eral Surplus Relief Corporation conducted to remove surplus stocks for welfare purposes. The major sum so used was an advance in anticipation of processing taxes. On January 1, 1934, a total of about 61 million pounds had been purchased or committed for on bids. Of this amount about 4 million pounds had been distributed, 39 million pounds was in the Government's possession, and 18 million pounds additional were scheduled for purchase on bids. Some cheese has been included. The major portion of the butter was secured on primary markets under exchange rules, at first working with Land O'Lakes Incorporated, and later through the Dairy Marketing Corporation on an agreement with the Government. Neither Land O' Lakes nor the Marketing Corporation operated on their own funds. As you are aware, the Federal buying at principal butter markets sustained the price well above 21 cents for many weeks, which was because the Government was the principal taker of fresh butter and storage stocks. The general effect as of January 1 was to bring the total balance left in commercial channels down to within five million pounds of the five-year average storage for that date, after deducting the Federal butter holdings. No doubt this has been of considerable value, but the practice could not be continued for the present beyond the needs of the Federal Emergency Relief Administration. They are now distributing about 3 million pounds of this butter per week and hope to move out the last consignment by April 1 through local relief agencies. Some criticism of the buying on bids has been made, and it is charged that this puts a drag on the whole butter market. To this let me reply that three out of four bid openings have been rejected because the asking prices were three to eight cents above current market for 92 score Chicago butter. Low competitive bidding has not developed at all, nor has there been any injury done to current prices thereby. If there is any drag on butter market quotations, it lies with the exchanges, which do not always reflect the true volume of supply and demand.

Finally we got right down to brass tacks and held a hearing on rates of processing taxes and compensating taxes. There it was insisted that if we must start something, then one cent per pound of butterfat was all the industry could stand, although that rate would not provide more than 30 million dollars, a large part of which had been allocated in advance for buying for relief purposes. At last the dairy leaders issued a manifesto which said that no production-control plans whatever would be supported by the dairy industry unless we did at least three things first: (1) Guarantee that no land withdrawn from other basic commodities could or would be used in the slightest degree to produce dairy products; (2) place prohibitive tariffs on all foreign fats and oils; (3) restrict or confiscate the oleomargarine industry, particularly the well known "cocoa-nut cow." In other words, they wanted to run a hurdle race. I shall not dwell long on the barriers which they erected. Withdrawal of lands from production of basic commodities already under adjustment programs is duly provided for in the contracts, subject to local supervision. Anything done to make the prices of cotton, wheat, and corn and hogs higher, with or without contracts, certainly means less Competition for the dairyman than would be the case in the absence of any adjustment and benefits for cotton and the other commodities.

Furthermore, it seems to me that public policy in some of the leading exporting dairy-cattle states has hitherto built up far greater competition for the industry in years past than any now likely under the present Act. Wisconsin alone has shipped out as high as 80,000 head of dairy cattle in a year, used as foundations for producing herds in areas already overstocked.

As late as September some of the dairy interests repeated that they wanted no national production control plan unless it was hedged with tariffs and embargoes on oils and fats and strict oleomargarine regulation, especially the restriction of its manufacture solely to domestic ingredients.

It should be recognized that such measures would have effects on dairy prices, the extent and duration of which are highly controversial questions. I would not be honest with myself or the dairy people if I did not state that I fear the results would be much less substantial than some dairy leaders believe. Certainly they would not be anywhere near great enough to obscure the need for a fundamental program for dairying. Really substantial relief for dairying should not wait for any measures of this character.

In spite of more cows and greater milk-production power, it would be a grave mistake to regard the dairy industry's problem solely as one of overproduction. There is a great potential consuming power among the American people for dairy products. There are large sections of the country not now receiving enough dairy products to constitute a reasonably balanced diet.

When we speak of overproduction in the dairy industry we mean production of quantities of dairy products beyond the ability of consumer purchasing power to absorb at anything above distress prices to farmers. Therefore, we do not think of curtailment of milk production in any absolute or permanent sense as we do in the case of wheat.

There exists in the dairy industry a temporary emergency overproduction. This storage excess is a contributing factor in holding down the prices of the products of milk.

Experience with stabilization operations indicates that attempts to raise prices in advance of improvement in consumer purchasing power and without any checkrein on production are followed by such quick upturns in production as to cause a fresh and disastrous collapse in prices.

Therefore, we believe it essential that the dairy program should contain as one of its basic features such a method of production control that will restrain production to keep it in step with increases in consumer purchasing power and prevent supply from outrunning demand to the degree that causes disaster.

It is necessary to have a dairy program which offers help to the entire industry. We must recognize the interrelation of various dairy commodities to each other, and continually keep the principle in mind that reasonable restraint of production should govern the industry during the period of recovery in consumer buying power. Milk producing sections of the country demand broader and more fundamental adjustments than those thus far undertaken and I believe they are ready to consider and accept a workable plan.

In proposing a plan for consideration by dairymen, I should like to point out that benefit payments made under the funds available

should set in motion forces having favorable effect upon the purchasing power of consumers. Our experience with payment of benefits in the cotton and wheat regions indicates that increasing the income of farmers is quickly and strongly reflected in business and industrial recovery in the areas. Thus payments to dairy farmers, like those made to the cotton and wheat producers, should to some extent at least result in a recovery in consuming purchasing power which would start a cycle of increasing demand for dairy products. The December figures indicate that the difference between average cash price for butterfat in all forms of milk sold and the fair exchange value under the Act is almost 16 cents. Obviously, we cannot have a tax rate that high.

