Mr. THORNTON. You're saying there should not be any regulationMr. WILCOX. On the small type operation.

Mr. THORNTON. Where they are in a competitive situation.

Mr. WILCOX. Right.

Mr. THORNTON. I want to thank you for that clarification. As I listened to your testimony, I thought you might be advocating that the Government go ahead and regulate.

Mr. WILCOX. No, sir.

Mr. THORNTON. Do you have some questions, Mr. Hightower?

Mr. HIGHTOWER. To your knowledge of the barns in your area, you say that the Packers & Stockyards has not tried to regulate the rates all over the country, but yet they're starting to do it now, but during these last 10 years, say, without any effort on the part of the Packers & Stockyards to regulate the rates, have the rates been consistent for all the auction barns in your area? Has competition really meant uniformity, as far as the barns that you're familiar with?

Mr. WILCOX. The barns that I'm familiar with, competition has been, in my judgment the price is about the same, and that's been primarily regulated by competition.

Mr. HIGHTOWER. Mr. Chairman, if I may, I'd like to ask Mr. Lewis a question. I understand now that your company is involved in a lawsuit with the Packers & Stockyards Administration

Mr. LEWIS. Well, I don't really know whether-I'm not, it was my uncle. He owned the livestock auction. He owned the business, which when he passed away everything else belong to me and I stepped in and had to take it or lock it up.

And the way I understand, you could go across the highway over there from my barn and build you a sale barn and charge a rate you wanted to charge. But on the existing barn you should do what they tell you to do.

Now, that's my understanding of the S. & P. In other words, if I would go up and buy his sale barn, then I would take his responsibility. Mr. HIGHTOWER. But my question is: Are you now involved in a lawsuit with the Packers and Stockyards Administration?

Mr. LEWIS. No sir; I am not.

Mr. HIGHTOWER. Or your uncle's estate?

Mr. LEWIS. My uncle was involved in a lawsuit, I am not.

Mr. HIGHTOWER. These others, I believe you said there were three other barns that were involved?

Mr. LEWIS. Yes, sir.

Mr. HIGHTOWER. Is this a lawsuit that's now pending?

Mr. LEWIS. Yes, sir.

Mr. HIGHTOWER. What is Packers and Stockyards attempting to do with this lawsuit?

Mr. LEWIS. Well, they're attempting to charge or to set a ratewell, I'll let Sonny tell you, because I was not familiar with that part of it until-as I say, I've only tried to run the barn 7 weeks, and he's been in it all the way.

Mr. HIGHTOWER. Mr. Durham, are you involved in this lawsuit with Packers and Stockyards, your barn is one of the four that's named?

Mr. DURHAM. Yes, sir.

Mr. HIGHTOWER. What is Packers and Stockyards attempting to do in this lawsuit?

Mr. DURHAM. Do you want me to start at the beginning and goMr. HIGHTOWER. Well, are they criticizing your rates, or Mr. DURHAM. OK. Their regulations so states that they cannot challenge tariff No. 1, that is your original tariff. It can be a per head, or it can be a percentage, they say, prior to 1972. But I happen to know personally that they've allowed some barns to open since 1972 on a percentage commission. They say that they cannot challenge tariff No. 1.

Therefore, if you don't ask for a rate increase, they don't bother

you.

If you ask for tariff No. 2, or a percentage increase, you will be denied because they say it's unjust, unreasonable and discriminatory. Mr. HIGHTOWER. They say that regardless of what the facts might be?

Mr. DURHAM. That's right, as long as it is a percentage commission they say that it is unjust, unreasonable, and discriminatory.

And if you don't believe they'll get it out, they'll put a news release out to you and it'll go out all over the State of Arkansas that you're a crook operating a sale barn and that you're being unjust, unreasonable and discriminatory against your customers. And yet they'll tell you that no customer has complained to them.

Mr. HIGHTOWER. Yes; but I'm really interested in knowing what the lawsuit itself is about.

Mr. LEWIS. Well, excuse me, but the way I think it is, is in other words he was charging 4 percent commission below $2,000, and they come in and told him he had to sell per head-otherwise to charge $3 a head to sell livestock.

Mr. HIGHTOWER. Well, he had increased to 4 percent, though, since 1972.

Mr. DURHAM. All right, let's go back there. When they challengedtariff No. 2 is what they challenged, OK? Ken Purcell, out at the area office, made a trip to Waldron, Ark., and had it typed out on a piece of paper, the national commission that they felt like that I should charge. He told me in their office that if I would accept that, that they would grant me that, but they was not going to grant me from a 3 to a 4 percent increase on tariff No. 2.

