STATEMENT OF HON. MARVIN L. MCLAIN, ASSISTANT SECRETARY; ACCOMPANIED BY FRANK W. IMMASCHE, COMMODITY STABILIZATION SERVICE, AND F. RICHARD BURKE, AGRICULTURAL MARKETING SERVICE

Mr. MCLAIN. I have a prepared statement, together with some charts and tables which, with your permission, I should like to present for the record, if that will be agreeable.

Mr. MATTHEWS. Without objection, that may be done.

Mr. McLAIN. After we finish the statement, we will be glad to answer any questions you might have.

I am happy to appear before your committee on behalf of the Department of Agriculture to recommend extension of the National Wool Act of 1954. This program was developed 4 years ago by the wool growers, the executive branch, and the Congress as a measure to meet the special problems of our domestic wool industry.

With wool, we are dealing with an agricultural commodity in which our country is deficient in production. The cost and problems in producing wool are such that the production of wool, even with price support through loans and purchases at the maximum level authorized, declined over 40 percent following the beginning of World War II. Furthermore, in supporting wool prices through loans and purchases, domestic wool accumulated in the hands of the Government while imported wools supplied an increasing share of our requirements.

In his special message to Congress on agriculture 4 years ago, President Eisenhower recommended legislation for promoting the development of a sound and prosperous domestic wool industry as a measure of national security and in the promotion of the general economic welfare. We are producing only about one-third of our normal peacetime requirements. The foreign wool upon which we must rely to supplement our domestic production requires shipping over sealanes from 5,000 to 8,000 miles.

REASONS FOR DECLINE IN DOMESTIC PRODUCTION

Over the years, domestic woolgrowers have been faced with_one uncertainty after another in the market outlook for their product. The tariff on wool was reduced in 1948 under the Trade Agreements Act. The protection afforded by the tariff has been further reduced by the rise in the general level of prices and costs. The tariff today provides protection equivalent to only approximately 20 percent of the price received by growers, compared with 77 percent in 1930.

Woolgrowers have been facing increasing costs of labor, equipment, and supplies. They have been caught in the squeeze between higher costs, on the one hand, and relatively less protection from imports of foreign wool, on the other.

Specialized labor is of major importance in sheep ranching, especially in the western range areas. There has been a scarcity of competent labor, and wage rates have increased more than any other major item of expense. Wool production became less attractive as an enterprise during a period when national income was rising to record levels and production of agricultural commodities already in surplus was on the increase.

The number of sheep shorn in the United States has declined from 49 million head producing 388 million pounds of wool in 1942 to 26 million head producing 226 million pounds in 1957, yet our range and feed resources best utilized by sheep will carry a higher level of production.

Our situation with wool is a special one, like sugar. Wool and sugar are the two major agricultural commodities in which the United States is deficient in production. Both face heavy import competition with serious complications. Legislation and programs for commodities which are produced in surplus in this country just do not fit the problems with which we are confronted in the case of wool and sugar.

PLAN DEVELOPED AFTER FULL STUDY OF SITUATION

The plan of price assistance under the National Wool Act of 1954 was developed after considerable study and with the advice and counsel of all segments of the industry. Raising the tariff as a solution would be contrary to our aims for expanding foreign trade, particularly with our friends in the Southern Hemisphere. Also, achieving higher prices for wool by increasing the tariff would adversely affect the competitive position of wool with other fibers.

As mentioned, price support through loans was not maintaining domestic production and was getting the Government more and more in the wool-merchandising business while losing markets for domestic wool.

Under the National Wool Act of 1954

1. An annual production of 300 million pounds of shorn woolabout one-third more than we are now producing-is to be encouraged as a measure for our national security and promotion of the general economic welfare.

2. An incentive price is established to encourage this larger production.

3. The price will be obtained by means of payments to growers to bring their income from wool up to the incentive level, rather than by raising prices in the free market.

