Mr. WHITTEN. How much money do you spend on this type of work?

Mr. KOFFSKY. There is a minimum of $350,000 that we spend on this.

Mr. WHITTEN. I wish you would supply the record the detail, the people that you have doing this work, and how they go about assimilating information, and then what use do you make of it once you get it?

Mr. KOFFSKY. All right, I will prepare that.

(The information requested follows:)

The Appropriation Act of 1963, Public Law 87-879, provides "that not less than $350,000 of the funds contained in the appropriation shall be available to continue to gather statistics and conduct a special study on the price spread between the farmer and consumer." During fiscal 1963 $50,000 was awarded on research contracts, while the remaining $300,000 was utilized in payment of salaries, travel, and related costs for the 25 professional employees and 12 clerical and stenographic employees devoting full-time to costs and margins studies, and in the procurement of data.

The facts discovered by these studies are of major value to farmers as well as consumers. The total costs of marketing food alone now exceed $400 billion annually. Lowered marketing costs clearly would benefit both farmers and consumers. These studies help locate places in the marketing system where efficiency can be increased so as to lessen the upward pressure on costs. Several studies are being conducted to answer specific requests made by farm marketing organizations and similar firms. These studies also provide better explanations of changes that are taking place, such as the effect of increasing wage rates on marketing costs.

The "Statement on Developments in Marketing Spreads for Agricultural Products in 1962" summarizes a number of the principal studies completed during the year. The findings and recommendations from these studies were distributed to farmer, consumer, educational, and regulatory groups through several publications issued during the year, through the Federal-State Extension Service, and through numerous staff contacts with individual marketing firms and associations of marketing firms. In many instances this work has been developed in cooperation with agricultural economists at the land-grant colleges and they have discussed findings with farmer groups, State regulatory bodies, marketing firms, and others. Findings also have been widely distributed among consumers and other final buyers of food.

Most of the information needed in these studies is obtained by direct contact with processors, retailers, wholesalers, transportation agencies, farm cooperatives, and others engaged in marketing farm products. Use frequently is made of accounting information and measures are employed to test the reliability of estimates given to us by managers of private firms. Not infrequently such measures include direct determination by members of the Marketing Economics Division staff of power, labor, and machinery usage by marketing firms. moderate part of the information used is obtained from other agencies, such as the Bureau of Labor Statistics and from private research firms through contracts. Mr. WHITTEN. What use do you make of the information once it is obtained?

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Mr. KOFFSKY. I think one of the main uses is the kind of presentation that Dr. Cochrane gave here on the outlook, which is to show the whole development of costs in the marketing system in relation to the agricultural economy and the food expenditures. He showed clearly that the rise in marketing margins has reduced the farmer's share of the consumer food dollar and at the same time increased the cost of food to consumers. This material is of vital interest not only to the farmer but also to the consumer.

Mr. WHITTEN. He showed us a number of charts here which showed certain facts, percentages, and trends. He in turn presented certain conclusions. Is all that based, primarily based, on work that is done in your division?

Mr. KOFFSKY. Yes, sir. It is.

One of the important uses of this work is in determining the price spreads at various levels of the marketing channel then when something does happen, where it widens, it gives us an indication of an area which we should study.

Mr. WHITTEN. When you see that kind of situation, do you put people on it?

Mr. KOFFSKY. Yes, sir.

Mr. WHITTEN. Would you cite for the record some examples of where that happens?

Mr. KOFFSKY. I will be glad to do that.

(The information referred to follows:)

The continuing margins studies indicate not only when the spread between prices farmers receive and prices consumer pay changes, but they also reveal problem areas in the marketing system that deserve more intensive study. Within our resources and when the importance of the problem justifies it, we then assign people to analyze why the changes have occurred and to develop and evaluate alternative means of improving efficiency so costs can be reduced. Problem areas are usually but not always associated with widening of the spread. For example, the average retail price of a 1-pound loaf of white bread has increased steadily since 1947-49 from 13.5 cents a loaf to 20.9 cents a loaf in 1961. The increase in bread prices was attributed to changes in marketing margins alone since the farmer's share of the retail price of bread has declined from 3.3 to 2.9 cents during this period.

Additional study of the components of the marketing margin for white bread revealed that the rise in the baker-wholesaler margin accounted for the bulk (6 cents) of the 7.4 cent increase in retail price. Further study showed that distribution costs of bread have increased proportionately more than other costs. Until this observation was made, only about one-half man-year was devoted to study the bread baking industry. These studies were devoted mainly to keeping up-to-date data on prices and margins for white bread. Since 1959 new work was initiated on the bread baking industry to the extent of three professional man-years. The studies relate to possibilities for reducing the costs in baking and distributing bread by changes in plant technology such as freezing, which is one technique under study, and in revising and reorganizing plant and distribution practices. The preliminary results obtained so far indicate potential savings of 2 to 3 cents per pound of bread.

