New legislation is needed in order to (1) eliminate the inequity of the twoprice system under which domestic mills must pay substantially higher prices for cotton than foreign mills, (2) enable cotton to meet the price competition of synthetic fibers, (3) reduce Government expenditures for the cotton program, (4) reduce excessive stocks of cotton, and (5) maintain cotton producer income. The committee amendment would authorize changes in present programs which would bring immediate relief in some problem areas and permit steady progress toward achieving the five objectives set forth above. We believe that this proposal represents the best practical prospect for legislation to meet the problems of the cotton industry, and we recommend its enactment. The provisions of the committee amendment on cotton are generally in accord with the proposal of the Cotton Producers Legislative Committee which the Department supported in its testimony before your committee on February 11, 1964. However, the committee's change from 10 acres to 15 acres in the provisions relating to the minimum acreage for farm domestic allotments will substantially decrease the reduction in expenditures which this proposal will achieve in comparison with the provisions of existing law. There are attached four tables which show basic data for cotton under present law, under H.R. 6196 as approved by the House of Representatives, and under the committee amendment. You will note that under the domestic allotmentchoice plan a substantial reduction in carryover is estimated, the cost of the program is less than other proposals designed to achieve comparable results, including programs under existing law, and net farm income is at a favorable level. According to the Department's projections as reflected in these tables, expenditures for the cotton program under the committee's proposal would be lower than under existing law by the following amounts: In fiscal year 1965, $118 million; in fiscal year 1966, $126 million; in fiscal year 1967, $225 million; and in fiscal year 1968. $327 million. Upland cotton-Basic data for current legislation, H.R. 6196 as passed by the House and as amended by the Senate committee Upland cotton-Comparison of estimated expenditures under current legislation, H.R. 6196 as passed by House and as amended by Senate committee 1 This payment on 9.6 domestic consumption would be only $312,000,000, balance of payment would be on cotton that would go for export. The additional cotton for export will be purchased from CCC at reduced prices. 2 Expenditures under H.R. 6196 without the Jones amendment would be $696,000,000, thus H.R. 6196 as amended by the Senate committee would cost some $246,000,000 less and still go all the way to a one-price system. 3 If sufficient export acres were permitted to produce 300,000 bales, this would increase both expenditures and farm income about $34,000,000. NOTE.-Does not include the 1-time transition expenditures that could be incurred in 1963-64 or 196465 under new legislation. Upland cotton-Long-range basic data for current legislation and H.R. 6196 as amended by the Senate committee Trade incentive rate per pound. 32.00 32.00 32.00 23.00 23.00 23.00 23.00 23.00 30.71 30.71 30.71 0 0 0 6.5 6.5 6.5 Farm value of production .. ________million dollars.. 2,336 2,400 2,464 2, 019 2,047 2,073 1 Including any payments made to producers. Upland cotton-Long-range comparison of estimated expenditures under current legislation and H.R. 6196 as amended by Senate committee This payment on domestic consumption would be only $312,000,000 for 1965–66, $318,000,000 for 1966-67, and $325,000,000 for 1967-68, balance of payment would be on cotton that would go for export. The additional cotton for export will be purchased from CCC at reduced prices. If export acres were not permitted both farm value of production and Government expenditures would be reduced about $60,000,000, $70,000,000, and $80,000,000 for 1965–66, 1966-67, and 1967-68, respectively. While gross producer income from cotton would be somewhat less under the committee amendment than under H.R. 6196 as it passed the House, net producer income would be somewhat more. In addition, producers choosing the domestic allotment would have the opportunity to earn income from alternative uses of the acreage that would otherwise be devoted to the production of cotton. With respect to the additional price support for cooperators who choose to plant within their domestic allotments, the enclosed tables assume that this additional support will be 32 cents a pound making a total price support level of 33% cents (basis Middling-inch) for cotton of producers who choose the domestic allotment. Of course, this assumption and similar assumptions in the tables, such as the 61⁄2-cent payment rate on cotton for export or domestic consumption, do not represent administrative decisions or commitments that these are the rates which will be established by the Secretary. The Bureau of the Budget advises that there is no objection to the presentation of this report from the standpoint of the administration's program. Sincerely yours, ORVILLE L. FREEMAN. NEED FOR INCREASING CONSUMPTION AND PROTECTING FARM INCOME FROM COTTON Mr. WHITTEN. Several members of our subcommittee attended the meeting of your agriculture attachés in Tokyo, along with a member of the staff of the committee. They reported that in Japan the labor costs in the spinning mills is about 20 percent of what it is in the United States. They reported that in Hong Kong the wage rates are even lower than the Japanese rates. So it becomes apparent to me that the price of cotton is certainly not the only factor, and if we are to really protect the American producer, some action is going to have to be taken on section 22. Is there any further comment you would care to make as to what your proposals will do, so far as increasing