Inherent fiber quality characteristics have been greatly improved, important diseases and nematodes controlled, and insect resistance imparted.

Practical uses of chemicals for insect, fruit setting, and weed control are commonplace.

Considerable advances have been made in the field of biological controls of insects.

Mechanical harvesting has become commonplace and better equipment has been developed for planting, fertilizing, cultivating, and applying pesticides.

In the processing field, rapid advances have been made in cotton ginning to increase yield and grade.

There have been advances in seed cotton cleaning and the development of microspinning equipment has allowed for early selection in breeding programs for high quality.

In the use field, wash-wear and other cotton products and processes have retained or regained some of the markets for cotton equivalent to 2.5 million bales annually, more than 25 percent of domestic consumption.

WITH RESPECT TO COTTON RESEARCH

Following discussions between representatives of the cotton producers and Department research administrators, a task force of interagency representatives was established to consider what was needed in research on cotton. The group concluded that a well-balanced research and extension program directed toward lowering costs, increasing demand, and pricing effectively are the areas of research with greatest potential for returning substantial benefits to cotton farmers. These conclusions were discussed with the producers' technical representative and a general consensus effected. The substance of the conclusions was:

1. Development and adoption of new production technology can help reduce costs but reductions cannot be fully realized without adjustment of acreage allotments and/or increased sales.

2. There is an urgent need for research to develop what might be called complete systems-to determine the market needs and the optimum complete system of producing, processing, and marketing to fill these needs.

3. Research in five broad research groupings is most urgent. These are cost reduction, demand expansion, effective pricing, improved quality evaluation, and evaluation of alternative ways to promote cotton more effectively.

It is contemplated that the research programs and allocation of funds under the order to carry out research would be closely coordinated with existing Federal and State research programs. Such coordination is essential if duplication and waste are to be avoided and maximum results are to be achieved.

WITH RESPECT TO COTTON PROMOTION

Consumption of cotton is determined in large part by its competition with other fibers, especially manmade fibers. In this competition there are at least two major forces. One is the relative price for the competing fibers and another is the acceptability of the fiber for par

ticular processes and end uses. In addition to decisions by consumers, there are other particularly critical points in the marketing channels where decisions are made to use certain fibers. The acceptability of a fiber is determined in part by the knowledge or frequently only with the belief of the manufacturer and personnel in the marketing channels as to the characteristics and performances of the various fibers. Manufacturers of manmade fibers have devoted much effort to promoting their products so that manufacturers will use high proportions of manmade fiber in their products. These efforts include advertising in the conventional sense of the term, service work with processors and manufacturers so they can utilize the performance characteristics of the fibers to their best advantage, making modifications in fiber characteristics so that the fibers are "hand tailored" to particular uses, working with sales personnel at all levels so that they know how to sell the fibers and explain their assets, and helping to finance advertising of individual outlets such as cutters of apparel and retail stores.

Thus, promotion has played an important part in increasing consumption of manmade fibers and the declining consumption of cotton in this country. Although there has been some promotion for cotton it has been so small in relation to the effort made by manmade fibers that the consumption of manmade fibers has steadily and continuously outpaced cotton. A sharp increase in the promotional effort for cotton is needed if cotton is not to continue to lose ground to manmade fibers because of their massive promotion program.

Summarizing, Mr. Chairman:

1. Cotton is the No. 1 cash crop of the Nation.

2. Cotton is also the No. 1 surplus problem and has become progressively acute in recent years.

3. Cotton is faced with extreme competition from manmade fibers which held 42.5 percent of the U.S. fiber market in 1965. It is also faced with severe competition in foreign markets.

4. The production and marketing of manmade fibers is concentrating in a few large companies and this facilitates the financing of research and promotion of their products. This is estimated at around $200 million annually and had been the primary factor in that industry's rapid expansion in the last 20 years. This expenditure is about seven times that of cotton.

5. Advertising and promotion contribute substantially to the successful sale of any product in a highly competitive market.

