28 percent surplus through the winter or base forming months. We do have a base-surplus plan in that market. But we made a proposal at the recent Federal hearing that all bases be computed according to fluid-milk sales and not according to total production during those months in the year. We also proposed that those bases operate on a 12-month basis. The purpose of that plan was to keep from encouraging new producers to come into the market when the milk wasn't actually needed in the market. The CHAIRMAN. That plan may work very well where you have a place where you can sell your raw milk and I imagine that if we had let's say Tennessee and Louisiana and Arkansas to deal with, we might be able to solve the problem, but when you add to that the States of Wisconsin, and Minnesota where they depend almost entirely on that, and as in many other sections of our country, where they are not so fortunate as we are in having a milkshed where production is almost equal to consumption, our problem is aggravated. We cannot leglislate for any particular section of the country, but whatever law we pass in order to assist must apply to all the States in a similar manner. We cannot show preference to one over the other. You can readily see our problem is aggravated some and if you have any suggestion to make as to how, in your opnion, we could control to some extent the production of dairy products to the point where we can keep them within reason, I would like to hear that. As I pointed out during these hearing at other places, the milk program up to July 30, 1955, has cost the taxpayers almost threequarters of a billion dollars. That is a nice chunk of money. Mr. YARBOROUGH. I understand that, Senator. From our personal standpoint although we had not made specific recommendations as far as policy is concerned, I feel that, for instance, Commodity Credit Corporation purchases, if the quality of the products of that commodity credit purchased, if you had a grading program whereby every pound of butter would have to be labeled according to grade. we feel Commodity Credit Corporation is purchasing some commodities at the present time that consumers would hesitate to consume. The CHAIRMAN. Well, one method would be to refuse any butter unless it comes up to certain standards. Mr. YARBOROUGH. Yes. The CHAIRMAN. What would be your view on increasing the butterfat amount as to milk that you sell to the consumer? Mr. YARBOROUGH. We think that is wonderful. Here in the State of Louisiana we passed a law requiring that all fluid milk contain at least 3.8 percent butterfat and we have about the best law of any State in the Union I believe along those lines and we feel that on a national basis if such a program was followed we would get rid of a lot of the extra fat. The CHAIRMAN. You would have less butter- Senator SCHOEPPEL. I would like to ask you for your opinion on one thing. Suppose you got 90 percent of parity. What do you think the price of milk would be to the users in New Orleans? Mr. YARBOROUGH. Frankly, Senator, we have been fairly lucky in the New Orleans market. We have had our pricing on an economic type formula like is used up in the New England States, and parity hasn't been directly related to our fluid milk pricing. But with a number of these markets around us being priced on the price of manufactured products, the price the farmers receive for manufactured products plus a freight differential, we are afraid that in the future. it will materially affect us. From that standpoint it wouldn't increase the price at all in New Orleans. It is one of the markets that it wouldn't. The CHAIRMAN. Proceed. Mr. YARBOROUGH. The supports on the so-called basic crops are maintained at 90 percent of parity. The purchasing power of the agriculture segment of the national economy continues to decline while in other segments of the economy purchasing power index is at an all-time high. It is reasonable to assume that if the production of high quality milk and dairy products is to be maintained at the level necessary for health and welfare of this country, the dairy farmers must receive purchasing power for their products equivalent to that consistent with other segments of the national economy. Therefore, we feel that the Department of Agriculture should review its policy regarding the price support program on agricultural commodities and make adjustments in areas where the purchasing power of a commodity is less than other segments of agriculture. That concludes our testimony on the price-support program. We would like to go into the Federal order program. The CHAIRMAN. Could you highlight that for us? Mr. YARBOROUGH. Yes. We express our appreciation for the Federal order program. We think the people that have been adminisstering it have done a good job. We do feel that due to the fact that the number of Federal orders has been increasing in a rapid rate that there is not sufficient personnel in the dairy branch to do the job as quick as it should be done. For instance, I believe Shreveport group of producers requested a Federal hearing and they requested that hearing in June. I believe the hearing will be held some time next month. There is considerable delay in getting hearings under these Federal orders which we feel is a lack of personnel that the dairy branch has. The CHAIRMAN. Are you satisfied with the law as it now stands? Mr. YARBOROUGH. We are satisfied with the law as it stands. We think that a couple of improvements can be made which, I don't mean in change in the law, but in the administering of the law. The CHAIRMAN. As far as the law itself is concerned, you wouldn't change it? Mr. YARBOROUGH. No. The CHAIRMAN. You heard the gentleman from Arkansas, I think it was Mr. Miller, who suggested that under the law as it stands they can't get a fair price, something lacking there. Do you agree? Mr. YARBOROUGH. I think probably what Mr. Miller was referring to is that the basic-type formulas which are directly related to the prices of manufacturing milk due to the fact that manufacturing milk is cheap, it has affected fluid milk prices. 64440-56-pt. 538 Of course, if the price of manufactured milk went up somewhat then the basic-type formulas woud still return a fair price the same as the economic-type formula such as that used in New Orleans, New York, Boston, in the New England area. The CHAIRMAN. Proceed. Mr. YARBOROUGH. Differential pricing under Federal order. It is generally agreed that the appropriate price for class I milk in any given market is the cost of alternative supplies on a year-round basis. Illinois, Wisconsin, and Minnesota are recognized as the most dependable areas from which high-quality milk may be obtained dur ing all months of the year. For this reason, these areas are generally used as the "basing point" from which determined the cost of alternative supplies. These areas serve as basing point for the determination of "differentials" for milk market using the basic type of formula as price determinants. Most Federal order markets in the Southwest use the so-called basictype formula to determine the price paid producers for milk used in class I. This type formula relates the price paid for grade A fluid milk to the price received by farmers for ungraded milk used in the manufacture of milk products such as butter, cheese, dry-milk powder and condensed milk. In arriving at the value of