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TABLE 4.-Milk production in the United States and selected States in which Federal or State orders price a large part of the milk produced or a relatively small part of the total production, 1950-54

1 Percent of total milk production in 1953 which was sold under terms of Federal or State regulation Federal regulation: Vermont 70 percent; New York 65 percent; Minnesota 10 percent; Wisconsin 20 Fercent. State regulation: California 70 percent; Connecticut 80 percent. There was some additional milk priced by State orders in Vermont and New York and by Federal orders in Connecticut.

Source: Compiled by the Dairy Division, Agricultural Marketing Service.

Mr. FOREST. The markets in which Federal milk orders operate extend through the entire central area of the country from Duluth to New Orleans and San Antonio. They include 3 large areas and 4 smaller ones in the Northeast, and an area on the Pacific coast adjacent to Puget Sound.

The population of these 56 market sales areas calculated on the basis of the 1950 census represents nearly half of the urban population of the country. An even larger number of consumers are served to some extent from the supply of milk sold under these programs. Sales of whole milk by regulated handlers to consumers outside the defined sales areas amounted to 13 percent of their in-area sales in 1953.

A substantial proportion of milk marketed by farmers in many States is sold to handlers regulated by Federal milk orders. Nearly two-thirds of the milk sold wholesale by farmers in the North Atlantic States and one-half of the milk marketed by farmers in Ohio was sold under the terms of a market order in 1953. More than half of the milk sold wholesale by farmers in Louisiana and Texas was marketed under a Federal milk order. Federally regulated plants in Wisconsin purchased nearly one-fourth of all the deliveries by farmers of whole milk in that State.

In case you are not familiar with the term "handler," it is used in the Marketing Agreement Act for "dealers."

Normally in many markets the terminology used with respect to the man who buys milk from the farmers is a "dealer," but the Marketing Agreement Act speaks of "handler." So we use the terminology "handler" in the marketing order.

Mr. ANDRESEN. Does that also mean distributor?

Mr. FOREST. It means distributors in some areas. synonymous terms.

They are all

Federal milk orders are legal instruments which define the terms under which dairymen sell their milk to handlers who use it primarily for fluid distribution in a regulated city market. Their purpose is to maintain an orderly marketing of milk by farmers which will assure that consumers are provided at all times with a wholesome and ample supply of milk.

Orderly marketing is effected by the order program through the certainties which an order provides. The terms spelled out as they are in each order are known in advance to both buyers and sellers. The terms are developed with public procedures. Producer, handlers, and consumers have an opportunity to take part in these public procedures. The program supplies the basic factual information for use of all such interested groups. Accurate information about supplies and demand for milk in a market is not available in most markets until a Federal order program is instituted with its requirements for complete reporting and verification of reports. This accurate information makes possible decisions on prices which reflect market supply and demand condition.

The orders provide a mechanism for pricing milk according to a plan which is adapted to the peculiar characteristics of the product. Prices are established on a class price plan. Milk sold for fluid use is priced at a level which is consistent with the value of milk for the fluid market and surplus milk is priced at approximately the level of prices paid by dairy product manufacturers for milk they purchase for manufacturing. Both the fluid class and surplus class prices vary with changing supply and demand for milk and dairy products nationally and in the local markets.

Federal milk orders do not guarantee a given level of price-only a price related to other economic conditions. They do not guarantee farmers a market with any buyer. They do create an orderly market condition in which farmers can find a buyer for their milk.

Federal milk orders do not control production or restrict the marketing by farmers of milk in any market. They do not establish sanitary standards. Sanitary regulations applicable to milk sold in fluid markets are administered by local and State health authorities. The regulation of a milk order is limited to the definition of the terms under which handlers must pay for milk which they buy from farmers and sell in regulated fluid markets.

Economic and legislative background: The fundamental purpose of milk orders can be best understood in terms of the marketing conditions which gave rise to the early requests for legislative action and the subsequent changes in economic conditions which brought about the evolution of milk orders to their present-day role.

