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not being sold to consumers and why surpluses are constantly building up, making it necessary for us to accept year after year drastic and still more drastic acreage cuts, with proportionate reductions in net income. Such studies would also make it much easier for members of this committee and other Congressmen to support measures which would be to the best long-term interest of farmers and for the Nation as a whole.
If we were as expert in merchandising tobacco, for example, as we are in producing it, we would know that our interest in the crop does not end with the first sale on the warehouse floor but continues right on through until the stuff is actually consumed. If we had a good picture of the hurdles and bottlenecks that must be cleared and the competition that must be met by our tobacco on its way to the final consumer, you may be certain that we would insist upon a program under which we could hold and expand our markets and under which tobacco growers would have an opportunity to earn larger net incomes than is presently the case.
During the war years it was easy to get the impression that our only problem was one of price. A hungry and war-torn world grabbed eagerly for nearly anything and everything that we produced and offered for sale. The volume was limited in most cases only by what we could produce. Since the end of the war, however, we have learned that the curtailment of the right to produce can have just as bad results on net income as price reduction. Since our real object in farming is to earn the highest possible net income on our operations, it is important that we consider all of the factors that have a bearing on the net-income picture.
Price is one of these. The amount produced is another. Still another is costs of production. A sky-high price with zero production yields no net income. A zero price with sky-high production gives the same result. Somewhere in between these two extremes we must find the combination that will yield to good farmers the highest net return on their operations.
The question naturally arises, What is the right price for any product from the producer's standpoint? The book answer is fairly easy. It is that price which will move the most product into consumption and return to the producer the best income for his labor, skill, and investment.
If you ask the best collection of business and economic minds in the country to name the right price, in dollars and cents, for a given commodity, the honest answer would have to be "The Lord only knows." The exact answer can only come through trial and error, from experience in dealing with market conditions day by day, in finding out what people want and how much they want it as expressed in the prices they are willing to pay. This will always be true so long as people are free to spend their money as they see fit. There must be some leeway in horse trading if you are going to sell horses.
Surely we know that if we are to have a strong, prosperous, and progressive agriculture we must sell what we produce to consumers. To satisfy the needs of consumers is the only reason for production in the first place. It is from satisfying these needs that we hope to earn a profit in the business of farming. If we agree with this, how then do we go about the job of getting our products sold? There isn't but one way. First we had better take a look at what our competitors are doing. Farmers have many competitors. Some competitors are other farmers producing substitute products. Some are industrial plants producing synthetic substitutes. Other competition, especially for foreign markets, comes from farmers in other lands. We need to keep an eye on competition, whatever and wherever it is. Then, if we want the business, we must be willing to meet our competition on the basis of quality, price and service. All the law in the world can't change that simple fact.
You can help agriculture to be more competitive through research in production and in marketing. You can help clear up the bottlenecks and the misunderstanding that hamper world trade. You can help in heading off undue increases in production costs brought on by monopolistic shenanigans on the part of either labor or industry. You can help by justified tax adjustments such as the removal of the 2 cents per gallon Federal tax on farm used gasoline. These are a few of the ways in which you can be of very real help which will bring lasting benefits to farmers. Above all we request that you not administer another dose of paregoric. It leaves us worse off in the long run.
Mr. BLALOCK. I have listened to the testimony so far and certainly can agree with a lot of it and disagree with some of it.
There has been quite a bit of discussion about the support level or support program in agriculture and quite a bit of discussion on both the 90 percent support and flexible.
I don't think either will solve the problem without some other consideration and certainly we have gotten into a predicament with what we have had whether what we have now would correct it, I don't know, but I don't think it will without other things.
I have listened and read and studied with considerable thought the soil-fertility proposal, and the principle of the thing sounds good, but I don't believe that the soil fertility program alone will get us back to where we would like to be.
I think we are going to have to continue a type of support program and controls of production in order to keep those crops at the farms where the base was established for them until this program proves itself by taking this land out of production that we can correct this problem we are up against.
I do think the soil-fertility program along with continuing type of support program will certainly be a great step toward getting our production in line with supply. Certainly that is the thing I think is depressing the farmer today, the fact that we are producing more than there is a demand for.
The CHAIRMAN. In the statement you have submitted for the record, do you have any plans for retiring these acres ?
Mr. BLALOCK. Not definitely. I have some suggestions there that I hope would help you people to work out something
The CHAIRMAN. Do you believe that the farmer who sets it aside ought to be compensated ?
Mr. BLALOCK. Yes, sir; I think since we are using a compensation for our support program and our ACP practices certainly some kind of program should be worked out to use some of the means we are now using in our present program to compensate for that land that is set aside.
The CHAIRMAN. It has been suggested that the same facilities now used in our conservation program and the payments, that the same machinery be used and that the payments that are made be augmented to a certain level so as to compensate the farmer for taking these lands out of his farm and someone suggested he be paid whatever profit he might make on that acreage. Others have said pay the interest only and some return by way of interest on the market value of the land.