class I milk, a differential is added to the basic price. The differential is composed of two types of costs: (a) Additional costs for producing fluid-grade milk over manufacturinggrade milk and the costs necessary in maintaining an adequate supply of quality milk during all months of the year; (b) cost for transporting milk from sources with adequate supplies to the areas of deficit supply. The amount of the differential varies from market to market and season to season. In many instances the differential is less than cost of transportation from surplus areas to the deficit market. When this condition exists, the class I price received by dairy farmers in the deficit area is comparable to the cost of ungraded milk delivered to the importing market. In other words, a handler would be paying producers the same price for fluid grade milk as ungraded milk would cost him delivered to his plant. The extent to which differentials used in Federal order pricing are less than the cost of comparable quality milk delivered to the deficit market, it discriminates against milk producers in the deficit areas. Alinement of prices within regions: The Department of Agriculture has followed the policy recently of alining class I milk prices from market to market within the same general region. For illustration, the class I price in central west Texas is determined by adding varying amounts per hundredweight to the price as determined under the north Texas order. The price of class I milk in Austin and San Antonio are determined by similar procedure. This type of pricing can be detrimental to local producers in the outlying markets. In the first place, a part of the class I pricing provisions in the north Texas order is the supply-demand adjustment factor. Therefore, the prices in the outlying area are higher, lower or unchanged from month to month depending on the supply of milk delivered by producers in north Texas in relation to the demand for milk in that market. This does not permit the order in a local area such as San Antonio to reflect local supply and demand conditions in the market. Under this arrangement, the price received by dairy farmers in outlying markets could be declining at a time when those markets are severely short of milk, because dairy farmers in north Texas are delivering excessive supplies to that market. On the other hand, prices in the outlying area could be increasing at a time when they are oversupplied. The Marketing Agreement Act does not require that class I milk prices within a given region be alined in such manner. In fact, the objectives of the act is to provide individual market status for each marketing area. We feel that widespread application of this policy will inevitably result in unstable conditions in the outlying areas. Therefore, we recommend that this committee request the Department of Agriculture to review its policies relative to the program discussed herein. To highlight the thing under these basic type formulas, the price is figured by what price is being received by farmers for manufacturing milk, whether it is the highest received for butter-powder, or from condenseries, and added to that price is the freight rate differential and also subtracted or added to or remaining constant depending on the supply of milk is the supply-demand clause used in the Federal order to affect the price one way or the other. We feel that particular prices of milk under the basic type formulas they are actually establishing prices which are competitive with prices of manufacturing milk in the Midwest and not grade A milk in the Midwest. For instance, under the Chicago order, 70 to 80 cents added to that price up there for the increased cost of production caused from producing grade A milk. In these markets down here there is nothing added for the production of grade A milk. The only additions to the manufacturing price are the costs that it would cost to transport manufacturing milk from Chicago to New Orleans or some of these other markets in the Midwest. That is our objection to the present basic-type formula being used to price milk in certain orders. We feel some allowance should be made for the extra costs of producing grade A milk. The CHAIRMAN. Thank you very much. Mr. YARBOROUGH. Thank you, sir. The CHAIRMAN. Mr. Nolley, please. Give your name and your occupation, for the record, please. I wonder if you can highlight your statement for the record. STATEMENT OF MILTON NOLLEY, COLLIERVILLE, TENN. Mr. NOLLEY. It looks like most of the matters in my statement have been covered pretty well. I will leave the statement for the record. The CHAIRMAN. Thank you. (Mr. Nolley's prepared statement follows:) My name is Milton Nolley. My address is Collierville, Tenn. I live on my farm in Shelby County, State of Tennessee. I farm 420 acres and do general farming. I have approximately 200 acres in pasture, 46 acres in corn, 54 acres in cotton, 15 acres in hay, and 60 acres in timber. I have a milking herd of 80 cows and have shipped grade A milk to the Memphis market for 19 years. I have been a member of the Mid-South Milk Pro ducers Association of Memphis, Tenn., since 1943 and have served in the capacity of director since that time. I also served as president of the board of directors of the Mid-South Milk Producers Association for 2 years. The board of directors has authorized me at their regular board meeting of October 24 to speak for the association and the approximately 600 members. The milk producers in my district keep asking me "Why has my income in the sale of milk been reduced?" The Memphis market historically has been a deficit market during the short supply months of September through December. During this period of time it is necessary to import milk from Wisconsin, northern Illinois, or northern Indiana. This import milk delivered f. o. b. Memphis costs the market from 75 cents to $1.50 hundredweight more than the price we are receiving for our class I milk on the Memphis market. With the reduction in support prices on dairy products our income has been drastically reduced. In my farming operation it is necessary for me to hire outside labor and use a considerable amount of farm machinery. My labor costs, replacement of equipment, and my living costs are still going up and my income is still going down. Congress has seen fit to raise the minimum wage rate to $1 per hour, yet the American farmer is experiencing this lower income because of our surplus which resulted after World War II and the Korean war. The American farmer cannot adjust his farming operation from month to month to govern production. Farm production is a longtime program. In addition to my statement I wish to concur with the statement being made by Mr. C. P. Davis, of Whitehaven, Tenn. ON PRICE SUPPORTS 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 April 1, 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 surplus 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 agricul tural 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 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. 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 get better and better. To some up the parity equivalent problem, we want to point out the fact that under the present administrative ruling dairy farmers can get less and less. This is because the surplus caused by the curtailment of wartime demand will |