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"(c) Compliance by the producer with acreage allotments, production goals, and marketing practices (excluding marketing quotas) may be prescribed and required by the Secretary as a condition of eligibility for price support and for the receipt of wheat marketing certificates."

DEPARTMENT OF AGRICULTURE,

OFFICE OF THE SECRETARY,

Washington D. C., April 22, 1957. Hon. HAROLD D. COOLEY, Chairman, Committee on Agriculture,

House of Representatives. DEAB CONGRESSMAN COOLEY: This is in reply to your request of February 13, 1957, for a report on H. R. 4637, a bill to provide an improved farm program, by a two-price system for wheat.

The Department recommends that this bill not be passed. This bill (which is identical with S. 774) provides for a two-price system of wheat marketing by supporting at full parity the portion of the United States wheat crop which is used domestically as food and supporting the portion of the crop which is exported or used as feed at such lower level as determined by the Secretary to be in proper relation to the levels at which other feed grains are supported and to be compatible with our wheat export and international trade policies.

Separation of the domestic food market from the export and feed markets is to be effected by the issuance of marketing certificates to producers covering the domestic food quota, with the per-bushel value of each certificate to equal the amount by which the estimated parity price exceeds the estimated average price received by farmers. The domestic food quota would be apportioned among the States, counties, and individual farms in a manner somewhat similar to the way in which acreage allotments are apportioned under present legislation. Compliance with acreage allotments may be required by the Secretary as a condition of eligibility for price support and for the receipt of marketing certificates.

Processors of wheat would be required to acquire marketing certificates covering the quantity of wheat used in the products made for domestic food consumption. While marketing certificates would also be required to be purchased by processors for wheat products exported, the cost of the certificates so acquired would be refunded upon proof of export.

The system of price support would be self-financing to the extent that the funds received from the sale of marketing certificates to processors covering the wheat equivalent of the products made from wheat for domestic food consumption equal the value of the marketing certificates issued to producers.

Two-price systems of marketing have been carefully studied by the Department as a possible alternative to the price support programs now in effect for wheat.

Although it is recognized that the market characteristics of wheat would lend themselves to a two-price arrangement, is believed that the relative merits of such a system of price support for wheat would be more than offset by its disadvantages.

The principal purpose cited for a two-price system for wheat is to maintain income to wheat producers at a satisfactory level by obviating the need for stringent acreage controls. It is maintained that by assuring producers returns at full parity for the portion of the wheat crop used domestically for food, the system permits producers to market the remainder of their production at export and feed prices, and thus provides market outlets for a larger production than is possible under present programs without the need for large-scale export subsidization.

Obviously, this objective of such a price system could not be attained without effective competition of wheat in the feed and export markets. Recognizing, however, that large-scale competition of wheat with corn and other feed grains, made possible by assured high-level returns by wheat producers from the domestic food market, would be irreconcilable with the price support and adjustment programs in effect for corn and other feed grains, H. R. 4637 provides for price support for the entire wheat crop at levels which take into consideration, among other things, the price support levels for corn and other feed grains. Among other considerations required to be taken into account in determining the level

of such price support are the provisions of any international agreement relating to wheat to which the United States is a party, foreign trade policies of friendly wheat exporting countries, and other factors affecting international trade in wheat.

These provisions of H. R. 4637 are designed to prevent large-scale competition of wheat in the feed-grain markets and to curb United States competition in international wheat trade. However, to the extent that the price support provided is effective in restraining competition of wheat in the feed and export markets, surpluses will be produced for delivery to the Government, as under the operation of present programs. This, in turn, would necessitate stringent acreage controls which the bill authorizes as a condition of producer eligibility for price support and for receiving marketing certificates.

Since our wheat exports are already subsidized at world prices, significant expansion of United States wheat exports under a two-price system would be difficult to effect without indiscriminate price competition. This, in turn, would result in retaliatory measures on the part of other wheat-exporting countries and unfavorable international trade relations generally.

