The CHAIRMAN. That is the only suggestion you have in that regard?

Mr. SHAUL. That is one suggestion.

The CHAIRMAN. Could that be done administratively? Would we have to amend the act so as to accomplish what you suggest?

Mr. SHAUL. I do not believe you would have to.

The CHAIRMAN. This cross compliance you speak of, is to prevent cotton acreage and wheat acreage from being used to stimulate production in commodities that are already in trouble, and is one that will have to receive our attention. We have heard testimony on it at every meeting and we hope that we will be able to work out some formula to prevent that.

Mr. SHAUL. I hope you will.

The CHAIRMAN. Are there any further questions? If not, we thank you very much.

Mr. SHAUL. Thank you.

The CHAIRMAN. Our next witness is Mr. Kniffen. Give us your full name for the record.

STATEMENT OF MILO R. KNIFFEN, PRESIDENT, FIRST NATIONAL BANK, COBLESKILL, N. Y.

Mr. KNIFFEN. My name is Milo R. Kniffen. I live at Cobleskill, Scoharie County, N. Y. I am president of the First National Bank at Cobleskill. I am here today to testify before this regional meeting of the United States Senate Committee on Agriculture through the eyes of a banker, regarding which I know of the everyday present situation of the dairy farmers serving the New York metropolitan milk marketing area, who live within the bank's sphere of activity. A few preliminary remarks should be made. I have been connected with the active operation of this bank since 1931 when I was elected a director and I have been its president since 1944. It is that span of years that my banking experience covers. I say this because my experience regarding the operation of dairy farms and the production of milk covers a greater period. I was born and brought up on a large dairy farm and have been connected in one way or another with the industry during my entire life and am still substantially involved in the operation of a dairy farm, not as a hobby, but as a serious business.

The country banker stands in a very confidential and personal position with the average dairy farmer. This is especially true during periods of economic stress such as we presently experience. The farmer goes to the banker not only for money but to tell his troubles and to seek advice.

In what I have to say to you in the course of this testimony, I want it thoroughly understood that I am not divulging any confidences. What I intend to say to you is true of the farmers in our community and further than that, appears to be true of the farmers throughout the milkshed generally. I say this because our bank is a member of several associations, associations made up of other country banks in other upstate communities, and in talking with bankers from those other communities, I discover that our situation is fairly typical.

All of you know the chaotic situation of the milk industry in the northeast prior to the date of the promulgation of order No. 27 and official order No. 126.

I don't believe I need to take any of your time to point out to you the precise condition of the industry prior to the promulgation of the orders. Not only did the dairy farmers but also the feed dealers, the machinery dealers, the bankers and the merchants doing business. in the production area servicing the metropolitan milk marketing area look upon order No. 27 and official order No. 126 as a muchneeded and long-overdue aid to the dairy farmers, and they all, or substantially all, welcomed its promulgation.

I can say to you that prior to the promulgation of these orders in 1938, any bankers, feed dealer, machinery dealer or merchant actively dealing with the dairy farmers were compelled to approach each deal having in mind the maxim "caveat venditor" (let the seller beware) in all dealings. This situation stemmed from the existence of the deplorable financial condition in which the dairy farmer then found himself.

My home is in the central part of New York State. Ours is a community that is very heavily dependent upon the dairy cow and the dairy farmer. As a bank, we are conscious of the problems of the dairy farmer and a great bulk of the bank's business is transacted directly with the dairy farmer. What I tell you about the dairy farmer's conditions is not hearsay. I listen to his plight every day of the week and our bank does not remain aloof from the dairy farmer; on the contrary, it tries to help him. You can smell the odor of the cow stable any day, not only in our bank lobby, but also in the executive offices. I believe our area is fairly typical and respresentative of the entire New York milkshed, and I can say to you that bankers generally doing business in rural dairying communities are concerned and worried about the situation of the dairy farmer.

I do not want to be presumptious and try to tell you how to handle the matter, but I can tell you that in order for the dairy farmer to pay his bills, support his family, pay his hired help, his taxes, et cetera, he needs substantially more money for his product than he now

receives.

