war because hungry nations throughout the world provided a ready market for our excess production. As the farm production of foreign countries was restored, however, our shipments to foreign markets declined.

During the year 1946–51 our exports averaged 13 percent of our total crop average; in 1953 they amounted to only 912 percent. Part of this drop was due to the fact that higher price supports on some of our farm commodities priced them out of the reach of foreign consumers.

Competition with synthetic products caused considerable losses of markets for such farm products as cotton. As a result of the interaction of these factors, American farms are presently producing about 5 percent more than we are consuming and selling. The amount of imbalance has been greater in some recent years.

SURPLUS ACCUMULATION

This overproduction in relation to consumption has resulted in vast stocks of farm commodities being accumulated by the Federal Government.

On November 30, 1955, the Commodity Credit Corporation had an investment of $8,206,826,000 tied up in farm surplus commodities. This represented an increase of more than $1 billion over the same period in 1954. It is expected that the total investment may rise to $10 billion by April 1956.

The bulk of this investment is in corn, cotton, and wheat. The inventory of these three commodities amounted to over $6 billion on November 30, 1955.

The various price-support activities have resulted in tremendous losses. During the fiscal year ended June 30, 1955, the realized losses in handling these surpluses were $799 million. Realized losses for the 5 months ending November 30, 1955, were almost $470 million. Storage expenses alone on these huge stocks of Government-held commodities amount to over $1 million per day.

The existence of these surpluses has a depressing effect on the prices of farm commodities.

FARM INCOME

Another problem currently faced by farmers is falling income. The total net income from farm operations fell 38 percent from its alltime high of $17.2 billion in 1947 to an estimated $10.6 billion in 1955. Some observers expect it to fall another 5 percent in 1956.

This situation is not so serious as it might appear on the surface, however, because of a reduction in the number engaged in farming and increased non farm income earned by farmers. The number of farmers declined 10 percent betwen 1951 and 1954. In 1954 farm persons received about $1 in nonfarm income (mostly wages) for every $2 of net farm income.

During the war years, incomes of farmers rose more rapidly than did the incomes of nonfarm people. In recent years, however, percapita income for persons on farms has declined slightly while income of nonfarm people has generally increased.

Other factors besides prices should be considered in an appraisal of farm income. Costs of production and the total quantity produced are also important in the determination of net profit. Many farmers on efficient, well-run farms of reasonable size are showing a good profit even at the lower prices in today's markets. Other farmers are farming on submarginal land or on tracts too small to have any hope for success.

With the price of farmland remaining high and the relatively high ratio of net worth to net liabilities of agriculture, it is clear that there is definite strength in the farm economy as a whole and disaster measures by the Federal Government are not called for at this time.

UNDEREMPLOYMENT IN AGRICULTURE

A great number of the farmers in the United States, particularly in the South, are working on small, inefficient farms or on land unsuited for farming. According to the 1954 Census of Agriculture, 2.1 million farms-44 percent of the total—are producing about 15 percent of our marketable farm products.

The other 2.7 million farms produced only 15 percent. Disregarding the noncommercial or residential farms and those of retired or semiretired persons in this latter figure, there are still more than 1 million farmers eking out a bare existence.

Their relatively lower income reduces the average income figures for all farmers and distorts the overall-farm income picture, Government price-support programs have not, and will not, be of any material assistance in solving the problems of these people. This group of low-production farms is often used to justify the need for high support to all farmers, however.

The so-called cost-price squeeze is cutting the income of all farmers but is squeezing most those less efficient producers who have the least opportunity for success in farming.

INABILITY TO CONTROL TOTAL PRODUCTION

Difficulties faced by the farmer are magnified by the fact that he is unable to exert any significant control over total farm production. Even though he may stop all production on his farm, he will have little effect on the total supply.

Thus, individual farmers tend to operate close to capacity all the time. But they intensify their operations when prices are high relative to their costs. This is one of the weaknesses of high price supports in dealing with this problem and explaining why acreage controls hare not been highly successful in controlling output.

THESE PROBLEMS MERIT SERIOUS CONSIDERATION

These problems are serious ones for the farmer and merit the careful attention and interest of the Congress, the executive branch of our Federal Government and all of our citizens.

American agriculture is by no means in a state of depression, however, and these problems are not without solution. They will be more easily solved if emotional issues are not allowed to cloud the basic problems.

A businesslike approach to solving the difficulties of agriculture is badly needed; it will result in solutions desirable from the standpoint of the taxpayer, the consumer, and the farmer himself.

OBJECTIVES

The Illinois State Chamber of Commerce believes that legislation considered this year should be carefully reviewed against the background of the actual, and not imagined, problems of agriculture and judged by a series of objectives which take into consideration the interest and well-being of all citizens of the United States.

The Illinois State chamber will favor and support adoption of legislative program for agriculture which will:

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