sider expert in this field of assessment would say the increase was a minimum of 10 to 12 percent, perhap as much as 20 percent.

A brief summing up of these changes is contained in appendix C.

With a tougher contract ahead, the proposed rate cut, referred to as an average of 19 percent, is, of course, a far deeper cut.

Actually, the cut is larger for some services, less for others. Two tables in appendix D show in actual rates the percent of change in truck receiving charges and for storage services by areas. Regional variations have been eliminated by averaging widely varying elements of cost found in a survey of just 1 year's operations which range greatly. It is remindful of adding one horse, one rabbit, and one polar bear, and then dividing by three.

This is not the first year that the administration of grain storage by CCC has been criticized and investigated. Time and patience have been required to get all the facts in perspective many times before.

Appendix E is a copy of a letter sent under date of March 24, 1952, by Charles F. Brannan, then Secretary of Agriculture, to Senator Williams of Delaware. This letter is long but most useful as background, really interesting to read because it manifests some spunk, and is supplied in the appendix as information helpful to the committee.

It also lends support for what I sometimes immodestly call Hendrickson's law-that this subject arouses most heat and passion in years divisible by four. In those years, the trend appears to be to declare a year-long open season on warehousemen. The others can defend themselves, but for those 33 to 35 percent of the warehouses which farmers have built for themselves through their own cooperatives I will hustle to the defense like an old firehorse.

Brannan's letter was an effort to set straight the record with respect to repeated allegations that "excessive profits" were made by two warehouse operators, neither of them a co-op, at Camp Crowder in Missouri. There was the usual tendency to count profits before all costs were counted.

This was quite a sensation in its day, and I will not bore you with the details. The letter speaks for itself, and totally deflates the allegations of "excessive profits," in my opinion.

At St. Joseph, Mo., and Fort Worth, Tex., a few years ago during this administration, some 40 million bushels of wheat were stored on the ground in large, specially-treated canvas tents. It was a sensation. Life carried pictures of them. At long last, someone had come up with really cheap storage, and "excessive profits" were sighted ahead.

This literally was one for the birds.

Big
A

For, sure enough, hungry and perverse birds pecked away at the canvas. holes and tears resulted, the winds expanded them, and the rain blew in. great deal of the wheat went out of condition. The warehouseman lost $15 million-plus, and CCC reports it lost not 1 penny.

Finally the tents were folded, and the sensation stole silently away into the long night of oblivion. What happened to the birds I confess I do not know. Webster's dictionary defines "negotiate" as "to hold intercourse with a view to coming to terms; to confer regarding a basis of agreement; as to negotiate for the purchase of a house."

I submit that this is not an apt description of the process now underway between three six-man teams of negotiators for trade groups and the Department. Our federation is represented by one team of six men, and I am one of them.

We meet with Department representatives who are cordial and pleasant, but not with the CCC Board of Directors where the authority is vested. Marvin L. McLain, Assistant Secretary, states it accurately on page 661 of part 3 of the House hearings on agricultural appropriations for 1961.

I include his full statement in response to a question, as carried on pages 660 and 661 of part 3, in appendix F, attached, so I will not be accused of taking something out of context. But the heart of his statement as it bears on the negotiation process is: "*** the CCC Board will make its final decision on these rates."

Thus the rates are determined by edict of the Board, and not by negotiation, in 1960.

I have a great deal of respect for Mr. McLain. He is a fellow Iowan, once served as chairman of a country grain co-op board. His statement in appendix F is worth study. He appears to think that storage having expanded, a rate cut nationwide is justified; that this is in accord with the law of supply and demand.

It reminds me of what used to happen years ago before farmers in vegetablegrowing areas organized co-op associations to bargain for contracts collectively. In January and February when no one had fresh tomatoes, high prices-often called come-on prices-were quoted. Then after farmers responded with a big acreage and the harvest rush was on, the price was cut back to where profits and costs looked like the gold dust twins.

It had the hallmark of a confidence game, and the handling by the Department of storage rates this year is remindful, I regret to say.

If crops are bountiful this year and the surplus mounts again and storage space is short, will the rates be raised in 1961?

A new set of Department negotiators will in all likelihood be on hand then, and we can only hope that instead of a sledgehammer to flatten them out they will reach conclusions on rates using a fairer and more sophisticated basis than subjective reactions to ill-informed criticism, no matter how strident.

Senator YOUNG of North Dakota. This will conclude our hearing. But before we adjourn, I want to tell you that you very ably and commendably defended the grain co-ops, and you are one of the best witnesses I have ever listened to.

Mr. HENDRICKSON. Thank you very much.

Senator YOUNG of North Dakota. The meeting will be recessed. (Whereupon, at 4:35 p.m., the committee adjourned, subject to the call of the Chair.)

