Mr. BELL. Yes, that is it exactly. You see, Mr. Douglas, the theory of that is this: That as we see the fertilizer business to-day we know that if we went down there and simply manufactured so many thousands of tons of cyanamid, which would comply with the nitrogen part of this guarantee, we would not have solved to your satisfaction the problem of how to furnish a cheap fertilizer to the American farmer for direct application or home mixing, because the American farmer does not use his fertilizer that way; he wants mixed goods. So that we have undertaken here, as regards the first two units, we will not only manufacture nitrogen but we will also inanufacture a quantity of plant food which will include that much nitrogen and which will also include that much plant food. The purpose of that, therefore, is to show our good faith in an attempt to solve the present fertilizer problem of the American farmer, even demonstrating our good faith by such investments as those guarantees will require, as regards the first two units. Then we have stopped going on with further guarantees with the tonnage of plant food, for this reason, as regards the third and fourth units, because we ourselves are convinced it is dangerous to go ahead and guarantee indefinitely for the whole program the type of fertilizer the farmer is going to use for 50 years. We do not know. For example, we have a very interesting material in urea. You may recall that in our agreement with the Union Carbide Co., we have a provision by which we have the rights to their urea process and we have given quite some thought to urea. Now urea is an all-nitrogen fertilizer, it is true; but, on the other hand, urea possesses certain distinct advantages for direct application and home mixing if we can ever get the commercial costs of urea to the point which we have hopes they can be brought to, and it might be urea might be the thing for those other plants and that the farmer would want urea quite regardless of whether or not other materials were associated with it a situation that we think is not so apt to arise in the case of cyanamide. Now as regard the fifth unit, the reason we did not do it is because we have not enough power in sight to make the guarantee which might involve the manufacture of that much more phosphoric acid by the electric furnace method, in addition to the manufacture of cyanamide by the cyanamide process. Have I made it plain? Mr. DOUGLAS. Yes, I can readily see the necessity for giving you flexibility with respect to the compound, or the elements with which nitrogen shall be compounded. Mr. BELL. Yes. But out of these first two units the farmer is to get at least 80,000 tons of plant food, which will include at least. 20,000 tons of pure nitrogen. Mr. DOUGLAS. Which will include, but not in addition to? Mr. BELL. No, not in addition to. Mr. DOUGLAS. I think as this reads, it is in addition to. Mrs. KAHN. It says "and at least." Mr. DOUGLAS. As I take it, that means 75,000 tons of nitrogen, regardless of the elements with which it shall be compounded. Mr. BELL (reading): Provide and place in operation a second unit of sufficient size so that there shall be then a total capacity of annual production of such concentrated fertilizer containing at least 20,000 net tons of fixed nitrogen and at least 80,000 net tons of plant food in the form of ammonia. You see, that is another way of saying nitrogen. Mr. DOUGLAS. Yes. Mr. BELL." And/or phosphoric acid and/or potash." So, you see, the 80,000 includes the nitrogen. Is not that right? Mrs. KAHN. I am not an expert, but I would take Mr. Douglas's interpretation. Mr. DOUGLAS. I think that is ambiguous, Mr. Bell, and some one might read that and construe it to mean you are bound to produce not only 20,000 tons of fixed nitrogen but, in addition, at least 80,000 tons of pure plant food. Mr. BELL. Would it clear up the ambiguity if instead of "ammonia " we had said "nitrogen"? Mr. DOUGLAS. Well that would, of course, increase your tonnage of nitrogen required to be produced, would it not? Mr. STAFFORD. I think it would clear up the ambiguity by substituting "or" for the word "and" in line 22, so as to make it read "or so as to produce." What do you think about that, Mr. Douglas? Mr. BELL. All right, suppose I work over that. Mr. DOUGLAS. I think there is an ambiguity there, Mr. Bell. I may be wrong about it. Mrs. KAHN. I would take Mr. Douglas's interpretation of that. Mr. DOUGLAS. As I read it, I would construe it to mean assuming the 80,000 tons were all in the form of ammonia, under the language used, you would be required to produce approximately 75,000 tons of nitrogen. That would be a considerable tonnage. Mr. BELL. It certainly would; we could not do it. May I work over that at some time when it won't delay the committee and see what we can do to clear that up? Mr. STAFFORD. I think in that connection you should also consider the phraseology just above and throughout, which runs through the various provisions. Mr. STAFFORD. I think in that connection you should also consider the phraseology just above and throughout, which runs through the various