consumption or protecting farm income from cotton? Secretary FREEMAN. You have very properly-and from a much broader experience and background than I can command-defined this situation and your remarks also dramatize its complexity. In this instance, the question of whether cotton domestically at world price will halt the substitution of synthetic fibers is, as the chairman said, something about which there is not common agreeIf we have an increase in domestic consumption of nearly 2 million bales, if we are able to maintain our exports at 5 to 6 million bales, and we have been selling competitively, as you know, on bid, we will certainly be in a much healthier position with a 15- to 16million bale utilization each year. However, we will soon be producing that amount of cotton and we are going to have to recognize the exploding productivity which is taking place and to gear our production and our offtake accordingly. which I fell confidently we can do. But a lot will turn on the outcome of the cotton producers proposal which is now before the Senate, and which seems to be the only one at this time to speak very directly from the standpoint of practicality-that stands a chance of enactment. Mr. WHITTEN. Mr. Secretary, it will probably be some little time. before our hearings are printed and any statement here won't cause any complications on that bill. I think at this point I should ask Mr. Grant in connection with showing on cotton exports, or lack of them, to designate when U.S. cotton was offered competitively. I happened to serve on this committee in the years where we didn't export any cotton because we didn't try to. When I say try, you don't try when you don't make your price meet that of your competitor. So I do think that designation should be made. (The information requested concerning the years when cotton was sold competitively on world markets is shown on p. 21.) BEEF IMPORTS Now, since I have referred to section 22, you were kind enough to call attention to your announcement about persuading Australia and New Zealand to cut down their meat exports to this country. Would you briefly tell us what was involved in that? Secretary FREEMAN. In this instance, I am advised by our legal counsel that section 22, in its application, pertains to price-supported commodities. Therefore, since beef is not being supported, although it could be under the law-and I have had no intention at any time of doing so in light of the producers' vigorous opposition to such support-we do not have any authority to impose section 22. With a binding under the Reciprocal Trade Act of a 3-percent tariff in this situation. And in the absence of legislation, we felt that the soundest course of action was to work out with these suppliers into our market, an agreement that would cut back the volume of imports. This has been done and where the imports had been increasing very, very, sharply in both 1962 and 1963, they will now decrease in 1964 and thereafter there will be a modest increase based upon the growth of the market. A principle, incidentally, that we are seeking to apply to the Common Market countries in the coming GATT negotiations, where very significant amounts of our own trade are involved, and where we are faced with a danger of a complete shutout of certain critical export items, particularly grain, in those areas. Therefore, I feel, if I may say so, Mr. Chairman, that this has represented a significant accomplishment in the absence of legislation. The Australians and New Zealanders recognized there was no action that we could take, but they also realized that in the long run, the United States could not continue as the only open market in the world which is a situation we found ourselves in and, therefore, after some very hard bargaining in which we tried to get a lower base we urged a 5-year base rather than a 2-year base-we finally were able to accomplish a 2-year average base with the figures which are not a matter of record. I might add this in connection with it, I think we ought to recognize that a relatively small part of the pressure on prices, which dropped sharply in fed steers, was a product of imports. Most of that was the product rather of our own very substantial increase in production, a record in beef, the highest pork production since 1944, the highest poultry production in the history of the Nation. All of these gathered for a tremendous pressure which brought about the price break. And as such, the imports, while they played a part, a greater parthow great a part is debatable-but the best judgments, after careful analysis, would indicate that of about a $3.70 price break, about $0.50 of it was caused by the imports of beef and this is no small amount. But the greatest amount of the beef imported was cow meat with only about 5 percent actually that was directly competitive with the fed steer meat which suffered the greatest price break. We need, I think, to recognize that here again, the tremendous productivity of American agriculture and relatively low elasticity of demand on the other hand, are constant factors with which we live in this period of adjustment. It is a difficult thing to try to bring about these adjustments and as the chairman well knows, a highly controversial one, whatever course of action you seek to follow. CATTLE POPULATION, PRICES, AND IMPORTS Mr. WHITTEN. Mr. Secretary, sometimes I think we get "adjusted out" actually. We create the Common Market, and now we are begging them not to freeze us out. We do the same thing in so many areas. I think, in view of your statements, that it would be well at this point in the record to supply figures showing the cattle population for a reasonable period of time, the average price for the general classifications, the amount of imports and the country from which imported where the amount is significant. (The material referred to follows:) |