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The CHAIRMAN. As I understand it, this proposed plan would enable the cooperatives to buy the outsiders' cotton at the market price, and they would hold it, and probably make a profit out of it for the cooperatives. That, of itself, would induce everybody to get into the cooperatives.

Mr. DAVIS. Under the bill, though, Senator Norris, as it is before the House committee, with respect to the surplus transaction, in which the equalization fund is used to guarantee against loss, or to absorb the loss on the carry over, it is provided that on the surplus transactions the profits that might arise would also accrue to the equalization fund for the entire industry rather than to the cooperative itself.

Senator HEFLIN. Mr. Davis, let me see if I understand you. You said it might be three years, sometimes, before you could get rid of this surplus that you are carrying over.

Mr. DAVIS. That is a possible contingency; yes.

Senator HEFLIN. Suppose this year you have 100,000,000 bushels of wheat more than the world needs, and you carry that over until next year, and then you have next year 100,000,000 more than the world needs, and the third year you have another 100,000,000 more. Would it not be a dangerous situation, at the end of three years, to have 300,000,000 bushels of surplus wheat, with a big crop coming in the same year?

Mr. DAVIS. My statement, Senator Heflin, was made in connection with cotton. In the case of wheat, in my judgment, it would be impracticable, since we have a normal surplus over domestic requirements year after year. It would be impracticable to attempt to store wheat one year after another. In the case of wheat the surplus over domestic requirements should be disposed of in an orderly fashion in the markets of the world, but in such a way that you can adjust domestic supply to the domestic demand, and by doing so take advantage of any protective duty that stands on the statute books on wheat. Senator HEFLIN. Suppose we had 2,000,000 bales of surplus cotton, and we hold that, and next year we had 2,000,000 more, and at the end of three years we had 6,000,000.

Mr. DAVIS. That would be an extreme case.

Senator HEFLIN. Would not that be a club hanging over the market to help depress the price, to know that they had 6,000,000 at the end of six years instead of 2,000,000 at the beginning of the first year?

Mr. DAVIS. There is no question, Senator, that under a condition of that sort the general world market would have to trend lower so that the cotton could be moved off. At the same time, over a period of five years, I think the cotton men will tell you when they come on to discuss cotton, that the peaks and the valleys in production and demand will iron themselves out. You can not, by this method, put up a price that is out of relation to the general supply and demand conditions, but you can prevent the throwing on the market of a surplus immediately on production, with disastrous effects on a general price level.

Senator HEFLIN. I am in favor of that, and I think it can be done so sparingly as to keep the market clean and hungry. I think that is probably better, but would it not be better if the farmers could organize themselves and obtain such financial backing as they needed to be able to say at the beginning of the season, "We are going to

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demand so much for wheat, so much for corn, so much for cattle, and so much for cotton." A few years ago in the South the farmers would not sell unless the price was advantageous, and when the price of cotton broke a quarter of a cent a pound, they would quit coming to the market, and you would not see a bale of cotton on the street for a week or more. When it went up again they would come in and sell, and when the price broke they would quit. They had a pretty thorough understanding. Senator Smith, you will remember that. You helped to organize the South into that cooperative situation. If the grain people would say, at the beginning of the season when the mills and everybody else have to have wheat "We are going to demand so much" and be slow about selling until they could get a favorable price, I think they could accomplish it.

Mr. DAVIS. The upper limit to the price which might be attained in this country for wheat would naturally be the point at which imports would commence to come in. With the proposed measure in operation there is not any question in my mind that the wheat producers, through their organizations, could feed the market in exactly the way you mention, so that they could obtain the best practicable price for their commodity.

In the case of cotton that can be accomplished by effective organization, backed by the power to equalize the expense of holding surpluses off the market on the whole industry itself, rather than on just a few who undertake to do it.

Senator MCNARY. Carrying out this scheme with respect particularly to cotton, would it require any adjustment of the tariff schedules now obtaining?

Mr. DAVIS. The measure does not contemplate any adjustments of the tariff schedule, Senator.

Senator MCNARY. As a practical proposition, would it require any increase in the tariff?

Mr. DAVIS. You refer to cotton?

Senator McNARY. Cotton alone.

Mr. DAVIS. The cotton men themselves should answer that question.

Senator SMITH. There are no tariffs on raw cotton.

Mr. DAVIS. There is no tariff on raw cotton at the present time, and they do not contemplate, so far as I understand it, operating in any way except to try to adjust supply to demand in the markets of the world.

Senator SMITH. There is practically no competition anywhere else in the world with American cotton.

The CHAIRMAN. As I understand it, the difference between cotton and wheat in this contemplated proposition is that with respect to cotton the theory is going to be to control the world price. With respect to wheat, behind the tariff wall, they are going to dispose, if necessary, of the surplus, and make up the difference.

Mr. DAVIS. While the two commodities would be handled in much the same way, it would work out differently.

The CHAIRMAN. Yes.

Senator McNARY. I understand that, but in increasing the production of cotton I was just wondering if you had taken that into consideration at all.

Senator HEFLIN. You are mistaken about that. There is no cotton in the world market like American cotton, and the price is altogether different.

The CHAIRMAN. If the American supply of cotton was held off the world market, the price would go to the sky, would it not, on the world price?

