RECIPROCAL TRADE AGREEMENTS PROGRAM WEDNESDAY, MAY 7, 1947 HOUSE OF REPRESENTATIVES, COMMITTEE ON WAYS AND MEANS, Washington, D. C. The committee met at 10 a. m., Hon. Harold Knutson (chairman), presiding. The CHAIRMAN. The committee will be in order. The first witness this morning is Mr. Charles W. Holman, Secretary of the National Cooperative Milk Producers Federation. Mr. Holman, kindly give your name to the reporter, and state the capacity in which you appear. We are very glad to hear you, because you always have something helpful to contribute. STATEMENT OF CHARLES W. HOLMAN, REPRESENTING THE NATIONAL COOPERATIVE MILK PRODUCERS FEDERATION Mr. HOLMAN. My name is Charles W. Holman. I am secretary of the National Cooperative Milk Producers Federation with our national offices at 1731 Eye Street in this city. Mr. Chairman and gentlemen of the committee: The National Cooperative Milk Producers Federation, with offices at 1731 Eye Street NW., Washington, D. C., is an organization of 83 dairy cooperatives which are owned, controlled and operated by approximately 380,000 farm families. These farmer-owned cooperatives market about 17,000,000,000 pounds of whole-milk equivalent annually, delivered by their farmer members in the form of whole milk or farm-separated cream. That is more than 17 percent of the total whole-milk equivalent sold by farmers in interstate commerce. THE IMPORTANCE OF THE DAIRY INDUSTRY The manner in which the trade-agreement program affects dairy products is of tremendous importance because dairying is the backbone of American agriculture. Not only does it contribute more to the country's farm income, but it is more widely distributed over the entire country than any other single enterprise. Cash farm receipts. from dairy products constitute 8 to 9 percent of total cash receipts from farm marketing in the South Atlantic and South Central regions, and up to 33 percent in the North Atlantic region. (Farm Production, Disposition, and Income from Milk 1944-45, USDA, BAE, April 1946 and Farm Income Situation, USDA, BAE, June 1946.) Dairy cows are kept on four out of five farms in the United States. There are 25 million milk cows on these 4 million farms. than 2 million farms are engaged in commercial dairying. More (1945 Census of Agriculture, United States Department of Commerce, Bureau of the Census.) Cash farm income from darying in the United States in 1946 was about $3,900,000,000. Total milk production in 1946 was nearly 120 billion pounds (Farm Production, Disposition and Income from Milk, 1945-46. BAE, April 15, 1947.) providing a milk supply of 850 pounds per person in the United States. For more than 20 years total milk production in the United States has been virtually self sufficient. Total milk production in the United States rose from 89 billion pounds in 1924 to 107 billion pounds in 1939, an increase of 20 percent, in line with the increase in domestic requirements. During the war production was pushed up from 107 billion pounds in 1939 to 122 billion pounds in 1945. Even though total civilian per capita consumption of dairy products was raised, we met war needs for dairy products with exports totaling 6%1⁄2 billion pounds of milk equivalent plus military procurement of more than 14 billion pounds. (Sources of production, consumption, and foreign trade data as follows: Production, see first source. Consumption, Production and Consumption of Manufactured Dairy Products, E. E. Vial, USDA Tech Bul. 722, April 1940 and Dairy Situation USDA, BAE, September 1946.) During the prewar years 1934 to 1938 average exports of dairy products from the United States in all forms were valued at $5,000,000 annually. Imports from foreign countries averaging $14,000,000 annually were principally types of cheese of which small quantities could obtain a high retail price premium over similar domestic types. THE FEDERATION'S TARIFF POLICY The policy of our Federation as to trade agreements is of long standing. Dairy farmers are dependent upon the stability of the domestic market and have needed protective tariffs against foreign competitors ever since the end of World War I. Throughout this period of our organization has sponsored a policy of rational tariffmaking. We have consistently supported the principle of levying import duties so as to equalize differences in the cost of production between domestic products and products of the principal competing foreign countries. Our Federation worked diligently to secure adequate protection for dairy farmers in the Tariff Act of 1930. For that matter, we were before this committee in 1921 and 1922, and so on, and we were before the Tariff Commission in all of the cases involving the oils and fats and dairy products. Since the Trade Agreement Act first came up for extension and amendment our Federation has consistently opposed it. It is unsound and unwise and ought not to have been extended. Knowing that extension was inevitable, we sponsored certain fundamental amendments which in our judgment should have been minimum requirements. These amendments included: 1. Senate ratification of agreements. 2. Permission to parties injured by the operation of tariff concessions to take their grievance into the courts of the United States; which, as you know, is denied under the Trade Agreement Act of 1934. 