EXHIBIT III.-Annual average sugar prices as reported by official Government agencies on basis of market quotations; raw, refined, and retail, 1890-1939

1 No open-market quotation Jan. 1-Aug. 11, refiners' product being allocated. The average of Aug. 12Dec. 31 was 11.390 cents.

2 Includes processing or excise tax of 0.535 cents; June 8, 1934-Jan. 6, 1936, and Sept. 1, 1937. Raw and refined prices from U. S. Tariff Commission as follows: 1890-1909, from Tariff Information Series No. 16, Refined Sugar Costs, Prices, and Profits (1920), p. 17; 1910-38, Statistics on Sugar (March 1939), p. 33. Retail prices from U. S. Department of Labor, Bureau of Labor Statistics, as folllows: 1890-1922 from Bulletin No. 464, Retail Prices, 1890 to 1927 (1928), p. 6; 1923-36 from Bulletin No. 635, Retail Prices of Food, 1923-36 (1938 p. 87-90; 1937-39 from Retail Prices (Jan. 1938, Jan. 1939).

EXHIBIT IV.-THE TAX-QUOTA-PAYMENT PROGRAM FOR SUGAR UNDER THE SUGAR ACT, WITH SPECIAL REFERENCE TO THE STATUS OF CONSUMERS, AND ALSO TO THE SO-CALLED LARGE PAYMENTS TO PRODUCERS, APRIL 9, 1940

Predicted effect of tax.-As was officially predicted, the effect of the tax has not been to increase the price of sugar to consumers:

66* * * one is likely to assume that excise taxes increase prices under all conditions; but an excise tax on sugar, within certain limits, under a quota system is one of the exceptions."1

"Quotas influence the price of sugar through the control of supply; consequently under a quota regulation of the supply of sugar, a tax may be levied without causing any adverse effect, over a period of time, on the price paid by

consumers.

2

"I recommend to the Congress the enactment of an excise tax at the rate of not less than 0.75 cent per pound of sugar, raw value. I am definitely advised that such a tax would not increase the average cost of sugar to consumers." Actual effect of tax.-"Since the total quota for sugar was completely filled each year, the quota system definitely limited the quantity of sugar made available for sale in the United States, regardless of the processing tax. Consumers would pay only a given price and aggregate amount for such a quantity, depending upon the existing state of demand, which is largely influenced by consumer purchasing power. Therefore the tax did not affect the retail price in any way, at least over any appreciable period of time, and so could not have been passed on to consumers."

1 Statement on Sugar by the Secretary of Agriculture, U. S. Department of Agriculture Press Release, March 15, 1937, p. 9.

2 Message from the President of the United States transmitting a recommendation for the enactment of the sugar quota system, and its necessary complements. March 1, 1937, House of Representatives Document No. 156, 75th Cong., 1st sess.

3 P. 67, "An analysis of the effects of the processing taxes levied under the Agricultural Adjustment Act," published 1937 by the Bureau of Internal Revenue.

"Since the tax was not borne by consumers or by refiners or distributors of cane sugar, and apparently was not borne by the manufacturers of raw sugar, it follows that the grower of cane sugar, as the residual element in the situation, did bear the burden of the tax as such."

The tax under the sugar program has been borne principally by the producers of raw sugar and sugar beets, and the cost of sugar to consumers has not been increased. The following table illustrates these points by statistics for years when the processing or excise tax was in effect compared with years when there was no such tax:

1 Bureau of Agricultural Economics, U. S. Department of Agriculture. * Bureau of Labor Statistics, U. S. Department of Labor.

The sugar program is a self-financing arrangement under which the tax is taken out of the normal gross proceeds of sale of sugar, and principally reduces the income of the raw producer, who then, upon compliance with certain conditions, receives the remainder of his normal proceeds in the form of the conditional compliance payment. The total proceeds-sales price and conditional payment are intended to return to the raw producer his normal share of the aggregate income of the domestic sugar industry.

The basic fact is that the tax on sugar is not a price-raising device at all. The sole purpose and effect is to withhold temporarily from cane and beet producers a substantial part of their normal income in order to use it later in payments to producers as an irresistible incentive to carry out production adjustment and marketing control-as well as to induce them to meet standards for employment and soil conservation deemed necessary for the success of the program.

As long as the tax remains in effectc any denial or drastic curtailment of conditional compliance payments to any group of domestic producers would inflict an injustice on all producers thus discriminated against, and would, if carried very far, prove financially disastrous to many of them.

The conditional compliance payment under the sugar program is not a burden on either taxpayers or consumers. It is, as has been explained, merely a practical device for inducing producers to carry out certain practices deemed by Congress to be essential and desirable from the standpoint of the general welfare, such as: (1) The payment of officially determined minimum wages.

(2) The observance of minimum ages for employees.

(3) The adjustment and control of production and marketing.

(4) The payment by processors of not less than officially determined minimum prices for sugar beets or sugarcane.

