Mr. MURPHY. Well, it would be I think highly speculative for me to say what we might have done in just those terms, Senator, but certainly it is true that the costs of producing cotton generally are lower for large producers and we feel that it would be helpful if we had authority to recognize that fact by fixing different levels of support, or higher levels for the small

The CHAIRMAN. You mean as suggested by Senator Talmadge? Mr. MURPHY. As suggested by Senator Talmadge or as included in S. 1511.

Senator JORDAN. What about in H.R. 6196?

Mr. MURPHY. That is the same thing.

The CHAIRMAN. S. 1511 merely applies to producers of 15 bales or less.

Mr. MURPHY. It provides for-it provides authority to support the price at a higher level on the first 15 bales of each allotment.

The CHAIRMAN. Right. And that difference in support, though, is to be paid either in kind or by cash subsidy.

Mr. MURPHY. No, sir. Under that bill it can be done either by simultaneous purchase and sale operations or through the loans.

The CHAIRMAN. I understand, but still it would be a direct payment. It would be a direct payment.

Mr. MURPHY. No, sir. We think it would be simpler if it were a direct payment, but the bill very carefully provides for it being done some other way. It would be the equivalent of a direct payment in our judgment.

The CHAIRMAN. Well, those who propose that are simply trying to disguise it, but it really would be a direct payment.

Mr. MURPHY. Well, it would be very close to a direct payment and we think it would be we know it would be simpler to administer if it were just a direct payment to accomplish the same end.

The CHAIRMAN. You know, I have often stated on this committee that the members of this committee ask questions and hope that the listeners will not take it for granted that they either oppose or are for the proposal. As the chairman of this committee I ask many questions in an effort to try and draw out what the bill really means without in any manner indicating how I feel about it, and I am sure that each member of this committee will doubtless ask questions in order to have a clear understanding of what is being proposed by the proponents and the opponents of the various measures before us.

Mr. MURPHY. This is by now a very complicated situation, Senator, with all the proposals and counterproposals that have been made; and anything that we can do to help clarify it or to put the whole picture before you we gladly will do.

The CHAIRMAN. All right. Any further questions?

Senator JORDAN. Mr. Chairman, I would like to ask Mr. Murphy a question. On H.R. 6196, which I cosponsored last week, that calls for payment in kind. Now, there is a good reason for putting that in, because the CCC now owns this cotton. They are going to own about 10 million bales by the 1st of August, aren't they?

Mr. MURPHY. I would expect that we will have about 8 million bales the 1st of August.

Senator JORDAN. Well, 8 million bales is still a lot of cotton.

Senator JORDAN. And they have already lost the money on that cotton. They are never going to get any more than the world price on it. That is a known fact. They are going to get the world market for it if they ever sell it at all. It is costing money every month to carry that stock-the interest on the money and the warehouse charges, both, on it.

We see no reason why, if the President wants to carry out the thing that he says he is going to do, that this cotton shouldn't be made available to the mills right now to enable them to compete with the foreign cotton that is coming in here at 81⁄2 cents less. We think that the selling price of 115 percent of the loan is too high, and we don't think it will ever get out at that price. That is a terrific increase in the price and 105 percent of the loan would come nearer getting it out. That is quite a penalty on top of it, too.

Now, I have never been opposed to this overplanting business but there seems to be a lot of opposition to it and it has been a question of whether you can get it through the House or not. I don't know whether you can get it through here or not. But what we are interested in is getting a bill through, whether it is the Talmadge bill or what, so long as it takes care of the cotton farmer and the textile mill and reduces this cotton to a place where we can compete with the foreign competition. Any of these bills are perfectly satisfactory.

Now, which in your opinion do you think we can pass through the House over there and the Senate? That I might refer to you, too, Mr. Chairman.

The CHAIRMAN. I wouldn't prognosticate. As I said last week, I don't see how this committee can propose any bill for cotton that will increase the cost and ask in the next breath to decrease the costs on programs of other commodities such as dairy and other products. The Senator knows that this committee has been dealing with this very situation for quite some time and the cost of that program ranges from $450 million to as much as $600 million a year and we have been trying our level best-I was about to say something else, but I couldn't-but we haven't succeeded yet. It took us 6 years to pass a wheat bill to take out of the law the 55 million acre minimum, and we succeeded in doing that last year, and here we are confronted with the chance that this thing may not be voted on favorably next week by the farmers. Well, the fortunate thing about the wheat bill is that it is law and if the farmers don't like it, well, we have washed our hands of it as far as I am concerned.

