Senator LAUSCHE. You are A. S. Yohalem, senior vice president of Corn Products Co., of New York City.

You may proceed.

STATEMENT OF AARON S. YOHALEM, SENIOR VICE PRESIDENT, CORN PRODUCTS CO.

Mr. YOHALEM. Thank you.

If there are no objections, we would appreciate it if the entire statement we have submitted is inserted in the record.

Senator LAUSCHE. Mr. Yohalem, if you can do it, I am sure that Senator Hart and I will appreciate it. First we will put in the record your complete statement.

(The full text of the statement follows:)

STATEMENT ON BEHALF OF CORN PRODUCTS Co., PRESENTED BY AARON S. YOHALEM, SENIOR VICE PRESIDENT, CORN PRODUCTS Co.

My name is Aaron S. Yohalem. I am a senior vice president of Corn Products Co., with which I have been associated for some 30 years.

We appreciate the opportunity to present our company's views on this proposed legislation, which is of major concern to us.

Corn Products has a long history of service to and great interest in, the con sumer. Without satisfied consumers we would have no customers. The consumer is our first concern; everything we do is done with her interest in mind. We believe S. 985 will be detrimental to the consumer's interests.

As a producer and marketer of grocery and household products--including such longstanding consumer favorites as Hellmann's-Best Foods mayonnaise, Skippy peanut butter, Mazola and Nucco margarine, Mazola salad oils, and Karo sirups Corn Products put $160 million a year into the hands of American farmers whose products we buy. We believe S. 985 will be detrimental to these farmers.

Corn Products employs 11.500 people in this country, operating 28 plants and warehouses in 16 States. We believe S. 985 will be detrimental to these workers. Corn Products has 78,300 shareholders with shareholders in every State of the Union, and we believe S. 985 will be detrimental to these shareholders. In discussing S. 985, I should like to talk about two areas:

1. The fallacy of what we consider the underlying philosophies of S. 985. 2. Specific sections of S. 985 and their probable effects.

In addressing my comments to what we consider the most basic objections to S. 985, I shall not be discussing the specific provisions but rather the underlying philosophies and what these will be doing to our way of economic life.

It is not alone what S. 985 would do today that disturbs us. It is what S. 985 can do in the days ahead that we find fundamentally unsound. We are con cerned with the incipient and undefined powers that S. 985 grants to Federal agencies.

S. 985 in effect is a licensing bill-a control bill-rather than a regulatory measure. It is a licensing law, for it would permit a Government official to say that a manufacturer must obtain permission from a Federal agency if he wants to engage in the normal commercial processes of changing his product's packaging or labeling.

In addition, S. 985 calls for Congress to grant unrestricted rulemaking power to the enforcement agencies without guidelines as to the use of that power. Traditionally in the food field, we have worked under "self-executing" statutes, except where the nature of the product does not permit this approach. In the past, Congress has watched carefully the delegation of its constitutional legisla tive powers. Congress has retained control; usually it has delegated only the administration and execution of its laws. S. 985 delegates the power to "enact" substantive regulations. In effect, therefore. S. 985 asks Congress to give the Secretary of Health, Education, and Welfare and the Federal Trade Commission a blank check.

S. 985 is also a bill that would permit Federal agencies to prohibit industry practices--on the vague grounds of insuring "rational comparison." In a few

minutes we shall give examples of the difficulties in "rationally comparing" seemingly similar products.

Furthermore, dangerous new ground would be broken if this "rational comparison" theory were enacted into law. It would make a mockery of provisions for hearings and judiciary review. Evidence of cost and other disadvantages to the manufacturer-or even evidence of disadvantages to the consumer-would not be admissible. For, under S. 985, the sole ground for decision need only be the presumption that a regulation would make it easier to compare competing products.

This should not be the basis for prohibiting, or requiring prior licensing of, business actions. We agree that deceptive practices should be condemned, but there are already laws on the books to prohibit such deception, as we shall discuss later.

S. 985, under the guise of "reducing confusion," would also weaken the timehonored principle of law that a person is innocent until proven guilty.

In concept, it simultaneously strongly implies that a significant portion of the business community tries to "fool a significant number of people a significant part of the time," and that the American housewife is gullible, uncomprehending, confused, and helpless.

