As mentioned above, we are making great strides in expanding our own consumer markets but we do feel that Congress needs to take a look at the formula used by the Department in the determination of parity prices of milk and dairy products. Farmers do not benfit from increases in prices when expressed as a percentage of parity if such increases are caused by changing parity rather than changing the price of milk paid farmers. The present parity equivalent for manufactured milk for example has little meaning because it is subject to change by administrative ruling. Under the formula used by the Department of Agriculture milk prices have remained the same while the prices expressed as a percent of parity gets better and better.

We would therefore urge this committee to conduct an analysis of the present formula for parity so that even the present percentage as applied by the Secretary of Agriculture in establishing the support price of manufactured milk, to the end that such support price may become more realistic, and will more closely approach the 90 percent floor in dollars and cents which we seek to achieve. 3. On more specific matters:

(A) Special school milk program: We commend the Congress for its farsightedness in authorizing the $50 million for last year and $50 million for the current year for the special school milk program. The success of this program has been established with thousands of schools and schoolchildren participating in the program and with substantial increases in milk consumption by school children during the last school year. The outlook for the program this year is for participation by more schools and more children with greater increases in milk consumption. We urge Congress to authorize on a permanent basis the use of Commodity Credit Corporation funds for this program in an amount necessary to reach the objective set by Congress.

(B) We urge the intensification of the surplus disposal program.

(C) We commend Congress for authorizing the use of Commodity Credit Corporation funds in the interest of expanding the consumption of milk and dairy products in our military establishments and in the facilities operated by the Veterans' Administration.

(D) The brucellosis program as authorized by Congress is meritorious and we urge the continuation of this program until such time as the threat of brucellosis has been wiped out.

(E) With respect to the surplus disposal program mentioned above however we do feel that great caution should be exercised to see that any gratuitous shipments of dairy products to foreign countries shall be channeled directly to those people who are in need and cannot buy, so that such shipments will not in any way compete with the legitimate objects of foreign trade.

4. Import quotas: It is vitally important to the dairy industry of this country that section 22 of the Agricultural Adjustment Act remains unimpaired and that effective import controls be provided.

5. Administrative procedure: A proposal has been made by one of the Hoover task forces which would have the effect if adopted by Congress, of converting the present informal but effective method of handling milk-order hearings, into a judicial trial, surrounded by and governed by rigid rules of legal procedure. We feel that more efficient flexible and realistic results can be obtained at least so far as milk-order hearings are concerned, under the present system of informal hearings. In the event the Hoover task force recommendations should be adopted, we recommend that they be so modified that they will have no application to milk-order hearings.

6. Taxation of cooperatives: the only difference between a partnership and a cooperative taxwise, is that the partnership pays no income tax while the cooperative does. For instance, one of our cooperatives at Enid pays almost $1 million a year in income tax to the Federal Government. The only difference between the cooperative and a private corporation taxwise is that if the cooperative pays 5 percent dividend on its stock, that is deductible as interest, while a private corporation does pay income tax on its stock dividend. Deferred commodity payments or patronage dividends are excludable from the gross income of the cooperative because it represents additional cost of goods or commodities delivered by the farmer to the cooperatives. Under the present law, a private corporation would have the same exclusion if it would agree in advance with its suppliers, to return to them at the end of the year any net earnings, or a private dairy corporation could have the same exclusion, if it would agree in advance to distribute back to its dairy producers who deliver milk to the plant, at the end of the year any net earnings of the corpo

ration, apportioned on the quantity or value of the milk delivered by each producer.

Therefore, any inequity in the application of tax laws to the private corporation and to the cooperatives would be eliminated if Congress would permit the private corporation to deduct from its gross income, amounts paid to stockholders as dividends and upon which the stockholders as in the case of cooperatives also, do pay an income tax.

We therefore urge the members of this committee to scrutinize carefully any plans which may be submitted to Congress for so-called tax equalization, and to preserve the tax structure of cooperatives in their present form. Farm cooperatives represent the one medium which eventually may be able to relieve the Government of many of its burdens of marketing and supporting farm products.

