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have adopted the position taken by the executive branch; namely, that inflation is our No. 1 problem and is the most corrosive of diseases and the most insidious and is a malignancy that will feed upon itself. You do go on to talk about unemployment as a "tragic waste" but you are against creating jobs with public funds.
And one of the things that we want to know is, as you say, and other administration witnesses have said, that we must provide the proper climate for investment. We hope to have a chance to discuss these priorities with you later.
Before I yield to Mrs. Heckler, I should state that we do have the Natural Gas bill on the House floor today, and we may have to interrupt from time to time because of votes. We will try to keep that to a minimum to avoid imposing on your time unnecessarily, but I hope you will understand it. I would expect to hear first from Secretary Butz and then follow that immediately by testimony from Secretary Richardson. At that time, the committee would like to then address questions to both of the witnesses. The witnesses, in accordance with standard procedure, can either read the statement or highlight it. But, in any event, your prepared statements in full will be, without objection, made a part of the record. And I understand, Secretary Richardson, you have a longer statement than your intended oral presentation. That will also, without objection, be made a part of the record.
Representative HECKLER. Mr. Chairman, I do not wish to prolong this hearing, in view of the fact that we have a very serious business on the floor and our witnesses have very important considerations in their own offices. I would like, at the outset, to express my appreciation to both members of the Cabinet for appearing here at a unique session. It is very rare that the Joint Economic Committee meets on this side of the House, or rather this side of the Capitol, I should say; however, it will be a pleasure to hear your testimony. And I look forward to listening to you.
AGRICULTURE Secretary Butz. Well, Mr. Chairman, and Mrs. Heckler, I am glad to hear you say it is very rare the committee meets on this side of the Capitol, because my card said we were meeting over on the Senate side. We went over there, and somebody said, “No, today they will be on the more important side of the Capitol” so we quickly hurried over here. We didn't ask which side that was.
Representative HECKLER. Well, I agree with that assessment.
Secretary BUTZ. Mr. Chairman, I would like to file my statement to have that placed in the record, and make a brief oral synopsis of the high points that affect agriculture's impact on the economy generally.
Representative MOORHEAD. Fine, please proceed.
Secretary BUTZ. We are operating now in the third year of the Agricultural Act of 1973. This act followed the Agricultural Act of 1970. And under the two acts, and especially under the second act, we have expressed a complete turnaround in agricultural policy in this country and one that I think is as anti-inflationary as any agricultural policy we followed in the last 40 years in this country. I say that because the emphasis of current agricultural policy is on full production. And in my book, at least, if there is any anti-action for inflation, it is full production; it is plenty of whatever you have to put on the market. That is the thrust of agricultural policy at the present time.
As you indicated, our farmers have responded marvelously the last 2 years. Their intentions in 1976 are again to respond for a full production, and given anything like the average growing conditions in 1976, we will achieve that we will again have plenty.
With this has come much less dependence on Government than we had previously in our agricultural policy and much more market orientation than we had before. I think it has paid off well. I think it has paid off not alone in terms of full production, but also in terms of farm income.
Our farmers have just finished the third year of the highest net farm incomes on record in the United States. The best we could do previous to these last 3 years was $18.2 billion of total net. Now, that is after production expenses. That was in 1972. In 1973, that figure rose to about $33 billion. And in 1974 it was around $26 billion. We don't have the final figures yet for 1975, but it will be around $25 billion.
It is too early, of course, to predict with any degree of accuracy what the figure will be in 1976, but we anticipate it should be again around that level. So, from our farmers' point of view, in the aggregate they have experienced during these 3 years, and will experience in this next year, a high net farm income.
Some other factors have contributed to this. And I think significant developments have occurred. We have substantially reduced the cost of Government programs to the Treasury. As recently as 4 years ago, we were spending $4 billion a year in payments to our farmers. That has now been reduced to where it was of the magnitude of $0.8 billion last year. Much of this was for disaster payments where we had crop failures, flood, or droughts, as the case may be. During peak inventory periods of the 1960's we were spending about $1 million a day just to store commodities we had. This has now been reduced virtually to the vanishing point.
So that we have substantially gotten the Government out of the commodity business, and it no longer competes with our farmers. We have also substantially increased our exports. Three years ago or 4 years ago, our exports were $7 billion. Last year, they were just under $22 billion. We have virtually tripled our exports of agricultural products from this country. We think the exports in the current year will be in that range of $22 billion or perhaps a bit more. Our physical volume of exports will be up this year over last year, of course. The dollar value will be, as I say, in the magnitude of $22 billion or more again this year.