Unquestionably, the dairy farmers in the Northeast are currently caught in an economic squeeze. The relationship between the prices of what they have to buy and the prices of what they have to sell is unfavorable. The milk returns of dairy farmers are simply inadequate to pay feed cost, labor cost and operating overhead of the dairy farmer.

The bank also does business with the grocer, the drygoods merchant, the farm machinery dealer and the feed dealer and we know from the facts which those people give us that the dairy farmer is in a bad way.

In the course of dealing with these various merchants, every rural bank finances large quantities of so-called indirect paper. I refer to notes given by the farmer to the merchant, or machinery dealer, or feed dealer, representing a portion of the cost of certain goods, and then endorsed by the merchant or dealer and discounted at the bank to obtain cash to do business.

In recent months the payment by farmers upon this type of credit has been slow. In many instances the dealers themselves have either

had to make the monthly amortization payments upon those notes or have been compelled to accept renewals thereof without payment, or in certain instances have found it necessary to pay the note and repossess the goods, believing that the particular farmer involved was no longer able to afford the article purchased.

Dairy farming is an industry that requires a large capital investment. The dairy farmer must have a farm, and farm prices are high; he must have cows and cow prices are high; he must have high-priced machinery and equipment and he also is compelled to pay high prices for outside labor.

We consider the farmers in our community to be average or better than average. By that I mean most farms in our community are above average in productivity, and we feel that the rank-and-file farmer in our community is average or above average in managerial ability, yet we find that most of them owe more money today than they did a year or two ago. This applies to many of the farmers who through the years have had adequate self-provided capital.

Banks are confronted daily by farmers with the proposition that they are unable to make their monthly amortization payments on notes, chattel mortgages, and real estate mortgages previously contracted. Banks are confronted daily with the proposition of either revamping the farmer's loan, scaling down the amortization payments, or finding the farmer in default of his payments.

We find large numbers of applications of farmers for loans to pay their taxes. Large numbers are applying for loans to pay up existing feed bills. At the present time we find very few farmers applying for loans to purchase new machinery because, quite frankly, the rank and file of the farmers apparently are making the old machinery serve rather than to try to go in debt any deeper.

We see farmers' financial statements every day and those statements universally reflect a worsening condition; and at this point I would like to state that one thing I have observed that has had a serious effect upon the farmer's individual financial statement is the tremendous fall in beef prices. There was a time when a farmer who had a cow go bad for dairy purposes could sell her for a fairly substantial price on the beef market. At the present time this is not the case, and it has raised havoc with the inventory values in farm financial statements.

Throughout the years there has been a continually rising capital need on most farms, made necessary just to keep the farmer's head above water. Each farmer has had to embrace the latest developments in labor-saving and efficient methods of producing milk. If he doesn't, his cost per unit of milk produced is going to continually rise and he would soon find himself out of business. The farmer who permits his efficiency to lag or fall behind is soon engulfed by expense and finds himself out of business. So there is a continuing necessity for the dairy farmer to accumulate and add to his capital in order to keep going-in order to produce enough milk to have something left to live on.

Every time a dairy farmer makes a move to bring about greater efficiency in the operation of his farm, and every time he adjusts his farm business because of lack of sufficient income, it is almost a certainty that he will increase his production.

Increased production, or overproduction, as we often refer to it, has through the years, of course, raised havoc with the dairy farmer. If milk is good for us, and it is universally so agreed, then we ought to devote more serious attention to increase the fluid consumption by our citizens. Obviously, increasing consumption would go a good ways toward eliminating overproduction.

There are those who claim that the establishment of a high class I price under the milk marketing orders causes surplus production. If I am to believe the farmers in our community who have discussed their problems with me, and if I am to believe the representatives of other banks with which we are associated, then I must say to you that I very much doubt the accuracy of any such reasoning.

From what they tell me, the increased production has been occasioned by the tremendous rise in cost of everything which the farmer purchases; his land, his buildings, his livestock, his feed, labor, machinery, equipment, his taxes, and general living expenses of his family. The increase in cost of these articles has so far outstripped the price he receives for his milk that his only chance of survival has been to increase production to thereby increase his monthly income to pay his bills.

