STUDY OF THE DAIRY INDUSTRY

FRIDAY, MAY 6, 1955

HOUSE OF REPRESENTATIVES,

COMMODITY SUBCOMMITTEE ON DAIRY PRODUCTS

OF THE COMMITTEE ON AGRICULTURE,

Washington, D. C.

The Commodity Subcommittee met, pursuant to adjournment, at 10:10 a. m., in room 1310, New House Office Building, Hon. Thomas C. Abernethy (chairman of the subcommittee) presiding.

Present: Representatives Abernethy, Knutson, Andresen, Williams, and Laird.

Also present: John J. Heimburger, counsel; and George L. Reid, Jr., assistant clerk.

Mr. ABERNETHY. The committee will come to order.

We have met this morning for the purpose of hearing testimony from Dr. Roland W. Bartlett, professor of agricultural economics, University of Illinois.

We are very delighted and very happy that you could be here today. Do you have a prepared statement?

STATEMENT OF ROLAND W. BARTLETT, PROFESSOR OF AGRICULTURAL ECONOMICS, UNIVERSITY OF ILLINOIS, URBANA, ILL.

Mr. BARTLETT. Yes; I have a prepared statement, Mr. Abernethy. Mr. ABERNETHY. If you will please, identify yourself for the record. Mr. BARTLETT. My name is Roland W. Bartlett. My title is professor of agricultural economics at the University of Illinois.

I have been working on these problems of dairying marketing for about 30 years. My main work has been research and teaching and extension in the field of dairy marketing.

I talked with Mr. Abernethy just a moment before this session began, and he suggested that it might be of interest to bring to date some of the things that have happened since I presented testimony here on July 7, 1953.

Several things have happened since then which, to me, are a movement in the right direction.

During my testimony when I was here in July 1953 we were discussing the question of 90 percent parity as compared with 75 percent parity.

At that time, one of the questions discussed was the question of 90 percent versus 75 percent of parity, as previously stated, and we were producing a lot more milk than was being consumed. Of course, it was being purchased by the Government.

In that hearing I discussed the question of a paper that I had written at that time, the essence of which was to recommend going from 90 percent to 75 percent of parity. I discussed particularly the relation of the butter industry, that it was unsound basically to keep on buying a lot of butter and having it at a price higher than it could be absorbed in sales.

The change in the purchase situation since then has been very pleasing to me, particularly as I have noted the decreasing volume of purchases month by month in the past fiscal year.

The question of how long the Government will have to continue to purchase at 75 percent of parity, I do not know. They have purchased some commodities. In 1955 I expect that it will be a small volume; and in 1956, likewise, and I would expect by 1957 that the surpluses would be pretty well melted away.

Within 2 years or 21⁄2 years, I expect, assuming the normal increase in population, with these 2,800,000 additional babies above deaths continuing, and if consumer income is maintained at a fairly high level, in my opinion, the basic problem of surpluses that the Government has, to buy to clear the market, will be pretty well absorbed. Mr. ABERNETHY. Are you assuming that production will remain at the present level?

Mr. BARTLETT. I think that production is likely not to increase too much under the present situation.

Mr. ABERNETHY. There has been a right substantial increase in the last 2 or 3 years, has there not?

Mr. BARTLETT. A very substantial increase from 1953 to 1954. For 1955 apparently it will be about the same as 1954.

I was talking yesterday with one of the economists from the State of Minnesota, Dr. Kohler, and it was thought that there might be a drought up there this year. If so, we might have even a decrease in the production in the dairy area.

Personally, I think that the reduction from 90 to 75 percent of parity was the soundest thing that could be done for a long time for the dairy industry. And the increase in sales which is coming about as a result of on one hand a somewhat lower price and on the other hand of vigorous programs, such as the school milk program, has helped. We are getting more and more markets in the United States. Mr. ABERNETHY. It has not affected the price of milk, has it? Mr. BARTLETT. Yes. Let us take specific markets. I just made a study recently of markets which had increased sales the most during the past 2 years. I took the years 1952 and 1954. I took those because that is the period before really the surplus hit us and since the surplus. I studied all of the Federal order markets in relation to sales, where their sales area was pretty much in line with the marketing area as set forth in their areas.

