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is placed upon the total amount of parity income deficiency payments that could be received by any one farmer in any one year.
At this point, perhaps I should digress to say that such family farm support will not, as some critics charge, suspend the rule of competition. As always, the more efficient operators will gradually go ahead of the less efficient. Our proposal is not an absolute shield for the tail-enders and the ne'er-do-wells; there will continue to be some winnowing out. But under our proposal, these changes should remain within historical bounds; good family farmers will be protected from destruction by the "giantism" of corporate-type operations.
I now invite the attention of the committee to the provisions of this bill which place a limit upon the Federal expenditures that may be made through payments but which also put a limit upon the extent to which supply restriction may be used to protect market prices of farm commodities. This is the provision that specifies that the national marketing quota shall be set at the volume of the commodity that will clear the market at the specified protection level in a full employment and full prosperity economy. The latter is measured as a situation where less than 3 percent of the civilian labor force is unemployed.
This particular provision, if enacted, would enable and require the program to operate with practically no cost to the Federal Treasury in periods of full employment. In such periods no parity income deficiency payments would be made, because none would be required. This is because the national marketing quotas for each commodity, for each commodity group, and for the all-commodity farmwide marketing quota program would be set at the volume that would clear the market at the price goal. Since the price received by farmers would be at the specified level there would be no need nor necessity to make payments and the only cost of the program would be the extent to which administrative costs might exceed the collections made from the sale of within-quota marketing certificates.
On the other hand, to return again to the price-supply formula, in years and periods of time less than a year, when unemployment rises to 3 percent or more of the civilian labor force, the established marketing quota would not clear the market at the protection level price. Market prices would be lower than the price goal. The difference would be made up with counterrecessionary payment, which would be a desireable public expenditure to help bring the depression to an end. The payment would keep farmers' income from dropping but would permit consumers to buy and farmers to sell a full employment, full prosperity volume of supply under the established marketing quotas.
What, it may be asked, is the basis for thinking that the formula I have just outlined will result in a matching of supply and price such as fully to yield (under full employment) the desired net farm income? Furthermore, will the adjustment in marketings necessary to obtain this matching leave the American people with plenty of food?
I am satisfied, after having noted the extreme inelasticity of total agricultural demand in recent years, that it wouldn't take much of a shift in supply to make a remarkable difference in farm income. As for the impact on retail food prices, the record shows that on many finished food products-bread, for example-price changes, even large ones, on the raw product have historically made very little difference.
On other food items, the farmer's share of the consumer dollar has now declined to such an extent that even if all of any farm price change was passed on completely, the retail rise would not be substantial. Of course, the middleman has been widening his margin as farm prices fell so that there is some basis for expecting absorption if farm prices should now rise.
May I invite your attention that this significant provision is included not only in the bills which Congressman McGovern and I have introduced and which we are discussing this morning. This provision is also a major feature of the milk stabilization bill introduced by Congressman Johnson, a member of your committee.
I am in full accord with my colleagues, and with the 40 to 44 farmer groups, that farmers need more bargaining power. In our generally administered-price economy, farmers need and deserve control over the supply, marketing, and pricing of their commodities. The bill I have introduced gives this authority to farmers and provides a means to exercise it through democratically elected committees and boards of farmers.
First, the bill I have introduced would amend existing law and extend the authority to make use of marketing orders to all farm commodities, rather than the few now so authorized. Under this authority, farmers would not be authorized to operate a marketing order to raise the farm price of the commodity above the parity income equivalent price. Under existing law, marketing orders are limited in operation to prices lower than the price calculated by the price parity formulas in existing law.
