Mr. SCHMIDT. Dr. Phillips, your present position is with the Iowa State University in Ames, Iowa, is that correct? Dr. PHILLIPS. That is correct. Mr. SCHMIDT. You are the author of the book, "Managing for Greater Returns in Country Elevator and Retail Farm Businesses"? Dr. PHILLIPS. Yes. Mr. SCHMIDT. Have you ever had occasion to study this problem of cost of storage in commercial elevators? Dr. PHILLIPS. Yes, we have conducted research projects on this question. Mr. SCHMIDT. When was this project undertaken? Dr. PHILLIPS. The first one was undertaken during the years 1952 and 1953. Mr. SCHMIDT. And what did the work consist of? Explain to the committee. Dr. PHILLIPS. Yes, sir. This was a research project financed by public funds under the Research and Marketing Act of 1946, under contract with the U.S. Department of Agriculture. The research was conducted by our staff at Iowa State College, under my direction as project leader. We investigated the actual costs of storage incurred by country elevators and by the Government at the Government bin sites in Iowa. Mr. SCHMIDT. You have prepared a cost of storage schedule for the country elevators which shows storage and handling costs of 44 country elevators in Iowa for the purpose of this hearing, is that correct? Dr. PHILLIPS. That is correct. Mr. SCHMIDT. Mr. Chairman, we introduce Dr. Phillips' schedule. (The matter referred to is as follows:) Storage volume and annual storage costs for 44 country grain elevators in Iowa Mr. SCHMIDT. What does this show, Doctor? Dr. PHILLIPS. It shows the weighted average storage cost for the 44 elevators, including the handling, where handling was involved, was 7.56 cents per bushel. Mr. SCHMIDT. During what period of time? Dr. PHILLIPS. This was an annual cost, taken during the period 1952 and 1953. Mr. SCHMIDT. How does that relate to the income per bushel that they receive? Ďr. PHILLIPS. Well, using the income for storage in effect at that time of 12.625 cents per bushel, and 12.1 percent of the total handling charge of 4.5 cents, since only 12.1 percent of the total volume stored was actually handled by this sample of elevators, we would have a total income comparable of 13.17 cents. Mr. SCHMIDT. This would represent a profit on the cost then of 74 percent? Dr. PHILLIPS. Yes, a profit of 5.61 cents, ignoring any cost of quality deterioration or shrinkage, or a rate of profit to cost of 74 percent. Senator YOUNG of North Dakota. May I interrupt at that point? What was the last you said, ignoring what? Dr. PHILLIPS. Any costs incurred by this sample of elevators or quality deterioration or shrinkage in the Government corn while they had it in store, which was not included in our costs. Senator YOUNG of North Dakota. But the storage operator is responsible for the quality of the grain; is that not part of the costs? Dr. PHILLIPS. Yes, sir. I think we should, and we did, as a matter of fact, make a followup study of that specific question as to the cost of quality deterioration and shrinkage. But the point I think we should make here is that this figure of 7.56 cents per bushel does not include any such costs for quality deterioration or shrinkage. Mr. SCHMIDT. Doctor, this problem of shrinkage and quality deterioration, let us discuss that for a moment. What did your study of shrinkage in this same area disclose; what do you mean by shrinkage? Let us clarify the record with that. Dr. PHILLIPS. Yes. Well, we measured the quality deterioration and shrinkage, and this was a followup study in 1955, rather than the original study in 1952, after which time the corn in store had all been moved out. This was 1948 and 1949 corn, raised in 1948 and 1949; so that we measured shrinkage by the difference in weight from the time the corn went into storage until the time it was taken out, some 3 years later. For the 44 elevators, this averaged four-tenths of 1 percent per year for shrinkage. Mr. SCHMIDT. What would that represent in cents? Dr. PHILLIPS. Yes. Well, in our studies reported, when we were using $1.44 corn, this amounted to 0.56-fifty-six hundredths of a cent per bushel, or if we relate this to the present U.S. average loan rate of $1.12 per bushel, it amounted to 0.448 of a cent per bushel per year. Mr. SCHMIDT. In other words, shrinkage will operate to add to the cost about one-half of 1 cent? Dr. PHILLIPS. Slightly less than one-half of 1 cent, using the present loan rate as your corn price base. Mr. SCHMIDT. Then quality deterioration, what is the factor there? Dr. PHILLIPS. Yes. We measure quality deterioration in the same way, using the market value of the corn when it came out of storage with relation to its market value when it went in. In other words, the prevailing market discounts for factors representing deterioration in quality and found this to be, to amount to 0.57-fifty-seven hundredths of 1 percent per year for the corn stored in these 44 sample elevators. Mr. SCHMIDT. Well, adding shrinkage and quality deterioration, you come up with approximately 1 cent per bushel? Dr. PHILLIPS. Yes; the shrinkage on a dollar basis, and in our study as reported, using $1.44 corn, this amounts to 0.81 cents per bushel; using $1.12 corn, this would