Before 1933 the most important Federal legislation affecting milk marketing were the Clayton Act of 1914 and the Capper-Volstead Act of 1922. Both of these acts encouraged, as a matter of public policy, the development of cooperative associations of producers of agricultural commodities. Milk producers, and particularly those selling their milk in city markets, responded to this encouragement and a considerable number of cooperative associations of milk producers grew up in production areas supplying city markets.

These associations found the problems of marketing and pricing milk extremely difficult. During the early periods these associations attempted to bargain with milk dealers for a flat price which would be applicable to all of the milk of their members. Flat prices for milk, however, had peculiarly unstabilizing effects upon the marketing of milk. Under the flat-price system each handler paid the same price regardless of the use he made of his milk.

Since it was not possible for a handler to calculate his daily requirements for fluid sales with preciseness, and it was even more difficult for the dairy farmer to regulate the production of his dairy herd to match the handler's sales, there normally was an excess of milk in fluid-milk plants over the daily fluid requirements. Handlers who had excess supplies usually reacted in one of two ways. They either took fluid sales from other handlers by offering the excess at reduced prices which in turn were passed back to farmers, or they refused to accept the full quantity of milk offered by farmers.

A factor which accentuated the pricing problems created by this lack of balance between sales and production was the enactment by health authorities in many large fluid-milk markets during the 1920's of more stringent sanitary regulations relating to milk produced for fluid use. To meet the requirements imposed in fluid markets producers had to invest considerable money in improving the milk-producing facilities and take additional care in sterilizing utensils, keeping barns clean, et cetera.

Producers who made such improvements for production of highquality milk expected some compensation in the form of a premium over the prices paid for milk of a manufacturing grade. However, if the dealer handled all his producers' milk during the flush production months, he had to dispose of large quantities of surplus milk during these months. This milk had to be manufactured into products, such as butter and cheese, where it had a lower use value than it would have had as fluid milk or cream. The dealer could not pay the same price for the surplus milk which was used to produce these lower value products as he could pay for milk utilized as fluid milk. Farmers, through their cooperative associations, devised a plan to encourage handlers to accept milk regularly from farmers who had made the investment required to produce high-quality milk, even in periods in which the handlers had no fluid outlets for some of the milk purchased. Through their cooperative associations, they worked out with dealers a system of differentiated prices. These were called classified price plans, and required the payment of a higher price to farmers for milk sold in fluid outlets than for milk processed and sold as a product like butter and cheese. These plans were in effect in a number of the largest markets in the country by about 1920. As an adjunct of these classified pricing plans, various kinds of pooling arrangements were also developed to distribute uniformly to producers the total class values paid by handlers.

During the twenties milk producers attempted, through their cooperative associations, to expand orderly marketing and pricing programs for their milk. They were not entirely successful, however, since the plans which the cooperatives developed depended for their success upon participation by all groups in the market. But there were advantages to minority groups of producers and milk dealers in remaining outside of these plans, and as a consequence, the cooperatives

were seldom successful in attaining the universal applicability of their plans. During the twenties, however, relative prosperity in the cities and increasing sales of milk made it possible to apply these plans with at least partial success.

The economic pressures during the depression of the early thirties caused the collapse of many of these voluntary plans. At that time, the Congress took action to help milk producers through legislation. The Agricultural Adjustment Act of 1933 first authorized the United States Department of Agriculture to carry out a program of fixing minimum prices for milk delivered by producers to many of the urban centers of the country. The Agricultural Adjustment Act of 1935 expanded and made more explicit the Department's authority to fix minimum prices for milk. Additional authority and further clarification of the status of milk control legislation were achieved through the passage of the Agricultural Marketing Agreement Act of 1937the statute under which the present program of establishing minimum producer prices is carried out. This act authorizes the Secretary of Agriculture to issue orders or to enter into marketing agreements with handlers for the purpose of regulating the handling of milk in those respects authorized by the act. Milk orders have been the primary instrument used in regulating milk handlers. A milk order is applicable to all handlers in a regulated marketing area.