4. A portion of the duties collected on imports of wool and wool manufactures is appropriated to finance the payments.

5. Section 708 of the act provides a self-help feature whereby woolgrowers can work together more effectively in developing and financing advertising and promotion programs to improve the demand for the industry's products and, thereby increase the prices received in the free market.

HOW PAYMENTS ARE MADE FOR SHORN WOOL

The incentive price has been set at 62 cents for each of the marketing years under the program to date. Growers sell their wool in normal marketing channels. After the year is over, and the average price received for wool sold during the marketing year is known, payments are made to bring the national average price received by all growers up to the incentive level. The payments are made at one percentage rate the percentage required to bring the national average price for wool sold in the free market up to the incentive level.

This one rate is applied to the net sales proceeds received by each grower to determine the amount of his incentive payment. By making the payments on a percentage basis, growers are encouraged to improve the quality and marketing of their wool to obtain the best price possible, because the higher the price the individual grower gets in the free market the greater his payment.

The support for pulled wool is provided to maintain normal marketing practices; that is, prevent unusual shearing prior to marketing just to get the payment on shorn wool. This is being handled by making payments on all sales of unshorn lambs, irrespective of whether they are sold for replacement, feeding, or slaughter.

Then, if the new owner sells the lambs without shearing them, his payment will be adjusted downward by the amount due on the weight of the lambs purchased. Likewise, if he shears the lambs and sells the wool, his wool payment will be adjusted downward by this same amount. In this way, the original producer and the later feeder or breeder-owner share in the payments.

Payments are made only to bona fide producers. To qualify for a payment, the applicant must have owned the sheep or lambs from which the wool was shorn or the unshorn lambs sold for at least 30 days.

The National Wool Act of 1954 provides for the support of mohair by payments similar as for shorn wool. The support price for mohair has been set at 70 cents for each marketing year. This price is near the minimum of the range authorized by the act with the incentive price for shorn wool at 62 cents. Production of mohair has been on

the increase since 1952.

WOOL PRICES LOWER FIRST 2 YEARS THAN ANTICIPATED

The payments on wool under the program the first 2 years were greater than anticipated when 62 cents was first established as the incentive level. This resulted from a greater than expected decline in the prices received for shorn wool in the free market.

Part of the price decline may have been the cost of getting back to a free market after several years of support at fixed prices. Also, the CCC-owned wool accumulated from the previous price support loan programs was a bearish factor. These stocks totaling over 150 million pounds at the beginning of the incentive payment program were finally eliminated last month as a depressing influence on the market.

We

The average prices received by growers declined from around 50 cents in early 1955 to a low of about 38 cents in January 1956. were optimistic about the recovery to 56.4 cents by June last year. However, that has been tempered by a softening of prices since. In mid-December the average was 46.4 cents and 45.2 cents in midJanuary.

WOOL SITUATION

The decline since June was primarily due to lower prices in the world market. Curtailed buying by Japan and uncertainty of demand prospects in the United Kingdom and France have been depressing factors in the world market. At the opening auctions in Australia in late August and early September, prices were about 10 percent below their peaks last May. They declined further and by

early January were 25 percent below last May. They are now down near the lows of 1955. Since the middle of January, wool prices in the British Dominion markets have firmed up and have shown a little rise. As to our own situation, United States mill consumption of apparel wool has been running about 17 percent below a year earlier. In contrast, consumption of manmade fibers is up over 8 percent. The higher wool prices last winter and spring may not have been as advantageous to the industry as many thought they were.

RATES OF PAYMENT

As a result of the decline in shorn wool prices during the 1955 marketing year, the national average for the year was 42.8 cents. With the incentive level at 62 cents, that meant incentive payments at the rate of 44.9 percent. The average price received by growers in the market during the 1956 marketing year was 44.3 cents and the rate of payment 40 percent.

