STATEMENT FILED BY R. R. FARRAR, SECRETARY, MINNESOTA CHEESE The board of directors of the Minnesota Cheese Industries Association instructed me to bring to your attention and urge the correction of a serious situation in the cheese-manufacturing industry resulting from the underpricing of cheese in the Federal support program. The Commodity Credit Corporation feels that their stocks of cheese are burdensome and hence the underpricing of cheese so as to divert milk from cheese factories to butter-powder plants. It is the deliberate policy of those in charge of the support program to reduce the tonnage of cheese made without consideration for the financial disasters brought upon the cheese factories, either privately or cooperatively owned, in areas having butter-powder competition for milk. This inequality is particularly severe in Minnesota and Wisconsin, which States are rated No. 3 and No. 1, respectively, in cheddar-cheese production. The basis for the deliberate underpricing of cheese as compared to the returns possible if the same milk were made into butter-powder results from the failure of those in charge of the foreign and domestic surplus dairy products disposal programs to move cheese from Government stocks as freely as they are able to dispose of butter and milk powder. It is our understanding that Congress intended that milk producers were to receive a certain percentage of parity for their milk regardless of the product made. This is not the case and producers who look to the cheese factory for their milk market are not receiving the same financial returns as butter-powder. The cheese-milk producers are not asking for any advantage but are insisting that they receive equal returns. As a result of the underpricing of cheese, all so-called flexible plants, that is, those able to produce cheese or butter-powder have long since ceased to make cheese. However, those cheese factories who cannot, due to finances or small volume, convert to the manufacture of butter-powder, must stay in the production of cheese hoping for an immediate correction, or at least a correction at the time the support prices are announced for the next crop year. In the meantime, these factories, in order to hold their milk, must pay the going price for milk and in so doing, are paying out their profits, their surplus, or in too many cases, their capital. The State of Wisconsin expects the failure of many cheese plants who have operated successfully for many years, but cannot meet the artificial conditions created by the Commodity Stabilization Service in their attempt to divert milk away from cheesemaking. It goes without saying that any dairy plant, especially a cheese factory, is of very little value without a milk supply. With reference to the Wisconsin situation, we refer you to the Wisconsin State Department of Agriculture's report, An Appraisal of the Competitive Position of American Cheese Factories in Wisconsin, which is dated May 27, 1955. This report is a comparative study of the financial status of 50 cheese factories in Wisconsin made jointly by the University of Wisconsin and the Wisconsin State Department of Agriculture. In Minnesota, where the cheese factories in general are of larger size than in Wisconsin, conversion from cheese manufacturing to the manufacture of butter and powder is either started or in the engineering stage, such conversion costing $50,000 to well over $100,000. This means that their present cheese equipment in most cases will be junked. It is our belief, that if the emergency facing the cheese-manufacturing industry were in the form of flood or fire, there would be immediate steps taken to alleviate the situation, and the cheese industry feels that as American citizens and taxpayers, their businesses should not be thrown into bankruptcy or materially altered by any deliberate policy established by the administrators of a Government-support price program which was intended by Congress, to put a floor under the prices paid farmers for milk. Further, that cheese should not be underpriced merely because its alternate products can be given away more readily. It is interesting to note that the disposal officials are horrified at the suggestion to use surplus cheese for animal food, but they casually consign millions of pounds of human food made of skim milk powder to animal feed and most recently, 6 million pounds of skim milk powder to Denmark for animal feed use. This forced conversion of the larger cheese factories from the production of cheese into the production of butter and powder is also causing concern to many of the established manufacturers of milk powder; they feel that this arbitrary forcing of milk from its normal production into cheese is creating additional competition in an already overcrowded field. It appears that the only people welcoming this situation are those in charge of the disposal programs and the manufacturers of milk-drying equipment. We urge that pressure be brought upon those in charge of the domestic- and foreign-disposal programs to step up the disposal of the so-called burdensome Government-held stocks of cheese, and secondly to prevail upon the Livestock and Dairy Branch, Commodity Stabilization Service, USDA, to raise the price of cheese at least cents per pound so that manufacturers of cheese will be on an equal basis with other dairy products, and milk producers shipping to cheese factories will receive the same returns as though they shipped the same milk to butter-powder plants. Senator ED. THYE, St. Paul, Minn. THIEF