Marketing agreements as authorized by the act are agreements between the Secretary, on the one hand, and milk handlers on the other. They are not agreements between handlers and producers nor among handlers. A marketing agreement may contain, when it is an adjunct of an order, only those terms which are also included in an order, which terms must be authorized by the act, and it may be issued only if the need for it and the terms it contains are substantiated by evidence introduced at a public hearing. Although marketing agreements are authorized by the act they have not played an important role because handlers generally fail to sign them in requisite numbers. There are apparently two reasons for this:

First, a marketing agreement is binding only on those handlers who sign it and second, since a milk marketing agreement must contain terms identical to those of the accompanying order, no additional purpose is accomplished by an agreement. At the present time there are no milk marketing agreements in effect.

An important factor in the expansion of Federal milk orders to new markets in the immediate postwar period has been the need in many areas for a reconciliation of the interests of new producer groups with the interests of producers long established in the market. Presentday milk supply areas for our major urban markets extend over wide areas, and widely separated producers bring different economic interests and different viewpoints to the bargaining table. Through the Federal order program, differences of viewpoint on the part of separate groups have been reconciled and decisions reached in accordance with the common welfare and the prescribed standards of the program as set forth in the statute. Minority groups, as well as handlers and consumers, have been guaranteed an impartial consideration of their interests under the program.

Under the impetus of postwar economic developments, an increasing number of producer groups requested the assistance of Federal milk orders in developing effective pricing and marketing programs.

62203-55-pt. 1—————2

The

number of Federal orders more than doubled from 1947 to the present time, and 7 new orders have become effective during the past 12 months.

Price levels: The national oversupply of milk and butterfat relative to market sales of milk and dairy products which has existed during a number of postwar years has aggravated the difficulties which confront producers trying to bargain for prices. Normal sales channels have failed to absorb the total supply of milk offered by dairy farmers during this period. This lack of balance between supply and sales has depressed prices paid to dairymen generally. The lower levels of prices have prevailed in Federal order markets, as well as in other fluid markets and in areas producing milk primarily for use in manufactured dairy products.

The attached figure 1, which shows indexes of Federal order class I prices-15 markets for which data are available 1940 to date include Boston, Chicago, Dubuque, Fall River, Fort Wayne, Kansas City, Louisville, Merrimack Valley, New Orleans, New York, OmahaLincoln-Council Bluffs, Quad Cities, St. Louis, South Bend-La Porte and Toledo-compared with prices paid by condenseries and the United States average of dealers' buying prices for milk used for city distribution as milk and cream, illustrates the sharp drop in all three price series since the peak in 1952.

That is a chart and not a table on the back part of the statement. That is figure No. 1.

(Figure No. 1 appears on p. 11.)

Mr. FOREST. We took the prices of the three different series in 1940 and computed an index from that 1940 price.

The United States average dealers' buying price is a price series put out by the Department of Agriculture as compiled from a number of fluid milk markets throughout the country and is not confined to Federal order markets. We then took an index of the Federal order prices where we could have a series from 1940, and the United States paid condensaries is also a figure published by the Department of Agriculture and is collected each month from prices paid by condenseries unregulated.

The drop in prices paid at condenseries was relatively greater than the drop in fluid market prices during this period, since the index of manufacturing milk prices reached a peak considerably higher than the fluid series in 1952 and fell from that level to 17 points below the United States average of fluid buying prices in 1953.

Although average class I prices in Federal order markets moved closely in line with United States average fluid buying prices from 1940 to 1946, the Federal order prices have been relatively lower than United States average prices since 1947, part of that divergence is probably due to the wider application of the class I price in the Federal order markets. The class I price in Federal order markets usually applies to all products which must be made from grade A milk. Other markets are often not so comprehensive in their class I definitions or so rigid in the accounting for products in each class. These factors have become more important in recent years and tend to offset the lower level of class I prices in Federal order markets and product about the same total return as producers get in unregulated fluid markets.

The changes in Federal order class I and blend prices and United States average prices of all milk sold wholesale, milk sold for manu