Now, if I am not mistaken, our cost-of-living index covers many more items than these essentials.

Now, these basis needs have taken little, if any, rise, yet the labor cost in a given item or machine continues to rise. I realize we must have prosperous laboring groups and full employment to buy our products, but let's live and let live.

5. We definitely need better public relations with our city cousins. The farmers are becoming isolated from their customers. Millions of people have never seen a farm and I doubt if the news stories and publicity given our surpluses under the 90-percent support did any good to better their understanding. We need a farm program that gives us a cushion for periods of high production, but not one that gives us a readymade market that creates surplus that puts us in a bad light with our city customers. The 90-percent support program lulled us to sleep and we didn't even bother to develop a market. Under the so-called flexible price-support law we are tied to the law of supply and demand. We are now working on the demand end and we are gaining, we are making some headway.

If the producers of beer, automobiles, tractors, and pins would have sat around waiting for people to rush to their doors, we'd still be a Nation of small-business men.

6. I would like to see farming taken out of politics. The publicity we get is not doing us any good; in fact, the wall of misunderstanding is growing between us and our consumers. I don't like the idea of

prices being made at Washington by a vote of conscious Congress. We are a very small part of the population, you know, and I'd rather take a chance on flexible prices holding up while we work on the demand end of the scale. The records show we are gaining, let's at least give it a fair try.

I think another thing we can do is expand our farm markets. More could be done in that field.

The CHAIRMAN. Any questions?

Senator YOUNG. I noted in your statement you think we are gaining on this surplus situation.

Mr. GAUGERT. I believe so; yes.

Senator YOUNG. Well, are not our surpluses now at an all-time high? Mr. GAUGERT. I do not believe they are in butter.

Senator YOUNG. But, of course, we are giving away a lot of butter. We spent about $440 million last year in the dairy price-support program which, I think, was justified. If we gave away some of our other commodities such as we did with dairy products, we would probably be in a much better position.

Now you say a lower price will bring about the desired adjustment in production; do you think so?

Mr. GAUGERT. Well, how do you mean in lower prices?

Senator YOUNG. You think lower or flexible supports will solve the surplus situation?

Mr. GAUGERT. Well, it is not necessarily going to solve it, but it is at least going to make us look for our own product and not sell it to Uncle Sam. I may be wrong on this, but I believe even Land O'Lakes spent less money advertising lately in the past years than they did. before, because they had a ready market.

Senator YOUNG. But are we not fast reaching a situation similar to what we had in the late twenties and thirties when we had a surplus in everything? Isn't that just about the situation now? We have a surplus in just about every commodity; we have too many hogsMr. GAUGERT. Yes; right now we do.

Senator YOUNG. We have too much dairy production?

Mr. GAUGERT. Well, I do not think we have too much; we just have not sold it.

Senator YOUNG. That is right. We are not selling it. We have too many cattle, have we not? The prices are going down?

Mr. GAUGERT. I still think it is a matter of just selling it.

Senator YOUNG. And we have too much feed grain; have we not? Mr. GAUGERT. Yes, we have.

Senator YOUNG. And the price is going down?

Mr. GAUGERT. Why do we have too much of all of this?

Senator YOUNG. Is it not true that we have more of our overproduction today in nonsupported commodities? Hogs have no pricesupport program; cattle have none.

Mr. GAUGERT. That is just a temporary situation. A couple of years ago we had the same conditions; farmers got out of hogs and they are back in now again. It is a matter of jumping in when prices are high, and jumping out when they are low.

Senator YOUNG. Don't you think that this abundance of cheap feed grain is going to be translated into more supplies of pork and beef and dairy commodities? Isn't that the natural thing to happen?

Mr. GAUGERT. Well, that is very true; but we are not going to end the situation by producing more and more grain.

Senator YOUNG. Farmers are not required to produce more, but is not the history of grain production one of higher production and more acreage seeded in years of low prices than in years of high prices; isn't that true?

Mr. GAUGERT. I would not know. I heard statements on it both ways, and some people claim it goes up and some do not.

Senator YOUNG. Let me ask you this question: In 1932 the national average farm price for wheat was 38 cents a bushel; and in 1933 it was 39 cents a bushel. You would think if this business of lower prices would solve the surplus problem that farmers would have planted less wheat in 1934; but actually they planted 22 million acres more. You will find that same thing all through the history of grain production.

