Mr. CROFTON. That is right.

The CHAIRMAN. But they would not give them an allocation so you could not get an export license and they had to buy from Commodity Credit orporation and by that time the wheat had gone up?

Mr. CROFTON. That is right.

The CHAIRMAN. That is one point. The other point is, What was your margin? You said the Commodity Credit margin was 6 cents.

Mr. CROFTON. Their margin on all these contracts in 1947 was 2 percent for administrative expenses. So with wheat at $3,23, that is practically 6.4 cents a bushel. That was their margin.

On the wheat at $2.40, it is 4.80 cents a bushel.

I say that, generally speaking, we in the grain business do not get that kind of a margin. We could not, on account of the competition. The CHAIRMAN. They not only had to pay the increase in the market cost of the wheat, but had to pay the increased margins?

Mr. CROFTON. That is right.

Mr. BANTA. Mr. Crofton, your point there is that the Commodity Credit Corporation is driving the private exporter out of business, and this is the method by which you illustrate that that has been done?

Mr. CROFTON. That is right, and I tell you, we are driven out of business. As I say, our business-our firm has been in business close to a hundred years. We are out. We have been very nice, we have come down to see these different people, and tell them, "We would like to do this and would like to do that." They say, "We will see you in a couple of weeks." We had an interview along this line just recently. We asked about getting this business back. They say, "Well, you might be able to get it back gradually," but we are still here. We still do not have the business back. Because I think Commodity Credit is making a profit out of this business and does not want to give it up. But the American way of doing business is for us to handle that business. We have an organization--I am talking about our export group, not about our firm--we have elevators all over the United States, some of our members have their own lake vessels, we have our own ocean vessels, we have our offices spread all over the United States, our men are sitting there, our people are sitting there, experienced in the business for years, ready to handle this program-no; Commodity Credit handles it. It is an unnecessary duplication of expense.

Mr. BANTA. If there should be written into this bill, or in whatever bill is finally passed, a provision such as is recommended by you and by the gentleman who submitted, I believe, a substitute bill, Mr. Sanford, how would the private exporter then operate, under present world conditions?

Mr. CROFTON. Then, Mr. Congressman, when you give the order, then, we would be received entirely in a different manner by the Commodity Credit Corporation and we could take over that business with the beginning of the new crop, say starting in July. Then they could set up an allocation system, whereby these foreign buyers could have 3 or 4 months to buy that grain. It is just my idea that the way the business will be handled, when the height of the movement comes along in July, there are some farmers who want to sell their wheat. That would be the time for us, in the private trade, to step in and buy that wheat, which takes the slack out of the market. Instead of prices dropping too fast, we would buy it. We would accumulate our stocks

and we would be ready to supply these foreign governments, which we can do on the basis of our past experience and our competent staffs. We would have the grain ready for them, we would have it on the ships. There is nothing new about it, as far as we are concerned.

Mr. BANTA. I know there is nothing new about it so far as the private enterprise method of doing it is concerned. But with Commodity Credit Corporation in the picture and with the loans that are being made on grain by Commodity Credit and with the operation in which they have been engaged, other than the export operation, I just wondered how you, for instance, would get the grain and how you would dispose of it, with world conditions being such as they are. You would have to sell, undoubtedly, to the governments concerned, foreign governments.

Mr. CROFTON. Yes.

Mr. BANTA. And not to private individuals.

Mr. CROFTON. That is correct. Of course, at the present time grain is above the loan prices, so we do not have that problem of buying the grain. We would buy the grain from the farmers just as Commodity Credit Corporation does. At the present time the Commodity Credit Corporation buys most of its grain from the private grain trade in the interior, because they do not have their own elevators and facilities to handle it. But, of course, the way this program is going along, we do not know whether some day they will have their own elevators. Which is what happened in Canada. One of the largest grain firms up there had an elevator, and was doing a nice business. The Government built an elevator right alongside of it.

Mr. BANTA. It might be that before long you will not have any use for one and Commodity Credit will be in the market for your elevators? Mr. CROFTON. That is right.

Mr. BROWN. Can Commodity Credit Corporation use your interior facilities now?

Mr. CROFTON. Yes; interior facilities. As a matter of fact, they use our facilities all the way through. They do not have any of their own. They use our facilities to bring the grain to the seaboard. But there is much more to the export business than just putting the grain on the track at New Orleans or Philadelphia. When the time comes when we are going to have surpluses and the Government is going to have to make loans to the farmers and take over this wheat under loans, we will be there then, that is our business, to find markets for that American grain just as we did in 1937, when wheat on the Pacific coast was 40 cents a bushel.