(5) The carrying out of farming practices intended to preserve and increase the fertility of the soil.

A producer who has complied with the prescribed conditions has earned, and by right should receive, the payment for which he has thus qualified under a self-supporting program. The tax reduction in the proceeds of sale of the raw product makes it necessary for all producers to qualify for and receive the conditional payment in order to realize a normal return. Large-scale producers, under the graduated scale of reductions which is incorporated in the Sugar Act, receive in conditional compliance payments considerably less than the amount contributed through the tax on the sugar they produce.

A scale of reductions in payments based on mere size of the production unit must necessarily give an inequitable result, because there is no direct relationship between the cost and the scale of production. It is incorrect to assume that

* Idem., p. 70. Note that this applies to cane sugar. In case of beet the new tax program caused some shift of income from processors to producers, as explained and predicted in March 15, 1937, statement of the Secretary of Agriculture.

large producers necessarily make large profits. Some large producers make little profit, and some make more. The same is true of small producers, some of whom produce at high cost and some at low cost. Those few large and small producers who have been fortunate enough to make substantial profits pay large income taxes and thus are subject to a levy on net income.

In fact, it will be noted that any adjustment of producer income should be based on profits and not on merely the size of the farm in order that a program may operate successfully. This was pointed out by the Department of Agriculture in a letter to the Senate, as follows:

Hon. E. D. SMITH,

Chairman, Senate Committee on Agriculture and Forestry,

JULY 1, 1939.

United States Senate: Technical aspects of S. 2395: It is suggested that consideration be given to the following possibilities of improving the technical provisions of S. 2395:

2. By modifying the provision in section 340 (b) whereby the certificate allotments per farm would be scaled down as the total number of bushels increases. It is possible that this provision was included on the assumption that large producing units have a marked advantage from the standpoint of efficiency in production. If this assumption were correct, the ultimate effect of these scale-down provisions would be to foster the adoption of less efficient production units. On the other hand, efficiency of production seldom, if ever increases in any given proportion to the increases in the size of the enterprise. Some small farms are low-cost producers and some large farms are high-cost producers. Consequently, these scale-down provisions would not be an equitable means of avoiding excess profits. The equitable and nondiscriminatory device for this purpose is a tax on the things themselves, namely high net incomes and excess profits.

HARRY L. BROWN,

Acting Secretary.

Sugar production in the Territory of Hawaii has necessarily developed as largescale operations. It takes 2 years to grow a crop of sugarcane, irrigation and transportation systems had to be built at great cost by the producers, and various natural conditions made large-scale farming of sugarcane essential to successful production.

Sugar producers in Hawaii made drastic reductions in production in conformity with sugar quota legislation, and they have complied with both the letter and the spirit of the Sugar Act. They employ large numbers of men on a year-round basis at good wages. The official wage determinations made pursuant to the Sugar Act have been higher for sugarcane workers in Hawaii than for any other sugarcane producing area. One of Hawaii's principal concerns in this matter is that it shall not be so penalized and discriminated against as not to be able to maintain these highly desirable standards. The Secretary of Agriculture, in his annual report for the year 1939 (p. 108) said:

"Hawaiian sugar producers have worked out a system, not found in any other domestic sugar-producing area, which makes it possible for their laborers to work the year round, while the value of the perquisites furnished these laborers is relatively high."

The large-scale producers in Hawaii have voluntarily borne the entire decrease in production, thus relieving the more than 3,000 small growers of any part of the burden of production adjustment.

Under the circumstances, we believe it is manifestly clear that any further arbitrary denial of tax proceeds to large-scale producers would be inequitable among individuals, discriminatory among producing areas, and an impairment of an industry's efficiency of production.

EXHIBIT V.-LETTER FROM THE PRESIDENT TO SENATOR HARRISON, CHAIRMAN, COMMITTEE ON FINANCE, UNITED STATES SENATE, RELEASED BY SENATOR HARRISON ON AUGUST 12, 1937

The amendment to H. R. 7667 adopted yesterday by the Senate Finance Committee has just been brought to my attention.

I am delighted to note that the committee recognizes that our territories and island possessions are integral parts of the United States and cannot be discriminated against, and that the restrictions on refining in those territories contained in H. R. 7667 constitute such a discrimination.

I regret that an examination of the committee amendment shows that it not only does not eliminate the discrimination, but introduces a new and highly objectionable feature. The discrimination contained in H. R. 7667 is that sugar producers in Hawaii, Puerto Rico, and the Virgin Islands are prohibited from refining there the sugar which they are permitted to produce under the quota, while there is no similar prohibition on the other areas in the United States. The amendment, which places a refining quota on continental United States, at a figure far in excess of the largest quantity of sugar grown there, merely perpetuates this discrimination.

The amendment proposes to limit by law the quantity of sugar that may be refined in various geographical parts of the United States. This introduces a principle of geographical limitations on manufacturing in our country which has no economic or social justification in this instance, and would constitute a dangerous precedent.

