ance against fire? And it looks reasonable that he will take the same attitude towards crops. Senator POPE. And would it be likely that he could get the money? Because this insurance would add to the security of the bank or whoever loaned the money, for not only this money but the other money that might be loaned.

Mr. GREEN. Yes; it is felt that that is one distinct advantage to the grower in crop insurance, that his growing crop would be better collateral than it is today. There is not much question that in a good many places at least the grower of crops is at some little disadvantage compared with the livestock man, in that his growing crop is not as acceptible collateral as the livestock.

Now with his crop insured he would have a better collateral; at least, we have had several letters from bankers indicating that the growing wheat crop would be much more acceptable collateral. They as banking institutions can not make the loan and assume the crop risk at the same time, and I think that would be one of the advantages of crop insurance.

Senator POPE. I think the committee also recommended that in the event he could not borrow the money from a bank or someone else, the board, the crop insurance board, would accept a lien on his crop for the premium under certain regulations.

Mr. GREEN. Yes; that would be possible to do. Now, unless there are questions, that is about the procedure followed in getting at rates. We discussed rather thoroughly with the insurance people the relative merits of having a broader base, as they call it, for these rates, and having a very narrow base as we have here, where county rates are averaged with those of the individual farm. Insurance men, of course, from their own experience with other insurance were in some cases inclined to think the broader base would be safer, but as we went into the thing with four of their representatives who spent several days working with us, they recommended and in fact, they told us the last thing before they left, to stick to the narrow base. They could see where we would get into trouble in assuming a risk of this kind if we did not. In fact, we started considering the wider base in the first place, maybe dividing the country into a few zones and having a rate that would apply in each. It became evident when we studied the individual farms on which we had data from the triple A records, that there was enough difference in individual risks that if we set up even a county average and said, "That will apply to every farm", the tendency was going to be to get many risks above the county average and very few of those below. It would then not be long before your funds would be running short, because you would be loaded up with the higher risks.

Senator SCHWELLENBACH. On ordinary insurance, for example, automobile insurance, there has been a lot of discussion for several years about basing premiums on the individual records. Very few companies have seriously considered it, for the reason that the administrative cost of checking the correctness of those individual records. would be so high that they could not afford to do it.

In the second place, necessarily the policies are sold by local agents and salesmen who are anxious to get as much business as they can, and as a money-making proposition, and the home offices of the companies were afraid to let the local salesman pass upon the question of the rating that the individual was to get, but it seems to me that this

plan, using the county association as established, you do not have the high administrative cost of checking up, and it not being a moneymaking proposition there would not be the motive for the local representative putting people under a wrong classification. Now, I happen to know that that is the reason automobile insurance companies have shied away from individual records in basing premiums.

Mr. GREEN. And there would be this check on the situation in these local associations: You can see that if any local association should permit, at least for 3 or 4 years, excessive claims, that it would lower the average yield on those farms. It is the idea that in 4 or 5 years where that thing happens, of course, your rate structure would be revised. By allowing excess payments they would be dragging down the base yield and increasing their premium rates. Under this arrangement there will be some check on them, because if the local group is at all lax, it means that anything they are letting these individuals get away with is going to cost them in the future.

Now, there is this other table that I thought you might like to look at a minute. It has to do with the storage end of the plan a little more. Senator POPE. That is figure 2 in the report of the committee?

Mr. GREEN. Yes; figure 2 in the report of the President's Committee on Crop Insurance.

One question that has been asked of us quite frequently, and naturally, one that was thought of as soon as it was clear that the plan proposed to invest the insurance premiums in stored grain instead of in mortages and other securities like an ordinary insurance company, was how then does this differ in any way from Farm Board operations? Well, before taking up the chart I might briefly point out that one very essential difference is this: That the grain acquired is automatically regulated by the amount of insurance taken out by the farmers and the premiums paid by them. The quantity acquired is not left to the discretion of the manager or board or to arbitrary determination with the idea of maintaining any particular price, but it is regulated by the amount of premiums paid in. It will be necessary, as any premiums are paid in cash, for these to be translated into grain at the earliest practical time, in order to avoid the chances of loss due to price changes. Likewise, when it comes to the disposal of this stock that is accumulated it is automatically regulated-and I think that is particularly true if the provision is put in the contract as you suggested yesterday, Senator Schwellenbach-that appealed to me as being one very important thing that we had not thought of. With that provision in so that this stock is protected in that way, it will be drawn and paid out automatically, not at the discretion of any particular person or board, but it will be determined by the rate and amount of loss incurred by the insured. The stocks will be reduced only at that rate.