(Statement submitted after the hearing by Mr. Hendrickson :)

In your release on April 14, Mr. Chairman, you listed certain questions. I have prepared replies to the seven questions you list:

Question No. 1. "Is the Department of Agriculture undertaking an adequate cost study to negotiate rates so as to prevent some excessive profits at the expense of farmers and other taxpayers, but so as also to give opportunity for a fair profit to those who are providing needed storage service to the farm communities of this country?"

Answer. "I do not see that cost studies, any of which will produce abundant evidence of a very wide range of costs, is any answer in itself. The problem is how to apply cost data fairly as found. Certainly, operations for 1 year only is an unsound basis.

"In the case of farmer-owned and farmer-controlled cooperatives, no profits of any kind are at the expense of farmers, but any savings are returned to farmers over and above actual costs, as has been explained here today.

"This cost data gathered by the Department has many weaknesses. So do such GAO reports as I have heard of. The chief one is that the allocation of costs as between storage, handling, and merchandising, an almost impossible task to segregate, as well as other functions of a farmers' grain cooperative, are subjective and not objective. They vary greatly. Regional and area cost variations become confused and misleading in a maze of averaging to achieve a flat schedule of national rates. This is excessive and unreasonable reliance on an averaging process.

"The Department then picked a flat construction cost figure of 50 cents a bushel-picked out of the hat, I expect. Whose hat I do not know. Then no allowance was made for deterioration, none for cost increases since the survey period.

"This is unfair to the great majority of warehouses. It will deny them not only a fair profit but will force up farmer grain marketing margins while prices decline, to avoid, if possible, operations at a loss."

Question No. 2. "Is the Department conducting an adequate cost study survey to determine the cost of on-the-farm grain storage?"

Answer. "I do not know. But I know the Department has announced that it will cut rates paid farmers on reseal programs to accord with its final UGSA rate structure. I have received many protests from farmers re that reduction and have informed the Department of this view.

"These rates must be in harmony, and the farmer should continue to have free choice as to storing loan grain on his farm, in his co-op, local or regional, where he can do so at cost, or anywhere else he desires. I know many farmers personally who oppose this cut in reseal rates."

Question No. 3. "Does the Department recognize that the farmer does not receive a handling rate for his on-the-farm storage as is paid the commercial warehouseman?"

Answer. "Certainly the Department and anyone else familiar with this business recognizes that there is a difference. Grain on the farm is at the point of production. If resealed, it is still subject to redemption. It is different than grain that has changed title finally and taken one or more steps on the way to market. Each of those steps involves additional costs for services performed which should be compensatory. As a farmer, I never expected a Government payment to put grains in my granary or cribs. If I wanted it weighed and loaded on a boxcar or truck, I expected to pay for that service. Most farmers understand this as I do.

"From the beginning of the loan program and until some point during the Brannan administration, storage costs incurred in commercial warehouses during the loan period on wheat and certain other grains was paid by CCC if the grain was taken over in satisfaction of the loan. If redeemed, it did not pay. A deduction in loan proceeds at the time the loan was made was then introduced. "It would be helpful to farmers if the former system was restored-and far more significant and equitable than attempting to provide handling charges for reseal grain. If, of course, you desire to pay handling charges to farmers, we shall not object as better farm income is our chief objective.

"You realize, of course, that storage charges deducted from loan proceeds, are not segregated in CCC accounts of storage paid and there has been publicized the CCC storage paid with no recognition that millions of dollars of this were deducted from farmers."

Question No. 4. "Has the Department considered the fact that any proposed new rate will proportionately add or subtract from the income of the individual farmer, since the latter is charged for the initial storage payments paid when crops are taken to the elevator for storage under the loan program?"

Answer. "The Department can speak for itself. But, referring to the answer to question No. 3, the farmer for a long while until the Brannan administration was not charged an initial storage payment on wheat and certain other grains; and in the case of corn, then and now, storage is largely in the ear in farm cribs until the loan period terminates.

"I have explained earlier that farmers who are members of grain co-ops recover any charges paid in excess of costs, whether they or CCC pays for the storage; and that is one reason why farmers own, finance, and control grain warehouses for themselves. I am sure you approve of their self-help initiative." Question No. 5. "Is the Department taking the necessary steps to find out the differences in costs between storing grain in certain parts of the country as against others?"

Answer. "We doubt if the steps it has taken are adequate. If it has such data, in adequate degree, it certainly has not given any expression to this in the new rate structure which is, for the first time, uniform for the Nation as a whole. This does not appear to be realistic or fair, in view of the great range in construction and operating costs by areas and types of storage."

Question No. 6. "Is the Department considering a renegotiation clause to prevent excessive profits? (Its own recent survey shows the differences in the cost of storage to be as much as 50 cents per bushel.)"

