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a statement outlining these principles, the gentlemen of the House committee asked us to take advantage of the assistance of their drafting service and embody those principles into a draft of the measure which they could consider. Mr. Frank Evans, secretary of the American Farm Bureau Federation, and I, were asked to work with the drafting counsel. Mr. Evans is not here. That, I think, explains the reason why I was asked to appear just to discuss the principles that were embodied in that House draft, which will be before this committee as soon as the sections affecting cotton have been considered by a meeting of cotton growers and their representatives which is taking place in Washington to-day.
The CHAIRMAN. In other words, you think possibly there may be some amendments to that bill suggested from this conference with the cotton men.
Mr. Davis. Amendments, Senator, affecting details of operation, not changing the general principles of the legislation which is being proposed. This proposed measure is really a product of the working together since the adjournment of the last session of Congress of men experienced in commodity cooperative associations handling these basic farm commodities, and the farm organizations which, for three or four years, have been working on the problem of surplus-control legislation. So, the measure which these farm organizations generally are supporting is a combination of the two views of the commodity cooperative associations and those who have been working on surpluscontrol legislation.
The central principle of this legislation is to enable the producers of the principal cash crops in the United States to adjust their supply to the demand by managing the surplus, which can not be controlled by regulating acreages.
This task of controlling or managing such surpluses as come, regardless of farmers' plans, must be handled by each commodity group as a whole, if violent and destructive fluctuations in the price level are to be avoided.
The object, therefore, is to stabilize the prices of these fundamental farm products, a condition which would be to the best interests of the producers and the consumers, as well as the processors of
The fundamental difference between the manufacturer and the farmer, I think, is apparent to all the members of the committee, in this problem of adjusting supply to demand. I should like to give just two or three illustrations that will not take long to show that by regulating acreage you can not accurately adjust supply to what the prospective demand is, as a manufacturer can do.
In 1920 the corn acreage in the United States, in round numbers, was 101,000,000 acres, and produced at the rate of 312 bushels per acre. In 1924 the yield was 22.9 bushels per acre.
On the same acreage basis for those two years the variation in total yield due to weather and other factors the farmer can not control was 858,000,000 bushels.
The average United States cotton acreage for the years 1921 to 1924 was 35,000,000 acres. The 1921 yield was 124.5 pounds per acre; in 1924, 156.8 pounds. The cotton yield variation in those years due to uncontrollable influences amounted to two and a quarter million bales on the average acreage.
Taking wheat for the third illustration, 52,000,000 acres which produced on a average 1642 bushels per acre, a total of 862,627,000 bushels in 1924, yielded only 12.6 bushels per acre, a total of 669,365,000 bushels in 1925. The difference, which no degree of foresight or organization on the part of farmers could have prevented, was nearly 200,000,000 bushels of wheat. The problem, therefore, from the standpoint of the farm organizations, is to bring agriculture into the position where it can manage the surpluses and adjust supply to demand in the several markets which these commodities reach, since they can not control these surpluses accurately in the production stage.
Senator GOODING. Mr. Chairman, I merely ask for information, whether the witness has the crop production of Canada and the world production of wheat. We have to go on the markets of the world with wheat, and all of these should go in together, it seems to me. If he has not those figures here, they should be put in the record.
Mr. Davis. I will be glad to put them in, Senator; I can get them. Senator GOODING. That is the significant thing, to my mind.
Mr. Davis. The reason why control of surplus must be considered in
any farm legislation that really reaches the difficulty is that the farmers' troubles have been due to lack of income. I do not imagine, Mr. Chairman, that you care to have me go into the agricultural situation. That has all been brought before this committee many times and you are as familiar with that as any witnesses who could come before you, but in attempts to improve farm income, there are only two or three ways that I know of whereby you can reach the farm situation. One is by reducing production costs; another, by cutting down the distributing costs; and third, by increasing the farm price and stabilizing it. The attempts that have been made in the last direction, by increasing tariffs and by cooperative organization have been defeated by this item of the production of supplies in excess of what the market is ready to absorb at any particular time. In the case of the tariff duties that have been enacted on wheat, for illustration, it is quite apparent that our normal production of wheat in excess of the domestic market's consumption means that the sale of the surplus at competitive prices abroad fixes, generally, the level of prices at which the domestic crop is consumed in this country.
