Mr. WHITTEN. Could we have a copy of the legal opinion in that case or did you have one? At this point, the benefits seem to have gone not to the producer nor the consumer, but to the processors in extra profits.

Mr. SMITH. It would be a document in which the Office of the General Counsel concurred. And such a document, copy of such document, will be made available.

(The material supplied is as follows:)

The concurrence by the General Counsel to this contract cancellation is contained on the document authorizing the cancellation of the purchase contracts, which is marked “Exhibit 7" in the material supplied to the committee.

HISTORICAL RECORD OF CONTRACT CANCELLATIONS

Mr. WHITTEN. I would like to have the same thing in the first instance also. Now when was section 32 first adopted by the Congress?

Mr. SMITH. 1935.

Mr. WHITTEN. I would like for the record to show the number of times since 1935 that the Government has ever contracted for the purchase, officially binding itself, first for that which is in existence and later when the value greatly increased, released the commodities back to other parties. Second, show all of the times where the Government has contracted for an expected surplus on a new crop and it didn't materialize. Now I ask you that because, if that has been the common practice, this fits into it. If it has not been, we should let this stand on its own bottom as an innovation to say the least. But I want the full details, copies of contracts, releases, the values, involved, the names of the parties involved, and I want copies of each request, each order, the profits made, changes in prices, and so forth. Mr. SMITH. Yes.

(The material requested follows:)

PRACTICE AND INSTANCES OF USE OF CONTRACT CANCELLATIONS UNDER SECTION 32 PURCHASE PROGRAMS

In considering the need for any section 32 surplus removal program, the supply situation and its prospective impact on producer prices is of major importance. In most instances, supply of the commodity consists of storage stocks or current inventories, and prospective production. Storage stocks or current inventories may or may not be from the current year's production but, nonetheless, can have equal influence on market prices as current or prospective production.

The general policy of the Department is to gear section 32 purchases to the current crop or production. Occasionally, however, purchases are made from inventories representing the previous crop years, where it is clear that the removal of such supplies will have as much impact on the market as would purchases from the current or coming crop.

In either of the above circumstances, whether the product contracted for is from inventory or from current production, it has been the longstanding policy of the Department to withdraw from the market by discontinuing the program, suspending purchases, or by canceling contracts on undelivered product when significant changes in supply, demand, and price conditions make it clear that the surplus situation upon which the program was based or inaugurated has ceased to exist. Currently available records reflect specific instances back to 1948 of the use of contract cancellations as a means of avoiding unnecessary expenditures of Federal funds under such circumstances.

The details on these cancellations are included in the material inserted on pages 1526 to 1530 and 1534 to 1549.

POLICY ON USE OF SECTION 32 FUNDS

Mr. SMITH. If you permit, Mr. Chairman, I would like to add this further comment. Having come from the fruit and vegetable field, and having operated under section 32 for a great number of years, in my own mind, as I look at it, we have followed the policy over the years that if you didn't have to spend section 32 money to assist the producers, that there was no point in doing it.

Mr. WHITTEN. That is a very commendatory statement on your part. I think that is what the law calls on you to do. But when what is involved is $1,500,000 profit in one case and an equal amount in another, if you will turn back Government property which you have bought, a part of which has been delivered, so as to let somebody make this profit, some people might feel that the situation was dif

ferent.

Let the record speak for itself. What other direct purchases have you had in the present fiscal year?

OTHER SECTION 32 PURCHASES

Mr. SMITH. We are currently buying-do you have that list?
Mr. LENNARTSON. Yes.

Mr. WHITTEN. We will put that in the record at this point.
(The material requested follows:)

Sec. 32 obligations for commodity program payments for programs active in fiscal year 1963 to Mar. 2, 1963

Total obligations 2.

1 Represents obligations through Jan. 31, 1963

162, 971 723,486

886, 457

1, 409, 148

57,885, 661

2 Does not include obligations of about $740,000 for transportation in fiscal year 1963 on lard and chopped meat purchased in the latter part of fiscal year 1962.

DISPOSITION OF PURCHASES

Mr. WHITTEN. Now with regard to each of these, what have you done with these after you purchased them?

Mr. SMITH. On cranberries, Mr. Chairman, those were used in the school lunch program; the eggs, which were in dried form, were used for the school lunch program; the honey, the same. The meat products are used in the needy feeding program, the quantity of orange juice shown there, I think that went to institutions.

Mr. WHITTEN. Is that the orange juice that we have been talking about?

Mr. SMITH. That is right, that we were talking about previously. Mr. WHITTEN. So all this about school lunch was "folderol," wasn't it? You distributed this juice to the "needy."

Mr. LENNARTSON. The problem is that, unless you get adequate quantities to make a rather general distribution, a small quantity can best be distributed to institutions locally.

Mr. WHITTEN. Does that further add to the argument that you should have kept the 340,000 cases which you purchased? By releasing it, you didn't have any for the school lunch program and had to find something else. Did you mention peaches and various other things?

Mr. SMITH. Those were fresh peaches. They went almost entirely to institutions. They were purchased last summer. Peanut butter, that went to schools, institutions, and to the needy feeding program. The Bartlett pears went to the school lunch program. The sweet potatoes are going to schools and institutions. Turkeys, we used in the school lunch program.