I will agree with you that on certain commodities lower prices will bring about decreased production, but it certainly has not been true with respect to grain production.

Mr. GAUGERT. Well, I would agree with you on the wheat angle, because there are a lot of people who are raising wheat that cannot go into anything else easily.

Senator YOUNG. We, in North Dakota, and in that whole area, cannot plant much wheat. We have taken a one-third reduction in acres, and about a one-third reduction in price supports, so what do we do? We are going to need more oats and more barley production.

We can produce pork at 2 cents a pound less, using barley pellets than we can with corn at $1.21 a bushel, and we are closer to a good market now than you are.

Most all of our hogs, that is, 180- to 220-pound hogs, go to the west coast. We are getting into hog production up there and, believe me, that is going to cause some trouble with some of you people in this area. If we lose money feeding cattle, you are going to lose a whole lot more in southern Minnesota and Iowa.

Mr. GAUGERT. Well, that may be true. But why is it that corn is so high? What establishes the fact that corn is so high, when it is cheaper to go to something else?

Senator YOUNG. Because of the price-support program. If they had not had that, you would have had corn at, say $1 a bushel or 75 cents a bushel, and you would have had more of it fed to livestock, resulting in a still worse surplus problem on perishable meat products.

I think that the best way and the most effective way to stabilize the prices of these perishable commodities is, first, to stabilize the prices of grain. Those that are advocating this business of going back to completely free enterprise forget all about what happened in the latter 1920's and 1930's, and we are headed right straight in that direction again. [Applause.]

The CHAIRMAN. Senator Mundt?

Senator MUNDT. In talking about the problem of increasing the demand for farm products, you said that if we could decrease the spread between the price the farmer receives and that Mrs. America pays you would be making headway in the right direction.

Mr. GAUGERT. I think so.

Senator MUNDT. In that connection you offered one constructive suggestion; you said if we could judge the quality of the milk by the product rather than by the expensive equipment used to process the milk, you thought that would be helpful.

Mr. GAUGERT. It would.

Senator MUNDT. Do you think there is a practical way in which that could be done?

Mr. GAUGERT. I believe if there are any grade A farmers in the room here they will agree that there are a lot of requirements which are not really necessary, which cost a lot of money to the producer.

Senator MUNDT. You think you could establish efficient tests on contamination and sanitation and everything else, so that you would not have to have it on an equipment basis?

Mr. GAUGERT. I believe if your milk stands up to grade A requirements, whether you have got that in a stainless steel pail or if it is in a plain steel pail, would not make any difference.

Senator MUNDT. By that you would decrease the cost of milk production so that at a lower price you could make a better profit?

Mr. GAUGERT. It would make it at least so that a smaller-business man could get into the grade A market.

The CHAIRMAN. Any further questions?

Senator HUMPHREY. I would like to ask one question. Did I understand you, sir, to make some comment about the cost-of-living index?

Mr. GAUGERT. Yes: I did.

Senator HUMPHREY. You feel that that index ought to be revised: is that correct?

Mr. GAUGERT. Well, I think it should be limited to the basic-I am not too sure just what is all consideration in the cost-of-living index, but, as I understand it, a good many things are figured in there.

Senator HUMPHREY. There are a number, and it has been revised, may I say. There was a revision of the index, I think, within the past year or two, and I merely wanted to point out that that index is a pretty well-accepted schedule throughout the country.

I gathered your comment was that some of these items had not gone up so much.

Have you ever tried to rent a house in Pittsburgh or Cleveland or even Washington?

Mr. GAUGERT. Well, generally though won't you agree that those basic items I mentioned have stayed pretty stable?

Senator HUMPHREY. No; generally I would agree that they have gotten completely out of control.

Mr. GAUGERT. You would say that?

Senator HUMPHREY. Yes; I would say that. I mean, when you stop to look at the cost of rent, for example, in some of the large metropolitan areas, it is far beyond, may I say, what you and I are somewhat accustomed to in Minnesota.

Mr. GAUGERT. It has not gone up in our area.

Senator HUMPHREY. Well, the index, I think, is an accurate figure. Mr. GAUGERT. Yes.