The city which increased most-the metropolitan area which increased most-was Kansas City-metropolitan Kansas City.

That, of course, is both in the State of Missouri and the State of Kansas, consisting of 4 or 5 counties.

In 1954 the per capita sales in Kansas City were 12.8 percent above those of 1952. That was in 1954.

During this period prices had fallen 2.6 cents for a quart to the consumers, or a decrease of 12.9 percent.

For each percent decrease in price in Kansas City we had a 1 percent increase in per capita sales.

To me that is very significant.

The second market in line was the city of St. Louis. That was the second market that increased sales the most during this 2-year period. St. Louis has been selling milk in the stores at low prices. At the present time I looked at the June United States Department of Agriculture fluid report and you can get 2 quarts for 29 cents in St. Louis. The dealer's gross margin is 6.4 per quart, one of the lowest in the United States.

We can tie definitely the increase in sales to the pricing, which includes on the one hand, the class 1 price and which includes on the other hand the lower handler margin.

Mr. ABERNETHY. I have forgotten who it was now, but some witness about 8 or 10 days ago, brought some very specific pricing information to us, supported by statistics from the Agricultural Marketing Service for the Department of Agriculture, to the effect that since the advent of the 75 percent support price that the national average for the sale of milk had dropped four-tenths of 1 cent per quart.

He further stated that many things entered into that change in price; that the lowering of the price support might have had some effect, but there were other things that he brought to the attention of the committee which also had an effect on it.

In presenting that testimony he was not attempting to justify or to criticize the change in the support price. He was just simply bringing us the information.

Is that correct, that it was four-tenths of 1 cent?

Mr. LAIRD. I think that was the testimony, so far as the per quart price was concerned. The witness stated that the price of the milk might have gone down a little more than that, but there were other factors such as the bottling charges, the packaging costs and the labor costs that might have been eaten up in further lowering of the price.

Mr. BARTLETT. Of course, I think that we should clear our minds on this question of distribution of retail prices as compared with the parity prices. Basically, farm commodities compete with each other on the wholesale basis and not on a retail basis.

Specifically, we have in Illinois, Kane County, a beef and dairy producing area. When dairy prices are high, the beef people go into dairying. We had a period about 2 years after the bottom fell out of the beef prices that situation. That was a factor-that was one of the causes of this big surplus all over the United States-the low beef prices. Some of these beef farmers like to eat, and they like monthly checks. So they turned to dairying.

When the wholesale price of condensery milk and other manufactured products fell it took away the incentive for these beef people to rush into dairying. Some are going back to beef.

Mr. ANDRESEN. I am sure that I misunderstood you, but I just want to clarify it. Can a man get in and out of the dairy business in 2 years?

Mr. BARTLETT. Yes, he can, to a certain degree, Mr. Andresen. Of course, the relative degree depends upon the individual. Probably the biggest single factor in that picture was the question of cull cows.

When the price of beef was high they would cull quickly. When the price of beef went down they kept the cows. But when dairy prices were high and beef prices low, they would keep the cows much longer. Since we have had a decrease in dairy prices the culling has been much greater the past year than before.

Mr. ANDRESEN. That is not what I have been able to find. I have found the price of cows was high, that is, canner and cutter cows, when they would get $200 or $300 or $400 for an animal, the tendency then was to sell those. That is when the prices for meat were high.

Mr. BARTLETT. Just taking the United States statistics at January 1, 1955, the number of milk cows were 1 percent less than the year before. That is an indication of what was happening.

Before I go any further in this, I would like to get into some of the specific statistics.

Mr. ANDRESEN. There is just one other question that I would like to ask. You seem to lay considerable stress in all of what you have said has happened, because of the reduction in the support price on manufactured milk from 90 percent to 75 percent. You mentioned the St. Louis area which is under a milk marketing order. You mentioned Kansas City which I understand is also under a milk marketing order.

Mr. BARTLETT. That is correct.

