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(The Department's report referred to is as follows:)

DEPARTMENT OF AGRICULTURE,
OFFICE OF THE SECRETARY,
Washington, March 11, 1958.

Hon. HAROLD D. COOLEY,

Chairman, Committee on Agriculture,

House of Representatives.

DEAR CONGRESSMAN COOLEY: This is in reply to your request of January 31, 1958, for a report on H. R. 10317, a bill to authorize emergency refinancing loans to farmers in disaster areas.

The Department of Agriculture does not recommend the enactment of the proposed legislation.

H. R. 10317 would expand the emergency loan program of the Department, administered through the Farmers' Home Administration, to include the refinancing of existing debts, both secured and unsecured, owed by farmers and stockmen in any area heretofore or hereafter covered by a major disaster determined by the President under Public Law 875, 81st Congress, or in any area covered by a production disaster determination of the Secretary of Agriculture under section 2 (a) of Public Law 38, 81st Congress. Loans to refinance debts would be repayable in not to exceed 5 years. Interest rates would be determined by the Secretary of Agriculture at not less than 1 percent per annum above the rate determined by the Secretary of the Treasury at the beginning of the fiscal year in which the loan is made which, under the provisions of the bill, would be the current average yield of outstanding marketable obligations of the United States having maturities of 5 years.

The bill would establish a separate revolving fund to carry out its purposes. The fund would be composed of not more than $200 million, such additional amounts as Congress might from time to time approve, and collections from repayments and liquidations of loans made for refinancing. The bill further provides that such sums shall be borrowed by the Secretary of Agriculture from the Secretary of the Treasury on such terms as may be determined by the Secretary of Agriculture, with interest at the rate determined by the Secretary of the Treasury to be equal to the current average market yield of outstanding marketable obligations of the United States having maturities comparable to such advances. There is no provision for additional administrative and other expenses that would be involved in administering the proposed program.

We believe the word "debt" was probably intended to be inserted between "public" and "transaction" at the beginning of line 12, page 3, of the bill.

The changes proposed would constitute a major revision of policy and use of public funds compared with the type of emergency loan program that has been administered by the Department since the enactment of Public Law 38 in April 1949. It feels that the expansion of its present emergency loan program into the field of debt refinancing on a large scale is not warranted. It feels, also, that the present program of the Department, coupled with the credit facilities available to business firms through the Small Business Administration, can and will satisfactorily meet the credit needs of farmers and business firms, respectively, in designated emergency areas.

The Department of Agriculture, acting through the Farmers' Home Administration, has rather broad lending authorities under Public Law 38 to make loans in areas where a shortage of credit exists because of losses of farm income resulting from natural disasters. Under this statutory authority, the Department is now making emergency loans in approximately 600 counties of 30 States. These loans are made from a revolving fund established by the Congress.

The present program consists of making loans primarily for farm operating expenses, family subsistence, and the replacement of needed equipment and livestock. We realize that in some areas farmers and stockmen may have difficulty in obtaining nondisturbance agreements from other creditors that would enable them to continue their operations with the assistance of an emergency loan. For this reason, loans may include funds for the payment of a year's interest on debts secured by liens on real estate and chattel property and recently authority was granted to include funds, when justified and necessary, for the payment of an amount representing a year's depreciation on essential farm equipment, but not to exceed 15 percent of the value of such equipment or the amount owed thereon, whichever is the smaller.

The purpose of emergency loans is to enable farmers and stockmen to continue their normal operations and thereby improve their financial position as soon as possible to the extent that they can return to regular sources of credit. This program is administered in compliance with the generally accepted public policy that Federal credit programs should be used only to supplement private sources of credit. For this reason, existing creditors of farmers and stockmen receiving these loans are requested to continue with them during the term of the loan. The program generally has been serving its purpose and operating in a satisfactory manner. Since the enactment of Public Law 38 in 1949, about $400 million of emergency loans of all kinds have been made to farmers and stockmen. The Bureau of the Budget advises that there is no objection to the submission of this report.

Sincerely yours,

E. T. BENSON, Secretary.

Mr. SMITH. The reason given in the Department's letter, Mr. Chairman, is that the Department of Agriculture at the present time is administering an emergency loan program in these designated areas, approximately 600 counties on the basis of making credit available to farmers and ranchers to stay in business in 1958 that is, to meet their production costs, and are making those loans available to farmers and ranchers who cannot obtain loans of that character from private cooperative sources.

Mr. POAGE. Don't you think that is a rather unrealistic proposition to assume that that man can stay in business in a small community when he owes everybody in that community and when he is not paying them a dime?

