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this crop insurance as part of that broad program; in the first instance not a very great part of it, perhaps, but in the long run I would say a very significant part, exceedingly significant part, because the crop insurance as visioned in the report of the President's committee and as visioned in the bill would be crop insurance paid "in kind” and would result in accumulations in the good years of substantial quantities of the physical product, wheat; substantial quantities held in such a way that those quantities would not have a bearish effect on the price in the same way that the accumulations under the Farm Board had a bearish effect on the price. They would be held there in an insurance pool, which of necessity would have to be held as a sacred trust to safeguard the farmers under the terms of the contract.
As I think about the matter I am more and more inclined to favor your proviso, Senator Schwellenbach, although I do not know that it is necessary to have it written into the bill, but undoubtedly—that is, in the contract.
Senator POPE. In the contract.
Secretary WALLACE. Well, I was going to say, I don't know that it is necessary to have provisions of the contract of necessity written into the bill, but undoubtedly the thought you have in mind should be adequately covered.
Senator POPE. Mr. Secretary, isn't it likely that in years of good yield the prices for that reason would be lower than in years of poor yield, so that at the time when a surplus of premiums was being paid, the prevailing price of wheat, the value to the farmer, would be less than it would be when he received his indemnity in years of poor yield, so that he would get the benefit of the increase in price due to the short crop year?
Secretary WALLACE. Undoubtedly true, Senator, but also, of course, if the insurance were used in any very substantial way by the farmers— I mean, if a high percentage of the farmers used the insurance, the result also would be to reduce to some extent the fluctuations in the price. I mean to say that in the good crop years, as a result of the insurance program, the price would not go quite as low as it ordinarily would, and in like manner in poor crop years the price would not go quite as high as it would ordinarily go; nevertheless, the general thesis that you state seems to me to be correct.
Senator POPE. Even if that were true, it would still be of benefit to the farmers.
Secretary WALLACE. Very definitely so. The farmers would be benefited on both counts.
Senator FRAZIER. Crop insurance would be, of course, a step toward putting agriculture on a business basis.
Secretary WALLACE. I think so, very definitely. It would be a step toward putting farmers on the same kind of basis that other businesses are.
Senator POPE. And it would tend to stabilize both the price and the available supply of wheat?
Secretary WALLACE. Yes; I think it should be said, however, that the progress as visioned in the report of the President's committee and in the bill is likely to be rather slow, and while it would be splendid if it could be carried out, yet we would not want to be so rapid as to bring discredit on the program. I think it has to be slow in order that we may gain experience.
Senator POPE. I believe it has been estimated that about 50 percent of the farmers might be expected to take insurance?
Secretary WALLACE. Well, I don't know of any way to make an estimate on that. In the calculations for one of the tables in the report of the President's committee, the assumption was made that there would be a 50 percent participation. I would suspect that the participation would be higher than that in the Great Plains area, and perhaps in the first instance less than that in the Eastern area. But I would anticipate that in the Eastern area eventually there would be a much greater participation than has been assumed by many people. I think the premiums that will be paid in the Eastern area, because of the more stable weather, are less, relative to the yield, than in the Western area. When the Eastern wheat farmers become fully familiar with it, I think they will want to participate to the same extent, really, as the Western farmer, but that may not be the case in the first instance because they have not thought about it as much.
Senator POPE. The amount of premium that will be paid would vary according to different sections of the country?
Secretary WALLACE. Yes.
Senator Pops. According to the average yield, and as I understand it, in working it out they have assumed that fact and have worked out their premiums somewhat on that basis?
Secretary WALLACE. That is true, sir.
Senator FRAZIER. Mr. Chairman, under the A. A. A. program there was a good deal of criticism about the big payments that were made to large farmers of various types. Is there anything in this bill that would prevent a recurrence of that, some big farmer trying to capitalize on this proposition?
Senator POPE. No, except that the large farmer would naturally pay a larger amount of premium, and he would be more likely, in case of a drought or any other natural hazard, to receive a larger indemnity. But he would be paying the premiums in proportion to indemnities, like all others.
Senator FRAZIER. I would like to know—I would like to have the Secretary's opinion on that, as to whether he would think it advisable to put a limit as to acreage that this would apply to.