Considerable resistance might also be expected from domestic consumers who would not understand a program imposing upon them rigid 100 percent of parity prices for wheat, while encouraging wheat prices at lower levels for all other uses, including exports. In all likelihood, the certificate plan would be construed by our consumers and the baking industry as a tax on bread. Although our consumers of bread and other wheat products would, under the operation of this plan, pay but little more for the wheat equivalent of the products consumed than they are paying now, the fact that the returns to producers over and above those obtainable under a system of free-market prices would be derived entirely from our domestic consumers of bread would seriously impede the public acceptability of such a program. Since per capita wheat consumption is largest among the low-income groups of our population, the burden of providing a price-support program for wheat would largely fall upon those in our economy who are in the weakest position to pay for it.

Furthermore, wheat producers who have been growing high-quality milling wheat would likely consider as inequitable the program provision under which the apportionment of certificates to producers would be based on total wheat production, irrespective of the market outlet into which the wheat is moved. Without allotments in effect, this provision also would tend to encourage producers to expand their acreages so as to obtain a greater share of the relatively stable domestice food quota.

Aside from these more fundamental considerations, many complex administrative problems are inherent in the system of marketing proposed in this bill. For example, the Department would have to determine the value of the certificates in advance of the marketing year based on the amount by which the estimated parity price exceeds the estimated average price received by producers. Errors in these estimates may result in consumers having to pay more than parity for wheat and to offset such errors, complex administrative procedures would be required. On the whole, the program would involve the Government more instead of less in the handling of wheat in direct competition with the private trade.

This bill is essentially the same as previous bills to implement the domestic parity plan for wheat, which the Department consistently has rejected. We believe the reasons for rejecting such a bill are even more valid today. United States carryover stocks, as well as total supplies, of all feed grains (corn, oats, barley, and sorghum grains combined) are at record levels in 1956–57, and present indications are that they will be even larger in 1957–58. Therefore, the impact of large quantities of low-priced wheat on our feed-grain markets, which could be expected to result if this bill were in effect, would be even more serious under current conditions. During the current marketing year, the quantity of wheat exported and fed will amount to well over 500 million bushels, which is over half the 1956 production.

The Bureau of the Budget advises that there is no objection to the submission of this report. Sincerely yours,

TRUE D. MORSE, Acting Secretary.

(H. R. 7815, 85th Cong., 1st sess.)

A BILL To provide an improved farm program Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That title III of Agricultural Adjustment Act of 1938, as amended, is amended (1) by changing the designation thereof read as follows: "TITLE III-LOANS, PARITY PAYMENTS, CONSUMER SAFEGUARDS, MARKETING QUOTAS, AND MARKETING CERTIFICATES"; (2) by changing the designation of subtitle D thereof to read as follows: "SUBTITLE E-MISCELLANEOUS PROVISIONS AND APPROPRTATIONS”; and (3) by inserting after subtitle C a new subtitle D, as follows:

"SUBTITLE D-WHEAT MARKETING CERTIFICATES

"LEGISLATIVE FINDINGS "SEC. 380a. Wheat, in addition to being a basic food, is one of the great export crops of American agriculture and its production for domestic consumption and for export is essential to the maintenance of a sound national economy and to the general welfare. The movement of wheat from producer to consumer, in the form of the commodity or any of the products thereof, is preponderantly in interstate and foreign commerce. The small percentage of wheat which is produced and consumed within the confines of any State is normally commingled with, and always bears a close and intimate commercial and competitive relationship to, that quantity of such commodity which moves in interstate and foreign commerce. For this reason, any regulation of intrastate commerce in wheat is a regulation of commerce which is in competition with, or which otherwise affects, obstructs, or burdens, interstate commerce in that commodity. In order to provide an adequate and balanced flow of wheat in interstate and foreign commerce and thereby assist farmers in obtaining parity of income by marketing wheat for domestic consumption at parity prices and by increased exports at world prices, and to assure consumers an adequate and steady supply of wheat at fair prices, it is necessary to regulate all commerce in wheat in the manner provided under the marketing certificate plan set forth in this subtitle.

