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Will you raise your right hand, please?
Do you solemnly swear that the information that you will give this committee will be the truth, the whole truth, and nothing but the truth, so help you God?
Mr. GREGG. I do.
TESTIMONY OF JOSEPH B. GREGG, KANSAS CITY, MO., PARTNER IN
MORRISON-GREGG-MITCHELL GRAIN CO.
Mr. GREGG. Mr. Chairman and members of the committee, my name is Joseph B. Gregg, of Kansas City, Mo. I am a partner in MorrisonGregg-Mitchell Grain Co., a grain merchandising firm operating country elevators, whose principal office is in Kansas City, Mo.
Senator SYMINGTON. Do you mind being interrupted for questions? Mr. GREGG. That will be all right.
I speak here for my own firm and for a number of other firms operating country elevators in the Southwest and principally in Kansas, Nebraska, Missouri, and Colorado. I am a member of the Board of Trade of Kansas City, Mo., the grain exchange of Kansas City, and I am especially authorized to speak for the members of that body who also are in the country elevator business.
The function of the grain trade of the country is to distribute the grain acquired from producers to the consumers at home and abroad. To perform this task, two kinds of dealers have developed. (1) Country grain dealers who take in grain by truck from farmers and sell and ship principally by rail or water, and (2) terminal elevator dealers who receive grain by rail. In the release of January 21, 1960, the Department of Agriculture reported the existence of 9,610 elevators furnishing storage services, of which 9,010 were country elevators and 600 terminal elevators principally located at large terminal centers. Country elevators which do not furnish storage services are very numerous. Approximately 1,700 houses are located in the State of Kansas, of which approximately one-third are fundamentally handling houses.
The Department of Agriculture is currently studying proposed reductions in the charges for services comprehended in the Uniform Grain Storage Agreement. The emphasis in this study is upon charges for storage, which have been featured in congressional investigations and in the press - little has been heard of other charges. The proposed reduction in the handling charge is of vital interest to those in the country elevator business, but it has received little public attention. Those most affected have had no one before this committee to plead their case. My statement is exclusively directed to the matter of the handling charge. My firm is devoted to the country elevator business, and I feel qualified to speak for this segment of the trade.
The so-called handling charge is something entirely separate and distinct from charges for storage. It covers the services performed by the country elevator dealer at the behest of the Commodity Credit
Çorporation in moving grain from farms or binsites to the rail point to which the Corporation desires transportation. It consists of: (1) Accepting the grain in truck at the elevator; (2) issuance of a receipt which shows the quantity, the grade, and the protein content; (3) loading the grain into railroad cars and billing the cars as ordered; (4) and most important-warranting the outturn weight, the grade and the protein content.
For these services, the total compensation received by the country elevator under the Uniform Grain Storage Agreement is the handling charge, and for many of them virtually all their earnings are derived from this source.
In our area, the present handling charge for wheat is 7 cents per bushel. The proposed rate is 5 cents per bushel. This rate we affirm is grossly unfair.
Senator SYMINGTON. What is your rate?
new rate that has been proposed by the negotiating committee of the Department of Agriculture makes a reduction from 7 to 5 cents.
Senator SYMINGTON. For the record, when was that proposal made?
Mr. GREGG. I cannot name them all. Mr. Palmby is the chairman, and Mr. McMahon.
Senator SYMINGTON. Mr. Palmby?
Senator SYMINGTON. And he works in the Department of Agriculture?
Mr. GREGG. Yes.
Mr. GREGG. He is the Director of the Grain Warehousing DivisionI believe that is his title, sir.
Senator SYMINGTON. Mr. Pollock testified before our subcommittee. Isn't he the Director of the Grain Division ?
Mr. GREGG. Mr. Pollock is under Mr. Palmby. They have so many titles over there, Senator, that I get mixed up. .
Senator SYMINGTON. Then this committee of the Department of Agriculture proposed to reduce the rate 2 cents?
Mr. GREGG. Yes, sir.
It will not, on the average, cover the cost of these services. There is no justification for a charge lower than 7 cents.
The 7-cent rate was established in 1949. What conditions have come about to indicate that this rate, once accepted as just, should be reduced almost 30 percent? It is common knowledge that inflation has proceeded at a lively rate since 1949. Elevator costs in wages and materials have been no exception.
The Department of Agriculture in recent months has made a survey of the operation of grain elevators as a basis for the projected new schedule of charges. We are advised by the Department that the average direct operational cost of the handling service is 4.6 cents per bushel, and that this figure has been reduced by the Department in the amount of one-tenth of 1 cent for unknown variables; the result is 4.5 cents, and to this amount has been added by the Department five-tenths of 1 cent to cover the items of risk, shrinkage, deterioration, and return on investment or a total of 5 cents per bushel as the proposed rate.
Senator SYMINGTON. I want to interrupt for clarification. Am I to understand that there has been no increase in the handling rates since 1949 ?
Mr. GREGG. Yes, sir; that is correct.
Senator YOUNG of North Dakota. I wonder if the witness would review for the committee what is involved in the handling of grain ?
Mr. GREGG. In the handling of grain I am speaking strictly from a country level at this point, sir—the country elevator.
Senator Young of North Dakota. You have that in your statement?
Mr. GREGG. I do not intend to ask the committee to analyze the Department's figure of 4.6 cents as representing the average total direct operational costs. Like all cost studies it is open to question. For my purpose here I accept it, but call attention to the utterly inadequate amounts added to their base as follows:
First. Grain cannot be handled without some loss of weight, which in the grain trade is known as shrinkage. Experience in the trade, which I can personally verify, is that such shrinkage in the handling operation amounts to a minimum of one-fourth of 1 percent in weight. At $2 per bushel for wheat, this represents one-half cent per bushel. We are held liable for that loss by the Commodity Credit Corporation.
