Under our plan, butter and cheese consumption, and particularly butter consumption, would increase. Consumers would again be buying butter in something like the quantities they used to buy in former years. Furthermore, consumers would be getting a larger proportion of the better quality butters, which are now going into storage under the Government's purchase program.

No payments under our plan would be made to plants making evaporated milk, ice cream or other products. Prices for these products, on a milk equivalent basis, would therefore be higher than prices for butter and cheese. Price relationships among producers would, however, not be disturbed. Returns to producers delivering milk to an evaporated milk plant, for example, would be about the same as to a butter or cheese plant, except for quality and location differentials.

There would be no problem with fluid milk, which would command a price commensurate with the support level, since this milk is marketed on the basis of special arrangements. Insofar as milk intended for fluid consumption is utilized for making butter or cheese, the plant doing the processing would be entitled to a payment on the quantities manufactured.

I should emphasize again that we are not proposing that payments be made on all milk and dairy products, but only on butter and cheese; nor are we proposing production payments to producers. We believe that these commodities, and especially butter, represent a special case, justifying the use of the plant-payment method. Butter and cheese are the two commodities which have been absorbing the milk surplus all along, and it would be desirable to permit this process to continue. Also, butter represents the one commodity in which a special effort, pricewise, needs to be made to increase consumption.

CONTINUATION OF SOME PURCHASE OPERATIONS

The adoption of the marketing quota plan and the plant-payment plan would not entirely do away with the need for some purchases by the Commodity Credit Corporation. Purchases should continue to be made to meet the needs of the school lunch program, and the other similar programs. These purchases would be limited to current requirements, however. Commodities purchased would not be stored for indefinite periods as they have been in the past. Also, it is possible that temporary and unforeseeable situations might arise which would make it advisable to make some price-support purchases.

PAYMENTS ON NONFAT MILK SOLIDS

Nonfat milk solids, or skim powder, as it is frequently called, presents a special case, and calls for a special program. Production of this commodity exceeds consumption in normal channels by very large amounts. During the calendar year 1954 total production of skim powder was 1,288 million pounds. Purchases by the Commodity Credit Corporation during that period amounted to 650 million pounds, or slightly over half of total production. The difference between production and consumption is so large that there can be no real prospect for normal consumption to catch up with production in the near future.

A substantial portion of the quantities of skim powder acquired by the Commodity Credit Corporation during the last 3 or 4 years has been sold for use as animal feed. We believe, however, that the purchase and storage for long periods of time of skim powder which is eventually sold at a lower price for animal feed involved some unnecessary expense.

We therefore propose that the feed mixers should be permitted to purchase the skim powder in the open market. They should receive a payment equal to the difference between the prevailing price of the skim powder and its value for animal feed. The transaction could be properly administered by requiring feed mixers to enter into contracts with the Commodity Credit Corporation.

ESTABLISHMENT OF SUPPORT LEVEL AT 100 PERCENT OF PARITY

Finally, we propose that the support level for milk and dairy products be raised to 100 percent of parity. The present support price for manufacturing milk is equivalent to 80 percent of parity; for butterfat in farm-separated cream, to 76 percent of parity. In view of the fact that, under our marketing quota plan, supplies would be reduced, the increase in the support level to 100 percent of parity is a reasonable and practical goal.

Through the marketing quota plan, producers themselves would make the necessary sacrifices to bring about the increase in the support level. Under our plan, funds which would otherwise have been used to make price-support purchases would be used to make payments under the plant-payment program, to make payments for the diversion of skim powder to animal feed, and for making purchases of dairy products for school lunches and similar uses.

In conclusion, I should like to say that there is almost a universal recognition of the fact that some action must be taken to assist the dairy farmer in the present difficult economic situation, and we appreciate the committee's coming here to receive the views of representatives of dairy farmers. We believe that some new approach to the dairy problem must be sought. It is in this spirit that we are offering our suggestions for the consideration of the committee.