“DOMESTIC FOOD QUOTA "SEC. 380b. Not later than July 1 of each calendar year the Secretary shall determine and proclaim the domestic food quota for wheat for the marketing year beginning in the next calendar year. Such domestic food quota shall be that number of bushels of wheat which the Secretary determines will be consumed as human food in the continental United States during such marketing year.

"APPORTIONMENT OF DOMESTIC FOOD QUOTA "SEC. 380C. (a) The domestic food quota for wheat, less a reserve of not to exceed 1 per centum thereof for apportionment as provided in this subsection, shall be apportioned by the Secretary among the several States on the basis of the total production of wheat in each State during the five calendar years immediately preceding the calendar year in which the quota is proclaimed, with such adjustments as are determined to be necessary for adverse weather conditions and for trends in production during such period. The reserve quota set aside herein for apportionment by the Secretary shall be used to establish quotas for counties, in addition to the county quotas established under subsection (b) of this section, on the basis of the relative needs of counties for additional quota because of reclamation and other new areas coming into the production of wheat during the five calendar years immediately preceding the calendar year in which the quota is proclaimed.

"(b) The State domestic food quota for wheat, less a reserve of not to exceed 3 per centum thereof for apportionment as provided in subsection (c), shall be apportioned by the Secretary among the counties in the State on the basis of the total production of wheat in each county during the five calendar years immediately preceding the calendar year in which the quota is proclaimed, with such adjustments as are determined to be necessary for adverse weather condi. tions and for trends in production during such period.

"(c) The county domestic food quota for wheat shall be apportioned by the Secretary, through the local committees, among the farms within the county on which wheat has been seeded for the production of wheat during any one or more

of the three calendar years immediately preceding the calendar year in which the marketing year for which the quota is proclaimed begins, on the basis of the normal yield of the acreage planted to wheat during such three-year period. The reserve provided under subsection (b) shall be used to adjust farm quotas which the county committee determines to be inequitable on the basis of tillable acres, crop-rotation practices, type of soil, and topography.

"MARKETING CERTIFICATES

"SEC. 380d. (a) The Secretary shall prepare for issuance in each county marketing certificates aggregating the amount of the county domestic food quota. Such certificates shall be issued to cooperators in an amount equal to the domestic food quota established for the farm pursuant to the applicable provisions of section 380c of this Act. The marketing certificates for a farm shall be issued to the farm operator, but the Secretary may authorize the issuance of marketing certificates to individual producers on any farm on the basis of their respective shares in the wheat crop, or the proceeds thereof, produced on the farm. The Secretary shall also issue and sell marketing certificates in such quantities as may be required to persons processing wheat into food products. Marketing certificates shall be transferable only in accordance with regulations issued by the Secretary.

“(b) Whenever a domestic food quota is proclaimed for any marketing year pursuant to section 380b of this Act, the Secretary shall determine and proclaim for such marketing year (1) the estimated parity price and the estimated farm price for wheat, and (2) the value of the marketing certificate. The value of the marketing certificate shall be equal to the amount by which the estimated parity price exceeds the estimated farm price as determined herein. The value of the marketing certificate shall be computed to the nearest cent. The proclamation required by this subsection shall be made during the month of June immediately preceding the marketing year for which such domestic food quota is proclaimed.

"(c) The Secretary is authorized and directed through the Commodity Credit Corporation to buy and sell marketing certificates issued for any marketing year at the value proclaimed pursuant to subsection (b) of this section. For the purpose of facilitating the purchase and sale of certificates, the Secretary may establish and operate a pool or pools and he may also authorize public and private agencies to act as his agents, either directly or through the pool or pools. Certificates shall be valid to cover sales and importations of products made during the marketing year with respect to which they are issued and after being once used to cover such sales and importations shall be canceled by the Secretary. Any unused certificates shall be redeemed by the Secretary at the price established for such certificates.

“MARKETING RESTRICTIONS

"Sec. 380e. (a) Except as provided in subsection (d) hereof, all persons engaged in the processing of wheat into food products composed wholly or partly of wheat are hereby prohibited from marketing any such product for domestic food consumption or export containing wheat in excess of the quantity for which marketing certificates issued pursuant to section 380 of this Act have been acquired by such person.

