association will sell the combined volume of the mills and develop new domestic and foreign markets. Substantial benefits are anticipated in increased returns to members.

8. Increasing cooperative participation in rural areas development program.— Farmer cooperatives are an important device for developing and improving rural areas. The Service participated in the rural areas development program in these ways: (1) Evaluated 54 technical assistance proposals dealing with production, processing, and marketing of agricultural products; (2) published 3 reports, "What Co-ops Need to Know About RAD," "20 Years of Au Sable Forest Products Association," "How Farmer Cooperatives Contribute to Agriculture Well-Being"; (3) produced a color movie "Plant for the Future"; (4) distributed 800 kits of basic information on cooperatices; and (5) supervised 3 ÁRA technical assistance contracts with 3 States.

9. Research and education strengthened.-The Service sponsored a joint annual conference of cooperative cottonseed and soybean oil mills. It also arranged a conference on fruit and vegetable bargaining and four regional conferences on member relations problems. The Service assisted in several accounting schools and one management school for cooperative management personnel. Jointly, with the American Institute of Cooperation, it also sponsored a national cooperative research and teaching conference for land-grant university personnel. These conferences and schools fill an important purpose in disseminating research results and discussing common problems.

Mr. NATCHER. The request for fiscal 1965 totals $1,102,200, which is $43,000 increase over the amount appropriated for fiscal year 1964. Dr. Knapp, it is always a pleasure to have you appear before our committee, together with members of your staff. We shall be pleased to hear from you at this time.

Mr. KNAPP. Thank you, Mr. Chairman..

GENERAL STATEMENT

Mr. Chairman, and members of the committee, I appreciate the opportunity to discuss the work and budget needs of the Farmer Cooperative Service of the Department of Agriculture.

Farmer Cooperative Service conducts research, provides advisory service, and carries on educational work to help farmers improve the organization, management, and operations of their cooperatives.

BUDGET REQUEST

Our budget estimate for 1965 is $1,102,200, as compared to $1,201,000 appropriated for 1964. The 1965 estimate was reduced $141,800 for activities transferred to the Office of Management Services. The 1965 estimate includes $43,000 for within-grade salary advancements and for additional pay costs in 1965 on the second step of the pay increase required by Public Law 87-793.

RECENT COOPERATIVE DEVELOPMENTS

I would like to describe a recent development which is affecting our work. In August 1961, Secretary Freeman established a Cooperative Advisory Committee. This is comprised of representatives of six national cooperative organizations, American Institute of Cooperation, National Council of Farmer Cooperatives, the Cooperative League of the U.S.A., the National Federation of Grain Cooperatives,

the National Milk Producers Federation, and the National Rural Electric Cooperative Association. Assistant Secretary Baker serves as chairman of this committee in the absence of the Secretary.

At a meeting of this committee in January 1963, Secretary Freeman challenged it to set up a national conference to consider how farmers could meet more of their problems through cooperatives. The organizations represented on the committee set up such a conference here last April, and representatives from several hundred cooperatives from all parts of the country participated. This conference emphasized the importance of cooperatives in helping rural people deal with a wide range of problems.

Secretary Freeman has followed up this conference by issuing a general policy statement on cooperatives. I would like to quote the following sentences from this policy statement:

The USDA will therefore accept fully its responsibility to encourage the growth of cooperatives and through its various agencies provide research, educational, and advisory services that will help to strengthen cooperatives in all appropriate activities in the interest of their members and the general welfare. To that end each of the agencies of the Department will give proper recognition to the basic nature of cooperative enterprise, and will exercise its functions and perform its activities in full accord with the concepts and responsibilities stated above.

Since this conference was held, the committee has had meetings with all of the agencies to examine how they work with cooperatives. We believe that this represents a great step forward in recognition of the contributions cooperatives can make to improving the economic position of farmers.

It gives Farmer Cooperative Service an opportunity and a responsibility to work more effectively with other departmental agencies on many matters in which we have a common interest.

COOPERATIVE TRENDS

Last year I presented charts to show general trends in cooperative memberships, number of associations, and volume of business. Our figures for 1961-62 show 7.1 million memberships, 9,039 associations, and $13 billion in net volume of business. Compared with the previous year, this represents a decline of 1.3 percent in number of members; of 1.4 percent in number of associations; and an increase of 5 percent in net business.

When compared with the period 1950-51, as seen by figure 1, memberships were up slightly (0.2 percent), number of associations declined 10 percent, and net sales were up 60 percent.

(Figure 1 follows:)

United States Farmer Cooperatives: Number of Associations and
Memberships, and Net Business Volume, 1950-51 and 1961-62

NUMBER OF FARMER COOPERATIVES, BY TYPE, IN THOUSANDS

Mr. KNAPP. It is significant that the number of memberships has not declined in view of the substantial decrease in number of farmers. This is explained by the fact that more farmers have joined cooperative associations in this period. The decline in number of associations is largely due to consolidations and mergers. The increase in business volume reflects greater use of these associations by farmers to increase income through improved marketing of products and obtaining production supplies at cost.