Senator HEFLIN. The spindles of England, for instance, will not use any cotton except the American cotton.

The CHAIRMAN. If you could control the American supply of cotton you would control the world market.

Senator SMITH. That is what you would do.

The CHAIRMAN. I understand that is the theory.
Senator SMITH. That is the theory.

Senator GOODING. It is a simple matter on cotton, if you can do it, as simple as it is on rubber and coffee.

Senator SMITH. If you did it, you would solve that problem.

The CHAIRMAN. Yes; and then these men in control would put it on the market in such a way as, in their judgment, would not break the market.

Senator SMITH. Let me make this statement right here. I think it would help the committee. We have had the Census Bureau down here giving us the supply and distribution of our staple crops. That bureau has now been in existence practically 30 years. There has never been a year, with respect to cotton, taking that as an illustration, in which they have not said there is a carry over, over the old crop and into the new, of an average of about 3,000,000 bales. I asked the question at this table if that 3,000,000 represented the excess over consumption, and, as I recall, the answer was in the affirmative. I said, therefore, that if the average excess of production over consumption was 3,000,000 bales, and these statistics have been kept for 30 years, we ought to have 90,000,000 bales somewhere. On investigation we found that we only had about 3,000,000 bales, which means that production has never, in the trend of events, exceeded consumption, and the problem for us is that there shall not be, when a year does produce more than the spindles for that consumption year can take up, that drop in the market, but a system devised by which you can carry and distribute the supply over the short years and the long years, without there being that rapid angular drop.

I make that statement in view of our coffee stabilization. The production of the world was increased and the consumption was increased and the price was increased, for the simple reason that every producer of coffee knew that he would get his coffee at exactly the same price as others in the business, and his point of profit was to sell as much coffee as possible. I do not believe that the world has ever gotten any idea of how much cotton could be consumed if every spinner knew that he would get every grade of cotton at the same price as every competitor, and that it was up to him to go out and get purchasers. I believe we would practically double the consumption of cotton if the trade knew that these violent fluctuations were eliminated, and they could buy their supply in safety. That is the objective to which this committee is addressing itself.

Senator GOODING. Mr. Davis, if legislation can be passed so that an organization can be perfected that will control the entire cotton

market, if there was a surplus there would not be any trouble about limiting production with such an organization, would there?

Mr. DAVIS. It is a practical method to get at acreage through the organization of the producers themselves.

Senator GOODING. I rather think your statement of three years' surplus of cotton is rather an unfortunate statement, because, with an organization such as you are trying to perfect, that would not exist at all.

Mr. DAVIS. I stated, Senator, that that was an extreme illustration of what they might be called upon to do.

Senator GOODING. You will find those things are often talked up by the enemies of legislation, and used to advantage sometimes.

Senator KEYES. Senator McNary brought up the question of the tariff on cotton, and I thought it was stated here that there was no tariff on cotton. My recollection is that there was a tariff on long staple or Egyptian cotton.

Mr. DAVIS. That was cut out. That is my understanding.

Senator SMITH. Senator Keyes called my attention to the fact that there might have been, and I believe there did exist at one time, a tariff on long staple or Egyptian cotton.

Senator GOODING. The Senator does not agree with me, but I am going to talk to these cotton people when they come on. You can not tell me that what they did with wool they will not do with cotton. They neglect American wool when they can get foreign wool, until they can beat the price down. There is only one staple of cotton. Nobody needs to tell me that they will not use the foreign cotton when they can, at the right time, to beat down the price of the domestic cotton. However, that is up to the cotton growers. If they do not want a tariff, we will not try to force it on them, but I am sure that their best interests require a tariff, and that it would work very well with them.

Mr. DAVIS. In carrying out the principles that have been discussed, the measure which is before the House, and which we hope to have an opportunity to present before this committee, creates a Federal farm board, so constituted as to be chosen by and representative of agriculture, with the representatives geographically distributed over the country, one from each Federal land bank district.

Mr. Chairman, I have here charts showing the mechanical set-up, which I would like to distribute, if I may.

(The chart is here reproduced in full facing this page.)

Mr. DAVIS. This chart was prepared by Mr. Frank Evans, secretary of the American Farm Bureau Federation, to show the set-up of the organization proposed under the House bill, and summarizes the powers and duties of this Federal board. It should be recognized that the board does not buy or sell, either directly or through agencies for its own account, but it does administer the equalization fund so as to enable associations and corporations created by the commodity groups themselves to control the surplus, and the costs and losses incident to controlling the surplus will be absorbed out of these equalization funds created for each of the basic industries. The price bargaining, therefore, would be done by the organizations of the producers themselves, backed by the power of this board, but would not be done by the board itself. It is provided that operations shall be through associations or corporations created by the producers,

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See 10. DETERMINATION

See 11

BOARD SHALL ESTIMATE PROBABLE LOSSES AND EXPENSES TO BE PAID IN OPERATION PERIOD AND
SHALL DETERMINE AND PUBLISH AMOUNT TO BE PAID FOR EACH UNIT OF PRODUCT
PAYMENT

(a.) COLLECTED AT PROCESSING POINT AS PRESCRIBED BY BOARD

(b) BOARD MAY BALA

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