discourage or eliminate direct marketing were submitted. As no conclusive data on which to base judgment on this question were available, however, the Administration tabled the proposals and set up machinery for a comprehensive study of all livestock marketing practices in the United States. This survey will be brought to a conclusion as rapidly as possible in order to determine if action should be taken with respect to marketing practices.

Although the last to be put into operation, the 1934 corn-hog adjustment plan really was of first importance from the long-time standpoint. Given support by the majority of corn and hog producers this plan will effect a reduction of between 10,000,000 and 12,000,000 head of hogs to be produced for market in 1934 and 1935, and a reduction of between 15,000,000 and 20,000,000 acres of corn to be planted in the spring of 1934. It is the opinion of the Administration, based on past experience and on economic analysis of the present supply and demand situations, that such a reduction will go far to effectuate the declared policy of the act, that is to say, establish and maintain a balance between the production and consumption of corn and hogs and such conditions therefor as will reestablish prices to farmers at a level that will give these commodities a purchasing power with respect to articles they buy equivalent to the purchasing power of these commodities in the base pre-war period (August 1909July 1914).

OPENING OF SIGN-UP CAMPAIGN DELAYED

Because of the great multitude of details involved in the development of the corn-hog contract and adequate administrative rulings and supplementary contract forms, the sign-up for the 1934 program was considerably and unavoidably delayed beyond the originally scheduled inauguration date. By early January, however, temporary county and community committees had been set up in most of the Corn Belt areas and first educational meetings were under way. During the early part of January, blank contracts, supplementary forms, and other material had been distributed among committeemen, who in turn distributed necessary material among farmers. By the latter part of January, signing of contracts was under way.

The educational meetings held preliminary to the contract sign-up were unusually well attended. Committeemen from every corn- and hog-growing State reported extraordinary interest among producers, and anticipated a high percentage of cooperation.

In late January, the number of potential contract signers was increased by an amendment in the administrative rulings which made all hog producers, irrespective of their past hog production level, eligible to reduction payment upon reducing litters and numbers of marketable hogs not less than 25 percent. Up until that time it had been ruled that only producers with an average of 4 litters or more for the base period were required to reduce hog production upon signing the contract, that producers with an average of less than 4 litters but not more than 3 litters could reduce production if they so desired and would be entitled to reduction payments and that producers with a litter average of less than 3 were not required to reduce production and in any event would not be eligible to hog reduction payments. (The minimum requirement of a past product average of not less than 10 acres, not including corn cut for silage or fed green, for eligibility to corn reduction payments was continued.)

41746°-34-11

The net benefits in dollars and cents which will accrue to corn and hog farmers as a result of the emergency and permanent programs conducted by the Administration, under the terms of the act, cannot be accurately and definitely forecast. In the first place, even the results of the emergency hog-marketing program had not had time to appear in full by the 1st of February 1934. The results of the more permanent adjustment in production under the 1934 corn-hog contract will not appear until the 1934 and 1935 marketing seasons. Second, it is difficult to estimate the benefits in dollars and cents, partly because of changes that may take place in the general price level henceforth.

OBJECTIVE IS TO REMOVE PRICE DISPARITY

The primary objective is to wipe out the disparity between corn and hog prices and the prices of things farmers buy. Increases in the corn- and hog-price level, as a consequence of inflation or other factors raising all prices to some extent, must not be confused with increases in the corn- and hog-price level which represent a real gain in farm purchasing power with respect to nonfarm goods. There is the possibility that the adjustment program might be decreasing the disparity at a time when the general price level was on the upward trend. Thus, the apparent dollars and cents equivalent of the percentage increase in corn and hog prices resulting from the adjustment program would be greater than the actual increase. The difficulty of making an advance record of benefits because of these possible variables in price trends has to be recognized.

It has been common opinion that the total of benefits to the contracting producer will represent the net benefit to be obtained from the adjustment plan, that is to say, that exclusive of payments, American farmers as a group will receive as much money directly from the reduced corn and hog crop at sale upon the open market as would have been obtained from the sale of the unreduced corn and hog crop. Much depends, of course, on the trend of the general price level, which usually involves a change, up or down, in the corn- and hog-price level. It is conceivable that with a substantial increase in business and industrial activity, the net benefits from the corn-hog adjustment plan will amount to more than the sum of the benefit payments, and that the remainder of the benefits will come from an increase in the regular market value of the commodity, exclusive of tax collections.

It is also somewhat difficult to calculate the benefits from the emergency program on account of similar varying factors, but it has been estimated these benefits will increase the gross return from hogs more than $100,000,000, possibly as much as $150,000,000.

The prospective benefits from the emergency hog-marketing plan were arrived at by estimating the total return of hog producers which probably will be obtained from inspected slaughter from November 1932 to May 1934 as compared with what it might have been if there had been no adjustment in supply, and by adding to this sum the amount of money paid for pigs and sows in excess of what they would have sold for at prevailing market prices, the saving of corn permitted by the sale of the pigs and sows, and the portion of the processing tax collected before May 1934 in excess of the amount needed to reimburse the Treasury for the cost of the emergency program.

BENEFITS FROM EMERGENCY PLAN TEMPORARILY OBSCURED

The benefits from the emergency plan temporarily were obscured by the imposition of the processing tax in November. At that time the emergency program had not yet affected the marketing of pigs exceeding 100 pounds in weight. Market supplies through the first several months following the imposition of the tax continued relatively heavy; consequently meat processors were unable to obtain prices for hog products sufficiently high to permit maintenance of the regular hog prices along with their payment of the processing tax. When hog prices declined during the fall and early winter months, primarily as a result of heavy marketings, there was a tendency among producers to believe that the Administration's program was producing no beneficial results. The imposition of the processing tax on hogs was erroneously regarded as actually depressing hog income for the year and was held to be primarily responsible for the entire decline in hog prices. This led to much confusion and misunderstanding of the purpose of the whole program.