The bread baking industry through our studies of trends in margins for white bread undoubtedly became also aware of the continuously rising bread prices and of the major factors that have in the past contributed to this rise. Through the continuous efforts to improve the efficiency of the distribution system since 1959 the increase in the baker-wholesaler margin has slowed down. Since 1947-58 the average annual increase in this margin was about one-half cent. In 1959-61 the increase in this margin amounted to only 0.1 cent annually. Preliminary figures for 1962 indicate the first time in the last 15 years the baker-wholesaler margin has declined. The preliminary figures suggest a decline of 0.2 cent for a 1-pound loaf of bread.

In contrast to most farm products, the farm-to-retail price spread for poultry products has not widened. Nevertheless, it is still important to analyze possibilities for reducing marketing costs. For instance, price spreads for assembly and packing of eggs have shown more disposition to narrow in some sections of the country than in others during the past 5 years. Studies carried on in cooperation with the Georgia Agricultural Experiment Station indicated expansion of the southern industry was accompanied by increased efficiency in production and marketing, including cost reductions associated with larger units. A study of economies of scale completed in 1962 in southern egg handling plants showed a decline in costs per case from $1.93 to $1.45 as plant size increased from 7 to 120 cases per hour. The greater stability in price spreads for assembling eggs in the Midwest suggested the need for increased efficiency in this function. A study made in 1960-61 in that area indicated savings of 15 to 45 percent, or up to one-half cent per dozen, could be realized by realinement of routes, use of set-in stations, and other improvements in the assembly operation.

A study of marketing margins for margarine showed that margins were not only larger but were also edging upward for certain brands retailing at higher prices than others. A further look at this situation revealed that advertising expenditures contributed importantly to the larger and increasing marketing margins for these brands.

Since the end of World War II margins for beef, pork, and lamb have risen steadily and, with a few exceptions, regularly. The amount of the increase has generally been small for each year but over the period they had widened by more than 50 percent by 1962. When this trend became apparent, in the early 1950's, the livestock group made a substantial effort to determine the underlying forces. This effort resulted in a series of publications, one for each species.

As margins continued to widen throughout the 1950's, we have devoted an increasing amount of effort to measuring and interpreting these changes. In response to a sharp increase in margins during 1959, a major margins study was reported in 1960. Additional resources were assigned to assembling and refining retail price information so that margins could be measured more accurately and precisely. Following an increase in lamb margins in 1959, a study was made of lamb marketing and the reasons for widened lamb margins. We are presently planning to increase this work because of the sharply wider margins observed in January 1963.

LAND USE IN KENTUCKY

Mr. WHITTEN. Mr. Natcher?

Mr. NATCHER. I know Mr. Koffsky that from time to time you have heard many people say that Kentucky is one of the most beautiful places in the world. Since 1930 we have lost four seats in the House. When I was first elected, we had eight Members, and now we have seven Members.

We have in Kentucky about 3,300,000 people at the present time. During the past 9 years we have attempted to develop the water resources of our State. Kentucky has more miles of navigable streams than any State in the Union. On the Ohio River since World War II, over $13 billion worth of new industry has located.

As you know, in Kentucky we have our national parks.

By virtue of the development of our water resources, we are bringing into Kentucky now a lot of people, tourists, who in turn are leaving in our State millions of dollars annually. Projects such as the Nolan River Reservoir, Barren River Reservoir, Rouge River Reservoir, the new locks and dams on Green River and the new locks and dams on the Ohio River.

As you know, further, Mr. Koffsky, tobacco is the chief agricultural commodity sold in our State. We are rapidly becoming a dairy producer, one of the largest in the United States. We are now producing a lot of cattle.

We still have about 150,000 farms in Kentucky. We are very much concerned in our State over the plight of the family farmer.

As I understand, in your agency the Economic Research Service, of course, is very much interested in the studies that you have underway, and that have been made during the last several months, concerning the national land use requirements and how the requirements are to be distributed among the different regions. I want to call your attention specially, Mr. Koffsky, to that part of your statement to our committee in which you state that, "with over 50 million acres of cropland expected to be surplus for crop production during the next 20 years, and with increasing demands for land for non farm uses, there is need

for developing information necessary for more effective land use adjustment.'

Also to chart No. 2, which you very ably explained to our committee, concerning the national land use requirements and how they are to be distributed among regions.