RIVER FALLS, MINN., October 18, 1955. DEAR SENATOR: Some time ago Les Ihle of Thief River Falls called you and I spoke to you briefly concerning a farm program which I have worked out. You will probably think it presumptive on my part to even suggest such a thing, but I, like all good Republicans, am vitally concerned with our chances in the next election, and coming from an agricultural area, am also vitally concerned in the maintenance of adequate fair farm income and the preservation of the small farms and farmers such as exist in an area like ours. Under I have discussed this plan with several people locally, and everyone that I have talked to believes that the plan has merits. I am not going into particular detail at present, but will outline the essentials of the plan. This is it. the plan, rather than use, as at present, a flexible price support, I would offer the farmer 100 percent of parity on a basic yield. Basic yield could be determined according to a number of schedules for various crops and areas of the country. The basic yield would be calculated so as to cover a basic salary comparable to that in industry, plus cost of production, and fair return on investment. Beyond the basic yield the farmer would receive only market price. Using this as a pretty far-fetched example, but one which will illustrate the point, we can imagine that we have a small wheat farmer in this area, farming 160 acres. For example only, let us say that average wages in industry are $4000 a year and that, allowing a farmer $15 an acre rental for his land and $10 an acre for seed and expenses, his costs are $25 per acre. This would mean that this farmer would have to receive $8,000 a year to cover salary, return on investment and operating expenses. Say that wheat has 100 percent parity price of $4 a bushel. This would mean that the Government would guarantee 100 percent of parity on the first 2,000 bushels of wheat raised. Any over and above 2,000 bushels would be sold by the farmer at market price, but up to this amount the Government would pay him direct subsidy amounting to the difference between 100 percent of parity and the market price. As I say the basic yield could be determined by a large number of formulas adaptable to different areas and crops or combination of crops. If this plan were combined with a Government-subsidized crop insurance program, it would help to do what has been done for industry, that is, guarantee the farmer an annual wage, and I believe would be a politically potent weapon if proposed in that manner. Here are a few of the advantages I believe this plan would have: 1. It would guarantee the small farmer a living wage without necessitating the huge subsidies which have sometimes been paid in the past to the big farmers, who operate farms of large acreage and have less need of a subsidy. 2. It would set the cost of Government subsidies, since subsidy payments would be necessary on only a basic yield. That is, no sliding scale of parity prices would be necessary. The cost should be less than under our present system, and even in years of abnormally large yield, with 100 percent subsidy only on the basic yield, the cost to the Government is little higher than in years of small production. 3. There is still an incentive system, for unless the farmer raises the basic amount, he will not take advantage of his full subsidy payments. 4. The cost to the taxpayer is less, as he will not be paying double as he is now doing; that is, at present he pays taxes to support prices, and also pays higher prices when he buys goods at market, as a direct result of Governmentsupported prices. Under this plan he would pay only the direct susidy on the first basic amount, but the law of supply and demand would determine market prices, and the savings would be passed on to the consumer. 5. Under this system it would not be necessary to pay a farmer to cut production or to cut acreage, as overproduction would be naturally curtailed, for if there is too much overproduction, the market price would plummet and the law of diminishing returns would take over, so that the cost of production would be greater than the return on the amount raised over the basic yield, and a farmer would naturally cut his own production, yet since the basic yield has been calculated to allow a decent living wage, the plan would be fair even if market prices fall. 6. This plan would not penalize the average small farmer for the overproduction and greater efficiency of the larger farmer. 7. Last, but not least, this plan would have a terrific political appeal to the small farmer. The phrase "guaranteed annual wage" attached to any farm plan would be a politically potent affair. The thoughts are extremely hard to put down in word form, since I carry on a very busy schedule and have not had time to transcribe my rough notes, but if the plan has any merits in your eyes, and you would like further details, I will be glad to furnish them. Sincerely yours, WM. M. FEIGAL, M. D. Senator EDWARD THYE, St. Paul, Minn. NEW LONDON, MINN., November 7, 1955. MY DEAR SENATOR THYE: I received a letter from Gordon Yack, of Clara City, Minn., in which he enclosed a copy of Dr. William M. Feigel's letter to you of October 18, in regard to a farm plan. The reason Gordon sent me this copy is that he thought it was very much similar to the farm plan that I have been working on. I was surprised to see by this plan that the seven points he relates are basically the same as mine and I want to make it clear right