class I prices. The report of the Federal Milk Order Study Committee comments on this as follows Mr. ABERNETHY. You refer to the Federal Milk Order Study Committee. Who established that committee? Mr. HOOD. The Secretary of Agriculture. I believe this has already been put into the record. Report of the Federal Milk Order Study Committee. It is the agricultural study. Mr. ABERNETHY. Has it concluded its work? Mr. HOOD. I understand it has. Mr. ABERNETHY. I will ask about that some other time. Mr. HOOD. You understand this is background pretty largely for our own people to study the situation further. That is why we have included some of what is already in the report that you have received. Boston and New York are Federal order markets. In the Northeast, Providence, Rochester, and Pittsburgh are markets in which class I prices are established by the respective State milk control agencies. The Boston and Providence milksheds overlap to some extent. The Rochester milkshed is contiguous to New York. In certain areas in western Pennsylvania and Pittsburgh and New York milksheds are contiguous. Mr. ABERNETHY. Those tables reflect that the consumer has been able to purchase milk at a cheaper price in the Federal marketing areas than in the non-Federal marketing areas. Mr. HOOD. These are producer prices that we are listing and not consumer resale prices and we would have to go back to the records to find out what actually were the consumer prices over a period of time in those markets. You see, there is no resale price in your Federal order markets, but for a number of our State order markets there are consumer resale prices. In 1941 the class I prices in the 3 State-regulated markets averaged $3.25, while the average for the 2 federally regulated markets, Boston and New York, was $2.70. The State-regulated markets exceeded the Federal by $0.55. The absolute difference between the two is not of special significance in this analysis. In this case, part of the difference is due to the fact that in the State-regulated markets the price is an f. o. b. city price, while for the Federal markets it is a price applicable in the 201-210 mile zone. For the period 1940-51 there was no persistent tendency for the margin between these two groups of markets to widen or to narrow. The State-regulated markets exceeded the Federal by a minimum of $0.23 and a maximum of $0.55. From 1951 to 1953 the average class I price in the State-regulated markets increased $0.12, while the average Federal class I price declined $0.41. In 1953 the State markets exceeded the Federal by $0.93. This was by far the widest margin on record, and more than double the average of the preceding 13 years, of $0.39. A further comparison between class I prices in 6 non-Federal markets for the years 1940, 1945, and 1953 is included in the following table: Fluid sales prices in 6 non-Federal markets, 3.5 percent butterfat basis, for the years 1940, 1945, and 1953 Source: Fluid Milk and Cream Report, AMS. Compiled by the Standardization and Program Development Branch, Dairy Division, AMS. The effect of freight rates on interstate movement of milk from Midwest to the East presents some information with regard to the effect of transportation charges in establishing barriers. Here again, it is interesting to refer to the report of the Federal Milk Order Study Committee. Ordinarily there is little fluid milk shppped from the Midwest to the East. In the late forties, when Boston was short of milk, an emergency was declared and handlers were permitted to bring milk into the Boston market from plants outside the Boston milkshed. A considerable part of this "emergency milk” came from the Midwest. In 1953 the Chicago class I price at Shawano, Wis., plus tank-car freight to Boston, averaged $5.73. At the same time, the Boston class I price in the 201-210 milk zone, plus freight to Boston, averaged $5.40. The Chicago order price in northern Wisconsin, plus freight to Boston, averaged $0.33 higher than the Boston price (table 1). During the 2 years 1949 and 1950 the Boston price exceeded the Chicago price, plus freight, to Boston, by an average of $0.27 per hundredweight of 3.5 milk. In recent years the Chicago price, plus freight, has averaged higher than the Boston price, but there were individual months when the Boston price was the higher. These months were confined, generally, to the fall and winter (table 1). In the above comparison it should be noted that Shawano, Wis., is on the northern edge of the Chicago milkshed and it carries a minus differential of $0.22 from the Chicago 70-mile zone price. TABLE 1.-Chicago class I price at Shawano, Wis., plus tank-car freight to Boston, and Boston class I price (201–210-mile zone) plus tank-car freight to Boston, 1940-541 [Dollars per 100 pounds 3.5 milk] 1 Data supplied by C. W. Swonger. 2 Currently Chicago 70-mile price, less $0.22 to Shawano, plus $1.79 tank-car freight to Boston. TABLE 1.-Chicago class I price at Shawano, Wis., plus tank-car freight to Boston, and Boston class I price (201-210-mile zone) plus tank-car freight to Boston, 1940-541-Continued What this table tries to show is the relationship between what it costs to get milk from Wisconsin to Boston, taking Wisconsin price plus the freight and how that compares with the Boston price delivered to Boston, f. o. b. price Boston in both cases. Mr. ABERNETHY. Can you summarize what those tables reflect? Mr. HOOD. Generally, the tables reflect that the Wisconsin price plus freight brings a higher cost for milk in Boston than is the Boston delivered price. There are months and there are periods in the year when the other part is shown but it does bring out in the movement of milk from any distant area into these larger eastern markets there is a question of transportation. It is a very big item. In this case if I remember my figures, $1.79 a hundred to move milk from the Wisconsin point to Boston. For most of our eastern markets a figure close to that amount. That is one thing we have to take into consideration when we are thinking about the flow of milk from a distant manufacturing area into these large consumer markets where we have Federal orders and into places where we do not have them. That is about all the table purports to show. Mr. LAIRD. Isn't it fair to point out you are using class I prices in that Shawano price? Mr. HOOD. Yes. Mr. LAIRD. But I mean you should point that out that you are using class I prices. Mr. HOOD. But it is a source of milk that would qualify from the inspection standards presumably that they have. I mean it is pretty hard to take manufacturing milk and compare it with class I milk in the market. Mr. LAIRD. But I think it is only fair to point out that these prices are not the prices that the majority of farmers in Shawano receive. It makes a very unfair comparison and is misleading to the farmer up in Shawano County. You are using class I prices and I thought it should be pointed out. Mr. HOOD. That is very true. We should have indicated that as we went along because we are subject to the same criticism in using a Boston class I price because the farmers supplying milk to the Boston market know they do not get that, either. We do in the heading say "Shawano County class I price." Then the class I price at Boston. It probably should have had additional emphasis. 