of a restrictive nature or a nature that would create a monopoly in that city or prevent the free flow of good milk.

That is all.

(Discussion off the record.)

Mr. LAIRD. I would first like to state that I think that the National Grange has made a real contribution to the dairy industry and to the dairy farmer by its fine study and the book which it has published, Barriers to Increased Consumption of Fluid Milk.

I think that this special report is one of the finest reports that I have seen for a good many years. It shows that you have made an exhaustive study and the contribution which you have made as a result of it, I do not think could be measured in any small terms.

I have used it quite extensively in my district. It is a fine contribution.

I have had some very fine reports on it. I would just like to ask one or two questions of you.

Do you know of any agricultural commodity that is regulated as much as milk?

Mr. ZIMMERMAN. I am almost certain beyond any doubt that there is no other commodity that is regulated anywhere near the degree that milk is regulated.

Mr. LAIRD. In your study you stated that you had not exhausted all of the sources so far as the study of the Federal milk marketing orders were concerned. I believe you left the impression that further consideration should be given to Federal orders by the USDA? Mr. ZIMMERMAN. Yes.

Mr. LAIRD. There was a question asked earlier regarding the formula which was used in several Federal orders as far as the excess production was concerned.

Mr. ZIMMERMAN. Yes, sir.

Mr. LAIRD. I did not quite understand your answer. What do you think is necessary to control excess production in these order areas?

Mr. ZIMMERMAN. I do not think that you can come close to a general figure on what is necessary because the history of local markets would probably show some variation from market to market on what the essential minimum safety factors are. My point was answered, that these formulas were derived in an unusual period, at least in many markets. In other words during a period of shortage, during a war. Our position is that these formulas should be examined in the light of present-day conditions, to see whether they are precise enough.

And perhaps to refine them. We suspect that there may be room for refinement.

Mr. LAIRD. Do you think that hearings such as ours will do some good insofar as getting some of the local communities and States that have large metropolitan consuming areas to bring their sanitary requirements in line so they truly are sanitary regulations and not barriers to the free flow of milk? How do you think we best can do away with some of these unrealistic barriers that have grown up over a period of years around the large metropolitan consuming areas?

Mr. ZIMMERMAN. Our hope is that State by State some progress can be made in the development of statewide, industrywide organizations that would get at all of these barriers, that would get at not only

the tangible barriers like codes, but at the intangible barriers of complacency and poor merchandising.

If this can be attacked on a State basis, State by State by the people most intimately and economically involved, I think we will have a better and more lasting solution. This is really a challenge to dairy leadership. An organization in a State which brought together the leaders of the processors, the producers, labor, suppliers, and consumers, and sat down and mapped out a program and made an analysis of the potentialities of the dairy industry in each State and the markets, and brought in the facilities and the data available through the colleges, I think would be a long, long step forward, and is the route that we are particularly interested in.

Mr. LAIRD. We had testimony from an economist of the Department of Agriculture on Friday of last week that when the percentage level of parity support on dairy products was dropped a little over a year ago, the consumer received the benefit in the price of cheese and butter, but the consumer on a national average only received fourtenths of 1 cent in the reduction in price on the quart of bottled fluid milk. In your study there was no reference to this. I wondered whether you had given any consideration why the drop was so much. more marked in cheese and butter and was not reflected to the same extent in the fluid-milk price.

Mr. ZIMMERMAN. I do not have the answer to that.

Mr. ABERNETHY. Mr. Zimmerman, we are very grateful for your appearance this morning. We may want to call you again some other time. Thank you very much.

Mr. ZIMMERMAN. Thank you, sir.

Mr. ABERNETHY. We will now hear from the Farm Bureau.

STATEMENT OF KENNETH HOOD, ASSISTANT SECRETARY OF THE AMERICAN FARM BUREAU FEDERATION; ACCOMPANIED BY JOHN C. LYNN, LEGISLATIVE DIRECTOR OF THE AMERICAN FARM BUREAU FEDERATION; AND ED TIEDEMAN, DIRECTOR DAIRY DEPARTMENT

Mr. LYNN. My name is John C. Lynn, legislative director, American Farm Bureau Federation. I would like to introduce to the committee, Mr. Kenneth Hood, assistant secretary of the American Farm Bureau. And Mr. Ed Tiedeman, who is director of our dairy department.

