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or an estimated further cut in the annual income of peanut growers of approximately $41,120,000, (874,913 tons--October 1, 1955, crop report X $47 per ton= $41,120,000) when the new formula becomes fully operative. If this is coupled with a flexible support level of 4 cents per pound, (75 percent of 11 cents=8.25 cents compared to 12.25 cents) or a net annual loss to growers of approximately $70 million. There is little basis for theorists to assume any material portion of such a loss would be recouped by growers because of increased consumption due to lower prices. First, any such results from lower prices to growers are contingent upon the lower price being passed on to the consumer and rarely, if ever is very much of the cut in price to growers, reflected in consumer prices. Second, Marketing Research Report No. 16, USDA, BAE, 1952, Peanuts and Their Uses For Food is the most recent and authoritative study I know of which deals with this question. This study concludes the demand for both cleaned and shelled peanuts is inelastic, and a 1 percent change in wholesale price is associated with a change of approximately 0.4 percent in consumption.
It has been our understanding that the accepted concept of parity involved the following:
1. Selecting a base period; for peanuts in the old formula it was 1910-14, during which base period the economy of agriculture was considered to be in a reasonable and desirable balance with the overall national economy.
2. Computing the average price received by growers during that base period, for peanuts it was 4.8 cents per pound.
3. Multiplying this average price received in the base period by the latest index of prices paid by farmers. Thus, if prices farmers pay doubles, parity prices double, if prices farmers pay go down one-half, then parity prices go down one-half.
The objective was, that whenever the price of a commodity, such as peanuts was selling at parity, a farmer could sell 10,000 pounds of peanuts and buy in the aggregate as much food, clothing, building materials, machinery, fertilizer, and the like as he could with the same amount of peanuts during the 1910-14 base period.
In connection with the passage of the Agriculture Act of 1949, Congress adopted a different formula, called the modernized parity formula. At the time the formula was adopted the experts in the Bureau of Agriculture Economics testified before the Senate Committee on Agriculture and Forestry that within a 4-year period the old parity and the new parity would coincide. In other words, they testified it would not matter after 4 years whether the old parity or the new parity was used, because the two prices would come together. The Senate said if it will take 4 years to accomplish it, they would wait 4 years from 1949, and let it become applicable 4 years later. .
At a later date, the Senate Committee on Agriculture and Forestry recognized that these two prices were not moving together. Therefore, Congress in June 1952 passed Public Law 585, which extended dual parity for 2 more years. Congress said if they do not move together at the end of that time Congress will again take it up and try to make something out of it.
Today the two have not moved together and under existing legislation the current extension of dual parity expires December 31, 1955. The hour is upon us to now do something about this situation. We have every confidence that since the predictions of the officials of the Bureau of Agriculture Economics, and bearing in mind it was upon these predictions the new formula was adopted, have not been borne out, the Congress will take prompt steps to permanently extend dual parity and thoroughly study the entire complex problem. Results so far from the predicted results indicate the formula is basicly wrong.
As contrasted to the previous concepts of parity, the modernized formula does the following:
1. l'ses the last 10 years as the base period, without any assurance whatsoever as to whether a particular 10-year period will represent a period of a healthy balance between the economy of Agriculture and the national economy. The last 10-year period for peanuts is one of the most abnormal periods experienced by peanut growers. It involved the gradual adjustment period from a war production for oil, to production for edible purposes. During this period the adjusting has been reasonably gradual to avoid extremely serious economic repercussions and was not unlike the reconversions of business from manufacturing ships, planes, guns, tanks, and the like to normal peacetime production, but inherent with this was a sizable surplus in all years except 1954. Such a surplus situation resulted in keeping prices depressed to, or near the net loan price which even with a 90-percent program has been as low as 83 percent of parity. Such years, are what make up our most recent 10-year average. Also of some adverse effect are the matters previously pointed out in respect to including 1950 and 1951 oil peanuts in the averages and in all 10 years erroneously figuring the market price on peanuts harvested from excess acreage.
2. Next, the new formula brings into the picture an entirely new concept by requiring the base period price be adjusted by dividing into it the index of prices received by farmers. This index includes wheat, rye, rice, hay, corn, oats, barley, grain sorghums, cotton, tobacco, cottonseed, flaxseed, peanuts, soybeans, grapes, strawberries, snap beans, cabbage, carrots, cauliflower, celery, onions, lettuce, green peas, green peppers, spinach, tomatoes, Irish potatoes, sweetpotatoes, dry beans, beef cattle, calves, hogs, sheep, lambs, milk, wholesale and retail; butterfat, eggs, chickens, turkeys, and wool.