Specific examples of our work are given in the explanatory notes before you. I would like to present our program in more general

terms.

BUILDING STRONGER MARKETS FOR FARMERS

Our research shows that cooperatives are especially helpful to farmers in finding new and expanded outlets for their products, in building consumer demand, and in gaining more bargaining power

for farmers. Specifically, we are assisting cooperatives in developing coordinated sales programs for citrus fruits, dairy products, grain, and livestock. We are working with cooperative cottonseed and soybean oil mills and fruit and vegetable associations to develop guidelines for establishing and operating joint sales agencies.

To build markets it is important to have products of the quality desired by buyers and consumers. There is need, therefore, to improve pooling and pricing systems of cooperatives so that the grower of high quality products is adequately rewarded for his efforts. We have studies underway on pooling and pricing methods in cooperative marketing of citrus fruits, dairy products, livestock, and poultry. We also are assisting bargaining cooperatives in developing better operating procedures.

INCREASING COOPERATIVE OPERATING EFFICIENCY

The primary objective of farmer cooperatives is to improve the income of farmers. They do this by increasing efficiency in the marketing of products and in the purchasing of production supplies and related business services for farmers. Since cooperatives operate at cost, an increase in a cooperative's operating efficiency results in immediate and direct increases in the farm income of cooperative patrons.

We are helping cooperatives become more efficient by studying ways they can reduce operating costs, by analyzing the feasibility of consolidation and merger of cooperatives, and by appraising additional services that cooperatives might perform for farmers.

We also are making studies to compare costs of selected cooperatives to help correct operating deficiencies and facilitate the adoption of improved methods. This work is underway with cooperative gins, grain elevators, tobacco auctions, rice-drying cooperatives, and cottonseed and soybean oil mills.

Studies to help cooperatives coordinate their operations for greater efficiency are being carried on with a number of marketing and farm supply cooperatives. We are studying ways to reduce transportation and handling costs in marketing wool, dry beans, and peas by cooperatives. Work also is in progress to compare motortruck operating costs of cooperatives and improve their traffic management.

IMPROVING COOPERATIVE PURCHASING EFFICIENCY

The modern farmer spends about one-half of his gross farm income for production supplies. Savings in such purchases directly improve his net farm income.

In assisting farmers in finding ways to reduce production costs, we have analyzed purchasing associations' organization structures, and distribution practices needed to meet the trend toward vertical integration of cooperatives in Utah, Arizona, Wisconsin, Kansas, and New Jersey. We have developed suggestions and recommendations for improving the overall performance of production supply cooperatives in these areas.

Services to supplement those provided on the farm are becoming increasingly important. We are analyzing the various means of pro

viding credit through production supply and service cooperatives. The performance of local processing plants is being analyzed as their emphasis is shifting toward a local processing, marketing function rather than local processing and frozen food storage.

STRENGTHENING COOPERATIVE MANAGEMENT AND MEMBER RELATIONS

Among the problems confronting cooperatives three of the most important are (a) obtaining good management, (b) developing sound financial programs, and (c) maintaining good member relations. As cooperatives increase in size and complexity, these problems become more intense and complicated.

Cooperatives require a constant source of up-to-date information and ideas on management that can only be obtained by research. We have prepared a manual on management that presents general guidelines for cooperatives.

Building and maintaining good member relations are essential for the cooperative form of private business enterprise. One of the principal obstacles in the way of more rapid growth of cooperative business is the lack of understanding on the part of the general public. Through our research, service, and educational assistance, we constantly are searching for new methods and techniques that can be used by cooperatives to improve their member and public relations. This past year we cosponsored with the American Institute of Cooperation, 4 regional member relations conferences attended by some 400 cooperatives in all parts of the country.

ASSISTANCE IN RURAL AREAS DEVELOPMENT

The rural areas development program places emphasis on mobiliz ing local resources to improve economic conditions. Our staff continues to emphasize, evaluate, and explain the vital role of cooperatives as an organizational device for helping local people build stronger rural communities. Special emphasis is being placed on making use of existing cooperative leadership to strengthen projects under the RAD program.

We assist in analyzing RAD project proposals where cooperatives are involved or may be considered as a method for providing new enterprises or services. Where the proposals are determined to be economically sound, we provide assistance to groups in developing organizational and operating plan.s Where the proposals are not feasible, we point out the weaknesses in order to prevent losses to the farmers, the Government, or other investors.

We have developed and provided educational material for use in the program. The need for local interest and initiative requires an understanding of the problems and an understanding of various means available for attacking the problem. Our efforts have been designed to indicate the role cooperatives may have and to encourage the use of group effort in solving local problems.

Our program is giving attention to the place of cooperatives in low income areas. When possible, we will provide onsite education. information, and research and service support to the Federal and State Extension Service, land-grant colleges, State departments of agricul ture, and cooperative enterprises concerned with this problem.