Senator JORDAN. I think that you are overlooking one thing, that we are operating under a law now on cotton and they are going to keep on taking this cotton in to CCC.

The CHAIRMAN. I am not overlooking anything.

Senator JORDAN. And they are going to raise a new crop this year and that is going to go into the warehouse.

The CHAIRMAN. I am just trying to be realistic.

Mr. MURPHY. May I say, Mr. Chairman, it seems to me there are two things that make cotton different from wheat and perhaps different from other commodities, and I think they are relevant here. One is the possibility of substituting synthetic fibers for cotton. I don't think you have the same kind of possibilities for substitution in the

The CHAIRMAN. Oh, I wish you had been here to find out what they use, what they substitute wheat for. My goodness, they are using corn instead of wheat, and other feed grains, to take the place of wheat. We have that here, Mr. Murphy. And as a matter of fact, the per capita consumption of wheat has gone down considerably because of that.

Mr. MURPHY. We do not feel that price has the same effect on consumption in the case of wheat as it does in the case of cotton. For that reason it seems to us even more important to look at the price of cotton than the price of wheat.

The other thing, it seems to me, which is different and important is the custom in the trade where foreign processors get their raw material at a lower price and then send the finished product back into the United States. This again it seems to me is a case where cotton has greater difficulty in this regard than our other agricultural commodities.

The CHAIRMAN. Well, all that may be true but I am simply trying to be realistic in posing the difficulties that confront us in putting any kind of cotton legislation before the Congress that will cost more than the present program. That is what I am saying.

Senator TALMADGE. Would the chairman yield on that? I think I can shed a little light on that.

Mr. Secretary, will you turn to the last page of your costs here. I notice there that the cost figure you have based the assumption on 5 million bales export and a reduction of 300,000 bales in the CCC stock. Under the present program you see no possibility of exporting 5 million bales or have any reduction of the CCC stocks to that extent, do you?

Mr. MURPHY. Yes, sir.

Senator TALMADGE. What makes you think we will? My information is that you are going to wind up this year with CCC stocks, you yourself say 8 million bales. I had some figures that indicated there was a possibility it might even be greater than that.

Now, if you continue that program and don't sell it, you have got the carrying charges and warehouse costs. Don't you think it is going to run considerably above $461 million this year, this next year?

Mr. MURPHY. No, sir. These estimates would reflect our best judgment now as to costs under current legislation during the coming marketing year. The one that begins on August 1, 1963 and ends July 31, 1964.

Senator TALMADGE. Here is what I am trying to get at. How on the face of the earth can a program under which you subsidize only 10 million bales of cotton at a lower subsidy cost more than a program that now subsidizes 14 million bales of cotton at a higher subsidy. Mr. MURPHY. I think the essential difference is in the price at which cotton is made available for domestic use.

Senator TALMADGE. Now, that is a one-shot proposition.

Mr. MURPHY. No, sir.. Under the present program these estimates are based on the assumption that the market price of cotton would continue to be about 32 cents a pound and that it what domestic users would have to pay to get it.

Now, in column 4, that is based on the assumption that the market price of cotton goes down to 24 cents a pound.

Mr. MURPHY. So these added Government costs result in what seems to us to be a very desirable and important benefit in getting to a one-price system so far as cotton is concerned.

Senator TALMADGE. That is what I am getting at. Now, ultimately this bill that I have introduced, you think, will get down to a Government cost of $486 million?

Mr. MURPHY. It seems to me we should get right in that range, yes, sir.

Senator TALMADGE. Then that would be a reduction of something over $100 million a year of present costs by your own figure, wouldn't it?

Mr. MURPHY. Well, it would be down in the range of the cost of the present program.

The CHAIRMAN. Over what period of time?

Mr. MURPHY. Well, we haven't actually done any estimates on that. I would think in the course of 2 or 3 years, perhaps.

The CHAIRMAN. Well, it might be well, Senator Talmadge, that we put that in there.

