Labor earnings, that is the net earnings per hour of labor by the operator and family ranged from $12.71 in the case of the largest producing type to 61 cents per hour or less for three areas and types. This was 5 percent or less of the maximum size group.

Effectiveness in the use of all labor used varied over an extreme range from a low of less than $1.25 per hour in one type, to less than $2 of cash receipts per hour of labor in four of the types, on up to more than $8 per hour for two types. Labor effectiveness on two of the types was only 15 percent of the maximum.

The "commercial family farm" has recently been defined as one in which the operator and his family supplies one-half or more of the total labor used. In the cotton farms listed in the table the five largest and most effective types hired 72 percent or more of the labor used. It is evident that high operator labor earnings and effective use of labor require a very large proportion of hired labor. The importance of capital in current-day cotton farming is shown in the table by the fact that satisfactory returns to family labor are dependent on large capital investments. The five types with lowest production and with lowest labor earnings to the operator and his family had less than 7 percent of the capital invested per farm shown for the largest and most profitable growers.

Producers are finding it inevitable that handpicking, for example, is something they can no longer afford, and they are turning to machine picking.

Some striking relationships are shown to hold in the cotton producing economy by these tables.

The 4 smallest types produced less than 30 bales in 1962. All four averaged less then 30 acres in cotton and had average yields of less than one bale. By contrast the 4 larger producing types averaged more than 250 bales per farm; had upward of 125 acres in cotton, with yields running close to 2 bales per acre. The four smaller types had labor earnings of less than $2 per hour as contrasted with $5 to $12 per hour for the four larger types.

Labor was used least effectively in the smaller group, producing less than $2 of cash receipts for each hour of all labor employed, while three of the four larger types achieved an "effectiveness" of $7 or better.

The groups at the smaller end of the scale relied mostly on operator and family labor, while the four larger producing groups hired 80 percent or more of the total labor used.

The four smaller types (producing less than 30 bales) had a total capital use per farm of less than $30,000, while the four largest producing types used capital in excess of $200,000.

Based on the 1963 ASCS effective allotments, the smaller farms producing less than 30 bales produced less than 17 percent of the crop but constituted 75 percent of the producers with allotments. Producers with effective allotments of 15 to 30 acres produced a cotton crop worth from $200 to $2,600. Producers with allotments above 200 acres produced an average crop worth from $50,000 on up.

Our conclusion from this analysis is inescapable that policy and programs aimed at preventing major changes and adjustments on the part of small "family farm" cotton producers are, in the face of the trends working against them, not only futile but destructive to the entire cotton production economy.

FAVORABLE ASPECTS OF S. 1190

The principal advantage of S. 1190 is that it frees cotton from Government acquisition and gives the market forces, operating through the competitive price system, much greater effectiveness in guiding the production and consumption of cotton. It would also end the present two-price system for cotton, which has plagued the domestic cotton industries. Another advantage of the proposal is that it ends the attempt to control the production and marketing of cotton directly. Unfortunately, the bill provides a complex system for changing of allotment bases. We understand that this is intended only to regulate the basis of eligibility for the proposed schedule of payments.

UNFAVORABLE ASPECTS OF THE BILL

The foregoing advantages are only a feeble if encouraging "step in the right direction." Many of the provisions are so unfavorable that the national chamber must oppose the bill unless they are remedied.

The use of direct payments to offset the difference between market and target farm prices is justified if it is done on a temporary and gradually diminishing basis. However, the payments provided in S. 1190 are to all intents and effects a

they would be a permanently costly device driving down the market price and growing in total public cost as they did so. Second, they would on a permanent basis constitute a subsidy to competition of cotton against other competing commodities or products and would, therefore, create the same pressures for offsetting subsidies to others which are now present in the economy. Third, like virtually all "benefit" programs to farm producers, the payments or the "right" to receive them could well be capitalized by the holders. When this occurs the payments program would become a capital "gift" to the fortunate current holders and thereafter a capital cost, creating pressure to sustain it in order to avoid subsequent "capital losses".

In addition to these disadvantages, the level of payments proposed in the bill are too high for sound public policy. For all producers, including the larger and most effective, the payments would constitute a return per pound above costs and profitable operation, and certainly above the level at which efficient producers are prepared to produce and sell.

Even the minimum schedule of 50 to 60 percent of parity on the first 15 bales of production is unrealistic and dangerous. The reason is that during a transition to market prices and while farm producer adjustments are being made it is certainly possible that the market price could at times drop a little below the 60 percent of parity (currently about 24 cents) which a Secretary of Agriculture is empowered and would be expected to proclaim under the bill. Since the bill provides that this minimum support could be achieved by loans and purchases, this would put the Federal Government right back into the acquisition and disposal of cotton, with possible depressing and market-destroying effects on market prices. This could very well keep market prices from rising in response to market demand. It would also have the effect of keeping the size of the payments scheduled in the bill larger than otherwise would be necessary.