now that I do not know Dr. Feigel and have had no working connection with him, but I want to say that I feel very much in favor of his plan and I know that it has lots of appeal to the farmers in our community, as I have questioned quite a few farmers about this plan in the last 6 months and they feel that this plan would work. If you should be interested in Dr. Feigel's plan and you would want an interview with him on this matter, I would also be glad to give my version of the plan if you should so wish. I am in the retail business and have one-half partnership in the big store of New London doing a general merchandise business, and have no political ambitions and do not care for any publicity but as I grew up on the farm and left there when I was 21 years old, I have a genuine interest in our farm problems, and as it also has a direct bearing on our business, hoping that a farm plan will soon be established that will stop the bankruptcy of our small farmers, especially, the younger generation who is trying to get a fresh start in life. I have so much more that I would want to say on this matter but time and space for writing is limited, if you should have any questions as to this plan I am sure it can be answered. I appreciate everything that you have done to further the farmers as well as the small-business men's cause. I remain, Sincerely yours, HENRY A. VEGDAHL, STATEMENT FILED BY OTTO GERBER, STEWARTVILLE, MINN. Statement on a farm program within agriculture: This program would have a (farm) board consisting of the Secretary of Agriculture, a labor representative, economists of agricultural colleges, representatives of farm organizations, and, by all means, the processor. This board would establish a marketing price, including price of average farm production, plus a reasonable profit, plus a reserve price to be added to build up a fund large enough to take land out of production by paying cash rent per acre-satisfactory to the producer in his area. The same amount would be added to all perishable farm products, except fruit and vegetables. To control production in order to keep in line with consumption. The man that would increase his production of pork and beef would only Jave a market if it were open and would be penalized on heavier weights and lower quality. This program will work exactly the same for all other farm commodities that go into the market place. Our customers would pay as we go and not through a tax program. This program, in case of drought years with low production, would let farm prices go up in price and not have a supply of Government-hoarded goods on the markets by the taxpayers. STATEMENT FILED BY WILLARD J. GRANT, ASSISTANT MANAGER, NEBRASKA-IOWA NONSTOCK COOPERATIVE MILK ASSOCIATION, OMAHA, NEBr. This statement on a number of subjects considered of great importance to the dairy industry is endorsed by and submitted on behalf of the more than 2,500 grade A dairy farmers in Nebraska and Iowa who are members of the Nebraska-Iowa Nonstock Cooperative Milk Association. These producers of grade A milk and cream supply the needs of more than 500,000 persons living in Omaha, Council Bluffs, Lincoln, and adjacent communities in Iowa and Nebraska. The production of fluid milk is a very important segment of American agriculture in the Midwest. The value of the product of these producers is a big factor in the economy of this region. In the Omaha-Council Bluffs-Lincoln milkshed alone, the value of the grade A milk marketed by dairy farmers exceeds $12 million per year. THE FEDERAL MILK-ORDER PROGRAM The prices paid to producers for fluid milk in this marketing area are determined in accordance with the provisions of a Federal milk-marketing order issued at the request of producers by the Secretary of Agriculture under the Agricultural Marketing Agreement Act of 1937, as amended. At the time this order was issued, the prices paid producers were so low that the supply of milk produced under local health regulation for these large urban centers was inadequate. Farmers were not receiving the cost of production and disorderly and chaotic marketing conditions prevailed. Many months each year milk had to be imported from distant points in other States at high prices to satisfy local needs. The cost of transportation in bringing milk from Chicago or Wisconsin plants is about $1 per hundredweight (21⁄2 cents per quart) and the quality often questionable after such a long haul and lapse of time. Under the order stability has been restored and a healthy dairy industry has been developed which is capable of meeting the year-round needs of a rapidly increasing population in this area. During the last 2 years no milk for fluid use has had to be imported, but neither has there been an unmanageable surplus. The Federal order assured minimum prices and orderly marketing conditions. Accordingly, producers have been encouraged to make the investment necessary to produce grade A milk. In turn, the order has protected consumers from a scarcity of pure and wholesome milk and, in general, redounded to the benefit of consumers and the dairy industry as a whole. Fluid-milk consumption has increased each year since the order has been in effect. The producers we represent are vitally interested in a farm policy that will preserve to them the benefits of this law, the Agricultural Marketing Agreement Act of 1937, as amended, unweakened by any amendments that may encourage a return to the disorderly and chaotic conditions that prevailed in the industry before its