In further reply to your question, one of the reasons why the differential, why this operates, you will recall the New York price is quoted for 3.5-percent milk at the 200-and the important thing so far as producers shifting, is not that price, but the price in the area nearby. And in that area nearby there is a location differential of 25 cents. There is a transportation differential. There are some premiums being paid by the handlers in that area. They like nearby. milk well enough so they are willing to pay premiums. That tends to bring the New York price in this particular fringe area up much above the quoted New York price. (A group of students from North Carolina came into the room from Chairman Cooley's district.) (Discussion off the record.) Mr. ABERNETHY. I think Mrs. Knutson has a question. Mrs. KNUTSON. I asked the group yesterday how many of them drank milk. May I ask you how many of you drink milk? (All raised their hands.) Mr. ABERNETHY. I asked this question: How many of you do not drink milk? (Just one.) Mrs. KNUTSON. We had one yesterday, too. Shall we say that all of the good intelligent people drink milk and they usually find their way to the Nation's Capital. More power to you. Drink more milk. Mr. ABERNETHY. We are glad you dropped by. All right. Mr. ANDRESEN. I am a little confused over one point and I would like to have you clear it up. The blend price in New York is $3.80. And as I recollect it, you said the blend price in Connecticut was over $5? Mr. JOHNSON. That is right. Mr. ANDRESEN. What was that figure? Mr. JOHNSON. $5.60. Mr. ANDRESEN. If you do not have any restrictions on milk coming in from New York, it would seem to me that the New York dairy farmers are just as clever as the Connecticut farmers although I know they are Connecticut Yankees, but then they would be shipping more of their milk over into Connecticut. What do you do about that? Mr. JOHNSON. You have to add to that $3.60, 2 pounds of butterfat, and perhaps 7 cents a point which would bring you up to $3.94. You have to add 7-cent transportation differential. Mr. JOHNSON of Wisconsin. How much is the transportation differential? Mr. JOHNSON. Seven cents, $4.01. You would have to add a 25-cent location differential which brings you to $4.26. You add premiums which vary from time to time, and have been as high as 60 or 70 cents a hundredweight. These are competitive premiums that the New York dealers pay voluntarily. They are not 60 or 70 cents now, but it will bring it up some more. And then the farmers are interested in what they get for the milk at the farm. And they have to pay about 35, 36, 38 cents to haul it into Connecticut. That is what it costs to truck it. It is a longer haul. Whereas, some of the dealers in New York-this is really part of the premium-give free hauling. They come out and collect the milk at the farm. So, when you get through, I do not know how much you have got there, whether it is 60 cents or 50 or 40 cents, it varies, in fact some monthsyou will find some months in the last 24 when it would have paid the Connecticut farmer to ship over to New York, even though some months it is the other way around. Mr. JOHNSON (Wisconsin). The farmers in Connecticut would ship if there were just a nickel difference, I thought you said. Mr. JOHNSON. On that nickel thing, I said they would not shift on a nickel difference. They have to have more than that. Mr. ABERNETHY. Any further questions? Mr. JOHNSON (Wisconsin). I would like to make an observation on the small difference between your blend price and your grade I fluid milk price-maybe you are controlling your production so that you have not a lot of milk going into your surplus group? Mr. JOHNSON. That is right, they would never be able to do it with the seasonal variation in production that the New York milkshed has. Mr. JOHNSON (Wisconsin). Nor the production in Minnesota? Mr. JOHNSON. Wisconsin and Minnesota do better on seasonality than some Federal order markets but Connecticut has much more even flow than Wisconsin or Minnesota the year around. And they do it deliberately through a taking out and paying back plan. They take 50 cents out in May and June and pay it into the State treasury and then that fund is used to pay back in October and November. That is the plan that is used in Connecticut, to encourage the farmer not to produce milk in the spring and to produce more in the fall, so that it will be in line with the fluid milkshed demands. If it were not for that, if they produced the seasonal pattern of New York, they would never get anywhere near the $5.60 blend price with $6.04 for class I. Mr. JOHNSON (Wisconsin). With the protection that these Federal orders give the various milksheds, isn't this large overproduction we are having penalizing the farmers who are not under the Federal milk order? They are producing milk for manufacturing purposes? Mr. JOHNSON. Well, it does, if they keep their class I prices too high, to the point where supplies are excessively burdensome, and there are some markets-I am thinking not so much of the Federal order markets as I am of some State markets, Buffalo and Rochester, N. Y., for example-where I think prices are set at points which cause this overproduction to the detriment of the surplus producer. On the whole, though, looking at these production figures, they are both to blame for this increased production, both Wisconsin and the fluid areas. That is, you look at this increase between 1952 and 1954, if you do, it has not been predominantly the Federal order markets that have caused that increased surplus. It has been the manufacturing areas. I might add further that it seems to me that in the manufacturing areas, there might be some basis for complaint in that in fluid milksheds, the producers are held out the attraction of a blend price all of the time, whereas, that extra milk is only worth manufacturing—and the only way I know of to correct that is the quota plan, with either wholly or partially closed bases. Mr. ANDRESEN. What is the general retail price of a quart of milk in your State? Mr. JOHNSON. The general price is 24 cents, delivered to the home. And a penny cheaper at the store. Mr. ABERNETHY. Do you have a price-fixing board? Mr. JOHNSON. No, it is competitive; so that you find different prices in different areas of the