6. Governmental and private research on cotton has been productive and advances made have been a primary factor in maintaining cotton in as competitive a position with manmade fibers as it is today.

7. The expansion of research can contribute materially to (a) reducing the costs of producing cotton sufficiently to make it more attractive for producing cotton products in competition with products of manmade fibers, and also enhance its position in foreign trade, (b) developing new and improved cotton products with properties that will allow successful competition with other textile fibers, and (c) instituting pricing policies based on sound scientific and economic information.

If producers are willing to finance a self-help program such as that contemplated by the bill, we believe they should be encouraged to do so by enactment of this legislation.

Mr. Chairman, we approve this bill. If it is enacted and a cotton research and promotion order receives widespread support among cotton producers, we in the Department pledge ourselves to assist in every way to make the program successful.

I will be happy to answer any questions.

The CHAIRMAN. Mr. Girard, I want to congratulate and thank you for presenting such a well-prepared statement. I think you have covered the subject very thoroughly.

Are there any questions that anyone wishes to ask?

Mr. FINDLEY. Mr. Girard, on the first page of your statement you say:

The direct costs of these activities are to be financed by industry assessments.

As a practical matter, the Federal Government would be collecting the money for trade promotional activities and also would pay the bills; is that not correct?

Mr. GIRARD. No, that is not. The bill is not set up that way, sir. The only direct expense of the Federal Government would be the cost of holding hearings and holding the referendums, getting the program underway, which we estimate will be in the neighborhood of $400,000, and after that first year the cost would be reduced to about $50,000 which would be used to coordinate the research activities, in consultation with the Cotton Board. But the organization of the producers, if this is set up, would prepare a program of research and promotion and put a price tag on every project that they feel should be undertaken. This would go before the Cotton Board, and if they approved, they would recommend the project to the Secretary, and if the Secretary approved, these would go into operation, but there would be no cost on the part of the Federal Government with respect to those projects.

Mr. FINDLEY. But the Cotton Board would operate under the Secretary of Agriculture, would it not?

Mr. GIRARD. That is correct.

Mr. FINDLEY. And they would make no expenditures, unless the Secretary gave them approval?

Mr. GIRARD. That is correct; they have to prepare a budget.

Mr. FINDLEY. The money spent would be disbursed then by the Federal Government, even though it came from the people in the industry; is that not correct?

Mr. GIRARD. The disbursements would be technically made by the Cotton Board. If we draw on our experience from our other marketing agreements, the administrative agency that is set up from nominations in the industry and appointed by the Secretary, collects the assessments, and, of course, does the physical writing of the checks, to spend the money. All of that is subject to the budgetary control and approval by the Secretary of Agriculture.

Mr. FINDLEY. That is the point that I wanted to make. What I want to know is, if there is any precedent for this type of Federal handling of commodity promotion?

Mr. GIRARD. No, there is no program exactly like this.

Mr. FINDLEY. This would be a first?

Mr. GIRARD. Well, not exactly, sir. Last year, the Agricultural Marketing Agreement Act was amended to add 14 specific commodi

ties, for which there could be advertising promotion under the marketing agreements and orders for those commodities.

Last month, we held our first hearing under this new authority that dealt with nectarines in California, and we are now going to a hearing in Texas on Texas citrus, to amend that order to permit the use of funds for advertising under that program.

So, presumably, if the record justifies that type of activity under those programs, they will be the first.

Mr. FINDLEY. But up to now, the Federal Government has never engaged in the direct promotion of commodities within this country. I understand that under Public Law 480 they have to some extent.

Mr. GIRARD. No, that is not quite correct. We do it under the wool

program.

Mr. FINDLEY. Under the wool program? Is there anything assessed against the wool producers to finance that?

Mr. GIRARD. The way it operates is that there is a direct payment to the wool producers.

Mr. FINDLEY. Correct.