The CHAIRMAN. Thank you ever so much, sir. Would your marketing quota plan place a quota on raw milk to be sold?

Mr. YORK. No.

The CHAIRMAN. How would the distribution of the amount of milk that you deem necessary, say, in an area, where the fluid milk that is sold to the consumer be done taking that into consideration as well as the amount devoted to butter and cheese-how would you differentiate that would you have to establish quotas for both the fluid milk that is used for consumption, as well as a quota for the milk that is devoted to or to be converted to butter and cheese and other products?

Mr. YORK. No. The differentiation would take place in the plant where the milk is used for either fluid purposes or for manufacturing

purposes.

The CHAIRMAN. Some places it is not handled that way. It is sold direct in many places. How would you treat a case of that kind? We have many little dairies in my area and in other parts of the country where they sell direct to the consumer. How would you

handle that?

Mr. YORK. Those that are sold direct to the consumer the support would only take place on the portion of the milk in the country as a whole that is used for the manufacturer's uses.

The CHAIRMAN. Would any protection be given to the small dairies that sell direct to the consumers, so that they would attain the 100 percent of parity that you propose here?

Mr. YORK. The overall effect would be to lift the level of manufacturing milk prices on a national basis. Consequently, every dairyman would have the benefit of the program. That would occur, of course, through the natural competitive forces that would exist.

The CHAIRMAN. Have you any idea how much this program would cost the Government?

Mr. YORK. We have not figured out precisely that, but we are of the judgment that this program would cost much less than the current program and that the program would be a definite goal toward balancing the supply with the demand.

The CHAIRMAN. What inducement would the farmer have to reduce the supplies there?

Mr. YORK. He would be assured that he would be getting 100 percent of parity and he would have a goal to work for.

The CHAIRMAN. You would expect him to reduce his production almost automatically so as to meet the demand; is that the idea?

Mr. YORK. No; I do not think a farmer would reduce his production automatically. I think it would take a period of time. I do think that the progress in this direction would be achieved much more quickly than any other system that we have used or any of the systems we think have been in operation.

The CHAIRMAN. How long do you think it would take to attain that goal?

Mr. YORK. I would judge that the supply and demand would come into balance more quickly than currently, and I would say that within several years we would have an adjustment.

The CHAIRMAN. You say it would cost less than the present program?

Mr. YORK. I believe it would cost substantially less and work to the advantage of the producers.

The CHAIRMAN. Do you know what the present program has cost up to date?

Mr. YORK. I do not have those figures right before me. I have been acquainted with them from month to month but I do not know them now.

The CHAIRMAN. Just a little over $700 million.

Senator AIKEN. Without this year.

The CHAIRMAN. That is up to June 30 of 1955. We will have to add the losses for this year.

Are there any further questions?

Senator HOLLAND. I would like to ask the witness this question: The quota system that you suggest would be imposed on a national basis; would it?

Mr. YORK. Yes, it would.

Senator HOLLAND. You mean that the dairy farmers in the great: areas of the Nation that find an outlet as fluid milk for all of the milk they produce would be expected to take a quota below their present production?

Mr. YORK. Yes.

Senator HOLLAND. Do you not realize that the problem that you have here does not apply throughout the Nation and that to the contrary dairy farmers in many parts of the Nation are prosperous and have an immediate local milkshed which takes everything they produce and in many cases requires supplies from outside?

Mr. YORK. That is true, but to the extent that the volume we sell in this market for manufacturing purposes competes with the national milk that is used for manufacturing purposes, it is a national program and it has national impact on producers not only in our milkshed but in all milksheds.

Senator HOLLAND. Maybe I have misunderstood you. I understood you to say that the quota system applied to that that was to be sold as fluid milk.

Mr. YORK. That is true, to be sold for fluid milk.