The same thing is true with respect to other commodities for which tariff duties have been enacted, but of which a surplus is produced. In the case of cotton the situation is different, but there still is the problem of controlling variation of production if we are going to adjust supply to demand accurately.
The American cotton supply is the dominating factor in the world price of cotton, and yet there has been no way devised by which control of an excess supply could be effected in such a way that we could regulate or control the movement to the markets of the world of cotton in such a way as to stabilize the world cotton prices. Perhaps it would be well to consider the limitations on voluntary cooperative effort.
Senator McNARY. Pardon me, before we leave the other subject I read your explanation. How do you propose to handle the cotton situation?
Mr. DAVIS. The cotton men themselves, Senator McNary, will be before the committee a little later. I would be glad to sketch our idea of that.
Senator McNARY. That is what I want.
Senator McNARY. What is your judgment, however deficient you may be in your description?
Mr. Davis. The measure which we are supporting and which will be brought before you provides for the creation of equalization funds for each of the four principal cash commodities in the United Stateswheat, cotton, hogs, and cattle. Those are the principal cash commodities in the United States.
If we just consider cotton, the equalization fund would be supported by an equalization charge on the cotton produced in the United States. That fund would be used under the direction of the Federal farm board provided in the measure to support the effort of the cooperative associations handling cotton to control the carry-over or excess supplies at any particular time.
I have shown the variation in yield that results from weather conditions. A practical way in which that might be handled with cotton, which is the way that commends itself to the cotton cooperatives, is to permit them to take from the market, either by withholding the supplies which they themselves control through their membership or by removing from the market by purchase such quantities as are necessary to prevent an undue supply coming on and bringing about violent fluctuations; to borrow from the ordinary commercial channels on the amounts removed or withheld up to the usual banking limit, 75 per cent, say, and then go to the equalization fund for the remaining 25 per cent, which would enable them to settle in full with their members, or settle in full with the sellers of the cotton, in case they buy it to remove it from the market, at the time of its removal.
The carry-over then would be in their control. As it moved out into trade in a subsequent year, or the year after, whenever it was necessary, the loss, if the price at which it was sold was lower than the price at which it was taken from the market, would be absorbed in this equalization fund which the entire cotton industry has contributed to or provided.
Senator Mo Nary. Of course, your mechanics are quite similar to those which have been heretofore prescribed in other proposed legislative measures.
Mr. DAVIS. Yes.
Senator McNary. I am not discussing that feature. I am quite as familiar with that as you are. Do you think that cotton can be handled with the same success, perhaps, as you look upon wheat, hogs, and other staple agricultural commodities!
Mr. Davis. In many ways I think the cotton problem is simpler than the problem with respect to some of the other commodities.
Senator McNARY. The reason I ask is that when a measure was studied with respect to this principle some years ago it was thought that it was very difficult to satisfy the cotton growers of the South that any plan for handling the surplus by withdrawing from the market the quantity which was depressing the market price would be successful. I am curious to know, in this modified scheme, if you have more nearly reached a solution of the cotton problem.
Mr. Davis. I believe the cotton growers themselves feel that that is true, Senator, although, as you say, the mechanics of operation do not materially differ from the mechanics of operation then.
The CHAIRMAN. I think the difficulty we all felt we were laboring under was that with respect to cotton the surplus is so much greater than with respect to wheat.
Senator MONARY. That is true.
The CHAIRMAN. And the idea was that they would have to handle it a little differently. As I understand it, they propose to do it, because, if they can get this cotton handled by on agency they will be able to hold that cotton off the market and control the world price by holding it off the market, so that the world price of cotton
would go up.
Mr. Davis. Yes.
Senator MoNaRy. There is no doubt of it. In the original conception of this scheme it was based upon the ratio price.
The price of cotton for the 10-year pre-war period was higher than the price based upon the all-commodity price.
The CHAIRMAN. Yes.
