The second point, the impediment of competitive and untaxed foods. The primary difficulty will arise in the effort by the processor of livestock to collect the tax from the consumer. Meat is in con.petition with all other foods for its portion of the consumer's dollar. It competes with fish, vegetables, chickens. eggs, and other commodities, none of which are affected directly by the proposed bill. By "directly" I mean that they involve a hearing or something of that sort to get the tax to them; whereas, automatically under the present terms of the bill it is imposed on livestock. Arbitrarily to raise the prices of meats and not include all competing foods would certainly result in a decrease in the consumption of meats, III. The necessity of prompt marketing-Meat products are highly perishable. Once the livestock is slaughtered it must be handied under refrigeration without delay, and marketed whether there is a glut or a shortage at that particular time. Experience shows that an artificial increase in price of even a fraction of a cent can seriously obstruct the orderly marketing of meat products, resulting in the product accumulating, and then, if it is to be sold at all, being sold at a decline in price of more than a cent a pound. IV. The control of prices by the consumer.-The prices received for a definite supply of meat products are determined by consumer purchasing power and the prices of other foods. In view of the fact that the meat processing industry, in the aggregate, has operated at a loss in the last 2 years, notwithstanding the fact that the volume of the business has remained relatively stable, it would appear obvious that had it been possible, meat processors would have obtained during those 2 years a higher price for their products, thus enabling themselves to operate their business at a profit. Even in the prosperous years preceding the present depression, it was not possible for the processors to obtain a profit of more than from one fourth to one sixth of a cent a pound on their products. The experience of the meat processors is so conclusively to the effect that the ultimate consumer definitely controls the price at which meat products can be sold that any effort to force the consumer to pay a price beyond that which she is willing to pay would appear to be fraught with the gravest difficulty. V. Is there a surplus livestock production?-The bill would appear to contemplate a reduction in the output of livestock. The experience of the meat processors raises a serious question as to whether there is a present oversupply of meat products above the requirements of the people. The United States per capita consumption of meats and lard in the last 33 years, in round numbers, has run as follows: Meat consumption per capita in 1932 was lower than in any year during the last decade, was lower than in the period used as a base in the bill, and was lower than in any year this century except the war years. Last year the per capita consumption was a trifle less than 145 pounds. That is our estimate. The official figures last year have not been published, but the monthly figures make it possible to come very close to the mark. As consumption was lower, of course it follows that production per capita was lower also, even more emphattically because we have had more of our former exports to eat at home. On February 1, 1933, total stocks of meat were less than 6 pounds per capita. The aggregate of all supplies on that date was less by 131,000,000 pounds than on February 1 last year and less by 213,000,000 pounds than the 5-year average of meat stocks on February 1. Feb. 1, 1933. Total meat in pounds Feb. 1, 5-year average Feb. 1, 1932_ 665, 047, 000 796, 632, 000 878, 786, 000 But It would appear to be clear, accordingly, that no meat surplus exists. for unemployment and reduced purchasing power, it might easily become evident that there is an actual shortage against normal requirements. Senator WHEELER. Will you tell me whether or not you have any suggestions to correct that situation? Mr. WOODS. Yes, before you came in, Senator Wheeler, they gave me permission to run through this statement, and if I may, I will be glad to respond to that question whenever you wish me to. [Continues reading:] VI. Can the purchasing power of the public pay the increased price?—The question also arises as to whether an abnormal increase in the price of meat products will not impose an intolerable burden upon the public. It is estimated that some 12,000,000 men are out of work. Millions of others are on part time. The funds available to relief agencies at the present time are not considered any too adequate to meet the needs. Assuming it to be possible in actual processing to differentiate meat to be used for unemployment relief or charitable purposes or exempted by the bill from the tax-it must be borne in mind that a large proportion of the unemployed and the part-time employed are living on their savings and could obtain no relief from the effect of the tax. A violent increase in prices may accordingly impose a burden which millions of the population cannot bear. Whether other consumers