3. Extension of benefits only to nations granting concessions in return. None of the relief which we sought has been granted and we are now pessimistic as to the outcome of the current trade agreement negotiations being carried on in Geneva, Switzerland. Our fears are based on the following facts: 1. Reduced tariffs on dairy products, cattle and cattle products, fats and oils endanger the livelihood of dairy farmers. The dairy tariff structure has been built around the butter tariff of 14 cents per pound and duties on other dairy products equivalent to the butter rate on the basis of their butterfat content. A 7-cent tariff reduction would lower the farm price of butterfat 84 cents per pound. On the basis of the 4 billion pounds of butterfat sold in all forms in 1946 this would mean a loss of $340,000,000 per year, exceeding by 24 times the entire value of dairy products imported in prewar years. Mr. Will L. Clayton of the State Department, in his testimony before this committee, attempted to give the impression that dairy farmers would be among the principal agricultural beneficiaries of reduced tariffs. It is apparent that Mr. Clayton was drawing unwarranted inferences from the fact that large quantities of dairy products were exported during the war. It is true that dairy product exports during the war totaled 61⁄2 billion pounds of milk equivalent. These exports, however, were stimulated by a $2,000,000,000 subsidy program designed to lower consumer prices, and furthermore were virtually outright gifts through lend-lease and UNRRA to their foreign recipients. We do not see in this experience any ray of hope for the dairy farmer for extensive foreign markets for dairy products. Contrasted with wartime when our dairy exports were high and there was a world-wide decline in production of dairy products outside the United States, we are now facing a different situation. While world shortage of butter and cheese still prevails, world milk production is increasing and may soon reach prewar levels. In addition the rush to rehabilitate the industries of war-torn countries may lead regimented economies to deny exportable dairy products to their own citizens in order to exchange them for industrial products of the United States. A dangerous element is the prospect of the depressed level at which controlled prices have been held in foreign countries. During the present year the United Kingdom is buying all but 2% percent of New Zealand's exportable butter for 35 cents per pound, American gold rate. This purchase was made by an adjustable contract which runs for two more years. The United Kingdom has similar contracts with Australia and Canada. The latest price report from Canada shows a price of 39.75 cents per pound (Canadian currency). Against a world background of low prices, rising production, and trade manipulation the outlook for United States prices, based on internal conditions is in sharp contrast. Dairy products here are in ample supply. Butter production is steadily approaching prewar levels. Butter prices in recent months have been mostly in a range of 60 to 75 cents per pound. At worst, butter may sink to the equivalent of the 90-percent-of-parity support price guaranteed by the Steagall Amendment to the Commodity Credit Corporation Act. In April parity was 59.9 cents per pound of butterfat at the farm, equivalent to approximately 55 cents per pound of butter. At 90 percent of parity, butter prices would be 50 cents per pound. Of course, that is an intolerably low level. This is 15 cents per pound over the 1946-47 prices in the British purchase contract with New Zealand. We may, therefore, find Britian tempted to unload her New Zealand butter on us as a means of repaying the 31⁄2 billion dollar loan which we recently made her; or, what is much more likely, to divert butter and cheese and possibly milk powder in transit, under United States supports, take a profit, and go to Argentina and then replenish her needed dairy stocks for domestic consumption in England. 2. Reduced tariffs on one dairy product lower the price of all. It is proposed to reduce tariffs on all important dairy products except casein. A reduction in the tariff on one dairy product may have the same effect as a reduction on all, due to the intimate interrelationships between prices of dairy products. Dairy-product prices are closely interrelated because large quantities of milk may be quickly diverted from one product to another. Today flexibility of production results from the operations of multipurpose plants, and from interplant shifting of producers. The dairy tariff rates in the act of 1930 recognized these interrelationships. Trade agreements have breached this balance at some points. The committee will recall that rates on fresh milk and cream coming from Canada have been reduced substantially. Reductions on cheddar and Italian cheese duties were put into effect only after war had spread itself over the globe. These duties therefore have not had a chance to display their harmful effect in normal times. Further reductions of these, or reductions of other duties untouched until now, will be evidence that the State Department heedless of consequences is determined to strip the American dairy farmer of every shred of defense against world depression. 3. Predatory practices in international dairy trade will persist in spite of trade agreements. Predatory practices in international dairy trade were not affected by previous trade agreements. It is not to be expected that these practices will be remedied by further trade agreements. Low world butter prices during the 1930's were in part assured by dairy price policies of practically all exporting nations. There were a variety of devices employed by these nations to bolster their domestic prices and directly or indirectly to subsidize exports. We know of such programs in Argentina, Australia, Canada, Denmark, Estonia, Finland, Latvia, Lithuania, Netherlands, New Zealand, and Sweden. Four of those 11 countries, Netherlands, Canada, Finland, and Sweden, had trade agreements in effect with us during the time they used export subsidies. This gives us adequate reason to believe that the State Department's give-away program is unilateral in practice, whatever it may be in theory. It is to assure protection against such subsidized surpluses that the present butter and dairy tariffs should be retained without change, if not increased. An example of the futility and one-sidedness of the State Department's trade agreements is found in the experience with Canada. Trade agreements with Canada in early 1936 and 1938 reduced the United States duty on Cheddar cheese. Beginning June 1, 1939, |