Senator HOLLAND. Let us just get practical about the thing. How do you think the milk producers in such areas as the milkshed of Los Angeles, San Francisco, Houston, Miami, Richmond, or of Washington, D. C., where they are highly prosperous, and many, many other cities are in the same shape-how do you feel they would react to a program which would ask them to sacrifice a part of their production which they now sell at prices satisfactory to them as fluid milk, and when their areas require their complete production and in many instances require the shipment in from other areas of additional fluid milk?

Mr. YORK. I would judge that if those producers were fairly informed of the impact of the dairy products on the national basis that they would not disagree to join in a program that would eventually be of benefit to them, to protect them in the future. They may be prospering momentarily, but if this system continues the way it is they, too, will find themselves in the position that other dairymen are in.

Senator HOLLAND. My dear sir, I think that you may be splendid as an economist for your area, but I think that so far as knowing human nature is concerned you have not learned very much about it, because I do not think we would be able to sell that program at all to a very great part of the dairy industry that is prosperous and finds an immediate outlet for all of their fluid milk.

Mr. YORK. Sir, I would like to say that we do represent a very large section of the dairy industry that is being affected by this program. I think it ought to be weighed in terms of the relative effects in total volume milk produced in one section versus another.

Senator AIKEN. Mr. York, Senator Holland anticipated my first question. I agree that the areas that are not producing enough fluid milk even yet for their own use probably would object somewhat to having their present production reduced. I am wondering how much would the New York milk producer be willing to sacrifice in the way of production in order to get the rest of your program. New York is at present almost a problem child of the Nation as far as dairying goes. I am wondering how much you would be willing to accept in the way of reduction in order to put the price house in order.

Mr. YORK. I might say, Senator Aiken, that we wrote this program in terms of a national dairy program, and we do certainly have many problems in the New York milkshed that we have to tackle.

As to your question directly, it would seem to me that the dairy farmers ought to have an adjustment in their price. Such an adjustment that would more closely relate to the cost of producing milk.

I would think that dairy farmers would need somewhere in the vicinity of 25 cents to 50 cents to a dollar per hundredweight improvement in price in connection with this program.

Senator AIKEN. You mean how much?

Mr. YORK. Fifty cents to a dollar per hundredweight improvement in price.

Senator AIKEN. Would you be willing to reduce production, we will say, 15 percent in order to get that?

Mr. YORK. I would judge that if farmers could get 50 cents to $1 a hundredweight they would be willing to reduce their production 15 percent.

Senator AIKEN. If you reduced production 15 percent, would you not get a pretty good price under your present marketing order?

Mr. YORK. Yes; you probably would, but the question is how can we reduce it 15 percent. How can we get the adjustment of supply and demand?

Senator AIKEN. That is a good question, but the best way is to increase sales 15 percent. I will not go into that any further.

I notice your second point is to support the price of cheese and butter by payment to the processing plants.

Have you figured out any way whereby that payment could be passed back to the farmer?

Mr. YORK. We think that that question has been raised in the deliberations we had when we were preparing and working out this program, and we think that that money will be passed back to the producers, either by competitive forces-I am sure that an agressive, active bargaining co-op, like the organization that I am with, would keep producers alerted to the fact that this money is there and they should have it, and it would be passed back.

Senator Aiken. We did have that program in effect 2 or 3 years ago. In 1953 butter and cheese were supported at 90 percent of parity and payments were made to the processors on that basis. The average price passed back to the farmer was 81 percent. That was the average which means that some of them did not even get 75 percent. The officials of the Department apparently were unable to devise any means which would insure the full amount of the support price being passed back to the farmer.

I make one other point. That was not always the fault of the processor. We have hundreds of plants in this country, I understand, that manufacture possibly 700,000 or 800,000 pounds of cheese a year. They could not possibly pay the farmer the full price and keep in existence, and yet if they went out of existence he would be left without a market.

If you go through northern, western Wisconsin, into Minnesota, you will find plenty of conditions like that.

I would like to know how we could require the fellow who gets the support price to pass the full amount back to the farmer, because we have never been able to do it yet.

I am going to skip over the third point you made and come to your point 4, which would support the price of skim through payments to