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years. It would give me information as to whether you have increased, held to a normal acreage, or decreased. With that history we could try to anticipate what could be done in the future. If you had a fixed high parity-price structure, and it were possible to go up in acreage the ultimate end would be such extensive overproduction that the maintenance of a support price would be utterly impossible from the standpoint of the Treasury. That is the reason I asked the question.
Mr. CLAY. It is a good question and we are certainly in entire accord with you. We believe in marketing quotas.
Senator THYE. Have you been going uphill with your total acreage in the past 10 years? Let us catch the last
year. Mr. CLAY. 1946, 489,000.
Senator THYE. You see, you are up considerably over 1936, and you are up over 1937.
Senator AIKEN. That is for burley alone?
Senator AIKEN. Has the increase in acreage been at the expense of other tobacco types?
Mr. Clay. No, sir; except to some; except producers of dark tobacco have converted to burley.
Senator THYE. Have the other varieties followed the same pattern of increase that the burley tobacco has?
Mr. Clay. I do not know, but I can determine the pattern from an examination of the statistics.
Senator THYE. Your tobacco crop is not in every sense identical to other commodities but we have recognized in other commodities that if it were not for the European needs this year we would have had a surplus problem with wheat.
Mr. CLAY. Yes.
Senator THYE. The war coming as it did in the early 1940's did assist greatly in reducing the tremendous amount of grain that we had in storage under the ever-normal granary provision of the Agricultural Adjustment Act. We, of course, do not look forward to another war to bail us out of a similar high inventory of any commodity. Therefore, in writing our legislation, as we are attempting to write it today, we must look back in order that we may have some knowledge from past experience in trying to formulate a future program. That is one reason why in the other commodities there consideration was given to the carry-over in relations to what the parity level would be for the future.
Mr. Clay. In burley tobacco, sir, we did not have substantial exports during the war years. In fact, they were below those of the prewar years. Since then we have developed a substantial export market, but that is not a fly-by-night market. We believe it has been built on a rather firm foundation.
Senator THYE. We just hope so.
Mr. CLAY. There has been a conversion of taste in Europe from a straight type of cigarette to a blended type such as we have in this country. That is not an unusual condition.
Senator THYE. Have the tobacco people attempted to study what might take place in the economy of the European countries as to the
type of tobacco that they might develop or turn to in order to get the blend that has been accomplished here in America ?
Mr. Clay. Fortunately, it is almost impossible to duplicate the American blend without the American tobaccos. That is especially true of burley tobacco. It is an indigenous product of American agriculture.
Senator THYE. Could they take your seed. Mr. Clay. No, sir; they could grow burley the first year but thereafter they would have to buy some seed from us?
Senator THYE. Is it impossible for them to acquire the seed here annually?
Mr. CLAY. I do not know whether it is or not, but if we get in trouble on that, we certainly would make it impossible. So far we have not encountered world competition on burley tobacco.
Representative CHAPMAN. There is a law against that.
Senator COOPER. In Europe there is a climatic condition that prevents the growing of burley tobacco ?
Mr. Clay. That is true. We are not anxious to develop a world market which will evaporate on us overnight.
Senator THYE. That is the reason I asked the question because it will enable us to try to envision what the trend might be in the future.
Mr. Clay. We certainly hope that we never become stupid enough to seek a world market that we cannot retain or to fight for a price for tobacco which will result in the long run in our losing our world market.
Senator THYE. I am happy to get that information, too, because it is the length of our vision that keeps us out of trouble.
Mr. Clay. It is, sir.
Senator AIKEN. The increased world market for burley is the direct result of the war and getting the people of the rest of the world accustomed to American-type cigarettes.
Mr. CLAY. That is true, Senator Aiken. After the First World War there was a conversion in Europe from a Turkish type to a Virginia type and after the Second World War there has been an equally decided conversion to our American blend.
Senator AIKEN. After the First World War was when we folks up in Vermont all stopped raising cigar wrappers.
Mr. CLAY. You are familiar then with the conversions that took place.