Agricultural legislation, so desired by our farmers, should not be further delayed by the insertion in an otherwise acceptable agricultural bill of manufacturing restrictions. Their elimination would serve the best interests of our agricultural producers who desire legislation at this session. If interested parties think there should be manufacturing restrictions on sugar refining, that can be embodied in a separate bill and be considered separately.

EXHIBIT VI

Statement by the President on signing the Sugar Act of 1937, on September 1. 1937: I am primarily concerned with the interests of the domestic beet and cane growers and of the cane growers in the islands which are under the American flag and the cane growers of some of our close neighbors, such as Cuba. *

* It is with great regret, therefore, that I find that the Congress has accorded a status quo continuation of this seaboard refinery monopoly for 21⁄2 years to come. The bill in this respect gives only one ray of hope for it provides that this refining monopoly shall terminate on March 1, 1940, whereas the beet and cane producers quota is extended to December 31, 1940.

Statement by the Secretary of the Interior concerning sugar legislation, on July 12, 1937:

The bill contains no restrictions on domestic cane sugar refining operations except with respect to the insular parts of the United States. This would mean that, contrary to the fundamental principles of democratic government, one group of American citizens would be compelled to suffer a wholly unnecessary and undesirable discrimination. It would also mean the setting up of trade barriers within the United States which would be contrary to the long established principle of guaranteeing each part of our country the right to exchange its products freely with all other domestic areas. Furthermore it would mean that the Government of the United States would be acting in an extremely imperialistic manner by erecting trade barriers against the products of American citizens in its own territories, who would be legally powerless to defend themselves by setting up similar barriers against products from other parts of the country. Under such a policy, which would tend to be expanded from time to time as a result of the pressure of special groups, the economic welfare of the insular parts of the United States could be completely destroyed

* *

Statement by the Secretary of the Interior concerning sugar legislation, on July 22, 1937:

The administration's concern is that Hawaii, Puerto Rico, and the Virgin Islands receive fair treatment. There is no limitation upon the refining of sugar in the mainland and there should be no discrimination with respect to the conduct of refining operations in our territories and island possessions. The provision which the refiners desire to become permanent law would deprive Hawaii, Puerto Rico, and the Virgin Islands of their rights to engage in interstate commerce in equality with the 48 States * * *."

The CHAIRMAN. Any questions?

Mr. COFFEE. I would like to ask one question.

Mr. Greene, assuming that the committee should correct this inequitable scaling down of conditional payments, would you favor continuance of the quota provisions?

Mr. GREENE. The scale-down is one of four points that we have, Congressman Coffee. The quota provisions in themselves have operated so that we have been restricted, held down, and still have out of production, lands. When it is proposed to increase domestic quotas, the proposal is to give us at most 3 percent and take something else away from us. On that basis we certainly do not favor a continuation of the quotas.

Mr. COFFEE. Let me ask you this question: Do you think that Hawaii would have a profitable market in the United States in the event all quota restrictions were eliminated and we maintained only a 90-cent tariff on Cuban sugar?

Mr. GREENE. That would be tough, but it is my understanding, Congressman, that the tariff under the Cuban trade agreement returns to $1.50 when the sugar quota legislation lapses, and there is no further restriction on the importation of Cuban sugar.

It is true that it does not go back to $1.50 in the event of a temporary suspension of the provisions of title II under section 509, I believe it is, of the act, but if the act expires altogether we have, under that trade agreement, a one-and-one-half-cent-tariff; and I do not profess to say, I do not know, what the result will be. Maybe this committee can call people skilled in statistics and market operations who can tell them. I cannot tell, but I do know, as I have tried to state, set out in this statement, without exaggeration, what the results of the last 2 years have been, and they have been a net loss for us.

Mr. COFFEE. Hawaii's production costs are greater than Puerto Rico's and also the Philippines', are they not?

Mr. GREENE. I think they are. I know that they are much greater than those of the Philippines. I have not seen anything on the cost of production in Puerto Rico since the 1934 report of the Tariff Commission on Puerto Rican costs. I do not know what they are. But I know our costs range with those and range with the average of the beets, probably, because we are working under every requirement that the beets are.

Mr. COFFEE. Well, in view of the fact that you were able to make a profit in 1932 at the low prices, it rather indicates that your production costs are lower than the sugar-beet production costs; is that not true?

Mr. GREENE. We had a slight loss. We had a loss in 1932, Congressman. I said the year 1933 in my statement. I apologize if I did not enunciate it properly, and the price of sugar was much better in 1933, as you recall, than it was in 1932.

Mr. COFFEE. Your production costs are less than the sugar-beet production costs, are they not?

Mr. GREENE. No, sir; I think that they are probably on a par with the average. There are certain areas of sugar-beet production about which I have heard rumors, which have very low costs, and I do not believe we can approach them. I think we are just about the average with some of your sections of the country.

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