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Much of this added wording defines additional obligations and services on the part of the warehouseman with respect to the quality factors he is required to preserve in the Government's grain, or with respect to certain special services and risks he is to undertake in behalf of the Government.

I cannot understand the logic of the Government's newest position in which it is willing to pay a higher rate for storing the taxpayer's grain on a farm, where the Government does not require insurance, than it is willing to pay for storage in a commercial warehouse where insurance is provided.

What is more, the 14-cent per bushel for storage for the year on the farm is a guaranteed item, paid by the Government, even if it orders the grain delivered ahead of time. Why wouldn't a similar guarantee make even more sense in a licensed public storage warehouse where so many additional items of protection and service are provided for less money?

As your committee will find if it examines the difference between what the Government buys for its storage dollar under this contract and what the private citizen buys when he is a depositor in the same warehouse, the Uniform Grain Storage Agreement provides many preferences and extras for the Government.

Not only does the Government enjoy the usual privilege of a warehouse receipt as good as a cashier's check or a Treasury note, and protection from risk, and a prompt delivery obligation—but in addition it enjoys a long list of other valuable services spelled out in the agreement.

So the Government buys many things with its grain storage dollars—space and custodial care in public elevators, to be sure, but far more significant, the element of risk is assumed by the warehouseman.

Now, leading up to my statement of why we judge what the Government has recently done as arbitrary and unjustified, let me point out how the public grain warehouse industry evolved.

As much as a century ago there was public pressure in grain areas for State regulation of warehousing. It was then that the integrity we now accept in warehouse receipts, started to be built.

During all the long decades before the Government came along with its special problems, the industry developed under competitive conditions into a pattern that reflects this public interest.

A universal requirement the public has imposed, in order to insure absolute integrity of the warehouseman's independent custodianship of the property of others is that the warehouseman deal with all comers alike, without discrimination.

This has no reference to the type of facility, whether it is modern or old fashioned; it does not ask whether it is high-cost or low-cost. It says that if a man wants to operate a public grain warehouse he

a shall offer a service without discriminatoin.

Rates to be charged also came under public supervision. I believe Minnesota's warehouse law was enacted, including the prescribing of rates, in the 1880's. I saw something the other day indicating that there was a case in Illinois where someone had contested the authority of warehouse receipts, which was in 1876. In some cases, States fix rates by statute, in other through commissions, and in others they supervise rates through requiring filing or publication of tariffs.

The pattern by which rates developed has been in terms of a fraction of a cent per bushel per day.

I made a list of a few of these States. Kansas has a twentieth of a cent—these are public warehouse rates. Nebraska has a twentieth of a cent; South Dakota a twentieth ; Minnesota a twentieth; Wisconsin a twentieth. Missouri is a cent and a half a month which works out to one-twentieth of a cent a day; Iowa has one-twentieth of a cent a day; Illinois one and a half cents a month—that is one-twentieth of a cent a day. Our new Uniform Grain Storage Agreement is thirtyseven one thousandths of a cent per bushel per day.

State legislatures which have built up this pattern have been farmerinfluenced legislatures, and their agricultural committees are usually the one which handles the subject.

We have daily rates in warehouses because that is the way farmers have done their business with us, and have directed us by law to operate. There is no assurance of occupancy in the usual warehouse contract.

How we got into the semantics of "annual rates” I will never understand. The only basis on which an annual storage rate has any real meaning is in a situation where warehouse space is leased irrevocably for an annual period.

In normal public warehousing, and also in warehousing for the Government, an annual rate has no meaning, because the space and the services are provided on a day-to-day basis with no guarantee that

bin filled with grain today will not stand empty tomorrow. The depositor is always in absolute control of the storage time.

The Government has persuaded everybody to think and talk about "annual rates” as though they were a certainty, as though 365 days of storage time were agreed upon in advance. But this is not the case.

As long as the Government desires to retain and exercise its present power to move, store, and transfer grain stocks at will, depending on decisions made in Washington and implemented through its regional commodity directors, the only reasonable way to look at these storage rates is on the same day-to-day basis as is done with other depositors.

The first thing the grain farmer has been most interested in, through the 80 years or so of history covering public ratemaking, is that the risk be covered and that the warehouse receipt have integrity.