Many of the foregoing items are produced to a very limited extent by our peanut growers while the vast majority are not produced by our growers to any degree.
What in the world should the price received for rice, grapes, strawberries, cabbage and the like have to do with parity for peanut farmers? We say, absolutely nothing.
3. Now the base period having been adjusted by the prices received, the result is multiplied by the parity index which is an expansion of the index of prices paid used in the old formula.
The result is so-called modernized parity which will siphon off approximately $41,120,000 per year from peanut growers alone. When you take this additional amount from the growers, the entire economy of the producing areas will be badly hurt, together with the treasuries of the localities, State, and Federal Government to which taxes are paid, and I do not believe any one involved will like to consider the results as modernized.
In effect, what the new formula does to peanut growers and the producing areas is to take the relatively depressed grower markets of the last 10 years, and incorporate them into a permanent formula which will then serve to progressively lower the support level for future years. We see no hope under the new formula for anything but a worsening situation.
We point out that peanut growers will receive a lower support price at 90 percent of modernized parity, than they will at eren 75 percent of old parity.
We are mindful of the complexities of this problem and that perhaps the experts are still confused. We appreciate that the so-called modernized formula results in a higher parity price for some commodities. We are not familiar with their needs for an upward adjustment but perhaps such is merited. However, we are familiar with what it will do to peanut growers and the economy of the entire producing areas.
We earnestly, sincerely, and urgently recommend the following:
Permanently extend dual parity, retroactive to January 1, 1956, and as soon as practical undertake a thorough study of the parity formula question with a view of eventually devising a formula which will be fair to all, consistent with the fundamental concept of parity and will work as intended. An extension of dual parity other than on a permanent basis is most disturbing to marketing. For example, at present, it is natural that buyers and users of peanuts will closely watch their buying of supplies from the 1955 crop in order that they have the minimum inventory possible when the cheaper 1956 crop moves to market. This is slated to continue for 4 years of transitional parity. On the other hand, if there was another limited extension of dual parity, the same market-disturbing situation would prevail as the new termination date of dual parity drew near and the basic problems caused by the new formula would still not be dealt with. 3. Section 22
Amend and strengthen section 22 of the act so as to help prevent the reoccurrence of the unfortunate experience of peanut growers this year regarding the importation of foreign peanuts. First, the two proceedings before the United States Tariff Commission this year brought home very clearly the need for the Tariff Commission to have the authority to impose both quantitative limitations and additional duty. The Tariff Commission interprets the section as precluding this.
Second, the section should be so amended as to make it perfectly clear that whether the procedure be a new investigation or the continuance of a previous investigation the proponent should be required to proceed through the Secretary of Agriculture who will conduct such investigation as he may deem proper,
report his findings to the President and the President then either order or not order the Tariff Commission to undertake an investigation, or supplemental investigation. Attached hereto as enclosure 2 is a memorandum filed with the Tariff Commission, which request was in our opinion wrongly denied.
When growers of any commodity have curtailed production and are on the threshold of achieving a long-sought balance between supply and demand, to have a situation where a small group who would profit materially by breaking the market, can go direct to the Tariff Commission and have a new supplemental hearing ordered is dynamite. It is dynamite to growers, as we found out and the uncertainty also serves to upset the market at all levels. The mere announcement, regardless of the merit in the request for investigation or the final outcome has such an effect. Such situations can happen without the growers or the USDA ever knowing about it. In late 1954, our group learned late one morning the Commission was to consider a direct request that day at 2 p. m.
Immediate calls to the USDA revealed they knew nothing about it but soon became active. Through the prompt action of many we are confident a premature announcement of an investigation was delayed a reasonable time. This did occur and right at the time growers, whose program section 22 is for the protection of, were then in the midst of harvesting a drought-struck crop. Even though the announcement of an investigation was delayed, the rumors incident to the matter caused the market to react adversely. It can happen again to peanut growers and can happen to the growers of other commodities unless corrective action is taken.
III. GENERAL PEANUT LEGISLATION AND PROGRAM OPERATION
1. Self-financing and promotional
Virginia peanut growers are now giving thought to and studying means of further improving the peanut price-support program, a program which we consider one of the more effective and better prorams now operative. We are especially interested in a practical method of permanently putting the program on a self-financing basis and at the same time provide a continuing fund which would permit an effective, year after year national campaign to promote and increase the per capita consumption of peanuts and peanut products.
