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We feel that the specific area of investigation undertaken by your subcommittee is as appropriate and timely as any in Congress, for the reason that never in its history has the Nation put into the hands of the executive branch a more potent economic instrument than the Commodity Credit Corporation. Along with Justice Holmes, we plead that this powerful hand of Government be used very lightly in arranging the economic affairs of its citizens.
That completes my statement, Mr. Chairman.
Senator HUMPHREY. I understand that you would like to have appendix No. 1 and appendix No. 2 made a part of the record.
Mr. LAYBOURN. I would like very much to have them made a part of the record.
Senator HUMPHREY. That will be done. We will have all of the exhibits compiled as an appendix to the total record. Mr. LAYBOURN. That is fine. And in addition, Mr. Chairman, I
, have some letters here from some of our area people that I would like to have introduced into the record. I will not read them, because the time is getting away from us here. I am sure that you have questions that you want to ask.
Senator HUMPHREY. That will be very helpful. I will order that in the appendix that I mentioned earlier, any communication or memoranda which you may want to offer to further develop your case be made a part of the record.
Mr. LAYBOURN. Thank you.
(The exhibits cited in the general testimony together with the letters will be found in the appendix starting at p. 511.)
Senator HUMPHREY. You have presented a very excellent and informative statement. I would like to ask two or three questions. I am sure that the committee counsel may have more questions.
Mr. LAYBOURN. Thank you.
Senator HUMPHREY. Regarding the exhibits that you used so effectively here this morning, have you ever dicussed the matters contained in these exhibits, and the conclusions that you have drawn from them, with representatives of the Department of Agriculture?
Mr. LAYBOURN. Senator Humphrey, those exhibits were a part of the testimony which I gave on behalf of the Grain & Feed Dealers National Association at the town hall meeting in Kansas City, which was attended by representatives of the Commodity Credit Corporation. That was on March 30. They asked for a number of copies of that testimony at that time.
Senator HUMPHREY. I was particularly interested in two exhibits, one on the calculated storage returns of the Ohio County warehousemen, based on the costs for 1958, and the other one was the calculated return to the Ohio warehousemen. I gather that they are the same warehouses in both exhibits ?
Mr. LAYBOURN. Yes, sir, they are.
Senator HUMPHREY. There is a considerable difference in the figures that were developed in your survey and those that were developed by the Department of Agriculture. Mr. LAYBOURN. Yes, indeed, there are.
Senator HUMPHREY. Those Ohio figures were presented by a man of competence, Dr. Sharp, who is highly respected.
Mr. LAYBOURN. He is.
Senator HUMPHREY. What does the Department of Agriculture say regarding this discrepancy? For example, the Department of Agriculture estimated some 77 percent occupancy or was it 75 percent?
Mr. LAYBOURN. 77.3 percent.
Senator HUMPHREY. And you calculated 69.5 percent occupancy. Is that because you examined Ohio only!
Mr. LAYBOURN. That was just the 27 elevators in Ohio, that particular study.
(The document referred to appears at p. 551 of the appendix.)
Senator HUMPHREY. Was the figure of 77.3 percent occupancy of the Department of Agriculture a national average?
Mr. LAYBOURN. A national average, yes, sir. My understanding is that that applied to 331 elevators, which they actually used as their test, and then they expanded it to the entire Nation, applying it to somehing like 10,000 elevators.
Senator HUMPHREY. Do you find disagreement with the figure of 77.3 as a national average!
Mr. LAYBOURN. We took that, for we have no way by which we can evaluate whether that is correct or not. We started with their figure and merely made our analysis, trying to find flaws and errors which they may have made, and we have no way by which we could check back on the percentage of occupancy.
Senator HUMPHREY. It seems to me that if you were going to have a meaningful negotiation with the Department, there would have to be some agreement about the data that was applicable to the ratemaking processes.
Mr. LAYBOURN. That is correct, sir.
Senator HUMPHREY. Has there ever been any agreement between the Department of Agriculture and the warehousemen on this?