7. Federal orders: There has been a vast development and expansion of marketing orders since the adoption of the Agricultural Marketing Agreement Act of 1937. Many of us feel that some of these orders as promulgated have been refined and so many restrictions imposed thereunder, that they constitute a radical departure from the announced purposes of the act under which they were created. On the other hand we feel that the act itself was designed for a very beneficial purpose, and that such inequities and departures of purpose which do exist in some of these orders can be corrected without corrective legislation at this time.

We would therefore urge that for the time being no changes and certainly no substantive changes be adopted in the basic act pending the efforts of the industry and the Department to iron out their differences and difficulties within the present framework of the act.

Gentlemen, we appreciate the opportunity of appearing before you today and hope that some of the things we may have said will be of benefit to you in your difficult deliberations.

STATEMENT FILED BY C. R. YOUNG, SECRETARY, PURE MILK PRODUCERS ASSOCIATION OF EASTERN OKLAHOMA, BIXBY, OKLA.

Dairy farmers have seen their prices drop 20 percent since 1952. A good share of this drop was caused by the reduction in price supports from 90 percent of parity to 75 percent, which was made effective Apri 11, 1954. In part, the price decline was caused by the fact that, even under the 90-percent program, prices to dairy farmers were actually less than the announced support level. Each time a plea is made for higher supports for the dairy industry, we are reminded that we can have the same treatment as the basics if we will accept production controls or marketing quotas. In this situation two important facts are overlooked. In the first place, production controls on milk and dairy products would be exceedingly complex and difficult to administer. In the second place, even without production controls the difficulties involved in producing milk, including the labor problem, tend to hold total production within manageable bounds. When we had 90-percent supports, the dairy sulplus never exceeded 8 percent of a year's production. In 1952 and early 1953, when prices were over 100 percent of parity, we experienced a milk shortage. The real need of the dairy industry is stabilized prices at levels that will not only assure an adequate supply of high-quality milk, but a price that will give dairy farmers the purchasing power equivalent to that consistent with other segments of the national economy.

To accomplish this, dairy farmers cannot be satisfied with prices less than 100 percent of parity. At the same time reason tells us that the price of milk cannot be supported at levels substantially higher than that of other agricultural commodities. However, the present 75-percent support level is too low and should be increased somewhat above the average support level of the basics in order to achieve a proper balance between the dairy industry and all agriculture. This can be justified because of the high labor requirements in the production of milk on a 7-day-a-week basis, and the increase in support levels can be made without resulting in excess production for the same reason.

In any consideration of support prices we also need to tie down the definition of parity and the parity equivalent for manufactured milk. Farmers do not benefit from increases in prices when expressed as a percentage of parity, if such increases are caused by changing parity rather than changing the price of milk paid farmers.

64440-56-pt. 5- -18

Under the

The present parity equivalent for manufactured milk, for example, has little meaning because it is subject to change by administrative ruling. formula used by the Department of Agriculture milk prices have remained the same while the prices expressed as a percent of parity gets better and better.

To sum up the parity equivalent problem, we want to point out the fact that under present administrative ruling dairy farmers can get less and less. This is because the surplus caused by the curtailment of wartime demand will adversely affect the parity equivalent price for the next 10 years-unless some adjustment is made to stabilize the meaning of the word as expressed in dollars and cents paid farmers.

The year 1951 reflected an average price paid to dairy farmers in the Tulsa. Okla., market of $5.49 per hundred; 1952 showed an average price of $6.03 per hundred; 1953 was down to $5.03 per hundred, or a drop of 16 percent, but the blend price for the first 9 months of 1955 dropped still further to a low of $4.30 per hundredweight-or 21 percent below 1952. Now this means a drop of 4 cents per quart for all milk delivered. The incentive for dropping prices is completely forgotten and the consumer still pays the same price as they did when the price to dairy farmers was in the higher ratio bracket. All these prices have continued downward while an alltime record high in production was being established in 1954 and 1955.

