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Dr. PICKETT. Yes, Mr. Chairman. If I had to estimate, there's probably somewhere between 65 and 90 barns in Arkansas. Probably one exists in every county seat. The proximity from one barn to the other I would estimate, for the average livestock producer, the geographical distribution of them is probably two barns located within 40 to 50 miles. And that fact alone constrains the ability of any one barn operator from extracting unjust and unreasonable rates from a producer, because the producer, if he sees that occurring, will immediately take his animal units to the competing barn.

Mr. THORNTON. Nothing would prevent him from driving an extra 10 or 15 miles, or many an equal distance, to another barn, is that correct?

Dr. PICKETT. That's correct, sir.
Mr. THORNTON. Do you have some questions?
Mr. HIGHTOWER. I have no questions.
Mr. THORNTON. Thank you very much, Dr. Pickett.

Our next witness is a good personal friend of mine, with whom I attended law school some years ago, Mr. George Hartje, an attorney from Conway, Ark. Mr. Hartje, you're welcome to our hearing, and you may begin. STATEMENT OF GEORGE HARTJE, JR., ATTORNEY AT LAW,

CONWAY, ARK. Mr. HARTJE. Thank you, Ray. Mr. Chairman, Congressman Hightower, my name is George F. Hartje, Jr. I am a practicing attorney in Conway, Ark.

I am an attorney for the four auction barns that are presently engaged in a ratemaking procedure with the Packers and Stockyards Division of the U.S. Department of Agriculture.

I have also represented the barn in Conway and its immediate predecessor for some 20 years, and I am familiar with the legal operations and legal aspects of the operations of auction barns.

Our ratemaking procedures are now before the Federal Court of Appeals in St. Louis, the eighth circuit.

These four barns that are now involved in these proceedings are located only some 50 miles from each other, and within a 50-mile radius of these four barns there are 17 other barns available to consignors and producers of cattle. Within a 50-mile radius of the barn at Conway, Ark., there are nine other barns available to consignors of cattle.

The barns operate on different days of the week, and serve primarily farmers and cattle raisers.

Studies done by the Department of Agriculture show that only some 7 percent of sales by small auction barns are to packers. And I can only suppose that the other 93 percent of their sales are to other raisers, would be consignors, and cattle producers.

The studies done by the USDA show that the barns serve primarily as an assembly point for cattle producers, as a sorting point for cattle producers to allow those producers to specialize, if you will, in certain types of cattle, and that they do not serve ultimate buyers or consumers of livestock.

The barn in Conway, Ark., is typical. It is the Lewis Livestock Auction Sale, and it holds sales on Tuesdays, beginning about noon.

The barn accepts cattle for sale from Sunday afternoon through Tuesday evening late. The sales begin about noon on that day, and almost always last until midnight or later. And it is not rare for the sale to last 24 solid hours of cattle selling.

I will tell you, by way of explanation of the weather factor, Mr. Lewis told me this morning that only 25 cows were brought to the sale yesterday, the lightest sale anyone can ever remember at that particular barn.

After the sale is over, this barn holds these cattle for people that have bought them through perhaps the next weekend. The Packers and Stockyards Act specifically makes a barn operator an insurer of the moneys due the consignor, and the P. & S. regulation, very unjustly, requires the barn operator to pay the consignor whether or not the barn operator ever gets his money for the cattle that are purchased, and the losses in the cattle business can be terrific. Still it makes no difference to the P. & S., the barn operator or owner must pay for these cattle within 24 hours after they are delivered to the barn and sold.

This regulation is very burdensome. I know it's not the subject under discussion here this morning, and I'll not go into that anymore.

Every one of these sales are held in the glaring publicity of a sales arena. A consignor can bring his cattle to the barn and sit up in the stand and watch his cows sell. He can see for himself whether the barn operator is doing a good job or a poor job of disposing of his particular cattle, whether or not the auctioneer is doing his best to get the best price available for his cattle, and if he does not like what he sees or does not like the way he is treated, there are in our area 16 other barns he can go to until he finds the right treatment that he's looking for.

These operators live locally, they are fellow citizens and neighbors of the consignors who are selling cattle, they are there trying to do their very best for those people that have brought their cattle to them for sale. The P. & S., under their own testimony in our ratemaking proceedings, testified under oath that they have never had a complaint from a user of a barn insofar as the rates charged or fees charged or amounts they paid for services rendered. Nevertheless, they seek to regulate these rates.