Answer. "The Department will speak for itself. Personally, I have studied the renegotiation idea for food off and on since 1941. In World War II and during the Korean period, foods were exempted from renegotiation statutes. I urged that then. There are several reasons. These include:

“1. The administrative and accounting job applicable to 10,000 to 11,000 warehouses would be huge and unmanageable. These are mostly small, very small businesses. The cost of audits to the Government, including travel, would exceed any possible savings.

"2. Farmers need prompt settlement of any sums due them. Many cannot even wait to take out a price-support loan. The uncertainties of final settlement incident to renegotiation would force up grain marketing margins and costs to the disadvantage of farmers.

"In the case of cooperatives, one class is required to give notice of patronage by 75 days after the close of the fiscal year, with an extension of 90 days if necessary, under Internal Revenue Service rules. The other class has 82 months under the law to give such notice.

"Such notice could not be given in that time with a system of renegotiation where disputes might hold up final settlement for years. Without such firm notice, both classes of co-ops would be deprived of excluding patronage to be paid in any form whatever from income under the pattern followed by co-ops. This would have the effect of cutting across the solemn preexisting contracts between farmers and the cooperatives they own and control."

Question No. 7. "Is the Department considering the plight of the operators who, while providing necessary services to the farmers in their communities, are losing on every bushel of Government grain stored?"

Answer. "The Department can answer for itself.

"You have heard three warehousemen testify, two managers of farm cooperatives who pay back any earnings from farmer and CCC business above cost to their farmer-members. You have heard in open hearing from no warehousemen who are losing money on Government grain. I am glad that you realize that a host of them exist.

"I heard plenty of them at the Kansas City Town Hall meeting on March 30 and 31, when more than 1,000 warehousemen, at least one-fifth from farm cooperatives, protested the new UGSA rate schedule of which you expressed approval when it was announced March 16.

"Do you know how that rate was announced to members of the three negotiating groups? It was in the form of a press release.

"A final point: I have no confidence in government by press release. I have confidence in a process of careful study-investigations, too-to elicit all the facts patiently, all the background necessary to weigh and judge complex matters. Then let reasonable and responsible men sit down and review the data together. Let them refuse all sinful temptation to reap partisan advantage. Let them resist all tendencies to draw broad generalizations affecting 10,000 to 11,000 grain warehouses from percentage data of profit to cost of three or four warehouses, disregarding return on capital, deterioration, shrinkage, risks incident to gain still in store.

"And, in the case of cooperative enterprises owned, financed, and controlled by farmers, let them take into account that these represent a sincere effort on the part of farmers to help themselves."

INVESTIGATION OF GRAIN STORAGE OPERATIONS OF THE COMMODITY CREDIT CORPORATION

THURSDAY, MAY 12, 1960

U.S. SENATE,

SPECIAL INVESTIGATING SUBCOMMITTEE

OF THE COMMITTEE ON AGRICULTURE AND FORESTRY,

Washington, D.C. The special subcommittee met, pursuant to call, at 10 a.m., in room 312, Old Senate Office Building, Senator Stuart Symington (chairman of the subcommittee) presiding.

Present: Senators Symington and Young of North Dakota.

Also present: Richard M. Schmidt, Jr., special counsel, and George M. Kopecky, professional staff member.

Senator SYMINGTON. The subcommittee will please come to order. In the past few months we have been investigating the administration of certain operations of the Department of Agriculture, and particularly the Commodity Credit Corporation.

In the course of this investigation, one of the areas studied by the subcommittee has been the operation of the Government grain storage program by the CCC.

In this regard the subcommittee has had the splendid and wholehearted cooperation of the Comptroller General of the United States. The General Accounting Office, under General Campbell, has recently completed a cost study of the cost of storage of Government grain in commercial warehouses. We have with us today representatives of the GAO who have come to testify concerning this study before the subcommittee. Of course, we would welcome that.

Mr. Counsel, would you call the first witness?
Mr. SCHMIDT. Mr. Philip Charam.

Senator SYMINGTON. It is the custom, Mr. Charam, of the subcommittee to swear witnesses who testify before us. Please have these gentlemen with you identify themselves, if they are going to testify.

Do you solemnly swear that you will tell the truth, the whole truth, and nothing but the truth to this subcommittee, so help you God? Mr. CHARAM. I do.

Mr. WILKER. I do.

Mr. THOMPSON. I do.

Mr. SCHMIDT. Mr. Charam, for the purpose of the record, would you introduce the other two gentlemen?

Mr. CHARAM. Yes, sir.

On my left is G. J. Wilker, who is supervisory accountant in charge of our audit of CCC activities, and Mr. L. F. Thompson to my right is a member of our General Counsel's Office.

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