In order to clear up the misunderstanding, a study was made by the Bureau of Agricultural Economics, of the principal factors involved in the hog price movements from October 1933 to December 1934. (See chapter 16 of this report headed "Incidence of Processing Taxes.") Briefly, the study indicated that in keeping with the usual trend of hog prices in the fall and winter months, the hog-price level in the latter part of 1933 had declined primarily because of the usual bulge in the year-end hog marketings. A study of retail prices and volume of hog product shipments indicated that consumers as a group were continuing to spend as many dollars for pork and lard, with respect to their income, as would have been expected under the current supply and demand situation and with no processing tax levied, but since a part of this consumer expenditure after November 5, 1933, was diverted to the Federal Treasury through the collection of the processing taxes, it appeared probable that, temporarily at least, hog prices probably were lower by a part or the full amount of the tax than they otherwise would have been.

When thoroughly analyzed, however, the temporary depressing effects of the tax were more apparent than real. In the first place, the tax proceeds were to be paid back promptly to producers in the form of benefit payments. Moreover, these first benefit payments would amount to more in total than the collection of processing taxes prior to the date of payment, according to the schedule of tax rates set forth by the regulation of the Secretary of Agriculture. In the second place, the temporary withholding of a part of the market value of hogs was for the purpose of collecting funds to encourage producers to make such adjustments in production as would eventually raise total income from hogs as well as hog prices.

MEANS OF PROTECTING COOPERATING FARMER

When the method of the plan was thoroughly understood, producers recognized its merits as a means for protecting the cooperating farmer. Farmers who helped adjust production were to share in the profits from the processing taxes as well as to obtain any benefit of increases in the regular market prices on the volume of corn and hogs they had

produced for sale. On the other hand, noncooperating farmers could get only the market price for the commodity not diverted to the Federal Government through processing tax collections, and they would not share in the proceeds from the processing taxes. The benefit payments to cooperating farmers were made large enough to assure them of substantially larger incomes than farmers who did not care to participate. In its broad outlines, the corn-hog reduction plan was comparatively simple and appealed to farmers because of its reasonableness.

Another benefit expected to accrue from the corn-hog plan is the development of a strong group consciousness among corn and hog farmers. Once developed, strong producer organizations can be utilized in the future to adjust farm production either up or down, as conditions require and, what is more important, by the proper degree. Many observers believe that, once having embarked on such a program, farmers will not entirely abandon the idea of voluntary group production control, even though demand for corn and hogs may improve sufficiently in the next few years to justify an expansion in corn and hog production. These observers point out that it seems desirable from the farm standpoint, as well as from the standpoint of general welfare, to control and direct any advisable expansion so that production will not proceed beyond the point where the maximum income can be realized from the enlarged demand.

It is recognized that plans developed thus far by the Administration for dealing with the corn-hog problem are not perfect in every detail, and therefore may not yield the maximum possible results. Officials have had to tread new ground every step of the way in development of plans. They have had to meet problems never considered before from the group standpoint. In spite of certain shortcomings, however, the program is regarded as a far-reaching move in the right direction and a guide for fitting individual corn-and-hog enterprise into a sound production schedule for the whole country,

CHAPTER 7

DAIRY PRODUCTS

The dairy program of the Agricultural Adjustment Administration includes two main lines of effort. They are, first, marketing agreements and licenses for city milk sheds containing only such provisions as can be promptly and vigorously enforced, particularly safeguarding uniform producers' prices set for each market at as high a point as can be sustained in the light of all economic factors affecting that market; and, second, a general dairy program aimed to increase all dairy farmers' income, whether from sale of whole milk or manufactured products, by adjustment and regulation of production, induced through distribution of adjustment payments. The general dairy program will be perfected only after complete discussion at regional dairy meetings in all parts of the United States. The aim of the Administration is to make these two lines of effort supplementary to each other and to bring about a balanced relationship between the prices of manufactured dairy products and fluid milk.

Fully to understand the significance of the dairy policy now being followed by the Administration, one must be familiar with the developments which led up to it.

I. HISTORICAL AND ECONOMIC REVIEW

The critical problems of the dairy industry were among the first presented to the Administration after passage of the Agricultural Adjustment Act. The complex nature of this vast and widely scattered industry, involving many human and seasonal uncertainties and interrelations with other grand divisions of agriculture, made the task of restoring it to economic health exceedingly difficult. Divergent and often contradictory points of view in different divisions of the industry complicated the problem.

Until such time as experience by trial and error could result in agreement as to the soundest methods of uniformly attaining the declared purpose of the act for a majority of the dairy producers, the administrative policy of necessity was experimental. The mandate of the act was clear, but the manner of carrying out that mandate with respect to dairy products was not so clear.

The powers conferred upon the Secretary of Agriculture by the Agricultural Adjustment Act were somewhat circumscribed by the peculiar nature and conditions of the industry.

DAIRY INDUSTRY LARGE AND COMPLEX

There are nearly 4,000,000 producers of milk in the United States. These are widely scattered throughout the country, with heaviest production in the North Central States, the northeastern section, and along the Pacific coast. Total income of farmers from dairy products averaged more than $1,800,000,000 during the period from