I told him that the U.S. Department of Agriculture didn't buy that sale barn, and they wasn't going to run it, and I was going to have a little say-so about how I was going to charge. So we went to a hearing in Little Rock, Ark.

They set my commission on $3.75 per unit at this hearing, which was an administrative hearing. This goes back to Washington to a man by name of Donald Campbell, who is a judicial officer inside the U.S. Department of Agriculture.

He says that $3.75 is too much for me to charge, and he breaks it down. I have it at home. I don't have it with me. But he pulls me back to $2.90, and he says you go in effective July 6.

July 6 we petitioned the Eighth Circuit Court of Appeals to issue a stay. The Eighth Circuit Court of Appeals did issue a stay against Judge Campbell and said, continue your 4 percent, but you're a public utility, so you escrow the money between $2.90, the rate Judge Campbell has set, and 4 percent. And you escrow it in an escrow account for each consignor, and we will hear the case in the Eighth Circuit Court of Appeals on the 14th of December.

Our case was heard in the Eighth Circuit Court of Appeals, and no decision has come down as yet.

If you have any further questions about the lawsuit, George Hartje can answer, because he was there.

Mr. HIGHTOWER. That really answers my question. At the present time you are charging the commission you want to, but you're having to escrow a part of it pending the outcome of the lawsuit?

Mr. DURHAM. Yes, sir. Three barns are, and I hear that they're going to try to force Mr Lewis to escrow his.

Mr. LEWIS. In other words, the Major's was in escrow like they was, but I didn't escrow mine because I feel like I come in under a new tariff, because it's a new operating deal.

Mr. HIGHTOWER. Do you know if there are other lawsuits pending from other areas of the country on the same issue?

Mr. LEWIS. No, sir, I sure don't.

Mr. DURHAM. Yes, sir, there's other lawsuits. It's been tested from California to Pennsylvania.

Mr. HIGHTOWER. Thank you, Mr. Chairman.

Mr. THORNTON. Thank you very much, Mr. Hightower.
Mr. Jim Baker.

STATEMENT OF JIM BAKER, FIELD REPRESENTATIVE, CENTRAL ARKANSAS PRODUCTION CREDIT ASSOCIATION

Mr. BAKER. Mr. Chairman, most of the things have been covered that are in my statement.

My name is Jim Baker, and I work for Central Arkansas Production Credit Association in Conway, Ark., and I'm a loan officer.

I also raise cattle, and have fed cattle in custom feedlots in Kansas. I am involved in financing the producers that support these local markets in central Arkansas. I'm also involved in financing the facility at Conway, Ark. I feel that I can comment on a working knowledge of both fields.

I believe in the free enterprise system that promotes competition in the marketplace. This is what made this country so great.

When we financed the facility at Conway, we financed it based on the potential income of this facility. We financed it based on the man that was operating the facility at the time, and the security that was involved.

We didn't finance it on the basis of some regulatory agency telling him how he could make his payments, whether he'd have enough income to make his payments, and we didn't give him any cut rate in interest because some regulatory agency said he couldn't charge the competitive price that other sale barn operators were charging. He had to pay the straight rate of interest.

The barn has operated, this is the sixth year, it operated for years at a 3-percent commission, and in 1974 they asked to raise their commission and go under tariff No. 2 and it was challenged. And I think this is a result of P. & S. trying to set an example with these four sale barns, this challenge to the new commission.

It seems to me like in my business, and I think the sale barn operators would justly be so too, that the people I hire to work for me in my operations, places that I go it costs more, and my costs have gone up a little bit in the last few years. I think that some folks that I deal with can recognize this.

But the testimony that I've heard from the Packers and Stockyards, they don't indicate any provision in their ratemaking procedures for inflation, or repairs, or cost of insurance, fuel, and stuff of this nature. And there's not too many items that we buy today that haven't doubled in the last 10 years. Yet the rates that are set at the sale barn-you have to do a lot of projections: What's my cost going to be? How am I going to pay my bills? You have to do it on the basis of projections, and the risks that I take.

I don't own a sale barn, and I don't have any interest in one other than just financing it. But I do know of some cases where the risks in operating a sale barn are high from the standpoint of hot checks, the moral character of some people at this day and time. When a sale barn operator sells cattle he sells them on good faith. They come through the sale barn. The man that drops the cattle at the sale barn, he's paid that day or mailed a check out the next morning. He gets his money, and the sale barn operator backs it up.