For the 1957 marketing year to date, the average prices by months have ranged from 56.4 to 45.2 cents which indicate that the rate of payments for the current year may be from 15 percent to 20 percent of the price received in the market.

Prices received for mohair the first 2 years were above the 70-cent support level and no payments were required. The price for the 1957 year was reported at 88 cents so no payments on mohair will be required this year. However, with the recent softening of prices, payments may be required for the fourth year.

FUNDS AVAILABLE FOR PAYMENTS

Under the act, the total payments are limited to 70 percent of the specific duties collected on imports of wool and wool manufactures from January 1, 1953. In this way, the payments for price assistance on wool are related to the duties collected under the protective tariff.

By the beginning of the first year of the incentive program, these amounts totaled about $68 million and thus provided a backlog of funds available for payments in cars when the duties are not sufficient to cover the required payments.

Payments totaled approximately $58 million the first year and around $53 million the second. Čurrent duty collections available. for payments amounted to about $31 million during the first year and $28 million the second. Thus the payments for the first 2 years exceeded current collections available for payments by about $52 million and reduced the backlog by that much.

With the general decline in wool prices in the world markets since last May, it appears that the backlog available for payments may be completely exhausted by the end of the fourth year. This is based on the assumption that the average price received by growers in the free market holds around 48 cents. Each 1 cent the national average price received for wool fails to equal the incentive price means $3 million in payments.

The price situation, both in this country and abroad, after the extension of the National Wool Act will determine whether the 70 percent of specific duty collections on imports of wool and wool manufactures will be sufficient to maintain the incentive price for shorn wool at a truly incentive level over the years ahead.

TRENDS IN SHORN-WOOL PRODUCTION

With regard to the progress being made toward increased production of wool in accord with the intent of the act, sheep numbers and wool production continue at low levels. The net decline in wool production in the last few years has been primarily due to reductions in sheep numbers in Texas and several of the Western States where severe drought conditions prevailed.

Shorn-wool production in 1957 was greater than a year earlier in 23 of the 35 native sheep States and in Arizona and South Dakota of the 13 western sheep States.

About 70 percent of our total production, of course, is in the 13 Western States where range conditions and cattle prices influence sheep numbers. Furthermore, due to the nature of the enterprise, year-toyear increases in wool production can be expected to be only gradual even under most favorable conditions.

ADVERTISING AND SALES PROMOTION UNDER SECTION 708

Section 708 of the National Wool Act of 1954 provides a method for growers to organize and conduct advertising and sales-promotion programs for the industry's products and the financing of such programs by deductions from their payments. It thus permits growers to use their own money in efforts to increase the demand for and the returns from lamb and wool in the free market and thereby reduce the amount of payments from the Government to accomplish the objectives of the act.

Soon after passage of the act, growers and grower groups organized the American Sheep Producers Council to conduct advertising and sales-promotion programs for lamb and wool.

Growers, in a referendum held in 1955, approved deductions of not to exceed 1 cent a pound from incentive payments on shorn wool and not to exceed 5 cents per hundredweight from the payments on unshorn lambs for financing the advertising and sales-promotion programs. Intensive programs of advertising and sales promotion for both lamb and wool are underway.

So far the Secretary has approved the deductions from the payments for each of the 3 marketing years, 1955, 1956, and 1957. These deductions will be sufficient to finance the promotion and marketdevelopment activities of the council for 3 years and provide a reserve sufficient to carry the program for a fourth year.

Upon extension of the National Wool Act, it is planned that the Secretary will hold another referendum to determine the continued. willingness of growers to use a portion of their payments to conduct advertising and sales promotion of their products.

RESEARCH AND OTHER ACTIONS TO AID INDUSTRY

The Department has been giving increased attention to programs which will help the industry improve its production and marketing efficiency and thereby lessen the need for price assistance. Research and other action programs dealing with disease control, improvement of production and marketing practices, conservation measures to increase the carrying capacity of both public and private grazing