The retail price of fluid milk in July of this year in 25 major cities averaged 22.8 cents per quart, exactly the same as it was in July 1953 before Secretary Benson reduced price supports to farmers from 90 to 75 percent of parity. The average retail price to consumers in the 1949-53 period was 22.4 cents per quart. Processors' profits have benefited directly from Benson's own policies. National Dairy Corp. (Kraft) profits jumped sensationally after Benson forced down the price they pay farmers for dairy products in 1954 by cutting price supports. Kraft profits then skyrocketed to $37.4 million when parity was per hundredweight to 75 percent in 1954 and should reach the alltime high for 1955 judging from the $19.8 million profit for the first 6 months of this year. Let's take Beatrice Foods, whose net profits jumped 24 percent in 1954 over a legitimate profit in 1953. The below listed chart is self-explanatory (percent of change 1952 to 1955) :

When the price of wheat drops, that is the signal for bread to jump in price: cotton goes down and a cotton shirt raises in price. During the Government beef-buying program, cattle went down to the farmer and up to the consumer. When the drought relief program was brought about to help save farmers' herds. cotton seed meal jumped by $8 per ton and the hoped for help to farmers was wiped out by higher prices paid to processors.

All of these economic changes brought about in the different segments of agriculture have been paid for at the rate of $2 million a day in the form of a (socalled) subsidy to farmers. In reality, what has happened is the fact, that it has turned out to be a subsidy to food processors by design rather than by accident. So long as the policy of having more by getting less by the present administration is accepted by farmers-that is how long their economy will be jeopardized for the sake of big business. Let's also look at the 100-percent increase in cost of Congressmen and Senators of which farmers pay their share, as well as 300 percent of parity for labor in manufactured goods they must buy.

ON SELF-HELP-ON FEDERAL ORDERS-ON TAX OF CO-OPS

Dairy farmers have attempted to alleviate their plight by introducing the selfhelp plan advocated by our President before the promise of 100 percent of parity in the market place. The self-help plan, as it is known, was worked out by the many dairy cooperatives which are members of the National Milk Producers Federation.

There are three principal reasons for our development and support of the selfhelp plan:

1. Dairy farmers are convinced that the support level of 75 percent of parity is too low for the good of the industry and the Nation. At the same time, the Department of Agriculture has stood fast in its position that it can only support prices at levels that assure an adequate supply of milk. Although we do not agree that this is the only standard for support levels that is authorized by the Agricultural Act of 1949, we have been unable to do much about it.

2. Early in 1953 when the Secretary of Agriculture last supported prices at 90 percent of parity, he requested the industry to work out its own program for stabilizing prices. We believed he meant it.

3. Most of the adverse publicity aimed at discrediting the price support program, regardless of party in power, has been centered on the dairy industry. This has not made it easy to increase the consumption of milk and dairy products.

Under the self-help plan dairy farmers would stabilize their own prices by buying otherwise unmarketable surpluses, and disposing of them at home and abroad without the restrictions inherent in Government operations. The costs would be borne by dairy farmers themselves through the payment of a stabilization fee collected against all milk sold in commercial channels. The program would be operated by a 15-man stabilization board appointed by the President from nominees selected by milk producers.

A summary of the self-help plan has been developed by the National Milk Producers Federation which we feel may be helpful to the committee. The plan has been submitted to Congress as H. R. 2686 (Westland), H. R. 3400 (Bow) H. R. 3483 (St. George), and S. 930 (Mundt). We believe that this legislation merits the support of this committee. Its adoption would be a forward step toward bringing about permanent improvement in the economic conditions of dairy farmers, outside the influence of partisan politics.

ON FEDERAL ORDERS

The marketing agreement and order program currently authorized by the Agricultural Marketing Agreement Act of 1937, as amended, was developed to correct the demoralized conditions of fluid-milk markets which followed the economic collapse in 1929. The operations of the Federal milk marketing orders have been satisfactory to producers supplying the markets using the program, and the market stability created by the Federal orders has had a healthy influence throughout the dairy industry.

We oppose any change in the Agricultural Marketing Agreement Act. Any change in the legislation could have a far-reaching effect on producers and on the whole dairy economy. No legislation is perfect, and no administration of a program is perfect. By the same token, the many criticisms which are from time to time aimed at the Federal order program should not be presumed to be valid without detailed investigation of the facts of the consequences which might result from change.