Our agricultural imports run substantially less. We imported about $10 billion of agricultural commodities last year. That is half the sugar we eat, coffee, tea, and things like that. This means that agriculture made a net plus contribution to our balance of payments last year of $12 billion. This is very significant, I think, Mr. Chairman, in view of the fact that our overall trade balance last year, as reported by the Commerce Department, was a $11 billion-plus. And now I want to remind my colleague sitting next to me, as he assumes the new responsibilities of the Department of Commerce, that of the $11 billion-plus contribution to foreign trade last year, Mr. Richardson, overall agriculture made a contribution of $12 billion. I give him this, just so he never forgets the overall importance of this figure, when you get your figures out, Secretary Richardson.
We have, I think, made substantial progress in rural development. We have very markedly slowed the exodus of population from rural areas. As a matter of fact, if you take rural areas, including the small town parts of America, the population flow has reversed in the past year. We had some reduction in the numbers of farms last year in America. We reduced about 22,000 farms in America last year. While we decry the reduction of even 22,000, the numbers of farms are substantially better than the approximately 100,000 per-year reduction we were experiencing in the last 4 or 5 years of the 1960's. This has been markedly slowed down. We brought, I think, a new sense of belonging, a new sense of importance to rural America. Our farmers feel it and our rural businessmen feel it as evidenced even in the increased enrollment in agricultural schools in our land grant colleges. In the last 2 years, these schools have been areas of the most rapid expansion of many of our land grant colleges, which is just another factor reflecting the renewed confidence in rural America and the renewed sense of belonging and sense of opportunity in this whole agricultural area. It is all tied together, it seems to me.
You mentioned food prices, Mr. Chairman, and they have been substantially slowed. We did have a substantial rise in food prices from 1973 to 1974, as you pointed out, the average annual increase was approximately 14.5 percent. The annual average increase was approximately 812 percent from 1974 to 1975. At the present time, we project an average increase in food at retail in the year aheadand that is average 1975 to average 1976-of approximately 41/2 percent. Much will depend, of course, on the kind of production we have in 1976, but that is our present projection.
But, let me hasten to point out, Mr. Chairman, that of those increases, approximately three-fourths of that increase occurred after food left the farm. It represents increased costs of processing and distribution; it represents increased fuel costs; it represents transportation costs. The fact that we slowed our trucks to 55 miles an hour, for example, has added to the food bill. I cite that simply as a case in point. Much of it is increased labor costs. Much of it—and I am sorry to have to sit here and say it-much of it is the result of the restrictive practices that have been written in the labor-management contracts in many sectors of the food line, whether processing or distribution, as the case may be.
But again, I want to point out that approximately three-fourths of this increase occurred after food left the farm. At the present time, our farmers get about 42 percent of the consumers' food dollar. We are all prone to chase that 42-cent rabbit, but I think we ought to be chasing the 58 percent rabbit, where the real pay dirt is, to look
for efficiencies in that area. But the important thing, as you pointed out, Mr. Chairman, is that we are going to have a much smaller increase in the next year. I think the increase in retail food prices in the next year will be less than the increase in the Consumer Price Index generally. They will be less than the increase in the wholesale price index. They will be less than the increase in average wage increases, as we now project them.
I presume from the standpoint of the overall economy, Mr. Chairman, you may regard that as at least a healthy factor or at least an anti-inflationary factor. And I think it is fair to say that our farmers are a major anti-inflationary force in this country, because they are in a stance of full production. And they are going to be that again in 1976, as you pointed out.
Now, their intentions are to plant approximately 2 or more million acres in 1976 than last year. Those, of course, won't be the best acres. The best acres are already under cultivation. We are going to have an increase in corn acreage this year. We are going to have an increase in wheat acreage, as you pointed out. But the condition of winter wheat is such that our total wheat crop may not be quite as large as last year, when we had a record crop of 2.1 billion bushels. Our crop this year will probably be in excess of 2 billion bushels, which is a large wheat crop, especially when you consider that our domestic requirements for wheat, including that we eat and that our domestic requirements for wheat and that we use for feed and that we use for seed and industrial purposes, those figures are only about 700 million bushels. We produce nearly two or three times as much as we consume domestically. Our soybean acreage will be down some next year. Our cotton acreage will be up.