Producers of those commodities for which marketing orders had not been placed into operation would be made eligible and required to make use of marketing quotas both for groups of related commodities and for individual commodities. In addition, enactment of the bill would establish the operation of an all-commodity farmwide marketing quota system for all commodities as a whole. The establishment and operation of this system of commodity market supply adjustment and proration programs, marketing orders or marketing quotas, as determined by farmers, would be subject in each case to a referendum vote of the producers involved. But there is no compulsion. Those who want no controls may so decide, in which case they would be completely on their own. Under some price and income stabilization bills before your committee, farmers would be given the authority to utilize marketing quotas to maintain price of their products, but there is no limit placed upon its use. In one sense this would give to the farmers no more than the same authority to regulate supply and set price that we as a nation already have given to labor unions and large industrial corporations such as farm machinery, steel, and chemicals. But in my view, there is a significant difference between food and finished steel. One can stay alive for quite a while without finished steel but not very long without food.
Because of this, in the bill we have introduced, we have provided that the national marketing quotas in each case shall be set as the volume of a commodity, a group of commodities or of all commodities, as the case may be, which will clear the market at the price level specified, assuming that we will be operating in a full employment economy. Thus through use of marketing quotas the annual supply would be tailored to a full employment-parity income level. No more of the commodity than would clear the market at the specified price would be allowed to reach the market. This would be determined on the basis of the most complete and most accurate statistical and economic estimates to be the amount that consumer demand would take if no more than 3 percent of the labor force were unemployed. The national marketing quota would also include an allowance for necessary additions if any to a national safety reserve and for the volume of exports that would move under applicable laws and economic conditions into foreign trade.
Thus the consumer market at all times would be supplied with a full prosperity supply of food and fiber products. Then, if in any year this full prosperity supply would not return the specified price level to farmers because of reduced consumer demand, Mr. McGovern's and my bill provides that the farmers and consumer shall not be asked to pay for increased unemployment and reduced demand through higher prices and reduced volume, as has characterized industrial operations the past 10 months. Instead, the extent to which farm prices fall below the price goal would be made up by an antirecessionary parity income deficiency payment direct to farmers, as I have explained earlier. Thus under the program we are proposing, farm income would not be allowed to drop when recessions such as we are now in begin to reduce consumer demand. Nor would the market supply be restricted below the full prosperity level by use of marketing quotas.
Many of us in the Congress represent not only farmers but a great many high, medium, and low income consumers. The farm legislation we enact must be good both for farmers and for consumers. I believe that consumers who are fully employed in an expanding economy are and will be willing to pay fair retail prices based upon a parity of income for family farmers, just as they have been willing to pay prices for automobiles and radios and shirts and television sets that reflect the costs of a reasonable profit for the corporation, collective bargaining contracts and minimum wages and other market supply and proration devices in everyday use in nonfarm sectors of the economy.
But I do not believe that consumers, or we here in Congress, can afford to set up a farm program that will allow farmers to cut supply enough to follow consumer demand down when unemployment increases and a depression sets in. Last July the steel industry raised prices by $6 per ton and thereby decided to reduce output to 55 percent of capacity. We can hardly afford to allow
farmers to do this. But to be fair to farmers, we should either give them the same authority as that exercised by steel corporations or to make it up to farmers in some other way. If we were to authorize farmers to drop market supply to the extent that we allow the steel industry to do so, a 45 percent cut in less than a year, this would certainly increase food prices and would raise prices received by farmers by more than 500 percent. But there would be a lot of hungry people.
Obviously, if we are going to be fair to farmers, and I think Congress should be, and if we are going to safeguard an abundance of food and fiber for consumers, and I think Congress should, the only way to reconcile these aims is to adopt legislation along the lines of the principle in our bill. That is to provide for a marketing quota equal to full employment, full prosperity consumer demand at fair prices; with the provision to maintain this supply even in periods of recession, with farm income to be maintained by means of parity income deficiency payments. I do not believe that we who represent consumers can afford to set up a marketing quota system for farmers that protects their rights and income based upon cutting supply lower and lower as consumer demand drops, due to unemployment, and wrong national economic policies, such as the tight money policy that seems to have added fuel to the current depression that started on the farms of the Nation.
Here is an example-I will not try to use the exact figures, but they could be obtained from the experts in the Department of Agriculture. Let us assume that the parity income equivalent price for manufacturing milk provided by our bill is $5 per hundredweight. Our bill provides that the price shall be maintained at not less than 80 percent of that figure, or $4 per hundredweight.