At this time our thinking is not final and we realize, this, together with certain other recommendations must not only be refined but thoroughly coordinated with growers in other States. However, our present thinking and approach is along the following lines.
(a) Assuming other recommendations hereinbefore and hereinafter, made, are incorporated in revised legislation, then in addition to the elective price-support programs before outlined from which peanut growers could each 3 years select a price-support program, peanut growers would each 3 years also be permitted by referendum to elect a self-financing and promotion program. In event the program had appeal to the growers of some other commodities to which the program was reasonably adaptable, as we believe it would, certainly we would favor them having the same opportunity of choice.
(6) $6 per ton would be added to what would otherwise be the support price; $12 per ton would be deducted from producers by buyers and remitted to a central fund by buyers, on all peanuts marketed by producers, to cover the cost of handling and diverting peanuts not needed to meet edible requirements and provide adequate promotional funds. The law should make it possible, with grower approval in a referendum, to within reasonable upper and lower limits, increase or lower the $6 and $12, on the same prorata basis (one-half of the total deduction added to the support price), as experience indicates necessary. The amount of the payment could thus be fixed each 3 years to provide funds estimated to be needed to cover handling, diversion and promotion costs for the next 3 years, plus any amounts owed to CCC or minus any surplus carried over in the fund from prior years.
(c) Since growers would be paying the funds, except that portion passed on in the finished product, which would be practically negligible to the consumer, a predominately grower committee, but providing for sheller, broker, and manufacturer representation would be established to jointly administer the fund with the USDA. This committee should have definite authority and not be a fifth wheel. Also, the legislation should spell out the method of selecting the committee, and give it real authority in handling the diversion of any surplus.
(d) As much as 35 percent of the total yearly fund, the exact amount to be determined by the committee, would be made available on a contractual basis by the Secretary of Agriculture to an agency or agencies designated by the industry committee for use in publicizing peanuts and peanut products and promoting their increased consumption.
(e) It is estimated the funds accruing to the general fund from payments of $12 a ton by growers would be sufficient, after allowing for the maximum promotional funds, to cover the cost of diversion of surplus averaging 8 percent of the total production.
We believe this basic approach offers much promise and we ask your study of the general approach as we continue to work on refinements and coordination with other growers.
IV. SPECIFIC PEANUT LEGISLATION AND PROGRAM OPERATION 1. Minimum national allotment and section 358 (c) (2)
Within the framework of the farm elective programs proposed we recommend enactment of legislation which will accomplish :
Minimum national allotment and section 358 (c) (2): Repeal the present minimum allotment provision whereby the minimum national allotment is now fixed at 1,610,000 acres, so that allotments and quotas for edible purposes could be fixed more closely in line with demand. However, together with and most important, is the necessity to amend section 358 (c) (2) of the Agriculture Adjustment Act of 1938, as amended, so as to remove the discretionary authority of the Secretary and in general assure that the original intent of this section is complied with. We learned the hard way this year just how such discretionary authority can result in putting the program in a bad light.
Section 358 (c) (2) of the act states in part as follows: "Notwithstanding any other provision of law, if the Secretary of Agriculture determines, on the basis of the average yield per acre of peanuts by types during the preceding 5 years, adjusted for trends in yields and abnormal conditions of production affecting yields in such 5 years, that the supply of any type or types of peanuts for any marketing year, beginning with the 1951-52 marketing year, will be insufficient to meet the estimated demand for cleaning and shelling purposes at prices at which the Commodity Credit Corporation may sell for such purposes peanuts owned or controlled by it, the State allotments for those States producing such type or types of peanuts shall be increased to the extent determined by the Secretary to be required to meet such demand but the allotment for any State may not be increased under this provision above the 1947 harvested acreage of peanuts for such State.”
Report No. 169, 82d Congress, 1st session, House of Representatives thoroughly explains the legislative intent of section 358 (c) (2). This report states in part as follows: "Probably the most important provision of the accompanying bill is the provision which will assure an ample production of all types of peanuts. One of the important provisions of the Agriculture Adjustment Act of 1938 as amended is section 304 which establishes consumer safeguards. Under that provision it is made the duty of the Secretary of Agriculture to administer the statute so as to provide for the maintenance of a continuous and stable supply of agriculture commodities from domestic production adequate to meet consumer demands at prices fair to both consumers and producers. The provi. sions of the accompanying bill will enable the Secretary of Agriculture to give full effect to the consumer safeguard provision by permitting him to increase at any time the acreage allotment for any State producing a type of peanut which is in short supply."