will bear it- or purchase competing foods-presents a formidable problem. Accordingly, in administering the bill the Secretary of Agriculture will no doubt give serious consideration to the question as to whether, assuming a reduction in the production of livestock, the purchasing power of the country will make possible an increase in the retail price of meat by the required amount. Industrial activity is down to 45 percent of normal. The bill contemplates such a reduction of livestock production as will increase prices to a parity with nonagricultural prices. Industrial activity, which produces the articles purchased by the farmers, is down 55 percent. In other words, the bill purports to accomplish by some reduction in livestock production that which has already exacted a 55 percent reduction in industrial activity without increasing prices. Experience gives no ground for assurance that the proposed reduction will achieve the expected result. Though it be true that the selling price of individual farm products is only one half, or less than one half, a normal price, the volume of farm production has remained relatively steady. Industries have suffered both reduced volume and reduced prices with no compensating benefits. The percentage reduction of nonagricultural income is probably about equal to the percentage reduction of agricultural income. Any attempt to equalize or redeem the relative injury to agriculture on the one hand, and to industry on the other, resulting from the present international economic depression, cannot overlook the lesson of these facts. VII. Factual considerations.-The administration of the bill and ability to collect the tax will be further affected by certain other limitations with which the Secretary of Agriculture will of necessity be confronted. Some of these may be enumerated, as follows: (a) Freight rates.-A large part of the food industry carries a heavy freight rate. Consider, for example, the livestock and meat business in which by far the largest production is in the Corn Belt. The largest consuming centers are on the eastern coast. The livestock producer must pay freight to the various slaughtering centers, and from there the processors must pay freight to consuming centers. Freight rates on livestock and packing-house products are currently 75 percent higher than before the war. A greatly disproportionate amount of the consumer's dollar goes for freight, which in the last analysis must constitute a net deduction from the farmer's prices. The significance of freight charges is illustrated in the case of corn. Corn has recently been selling in Chicago at 23 cents. Freight rates from western Iowa are 16 cents per bushel. Deducting 16 cents from 23 cents leaves the farmer 7 cents per bushel. I may say these are not the remedies we have in mind. We have something more affirmative than this, Senator Wheeler. (b) Other fixed charges.-There are other costs which are relatively fixed and inflexible, such as the fixed investments of retailers, and rents. Rents paid by retailers, if the lease is a long-time one, are onerous now. Equipment which has been installed, or used for delivery, represents an investment made when prices were higher than they are now. In the early period of the decline, many of these costs continued unchanged, and it was only gradually that individual retailers reduced their costs, whether for rents, wages, salaries, or services, and by competition compelled other retails to retain less of the consumer's food dollar. Three of the large cost items in the marketing of farm products-taxes, freight, and rents are not subject to alteration or controlled by the meat processor. (c) The price the processor can pay for livestock depends upon his ability to market a portion of his product in foreign countries. But export trade is at present definitely limited by foreign market conditions, tariffs, quotas, etc. The prices export markets will pay are determined by local conditions. (d) The bill can be interpreted to mean that prices of livestock are to be arbitrarily raised before there is an actual reduction in supply. I confess I am not clear on the meaning of that section of the language. But all hogs that will be marketed this year are already born or bred, and the corn is here to feed them. It takes 4 months to breed a hog and 8 months to raise it; therefore, the hog supply for the next 12 months is already fixed and nothing can be done now to change the number of head that will come to market this year. ley Other administrative difficulties. The problems involved in controlling the production and marketing of some twenty-five billion pounds of livestock concern some five or six million producers. To administer the law a great army of Federal employees must be built up at tremendous expense. As most producers have no production records, a complicated question will arise as to how to determine whether in fact production can be or has been increased or decreased. VIII. Can meat processors pay the tar?