What has happened in the last 5 months is this, as we see it: First the Government has come under great public pressure because of the galloping cost increase of a program for a mounting surplus of grains that nobody knows how to dispose of and grains that are not needed. These stocks compete with everything the farmer is trying to raise and sell currently.

Second, the Government found a scapegoat. Surplus grains cost a lot of dollars to store, because there are a lot of bushels of surplus grain. Ergo: Slash the rate.

Third, the decision to cut the storage rate an arbitrary amount great enough to take the heat off, was reached by Government long before the so-called negotiations had been completed, and where did the Government get its formula that a cut of about one-fifth was about right!

I would like to quote here from the Whitten report under date of March 8:

Mr. WHITTEN. To me, it is rather serious that we have reduced price supports to the farmers substantially-about 20 percent, I believe-and at the same time, storage payments and carrying charges and everything else for the nonfarmers have been increased.

Here is an example of why we have come to this conclusion. On March 8 of this year the following interchange took place before the Whitten committee in the House:

Mr. WHITTEN. * * * It is my opinion that this committee should do what it can to pull storage rates down in line with what the value of the commodity is that is being stored, and what the value is to the farmer.

Mr. McLAIN (Assistant Secretary of Agriculture). You might ask whether the current people in charge aren't interested in doing that themselves.

I think we would tell you we were, and if you would wait until the negotiations are over, you will see we have done just that.

That conversation, Mr. Chairman, took place 8 days before the Government first handed its rate proposals—without prior discussion of rates—to the trade’s negotiators, and to the public in the form of a press release at the same time.

Mr. Chairman, does not this give your committee a pretty clear idea of the situation our industry faces! The CCC exercises the type of monopoly control over the marketing of farm products that in any other context would

arouse the full-scale opposition of the Justice Department and the Federal Trade Commission. The CCC has complete power to do just about whatever it chooses in this situation.

Of course, you must realize that the Uniform Grain Storage Agreement is never “negotiated” in the truest sense. It is talked over with volunteer committees from the industry, but when the Government finally decides what it is going to write into the agreement, the revised agreement is sent out and offered individually to each of some 11,000 firms.

What is any one of these warehouse firms going to do? Each is competing for the business of its farmer customers. Each is asked by its customers to provide the means whereby they can take advantage of the loan and price-support programs. How long would any eleva

last in any farm community if it refused to sign and provide this service?

Thus it was entirely possible for an early decision to be reached by Government as to what would be done with rates. Nearly a thousand warehousemen came into Kansas City on March 30–31, from all parts of the Nation, in the innocent belief that their testimony might substantially affect the outcome. The meeting was assured by Government people that the Government had an open mind. However, no member of the seven-man Board of Directors of the CCC was there present, and it seems quite clear to us now that the die had been cast before that time.

Here, Mr. Chairman, is a copy of the record of that Kansas City meeting and if you would like to have it, and I would like to have you have it, because there is some very important testimony in there, we shall leave it for your record.

Senator HUMPHREY. Mr. Laybourn, I believe the committee has been provided with one, and you will want that for your own personal

study. But we note in the record your reference to it and the committee members and the committee counsel will look it over very carefully.

(The document referred to may be found in the files of the subcommittee.)

Mr. LAYBOURN. The Government bases most of its justification for its arbitrary action on a cost study it conducted on a sampling basis. I submit herewith exhibit A, an analysis for us by Peat, Marwick, Mitchell & Co., certified public accountants, Minneapolis, Minn., which casts very serious doubts on the validity of the Government's findings. This report is a part of the record of the Kansas City meeting

The Peat, Marwick, Mitchell & Co. analysis criticizes the methodology employed in taking the data for the cost study. Three important cost items are found to be in error. The first-the allowance for labor in the cost study was inadequate.

And if it please the committee, I would like to have you turn to the appendix. I shall go through as fast as I can some of the charts which support the findings of the Peat, Marwick, Mitchell & Co.

(The documents referred to will be found in the appendix starting at p. 511.)

Mr. LAYBOURN. The first is that the allowance for labor in the cost study was inadequate. The Government had assumed

Senator HUMPHREY. What page is that?
Mr. LAYBOURN. The first page in the appendix, sir.