Mr. LAYBOURN. Actually, I think that I can say this, that the warehousemen of the country were asked by the Department of Agriculture to cooperate in the making of this study, and they did. They undertook a tremendous job. I will say that for the Department of Agriculture. But there never has been
the type of figures developed which they developed in their study. However, as I pointed out, and as Mr. Solstad and Dr. Sharp have pointed out, the methods which they employed we consider inapplicable. And even though we accepted their figures as a starting point from which we made our own calculation of costs by applying or restoring those factors to their figures which we considered in error—we have nothing other than those figures on which we could base costs, other than in my own business, and I have a number of country elevators on which we could get the costs—and other firms have them, too—but to apply them to a national average, it would be in error. It would not be an appropriate sample.
Senator HUMPHREY. This is the first time that the Department, at least for a considerable period of time, has made what they call a cost analysis of the storage?
Mr. LAYBOURN. That is right.
Senator HUMPHREY. And I say most respectfully to the men in private enterprise that it seems to me that the heart and crux of the argument should be whether or not the figures are valid.
Mr. LAYBOURN. Yes.
Senator HUMPHREY. This is where you really get down to cases, because if you are willing to accept certain figures developed by the Department of Agriculture as the basis for discussion, you have lost one-half of your case before you start, from my point of view. I would suggest that this is like an income tax case. The Government there likes to have you accept their figures. A good cost accountant or tax lawyer will fight the Internal Revenue Service with everything at his command to dispute the validity of their figures.
Mr. LAYBOURN. Can I say something there?
Mr. LAYBOURN. I have been sitting a long time here. It will not take me but just a minute. You know that it is very hard for people to really get in clear perspective the thing that has actually happened to our business. That is, under these laws.
We in the grain industry, the warehouse industry, are basically a franchise business. If I operate an elevator out here in the country, and I do not choose to sign the Uniform Grain Storage contract, the only grain that I can handle at that point is grain which I might be able to buy, free grain. And any of my customers who want to put their grain under Federal price supports cannot patronize me.
So every grain elevator that does business and has customers who are using price supports on any of their commodities expects that their firm, be it a cooperative or an independent, whoever it may be, signed this contract. They are captured. They are a captive industry.
The illustration that you gave was very apropos, as to a tax argument. There you first have an informal conference. Then if you cannot solve it, it goes to the next place, and then to the next place, and you finally get into the Tax Court. And if you still feel that you have not gotten justice, you can take it into the civil courts.
We have no one to whom we can appeal. There is no place where we can appeal this arbitrary decision that was made by the people in the Department of Agriculture that the rates would be 13.5 cents. We can prove it is wrong. We have proved it is wrong. But what does it get us? They just say, “Take it or leave it.”. And we cannot leave it, because we are captive. We have to have their franchise to live.
There should be some court of appeal, some body set up where we can appeal an argument with the Department of Agriculture over this kind of procedure. That is just as wrong as it can be as it is at present.
There are people in our industry who are talking about employing counsel to explore this thing to see whether or not we have any rights as a regulated industry to obtain costs that are fair, which are based on a Supreme Court decision, in which their Chief Justice Holmes and Justice Brandeis concurred, saying that the cost of capital is entitled in any regulated industry to receive a fair return on the cost of the capital, which shall be interest, something for the risk, and something to attract new capital. That was in the Southwestern Bell case.
Senator HUMPHREY. Yes.
Mr. LAYBOURN. And there was a Bluefield Water Works case, in which it was said that not only the cost of capital should be considered, but in addition to that the costs of competitors in other unreg
ulated industries should be considered so that everything would be fair.
We need to have something along that line whereby we can get redress from injustice.
Senator HUMPHREY. You have made a very cogent presentation of the unusual circumstances which surround you in this situation, and I feel that the American people will begin to understand a little bit more about what we mean by grain storage, and the services that are involved, such as the matter of immediate delivery, and the fact that the percent of occupancy has a bearing on profit. I think that all of these matters are now coming to the attention of the Congress in more detail than before. It is a painful period for the warehousemen, but education is always expensive, particularly when some of us are slow learners, you know.