This chart merely pictures for a group of the seven Great Plains States, assuming the total wheat acreage at that time had been under insurance, what you could reasonably expect would have happened. In 1930 and 1931, as you can see, there would have been an excess of premiums over indemnities. That is taking all seven States together. The farmers of those States would have paid in more in premiums than they would have collected in indemnities. Of course, there will be some indemnities paid each year. Even in a good year. There will be some indemnities paid. In 1932, likewise, the farmers would

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have paid in more premiums than they received in indemnities. In that particular period, 1930 to 1932, the price was going down. In 1931 and 1932, it was at a very low point. Beginning in 1933, 1934, and 1935, the next 3-year period, there would have been an excess of indemnities over premiums, and had the Corporation been in existence since 1930 there would have been built up in the first 3 years a reserve stock, and in the last 3 years the reserve stocks would have been going out each year at the rate the indemnities exceeded the premiums. The prices that prevailed in those years, were higher than when reserve stock of wheat went in.

On the assumption that you do not have enough wheat in this stock to materially affect prices, of course, the farmers who were carrying insurance and received indemnities in the last 3 years would have benefited in that the indemnities were paid in a higher price than they were paid in as premiums. As we said yesterday, that is practically the advantage the farmer would have if he had been in the position to carry the grain himself.

A second assumption is, of course, that in the first 3-year period your premium payments are heavy enough and your grain acquisition is heavy enough that you would keep the price from going quite so low. Now, there is some reason to believe that it would have somewhat that effect, in that this stock would be accumulated as a reserve against insurance liabilities. It would be stored not subject to delivery on future contract, not subject to repeated purchase and sale; in effect, it is reserves similar somewhat to what you speak of as bank reserves. It is sterilized, practically, insofar as its immediate availability on the market is concerned. In that respect, of course, it would be different than operations under the farm board.

The same way when you get to the last 3 years and were paying out the excess indemnities and selling wheat, you might flatten that price out somewhat. Although you will note this, that since premium payments were at the market and the payment of indemnities is at the market, there would not be the tendency to add to the total carryover that there was in the Farm Board operations, for instance. You might lift the price a little in the first 3 years, and that may be the means of increasing the carry-over a little, but what you would do in the main would be to maintain an interest for the farmer in what carry-over there was. It would be chiefly an instrument for maintaining the farmer's interest in a carry-over that you very likely might have, even if you didn't have the crop insurance.

Senator SCHWELLENBACH. What about the world markets, world supply?

Mr. GREEN. There is no question that world supply and those other things will effect the trend of the wheat price. The thing this would do would be to add to the stability of the price. That was one fundamental reason for believing that it would be inadvisable for the Insurance Corporation to cripple its chances of doing the one thing it is designed to do, namely, protect against unavoidable natural hazards, by loading on to it also the job of guaranteeing price when it would not have the means for controlling supply or affecting supply or those things that do affect price trends. That is another and separate job. You would still have your price trends, but you would have a stabilizing effect on wheat price fluctuations.

Senator SCHELLENBACH. With reference to that point, the private companies that have undertaken to write crop insurance have almost invariably, have they not, sought to insure against the price hazard as well as the yield hazard?

Mr. GREEN. Yes.

Senator POPE. And, in your opinion, does that not contribute to the failure of these companies in the crop insurance field?

Mr. GREEN. Yes; there is not much question about that. That was a big cause of crop insurance losses in 1920 and 1921. It likewise was a major factor, one of the major factors at least, in the failure of the last effort in 1930 and 1931 in Kansas. This undertaking got started just at the time prices began to decline and their record, which we have examined, indicates that they would not have gotten into so much difficulty had wheat stayed at 50 cents a bushel or above. So the price element has contributed to the difficulties of these private attempts. And you can see why. We have just noticed some bases for judging the risks in insuring yields. When it comes to insuring what price is going to do, when there are so many factors, neither under the control of the farmer nor the insurance company, the effort ceases to be insurance. It is just taking a gamble on what the price may be, and it has contributed to the failure of several past efforts.