At the sales that I am familiar with, there is a ringman, generally the owner, who starts cattle at a price he believes to be proper. If the ringman starts these cattle at a price too high the barn ends up buying these cattle, and then either has to resell them at a loss through other sales, or resell them themselves to individuals.

This starting of cattle, and buying of cattle by the barns is referred to as market support. The P. & S. denies the validity of market support and does not recognize it as a cost of doing business. Yet market support serves an entirely and recognizable useful function. It starts the cattle at a high figure, thus assuring a good price to the consignor of cattle; it shortens the sale, and you might not consider this an asset until you remember that we have had some 24-hour sales; it also confirms in a potential buyer's mind the value of those cattle. It it not in market support. And yet under the formula devised by the P. & S., this item is not recognized as an expense, and there is no allowance for any recoupment of this loss by the barn operator. The P. & S.'s simple and arbitrary answer to it is, “Don't do it.”

P. & S. feels that the auctioneer actually does nothing to aid or assist in sales, that the barn operator does nothing to aid and assist in sales, and that the competition between buyers is the sole determinant of the final price of cattle.

While I'm talking about the final price of cattle, the amount charged by the auctioneer has nothing to do with the final price paid by the buyer or ultimate consumer of cattle. Practically no one raises cattle from inception to slaughter. The cattle business and industry is broken down into several specialized fields, from calves to yearlings, to fat cows, et cetera and so forth. A cow will change hands during its lifetime from 1 or 2 times, to 10 or 12 times. And yet when the cow finally reaches the fattened state when the cow is ready for slaughter and ready to go to the packer, the packer pays the going price for the meat without any consideration as to how many times the cow might have been sold, and without any consideration as to what the charges were when the cow did change hands.

Finally, I am using the 50-mile radius, and Dr. Pickett used the 50mile radius, because of studies done by the USDA that say that this is the practical range for a producer to ship his cattle to market. Most of the markets in Arkansas, and I have been informed that there are 43 auction barns in Arkansas, charge a percentage. They charge from 3 percent to 4 percent of the amount realized from the sale of the cattle. This figure is fair. Percentage rates are fair. They fluctuate with the amount received by the consignor for his cattle, and they fluctuate with the going market. The charging of rates for an auction service on a percentage basis is time honored and understood by everyone in the cattle business.

During the course of our ratemaking procedure it was the testimony of the Packers and Stockyards Administration that there are only four men in their ratemaking division, and that these four would attempt to regulate some 1,700 small auction barns in the United States.

Their testimony was, further, that four men could not do it, they did not have the time to properly do it, and the record is replete with their taking actual figures from auction barns' annual accounts, throwing them out, disregarding those figures of cost, and substituting for those actual figures what they felt they should have been, what their opinion was that they should have been, what the national average for a certain thing was, and the placing of persons operating barns on a per head basis based on those feelings and opinions and national averages.

Their testimony was that there are a great many barns in the United States that operate on a per head basis, and that they had twice as many complaints annually and requests for changes of tariff from those markets on a per head basis as they did from those markets on a percentage basis.

I believe that this is an attempt on the part of the P. & S. to build a little empire, if you will, a domain within their organization. Because if they are successful with the procedures that they have followed, it will only be a short time until they'll be coming back to Congress telling you and the rest of the Congressmen that they are unable to do this job and need to hire “x” number more employees in order to regulate these barns.

In 1921 the P. & S. Act was passed, and it was aimed at those large terminal markets located in the major cities at the end of rail lines, who were catering primarily to the packers, who were deeply and greatly influenced by packers and the vast amount of money that packers spent on beef. They were taking cattle from consignors, say in Conway, Ark., shipped there by rail, the cattle were sold, disposed of, a check was sent back to the consignor. He had never had an opportunity to see his cattle sell, he had no control over what they sold for. And there were many irregularities, frauds, and downright illegal dealings done and performed. And the act served a useful purpose at that time.

It was not until about 1947–8, after World War II, that the local auction barns grew to be the industry that they are today. And when Congress extended the regulation of those small barns in 1958, I do not think they intended to give the P. & S. the right to regulate the rates that those small barns could charge. However, this is what the P. & S. is attempting to do.

