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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 McNARY. 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 MCNARY. 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.

Of course,

Senator MCNARY. What I am anxious to know is this. 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.

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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.

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

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

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