All the farmer back home knows is the amount of dollars and cents in his monthly milk check and whether or not it is big enough to pay his fixed charges and operating costs.

When he sees his monthly milk check is too small to pay his feed bill, hired labor, taxes, and his other fixed charges, what does he do? He goes about it in the only manner he can think of-that is, to increase his milk volume so that the amount of his check will be increased.

Another illustration of what happens when a farmer's income is insufficient and one which the bankers notice in everyday banking operations, is this:

A farmer operating a dairy of a certain number of cows suddenly finds that he is going behind. What does he do? Frantically, he thinks he should increase his production, so he goes to a cattle dealer and buys 10 or 20 cows, paying a high price. The cattle dealer takes his note and a chattel mortgage on those cows, plus whatever other property the cattle dealer can find that may be free and clear.

Thereby there is set in motion another vicious cycle. The farmer's debt and overhead is increased. True, his milk check may be larger, at least temporarily, but not in proportion to the added cost and capital investment, and, last, but by no means least, the additional production of milk contributes to the surplus of milk in the market.

It is not my purpose to tell your honorable committee what ought to be done about the dairy problem in the Northeast; rather, it is my purpose to undertake to describe to you the plight of the dairy farmer. The CHAIRMAN. We already know that. What we are here for is to see if you can give us your plan of solution.

Mr. KNIFFEN. My plan of solution is relatively simple. Something must be done to get the farmer more money, so that he can pay his bills and live.

The CHAIRMAN. All right. How would you do that?

Mr. KNIFFEN. I swear sir, I will have to leave that to the dairy experts. I can only tell you that at the present time, and in his present condition, he cannot exist.

It has always been provided in the essence of things that from any success, no matter what, there shall come forth something to make a greater struggle necessary; so it is today. The dairy farmer in the Northeast, by reason of any past successes which he may have enjoyed, is now faced with a situation which makes a still greater struggle necessary.

In my opinion, it is not in the public interest to exterminate the dairy farmer. On the contrary, I believe it to be in the public interest that everything possible be done to stem the crisis with which he is now confronted.

I, therefore, respectfully ask the proper governmental authorities to pay attention to the farmer's plight. I ask you to investigate the matters which I have tried in these few moments to bring to your attention.

If you wish, come out to Cobleskill, or, in fact, go to any other community similarly situated. Get in touch with the local banker. Go with him out among the farmers of the community. Get acquainted with the dairy farmers in that community, and you will find that I am right when I come here and tell you that the dairy farmer's pocketbook is flat. Then take such steps as you conceive to be necessary to assist in solving this problem and bring his income in proper focus and alinement with his cost of production.

The CHAIRMAN. I think the committee understands the problem very well. We will not take it as presumptuous of you or any other witness to tell us how to solve the problem. That is why we are here. Mr. KNIFFEN. Let me suggest this: In reply to your question, if we could get more people to drink more milk, I think the problem would take care of itself.

The CHAIRMAN. Is that not something that would be done on the local basis?

Mr. KNIFFEN. Well, it is being done, to a certain extent, on a local basis. I am not so sure but what it could and should be done on a national basis.

Senator AIKEN. I would judge from your report that farmers were unable to buy machinery, that you think that the implement manufacturing companies that are establishing new assembly plants and new distribution centers in New York State, are probably making a mistake.

Mr. KNIFFIN. If conditions continue as they have been in the past couple of years, I definitely think they are making a mistake.

Senator AIKEN. Are you familiar with the official records on the sale of farm machinery this year?

Mr. KNIFFEN. No; I am not.

Senator AIKEN. Would you be surprised to learn that while 1954 was an all-time record year, that 1955 is running 23 percent ahead of 1954?

Mr. KNIFFEN. I would be surprised to find that any increase took place in machinery sold to the man who was primarily a dairyman. Senator AIKEN. It is my understanding that there have been more stable cleaners sold this year than in all the the previous years put together, as well as other equipment. One thing that is putting the pressure on the dairyman is the fact that he is having to mechanize all at once; at the same time he has a mountain of surpluses bearing