Secretary WALLACE. Well, my offhand reaction would be that it should be open to all farmers, no matter what the size of their operations might be.
Senator McGill. How are you going to exclude the large farmer from an adequate program for the benefit of all? How are you going to leave him out?
Senator POPE. Would it not be like any other insurance?
Senator POPE. Would it not be like any other insurance? The man who owns more property insured pays a larger premium, and of course he would get a larger indemnity in case of loss? All other insurance is on that basis.
Secretary WALLACE. I just have a little-well, I don't know whether you would call it prejudice, but a little trend in my thinking that it should be available to the larger farmers, on the theory that you would have just that much more contribution to the stability of the price. It would not amount to a great deal.
case of anger amount except that
Senator FRAZIER. Of course, after all it is the ordinary, everyday farmer that we are more interested in protecting than the big farmer that can afford to put in thousands of acres of crops. He is in a better position to protect himself—at least, that is the supposition, than the ordinary farmer that has just a family-sized farm.
Senator POPE. If there is no objection, we will have the report of the committee referred to by the Secretary incorporated in the record.
(The report referred to appears at the conclusion of this day's hearing.)
Unless there are other questions of the Secretary, we will put on some of the men who helped prepare the bill, and also who have made the studies and reached the conclusions in connection with the matter of wheat.
Senator McGill. What is the reason the measure is limited to wheat, Mr. Secretary?
Secretary WALLACE. The reason is two-fold. First, we wanted to progress only as we gained experience, and we had perhaps a more complete actuarial basis for wheat than for any other crop; and second, when we conferred with the farm groups—we called a special meeting of the farm groups to talk this matter over—we found that the sentiment was much stronger for wheat than for either cotton or corn. We have made a considerable actuarial study of the yields on many thousands of individual cotton farms and many thousands of individual corn farms. The data is not as good as it is with wheat, but we will have eventually some very good data with respect to both of those crops.
Senator McGILL. The reason I asked the question was not to find any fault with the proposition, but unless we have, I would think, some rather good outstanding reason why it should be limited to one commodity, we will meet with the suggestions that we did when we passed the Regional Agricultural Adjustment Act and made it applicable only to the two commodities, wheat and cotton; we found practically every other commodity or producer wanted to get it under the program, and if we cannot show him the reason why we must confine this to one commodity, we will have considerable difficulty keeping the other commodities out.
Secretary WALLACE. Well, I would hope the day may come when it can be applied to both corn and cotton, but I would hope that we will not be forced to get into corn and cotton before we have a really adequate actuaria) basis, and before there is a real farm demand for it.
I have said frequently in public statements that the only substantial farm demand for it has come from the wheat farmers. I was informed this morning, however, by a man from the Corn Belt that my statement was incorrect with respect to corn. I don't know whether that is so or not. There may be stronger sentiment there than I have been led to suspect. I have also heard rumors of that sort recently with respect to cotton. I do hope that we do not have to get intoI think it would be a mistake to get into corn and cotton until we have a really sound actuarial basis, and I would hope that we would have had at least 1 year's experience with wheat before we get into the crops that have not been studied quite as carefully.
Senator FRAZIER. If this law is enacted and is successful, isn't it your belief that it would include ultimately practically all farm products?
Secretary WALLACE. As fast as we can get a sound basis, I would hope that it would include-would move right on down the line.
Senator FRAZIER. Of course, the fact that in the wheat States they have had hail insurance and have had some experience with crop insurance probably would make them more eligible or ready to go into an insurance plan of this kind..
Senator POPE. Are there any other questions? If not, we will call Mr. Shields, and I think Mr. Black and Mr. Green, who are familiar with certain phases of the bill, may be helpful with Mr. Shields in explaining the provisions of the act. Mr. Green and Mr. Black, will you both come forward, please? We may want to ask you some questions about the bill at the same time.
STATEMENT OF ROBERT H. SHIELDS, ATTORNEY, SOLICITOR'S
OFFICE; A. G. BLACK, CHIEF, BUREAU OF AGRICULTURAL ECONOMICS; R. M. GREEN, IN CHARGE OF DIVISION OF AGRICULTURAL FINANCE, BUREAU OF AGRICULTURAL ECONOMICS, DEPARTMENT OF AGRICULTURE
Senator POPE. Mr. Shields, I think, had as much as anyone else to do in helping me to prepare the actual provisions of the bill, and I think we will ask him to take up the provisions of the bill, and we will ask Mr. Black and Mr. Green certain questions as we go along, to explain certain provisions which are particularly within their knowledge. You may proceed, Mr. Shields.