Senator TALMADGE. I wanted to make this point, Mr. Chairman. The bill that I have proposed ultimately will encompass a subsidy only for domestic production which will be a maximum of, if you use 10 million bales, a maximum figure there of $500 million. If you use the 8 million bales and the minimum subsidy, it would be 8 cents a pound or something like $300 million. There is no doubt in my own mind but what a bill that reduces the subsidy cost overall and places it only on 8 to 10 million bales is going to reduce the cost that now has a subsidy on 14 million bales. That is the point I am trying to make.

Now, you don't have to go through the second grade in arithmetic to understand that. I don't understand some figures I see from the Department but I know a subsidy on 8 to 10 million bales at a lower cost is a less cost to the Government than a high subsidy on 14 million bales.

Mr. MURPHY. May I make a comment on that?

Senator TALMADGE. If you can clear that up, I wish you would. Mr. MURPHY. I am not sure I can clear it up. I would like to make one or two comments on it.

The estimates we have made under your bill contemplate a support price on the first 15 bales, the domestic allotment part, of 36 cents a pound.

Senator TALMADGE. That is correct.

Mr. MURPHY. Which, of course, is 4 cents a pound higher than we have used in the estimates for the present program. We think that is highly desirable. I don't by any means want to infer that we think it is undesirable.

Senator TALMADGE. I understand.

Mr. MURPHY. The second 15 bales, the support price that we use in these estimates was 34 cents a pound, which again is 2 cents above the 32 cents we have used in these other estimates.

This would enable small producers, of course, to grow just their domestic allotment part of the cotton at a better return, and we feel make a substantially better net income than if they grew somewhat more cotton at present prices.

So I think that we would have to take into account, though, in making the estimates, of course, the fact that these returns on this

Senator TALMADGE. I agree. Now, how many bales would that be? Here are the figures, if you want to refresh your memory. A little over 3 million bales.

Mr. MURPHY. I would have thought somewhat more than that, but if these are the Department's estimates

Senator TALMADGE. That is your Department figure, here. There is the number of farm plantings, acres harvested, bales produced, and yield per acre there.

So you see the subsidy factor there involving a high figure is only slightly over 3 million bales.

Senator JORDAN. Won't that take care of about 80 percent of all the farmers?

Senator TALMADGE. It takes care of 85 or 86 percent of all allotments. Not 85 percent of the cotton.

Senator JORDAN. Allotments you are speaking of.

Senator TALMADGE. I am talking about allotments; 85 percent of the farmers produce less than 30 bales of your allotments. Senator JORDAN. Mr. Chairman, I am fully

The CHAIRMAN. Are you through, Senator Talmadge?

Senator TALMADGE. Yes, sir. I thank the Chair for yielding and I thank the Secretary for responding to the particular questions. I just know that a subsidy program which is direct, escapes your warehouse costs, your shipping costs, your give-away program, and your selling program.

One subsidy instead of three has got to be cheaper, Mr. Chairman; much cheaper.

Senator JORDAN. I just started to say, Mr. Chairman, in the Talmadge bill and the bill which I introduced, and possibly one or more of these others, I think it will cost the Government less money than it is costing them right now under the present program.

Of course, as we all know, if the Tariff Commission had acted favorably on the manufactured product that came back into this country, we wouldn't have needed this program at all. We would have gotten some money instead of paying out some money, collected money instead of paying out money; isn't that right?

Mr. MURPHY. Yes, sir. You know, the Secretary of Agriculture did recommend, and the President referred to the Tariff Commission, a proposal to establish an equalization fee on cotton textile importsSenator JORDAN. And you all recommended that.

Mr. MURPHY (continuing). Equal to the export subsidy on the cotton content. The Tariff Commission made an adverse recommendation about the 1st of last September, as I recall. Now, as you point out, if that were in effect, there would be some substantial Government receipts. I don't remember just what our estimate was, but it was given in the millions of dollars.

Senator JORDAN. Mr. Chairman, I want to get this in the record and this is something a great many people overlook. We export a lot of wheat, as you know, but we have restrictions on bringing that wheat back in here in the form of flour or other foodstuffs. Isn't that right, Mr. Secretary?

Mr. MURPHY. Frankly, I don't know, Senator.

Senator JORDAN. Well, that is correct. You can't just bring flour back in here in unlimited quantities or anything else like you can