Senator HUMPHREY. The point I wanted to get at is on this matter of the consumption as related to price on dairy products, in particular. Now, I happen to feel very strongly that the American Dairy Association is doing a good job, and is on the right track with their promotion program, and I think one of the witnesses this morning testified in reference to better research for new uses and new outlets-I think all of this needs to be done, and much of it by the industry itself, and I think there is a role for Government to play in it likewise.

But I asked a number of our staff here to get us just a little information on some of this talk about how we have liquidated surpluses. We have liquidated a lot of dairy surpluses but, may I say, we are still buying a lot; we are buying a lot under 75-percent price supports.

For example, our purchases from April to September 1955, are 112,500,000 pounds of butter; 98,700,000 pounds of cheese, 360 million pounds of nonfat dried milk, a total of 71,200,000 pounds-now, the peak of purchases by the Government was in 1953, and it was during that period, may I say, from January 1953 to April that a good deal was dumped on the Government, which was later on dumped back, as we read in the press, some of it never even getting the privilege of being dumped; it was just sold and held, and then resold for a windfall which, I think, borders upon a bit of a scandal.

Now, the drop is 200 million pounds in these 2 years; 770,700,000 was the peak purchases of all time, and of that amount in those 3 months from January to April, a good proportion of that was purchased right during that time when we were kicking around whether it would be 90 percent or 75, and when people knew it was going to 75, they started to dump on to the Government.

I also find another factor here which I would like to bring to your attention, and that is that much of this disposal and much of this socalled removal of surplus is due to the following factors: Under section 416, for example, in 1954, 91,900,000 pounds of butter was given away, donated, 67,600,000 up to now, 1955, April 1; cheese, 72,500,000 pounds in 1954, and up to April 1, 1955, 63,900,000 pounds.

Nonfat dried milk-this is all domestic, I have not got to the foreign market-71 million pounds in 1954; 67.4 or 67,400,000 pounds up to April 1, 1955.

Now, in the foreign, this is donations, 134,300,000 pounds of butter in 1954, and up to April 1, 1955, 65,500,000; and cheese, 86,100,000 pounds in 1954, and 39,900,000 pounds up to April 1, 1955; in nonfat dried milk, 258,600,000 pounds donated in 1954; 125,200,000 pounds in 1955 up to April 1.

Now, there is another item here that is noncommercial export sales. I am not quite sure what it is, but I believe that is some kind of a subsidized export sales, a substantial amount. I bring these to your attention, sir, because I think the first thing we have got to do here is to be honest with ourselves, and we have heard a lot of very honest, frank testimony, some which maybe members of this committee have disagreed with in terms of their past feelings about these matters. I think we have got to get all of this record out on the table and do what the facts tell us to do.

I do not want to have the record look as if the facts are that merely by a drop in price that we have substantially increased sales.

Is it not true, primarily, that the removal from the market of a lot of this surplus has been primarily through two things: First, an increase in the population of almost 7 million in 2 years and, may I say, that is the little group that, now 7 million, use a lot of dairy products; and, secondly, there is an increase, a tremendous increase, in our donations, in our use of our surplus commodities for foreign and domestic purposes, all to the good.

Is that a fair statement?

Mr. GAUGERT. Well, I think so, but I still think ADA has done us some good; there are some improvements.

Senator HUMPHREY. No doubt about that, but there is much more that can be done. One other point, sir: I just want to call to your attention the feeling I gather that you express is that by prices going down, that you do automatically regulate supply; is that correct?

Mr. GAUGERT. Not unless you can keep from going up on the other end. It does not do us any good to take less if we cannot pass that savings on, if it is going to be absorbed before it gets to the consumer; we are not going to gain a thing if that happens.

Senator HUMPHREY. What do you recommend, sir?

Mr. GAUGERT. I wish I did; I do not know that answer.

Senator HUMPHREY. Is it not true really that in the workings of the market, let us put it here, just between labor and management as one area, that in the bargaining that goes on there that price adjustments and wage adjustments are being made up?

Mr. GAUGERT. Yes.

Senator HUMPHREY. All right.

You have no program to stop that, have you?

Mr. GAUGERT. Not unless you could get it so that on your price index where it would be limited

Senator HUMPHREY. Well, even if it was not a cost-of-living index, may I say a lot of people, management, industry, and labor do not necessarily negotiate on the basis of cost of living. They do not want to just hold what they have, they want to go ahead, do they not? Mr. GAUGERT. Yes; I guess that is true.