"(b) Except as provided in subsection (d) hereof, all persons are hereby prohibited from importing or bringing into the continental United States any food products containing wheat in excess of the quantity for which marketing certificates issued pursuant to section 380d of this Act have been acquired by such person.

"(c) Upon the exportation from the continental United States of any food product containing wheat, with respect to which marketing certificates as required herein have been acquired, the Secretary shall pay to the exporter an amount equal to the value of the certificates for the quantity of wheat so exported in the food product. For the purposes of this subsection, the consignor named in the bill of lading, under which the article is exported, shall be considered the exporter: Provided, however, That any other person may be considered to be the exporter if the consignor named in the bill of lading waives claim in favor of such other person.

"(d) Upon the giving of a bond satisfactory to the Secretary under such rules and regulations as he shall prescribe to secure the purchase of and payment for such marketing certificates as may be required, any person required to have a marketing certificate in order to market or import a food product composed wholly or partly of wheat may market or import any such commodity without having first acquired a marketing certificate.

"(e) As used in section 380e of this title, the term 'marketing' means the sale and the delivery of the food product composed wholly or partly of wheat.

"CONVERSION FACTORS "Sec. 380f. The Secretary shall ascertain and establish conversion factors showing the amount of wheat contained in food products processed wholly or partly from wheat. The conversion factor for any such product shall be determined upon the basis of the weight of wheat used in the processing of such product.

"CIVIL PENALTIES "Sec. 380g. Any person who violates or attempts to violate, or who participates or aids in the violation of, any of the provisions of subsections (a) or (b) of section 380e of this Act shall forfeit to the United States a sum equal to three times the market value, at the time of the commission of such act, of the product involved in such violation. Such forfeiture shall be recoverable in a civil suit brought in the name of the United States.

"ADJUSTMENTS IN DOMESTIC FOOD QUOTAS "Sec. 380h. If the Secretary has reason to believe that because of a national emergency or because of a material increase in demand for wheat, the domestic food quota for wheat should be increased or suspended, he shall cause an immediate investigation to be made to determine whether the increase or suspension is necessary in order to meet such emergency or increase in the demand for wheat. If, on the basis of such investigation, the Secretary finds that such increase or suspension is necessary, he shall immediately proclaim such finding (and if he finds an increase is necessary, the amount of the increase found by hiin to be necessary) and thereupon such quotas shall be increased or shall be suspended, as the case may be. In case any domestic food quota for wheat is increased under this section, each farm quota for wheat shall be increased in the same ratio and marketing certificates shall be issued therefor in accordance with section 380d of this Act. In case any domestic food quota for wheat is suspended under this section, the Secretary may redetermine the value of marketing certificates issued pursuant to section 380d of this Act.

"REPORTS AND RECORDS

"SEC. 380i. (a) The provisions of section 373 of this Act shall apply to all persons, except wheat producers, who are subject to the provisions of this subtitle, except that any such person failing to make any report or keep any record as required by this section or making any false report or record shall be deemed guilty of a misdemeanor and upon conviction thereof shall be subject to a fine of not more than $2,000 for each such violation.

“(b) The provisions of section 373 (b) of the Act shall apply to all wheat farmers who are subject to the provisions of this subtitle.

"REFERENDUM

"Sec. 380j. In the referendum held pursuant to section 336 of this Act on the national marketing quota proclaimed for the 1958 crop of wheat, the Secretary shall also submit the question whether farmers favor a marketing certificate program under this subtitle in lieu of marketing quotas under subtitle B. If more than one-half of the farmers voting in the referendum favor such marketing certificate program, the Secretary shall, prior to the effective date of the national marketing quota proclaimed under subtitle B, suspend the operation of such quota and a marketing certificate program shall be in effect for the 1958 and subsequent wheat crops under the provisions of this subtitle and marketing quotas and acreage allotments shall not be in effect for wheat under subtitle B. If the marketing certificate program authorized by this Act is approved for the 1958 crop by farmers voting in a referendum as provided herein, the provisions of section 101 (d) (8) of the Agricultural Act of 1949, as amended, shall have Do applicability to the 1958 crop of wheat.

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