amount to 0.638 cent per bushel; making total dollar volume, using $1.12 corn as a base, of 1.09 cents per bushel per year for shrinkage and quality deterioration. Mr. SCHMIDT. Now, Doctor, on the problem of quality deterioration, has this situation changed since the time of your survey? Dr. PHILLIPS. I think definitely that it has; this was corn that had all been moved out by 1955. We have made some substantial advances, particularly in flat storage, with aeration equipment, temperature reading equipment, and so on, that I think has enabled a competent elevator operator to reduce losses from quality deterioration and shrinkage. He may incur some additional costs that we did not show in our study in doing so, but I think he is able, by proper management, to reduce the risks somewhat of the costs of quality deterioration and shrinkage. Mr. SCHMIDT. Would you discuss what you mean by flat storage? Dr. PHILLIPS. Yes. Well, I use the term as it is commonly used in the trade to refer to storage of a horizontal nature-steel, wood construction as distinguished from the tank storage typical in the handling elevator built of concrete or steel or similar structures where the tanks run vertically, rather than a flat shed-type storage or warehousetype storage, such as steel bins and steel flat structures which are harder to handle in and out of and which depend more on aeration for proper management of the quality. Mr. SCHMIDT. Did this study also discover the cost of storage in Commodity Credit bins in the same area? Dr. PHILLIPS. Yes, it did. Mr. SCHMIDT. And what did that show? Dr. PHILLIPS. Well, based on a sample of 10 Iowa counties, also in 1952-53, and including 107 bin sites, our figures showed an average cost, when we made no adjustments, of 5.09 cents per bushel and, when we made adjustments, of 6.25 cents per bushel per year of storage. Mr. SCHMIDT. What do you mean by "made adjustments"? Dr. PHILLIPS. Well, the unadjusted figures included the costs as actually incurred by the Government and did not include such costs as insurance and taxes which would be incurred with a private business performing this storage. So to make them directly comparable with the elevator figures, we used actually prevailing rates on insurance and taxes and added those to the actual costs incurred by the Government in their storage. Mr. SCHMIDT. And at the time that this study was made, the storage rate paid to commercial warehousemen by Commodity Credit was 12.265 cents per bushel, is that correct? Dr. PHILLIPS. I think it was, yes. Senator YOUNG of North Dakota. Mr. Chairman, may I ask a question at this point? I am not clear on one point. Senator SYMINGTON. Senator Young. Senator YOUNG of North Dakota. I am not clear whether the witness is including all of the costs of storage. Certainly, deterioration and shrinkage is a part of the storage. Dr. PHILLIPS. Yes. Senator YOUNG of North Dakota. And I think you should include that in all the figures you give. Dr. PHILLIPS. Fine; we have them, and, for the record, they were not included in these figures just quoted; but we have them and can immediately add them to those costs and talk about the figures in bin sites, as we just did, and elevators that do include cost of deterioration and shrinkage. Senator YOUNG of North Dakota. Why were they not included in the first figures that you gave? Dr. PHILLIPS. Well, we are talking about two studies; they were conducted in sequence. The first figures are based on the first study conducted in 1952 and 1953, which were based on actual expense analysis incurred by the elevators and bin sites; and the follow-up study designed to measure the quality deterioration and shrinkage was conducted in 1955 after the corn study in 1952 and 1953 had actually been moved out of storage so that we could get a realistic measure of this quality deterioration and shrinkage. Senator YOUNG of North Dakota. I was speaking more of the commercial storage costs, the figure which you first gave-I have forgotten now a percent of profit that you said they realized; but in that you apparently did not include their shrinkage and deterioration costs. Dr. PHILLIPS. I can give you that percentage that does include this. Senator YOUNG of North Dakota. I wish you would include it, because that is an important part of the storage operation. Dr. PHILLIPS. All right, going back to the country elevators, in answer to the question, combining the cost of quality deterioration and shrinkage and the cost of storage itself, we come up with a total combined cost of 8.65 cents per bushel. Using the income figure we used before of 13.174 cents for the comparable figure, we arrive at the net profit figure of 4.52 cents, on the average, for the 44 elevators studied, which would give us a profit to cost ratio of 52 percent; this is for the elevators. Senator PROXMIRE. May I ask at this point Senator SYMINGTON. Senator Proxmire. Senator PROXMIRE. Do you have any figures at all of the relationship between profit and investment? Dr. PHILLIPS. Not for this sample of elevators. We have made a, what we might call key studies in connection with an elevator management workshop we held at Iowa State College where we do have |