Mr. LAYBOURN. I would not say that of you, Senator. Senator HUMPHREY. This proviso that you referred to that was adopted recently by the House in the agricultural appropriation billyou fully understand that the Senate has not adopted any such language?
Mr. LAYBOURN. I understand that.
Senator HUMPHREY. There are those of us, may I add, who are not motivated by a desire to see the Government take over all of these facilities.
Mr. LAYBOURN. I am sure of that.
Senator HUMPHREY. There was a time when it looked as if the Commodity Credit Corporation would be doing most of the export trading. I was one of those, I am happy to say, who saw to it that they did not.
Mr. LAYBOURN. We are very glad that you did that.
Senator HUMPHREY. A new procedure was adopted, to use the established grain trade facilities to do the jobs they are equipped to do by experience and training and manpower. The purpose of the Commodity Credit Corporation is to supplement and not to supplant private grain-handling facilities.
Mr. LAYBOURN. Absolutely.
Senator HUMPHREY. By the way, I was rather surprised and shocked by the statement that no director of the Commodity Credit Corporation appeared at this meeting at Kansas City.
Mr. LAYBOURN. No, sir.
Mr. LAYBOURN. I want to tell you that was so important that the top people in the firms throughout the country had their men there. There were 1,000 people who attended, making up about 10 percent of the industry, who were at that meeting, and expressed themselves in this book here, the record, and it got nowhere.
Senator HUMPHREY. Was Mr. Berger there?
Mr. LAYBOURN. No, Mr. Berger was ill. I did not know that, but Mr. Oliver so informed me.
Senator HUMPHREY. Was his deputy there?
Mr. LAYBOURN. Mr. Palmby was there, yes; he was in charge of a meeting
Senator HUMPHREY. Did the Secretary of Agriculture make any appearance !
Mr. LAYBOURN. No; neither was there an Assistant Secretary there.
Senator HUMPHREY. I want to say right now that I consider it a rather remarkable situation that the world's largest corporation can be so lacking in consideration of the opinions and the expressed testimony of the individuals concerned that it does not appeal to them. I understand that the Secretary has not been in a regional Commodity Credit Corporation office except once in the last 7 or 8 years. And that is a peculiar way to run a business.
Mr. LAYBOURN. I agree with you. I could not run my business that way.
Senator HUMPHREY. I cannot even run my Senate office that way. I occasionally have to be around there, you know.
Let me ask you this question again, just to amplify the record on this point. I understand you say that the Government is paying a higher rate for storing grain on the farm than it is in the franchised or in the regular established warehouses.
Mr. LAYBOURN. That is true.
Senator HUMPHREY. Would you mind expressing the difference in the figures?
Mr. LAYBOURN. All grains except oats—I will have to back up on oats that they are paying 14 cents right straight down the line on everything except oats. I believe that oats is higher in the warehouse than it is on the farm.
I think on the farm it is 10.22 cents. It may sound like a little bit of a thing to put into the record, but look at the difference. The Government stands behind all of the quality, such as the insurance. If it burns up, if a flood takes it away, anything happens to it, it belongs to the Government. And they pay only one-half a cent more than what they pay in the commercial warehouse, but look what they get in the commercial warehouse—look at the protection they get.
Senator HUMPHREY. Have you detailed for this record the differences in services performed by commercial warehouses and services received in return for the rates paid for storage on the farms?
Mr. LAYBOURN. I do not have it, but I will document that.
Mr. LAYBOURN. I will document that for you, and we will have it in the record by tomorrow.
Senator HUMPHREY. Take, for example, if flood conditions destroy grain in storage on the farm, does the Government pay for that?
Mr. LAYBOURN. That is my understanding.
Senator HUMPHREY. If there is a flood that destroys, for example, the stored grain in Kansas City, or some place else, who bears the loss?
Mr. LAYBOURN. The Government has an act-of-God exclusion in the contract.
Senator HUMPHREY. It has what?
Mr. LAYBOURN. We buy insurance on that, that is right, as well as for windstorm, explosion, hail, and lightning.
Senator HUMPHREY. I think it would be well if you would put that information into the record.