enactment. The Agricultural Marketing Agreement Act was enacted by Congress to secure to the producers of fluid milk a fair return for their product that would encourage the production of an adequate supply of wholesome milk for the consuming public. It is a voluntary program of regulation which the producers must request and approve before a milk order is issued. It is a thoroughly democratic program, fairly and capably administered. In more than 50 of the leading fluid milk markets in the United States similar marketing orders have brought economic stability and orderly marketing. This phase of the farm program should be preserved at all costs. In some quarters the charge has been made that Federal milk orders established barriers to the free flow of milk. This is not so when they are properly understood. Subject to local health regulations, milk may move freely into any market under Federal regulation on the same competitive level as milk produced locally. Transportation costs are the barrier to the free movement of milk. Milk is a perishable product. Local producers who incur the expense of meeting the requirements prescribed for grade A milk assume the year-round responsibility of providing an adequate supply of pure and wholesome milk for the local market. The investment required is large. The undertaking cannot be lightly assumed by farmers in the absence of some assurance of a stable market. Producers and handlers in other production areas assume no such responsibility. Their obligation is to their own primary markets. But in times of seasonal surplus, a dealer in such an area may seek an outlet for the excess over the needs of his primary market by dumping it in an order market, where regulated handlers are bound to pay local producers the uniform price determined by the order. These distant handlers are economic opportunists. They have no responsibility to the market they invade. They seek to exploit it temporarily. If permitted to do so, while local handlers are subject to regulation, they leave behind, when they withdraw, a weakened industry to the economic disadvantage of local producers. Some regulation of these incidental and frequently temporary supplies coming from unregulated sources, which usually are surplus areas, at irregular intervals is absolutely necessary to make effective the classified pricing program which the Congress specifically authorized in the act. You cannot subject local handlers to regulation and leave the others free. To do so would be to return to the chaotic market conditions the orders sought to correct. Minor regulations which assures that the dealers of such irregular incidental surpluses will enter the regulated market on the same level competitively with the local regulated handler is neither unfair nor discriminatory. It tends to assure that remote surplus supplies will not undermine the economy of producers who have assumed the responsibility of providing needed supplies continuously and will preserve the classified system of pricing milk. Certain manufacturing interests seek to destroy the program by insisting on the right to enter such markets at will on terms more favorable than local handlers. These suppliers, who are in the market today and out tomorrow, are entirely free under existing orders to sell their milk in any order market at any time but they have no right to ask for preferred treatment over the local handler, who, together with local producers assumes the year-round obligation of insuring consumers of an adequate supply of wholesome milk. Such incidental regulation, necessary to equalize competition is not only necessary but in the best interests of the consuming public. It effectuates the policy of the Congress. A stable and adequate local supply is essential to the health and welfare of the community. In no sense does the Federal marketing order program erect any barrier to the free flow of milk. This association respectfully urges this committee to resist this effort of the opponents of the market orders to sabotage a sound farm program, carefully administered on democratic lines, which has been thoroughly tested by years of experience. The Agricultural Marketing Agreement Act is sound in policy. It has brought stability and orderliness to an industry on which the day to day health of millions of people depend. It should be preserved at all costs. PROPOSALS FOR CHANGES IN PROCEDURE IN MILK ORDER HEARINGS Proposals have been advanced from time to time during the last several years for changes in the procedure before Federal administrative agencies. The general trend of the proposals has been toward more judicial and formal types of procedure. Proposals for extensive changes in administrative procedure are currently being advanced by the Hoover Commission and its task force. Under these proposals administrative proceedings would be made to conform quite closely to the formal procedures of United States district courts. The same type of procedure, with minor exceptions, would apply to all the various tyres of agency actions including hearings to establish Federal milk orders. Although it may be practicable, and even desirable in certain fields of administrative law to require courtroom procedures it should be recognized that such procedures are not adaptable to all types of hearings. In some fields such a hearing is not the best way of obtaining facts and getting at the truth. Federal milk orders are legislative in character, and the application to them of judicial procedures would 64440-56-pt. 2—11 |