Mr. LEWIS. We are required by law to support the price of milk and butterfat in this particular case, and in order to do that we must buy the products. Since we cannot buy the whole milk in a feasible way we must buy the products at a price which will yield to the farmers the support price established. Mr. HORAN. You do not require certificate of performance from the processors? Mr. LEWIS. No; we do not. Mr. HORAN. You rely on Mr. LEWIS. We rely on the competitive market to insure that the best price obtainable be returned in any given community. It is not infeasible to require certification in the case of dairy products because in most cases it is not possible to buy the milk directly from the processors who buy the product from the farmer. In the case of cheese we buy the cheese from assemblers who have assembled cheese from a large number of small cheese factories in order to make up carload lots, and for this reason it would be infeasible to require certification. Mr. HORAN. It is certainly a complicated operation. Mr. GODFREY. There are many facets to it. Mr. HORAN. My former colleague who served on this subcommittee so long, the Honorable H. Carl Andersen, always used to lament annually about 75-cent eggs in Washington returning 25 to 30 cents in Tyler, Minn. Do you consider the factors of distance in transportation in the return to the farmers? Mr. LEWIS. Well, in the case of milk the general theory is that milk is a product which is primarily produced for local consumption rather than for export through ports or sale in cash markets through terminal markets, and inasmuch as our dairy price-support program is designed to support the price of milk rather than of the products of milk our aim is to support the price of milk to the farmers. Therefore, we do not establish differentials for location, with one exception, butter. We do have a differential which will permit midwestern butter to compete in the eastern markets with the butter produced in the East. Mr. HORAN. What do you mean by "differential"? Mr. LEWIS. That is, we pay a little bit more in New York for butter than we do in Chicago, about half a cent a pound, and this permits part of the transportation cost to the New York market from the Midwest to be absorbed so that Midwest butter will be competitive with eastern-produced butter in the major markets of the East. In the case of nonfat dry milk or cheese we do not allow differentials inasmuch as our object is to support the price of milk received by the farmers locally. Mr. HORAN. Do you have anything handy by way of tables that would more or less explain the difficulties that CCC has in equalizing a Federal law as it applies, and Federal regulations as they apply to our multiplicity of milk sheds? I am aware of the problem that must be involved in this. Mr. LEWIS. We can get this information for you. (The information requested follows:) Milk prices under individual Federal orders are influenced by milk values in the heavy surplus producing area of Wisconsin and Minnesota. Class I prices in individual order markets are related to the Chicago class I price plus the cost of transportation. The Chicago market draws a substantial portion of its milk supply from Wisconsin, which is the major milk-producing State in the Nation. Chicago Federal order class I prices are closely related to prices paid for manufacturing grade milk in Wisconsin and Minnesota, which, in turn, are primarily determined by milk price support levels. In the attached table, class I prices in selected Federal order markets are compared with Chicago order class I and uniform prices paid at regulated plants located at Eau Claire, Wis., and with prices paid for manufacturing grade milk in Minnesota and Wisconsin. Comparison of 1962 average class I prices in selected Federal milk orders with average price paid for milk by manufacturing plants in Minnesota-Wisconsin, Chicago Federal order class I, and Chicago Federal order uniform (blend) prices at Eau Claire plus transportation and a 25-cent handling charge 1 Transportation costs based on information available as to transportation rates of a large milk transporting firm. Prices include an assumed 25-cent handling charge. Mr. LEWIS. The price of fluid milk is established under milk marketing orders which are no longer within the jurisdiction of the ASCS. They are under the Agricultural Marketing Service. That is the program that is primarily responsible for the milk pricing for fluid use in the various milk sheds. But we can get information for you. Mr. HORAN. Well, you run into some further complications there I would assume. You have given the operation and regulation of marketing orders over to the Marketing Service? Mr. LEWIS. Yes. Mr. HORAN. Under a law that also involves ASCS and Commodity Credit. Mr. LEWIS. Now, this is the Agricultural Marketing Agreement Act which, of course, affects a large number of agencies in various ways. Mr. HORAN. Why did you turn it over to the Marketing Service? Mr. LEWIS. The milk marketing order activity had previously been under Agricultural Marketing Service. Then it was transferred to ASCS, and in a recent reorganization was transferred back to AMS in order to consolidate it with the other marketing order activities in the Department. That is the marketing order activities for fruits and vegetables, tree nuts, and so forth. Mr. HORAN. Where price supports are involved that becomes the duty of the CCC to supply the funds, which later on after the fact, after this matter becomes history, then we repair the Commodity Credit structure? Mr. LEWIS. Yes, that relates to the