State. Mr. ANDRESEN. Your farmers, of course, get twice as much for their milk as the farmers out in our section. Mr. JOHNSON. They get quite a little more. Mr. ANDRESEN. Not a little more, our farmers are getting $2.90 a hundred this month for their 3.5 milk. And you are paying a blend price of over $5. Mr. JOHNSON. That is right. Mr. ANDRESEN. So it is nearly twice as much. We think we have got as good milk out in our section as you have in your area. You certainly come from the right place, I know that. Mr. JOHNSON (Wisconsin). It was advocated by Mr. Zimmerman from the Grange the other day in his observations that these Federal milk marketing orders cover a whole section like the Northeast section of the United States Mr. ABERNETHY. Regional orders. Mr. JOHNSON. (Wisconsin). Instead of just local areas. You say there are differences now in New York State between the various cities. What comments do you have to make on that? Mr. JOHNSON. In Great Britain, I have observed their system. They do have a national order. And it works pretty well. They are a small country about the size of New York and Pennsylvania. You can go either of two ways. You can put in regional orders, and then put in local adaptations, or you can have local orders and have those local orders adapted to the overall situation. I have attended many of the hearings on Federal orders in the New York market and elsewhere, and I get the general impression that the problems that they are trying to tackle in New York had not better be enlarged too much. They are almost too large to cope with now. So that I lean a little bit toward adapting local regulations, to larger regulations, rather than having the overall regulation for the entire area. Mr. ANDRESEN. You are operating under a milk order in Connecticut? Mr. JOHNSON. Under a State milk order, not a Federal order. Mr. JOHNSON. Right. Mr. WATTS. Mr. Johnson, what is your observation on the idea that the production of milk should level itself off the year around so that we have about the same production in the fall as you have in the spring? Would that have a tendency to solve any of the problems that confront the dairy industry? Mr. JOHNSON. Well, in the manufacturing areas, I see no reason for having differentials over and beyond what result from the seasonal variation in manufacturing milk prices. I recognize, of course, if they rest heavily on the floor, that means very little seasonal variation in fluid markets. I think that there is some saving to be made in several markets by going further toward leveling out production seasonally. I am thinking of the New York market as one. I do not look at leveling out as being an overall panacea that would go very far toward helping out the dairy industry, but in selected spots, I think it would be helpful in fluid markets to do more leveling out. Mr. WATTS. That has been the thing behind the quota, has it not, by individual processors? Mr. JOHNSON. Quotas traditionally have had two purposes, one to limit production and the other to level it out seasonally. The 11 quota plans being used under the Federal orders now are also seasonal plans aimed at leveling out production seasonally. Mr. WATTS. There has been no discouragement under the quota. system, has there, toward the shipping of any amount of milk you want to ship in the fall? Mr. JOHNSON. Not that I know of, sir. Mr. WATTS. In other words, the purpose of it is to stimulate more milk in the fall and less milk in the spring? Mr. JOHNSON. That is primarily the purpose. Mr. WATTS. That is the reason that your spring quota is usually based on the amount of milk that you deliver in the 3 or 4 fall months? Mr. JOHNSON. Yes, sir. Mr. WATTS. Or a certain percent over and above? Mr. JOHNSON. Yes, sir. Mr. WATTS. And you think that maybe farmers would level their production off during the year. If they did, it might help in the fluid milk market and not in the manufacturing field? Mr. JOHNSON. I think that is right. Mr. WATTS. That is all. Mr. ABERNETHY. We certainly do appreciate your making this trip down here and bringing us this fine statement. You have given us some very valuable information. It has been interesting and informative. If there are no other questions, the committee will stand adjourned until 10 o'clock in the morning. (At 12:10 p. m. the committee recessed to reconvene at 10 a. m., Thursday, April 28, 1955.) STUDY OF THE DAIRY INDUSTRY THURSDAY, APRIL 28, 1955 HOUSE OF REPRESENTATIVES, COMMODITY SUBCOMMITTEE ON DAIRY PRODUCTS, Washington, D. C. The Commodity Subcommittee met, pursuant to adjournment, in room 1308 New House Office Building, Honorable Thomas C. Abernethy (chairman of the subcommittee) presiding. Present: Representatives Abernethy (presiding), Polk, Johnson, Knutson, Andresen and Laird. Mr. ABERNETHY. The committee will come to order. We have met this morning for the purpose of hearing testimony from the National Milk Producers Federation. Mr. Mason, I presume you are to make the statement. Mr. MASON. Yes, sir. Mr. ABERNETHY. And you have a prepared statement which you have already distributed. Mr. MASON. That is right. Mr. ABERNETHY. All right, sir, you may proceed. STATEMENT OF J. P. MASON, DIRECTOR OF THE DIVISION OF ECONOMICS OF THE NATIONAL MILK PRODUCERS FEDERATION; ACCOMPANIED BY PATRICK HEALY, ASSISTANT SECRETARY; WILLIAM GROVES, MEMBER, EXECUTIVE COMMITTEE; JOHN WAISANEN, PRESIDENT, ARROWHEAD COOPERATIVE, DULUTH, MINN.; AND WILLIAM T. ECKLES, PURE MILK PRODUCTS Mr. MASON. Before starting, I might say that my name is J. P. Mason. I am the director of the economics division of the National Milk Producers Federation. I have with me and participating with me Mr. Patrick Healy, the assistant secretary, and Mr. William Groves from Fond du Lac, Wis., one of our executive committee members. I also have with me Mr. Eckles, manager of the Pure Milk Products at Fond du Lac, Wis. I might provide a little background on myself if that would be of some value. I was raised on a dairy farm at Elgin, Ill., in the Chicago milkshed. Mr. ABERNETHY. I thought they made watches there. Mr. MASON. We keep on time there. I took my training at the University of Illinois, and at St. Louis University. I spent 5 years with a cooperative milk marketing organization in central Illinois, doing work in the plant during part of the time and field work, |