provisions. Mr. DOUGLAS. It may be by the insertion of a comma the ambiguity can be cleared up. Mr. BELL. All right; I will attend to that. Mrs. KAHN." Including in it at least." Mr. STAFFORD. Or "so as to produce." Mrs. KAHN. Yes "or included in the 80,000 net tons." Mr. DOUGLAS. Of course if some one should construe it as I do, it would be an unfair condition to impose upon you and quite impossible, would it not? Mr. BELL. Yes, I am glad you called my attention to it. Mr. REECE. Have you also given attention to the language at the top of page 18? Mr. BELL. Yes; Mr. Stafford mentioned that; I have a note on that, too. Mr. SPEAKS. Mr. Bell, the Farm Board can order the discontinuance of the fertilizer production at any time, can they not? Mr. BELL. Well, I am under the impression, General, that it is the Secretary of War or the President, is it not? Mr. SPEAKS. I think it is left to the Farm Board. Whoever it is, somebody representing the Government may order the discontinu ance of the manufacture. For instance, if there is a supply in excess of that required by the contract on the ground and nobody wants it, then they can discontinue the manufacture. Mr. BELL. Oh, yes. We have a right to do it. Mr. SPEAKS. Then if that situation arose, all of the power capacity of the plant is at your disposal? Mr. BELL. Yes. Mr. SPEAKS. For any use you care to make of it? Mr. BELL. Yes. Mr. SPEAKS. To sell it throughout the country, or to do what you please with it. Mr. BELL. Yes. Now, General, in order to give a complete pic ture Mr. SPEAKS. I thought that was pretty complete; that was my recollection of the situation arising from the questioning in other hearings, but just the plain fact is that somebody representing the Government can order the discontinuance of the manufacture of fertilizer at any time. When that is done, then the whole Muscle Shoals power plant is at the disposal of your company? Mr. BELL. Oh, no; no, that is not the picture. I beg your pardon. Nobody can order us to stop the manufacture of fertilizer at Muscle Shoals, except when we are in a war or war is imminent; but, on the other hand, when that quantity of material is in storage, we ourselves, without any authorization from any officer of the Government or farmers' board, can stop the manufacture of the material. On the other hand, dealing with the other aspect of the question, the power is then at our disposal to sell it or do anything we can with it, but subject to recall. Mr. SPEAKS. Oh, surely. Mr. BELL. That is to say, if the stored material falls below a certain quantity, we must then resume at full capacity the manufacture of the material and, therefore, we will have to recall that power. Further than that, if we are able to sell at a profit, which I should say was a highly improbable thing in view of the situation that we can not sell it except subject to recall, but if we can sell it at a profit, the profit goes to the reduction of the cost of the material in storage until it is finally sold. Further than that-I wonder if you gentlemen are sufficiently acquainted with the power business to realize the difficulty of selling a great big block of power which comes on the market by reason of the shut down of the plant, but in view of the fact the cost of the stored material is being written off all the time, sooner or later the power may be recalled and, therefore, one is in the position where all he can do is to offer this big block of power subject to recall. However, if it can be done, as I say, and if any profit is made on the transaction, why that profit goes to the writing down of the price of the material. Mr. DOUGLAS. In other words he is to benefit by this who purchases this fertilizer? Mr. BELL. Yes. Mr. DOUGLAS. Is not that really what it amounts to? Mr. BELL. That is what it amounts to. In other words, if the price of the material at cost plus 8 per cent, to take an arbitrary figure is $60 and we have succeeded in selling this block of power at a profit, that profit will go to reduce the cost of $60. 101229-306 Mr. COCHRAN. Mr. Bell, if the market price of fertilizer should be such that you could not sell your' fertilizer at a profit or 8 per cent, you would not be required to manufacture a pound of fertilizer, would you? Mr. BELL. Not after we had built up this storage to a certain point; that is to say, an amount which in terms of the figures we were talking would be somewhere in the neighborhood of one and a half million dollars. I will tell you I have tried to sit down, don't you know, and see ahead, which is always quite a difficult thing to do, and I have tried to figure out what might happen. What might happen would be this, that our competitors knowing the condition of this lease, and so on, our foreign competitors if you choose, or possibly our domestic competitors, might say to themselves "now we will just cut the life out of this operation for a while and see what happens next," so that they might bring their price down not simply to the point to which we had brought our price down under this cost plus 8 per cent, but they might go away on down below that for a while. I do not know whether