Have you any suggestions to which plan you would recommend?
Mr. BLALOCK. Nothing except we will work with whoever will suggest one that looks best.
The CHAIRMAN. We get that from you, the people. We are here for that. I know in my own mind what I would like to have, but since it is for the farmers of the country, we want them to say how they desire it to be handled, how much compensation they should receive.
Mr. BLALOCK. We think certainly the compensation will have to be enough to encourage the farmer to take that out and we don't think that will be an excessive amount and will cost any more than our present type program.
The CHAIRMAN. Do you think such a program could be carried on on a voluntary basis without compensation? Mr. BLALOCK. No; I don't. The CHAIRMAN. We would have to get an incentive.
Mr. BLALOCK. Yes, sir; we would have to get an incentive. I don't think you would get it on a voluntary basis without compensation.
The CHAIRMAN. What is your view on diverted acres, the use of diverted acres ?
Mr. BLALOCK. I think this soil fertility plan is the thing to take up the diverted acres. We have been diverting for a long time but we haven't taken anything out of production, the total. We have taken certain commodities out and shifted over and caused the problems with other commodities.
The CHAIRMAN. Do you think a 10 percent or 15 percent, whatever acreage we may set in the bill, would do the job and that we wouldn't have to do anything about the use of the diverted acres ?
That is, other than to have them agree to cross-compliance. Mr. BLALOCK. I think diverted acreage programs would certainly work into—
The CHAIRMAN. It would alleviate the trouble, but alone not entirely solve the problem.
Mr. BLALOCK. Not entirely, I don't think, but would be a great step in that direction. As far as the percentage that you take out, I am not an expert, but we have the records, we know and can get the figures of how much land it is taking to produce a normal supply of all of the crops we are producing and then whatever acreage regardless of what the percentage amounts to that is in excess, let's take it out and certainly you have the privilege of adjusting it from year to year when you need more or less, take out more or pull out less. It must be a flexible program there in regard to how that acreage stands from year to year.
The CHAIRMAN. Anything else? Mr. BLALOCK. I think there has been mentioned a few times, I happen on my farm to grow a little tobacco and am in the dairy business, some hogs, and I produce fred to feed everything I grow. There has been some question of the dairy situation and this morning was some question as to the dairy production increasing in recent years or months, and I am not saying what has caused the difference that we find there, but in this increased production we have also increased consumption to the extent that the dairy products are considerably less in storage today than they were when the adjustment was made in the dairy situation.
The CHAIRMAN. That is because more was sold, you know. Mr. BLALOCK. That is right, more was sold. The CHAIRMAN. Or given away. Mr. BLALOCK. I wouldn't say given away. I think we are selling more. Certainly we are not putting more, we are putting much less into storage of the dairy products than we were prior to the time this adjustment was made. I think our dairy people certainly in our section are much better satisfied with the movement and dairy situation as it is now than as it was prior to this adjustment.
We were getting very disturbed about the amount that was going into storage previously.
Mr. COOLEY. Do you like the idea of changing the price support from 90 percent to 75 percent all at once?
Mr. BLALOCK. I think when any product due to support prices itself out of the market to where substitutes begin taking our market, we better take a look at what our competition is.
Mr. COOLEY. You have adjusted price support down but you think it should have been down gradually rather than overnight?
Mr. BLALOCK. I think we should have taken a look at it 6 or 7 years ago and started adjusting instead of waiting until a couple of years ago.
Mr. COOLEY. We had it up to 90 percent for the first 14 months under Mr. Benson and instead of his bringing it down gradually, as President Eisenhower said he wanted it done, he brought it down all of a sudden.
Mr. BLALOCK. Probably Mr. Benson was wrong in not bringing it down when he first went in and those in authority a few years ago were wrong in not bringing it down at that time.
Senator SCOTT. Did the cheese deal help the farmer much?
Mr. BLALOCK. I don't know whether it was the cheese deal that helped but something helped in the program.
The CHAIRMAN. The reason is in 1955 there was sold and given away in butter alone $173 million worth, plus, and in dried milk $117 million worth. A good deal of this dried milk instead of disposing of it, where it could be used for human consumption, it was used for hog feed.
Do you agree that should be done? That is why you have had quite a bit less taken in, got less on hand now because it has been disposed of in that manner.
Mr. BLALOCK. If it saves storage and that was all it was fit for, we better get it out and stop paying storage. I am not sure it was fit for anything else but hog feed at the time it came out. But the question I want to clear up, there is according to the figures that they have given me from the Department, we are not putting as much dairy products in storage as we were for a number of years prior to the adjustment.
The CHAIRMAN. Thank you, sir.