—In view of the difficulty of collecting the proposed tax from the consumer, and in the light of the other practical problems enumerated, the question arises whether the meat processors themselves will be able to pay the tax. The processor's profit, as mentioned above, is, in prosperous times, between one fourth and one sixth of a cent per pound of meat sold. During the past 2 years it has been the experience that meat processors, wholesalers, and retailers, have failed to earn a profit, and many if not most of them have as a matter of fact been operating at a loss, yet have succeeded in maintaining employment at a high rate compared with the level in other industries. In other words, the same depression which has affected the producer of livestock has borne down upon the agencies which have processed and marketed his products. Both producer and processor have appeared to be inexorably subject to the purchasing power of the ultimate consumer. Altogether aside from the present depression, there has never been a time when the margin of profit realized by the meat business could cover the amount of the proposed tax, or even a small portion of it. IX. Possible restrictions upon the free livestock market.—In view, accordingly, of the impossibility of the processor absorbing the proposed tax, and the unlikelihood of his being able to recover the tax from the consumer, the Secretary of Agriculture in administering the bill will be compelled to consider the possible reorganization of the entire system of marketing livestock which with both livestock producers and processors may be confronted, and the effect of such reorganization upon the producer. At the present time the meat processor is able to sell his entire output at some price. That price, as has been indicated, is, in the last analysis, determined by what the consumer is willing to pay for the product. Above that price experience shows that the total output can not be sold. The fact, however, that at some price it is possible to sell the entire output, enables the processor to purchase for cash and to process all the livestock coming to market at any one time. The price paid for the livestock is determined by the price at which the processed meat can be sold. The automatic adjustment of prices thus effected alone makes it possible for the processors to take all the livestock offered in the open markets. If the processor is unable to market his product at a price which will include the proposed tax, it will be necessary for him to reduce his purchases of livestock to that number which can be immediately marketed without loss. Such a restriction, which the proposed tax may impose, may destroy the facility which the producer has long enjoyed of a daily cash market for all the livestock he chooses to seil. If this unfortunate result should ensue, the surplus of livestock might have to be held back upon the farm and ultimately sold, if sold at all, at such low prices that the producer might realize less for his output as a whole than if the processing tax had never been imposed. Conclusion. In the experiment which is proposed, difficulties would be encountered beyond the power of the meat processor to surmount. It has been stated that if the plan does not work the farmer will be no worse off. Serious question may be raised as to the accuracy of that prophesy. If the great live stock and packing industry is seriously disrupted; if an artificial effort to interfere with the normal operation of economic forces disorganizes the method which long experience has developed for marketing livestock and its products, the reaction may be disastrous, not alone to the meat processor and his employed labor, but to the farmer whom it is now proposed to benefit. It should be emphasized, in conclusion, that the meat processor is the marketing agency of the livestock producer. Experience has revealed no magic by which the producer may be made immune from the operation of economic forces which circumscribe his marketing agency. If by any process the farmer can be made prosperous the meat processor will become prosperous, and they can rejoice together. Neither the farmer nor the processor is prosperous today. Both seek prosperity. The interests of the meat processor compel him by every practicable method to promote the welfare of the livestock producer. Their interests are mututal. By the same token, anything that actually benefits the one will in turn benefit the other, so any policy injurious to either may become injurious to both. I think it is perfectly obvious that if you had a sustained rising trend of livestock prices there isn't anything in the world that could do you as much good as that. Increase the value of inventories, give us a merchandising margin, and we would welcome it for ourselves, as well as for those who raise the livestock we market. The institute does not believe that the problem of prosperity for either the livestock producer or the meat processor is insoluble without departure from proven principles. The essential and indispensable necessity is to create new purchasing power and to open up the pathways of normal trade. Great strides in that direction have already been made under the leadership of the President. The stabilizing of the banking