Mr. GIRARD. And they vote on whether they want any part of that payment to be devoted or diverted to an advertising and promotion program. And it requires two-thirds of the producers voting to approve that part of the payment which would, otherwise, go to them to be put into a fund to be used by the Secretary in promoting wool, and, of course, under that program we enter into a contract with the Wool Council, and they carry out the program, somewhat similar to what the Cotton Board and the private producer organizations would be doing under this particular legislation.

Mr. FINDLEY. Am I correct that under this proposal there would be a similar two-thirds approval required before it could take effect? Mr. GIRARD. Yes, sir. This proposal provides for the alternative of two-thirds by numbers or two-thirds by volume of cotton produced. The wool program also provides for alternative approval by numbers or volume.

Mr. FINDLEY. At the bottom of page 2, you state that cotton has an annual farm value of approximately $2.5 billion. Is that the value under the present program; in other words, the gross payment to the farmers?

Mr. GIRARD. I would like to have Mr. Lowenstein answer that. He is our economist in charge of all of our statistics.

Mr. LOWENSTEIN. Thank you for the promotion.

This is the actual value of the cotton cottonseed. These are the 1964 figures.

Mr. FINDLEY. It is not based on the program which would take affect later this year?

Mr. LOWENSTEIN. No.

Mr. FINDLEY. I noticed at the top of page 3 that you show for 1965 realized losses:

Realized losses incurred by the Commodity Credit Corporation on upland cotton price support and related programs and expenditures under direct payment programs have totaled $3,006 million during the past 10 years. These have ranged from $62 million in 1956 to $601 million in 1965. In addition, losses on loan and owned inventories as of June 30, 1965, were estimated at $541 million.

Adding the two figures brings a total of $1,141 million, representing the cotton program cost to the Government for 1965, not including administrative costs. This is very illuminating when you compare that with the total value of the cotton crop of $2,500 million. It looks like the cost to the taxpayer is pretty close to one-half of the value of the crop. Am I correct in my assumption?

Mr. GIRARD. There is a duplication in those figures. I would ask Mr. Moss to explain the difference.

Mr. FINDLEY. The words "in addition" would lead me to believe that $541 million is an extra expense beyond the other. Is that correct? Mr. GIRARD. That figure is the amount of losses CCC expected to incur on cotton in its inventory on June 30, 1965. When that cotton is sold and the loss is actually incurred, it will be a realized loss and be added to the accumulated $3,006 million figure. The $601 million figure represents the realized losses in 1965 on cotton stored in fiscal 1965 and prior years.

Mr. FINDLEY. But you say that it would extend beyond the 12 months' period?

Mr. GIRARD. Yes, sir.

The CHAIRMAN. That is what is contemplated by this bill-to use up the cotton rather than to keep it stored in the warehouses. Mr. GIRARD. That is correct.

The CHAIRMAN. I pointed out a moment ago that our losses have been gigantic.

Mr. FINDLEY. I agree. I was surprised and somewhat gratified to see the statement of Secretary Freeman on January 27 when he commented upon this. In this statement he said, "We were wrong" about the 1964 cotton program.

Mr. GIRARD. Yes.

Mr. FINDLEY. Continuing to quote Mr. Freeman, "Moving to a oneprice cotton would increase the domestic consumption by more than a million bales, to bring about a reduction in the cost of the cotton to the consumer. We were wrong." It is gratifying to see that he acknowledges the error.

One concern I have about this new proposal, though, is as to whether it would be fair to the producer of manmade fibers to have the Federal Government engage in a trade promotion activity which would tend to work to their disadvantage.

Do you anticipate that we will be establishing a precedent here that could lead to trade promotion activities for other commodies?

Mr. GIRARD. That, of course, is always a possibility, that other commodities may want to engage in a similar activity, but right now, of course, we do have the cotton producers who number some 500,000plus, and it is very difficult for them to amass any sum of money without some concerted action which will in any way come near to matching the tremendous expenditures of the eight largest manmade fiber producers who are able to amass and spend to promote their products.

Mr. FINDLEY. I understand that it is completely a voluntary operation, operating entirely within the private section without Federal involvement, that it has been for a number of years on a voluntary checkoff basis, for purposes of promotion.