price-support program which is carried out through the purchase of manufactured dairy products. SUPPLY OF DAIRY PRODUCTS Mr. HORAN. What is the situation today with regard to milk products and cheese, and so forth? Is it good or bad? Mr. LEWIS. Well, we have more than ample supplies. Mr. WHITTEN. That is a real understatement, is it not? Mr. HORAN. Would you enlarge on that? Mr. LEWIS. I do not remember exactly what the figures are. I could give you the approximations, or Mr. Beach I think can find them. Mr. WHITTEN. You have enough for your family and a little bit for the neighbors, have you not? Mr. LEWIS. Yes, sir, we have. As of March 1 we had in inventory 265 million pounds of butter, which is 59,900,000 pounds more than a year ago, plus the equivalent of about 63 million pounds of butter in the form of butteroil; and 16 million pounds of cheese, which is down 26 million from a year ago, and 505 million pounds of nonfat dry milk powder, which is up 277 million from a year ago. Mr. HORAN. And in the case of cheese what was your main avenue of disposal of that? Mr. LEWIS. Primarily through donations to the school lunch program and direct distribution to institutions and needy families. Mr. WHITTEN. If the gentleman will yield, do you know of any way to get that under the title of defense? Then it would not be paid any attention to. Mr. LEWIS. Mr. Chairman, I have been thinking about trying to find a way to do that for a long time. Mr. WHITTEN. It will work if you can do it. Mr. HORAN. Are you satisfied that the full benefits of the price support program are going to the farmer? Mr. LEWIS. Well, sir, I know, in the first place, we have succeeded in supporting the average price received by farmers at the price-support level, so in that sense it has been effective. In some areas it is more effective than in others. In areas where there are a large number of plants competing for the farmers' milk, the farmers will get a higher than average return on their milk because the plants will outbid each other in order to get supplies of milk. But in areas where there are fewer manufacturing plant facilities the farmer may have no alternative outlets and the plant will pay him a lower price, and he has got to take it or keep his milk at home; and in those areas the farmer generally gets less than the national average return. Mr. HORAN. Well, I have reason to believe that the milk producers in my district are not happy. I do not know as they are particularly unhappy as far as that is concerned, but there is some discussion occasionally that makes that apparent in a deficient milkshed. We have to ship in milk. What should be the situation in, let us say, the Spokane milkshed? Mr. LEWIS. As I remember, Spokane is a deficit area, and most of the milk produced locally most of the time can find a fluid market and a relatively favorable class 1 price, so that the average price received by farmers for milk in your area will be generally satisfactory. In areas where the proportion that must be sold for manufactured products is higher, the return to farmers is much lower, and that is where the greatest distress exists in the milk industry. CCC OPERATING RESULTS Mr. HORAN. To shift now to the difficult one that I think should be as a matter of strict record, that the influence for or relation should be reviewed, in view of the huge sums spent by CCC, and I think you testified yesterday, Mr. Godfrey and Mr. Beach, that a good share, a big portion of that was due to operations under Public Law 480. Mr. GODFREY. No, I beg your pardon. Some of it is attributed to foreign assistance programs, and Public Law 480 has been in operation only since 1954 and most of the losses have occurred since 1952. But the price support operation loss of from $20 to $21 billion, the majority of it has not been in the foreign assistance area even though some of it could be attributed to foreign assistance and some of it could be attributed to consumer benefits here at home, because there were production payments made during the war that could be attributed to consumer benefits. Mr. HORAN. When you use the words "consumer benefits" you are referring to which programs? Mr. GODFREY. The donation program for welfare food distribution, the expenditures for school lunch, distribution of commodities to school lunch, the International Wheat Agreement. I cannot think of others right offhand which could be attributed to consumer benefits and benefits to the general citizenry other than the direct subsidy payments that were made to milk producers during the war which were charged as a price-supported loss. Mr. HORAN. Would it be possible for you to prepare a table, Mr. Beach, wherein you identify commodities and their disappearance and one that will balance the books on this $20 billion dollar loss? Mr. BEACH. Yes, sir. We can show you the total loss that is attributable to individual commodities by commodity and give you the other items that make up the total of approximately $20 billion. (The material supplied follows:) COMMODITY CREDIT CORPORATION Summary of appropriations, fiscal years 1938-63 Regular activities: Restoration of capital impairment and reimbursements for net realized losses (table I)__ Special appropriations-regular (table II)-. Subtotal, price support, export, supply, and related pro- Special activities: Special activities other than foreign assistance (table III)_ Subtotal, special activities__. Total appropriations, Commodity Credit Corporation, $13, 705, 376, 478 784, 600, 000 14, 489, 976, 478 1, 161, 184, 459 12,995, 348, 629 14, 156, 533, 088 28, 646, 509, 566 |