All right, Mr. Hicks. Give your full name and your occupation, please. STATEMENT OF CARL T. HICKS, PRESIDENT, FLUE-CURED TOBACCO
COOPERATIVE STABILIZATION CORP., WALTONBURG, N. C. Mr. Hicks. I am Carl T. Hicks, I am a tobacco grower from Greene County, N. C. I am chairman of the tobacco committee of the North Carolina Farm Bureau, and president of the Flue-Cured Tobacco Stabilization Corp.
I would particularly like to file a factual report with the committee on the operations of the Stabilization Corp. if it is permissible.
The CHAIRMAN. You may do that. (Report submitted by Mr. Hicks follows:) Flue-Cured Tobacco Cooperative Stabilization Corp. (hereinafter referred to as “Stabilization Corp.") was organized on June 1, 1946, under the Cooperative Marketing Act of North Carolina and subsequently domesticated under similar acts in the States of Virginia, South Carolina, Georgia, and Florida. It began operations on August 12, 1946, and has operated continuously since that time. The fiscal year of Stabilization Corp. ends April 30, and all information contained herein referring to any specific year will be for the fiscal year beginning May 1 and ending April 30.
The purpose of Stabilization Corp. is to stabilize the price of tobacco at 90 percent of parity on the auction-warehouse floor by administering the mandatory price-support program as provided for by Federal legislation. Its activities have been limited to its purpose. Stabilization Corp. has not entered into any other phase of the tobacco industry, such as operating auction warehouses, redrying plants, or storage warehouses. All of these services have been arranged for on a contractual basis with existing facilities within the industry. Any tobacco grower is eligible to participate in the operations of Stabilization Corp. if he purchases a share of common stock in the corporation at $5 per share, which entitles him to all privileges and benefits of Stabilization Corp., provided he has planted within his acreage allotment.
In administering the price-support program, the following duties are performed:
(1) Contractual arrangements are made with all auction-warehouse operators to advise the grower when his tobacco fails to bring as much as one bid above the support price and to insure him of receiving the support price, provided he is within his acreage allotment and is a member of Stabilization Corp. If he is not a member of Stabilization Corp., it is the responsibility of the warehouse operator to arrange for him to become a member if he so desires. The warehouse operator is responsible for full identification of any quantity of tobacco that the member may deliver to Stabilization Corp. He properly executes settlement memorandums fully identifying the landlord and, in the event of a tenant or sharecropper, their identification, and the division of the crop between the landlord and the tenant as well as a full description of the tobacco delivered. The warehouseman under this arrangement also assumes the responsibility of adequately protecting the tobacco until it is received by the redrier, who processes it. The warehouse operator pays the grower for his tobacco according to the 90 percent of parity price-support schedule in the same manner as he does for tobacco purchased by any tobacco company. He then bills Stabilization Corp. for the tobacco on a daily basis, supporting his invoice with settlement memorandums substantiating the fact that the tobacco has been received. Records are verified by Stabilization Corp. to be certain that the tobacco has been received and the grower paid properly before the warehouse is reimbursed.
(2) Contractual arrangements are worked out with the various redrying firms who are independent tobacco dealers to receive such tobacco as is charged to the account of Stabilization Corp., reweigh the tobacco to see that the weights correspond with the quantity of tobacco being billed, examine it for damaged, mixed, or nested tobacco, pull out undesirable bundles and pluck undesirable leaves so that a uniform, merchantable product may be packed. The tobacco is then placed in a redrying machine which conditions it for safekeeping for an indefinite period of time. It is then taken from the redrying machine and packed uniformly in hogsheads and shipped to a storage warehouse where it is held until it is sold. All tobacco is classified by grades and packed by grades. There is no commingling of grades within any one hogshead or otherwise.
(3) When the tobacco is shipped from the redrying plant to the storage warehouse, which is also under contract with Stabilization Corp., the tobacco is stored by types and grades. Each hogshead must be accounted for by the number of the row in a certain bay within the storage warehouse, usually identified by number. A “bay” consists of a four-row grouping of hogsheads in a specified area within the storage warehouse. The storage operator also identifies each hogshead as to location in the storage, the number of the hogshead, type, grade, and crop year of the tobacco within the hogshead, and the gross, tare, and net weights of the hogshead, and issues a receipt for it. Negotiable warehouse receipts are issues for each hogshead and forwarded to the office of Stabilization Corp., and are verified before the redrier is paid for his services. These receipts represent the tobacco pledged to Commodity Credit Corporation as collateral for money borrowed. Each year a physical inventory is taken of all tobacco in all storages for the purpose of determining the actual status of the tobacco stored and also to determine if for any reason any tobacco has been removed from the storage without authorization from Stabilization Corp.
(4) When the tobacco is sold to manufacturers and export dealers, arrangements are made with the storage operator to take certain lots of tobacco out of rows and bays and set it up where adequate light is provided so that the tobacco may be properly inspected by the purchaser. Each hogshead is then opened by removing the casing from around the tobacco. After the tobacco has been inspected, it is recoopered by securely replacing the casing around the tobacco. A