EFFECT OF COMMODITY PURCHASES ON THE MARKET

Mr. WHITTEN. Could we have for the record the effect, if any, that your purchases had on strengthening the market in those areas? Do you keep up with that?

Mr. LENNARTSON. We have an analysis made by the particular commodity division at the conclusion of each program, as to what it encompassed, what possible effect it had marketwise, what the supply and demand situation was and so forth.

Now we could include this for the record. They might be quite voluminous, Mr. Chairman. If you want to limit it to just market impact, we could draw those portions out.

Mr. WHITTEN. I just wondered how much success you had. We can recognize the value of these commodities being made available to school lunch. Behind that, however, is the general purpose of strengthening the market. I think if you limit yourself to what the outcome was on the market for these commodities, it gives us an idea whether the act is working as intended or not. But I don't think it should be voluminous.

Mr. LENNARTSON. I was thinking of the report as a whole, that is submitted to us by the Commodity Divisions.

Mr. WHITTEN. I just want your statement as to the effect on cranberries, and so on.

Mr. LENNARTSON. All right.

(The material requested is as follows:)

The following statement summarizes by commodity the effect on the market of section 32 purchase programs for 1963.

1. Fresh peaches.-Ninety-three cars of fresh peaches were purchased as a surplus removal activity in Georgia, North Carolina, and South Carolina, principally in July 1962.

The total program cost is estimated at $204,000. This is 0.15 percent of the estimated farm value for the 1962 crop peaches in all States of $138 million. Prices for southeastern peaches were generally low immediately prior to the announcement of the surplus removal program. Prices advanced after the program was announced. F.o.b. prices at the time the program was announced had declined sharply to a level of approximately $2 per three-fourths of a bushel in Georgia and South Carolina. During the period of purchases, daily average f.o.b. prices for the three States strengthened and fluctuated between $2 and $3.20 per three-fourths of a bushel. The attached chart shows price activity during the period of the operation of the program.

2. Bartlett pears.-Shipping point prices for northwest Bartlett pears, as indicated by quotations from Yakima, Wash., declined from early season levels of around $3.50 per box (U.S. No. 1, size 135 and larger) to $3-$3.25 in early October. The Department announced contemplating purchase of fresh Bartlett pears on October 10, 1962. Following this announcement, the price level rose to $3.25-$3.50 and by the last week of October reached $3.75 per box. Auction prices strengthened during the week ending October 19 to $4.53 per box from $3.88 the previous week but generally declined for the balance of the season. Expenditure under the purchase program of approximately $480,000 represents 1.4 percent of the $34 million crop value estimated by the Crop Reporting Board as of December 1, 1962.

3. Fresh cranberries.-The 1962 production of U.S. cranberries totaled 1,335,000 barrels which was the second largest crop of record.

The Department purchased 394,000 cartons of cranberries (equivalent to 98,500 barrels) in October of 1962 at the total cost of around $1,500,000. This is 13.5 percent of the estimated crop value of $11 million. The price paid for cranberries purchased was $3.30 per quarter barrel box.

Commercial prices opened September 22, 1962, at $4.25 per quarter barrel box and continued at this level through November 8. Prices then increased to $4.50 per box and remained at this level for the balance of the season.

4. Honey. This program involves the transfer of slightly over 1 million pounds of honey of the 1961 crop from CCC inventory for distribution to schools and eligible institutions. The cost of the program, when completed, is estimated at $220,000 including processing, packaging, and transportation costs. The estimated program cost for the 1963 fiscal year is less than 0.5 percent of the farm value of the 1961 honey crop of $49.4 million. This program provides supplies of honey to schools and eligible institutions and keeps supplies acquired under price support out of commercial trade channels. It assists the price support program in stabilizing producer and trade prices.

5. Peanut butter.-This program approved May 29, 1962, involves procurement of 39.1 million pounds of peanut butter which is the equivalent of approximately 41.6 million pounds of shelled peanuts. These peanuts are transferred from CCC inventory and processed under contract. The peanut butter is being distributed in the needy feeding and school lunch programs. When completed the total cost of this program including the portion which occurred in fiscal year 1962 is estimated at $7.4 million. This is equivalent to less than 4 percent of the estimated farm value of the 1961 crop of peanuts of $190.9 million. This program provides peanut butter to meet certain needs and assists the price support program in stabilizing producer and trade prices.

6. Sweet potatoes.-Following favorable prices during the 2 preceding years. growers increased plantings in 1962 by 10 percent above 1961 acreage. The 18.5 million hundredweight crop of 1962 was 21 percent larger than the 1961 crop and 4 percent above the 1951-60 production. Prices for the 1962 crop, which is still being marketed, are indicated to average $3.78 per hundredweight compared with $4.34 a year earlier. The value of production is estimated at $70 million compared with $66 million for the 1961 crop.

As of March 1, the Department had purchased a total of 92.400 bushels at a commodity cost of $235,700, or approximately one-third of 1 percent of the cron value. Purchases under this program which are continuing have been limited for this large surplus crop because of limited outlets and the Department has