We must take issue with both of these implications. Certainly no one in the food business could survive very long on the basis of deceiving the consumer. No consumer is obliged to buy any particular product. The consumer has the freedom to choose from a multiplicity of products that she believes might meet her family's needs and wants. Each year new products are introduced in the hope of better satisfying these needs and wants. These new products must compete for shelf space with the estimated 8,000 different items already in the supermarket. Industry records show that 6 out of 10 new products fail in test marketing and that numbers of established products lose their consumer franchise each year because consumers do not feel that the products meet their needs. This indicates that the American consumer is intelligent and discriminating in her selection of products.

We believe that the foundations of American law and of our system of Government have been built on the presumption of the intelligence-not the stupidity-of the public. If we are to accept the presumption of "consumer confusion" inherent in S. 985, shall we not have to modify our entire system of law? We must recognize the intelligence of the public if we are to avoid chaos in the management of public and private affairs.

Except where deception is concerned, we urge you to permit the self-regulating features of our economy to work. To quote from an editorial in the 1963 annual report to shareholders of our company:

"Companies such as Corn Products are in favor of food and drug laws. We see in the regulatory agencies of Government, such as the Food and Drug Administration, an important protection, not only for the consumer but for responsible business as well. Our position is, however, that further imposition of redtape between buyer and seller is unnecessary and dangerous ***

"This is the danger: As laws multiply the point is reached when they can exert a negative rather than a protective influence. The object of law should be to strengthen individual responsibility.

"Under any just code of laws, there is always room for personal standards even higher than the law requires. But laws which hem in virtually every action tend to become the maximum standard of conduct. So involved do people become in following the law's intricacies that moral as well as physical initiative is discouraged."

In S. 985, the theory of "rational comparison" becomes the basis of delegating to Federal agencies-without detailed guidelines-the power of making laws (or their equivalent-substantive rules). This power properly belongs in the Congress, particularly for those areas of economic judgment which affect major industries.

But, as though this were not sufficient, we find another fundamental philosophy underlying this bill-the philosophy that price competition alone is the foundation of all competition and that it is in the public interest to eliminate or standardize, nonprice competitive factors.

I know that proponents of the bill say in effect, "Yes, nonprice competitive forces exist, but they must be regulated so as to enhance or preserve fair competition between competing products." But it seems to us that they want to so

standardize nonprice competitive factors that in the end the only effective competitive force is "price."

Advocates of S. 985 have talked about "rational decisions" based on price-perunit comparison between competing brands and sizes. They falsely assume that all competing products are alike and packaging serves only the purpose of switching purchasers from one brand to another with no tangible superiority. This concept has no basis in fact. In the first place, it is rare that competing consumer products are alike in all aspects. Second, different types of products compete to serve the same needs. Third, packages are not extraneous to the purchase; they are part of the value which the consumer buys.

Let's look at these three aspects. First: Among other factors, competing products differ in quality. For instance, in producing mayonnaise, our company goes to considerable expense to use whole eggs. Neither law nor regulation compels us to do this-it is done with the expectation that the housewife will recognize and prefer the quality of our product. And sales records indicate that our quality is recognized and preferred by housewives.

Similarly, we are very particular about the peanuts we use in our peanut butter. Peanuts grow in three geographic areas of the United States. Each area's peanuts have different properties; we have discovered that peanut butter from a blend is better than peanut butter made from just one kind of peanut. At considerable expense, we ship peanuts from one area to be blended with peanuts grown in other areas. This perhaps is not the most economical process if "economy" is solely what you seek. But we do it to maintain the excellent flavor and consistent quality of our product throughout the country so that all consumers benefit.

There is every indication that consumers recognize and are willing to pay a premium for quality products. They also recognize and want products that differ in flavor, color, aroma, and consistency-just two mention a few differentiating factors.

The second fallacy in the "competing products are all alike" theory is: Who is to say what are "competing products?" Products can be used in many ways; thus they have many competitors. Mayonnaise, of course, is used in salads and as an ingredient mixed in to make other foods taste better. But it is also used as a spread for bread (competing with margarine, peanut butter, and other spreads), and it is used as a dressing (competing with French, Russian, and Italian dressings; with catsup and mustard; and even with salt and pepper).