Mr. ANDRESEN. The Secretary of Agriculture fixes the minimum price that the producers are to receive, notwithstanding any support price.

Mr. BARTLETT. Yes.

Mr. ANDRESEN. We had here the other day a witness from the State of Connecticut. He said the price for class one milk was $6.04, and for blended it was $5.60, as compared with $2.90 a hundredweight for milk in the milk manufacturing areas.

Mr. BARTLETT. I would like to get into my exhibits soon, because I have material that bears definitely on these questions.

The question of the Federal order pricing, you are correct, is a question whether that has kept in line with the condensery prices or not. In some markets it has. In some it has not. I have specific markets to show where it has kept in line and specific markets to show where it has been out of line.

Mr. ANDRESEN. I did not want to leave the impression here that this increase in consumption is all due to what the Secretary of Agriculture did in dropping the support price from 90 percent to 75 percent, because the main item in that was butter, cheese and other like products, as that is the way the price of milk is supported.

Mr. BARTLETT. That is true. If we keep clearly basic economics on this, namely, that is why I brought in that a moment ago, that farmers tend to shift to commodities where they make the most money and the lower parity prices for manufactured dairy products is a basic reason why in 1955 production is not likely to exceed 1954 and may even go under.

The question is that the farmers do not think in terms of retail prices themselves, although they are very much interested in them. Their own actions depend upon the blend price that they receive themselves.

Mr. ANDRESEN. I agree with you on that. I know that in my own area where we are largely a dairy district, many, many, farmers are

going out of the dairy business and going into beef cattle. And they raise more hogs and more poultry and more corn and soy beans.

Mr. BARTLETT. And they shift, do they not, because they figure that they can make a little more money in that than in dairying?

Mr. ANDRESEN. Sure. Our farmers are just as clever as some of the businessmen that we have in this country. They might not be as clever as some of the economists that we have. They know what it means in return and income. And if they can make more money in producing some other commodity, they will go ahead and do that.

It is pretty difficult to get into the dairying business in 2 years' time, however.

Mr. BARTLETT. That is right. I would say, Mr. Andresen, the answer to that is the question of a relative degree. There are 2 or 3 factors that can hold up production.

One is not selling cull cows.

One is higher feeding.

Then there is the question of how many heifers are coming in. That is something outside of your immediate control.

The production is to a certain degree flexible.

Mr. Abernethy raised the question that we did have increased production from 1953 to 1954, about 3 billion pounds. It is 124 billion roughly in 1954 and about 121.3 in 1953. That was the result of the relatively high price.

The momentum of that high price, of the 90 percent parity, caused that.

Then we dropped that.

I would like to get into this. I have some specific charts dealing with this question.

Mr. ABERNETHY. Maybe we had better get into them.

Mr. BARTLETT. Taking this first page, I have set forth the main things that I am going to discuss, and then refer to four exhibits. Based on facts available, both present and past, I am convinced that Federal regulation of milk prices has done three things:

One. It can be credited with their preventing a substantial part of the conflict between milk producers and dealers which in corresponding periods of price change in the past, were accompanied with milk strikes and physical violence.

That is demonstrated in exhibit No. 1.

I should like to have that made a part of the record.

Mr. ABERNETHY. This exhibit, together with any other charts and exhibits that you may have, will be put in the record. (Exhibit No. 1 is as follows:)

EXHIBIT I

CHICAGO MILK STRIKES IN THE EARLY 1930's 1

Prices to producers fell from $2.49 per 100 pounds of milk in 1929 to $1.44 in 1934. This drastic reduction in prices was accompanied by violence and resistance and led to the milk strikes of January 1934, and October 1935.

With the passage of the Agricultural Adjustment Act in May 1933, attempts were made to regulate prices both to farmers and consumers at levels above the prevailing store price. Because of the abundance of milk and the demand for low-priced milk, it was impossible to enforce prices either for producers or consumers. In January 1934, however, attempts were made by organized producers, to shut off the supply of milk produced by independent farmers and sold

1 Part of unpublished manuscript discussing the Chicago Milk Market. Bartlett, Roland W., Department of Agricultural Economics, University of Illinois.