Next, just a word about livestock. We are going to increase our pork market some next year. We were short last year in pork. We had the lowest per-capita pork consumption in some 40 years, which reflected the very short corn crop we had in 1974. Hog numbers are picking up some. Cattle slaughter will continue at a pretty high level. We just finished our year of the highest per-capita availability of beef on record.
Our January 1 estimate of cattle numbers on farms was just released last week. It showed a decrease of over 3 million head. That is the first time in some years we showed a decrease in cattle numbers and that makes adjustment to the very rapid buildup in numbers we had over recent years. I think this foretells better economic conditions for our cattle farmers in the years ahead, Mr. Chairman.
We are going to have a good year in 1976 for hog producers. Dairy has come through several months prices substantially above a year ago, with feed costs down from a year ago. Our dairy production is increasing some. I think dairy will be in a fairly stable position in the year ahead.
So looking ahead for the year ahead, I am reasonably optimistic. Looking further down the road, Mr. Chairman, I think the world's number one problem in the 25-year context is to be able to increase food production enough to feed 80 percent more people by the end of this century than we have now. We have right now approximately 3.8 billion people in the world. Projections are that we will have 7 billion people by the end of this century. That means in this
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next 25 years we must learn somehow how to feed almost as many more people as we have learned to feed since the dawn of history. This is almost a frightening challenge for the whole food industry, both here and around the world.
We can meet it, I think, if we continue to give agriculture top priority; if we continue to support research and innovation; if we can move agriculture higher up on the priority scale of some of the developing nations and it has been so that instead of adding a new jumbo jet to their national airlines, Mr. Chairman, they will put their investment in a drainage plant or a fertilizer plant or something like that. I think we must address ourselves to these problems promptly if we are not going to be caught short of what I think is the world's number one problem. That is all the statement I care to make. Thank you.
Representative MOORHEAD. Thank you for a very eloquent statement, Mr. Secretary.
Your prepared statement will be printed in the hearing record. [The prepared statement of Secretary Butz follows:]
PREPARED STATEMENT OF HON. EARL L. BUTZ Mr. Chairman and Members of the Committee: I am happy to meet with you today because there are many good things to report. Not only for last year's results, and this year's prospects, but also in respect to trends of the past several years.
To gain a perspective on those trends, think for a moment about the changes in American agriculture since 1971. Farm net income has nearly doubled. Farmers' assets have jumped by over two-thirds. Exports of farm products have nearly tripled. The huge government grain surpluses have disappeared.
It wasn't long ago that farmers were kept in a constant quandary, wondering if and when somebody in Washington was going to unload some of that govenment-held surplus on the market, driving low crop prices even lower. Now farmers can judge for themselves whether to sell their grain now or hold it a while longer.
No single reason accounts for these changes. But getting the government off the farmer's back has a lot to do with it. Freedom of choice has brought greater output and more efficient use of resources. The farmer does best when he decides himself what and how much to plant; it was under that decisionmaking that 1975 production broke all past records.
Freeing farmers to produce and market to the best of their ability has done something else. Farmers are respected now, no longer the butt of jokes about eating at the public trough. There is more confidence in rural America. Enroll. ments in colleges of agriculture are rising, high school Vo-Ag classes are larger, the average age of farmers is declining, and the exodus from rural America has halted.
Thus, there is widespread awareness that agriculture and food are vital subjects in the world, today and for the foreseeable future. American farmers are in good shape now to cope with that future.
They entered the new year with record assets and the third highest net farm income on record, despite 1975's wrenching downturn in the U.S. and world economy. As we see it now, farmers will do at least as well this year, even though their costs of doing business will continue to rise.
There are also good things to say about the 1976 situation from the consumer's standpoint. Food prices, which rose much less last year than in 1974, should rise much less this year than last. In my statement to this Committee last spring, I anticipated that food prices would increase 712 to 9 percent in 1975, down from over 14 percent in 1974. The actual rise for 1975 was 812 percent.
Three-fourths of that 812 percent rise came after the products left farmers' hands. The farm-retail price spread is still undergoing a further disturbing rise. It is the main reason we expect another, though smaller, rise in food prices for 1976.
Now I would like to discuss the agricultural situation in more detail.