Dehydrated soup, as another example, competes with raw vegetables which the housewife chops up herself for homemade soup. It competes with condensed soups. It also competes as a dip ingredient, and it competes as a complete luncheon meal with meats, peanut butter, etc.

The third point is that packages themselves can add utility and value to products. The entire frozen food industry would not have been able to utilize distribution advances had appropriate packaging not been available. Aerosol cans have added convenience to the use of many products. So-called television dinners and the complete meal in a can are other examples of the value that packaging has added to the raw materials in the containers.

Now boil-in-bag packaging and foil paper cans are becoming significant sales factors because of the convenience they offer the busy housewife. Two-thirds of the 8,000 products now available at grocery stores represent new or improved products over those available 10 years ago. A significant number of these advances are represented by packaging improvements.

These three points illustrate the fact that price alone is not the sole factor on which products compete for the consumer's favor, and that these nonprice competitive factors should be encouraged and not eliminated.

But were you to ignore these realities and still prefer price competition to other forms, you nevertheless must find S. 985 inconsistent. There is little doubt as we shall show later-that this bill's provisions will add to the cost of manufacturing consumer products. These costs will have to be passed along to the consumer. Is it rational to put emphasis on price competition and at the same time to raise the price level of consumer products? What is the objective— a better deal for the consumer or regulation for the sake of regulation? Thus in looking as S. 985's underlying philosophies, we have seen that it would delegate substantive power to regulatory agencies-on the grounds of stimulating "rational comparison"-and it would standardize marketing practices in order to minimize nonprice competition. This would begin a trend in

Government control of our economic life that would restrict the freedom which has made our system the most successful one in serving consumer's needs.

Now, before we turn to the bill itself, let us examine a claim made by proponents of this legislation.

Advocates say that today the consumer cannot made a "rational comparison." They claim that she is "confused" by the variety and scope of products she is offered.

We are not in favor of confusion. However, we must recognize that there is a possibility of confusion in practically anything you do in life. If there is the slightest difference between two products, it is possible that someone could be confused.

Furtherfore, confusion often occurs for a time following innovation. For example, every time Congress passes an act, there is a certain amount of confusion. That is why we have the courts to interpret the meaning and application of the law. But-in the hope of avoiding the confusion that necessarily follows innovation—the proponents of this bill are willing to stifle the innovations of the consumer products' manufacturers.

Innovation will be restricted because manufacturers will be reluctant to become involved in administrative hearings to obtain permission for new types, designs, and designations of containers. Also, by the time the hearings are completed, all competitive advantage would have been lost, since competitors, alerted by the hearing procedure, would have time to develop offsetting tactics. Freedom to innovate has enabled the consumer products industries-especially the grocery products industry-to become a vital factor in the economic growth and physical well-being of our country.

Today, the consumer in the United States has a wider choice of highly nutritious food than at any other point in our history. She has been freed of much kitchen drudgery by the "built-in maid service" of our industry's products. It takes only 19 cents of the after-tax dollar to buy the family's food todayas compared with 26 cents in the 1947-49 period.

The industry which applies this food has grown manifold 20 years. The industry has invested hundreds of millions of dollars in that time to research and to develop new products.

Innovation in modern packaging-packaging which makes the product more convenient to use, packaging which has esthetic appeal, packaging which reduces the cost of products-has made a vital contribution to the growth of our industry. It has helped the farmer by stimulating the consumption of his crops; it has helped the worker by providing more jobs. And it has helped the consumer by giving her products that stay fresher longer and save her time and energy.

The competition is keen. We in the industry realize not only are we competing for the dollar spent for consumable products, but we are also competing for a share of the entire discretionary-spending dollar. We are competing against the recreation industry and against the durable goods industry. For example, the decision to use more frozen foods may require a decision to buy a freezer— and that decision can involve us in competition with a trip to Miami or a new stereo. These competing industries will continue to have the right to market their goods as they wish. We are competing for the same dollars. It is not fair to unnecessarily hamper us in this interindustry competition.

If we are to continue to compete effectively, we must have the freedom to innovate not only in the laboratory but in the way we package the product and in the way we bring the product to the consumer's attention.

And now we would like to comment on specific sections of the bill and their effect.