In the National Milk Producers Federation we have been aware of the criticisms of the Federal order program. We have been working diligently in an effort to appraise each criticism. Any suggestions that we might have to improve the Federal order program at the present time can be implemented within the framework of the present legislation. We are aware of the fact that all producers do not benefit to the same degree from the Federal order program. We feel very strongly, however, that we should work toward improving the position of those producers who do not receive the benefits from the Federal order program rather than to tear down a good program in order that all producers might be at the same disadvantage or suffer equally.

Federal milk marketing orders are highly technical and complicated and they are of tremendous economic importance. The milk business is highly technical and complicated. On April 28, 1955, the National Milk Producers Federation presented an educational background statement on Federal orders before the House Agriculture Dairy Subcommittee. We feel that this statement should be included in the record of this committee and it will be helpful in creating a better understanding of the problems of marketing milk.

We feel that the advantages of Federal orders are sometimes overlooked and that the benefits for all concerned are not weighed in their proper perspectives. Upon the inception of the Federal order in the Tulsa market, 450 producers

were producing a greater surplus then than the 1,300 producers are today, considering, too, the increase in population and the per capita consumption. We are told that the Federal orders are trade barriers, but how shall we account for the situation at Little Rock, Ark., where it was necessary to import 3 loads of milk a week until the installation of the Federal order which brought about a situation that required 19 loads of milk per week.

We must say then that Federal orders not only help and make markets for local producers, but also make markets for northern milk also and in substantial quantities that they may not have had.

In conclusion let me reiterate our position: Let's protect and preserve the Agricultural Marketing Agreement Act in its present form, and let's direct our efforts to improve the position of all dairy farmers rather than tear down a program that has proved its worth conclusively over a great number of years.

ON TAXATION OF COOPERATIVES

By acting together through cooperative associations farmers are able to do for themselves many thing which they could not do acting alone. For example, they can build and operate a dairy plant and thus process at cost the milk produced on their farms. Since the purpose of such associations is to operate at cost, they do not have income. Any savings on hand at the end of the year over the amount retained for estimated costs are refunded to the farmers.

The cooperative is not a middleman placed between the farmer and his market. In effect, it is the farmer himself carrying his marketing operation one step further and selling his produce in processed form rather than in raw form. Cooperatives provide a yardstick for measuring, processing, and distributing costs and serve an important purpose in keeping the charges and profits of other processors and distributors in line.

There are basically four kinds of competitive enterprises, the individually owned business, the partnership, the cooperative, and the ordinary profit type corporation. All are taxed once on their savings or earnings except the corporation. Its profits are taxed twice. Competition would not be equalized by extending the double tax to cooperatives. It could be equalized by extending the double tax all the way down the line to the cooperative, the partnership, and the individual, or by removing it from the ordinary coporation. The latter is the better approach.

A withholding tax on cooperative refunds would be impractical and unfair. The burden of withholding from great numbers of small accounts would make the tax impractical. Since patronage refunds are not net profit to the farmer but are a part of his gross sales proceeds, it would be unfair to withhold in such cases unless withholding were applied to all gross sales of commodities. The foregoing comments are in line with the position of the National Milk Producers Federation. We are members of that organization and have participated with other dairy farmers from other parts of the country in discussing these problems and in developing these policies.

The CHAIRMAN. Thank you, Mr. Kirton.
Mr. Larson?

STATEMENT OF A. R. LARSON, FARGO, OKLA.

Mr. LARSON. I am A. R. Larson, Mr. Chairman, from Fargo, Okla., out next to the Panhandle. I have been a farmer all my life.

I came with a solution, but the two gentlemen who have preceded me have exposed my solution and I definitely agree with them and I will leave a copy of my statement.

I want to add a few comments they didn't cover that I have in my plan. Mine is the rental plan, and I propose that the rental be made definitely to the local SCS board, the local soil conservation board in each county to be the administrator and actually be the lessee on this rental plan.

I propose that it go also to the extent of including grassland, if and when the cattle people would desire having it based on the fact that