Keeping in mind the location of Kentucky in the United States from the standpoint of population, the change through which we are passing from the standpoint of the use of our land, what studies, if any, have you made that benefit my section of the United States? Mr. KOFFSKY. Mr. Steele can respond to that.

Mr. STEELE. We have several studies of the possibilities of developing farm income and nonfarm income for people who are unemployed. We have work in the Appalachian region and also in Kentucky. In addition we are cooperating on the Comprehensive Ohio River basin survey which is being conducted by the Corps of Engineers and the Department of Agriculture and other Federal agencies. We are cooperating there on the economic base studies and on the various ways that agriculture may be developed through that effort.

I could add one more point. In the land use study which we described earlier, we would attempt to measure the potential of land of various productivity classes in Kentucky and other areas, and see how this fitted into the national picture.

We would be interested in that not only in terms of the cost of producing commodities but also where the Nation could invest in resource developments to produce related economic activity and job opportunities. This I think is one of the very important parts of the whole study.

Mr. NATCHER. We also in my section have a soil and water conservation program underway which is producing great benefits to my people. This, of course, is changing to a great extent the use of a lot of our land in Kentucky. We have beautiful lakes now and all types of recreational facilities that were not in existence a few years ago.

As far as land use requirements, do you have anything other than the statements that you just made concerning this particular section for the use of the land, keeping in mind all the while that you are mainly interested in agricultural potential? Do you have anything else underway that would be of benefit to my section?

Mr. HEISIG. I might supplement the statement that Mr. Steele made. We have kept up to date for some years, our farm costs and return series, in which we prepare estimates of the costs and incomes from farming of different types. And we have a series on tobacco-livestock farms in Kentucky for small, medium and large tobacco-livestock farms-which provides a continuing picture of changes on these farms in Kentucky, giving a record of their costs, their income, the progress they are making, mechanization and so forth.

So we have these series which we keep up to date annually, and they are used very widely. In fact, the Kentucky Experiment Station people cooperate with us in preparing these, and they use them rather widely in the State, I understand, working with farmers.

Mr. NATCHER. Mr. Chairman, I sincerely believe that you can through proper management, foresight, and fair judgment, change the sections of our country that are in a depressed stage to the extent that the section becomes economically sound again. You hear from

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time to time stories concerning eastern Kentucky. They have a number of counties in the eastern section of my State where 40 percent of the people are drawing surplus commodities. You can't imagine that in some States. But that is true in certain sections of the eastern part of Kentucky.

Eastern Kentucky has always mined and sold a lot more coal than west Kentucky. I represent the district, Mr. Chairman, as you know, that has all of the coal, with the exception of about one county in west Kentucky. We are mining and selling more coal today in west Kentucky than at any time in the history of the State of Kentucky. We are putting it on the rivers, Mr. Horan, and we are sending it up and down.

We are coming out of the depressed area section to that extent from the standpoint of our coal.

Eastern Kentucky is producing and selling less coal today than at any time in the last 20 years.

So I think that you can, through the change in the use of land and in the proper economic development, change a section to the extent that you can come out of depressed area sections.

Mr. Chairman, no section of the State was suffering any more than my section at one time. I think that studies such as you have underway, Mr. Koffsky, are of great benefit to my section of the United States.

I just want to see what you have to offer from the standpoint of the future. We are very much interested in the future in my section, and we believe that we will undergo certain changes that we did not believe would take place 20 years ago, Dr. Johnson.

Dr. JOHNSON. That's right.

Mr. NATCHER. We are going to go through them in the proper way. Go right ahead, Mr. Koffsky. Do you have any other statements that you would like to make that would be of benefit to that section? Mr. KOFFSKY. Our land values research shows that Kentucky had among the largest percentage increases in value of farmland per acre from 1961 to 1962.

Mr. NATCHER. That was called to the committee's attention several days ago? The question was directed to me as to why. I gave about the same answer that I have used in describing my State today. It is the change that has taken place, and the use of the land now, keeping in mind recreation, bringing in of new industries that have brought this about.

Mr. STEELE. I might mention that we do have a five-State study that covers Kentucky, West Virginia, Tennessee, New York, and Virginia, in which we are examining a problem of human resources and the physical resources that are available in these low-income areas, and what might be done about them. The States involved have organized into a conference to study and promote development in the area. Federal and State agencies are combining to provide the necessary research and planning for area programs. Within our limited resources we are providing economic information and consultation.

Mr. NATCHER. One statement, Mr. Chairman, that I think you will be personally interested in, because you were one of the prime movers in bringing this about before our full committee.