you realize or not, probably you have not been brought in contact with it, but there are certain great chemical manufacturers abroad who operate in some cases in protected territories, in some cases in embargo territories, where only they can be admitted, and it is possible they might think it was a shrewd competitive move, in order to upset the situation in America to get that market-they might feel a shrewd way to do that would be to dump over here for a while and make their profits abroad in the embargo countries or, in some instances, where their freight rates on our products from Warners, for example, would virtually amount to an embargo. So let us suppose they start in and create a price situation like that. Now you say under this program, so far as Muscle Shoals is concerned, we can not export the material except with the approval of the farmer board and while I expect the farmer board to be a set of reasonable business men, and so on, yet I suspect they would be very reluctant to give us an authorization to export the material produced at Muscle Shoals. You can imagine there would be an opportunity for criticism, whether it was justified or whether it was not, because Muscle Shoals was built, first, for national defense and, secondly, for the American farmer, to insure a high-grade concentrated fertilizer at a reasonable price. So we are in the position where we may not be allowed to retaliate even to the limited extent one can retaliate with high eastbound freight rates on the North Atlantic; or in a case where we can not get into countries at all, we could not retaliate because the farmer board would say: 66 Now you go ahead and make this stuff for the American farmer; we do not want you to ship abroad." You can readily see that situation might arise. So here we are having brought about a situation which is to the great advantage of the American farmers, because we have brought the whole price level of fertilizer all over the United States down and, for the moment, we have brought it down to a point below what we can afford to make. And if there were not some such provision as this in the picture, really what would we do? Why, we would be required to go on and manufacture about $25,000,000 worth of stuff every year and pile it up. Well, you could not pile it up; there are not warehouses enough; we would have to spend millions and millions more dollars in warehouses in order to store the stuff, which we could not do. We would just have to dump it in the Tennessee River under a provision like that. Mr. SPEAKS. Well, you are not required to do that, are you, Mr. Bell? Mr. BELL. Oh, no, indeed; we have very carefully refrained from getting into that position. Mr. SPEAKS. If you will pardon an interruption right there, suppose the fertilizer produced at Muscle Shoals does not go in the home market? Mr. BELL. Exactly. Mr. SPEAKS. Or any condition arises where there is no demand? Mr. SPEAKS. Where there is no demand for the fertilizer? Mr. SPEAKS. Or officers of the Government authorize you not to produce under the terms of the contract; in that event, of course, you would stop the manufacture of fertilizer. As you say, this farmer board will be reasonable men, and they will not be asking you to do anything unreasonable. In that event, Muscle Shoals is turned right over to your company; is not that true? Mr. BELL. No; there are quite a number of provisions that then come into play. First of all, in a situation such as that, if we stop the manufacture, as it is under this lease, we carry in stock inventories that will aggregate on this manufactured price I suggested, something over a million and a half dollars on which we are out the interest, we are out the depreciation of the plant, we are out the interest on the investment that we have in the plant; but at any time our competitors feel that they have got to the point where they have had enough and the price of fertilizer goes back to the point where we can make our costs, we start up again. Mr. SPEAKS. Yes; I am familiar with that. Mr. BELL. Now, let us assume a case where the situation is such that we can not go on and ever make fertilizer at Muscle Shoals, if you please. Mr. SPEAKS. Yes. Mr. BELL. Let us assume a case where the farmers use something to make their plants grow other than fertilizer. I think that is a rather remote and fantastic idea, yet I am not quite sure about that. Perhaps you gentlemen are familiar with some of the bacteriological talk that is going on now and fertilizing plants by that method and not by fertilizer at all. Or let us assume still another case, which is perhaps less fantastic and remote, a case in which some other type of fertilizer comes along and it is perfectly obvious that Muscle Shoals, whatever else it is, is not a good place to make that one. Let us suppose one was to make a fertilizer, some material that will supplant all the rest that now exists, where you go on top of the coal mine, at the pithead and make it there: Now, what will the Government do in this case? The Government can do a number of different things under the conditions set up in this contract. Having |