Mr. SMITH. The emergency loans that we are making in the areas represented by the Congressmen that have testified this morning, do include budgeted amounts for depreciation on machinery where creditors have mortgages on the farms and farmers machinery, they do include interest on land and cattle debts, they do include taxes that fall due during the year and they include substisance and operating needs. Mr. POAGE. Yes.

Mr. SMITH. The only void or the only type of credit that possibly is not included in the budgeted loans we are now making are advances for the paying of unsecured accounts resulting from last year's operation.

Mr. POAGE. That is what this bill proposes to take up?

Mr. SMITH. That is right.

Mr. POAGE. I come back to the proposition, I have lived in a small community and I think maybe you have.

Mr. SMITH. Yes.

Mr. POAGE. I think I would find it extremely unpleasant to say the least to live in a community where I owe two of the three local garages or filling stations, so I have to move over to the other one.

I have paid off some of these secured loans, I have paid this implement dealer over here, who lives up at the county seat from whom I bought my equipment, but I have not paid a dime locally in the community where I am living. Well, now, I do not think you encourage much staying on the farm with that sort of a deal. I think you have a deal on which the farmer just cannot be expected to be a good citizen under that sort of a setup and in which he cannot be expected to operate a farm. I have to have this extra money to work my crop, I have to catch your man, he lives in another county, and I have to go and hunt him up, and he is always gone, has to be, it is his duty-I am not complaining, but I have to spend 2 days and gasoline that you

do not give me any budget to buy. I must get gasoline from somebody to find that man or else I cannot get the money to make the crop. Isn't that a fact?

Mr. SMITH. I hope not, sir, but

Mr. POAGE. How else can you do it?

Mr. SMITH. We can include in our budget all of the crop and expense that will be required, and except for the larger items

Mr. POAGE. You get the man and the wife in there I know you do. Your office is right across the hall from mine in the post office in Waco, and I think you do a good job of it. You figure what you expect them to need. You expect that they will need so much, and you will advance what you expect them to need. But that tractor tire that you didn't expect me to blow out, and the tractor cannot move until I get it fixed-you didn't expect it to blow out-you didn't expect something else. You will advance me some more money if I can catch your man. In Waco he has an office, but in many places he has not. In many places, unfortunately, and again I don't blame you, he has to cover two or three counties. What do I do? I have to get a car to hunt him.

Isn't that the only way I can do it? You have not budgeted me any money to hunt him with. How am I to catch him? How do I get something for just the little daily operations? The inability to operate at the right time has as much to do with the failure to make a good crop as an overall squeeze on the limitation.

I think you have been reasonably generous on your overall esti.mates. I am not condemning that. I am not condemning the organization. I am merely saying, Aren't you faced with a situation that is so difficult, that I do not see how we make it work unless we keep these people in some sort of standing where they can have some sort of credit at home.

Even those little banks when they financed these people ofttimes they had no rule, of course, but for practical purposes the man who was advancing a little gasoline and little repair and so on, knew that the bank in town would take care of them, under normal conditions. The bank will not take it up now. You are the financing agency and you will not take it up. How can the man get these things done that have to be done?

Mr. SMITH. Mr. Chairman, I don't think this problem you are explaining was just created this year.

Mr. POAGE. No; it was not.

Mr. SMITH. I think that has been with us for many years.

Mr. POAGE. I know it has. That is very true, but the man who had a normal crop yield was getting along and these things did not become excessive to him as they are to the man who didn't make any crop at all. They did not get so critical until you got the disaster. Mr. SMITH. I assume that you called us over here to try to be helpful to the committee in considering these various items of legislation. While, as Mr. Hansen said, we have had the Jones bill just a very few days, there are some features in the bill about which we have made a study in the past. I believe we know something about the matter of the insuring loans that is a feature in that bill. We have also made some study of the provision in the bill with respect to the Government making funds available to lending institutions, for them in turn to make loans to farmers for refinancing purposes.

While and Mr. Hansen I think would confirm this—we are not in a position to speak for the Department with respect to all of these various features, we are in a position to give the committee some of our experiences with respect to these various features of the bills that you have under consideration here.

As an agency we have concluded that there is really no way to get at this problem of making funds available to farmers for refinancing unsecured loans in the fashion that any of these bills. are designed to accomplish except on a basis of direct Government loans. The main reason why we have reached that conclusion is that private creditors would not likely assume the risk that otherwise would be involved in the matter.

Mr. JONES. May I make a comment there?

Mr. POAGE. Yes.