Now, I believe, Mr. Chairman, unless there are some questions on the chart, there is a point or two you might be interested in. There is the matter of coverage, three-fourths of the average yield. You might be interested in what that would mean in dollars and cents. I believe recently they have quoted the parity price at about $1.13 for wheat. I don't know whether that is right up to date. You can see that on a farm with an 8-bushel average, insuring three-fourths of the average or 6 bushels, if somewhere near that parity price were maintained, that would figure out $6.78 an acre, and even down to a 6-bushel average yield, three-fourths of that would be 41⁄2 bushels, and at your parity price $1.13, $5.08 an acre.

In this connection you might be interested in the comment that has been made by a number of other agencies that have been looking into the same question. Some officials of Canada have been corresponding with us. They are looking into the problem very carefully. In the preliminary report of the committee on crop insurance, Department of Agriculture, Regina, Saskatchewan, page 13 of their report, they say:

In order that the insured may be able to continue farming operations following a year of crop failure, it would appear that the indemnity should be at least $4 per acre in case of total loss.

Then a report on the rehabilitation of the dry areas of Alberta, and crop insurance, 1935-36, by Hon. W. N. Chance, Minister of Agriculture. On page 79 of that report he says [reading]:

Six or eight bushels of wheat, or its equivalent in other crops, or if the guaranty is in dollars, not more than $5 or $6 per acre, should be the outside limit of insurance.

I quote these because they do check with the experience that we have had in working this matter out. Here is one other reference to the matter of coverage [reading]:

If his insurance is used as a basis for credit or to avoid what might be called the catastrophe hazard, he need be covered to an amount of perhaps not more than $5 or $6 per acre.

That is by Mr. G. Wright Hoffman, professor of insurance at Pennsylvania University, reported in the Annals of the American Academy of Political and Social Science for January 1925, and appears in a discussion of crop insurance.

So it is felt that if the other agencies can maintain parity price, this plan of crop insurance will do the job of giving protection with threefourths coverage, or if a man wants a little less than that, 50-percent coverage will generally give ample coverage for the purpose of protection against catastrophe hazards, and at the same time neither case will give such excessive coverage as to promote or even encourage slovenly farming.

I believe, Senator, that unless there are some questions, that is about all I have to say.

Senator POPE. Are there any questions? If not, I think we will ask Mr. Shields to make any comment he desires with reference to the suggestion of Senator Schwellenbach yesterday as to including a provision of law in the contract that is entered into with the farmers.

STATEMENT OF ROBERT H. SHIELDS, ATTORNEY, SOLICITOR'S OFFICE, DEPARTMENT OF AGRICULTURE

(Resumed)

Mr. SHIELDS. With respect to your suggestion yesterday, Senator, I think it would have a very wholesome effect both on the Corporation and on farmers. It is a little difficult for me to see how a particular farmer could show a specific loss to himself if the provision was not carried out. But I see no objection to the provision at all. The only point I want to make is that in the event the provision were violated, which of course, probably should not be anticipated, but in the event that it were, I do not see how an individual producer could prove specific injury to him because his interest would be so small. The case of Massachusetts v. Mellon, the situation of the interest of a taxpayer in the spending of public funds, seems to me analogous. Senator SCHWELLENBACH. No; you have got a contractual relation here.

Mr. SHIELDS. That is true, but suppose a producer sued to recover damages for the violation of that provision; it is very difficult for me to see how he could prove any damage. That is my point. I am not objecting to the provision at all. I think it is a very good provision.

Senator SCHWELLENBACH. Regardless of the legal rights that anybody might have, if we write that provision into this law and it is in the contract, and somebody gets up here on the floor of the Senate and says, "Let's sell all of this stuff", you can always answer him and say, "No; we cannot do that. We have made an actual contract with several thousand farmers and we cannot breach that contract."

Mr. SHIELDS. That is true. I think it is a very wholesome provision, and I think it would have the effect that you wish. I just wanted to point out what appears to me to be the legal effect of it. Senator MCGILL. The thought is that the law should provide that this provision must go into each contract?

Senator SCHWELLENBACH. Yes.

Senator POPE. That concludes for the present the statements with reference to the method of arriving at the results that are sought to be covered by the bill.