Senator FRAZIER. Mr. Chairman, may we have a statement from Mr. Shields as to who he is and who he represents?
Mr. SHIELDS. I am an attorney in the Solicitor's office, Department of Agriculture. I worked informally and unofficially with Senator Pope in the preparation of this bill and I appear in that same capacity today.
If it is agreeable to you, Mr. Chairman and members of the committee, I will read the more important provisions of the bill in full, and I shall summarize the more routine provisions unless there are some questions with respect to them.
Senator POPE. I think that is a good idea.
That it is the purpose of this act to promote the national welfare by alleviating the economic distress caused by wheat crop failures due to drought and other causes, maintaining the purchasing power of farmers, and providing for stable supplies of wheat for domestic consumption and the orderly flow thereof in inter state commerce.
As you will note from the purpose and the policy of the bill as stated, it is believed that its constitutionality may be sustained under the general welfare clause, the spending power of the Federal Government, under the fiscal power, and possibly under the interstate commerce power.
While, as you know, the exact scope of the spending power under the general welfare clause has not been definitely outlined by decisions of the Supreme Court, the Court did say in the Butler case that the spending power was not limited by the other delegated powers in the Constitution. There can hardly be much doubt that the millions of dollars that are being spent, and have been spent, to alleviate the distress of agricultural producers caused by elements over which they have no control, have been used for the national welfare, and it would
not seem that because the spending is systematized as in this bill, the character of the spending would be changed.
The operation of this shceme of insurance would also, we believe, materially sustain the agricultural credit of this country and bolster the credit extensions that have been made to agricultural producers by other instrumentalities of the Federal Government. With this brief statement, I will go on to the second section, which sets up a corporation known as the Federal Crop Insurance Corporation, provides for the establishment and maintenance of its offices, and so forth.
The third section provides that the corporation shall have a capital stock of $100,000,000, subscribed by the United States, payment for which shall be subject to call in whole or in part by the board of directors.
Senator POPE. At that point, Mr. Green, I think the committee would be interested in knowing why the figure $100,000,000 is used, the basis for it, and the reason why that particular figure is in the bill. If you will give that to them, I think they will be interested.
Mr. GREEN. If I might just read a brief statement I have here with regard to that. It has been estimated on the following bases that an adequate crop-insurance plan covering wheat only will require the backing of approximately $100,000,000. Only a small part of this capital would have to be called for in the beginning for the purposes of starting operations. The bulk of the capital would not be called for unless there were a succession of bad crop years in the beginning before reserves were built up or in a later succession of bad crop years during which loss payments exceeded premium payments each year. The main portion of the capital, aside from that necessarily invested in equipment to begin operations, would serve as reserve to be used in paying indemnities should they exceed the premiums. When the premiums exceed indemnities in the succeeding good crop years the capital would again be built up with the difference. This provision is to protect the insurance corporation from being crippled by one or two bad years immediately after it starts operations or by exceptional catastrophes later on. This very situation has contributed to the failure of several attempts at private crop insurance.
The figure of approximately $100,000,000 was arrived at by finding the deficit in grain reserves that would have accumulated had the proposed insurance plan started in 1935 and the succeeding years had been like the years 1934, 1933, 1932, 1931, and 1930. Now, the method is explained in full there on page 19 of the report to the President, in table 2. That is, where the assumption has been that if half the wheat acreage were under insurance and the premium rates that have been calculated were applied, and had you started in 1935 as in the second table there, and the following years had been like those earlier years—you will notice in the table that the first year the premiums would have amounted to about 39,000,000 bushels, in round numbers. Probable losses or indemnities would have amounted to almost 64,000,000 bushels. This would have left a deficit of about 24,500,000 bushels the first year. In both 1934 and 1933, taking the years in reverse order, the losses exceeded the premiums, making an accumulated deficit—notice at the high point there, after three bad crop years—of 70,000,000 bushels by the end of the third year. Since in the beginning the corporation would not have had a reserve stock of wheat large enough to pay losses with, it would have had to draw