The P. & S. is attempting to do this although it is their sworn testimony at our ratemaking proceedings that the annual reports filed by the auction barns are not designed for ratemaking procedures; instead, they are designed to check the bond of the auctioneer, to check to see if he is really financially able to do those things that he is doing, and no input has ever been made into the annual reports with the idea that they will regulate rates.

This is an effort on behalf of the P. & S. to engraft on the annual report a result that was never intended when the annual report was

made up.

this area.

I believe that the Congress should pass H.R. 9482 introduced by Representative Ray Thornton in order to relieve the small auction barn owner-operator from needless interference by the Packers and Stockyards Division. It is an industry run by local people for local people with local people, and it does not need interference from anyone with no practical experience in operations of auction market facilities.

Gentlemen, I'll be happy to try to answer any questions that I'm asked.

Mr. THORNTON. Thank you very much, Mr. Hartje. I want to compliment you for an outstanding statement and for your work in

Mr. Hightower, do you have any questions? Mr. HIGHTOWER. No questions. Mr. THORNTON. Thank you very much for your testimony. I would like next to ask Mr. Sherman Durham, Mr. Tommy Lewis, Mr. Jim Baker and Mr. Dennis Wilcox to all come forward at the same time.

Gentlemen, I want to express my appreciation to each of you for being here and bringing us your testimony today. In order that our record may be most full and complete, I would like to ask each of you, if you have a prepared statement, to submit that statement for the record so that we can have it as you have prepared it, and then ask each of you in turn to highlight or summarize that testimony to us so that we can also have that in the record.

If that's agreeable to each of you, in order of your presentation, we will, without objection, accept the prepared written testimony as a part of the record.

Mr. Durham, please proceed.

22-929 0 - 78 - 2

STATEMENT OF SHERMAN DURHAM, PRESIDENT, ARKANSAS

LIVESTOCK AUCTION SALES ASSOCIATION

Mr. DURHAM. Thank you, Congressman Thornton and Congressman Hightower.

My name is Sherman Durham. I've been a barn operator with Central Arkansas Livestock Auction in Morrilton, Ark., for 26 years, and a cattle producer and livestock auctioneer for 23 years. I am president of the Arkansas Livestock Auction Sales Association, one of the parties which is now in a rate proceeding now pending.

I would like to testify that the small auction barn operators are competitive and need no regulation as far as ratemaking is concerned. We feel that the auction barn operators should have the choice of how he wants to charge, what he wants to charge, and we feel that if he gets his charges out of proportion his customers will regulate him or competition will regulate him.

The P. & S. in the U.S. Department of Agriculture are incapable of regulating for the simple reason there are 1,791 auction barns in the United States. They have only four men and two women in the ratemaking department of the P. & S. They attempt to set all weekly livestock auction barns on a national average commission, which will force several barns out of business. And they testify to the fact that there are too many livestock auction barns, small barns, in the United States.

They testify to the fact that if you don't sell 30,000 units they're inefficient and should be forced out of business, because of the social cost to the ratepayer. Do you know what social cost is?

They also fail to study the actual facts in the ratemaking hearings that were held. They substituted feelings and speculations, national averages in setting rates for each individual barn. They cannot be set on national averages for the simple reason of the cost to the barn operator, his overhead expenses and all other expenses related to his business.

The weekly livestock auction barn cannot, I say, be regulated by national rates.

The P. & S. have no practical experience in operating livestock auction barns. They study figures, facts, and books.

The P. & S. contends that the local auction barn, or weekly auction barn is a public utility as far as ratemaking is concerned. If the local auction barn is a public utility, we have competition. We have no franchise areas and no license is required. But they contend after your rates are set under the public utility concept you are no longer a public utility.

The Department of Agriculture records state that 7 percent of the cattle going through the weekly auction go to the packers only. That leaves 93 percent of them to go to producers, livestock dealers and order buyers.

The P. & S. law which Congress passed in 1921, at that time I think there were 11 terminal markets in the United States, was when the producer needed some protection. Your cattle in Arkansas was shipped to destinations as far as Kansas City and St. Louis. When your cattle was put up for sale there, there was no one there but the buyer and the salesman. They set the price, sold your cattle, deducted their expenses and mailed you your return.

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