Mr. JONES. I felt the same way that you have indicated except I did this, when I was down in southeast Missouri-and I can only speak for that area-but I think it would be typical-when I first began formulating the basis for this bill, many people told me and some of these people were ginners; others were implement dealers, and so forth, they said "the thing about it, the banks won't be interested in making a loan on that small margin that it will have to be made on."

So then I went to some small bankers and to some of the larger bankers in my district and I found that they were interested in making that type of loan. They were interested only to the extent that they would make those loans to what would be a regular customer of that bank, but they would not lend money otherwise. For instanceand I will use Mr. Wellman's name because I know that you do have a great respect for his opinion-I know he worked with us on some of these other policies that were adopted and that we all felt maybe would not work out so well-Mr. Wellman told me-and he was the last one I went to and, frankly, I hesitated to go to him because he is a conservative banker, as you know, and I thought, well, he will tell me, "We just can't use that type of loan at all.”

But to my surprise he said:

Well, I think that that plan has a lot of merit and, while our bank would not use it to any large extent, I can visualize in my mind now that we would have 6 or 8 people that we would make a loan of that type to and would participate and take the chance of losing that 10 percent. But I think it will be used. I would like to just get your comment on that.

I have a copy of a memorandum here-and this memorandum is addressed to Sherman Adams, Assistant to the President, and from Mr. True D. Morse, and just reading about 10 sentences, it says here they made a survey in southeast Missouri:

The survey showed that excessive rainfall in the entire Mississippi Delta area last fall severely curtailed the size of the cotton crop, and greatly increased the cost of producing and harvesting the crop.

Many farmers in the area will need emergency credit to finance their 1958 operations and will have to carry over sizable debts that were acquired in producing last year's crop. Many business firms in the area are feeling the pinch of the loss of farm income and need credit aid in rebuilding their inventories. Based on information from the area and to aid business firms to rebuild their inventories, the President on February 22 signed an amendment to the Small Business Act of 1953, authorizing the Small Business Administration to make smallbusiness disaster loans in areas affected by excessive rainfall. This measure authorizes the SBA to make loans to business suffering economic loss directly attributable to excessive rainfall.

grain or fiber commodity. So as we look at what we in CSS should make available to the Foreign Agricultural Service for programing under title I, this, in our opinion, looking at it from the size of the overall inventory, was a reasonable figure to make available for programing under title I, keeping in mind all of the time that we have had to make some very real decisions as regards classes of wheat, and the amount that would be made available to the Foreign Agricultural Service as regards cotton.

Mr. THOMPSON. The relationship to wheat I can see, but the relationship to cotton is a bit obscure. I realize that it is all so many dollars. Here is a commodity which has a surplus ready for export. Here is a market that wants that commodity. It seems to me to be very unfair to penalize that industry as, certainly, will be the case if we do not do something about it. We penalize them by saying, "We are going to maintain an arbitrary surplus or rather an artificial surplus. And what is going to happen to you, is your own worry."

It is the worry of this committee, because we are going to see an absolutely unjustified reduction in rice increase next year. We are going to see a lowering of the price supports which would not be the case if we went ahead and filled the market needs. Do I make myself clear?

Mr. PALMBY. Yes, you do.

Mr. THOMPSON. I realize that this comes from the highest policymaking level. I am not blaming you.

Mr. PALMBY. Here again, if I could take another approach on this: In trying to analyze what we should make available to the FAS of our stocks, we run into the same thing, if I may make this side statement again, on soft white wheat for instance, where there is no question at all but what those countries that are getting title I would prefer that class of wheat over hard wheat. We think with a limited amount of money available we must use that money to its best advantage, so that it is spread around on all commodities.

I will have to say as regards soft wheat again; "there is almost an unlimited demand." I think it would be foolish to say that there isn't a great demand for rice under title I, there is. But with a limited overall that can be spent on this program we think that it is fair to make an amount of all surplus commodities available for programing, provided those commodities are acceptable to the receiving country. Mr. GATHINGS. Mr. Palmby, what is the date of the making up of this estimate sheet here, this tabulation? Does that run through the month of February or January, or what?

Mr. PALMBY. What sheet do you have there?

Mr. GATHINGS. The sheet that we are now working on-the table, disposition of CCC-owned rice, table No. 2, in fiscal year 1957-58 by programs?

Mr. PALMBY. March 10. Is that the final date?

Mr. SIKES. On your estimated

Mr. PALMBY. For 1957-58?

Mr. GATHINGS. Yes.

Mr. SIKES. That is the current estimate.

Mr. PALMBY. Through the marketing year, through July?

Mr. SIKES. Yes.

Mr. GATHINGS. We are running behind now in disposition of CCC stocks, that is compared with a year ago.

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