Senator McNARY. What I am anxious to know is this. Of course, with respect to the general details of this thing, we all know quite as much about it as the witness. I am anxious to know if you have, from a practical standpoint, and in cooperation with the cotton grower, solved the problem, so far as he feels, in connection with this legislation. Mr. DAVIS. We believe that is true, Senator.
Senator SMITH. Following up the suggestion made by Senator McNary, in providing for taking care of the surplus, the base price of which is to be advanced, 75 per cent of which is to be gotten from one source and 25 per cent from another, what do you propose to be your base price, the current price? The Senator here suggested to me that the witness desires to put in what he has here without members of the committee interfering. I came up last night from the cotton States with the representative of the cooperatives who are meeting here to-day on this identical measure, and they are hoping to thrash out a plan by which the three great industries can agree, namely, livestock, grain, and cotton, each group to act independently in the sale of its products, but upon the same principle.
The CHAIRMAN. Senator, just before you came in the witness expressed a desire that he be not required to go into the details of the cotton scheme, because he said the cotton men would be here themselves, and he only wanted, in answer to a question of Senator McNary, to outline briefly the fundamental theory involved in it.
Senator SMITH. I am not going to ask the witness any questions, but I would like to state this for the benefit of the committee. The representatives of the cotton States who are meeting here to-day in conference with representatives of the grain and cattle growers, in my opinion, are thoroughly competent to work out, if it may be practical to work it out, a scheme-looking to the producers of cotton and the producers of wheat and the producers of live stock, devising a means by which they can control their surplus with the proper aid, and each support the other in the legislation looking for the individual solution. I was very much gratified last night to find that they had come here with that purpose in view, so that we may rest assured that whatever agreement they reach, if it is in the proper legal form, we will be assured that those three great interests have expressed themselves in the measure that they desire us to take under consideration.
Mr. Davis. Without going into detail in answer to the Senator's. question--because, as I explained to the chairman, some of the details are being discussed to-day, and I think by this evening will be completely ironed out, so as to arrive at the most practicable way of presenting this to the committee I would like to say that the withholding or removal of the cotton surplus would be at the prevailing price. The bill does not attempt to introduce any measuring sticks for determining price levels. It does place the producers in a position to adjust supply to demand, and therefore secure the highest practicable price, under economic conditions, and in the case of cotton, because the American supply is the dominating factor in the world price, the cotton men with whom we have discussed this are confident that by controlling their surpluses and carry-over at the cost of the entire industry, you might say, rather than the voluntary few who come into a cooperative association, that task can be accomplished successfully, but I think the details might be better presented by the cotton men speaking for themselves later before this committee.
I would like to bring in a paragraph as to the reason why cooperative associations, no matter how hard they try to accomplish this task of price stabilization, find themselves up against difficulties which are almost, if not entirely, insuperable.
The cooperative marketing association comprises in its membership a certain percentage of the growers. It may be large or it may be small. The moment they attempt to stabilize the entire industry by taking off the market any excess over current requirements, that means they have to impose upon their own membership deferred settlements and unusual costs. In the case of wheat, if the sale of a relatively small surplus in the markets of the world takes place at lower than the domestic price level, since that is a protected commodity, it would mean that the members of an association that attempted to do that would have to carry the margin or difference. The man outside, therefore, would have a relative advantage over the man inside, and that is destructive of the morale of the cooperative association itself. In the case of cotton it may become necessary to hold off the market supplies over a period of two or three years before the time comes when the markets of the world are ready to absorb it at a fair price. In that event they would have to defer complete settlement with their own members, and hold all their members' supply off the market, and the result is that the outsider comes along and sells at the price level that has been made possible by the work of the cooperative, but he does not have any of the assessments or annoyances of deferred settlements to meet with.
Senator SMITH. That was the rock on which one of the tobacco cooperatives was wrecked.
Senator GOODING. They were all wrecked that way, Senator.
Senator SMITH. It is because of the deferred payments and the character of the members, the financial condition of the members. They could not afford to get their payments in installments over a long period. The debts incurred in the productin of the product were not likewise deferred, and the producer had to meet his obligations without regard, to his deferred payments. If any scheme could be worked out by which we get an average price for all, and then take care of the surplus, we will have something workable.