Second. The elevator operator is required to guarantee the quality and condition of the grain
delivered at inspection points indicated by the Commodity Credit Corporation. The dealer must allow for any difference in grade or protein content, and wide differences in value occurs. Experience shows that this item of expense averages one-half of 1 cent per bushel.
Third. In all fairness, an adequate amount should be allowed for a return on the capital investment. The Department has stated that 6 percent would be a fair return, but sets up 50 cents a bushel as a fair average cost of elevator facilities. This figure is nowhere near reproduction cost. I will defy anyone to point to a modern, conventional type grain elevator with proper handling facilities that can be built for less than $1 per bushes. But using the Department's figure of 50 cents per bushel, a return of 112 cents per bushel is fully justified. An elevator of 50,000 bushels capacity at a construction cost of 50 cents a bushel represents an investment of $25,000; a return at 6 percent would be $1,500; a turnover of 100,000 bushels would yield 112 cents
Something also could be allowed for the risk of the enterprise. A shortage of crop yield in the vicinity of the elevator, or a crop failure, are among such risks. However, I accept these risks and include them with return on investment.
I would there like to deviate from my statement a minute, if the chairman would permit, to discuss another very definite hazard that the trade is faced with. It is the new action of the Food and Drug Administration under the Delaney amendment. We in the trade at this time do not know from day to day what chemical that is used in agriculture might be declared a carcinogen and become actionable under the Delaney amendment. And this grain would be subject to seizure, and there could be a loss that could be as much as $1 a bushel.
I wanted to point that out, because it is a problem which has developed quite recently. Of course, that happened in cranberries and in chickens, which I need not bring up, but we are faced with it, and we recognize that.
Summarizing, there should be added to the basic direct operational cost of 4.6 cents, the items of shrinkage one-half cent, quality differential one-half cent, risk and return on investment 112 cents, making a total of 7.1 cents.
The Department proposes as compensation for all these items only one-half cent, or a total of 5 cents.
Senator SYMINGTON. That is 71/2 cents; is that not?
Mr. GREGG. I would like to emphasize that this proposed reduction in the handling charge strikes principally at the little fellow who is too small to offer storage facilities. One hundred thousand bushels would be substantial turnover for one of these elevators. At the proposed rate of 5 cents per bushel, such a house would earn $5,000. Using the Department's cost figure of 4.6, the annual expense of such a house would be $4,600, leaving the meager return of $400.
I am sure that this committee will realize that it is essential to the proper working of the price-support programs to keep these little fellows in business. Starving them out seems ill advised.
The importance of these little fellows to the small communities in which they operate should not be forgotten. The local elevator is as much a part of community life as the local bank, grocery, or postmaster.
In conclusion, I would stress again the fact that the 7-cent charge has been in effect since 1949 and that the force of inflation has acted upon elevator costs as well as other costs. No changes in methods have occurred to cheapen handling costs. The method of operation remains the same.
The Department of Agriculture, in its release of March 17, 1960, announcing proposed reduced charges in the Uniform Grain Storage Agreement, referred broadly to certain factors thought to justify reductions-namely, “increased efficiencies, construction costs of supplemental facilities, and larger volume," but it will readily be observed that none of these apply to handling elevators. And so we are without any supportable reasons for the Department's radical proposal as to handling charges.
I thank the committee for the opportunity to make this stater ent.
Senator SYMINGTON. Thank you, Mr. Gregg. You have prese ited an interesting and constructive statement.
Senator Young, have you any questions?
Senator Young of North Dakota. I would like to ask just this one question. The rates proposed by the Department are not final—they are subject to change, are they not?
Mr. GREGG. As I understand they are meeting—the committees are meeting today and tomorrow, and negotiating. Up to this point we have had no reason to believe that they will be changed from the proposed rates that they have made.
Senator Young of North Dakota. But the figures are not final ?
Senator Young of North Dakota. I would be very surprised if they were,
Mr. GREGG. I would, certainly, hope that they would be changed, that is why I am here.
Senator SYMINGTON. Senator Mundt, we welcome you to the subcommittee. It is a privilege to have you with us. Do you have any questions?
Senator Mundt. I am not a member of the subcommittee, but a member of the full committee. I appreciate this courtesy. I did not get in early enough to hear the whole statement, so I have no questions, but I would like to associate myself with the hope expressed by the witness and by Senator Young that the rates will be changed upward!
Mr. GREGG. Thank you, sir.
Mr. Schmidt. For purposes of clarification of the record, would you give us the length of time that you have been engaged in the grain business? Mr. GREGG. I guess that I could say all my life. My grandfather
I started our company back in the 1800's. My father succeeded him. Much to my regret at the time when I was 14 he sent me to western Kansas to work in the wheatfields. And then in the elevators. After I returned from service in 1946 I took over the operation of our company which operates a string of elevators in Nebraska, Missouri, and Kansas. We were in this business a long time before any Government pro
: gram came along.
Mr. SCHMIDT. For purposes of further clarification of the record, you have used the term of 7 cents as the existing handling rate. You referred to that in area 3, so far as it concerns wheat, grain, rice, soybeans, and grain sorghums?
Mr. GREGG. That is right.
Mr. SCHMIDT. At this present time, under the handling agreement and under the Uniform Grain Storage Agreement, this varies by geographical areas, does it not?
Mr. GREGG. Yes.
Mr. SCHMIDT. The proposals made by the Department of Agriculture recognize geographical differences ?
Mr. GREGG. In the new proposal; no, sir.
Mr. SCHMIDT. If we use the flat rate of 5 cents a bushel you are speaking then of a rate that has been proposed for the entire country?
Mr. GREGG. Yes,
Mr. SCHMIDT. While the 7 cents would have applied up to the present time to area No. 3 ?