price and resale price. However, public opinion and practical conditions of supply and demand tended to show that licenses drafted to cover agreements fixing the resale schedule by "freezing" wide distributing margins were practically impossible to enforce.

PROPOSALS FOR PRODUCTION CONTROL

A large number of proposals for adjusting production of milk have been received from groups and individuals and reviewed by the Agricultural Adjustment Administration. Most of these were merely skeleton ideas, without any detailed operating plans.

Proposed reduction of cow numbers receives much support. The purchase and slaughter of cows producing small amounts of butterfat as a move toward both reduction and efficiency has been advocated. Analysis of this proposal indicates that about $105,000,000 would be necessary for cattle buying to secure sufficient reduction in dairy products to offset the tax necessary to raise the funds.

Purchase and slaughter of diseased cows is another common idea. Mainly the proposal centers around removing of tubercular cows or other cows diseased. There are estimated to be about 600,000 tubercular cattle in the country, on which the testing expense and indemnity payments for reactors would amount to $40,000,000. If edible parts of the carcasses were salvaged it is thought the salvage value would be about $8,000,000. State funds appropriated already or expected to be available for this work would be about $9,000,000. This would leave a balance of about $20,000,000 which would have to be taken from processing taxes. The reduction in butterfat to be secured through elimination of that many cattle in 1 year would, it is estimated, be about 40,000,000 pounds. This reduction might be expected to increase the butterfat price one half cent per pound. However, in the long run elimination of tuberculosis increases rather than decreases production.

Various minor animal husbandry proposals have been made. Among these are feeding calves to greater maturity so as to use more milk, feeding rations with less grain and more hay and roughage, and drying off cows at stated contract fees. Reduction of the proportion of farm lands in dairy areas devoted to cereal grain crops is another proposal intended to cut feed supplies and thereby cut production.

HIGHER FAT STANDARDS ADVOCATED

Increasing the official fat standards of such products as butter, cheese, and ice cream has been incorporated in another suggested method of cutting production. Proponents hold that it would cause butterfat to be consumed in greater quantities. Others maintain that the price of butter would be increased as a result, and that with consumers spending approximately the same amount for butter in a year's time the actual returns to producers would not be greatly increased.

The elimination of marginal and "lower order use" land from agricultural production is also suggested. It is too broad for adaptation by the dairy industry alone, but should no doubt be contemplated in any long-time agricultural policy.

Increasing consumption is another favorite suggestion, and proposals have been made to engage in an intensive advertising campaign in behalf of dairy products. This must be considered more as an

industry program than one in which processing taxes and Government assistance might be expected.

Elimination of competing products is often suggested as a way out of the difficulty. But under present conditions the question of actual restriction of imported fats such as copra and coconut oil, so as to reduce competition from foreign products, is linked up with the Philippine independence problem and tariff policies not within the scope of the Agricultural Adjustment Administration.

RESTRICTED MARKETING SUGGESTED

Two general proposals for restricted marketing have been suggested. (1) A processing tax would be levied large enough to pay substantial benefits to farmers under agreement with them for production up to but not in excess of a specified quantity. (2) The licensing of plants under which processors would be allowed to handle specified quantities of product.

IV. THE NEW POLICY

Experience in the first 6 months under the Agricultural Adjustment Act gradually demonstrated that no short cuts or makeshifts, no resort to expediency or temporizing would absolve the dairy industry from ultimate action on production adjustment in some form. Abandonment of all outright stabilization programs was found advisable. It was decided that it would be unwise to expend any more funds in advance of processing tax levies with which to buy an unlimited quantity of butter and cheese. At each and every point where attempts had been made to strengthen the leaks in the dam against the flood of uncontrolled milk there soon appeared grave weaknesses, making it plain that some hard and clear thinking and concerted action by the entire industry were necessary.

It was clear also that the fluid milk shed marketing agreements had not resulted in adequate assurance of production control and that constant friction and delay had arisen over the establishment of resale prices in the schedules. Fixing of retail prices by any Government unit in all other instances carries with it such corollaries as regulation of profit, limitation on competition, requirements of service, and regulation of plant capacity and capitalization-virtually making of the business regulated a public service monopoly. The Administration does not feel that the time has yet arrived for it to launch upon the public utility method of regulation which would be the necessary accompaniment of fixing of retail prices to distributors. Furthermore, the problem of enforcement has proved impossible without such complete regulation. The Administration feels that its primary function is obtaining increased returns to producers. At least until this objective can be accomplished, the Administration does not believe it should expend its energies on enforcement of retail prices, particularly in view of the profits of some of the distributing companies.

CONCENTRATE ON PRODUCERS' PRICES

The Administration's new dairy policy was announced early, in 1934. In its revised program the Administration concentrates efforts on producers' prices, with complete abandonment of the custom of fixing distributors' prices except for some markets where producerdistributors are numerous and where a low minimum resale price

might be necessary. Also, the Administration is prepared to establish maximum resale prices wherever distributors combine to take advantage of consumers. Termination of all existing fluid milk agreements was ordered by the Secretary of Agriculture, effective February 1, and as rapidly as possible these will be replaced by new agreements conforming to the new policy.

A uniform method of establishing 'minimum producers' prices in each market has been determined upon. This method takes into account three things:

First, the competitive value of milk in relation to its value for uses other than as fluid milk at the outer edge of the milk shed. To this competitive value are added differentials for transportation, for quality, and for convenience of location of the farm. The prices of competing manufactured products adjacent to the milk shed are both those over a recent period and the anticipated prices in the near future.