Now, obviously, to anyone who has had any experience in operating storage facilities, $1,309 is not adequate to cover just costs of labor that are applied to storage at a facility of 187,000 bushel capacity. I use that 187,000 bushel capacity because that was the average capacity for the country, based on the USDA study. So the Grain & Feed Dealers National Association Country Elevator Committee, in making its analysis of what we thought the cost should be, we worked out the use of two employees working 50 hours a week, because in the country you work 6 days, anyway. So 50 hours is a fair basis to use. That cost would have come to $5,720 versus $1,309.

After some consideration we figured that an elevator like that could probably get by for $3,179 if they used their labor to the maximum advantage and that only comes to $61.14 a week.

$ Then the second item here that was challenged was the use of rapid depreciation in the cost study. There were 69 percent of the returns in that USDA class study, which showed normal depreciation; 31 percent of the returns showed rapid depreciation. The Government statistics took out 11 cents per bushel as an adjustment to the total cost factor because, for some reason or other, they did not feel that depreciation was the proper thing to have in there.

Well, actually, we all know the record of Congress on this thing, The Senate committee on December 3, 1953, in its report, stated as follows:

The liberalized declining balance method included in the bill concentrates deductions in the early years of service and results in the timing of allowances more in accord with the actual pattern of loss of economic usefulness. With the rate limited to twice the corresponding straight line rate as based on a realistic estimate of useful life, the proposed system conforms to sound accounting principles.

I think that that statement in there of sound accounting principles has been challenged by the USDA in making this, and it looks to us like it was an attempt to negate the intent of Congress. So we put 11 back in to cover rapid depreciation, which had been eliminated.

Now, the third item is that no weighting was gven to inflationary cost increases. I would like to have you turn to the next chart, No. 2, which shows the change in the purchasing power of the dollar. I got this information from the Federal Reserve Bank in Kansas City. It applies to wholesale commodities.

Comparing 1955 with 1960, there is a loss of 7 percent since that time. That is pretty important when you apply it to wholesale commodities.

Then, the next chart, No. 3, is taken from Engineering News, a McGraw-Hill publication. It is based on 1913 as 100, and it is the engineering construction cost index. From 1955 to 1959, it went up 21 percent. I checked it down to February. It had gone up another 2 percent. So we thought we were being pretty reasonable in putting in just 1 cent a bushel more to cover increases in cost between 1958, the data having been taken by the USDA on that basis.

Since it was projecting a cost and setting a rate which would be effective in 1960 and 1961, it appeared to us that there had been some oversight on their part.

So we come to chart No. 4. We take the median cost, the middle of the range, by the USDA cost study, with all the adjustments that they made, which shows 8.7 cents per bushel and we restore 4410 cents per bushel and come up with what we think would be an average direct operational cost for an elevator of 187,000 bushels. That does not mean that you will not find some real good operators that will have costs that will be less than that, and you will have some operators that will have costs that will be higher, but we hung our ħats on this 13.1 in making our contention that this would be proper.

Now, then, I would like to have you turn to chart No. 5. Actually, we felt that there were a number of reasons, good sound reasons, that we could use in advancing our ideas as to what should be a proper basis for a reasonable profit in the industry. So we took the weighting of all of the manufacturing industries in the country, I think I am quite right. That is quoted in the Peat, Marwick, Mitchell report, but it is substantially all of the manufacturing industry in the country. We took all of the banks that were under the Federal Deposit Insurance protection, and we took utility cases that had been decided in late 1958 and early 1959 on the basis of fair market value for the utility facilities. We worked those earnings out and applied them in the first instances, manufacturing and the banks, at_40 cents a bushel, being what we considered the historical, the value of all of the grain elevators' facilities in the country, weighted for the different kinds and with depreciation applied.

In the case of utilities, we used the weighted average cost of replacement of 50 cents a bushel which, for a good many areas, would be too low. In the Northwest, for example, it would be too low. But for the country over, in all types of facilities, we used 50 cents. I think it is quite conservative.

So we come up, that if the costs are 13.1 as we have shown, and if we are to have earnings which are comparable to other industries in

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