Senator AIKEN. But I do not think it hurt the farmer at all, because I recall every farm in my town would have a half acre to 2 acres in tobacco and as a rule all the fertility made on the entire farm went on that tobacco field and the rest of the farm suffered.
Mr. Clay. As I have already indicated, the reserve supply level is calculated on the basis of principles accepted in the trade itself.
In Senate bill 2318, however, the reserve supply level is to be calculated on an entirely different basis. This results from a fact that normal supply is taken as being not that dictated by trade experience but as the adjusted average total supply for the 10 preceding marketing years, computed by determining the actual average total supply for such period and increasing such actual average by 10 percent of the amount by which the total supply for each 'marketing year used in
computing such actual average was less than 80 percent of such actual average and decreasing such actual average by 10 percent of the amount by which the total supply for each marketing year used in computing such actual average exceeded 120 percent of such actual average.
The effect of the Senate bill 2318 supply formula is that "normal supplies” would always be below necessary supplies to cases of rising trends in production and disappearance, and “normal supplies” would always be above necessary supplies in cases of declining production and disappearance.
This is not only the logical consequence of the Senate bill 2318 formula, but the actual consequence thereof. In the case of burley tobacco we know from application of the trade formula, which is also the formula of the Agricultural Adjustment Act of 1938, as amended, that 514,000;000 pounds of burley tobacco must be produced in 1948 to maintain the reserve supply level. On the face of it, therefore, Senate bill 2318 would prevent growers from producing 200,000,000 of the 514,000,000 pounds required to maintain an adequate reserve supply level.
Gentlemen, that is significant. Let me repeat. Senate bill 2318 would authorize a production insufficient for domestic requirements. We would be forced to import leaf to meet our own requirements.
The CHAIRMAN. Are you pretty sure of that?
Mr. CLAY. Yes; I am confident because last year our consumption of burley tobacco was 526,000,000 pounds and this bill would authorize us to produce only 314,000,000 pounds. We could not begin to take care of domestic requirements.
Senator AIKEN. That is the effect of paragraph (b) on page 37?
(b) "Total supply" of tobacco for any marketing year shall be the carry-over at the beginning of such marketing year plus the quantity produced in the United States during the calendar year in which such marketing year begins and the quantity imported into the United States during such marketing year, except that the production of type 46 tobacco during the marketing year with respect to which the determination is being made shall be used in lieu of the production
during the calendar year in which such marketing year begins in determining the total supply of cigar filler and cigar binder tobacco.
I am wondering whether instead of looking up all these things now and tying page 11 to page 41 and tying it back to page 26, if some of you folks would prepare an amendment or point out to us exactly in writing what changes should be made in there so as to avoid a reduction of that nature, a reduction greater than that which the country could stand.
Mr. Clay. Senator Aiken, we would like to retain the existing provisions of the Agricultural Adjustment Act for the calculation of reserve supply level. Perhaps the committee would like for me to explain just why we have obtained such an entirely different result under the two. "I might be able to clarify it better extemporaneously than by referring to the statement.
Under S. 2318, reserve supply level as a technical term is applied axactly as it is under the old, that is, you add to a normal supply a 5 percent reserve. The difference between the two bills comes in the
definition of "normal supply.” In Senate bill 2318 normal supply is calculated on the basis of stocks rather than on the basis of disappearance. There is a vital difference there. In Senate bill 2318 you take 10 years' stocks. During that 10 years we may have had adequate or inadequate stocks in the case of burley tobacco, where we have had a decided increase in consumption both domestically and abroad and the stocks of past years are grossly inadequate as a basis for determining supply for the future. Supply must be related not to experience on stocks but to experience on disappearance adjusted for current trends.
A moment ago it was asked why we had such an increase in acreage on burley. That occurred, too, because we have had such a decided increase in consumption. We have doubled our consumption in cigarettees in this country and to that of course we have added the world market, but the world market is not a major part of the burley picture. It certainly has not been in the past as it has with some other tobacco types. If we consider only our domestic situation, the formula of Senate bill 2318 could not at the present time give us sufficient tobacco to meet our own current needs in this country.