Second, the history of prices during the predepression decade in the milk shed under consideration. This includes full consideration of price differentials of class 1 or fluid milk over butter prices, changes in hauling costs and any changes made in the market standards and requirements.

Third, the earning power index of the locality. Pay rolls serve as a good index for this purpose in many cities.

The price schedules are subject to revision with changing economic conditions.

LOCAL ADVISORY BOARDS

Local advisory boards with proper representation of all producing, distributing, and consuming interests are contemplated by the Administration's revised policy. Hitherto the milk boards created under marketing agreements were concerned largely with the administration of the mechanics of the market plan and had nothing to do with recommending prices to consumers.

No boundary lines for milk sheds are specified in the new agreements. Producers who were selling milk in a given market prior to the effective date of an agreement continue to have full privileges of the market. New producers are required to sell their milk at the surplus price for a period of not exceeding 90 days in order to qualify. The net result of the new policy is, therefore: (1) To assure producers that their prices will be established and maintained by the aid of Federal action and agreement put into force; (2) to assure consumers that their earning power will be considered in connection with the farm price set; (3) to leave most of the distributing problems to local adjustment as much as possible; and (4) to keep fluid milk prices, insofar as the agreements are concerned, in reasonable relationship with prices of manufactured dairy products, without failing to recognize and reward the producers for maintenance of quality and frequency of supply to fluid milk requirements.

PRODUCTION CONTROL PROGRAM TAKING SHAPE

At this stage no definite and final announcement of a future national production control program has been made, but it is certain that the plan will be broad enough to provide voluntary methods of production adjustment, as each farmer wishes. The extent of the reduction to be requested of those who cooperate in the plan under

contract, the exact method of handling the allotment, and the exact rate of processing tax by means of which the reduction will be financed are shaping rapidly. Full opportunity will be given producers to take advantage of whatever combination of method is offered, and hearings and conferences with producers will precede the final decision upon the national program. Offers of cooperation and support for a reasonable and practical production adjustment program for the dairy industry have come to the Administration. These offers have been made by individuals, members of cooperatives, representatives of national cooperative milk producing federations, processors, and distributors, and various Members of the Seventy-third Congress. At the suggestion of leaders of farm organizations and others, a proposal has been made to consult Members of Congress relative to the advisability of requesting a special fund with which to enable benefit payments to be made to dairymen under the voluntary reduction program specified in the act. This fund was planned to include beef raisers as well as dairymen in its benefits and the sum of $200,000,000 was suggested. The object of the fund was to supplement processing taxes to be imposed later. The special emergency fund was advocated because the imposition of a processing tax at a rate high enough to bring an adequate benefit fund for distribution to producers would be likely to increase the unit price of the respective commodities and possibly react unfavorably upon producers for a short period at least. This fund would be available for use to make payments to encourage cooperation in a reduction program, largely under an allotment plan as a supplement to the processing tax program of the act and not as a grant or subsidy. No exact detailed allocation of the proposed emergency fund has been undertaken, but certain Members of Congress have suggested that such an allocation be submitted to them so that the disposition of the proposed fund may be clearly outlined in advance of its introduction. Favorable opinions have been received from many Members of Congress and governors of leading dairy and beef States regarding the need for such a fund to start off the national dairy program properly.

CHAPTER 8

RICE

I. HISTORICAL AND ECONOMIC REVIEW

The rice industry of the United States has been on an export basis since the World War, when expansion of acreage increased production beyond the point of domestic consumption. This export basis has been maintained despite the substantial acreage reduction which has since taken place.

The tariff on clean rice is 221⁄2 cents a pound; on brown rice, 14 cents a pound; and on cracked rice, % cent a pound. But producers of rice, as well as producers of other agricultural commodities which have tariff protection, find the tariff has little effect on price as

as their production exceeds domestic consumption. When that point is reached, the world price becomes the domestic price. During the period 1921-29, rough rice prices averaged about $1.10 a bushel. Prices fell to 78 cents for the 1930 season, to 48 cents for the 1931 season, and to 39 cents for the 1932 season. This rapid decline in prices was associated with the large crops of 1930 and 1931two of the largest of the decade. These crops were due to higherthan-average yields rather than to unusually large acreage. Unfortunately, they were harvested during a period of slow demand and at a time when imports into the high-grade markets of Europe were being sharply curtailed.

Consequently, the domestic carryover grew from 81,000,000 pounds in 1930 to 116,000,000 pounds in 1931 and reached the unprecedented high total of 220,000,000 pounds in 1932. In 1933 the carryover fell back to 148,000,000 pounds.

The dangers of accumulating excessive carryover stocks are apparent. The relief afforded by keeping them off the market is but temporary and constitutes a policy which cannot be followed indefinitely.

DIFFICULTIES OF EXPORT MARKET

Recent developments throughout the world have accentuated the difficulties of the export market which confront the American rice farmer. Complication of the foreign situation by various types of governmental action, such as bounties and other forms of direct aid to producers in exporting countries, as well as duties and other trade barriers in importing countries, has reduced our rice exports. These fell from 320,000,000 pounds in 1928-29 to 128,000,000 pounds in 1932-33. Increase in our carryover stocks and lower prices naturally followed.

During the last decade (1923-33), the distribution of the average annual supply of 1,214,000,000 pounds of clean rice has been as follows: Domestic consumption, including rice for seed, 53 percent; shipments to United States possessions, 23 percent; exports, 15 per