Mr. BROWN. Is the amount they pay you for those services satisfactory?

Mr. CROFTON. I am glad you asked the question. When the Commodity Credit Corporation started to function there were fixed storage rates all over the country. For instance, in Duluth, Minneapolis, the storage rate was one-thirtieth of a cent a bushel a day, that was 1 cent a month. In Chicago it was a cent and a quarter a month. At the Gulf it was a cent a month. At the seaboard ports it was a cent and a quarter a month. Now, Commodity Credit stepped into the picture and said, "We will make a uniform storage agreement with all you elevator people," so what could the elevator people do? There

was a war going on. We have to make a sacrifice, it is a Government agency. "We will give you 7 cents a bushel a year for storage." We had to take the 7 cents a year instead of 12 cents a year. In the meantime people have spent thousands of dollars to build up these facilities. Now, with the cost of labor as it is today, and everything else, they still are only getting 7 cents a bushel for storage for a year, for grain in that elevator, and recently they have had a meeting with the Commodity Credit Corporation pleading for higher rates, so that at least they can operate the elevators. There is no money in it. Two elevators in Buffalo, big ones, one of 2,000,000 bushels capacity, just closed down. They cannot operate.

Mr. TALLE. Mr. Chairman.

The CHAIRMAN. Mr. Talle.

Mr. TALLE. I should like to refer to the hearings of the first day. I have the transcript before me. I asked Mr. Dodd about what sources of income Commodity Credit Corporation might have, and I asked him if, when Commodity Credit Corporation takes over notes which have been rediscounted, the Corporation does not get an income from that service, and he agreed they did. Then I asked the question:

Mr. TALLE. Do you have any other sources of income?

Mr. DODD. Only to the extent to which we are able to sell commodities acquired under loans for more than we paid for them. That is the only other source of income we have.

Then I asked the question:

Can you make any money on the mark-up of grain sold to foreign buyers? Mr. DODD. Yes, sir; I am sorry I did not answer your question correctly the first time. On those that we buy for other Government agencies, or for any foreign country, or for relief, we price them so as to cover all of our costs plus 1 percent.

Mr. CROFTON. Two percent is the figure.

Mr. TALLE. But Mr. Dodd said 1 percent.

Mr. CROFTON. It is 2 percent.

Mr. TALLE. And I repeat it as the record shows: "Plus 1 percent mark-up."

Mr. Dodd repeated to me: "Plus 1 percent mark-up." Then Mr. Dodd said further:

We have not come out with a clear 1 percent, because sometimes there are some losses that we do not anticipate. So it has been something a little less than 1 percent perhaps, but we attempt to get 1 percent on that volume of goods. Mr. CROFTON. Mark-up is definitely 2 percent because I have seen these foreign invoices.

Mr. TAILE. The record I have read from is Mr. Dodd's testimony, given on April 13, before this committee.

Mr. CROFTON. It is 1 percent plus 1 percent. It is 2 percent. As a matter of fact, not to take up your time, but I have with me, in my hotel, copies of three invoices on three ships loaded for the Norwegian Government, where there is a mark-up of 3 percent for deterioration of grain between Minneapolis and the port of Baltimore. In the 35 years I have been in the business I have never known a grade of wheat grading No. 1 to deteriorate between Minneapolis and Baltimore, and that 3 percent amounts to 9 cents a bushel. In one case it is $9,000, and in another $13,000. It absolutely never existed in the grain business, that kind of deterioration. That was in 1946. But these foreign agencies made such a fuss about the way they were being charged that

Commodity decided to change their system. It was getting too bad, because the Norwegians took the matter up with the State Department. The French were afraid to say anything, afraid their allocation would be cut down. I have had those fellows, Mr. Chairman, and Congressmen, in my office in New York almost crying because of what was done to them. We thought we were doing a fine thing loaning them money. Those agents went back to the different countries and practically told their people, "Do you think the Americans were good to you? You have been robbed." And they showed them the prices. This Danish situation, that information can be checked by anyone who was in Denmark or wanted to cable any flour miller in Denmark because every miller knows the price. When they had to pay the price, it was explained to them that that is what the Commodity Credit charges. Those conditions do not need to exist if the private trade handles the business.

Mr. TALLE. Well, I have quoted what is in the records, and I think it would be proper for Mr. Dodd to come here again and explain this discrepancy as to percentage mark-up.