Mr. Hood has had considerable experience in Pennsylvania in the operating of the milk-marketing orders and so forth, and Mr. Tiedeman has been connected with the dairy industry as a producer, as an operator of cooperatives, and marketing, and so forth, over a period of some 26 years.

I would like for Mr. Hood to read our statement if he would.
Mr. ABERNETHY. All right, sir.

Mr. HOOD. The American Farm Bureau Federation appreciates the opportunity to discuss with this committee Federal milk marketing orders and their effect on the dairy industry in various parts of the country.

We have had a long continued interest in marketing agreements and orders and have supported the basic legislation authorizing this program.

Our 1955 policies adopted at the annual meeting in December 1954 state:

We favor the use of marketing agreements and orders where producers develop feasible plans.

We believe that marketing agreements and orders are a means of providing a measure of protection to producers of perishable commodities which are difficult to support with loan and purchase programs. As the committee knows, a number of questions arose during the past year regarding Federal milk marketing orders and their effect on producers outside the order markets. In order to evaluate these cricisms, a committee of American Farm Bureau Federation Board members, together with several members of our staff, early this year began a study of Federal milk marketing orders and their effect on the dairy industry.

Our study has not proceeded far enough for us to be in a position to make any definite recommendation at this time. We would, however, like to submit a brief of a preliminary statement which we are circulating among our State Farm Bureaus for comment and suggestions. While the statement does not contain final conclusions, we feel it may be of assistance to your committee in its study of the Federal milk order program.

We would like to reserve the right to file supplemental information and recommendations at a later date if further investigation discloses information that would be helpful to your committee in its deliberations.

The summary of our preliminary report is as follows:

Federal milk market orders, in one form or another, date back to 1933. They have become a recognized technique for determining the price to producers for milk sold for use in fluid-milk markets. In the 22-year period which has elapsed since the start. Federal milk orders. have developed into a control program quite generally accepted by the industry as performing a permanent and justifiable Government function.

Although dairy farmers delivering to fluid milk markets quite generally support Federal milk orders, some criticism has developed mostly from manufactured-milk areas where no such procedure is available.

Those who criticize the operation of Federal milk orders do so in most instances on three grounds: First, that the class I pricing is too high and thus encourages overproduction which must go into additional manufactured milk products, thereby further depressing the price of all manufactured products; second, that class II or manufacturing-milk prices are below those customarily paid in manufacturingmilk plants so that the resulting margin permits handlers to offer the end products at prices below those quoted by Midwestern plants; and third, that Federal orders create artificial barriers to the movement of milk.

This study is designed to be an objective, impartial analysis of Federal milk orders, including their operations and the results with particular emphasis on the most controversial aspects.

Although the study is made primarily from the standpoint of analyzing criticisms of Federal milk orders, it also includes some background of the history, development, and conditions which brought about the Government's entry into the field of price determination in

the fluid-milk industry. No effort has been made to include a study of administrative operations since they are quite generally noncontroversial.

History: Federal authority to regulate the handling of milk was first provided in the Agricultural Adjustment Act of 1933. The Federal milk orders of today, however, are based on the Agricultural Marketing Act of 1937 which reenacted the authority granted earlier and spelled it out in greater detail.

Under this authority the Secretary of Agriculture is empowered to help stabilize marketing conditions by using Federal orders regulations enforceable by law-which apply to handlers and producers of milk.

Federal milk control began with a program of agreements and licenses rather than orders, and represented, to some extent at least, emergency legislation. The original agreements, which were three-way agreements between producers, milk handlers, and the Secretary of Agriculture, dealt with retail prices as well as prices to producers.