structure, the drastic reduction in Government expenses, and assurance of the adequacy and the soundness of the currency-all point toward the restoration of general prosperity. Other measures of similar import are in prospect. Once unemployment is reduced and industry starts functioning there will be an increased demand for meat products, which will automatically create an improved price in which the farmer will share. It may be that desperate conditions call for desperate remedies. In passing the emergency banking bill, however, both the President and the Congress felt obliged to add thereto sound principles of finance. The searching questions to be applied to the farm relief bill as considered from the standpoint of its effect upon the livestock industry, which includes the producer, the packer, and the distributor of its products are these: 1. Does it, in the light of tried experience, give promise of correcting the trouble? 2. Does it in truth give the livestock producer a sound basis upon which to build an improved economic situation? 3. Is there danger that the proposed remedy will but intensify his difficulties? Mr. Chairman, we were most particular in trying to state exactly the spirit in which we came before the committee, the statement of our views. If it is not asking too much you have been very generous to me already-I would like to read the first half page of this, so that I may get that point of view before the Senators who came in. Senator WHEELER. No; we do not care about that. Senator THOMAS of Oklahoma. They will be able to read that in the record. Are there any questions to ask Mr. Woods? Senator WHEELER. I was going to ask what piece of legislation that you refer to, that has thus far been passed, has had any tendency to bring up the price of farm commodities? Mr. Woods. Which has thus far been passed? Senator WHEELER. Yes; by the Congress of the United States, that will have any tendency to bring up the price of farm commodities. Mr. WOODS. Well, offhand, I know of none, unless there is some bill in the export field that has made foreign trade go easier. Senator WHEELER. Now, you speak of an adequate, sound currency, and you spoke of it as if it would bring up farm commodity prices. Do you know of any way in which the present currency system can bring up farm commodity prices? Mr. WOODS. I suspect I did not make the point clear there that I was trying to make. I use that merely as an illustration, that in that situation the experiment follows lines that had been tried before. Senator WHEELER. What line has been tried before that will bring up commodity prices at the present time? Mr. WOODS. I know of none. Senator WHEELER. You know of none? Senator WHEELER. So that, as a matter of fact, the only thing that you would suggest at the present time to help the farmer is really reduction in freight rates? Mr. Woods. Not at all, sir. Senator WHEELER. What other suggestions have you made? Mr. Woods. I have not made any. I was trying to indicate that the suggestion about the freight rates was in the manuscript, but that I had some others that I would submit in another answer to your question. We do not have any plans; we do not have a conviction that this is a simple situation to solve or that we can bring a ready remedy. We have given it a great deal of earnest thought, not only because we feel that was our obligation, but because we have asked many times the question that you asked today, and at some other hearings: "Well, what have you to offer instead? If you are against this, what do you propose?" And we have been studying the thing as earnestly as we could. Senator WHEELER. But before you get to that, let me ask you, because I know the packers-you do sell abroad, do you not? Mr. WOODS. Yes. Senator WHEELER. And, when you sell abroad, do you not come in contact with the depreciated currencies of other countries? Mr. WOODS. Yes. Senator WHEELER. And is not that at the present time affecting the price which your commodities sell for abroad? Mr. WOODS. It did affect it some when the British went off the gold standard. There was a good deal of confusion at first. Our greatest difficulties, however, I would say in our export trade are two-well, they are really three. One is the competition of the Continent. They are closer than we are, their haul is much shorter, they have been redeveloping their own herds, which were greatly depleted during the war, and just the straight-out competition has been our hardest factor. The next two, I would say, are the British quota policy, which will be tightened more and more, presumably, and the German exchange restrictions. They do not have a quota but they do have a system whereby the number of marks that can be converted into dollars is definitely limited, and that is just as restrictive as a quota. Finally, there is the recent tariff on lard, amounting to about 100 percent of the landed cost. Senator WHEELER. In the sale of cattle, for instance, you come in contact, do you not, with Argentine? Mr. Woods. No, we cannot compete with Argentine cattle. We have no export business on cattle. Pork and lard are our important items. |