Let us assume that the market, assuming less than 3 percent unemployed, will buy 115 million at this price. This 115 million would be established as the marketing quota for milk in the year ahead. If actual unemployment should be 3 percent or above, the market obviously would not return $4 per hundredweight but something less.
In the year or period with full employment, the entire marketing quota would clear the market at the $4 price, no surpluses would accumulate in Government ownership, there would be no costs to the Government except for administration (and part of that would be obtained from the charge for within quota marketing fees). However, in the unemployment example, if a full prosperity supply or marketing quota of milk sold for an average of only $3.85, then a payment would be made to the producer equal to 15 cents. This payment would not be a special subsidy to the farmer, rather it would be in the nature of an antirecessionary program to help get the economy back on the upgrade and out of the depression. The cost of the payments thus would be chargeable not against the farmer but against the total cost of pulling the Nation out of recession or depression.
A moment ago, I used a term-parity income equivalent prices-which may beg definition. This is the price of any commodity which, when multiplied by the aforementioned "normal" or full-employment supply, would give the producer group its proportionate share of a national farm parity income. That share would be the percentage which that commodity had of total farm income in some base period. We suggest the most recent 10-year period in this bill. The total national parity income figure, of course, would be that amount which would provide agriculture as a whole with a standard of living comparable to that afforded the nonfarm population. I might add that at present, taking account of its investment in land, equipment, and so on, agriculture is getting considerably less than parity income.
There are other features of the bill I have introduced that will be fully covered by other witnesses. My purpose here is to invite the attention of the committee to two of the major principles incorporated in my bill which I feel should be given serious consideration in any long-range farm bill that the House of Representatives may be asked to consider.
I realize that when farm income improvement programs are put into operation, the program for each commodity or group of commodities must be tailored carefully to the unique needs and characteristics of each commodity. We have not tried to set up separate programs for all the different commodities in our bill. Rather, we would leave that job to the administrators and technicians in the executive branch. However, I have no objection to the Congress actually so doing in legislation, because I realize the practical value of so doing. But I believe it should not be done piecemeal but as part of one program.
I believe there are these general principles I have discussed with you that should be included in each of the commodity proposals in some workable manner and combination.
Let me summarize.
First, I suggest that we must set up programs that in years of full prosperity and full employment will operate practically without cost to the Federal Treasury. To that extent, Mr. Chairman, at least all of the programs ought to be designed to do as well as the tobacco program. To do that I have suggested that the programs must provide for a workable device to keep market supplies in line with full employment demand. I have suggested marketing orders and marketing quotas.
Second, for most commodities I suggest that bushelage and pound quotas would be more workable and more effective for the tough job of market supply adjustment and proration than are acreage allotments.
Third, I suggest that what we are trying to do is to preserve and improve the family farm, and have no particular reason to give unlimited eligibility to larger than family farm factories in the field. Therefore, the legislation should provide for a cutoff at the upper limit family farm production.
Fourth, I have discussed at length the need to provide for use of parity farm income deficiency payments during years when dropping supply down to stay in balance with a high unemployment consumer demand would result in hardship to consumers.
No doubt the question will arise in the minds of committee members as to the cost of the program. I have not tried to make an exact estimate. The figures and statistical analysis needed for such a careful estimate are not available to me. However, let me say that my bill is designed deliberately so that the program will not cost any net to the Federal Treasury in years of less than 3 percent unemployment. My bill provides that the market supply will be set at the volume for each commodity that will clear the market at the mandatory price protection level. Therefore, no costs could arise except costs of administering the marketing quota system. My bill provides for a fee of not more than 1 percent of the parity income equivalent price of the commodities to cover administration.
In years of depression or recession with more than 3 percent unemployment, the cost of the program would depend upon the degree of unemployment. According to recent studies, we can expect each 1 percent point increase in unemployment to bring about a 1 percent drop in consumers income. Each 1 percent drop in consumer income means an approximately one-fifth percent drop in prices received by farmers for the full prosperity supply of all farm food products, at fairly high income levels which now characterize our Nation. Preventing the drop in farm income usually attendant upon such a development probably would return to the Treasury in income tax more than the payment program would cost. But even if this item is not allowed, the cost of the program would be controllable through the total national economic policies used to bring the economy back to a full employment condition. The payments to farmers involved would be a part of the total program.