Mr. CROFTON. We are at a disadvantage. You could ask the Commodity Credit Corporation for something, but we cannot. We can hardly get an interview, except with Mr. McArthur, and that is just a waste of time. That is why I appreciate this opportunity to talk to you today, because you are the only men we can talk to. Otherwise, the Government men ask us to come to see them, we give them constructive ideas, they use the ideas and that is all we hear about it. There was a time when they could not get wheat from the farmers. So we came down and had a conference with them and suggested that they pay the farmers a bonus to draw this wheat out, say 20 cents a bushel if they got it out in 10 days, 25 cents in 15 days, and so on. No; they could not do that. We hardly were back home again when they paid the farmers a 30-cent bonus.

Mr. TALLE. I stated to Mr. Dodd on April 13 that I probably would have some other questions that I might like to ask, and that I probably would ask them by letter. I shall now endeavor to get this point cleared up by communicating with Mr. Dodd.

Mr. CROFTON. I will be very glad to be helpful to you,

man.

Mr. Congress

The CHAIRMAN. Would you like to have Mr. Dodd back tomorrow morning?

Mr. TALLE. Yes; I would, Mr. Chairman.

The CHAIRMAN. We will see what we can do.

Are there further questions of Mr. Crofton?

(No response.)

The CHAIRMAN. If not, thank you, Mr. Crofton.

Can you get that information from Mr. Dodd by letter, Mr. Talle? Mr. TALLE. Yes; I can do that. I will refer him to the testimony which I read here today and ask him to comment on it in the light of today's testimony and discussion.

The CHAIRMAN. Very well.

Thank you, Mr. Crofton.

(Letter and statements submitted by Mr. N. E. Dodd follow :)

Hon. HENRY O. TALLE,

House of Representatives.

DEPARTMENT OF AGRICULTURE, Washington 25, D. C., April 20, 1948.

DEAR MR. TALLE: In accordance with your request this morning, there are attached a statement reconciling the testimony I gave on April 13, 1948, regarding prices for wheat with those made by Mr. Crofton on April 19, and a statement regarding purchases of wheat by Denmark.

Also attached is a list of technical changes in the language of H. R. 6214 which I mentioned to you.

I appreciate the opportunity you have afforded us to clarify the record regarding the questions discussed in the attached statements.

Sincerely yours,

Attachments.

N. E. DODD, Under Secretary.

DETERMINATION OF COMMODITY CREDIT CORPORATION SALES PRICES FOR WHEAT SOLD UNDER SUPPLY PROGRAM

The following information is submitted for the purpose of clarifying the testimony of the different witnesses who made statements concerning the method of establishing sales prices for wheat during the course of hearings on H. R. 6214 providing a Federal charter for the Commodity Credit Corporation.

Sales prices for wheat are determined generally on the basis of the following formula:

Commodity cost plus amounts estimated to cover transportation from point of purchase to point of delivery, storage, handling, overtime and other expenses incurred in delivering the commodity to f. o. b. vessel, plus a mark-up to cover damage, deterioration, and other contingencies.

The item for commodity cost is computed on the basis of average procurement cost to the Corporation. This takes into consideration the weighted average value of inventory carried forward, plus the weighted average value of new purchases.

The amounts included in sales prices to cover transportation, storage, handling, overtime, and other expenses are estimates of the weighted average costs for such items expected to be incurred in connection with the accumulation and disposition of the commodity during the period of its possession. These estimates are based, insofar as practicable, on the actual rates applicable to the particular type of service.

To the sum of the above items is added a mark-up to cover damage, deterioration and other contingencies. This mark-up has been administratively determined to be one percent.

Sales prices are determined separately for east coast shipments, Gulf coast shipments, and west coast shipments. Separate prices are also quoted for the different grades and types of wheat with appropriate differentials for protein content.

Sales prices determined on the above basis do not include any charge for administrative expense. Therefore, a 1-percent charge to cover this expense is made at the time of invoicing.

The policy followed in pricing wheat sales is in line with that followed in pricing other commodities purchased and sold by the Corporation. The Corporation handles its entire supply program on a cost basis, and to comply with the law requiring full reimbursement it is necessary in figuring sales prices that it add to the actual costs of the commodities delivered a small margin to cover costs and losses that may not be apparent, such as casualty losses that cannot be foreseen. For example, the Texas City disaster and the Gulfport hurricane caused heavy losses to the Commodity Credit Corporation. This mark-up included in sales prices to cover such factors is 1 percent. Also as stated above, in order to comply with the law requiring full recovery, an additional 1 percent is added to invoices to recover administrative expenses. Purchases and sales of wheat represent only a part of the supply program carried out by the Corporation, under which a large number of commodities are procured and delivered to export programs. Procurement, delivery, and pricing policies are basically the same for all commodities exported under the supply program, and the operations are conducted as one program.