The national chamber endorses protective price supports against sudden, temporary and undue declines in farm commodity prices. But this support should be only a temporary short run cushion and should not be normally required. For this reason we urge that the base, on which minimum the price payments are to be made, be formulated in terms of a substantial portion of an average period of market prices, such as 90 percent of a 3-year market average, or 85 percent of a 4-year average, for example. We further urge that even these minimal supports be carried out also by direct payments rather than by loans and acquisition of commodity.

If the CCC is not removed from the acquisition and disposal of cotton (and other commodities), the Nation will continue to be plagued with the current problems of the impact of disposal on domestic and foreign markets. The notion that "additionality" of consumption can be achieved by disposal methods so far devised is much more fancied that can be substantiated.

In this connection, a proposal before your committee would subsidize the "additional" consumption of cotton by domestic mills over and above a historical total. We oppose this because it ties the future growth in demand and use of cotton domestically to a Federal subsidy.

ALTERNATE PROPOSALS

We endorse the principle of market determination for the price of cotton. We have endorsed the approach of using direct payments to offset the difference between average market prices and a "target" farm price. But this endorsement is only for an interim payments program which gradually and systematically is dimished each year and which is scheduled to terminate at the end of the transitional period.

As an alternative to S. 1190, we therefore suggest that payments be made in 1964 representing the difference between market prices achieved and an average of 31 cents. This assumes that the market price would average 24 cents and the payment would be 7 cents per pound. In 1965 the "target" would be 30 cents, 29 cents for 1966, etc., to 1970 when the target would be 25 cents, ending in a market price of 24 cents with no payments needed in 1971. This would give cotton producers 7 to 8 years in which to adjust their production, their farming, or their occupations to the gradual exposure to the market determined prices. The production eligible for these payments should be limited to the 1963 pro

In table 2 we present our calculations of the effects that both S. 1190 and our proposed approach would have on receipts from the allotted production and on the costs of the payments program.

Attention is called to the comparisons shown. Under S. 1190 the payments cost would be a continuing one, year after year, of about $472 million. Under the chamber proposal the costs in 1964 would be about $524 million but would decrease annually by $75 million until 1971 when the transitional program will have been completed. This assumes no increase in the "domestic allotment" which is at least probable under S. 1190 but not under the chamber proposal. It also assumes no attrition in the base allotment for the chamber proposal. Under both approaches all cotton producers would be dependent on the direct payments for a substantial portion of their gross incomes from cotton. Under S. 1190 the direct payments would amount to 21 percent in 1964 (ranging from more than 26 percent for producers under 5 acres, and exceeding 18 percent for all allotment sizes). This would continue year after year as long as S. 1190 was in effect. It would be reduced only to the extent that producers expanded production. The chamber's proposal would place producers in the position of being dependent on the direct payments for 24 percent of their cotton gross incomes in 1964. Thereafter the proportion would decline until 1971 when the payments would terminate.

For the 8 years 1964 through 1971, the payments under S. 1190 would total $3.8 billion. Under the chamber's approach this total would be $2.1 billion. If the chamber's approach is followed, table 2 indicates that in 1970 the total receipts from cotton sales and payments, again assuming no increase in production, would be $1,870 million. By 1971, the first year without payments, this total would be about $1,800 million.

This is a very real challenge to all cotton producers. Bringing the total receipts up to the level indicated for S. 1190 would call for the production of an additional 3.7 million bales to be sold at 24 cents per pound. This is an annual increase of approximately 465,000 bales. It is a challenge to cotton producers to meet an expanding market at market prices and with reduced costs per pound. We believe this is a challenge cotton producers can and will meet.

There is also another alternate approach to the cotton program. If it is desired by the public or the producers to terminate the whole cotton program, it could be done by the Government purchase of all rights to allotments. This would be done on a poundage or baleage allotment basis, using the 1963 effective allotment or equivalent terminal base. These "rights" would then be terminated and the baleage allotment permanently reduced accordingly. At a price of, say, 20 cents per pound the entire 1963 effective allotment equivalent to 15 million bales could be bought back and canceled for $1.5 billion. This would be a saving of $600 million over the chamber proposal for the 8-year transition and a saving over the cost of S. 1190 of $2.3 billion for the same 8-year period.

In summary, we urge the termination of acreage allotments, quotas, and of Government acquisition and disposal of cotton at a subsidized cost. We advocate a transitional price-support program of some such magnitude as we have suggested here, with the income support to be achieved by direct payments reduced gradually and specifically on a scheduled basis, and then terminated. These payments should be in the amount of the difference between a percentage of recent average market prices and the gradually declining support target suggested.