If 7 percent of the civilian labor force were unemployed this would appear to mean a drop of not more than 2 percent in prices received by farmers for the marketing quota volume. This would mean that the entire program, if the entire program were in operation, that the total annual cost, even in 7 percent unemployed years, would be less than $1 billion. This seems most modest compared with the $3 to $5 billion per year spent by the current Secretary of Agriculture in recent full employment years with farm family income allowed to decline to less than half of a parity income level.
It is not my thought that the bill I have introduced and which your committee is considering today is a complete farm and food policy for the Nation. Far from it. This bill covers only the farm income protection and improvement and market supply adjustment features of a complete policy. In addition, our Nation needs to eradicate malnutrition and hunger in the United States through such programs as the proposed food allotment stamp plan or other means. Our Nation and, indeed, the entire Western World, should begin immediately to make full use of its farm productive power to use food to preserve peace and provide the means to move toward universal disarmament, by progressive steps. We need to explore and put into operation specific governmental safeguards to prevent speculation and profiteering in the food processing and distribution channels.
But currently, we all must recognize that the longest standing economic depression in this country is on its farms. Now that depression has moved to town. But I hope that in our excitement about the nonfarm depression we do not forget or overlook the farm depression that led and fed the nonfarm depression. Correction of the maladjustments and other features of the chronic farm depression can help us to correct the nonfarm depression with its distressing aspects of unemployment and dramatic wastage of resources and potential production.
You on this committee know better than I that depression does not show up on the farm as unemployment. In fact, farmers probably have to work harder in a depression. Depression on the farm shows up as falling prices, dropping income, reduced farmer purchasing power to buy the products of industry and commerce and professional people in rural and urban areas.
I do not presume to request that your committee report out the bill Congressman McGovern and I have introduced. That was not our intention in introducing it. Instead, our purpose was to invite the attention of Congress and of this committee to certain basic principles which I am deeply convinced should be incorporated in the farm program of this Nation. These are principles which, in my view, if they not be included in the program, will result in the program being less adequate than it should be for family farmers, more costly than it needs to be to the Treasury, and less safeguarding than it must be to the over 170 million food consumers of our Nation.
Mr. ROOSEVELT. First, may I say that I have taken quite a bit of kidding as to why I should have any interest in agricultural bills, coming as I do from an urban area or city area.
Frankly, my main reason for having an interest in this bill is because of my deep conviction that the prosperity of the United States depends on a rounded economy and that we are not going to have prosperity in the city and in the urban areas unless we also have prosperity in the agricultural areas of the country.
I think the tendency has arisen somewhat in the past to divide the economy and perhaps pit one side of it against the other and thinking this is not good for the country and not good for the individual citizens that make up these parts of the community, I have tried with my colleague, Mr. McGovern, to work out a program which I felt could be fully supported by not only those who were interested in agriculture but also by those who were interested in prosperity in the industrial areas and particularly the consumers of the country.
And it was this aspect of this bill-and I am not trying to pose as an expert on agriculture, I am not and I certainly would not try to go into the details or perhaps I should say the mechanics of it, but I do feel that having studied this matter very carefully, that in this bill we have something which would be practical from the point of view of the consumer and that he would get the advantage of a falling off in prices in periods of unemployment without at the same time contributing to a continually diminishing income for the agricultural part of our community. That, very frankly, is my main and particular interest in this bill.
However, I also have tried as intelligently as I could to go into the other aspects of it and it seems to me that this does provide the one thing which we have not been able to provide in this recent past, which is a way of having a jab into the economy at a time when we were beginning to get into a depression period or a recession period, whatever you want to call it, and that this gives that additional income or that additional assurance of income to the agricultural population and if you add those two things together it seems to me that then you maintain the purchasing power of the farmer and at the same time