1. Milk is a product which lends itself to regulation. Because it is perishable, and has wide use as a nutritious and protective food, it is surrounded with regulations. The production, processing, and distribution of milk is subjected to sanitary standards and other rigid controls. Such regulation is generally accepted as being in the public interest. 2. Federal milk orders have been developed over a 22-year period and have now reached the status of a control program quite generally accepted and looked upon as a permanent part of fluid milk marketing. 3. Federal milk orders are authorized under the Agricultural Marketing Agreement Act of 1937. They grew out of demoralized conditions in milk markets occurring during the depression years when producer prices were completely unrealistic. 4. Classified milk pricing as an accepted method for providing the most satisfactory returns to producers on fluid milk markets was developed before the institution of Federal milk orders. 5. Stability of prices within fluid milk markets requires what might be termed some rules and an umpire in the interests of both producers and consumers. 6. Determination of prices, based on a record of testimony prescribed in public hearings presided over by a Government representative, has much to recommend it for a product such as milk which is characterized by perishability, seasonal fluctuations in supply, and the need for some kind of continuing arrangement between producers and handlers. 7. Federal orders are optional with producers operating in a market and must be terminated if a majority of the producers in a market favor termination. 8. No order applicable to milk in a market area may prohibit or in any manner limit the marketing in that area of any milk or product thereof produced in any production area in the United States. 9. Milk under regulation in a Federal order must be priced at levels which are determined to reasonably reflect economic conditions, to assure an adequate supply and be in the public interest. 10. Use of compensatory payments is based on the belief: (1) that they are necessary to the maintenance of a classified pricing program in connection with marketwide pools; and (2) that a fluid-milk supply, because of the perishability of the product and the sanitary standards surrounding the production and distribution of fluid milk, and because it is in the public interest, should be an assured supply rather than an intermittent one. 11. Compensatory payments are not levied against sources which are willing to become a part of a regular market supply and to assume the responsibilities of such a supply. Federal orders contain no barriers against shipments of milk under the above-named conditions. 12. There is little evidence to show that production of milk in Federal order markets has increased more rapidly than production of milk in unregulated areas. 13. Prices are not rigid. 14. It seems doubtful that termination of all Federal orders would result in any appreciable increase in interstate shipments of milk. 15. The Federal order program is not perfect. Mistakes have been made which indicate a need for more careful consideration of the pricing provisions, but in general, Federal orders have served a useful purpose. Federal milk orders should be periodically reappraised from the standpoint of possible improvement rather than complete condemnation. In closing, may we assure you that the American Farm Bureau Federation is interested in improving the operations of Federal milk marketing orders. If it can be demonstrated that changes are necessary in order to promote the welfare of dairymen and the general public, we will be happy to study the facts and make appropriate recommendations. I have on the back 2 maps, 1 indicating where the Federal order markets are, and those that are contemplated, and a second map indicating where we have State controls. For purpose of reference, we would like to have these included in the record. Mr. ABERNETHY. All right, sir. (The maps appear on pp. 194 and 195.) Mr. ABERNETHY. Mr. Polk? Mr. POLK. Mr. Hood, you have made a fine statement and I heartily agreed with the conclusions to which you have come with reference to the value of the Federal milk order program. I represent the State of Ohio; as you know, we have nine Federal orders operating in Ohio, and that is more than any other State, I believe. And the people that I represent have led me to believe that they feel that your Federal milk order program would be very seriously handicapped or probably eliminated if we should enact such legislation as is contemplated in H. R. 119 and its companion bill. I am wondering if you would care to discuss that. I realize that you have not been called here this morning to discuss the technical bills. I am wondering if you have made any study of that question as to the effect of this proposed legislation on the Federal order program. Mr. HOOD. We are in the middle of this study and on this point we have not had an opportunity to go into that thoroughly and at the moment we have no position as an organization. We have reserved the right later on if this hearing continues, if we find additional information from our deliberations that will be helpful to the committee, to bring it to you but on this point now we have not made the analysis. We assume this will be the subject of another hearing. We will be prepared to present our recommendations at that time. Mr. ABERNETHY. All right, sir. Mr. LAIRD. In your statement you state that in shipping milk into a given Federal-order territory, there is no barrier if he wants to come under the regulations of that market. Isn't it true that in some of the orders the producer definition relates back to the sanitary code that is set up in the local market? Mr. HOOD. You brought up a very interesting point. When we are talking about any area getting into a fluid market, the barrier of transportation is one which you have to put the pencil on just how much it will cost. |