But the sale barn operator that sold those cattle in good faith, it may be 10 days, 2 weeks, before he realizes the check that bought those cattle that went into another State, or maybe two other States, is refused payment on the other end. Well, the only thing that happens there is that check comes back and bounces. It's the responsibility of the sale barn operator to collect that check at his own expense.

To my knowledge, P. & S. has never offered to collect one that was given in Conway. They may have at other sale barns. But it's pretty difficult in this day and time to get a hot check collected. It costs a lot if you have forced legal action. It costs money just to make a phone call. They don't consider any of this expense.

There's other risks involved in operating a sale barn. In the position I'm in, the law is in our favor more so than it is for the sale barn operator. Every day that cattle go to that sale barn to be auctioned off there's a risk that the sale barn operator is selling mortgaged cattle. The law protects the lender. If this man sells mortgaged cattle at Tommy Lewis' sale barn or R. C. Williams' sale barn and the cattle are mortgaged, the lender has recourse on the barn operator to collect his money if default is made.

This is a risk of doing business. This is a risk that sale barn operators take on when they open up each sale day. It's just like paying for cattle twice and not actually owning the cattle, is what it amounts to, if you lose a judgment.

But other than supporting the central Arkansas markets in our area and having the support of farmer customers, I feel that's about all I have to add to what the others have said.

Mr. THORNTON. Thank you very much.

While you're all still here, my memory of the decision in the case that has been referred to was that P. & S. approved and established per-head rates for each of the four barns that were involved originally, and that those rates were different for each of the four barns, and that even though they were in the same general area that one barn had one approved rate, and another had another lower rate, and another had a higher rate.

Is my memory correct on that?

Mr. DURHAM. Judge Palmer's decision, that's the first decision that come out, as far as his is concerned I cannot answer that.

On the second order to come out from Judge Campbell, out of

Washington, the rates were different. And Major Lewis', on a 300pound calf, his was set on a $2.50, and my rate-which I'm to the west of Conway-my rate was set on $2.90 per calf. At another barn it was set on $3.05. At the Atkins livestock market, which is 15 miles west of Morrilton, it was on $3.05.

Mr. THORNTON. Now, the effect of that, and you had no authority to charge either more or less, any one of the operators, and I can't see why, with the regulated rates like that, I don't see why anybody would take their livestock to the two barns that were required to charge $3.05, instead of going to the barn that would charge $2.50, and were required to do that.

So it seems to me the effect would be to drive out of business the barns whose rates were fixed at the higher level.

Did I misunderstand?

Mr. DURHAM. True. Major is dead, and for 30 days we stayed according to the $2.90 that Judge Campbell put us on and the 4 percent. What I'm trying to say is the money that we escrow, and the money that we could actually keep and operate on for 30 days. P. & S. contends the Major's commission would have been $2.50 because of his volume, that he could operate cheaper than I could because he sold more cattle than I did.

Mr. THORNTON. So P. & S. wouldn't let you compete even though you might want to compete.

Mr. DURHAM. That's right.

So I went down to pick his report up and take it to the attorney. He wanted me to see it. P. & S.'s commission that they had set him on, Judge Campbell, was $11,990 some odd dollars-roughly $12,000. His expenses, Congressman, for that particular month, was $18,000. His 4-percent commission amounted to $28,000. But he was only allowed $12,000 of his $28,000 to operate on. So he had $5,000 that he took out of his pocket-is that right? Well, the difference between $12,000 and $18,000-$6,000—that he took out of his pocket to put in his operation so he could keep operating.

P. & S.'s contention is if you don't do what I say or what I want you to do, I'm going to show you what I can do to you, and I'm going to tie you up financially. That's the whole story in a nutshell.

Mr. HIGHTOWER. It would seem, then, that there might be a philosophy of "Let the big get bigger."

Mr. DURHAM. True. They testified to the fact that the small operator should be forced out of business. And if you can tell me what social cost is . . . I don't know. But they say according to social cost to the rate payer.

Mr. THORNTON. Thank you very much.

Let me ask if both Mr. Jim Sanders and Mr. John McKnight are here.

Mr. SANDERS. One of us is.

Mr. THORNTON. Which one are you?

Mr. SANDERS. Jim Sanders.

Mr. THORNTON. Come on up here, Mr. Sanders.

At the same time, I'd like to ask Mr. Floyd Valentine to come forward.

Mr. Sanders, I understand you're the executive vice president of the Arkansas Cattlemen's Association. Is that correct, sir?

Mr. SANDERS. Yes, sir.