Further, we are attaching as enclosure 1, a copy of our statement made at a public hearing on the 1955 question in Washington, D. C., on April 29, 1955, together with our letter of April 14, 1955, to Mr. Earl M. Hughes, Administrator. Frankly, in our opinion the law is clear, the legislative intent is spelled out and the facts were not questioned. The official USDA figures bore out the facts we were extremely conservative in the type increase requested. The Secretary nevertheless announced a 7142 percent, across the board increase for all peanuts. The damage to growers, the program and unnecessary cost will be felt for a long time. This recent experience indicates the reason for our plea that section 358 (c) (2) of the act be rewritten substantially as follows:
"Notwithstanding any other provision of law, if, on the bases of the average yield per acre of peanuts by types during the preceding 5 years, the supply of any type or types of peanuts for any marketing year, beginning with 1956-57 marketing year, will be less than the last 5 years average production of any type or types of peanuts, less any quantities of the particular type or types diverted by CCC to crushing, plus 15 percent, the State allotments for these States producing such type or types of peanuts shall be increased to the extent necessary to provide, on the basis of the average yield per acre of peanuts by types during the preceding 5 years, a production of each type or types of peanuts of not less than the last 5 years average production of any type or types of peanuts, less any quantities of the particular type or types diverted by CCC to crushing, plus 15 percent. The total increase so determined shall be apportioned among such States for distribution among farms producing peanuts of such type or types in the 3 years immediately preceding the year for which the allotments are being determined. The additional acreage so required shall be included in the national acreage allotment, the production from such acreage shall be included in the national marketing quota, and the increase in acreage allotted under this provision shall be considered in establishing future State, county, or farm acreage allotments.
The addition of 15 percent to the 5 years average is based upon peanut growers electing to utilize the self-supporting and promotion-financing option previously recommended. An 8-percent diversion would be paid for by growers if that much had to be diverted and the population increase plus an effective promotion would reasonably take care of the remaining 7 percent. Otherwise the addition would be only 6 percent.
The foregoing does the following:
A. Removes discretionary authority of the Secretary and places the final adjustment by types on a mandatory basis which gears the production of each type to the proven edible trade demands, or in inverse relation to surplus production; plus a reasonable increase over the 5-year average.
B. Removes the cause for peanut growers from the various areas to have sharp differences over the degree of increases or lack of increases, with the USDA in the middle, by providing a clearly established method of acreage adjustments by types. The proposed method uses factual information which is readily available, eliminates the trouble-causing phrases which permit adjustments for trends, abnormal conditions, etc., and the requirement that the Secretary must conclude (guess) the production from the increased acreage, plus the production from previously allotted acreage will move at not less than 105 percent of sup port price, plus reasonable carrying charges as a condition to making a type increase. Obviously such a conclusion is next to impossible to factually justify.
C. Includes such increases in the history for establishing future allotments. This will tend to, over a period of time, lessen the degree of annual type adjustment.
D. In effect says to the growers of the various types, the more you sell into the edible trade, the better your promotion and selling efforts, the more responsive you are to consumer preferences for quality, etc., and the nearer you approach costing CCC no money for diversions, the more acreage will be given you. In other words, a real incentive to effectively do the foregoing as contrasted to the present situation.
Legislation which will permit the Secretary to establish a national allotment closely in line with estimated requirements, by repealing the minimum allotment provision, will not run any necessary risk of an inadequate supply in case of a far below normal crop. Nor is it necessary to have legislation other than what we now have to assure such protection. Such assurance can be provided by the Secretary utilizing authority he now has. There are two courses of action available:
(1) In event of a short crop, the Secretary can barter or buy; we prefer bartering as long as substantial surpluses of commodities are held by CCC, for sufficient peanuts to assure an adequate supply. Such peanuts would be the property of CCC and not require any lifting of prevailing import restriction. CCC could then, upon a showing of need, make the peanuts available to users at prices fixed by CCC, so as to assure no interference with the operation of the price support program. Any peanuts so acquired by CCC and eventually found to be in excess of needs could be diverted to oil. During the past crop year when the question of a shortage arose, we, together with others, urged the USDA to follow such a procedure and avoid all of the trouble caused by two investigations by the Tariff Commission, but without favorable results. It seemed ot us to make sense for the USDA to barter, for example, surplus wheat to India for peanuts. Such would have relieved us of that much wheat, putting it where people are hungry, stopped carrying costs on same, and even if CCC had way overestimated the quantity of peanuts, the diversion to oil returns would have represented a fair return for the wheat.
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