One vital point that we and others have made throughout the testimony is that there is ample existing power under present legislation to prevent practices which are truly deceptive.

We believe that both the mandatory sections and permissive sections of S. 985 are fundamentally unnecessary because regulatory agencies may now proceed against deceptive practice or failure to state net contents or to state them prominently. Products in interstate distribution are covered by sections 403, 502, and 602 of the Food, Drug, and Cosmetic Act, FDA regulations under that act, and section 5 of the Federal Trade Commission Act.

There are also 34 States' laws that require a declaration of quantity on packages of all commodities. Some 22 of these laws follow the model weights and measures law in their weight declaration requirement.

Therefore, insofar as sections 3(a) (1), (2), (3), and (6) of S. 985 call for the prominent listing of net quantity of contents or prohibit deception on the package, they are redundant. They merely duplicate existing Federal and State laws.

Turning to other points, we see that section 3(a) (5) would prohibit label statements by the manufacturer indicating retail price savings to the consumerwhether or not such statements are deceptive. Obviously, if such statements are deceptive, they would be prohibited by present laws and regulations.

Most sections of S. 985 would "license" and restrict nonprice competitive practices, thus encouraging price competition as the prime factor. Surprisingly, section 3 (a) (5) would seem to be contrary to the bill's underlying preference for price competition. It proposes to prohibit one of the most competitive factors-manufacturer-stimulated cents off and similar price promotions.

Proponents of S. 985 have indeed indicated that section 3(a) (5) is primarily aimed at prohibiting the use of so-called cents off marketings by the manufac turer. Yet you have read the testimony in prior hearings on similar bills that proves housewives prefer cents off promotions to all other manufacturers' promotions. The Alfred Politz Research, Inc., survey showed that 61 percent of all women shoppers prefer cents off sales to all other forms of manufacturer promotions and 29 percent liked them second or third best. And 63.8 percent of all women shoppers did not think Congress should pass a law making cents off illegal. Fewer than 9 percent thought such a law should be passed and the balance had no opinion.

Why do manufacturers also prefer cents off promotions? Why do we feel that they are a reliable way of passing savings on to the consumer?

Promotions are fundamentally an incentive (in this instance, a price incentive) to get the consumer to try the product again at a particular time. When a cents off promotion is established, the manufacturer reduces his price temporarily to the retailer by the amount of the cents off. This is what he is telling the consumer-"I have reduced the price at this time." Why should he be prohibited from telling this truth in the most effective manner?

We have found that the most effective way to be sure the consumer gets the saving of a price concession by the manufacturer is to call it to her attention as part of the packaging. This can be done as a cents off label promotion; as a bonus bottle, where the buyers get, for example, an additional 3 ounces over the regular bottle; or two packages for the same price; or as a sale where 1 cent above the regular price of one package buys an extra package. All of these reach the consumer directly-and all have the purpose of getting her to try the product at a particular time.

Our own surveys have shown that most retailers pass cents off promotional savings on to consumers. We are not out to waste money. If we felt cents off offers did not get the savings to the consumer, we would be the first to discontinue them.

In any of these manufacturer-originated promotions, the consumer benefits because she has saved money and perhaps found a new product to serve her; the retailer benefits because he can expect additional profits from increased sales; and the manufacturer benefits because he can use the most effective promotional device to stimulate sales.

The Federal Trade Commission itself has said in its "Guides Against Deceptive Pricing":

"If the former price is the actual, bona fide price at which the article was offered to the public on a regular basis for a reasonably substantial period of time, it provides a legitimate basis for the advertising of a price comparison." If "cents off" and similar promotions are used deceptively, they can be proceeded against under present laws. If they are not deceptive, why eliminate a desirable promotional device that clearly constitutes active price competiton? Section 3(c) (1) would permit the specification of weights or quantities in which a product shall be packed.

We understand that the aim of this section is to require commodities to be packed in some conventional unit such as "1 pound," "1 quart," or "8 ounces." Yet it is no easier to figure out the cost of three 16-ounce units for 79 cents than it would be to figure out the cost of three 15-ounce units for the same price. Surely, the advocates of 3(c) (1) are not yet proposing to regulate the prices at which commodities may be sold to the consumer so that prices are easily divisible by size units.