I have endorsed before Congress an emergency plan for $200,000,000 over and above this year's receipts from processing taxes, to be used for the beef and dairy cattle industries, as a supplement to receipts from processing taxes in financing the program this year, and to advocate inclusion of beef cattle within the terms of the Agricultural Adjustment Act. Of course, money taken from the Treasury must be replaced out of either processing taxes or other tax receipts. The Adjustment Act's intent is to provide a continuous source of revenue, and the thought is that ultimately when consumer purchasing power is on the upgrade, the industry will not feel the tax as much as in the present emergency, so that then it will be easier to replace out of processing taxes the special fund made available now. A bill to create this fund has been introduced in Congress. Governor Schmedeman has joined your Congressional delegation in supporting it. Indeed, Governor Schmedeman and his staff and Dean Christensen have been alert to the dairy welfare at all times and we appreciate their counsel.

The proposed special fund is desirable because both dairy and beef producers, pending recovery in consumer buying power, would feel the processing tax more than export agriculture, whose prices are fxed in the world markets. The appropriation will enable advance payments to reach the farmers by the time a substantial tax is felt. We believe that as the market is freed from the pressure of oversupply, the tendency for the tax to be reflected in producer price will disappear. Further aid could be obtained through additional surplus relief purchases, affording dairy products to the needy unemployed who otherwise would be unable to obtain them, with the purchases timed to coincide with dairy price advances.

The tentative plan which the Administration is offering to the dairy industry is an individual voluntary farm allotment proposal, financed by a processing tax on all butterfat in milk and its products and a compensatory tax on oleomargarine. The rate of the processing tax would eventually reach 5 cents or more per pound of butterfat in all milk and its products, with a compensatory tax on oleomargarine equivalent to the tax rate on butter.

A 3-year base period, with individual production of butterfat for 1931, 1932, and 1933 established for each farmer, is contemplated. The goal to be sought is an individual reduction of 15 percent in milk. and butterfat produced for market in the year ahead below the quantities sold in the past year, with the prospect that this would Assure a 10 percent net reduction, or whatever fraction of this percent may appear necessary.

The method of securing reduction on the farm is to be left to the judgment of cooperating producers. Compensation to cooperating producers is to be secured through benefit payments or premiums on sales on an agreed reduction basis under contract.

The quantities would apply to individual dairymen on a voluntary system. Each producer would have his quota of total sales for the year divided into four parts, but such quarterly division of each individual's total allotment would be left largely to each individual's choice. As substantial an advance payment as possible would be made to each cooperating producer soon after his contract is accepted. Additional payments might be made quarterly.

The plan is intended to be operated in a flexible manner so as to permit expansion of the industry as rapidly as consumer buying power expands. After the emergency oversupply is reduced, the industry should be guided toward a controlled expansion up to the limit of consumer purchasing power.

In addition to the use of funds for direct individual adjustments to secure the proper balance between supply and demand, we propose to inaugurate an intensive educational campaign among cooperating producers to assist them in determining and applying the most economical and effective methods of complying with the reduction specified in their contracts. The Bureau of Dairy Industry and the Agricultural Extension Service already have mapped out tentative plans to fit such a campaign. The object is assistance of farmers in economical production and aid for them in selection of profitable and practical means of production adjustment. It is further proposed to allocate such sums as Congress may determine for two other purposes.

One of the plans is to engage in an intensive campaign to eradicate tuberculosis in dairy cattle. For a two-year campaign on a joint basis as at present, sharing costs between the States and Federal Government, the Federal share of the expense is estimated at about $5,000,000. The various States requiring further eradication of tuberculosis in cattle would appropriate sums to assist in the work. It is estimated that there are about 5,000,000 head of dairy cattle yet to be tested for tuberculosis, with about 600,000 head as the number normally expected to be subject to removal.

Speeding up this campaign so as to complete the testing in one year would require about $40,000,000 which would be expended mostly in four or five States. The tuberculin testing campaign is recognized primarily as a health and public welfare measure rather than a direct means of production control. Hence it does not appear equitable to ask the dairy industry as a whole to accept a reduction in benefit payment funds sufficient to finance so large a program.

The other plan involving use of part of the emergency fund relates to possibility of removing normal dairy cows of good production from intensive dairy areas in the leading dairy States to regions in the South where thousands of families have existed for years without a proper proportion of dairy products in the diet. Such cows will be selected with care in areas where animals of required standards are plentiful, particularly in regions where herds are being maintained relatively free from tuberculosis. Similarly their distribution would be handled so as to assure producers that such cows would not be used for commercial purposes, but would stimulate the greatly subnormal demand

for dairy products in those regions. This plan is advanced contingent upon its acceptance by the dairy industry, although it already has been urged not only by spokesmen of the industry, but also by persons who are well informed concerning the dietary deficiencies of some southern regions. The definite sum to be allocated for such purposes has not been stated. It would probably not be large at first so that the plan might be given a fair trial in a limited way.

This dairy program is not submitted as anything that is hard and fast or that is to be imposed on the dairy farmers of this country. We simply submit it, as it is our duty to do as the best plan that we have been able to devise after months of discussion and study of the many proposals which have been made to us. We know that we cannot make it succeed unless the dairy farmers of this country want it and support it, and unless they cooperate whole-heartedly in its operation. We are willing to accept any modifications which, after full discussion by farmers and their representatives, appear sound and desirable. If the dairy farmers or any substantial group in industry do not want this program we are willing to abandon it because we doubt whether it can succeed without strong support from the dairymen. If dairy farmers are willing to wait for substantial price advances until consumer purchasing power increases, the Government will be only too glad to keep hands off. But we are frank to say that if some sound and comprehensive program is not adopted soon the path of the dairy industry is likely to be rough. Our course will be determined by the response of the dairy farmers and their representatives to this program.

U.S. GOVERNMENT PRINTING OFFICE: 1934