We simply do not have an exorbitant surplus of burley tobacco. Certainly we have tremendous surplus stocks but we need those stocks, to meet our requirements.
Senator AIKEN. You are not too far away from Mr. Kline's position when he says:
It is our conviction that no formula based upon historical data can be made to fit the uncertainties of the future perfectly. It is therefore essential that the Secretary of Agriculture be given reasonable discretion in making adjustments for current trends and unusual conditions, such as drought, in measuring the relationship between the current supply and market demands.
Mr. Clay. The Secretary of Agriculture made a similar recommendation that normal supply be calculated on the basis of experience adjusted for trend. In the case of burley, we know from experience that the existing formula is satisfactory. We cannot recommend a better formula.
Senator COOPER. May I ask a question, Mr. Chairman?
Senator COOPER. Mr. Clay, is this not another result that will come from the adoption of a 10-year moving average, that is the effect of it this year is to reduce the marketing quota, that would necessarily result in a lowered average next year and the following year?
Mr. CLAY. It would.
Senator COOPER. So there would be an increasing disparity between the average and the consumption needs?
Mr. CLAY. That is correct, Senator Cooper.
Senator THYE. It seems to me then that in the general formula that you develop to figure parity you would have to try to anticipate the increased consumption when you are figuring what your carryover is. It would have to be an entirely different scale than we would use on some of the other agricultural commodities.
As Senator Aiken says, if you could draft a proposal to insert as a new proposition here, or add to the language that has been set forth in the bill, then that would overcome your objection. I think you
should do that as I am quite certain that you are all qualified to do it.
We recognize the inequities in attempting to use a general ruler and to measure what should be the parity and to determine the carry
Mr. Clay. Senator, I must have failed to make myself entirely clear. We do not wish to propose any new provision because the Agricultural Adjustment Act of 1938, as amended, and as it relates to tobacco, contains a workable formula that comes within the definition of the kind of formula that Mr. Kline says we should have. It comes within the definition of the kind of formula that the Secretary of Agriculture says we should have and it is the kind of formula that experience has proven to be workable and practicable, eminently acceptable to everybody in the trade.
Senator AIKEN. I think that is all right, Mr. Clay. The present formula for estimating supply is satisfactory as it applies to the tobacco industry?
Mr. CLAY. Unquestionably, sir.
Senator AIKEN. With that in mind I do not know that we would require any further suggestion for amendment; would we, Senator Thye?
Senator THYE. Not necessarily, if they are satisfied to leave it in that manner and to have that formula incorporated into this new act.
Mr. Clay. I speak not only for my clients but for all these gentlemen that are here, and we are not only satisfied but we are delighted as it now exists. We do not ask a change but ask merely for a continuance of something that has proven eminently satisfactory.
If the Congress of the United States should adopt Senate bill 2318, there would be little, if any, possibility of burley growers voting favorably upon a marketing quota referendum. Burley producers would recognize immediately that production restrictions would prevent the planting of a crop adequate for trade requirements and the planting of a crop adequate for the earning of parity income by them as producers.
In a second vital respect Senate bill 2318 fails to afford burley producers the kind of protection that they must have under a long-range agricultural program. The parity provisions of the proposal simply do not correspond with the price patterns of the industry. Under Senate bill 2318 price would be supported at levels ranging from 60 to 90 percent of parity depending upon the percentage which the estimated total supply of burley tobacco might bear to the normal supply of burley tobacco. As we have already observed, the calculation of normal supply under Senate bill 2318 would not correspond with the actual conditions of supply as calculated and applied by the trade itself.
Consequently, the determination of the applicable percent of parity would be based on a false predicate.
In the next place, if a fluctuating percentage of parity support is adopted, growers might and probably would decline to adopt marketing quotas. This would result in unbridled production of tobacco, which would not only affect tobacco growers adversely but which would cause a financial loss to the Commodity Credit Corporation on stocks securing nonrecourse loans.