Fifteen such agreements were approved in 1933. Within a short time the retail price provisions were withdrawn and licenses were issued for the next few years.

During the same period, namely the early 1930's, 29 of the 48 States enacted State milk-control laws. These laws provided for price regution which, in many cases, was on a statewide basis. Most of the State laws were emergency legislation and many were soon allowed to expire. Most of them contained provisions on resale pricing.

Because of the reluctance of milk handlers to enter into an agreement on price with producers, these agreements and licenses finally developed into orders which were signed by the President of the United States, without official approval by the handlers. The Presidential authority to sign on behalf of the Government has been delegated to the Secretary of Agriculture.

During the early years a number of court cases were brought to determine the constitutionality of the Federal law. Most of these problems were cleared up by 1940 through United States Supreme Court decisions.

The legal basis for the present enlarged program began with the Agricultural Marketing Agreement Act of 1937, which was supported by Supreme Court decisions upholding its validity in cases involving the New York and Boston milk orders in 1939.

The legal status of State milk control has also been clarified. The number of States with State control programs declined to about 15; however, there is a current trend toward more State control laws although the Oregon milk control law was repealed by referendum in November 1954.

At present there are 55 Federal milk orders in effect, with more in prospect, including some for which promulgation hearings have already been held or announced.

The need for Federal milk orders grew out of serious problems in pricing fluid milk, resulting to some extent from modern marketing methods. Perhaps the most aggravating and difficult problem with which the fluid milk industry has struggled for many years is seasonal variation of production. Since the demand for fluid milk is relatively stable and the production is subject to wide variation, the problem of surplus and low surplus prices is one which dairy farmers have been faced with historically.

Some surplus milk is necessary to any well-supplied market. A market to have an adequate supply usually requres a daily surplus or standby reserve of 10 to 15 percent above average daily sales in order to take care of day-to-day fluctuations in supply and demand.

We say here 10 to 15 percent. We are probably on the low side. Because of wide seasonal variations in production, the amount of surplus in excess of what is needed may become very substantial during the months of high production. Conversely, the market requirements may exceed production during the months of lowest. production.

As a result, handlers within the market seek additional producers to get enough milk for the short months, and thereby create a larger surplus in the next flush period.

The perishability of milk, which makes it impossible to store supplies in periods of heavy production for needs in the following low-production period, is also a factor which tends toward instability of both milk prices and marketing conditions. Instability has characterized practically all fluid-milk markets historically.

Following World War I, farmers around most of the large cities formed cooperatives in an effort to stabilize prices through collective bargaining with handlers.

Efforts of these producer cooperatives were reasonably successful for some years, even though they failed in some instances. During the depression of the early 1930's, many bargaining arrangements broke down and milk prices to producers declined to disastrous levels. As a result, farmers turned to Government, either State or Federal, for help.

The response to such requests resulted in a much more completely regulated milk industry for various reasons. Milk is a product which lends itself to regulation because of its perishability and the fact that adequate supplies of milk and dairy products are necessary, not only for normal growth and development of children, but also for optimum health in consumer groups of all ages. The production of milk has been surrounded with requirements in the form of sanitary standards established in both local, State, and national milk ordinances since milk generally is considered to be vested with public interest.

The existence of disrupted and disastrous marketing conditions during the early 1930's represents the basic reason why organized milk producers turned to State and local governments for help. It should be remembered that producer cooperatives turned to Government control only when they were unable to enjoy stability in their markets because of events beyond their own control. With the adoption of State and Federal legislation has come the gradual acceptance within the dairy industry of supervision in fluid-milk markets.

An additional occurrence of great significance which further influenced producer cooperatives to turn to Government control was an opinion from United States Attorney General Thurman Arnold about the year 1940.

In a letter to the president of a large milk cooperative, Mr. Arnold stated that in his opinion any discussion of price between representatives of milk handlers and producers meeting in a group would be considered a violation of the antitrust laws, and that the handlers would be subject to prosecution. Obviously, this would render any effective bargaining by producer cooperatives exceedingly difficult, if not impossible.