Further quoting from the Department's report:

This carryover of cotton at the end of the 1965-66 marketing year will be about 14 million bales and, if new legislation is not enacted, the 1966-67 ending carryover will be considerably higher than any previous record. If we are to avoid a continuing buildup of stocks, changes must be made in current legislation which will reduce the acreage planted to cotton. Yields have increased an average of over 15 pounds per acre per year since the end of World War II. At current domestic and export price levels, the estimated domestic consumption and exports for 1966 could be produced on around 12.5 to 13 million harvested acres. On the basis of present estimates for domestic consumption and exports in 1966-67, and since other legislation requires that historical yields (1961-64) be used in determining the 1966 allotment, it now appears that the 1966 allotment (that is under the new bill) would be around 14.5 million acres (including a national reserve of 310,000 acres), even though the minimum were reduced as provided in the bill.

Continuing to quote from the Department's report:

The provision which permits a larger domestic allotment payment will increase participation in the domestic allotment program. This will help to bring production in line with offtake. But since the total domestic allotment, which is based on past yields, will be almost 11 million acres (including the small farms which make no reduction), the domestic allotment program alone will not reduce production sufficiently to avoid the necessity for a reduction in the national allotment. The proviso for making domestic allotment payments to small farmers who have domestic allotments of 15 acres or less without requiring them to plant cotton will assist the small producers financially and will also help to reduce stocks of cotton.

An additional possibility for achieving part of the necessary reduction in production of cotton is through a change in the regulations relating to skip-row planting which would provide that cotton planted in skip-row patterns would be counted against acreage allotments on a basis more nearly commensurate with the increased yields resulting therefrom.

In summary, the changes made by this bill would be sufficient to accomplish the necessary reduction in production if they are accompanied by a change with respect to skip-row planting as indicated above. Otherwise, the reductions possible under this bill would not be sufficient.

An essential requirement of cotton legislation is that it substantially reduces the cost of the cotton program. We believe that H.R. 8149 would be adequate to accomplish the reductions in program costs and carryover (with the change in skip-row) which are essential if the present cotton program is to be continued. Under this bill, expenditures for the cotton program would be reduced to about $500 to $600 million. However, we do not believe it provides the program changes which are necessary to assure the most effective marketing of cotton for export.

That is the end of the quotations from the Department's report.

One of the most perplexing and difficult questions confronting us is what to do about cotton exports. Everyone agrees that our cotton should be offered for sale competitively in the world market. The question is: How is this to be done? Is it to be done by U.S. cottongrowers producing for export on a competitive basis; or is it to be done by having the U.S. grower produce cotton for export at a price higher than the world price-protected by Government price-support programs-then have the price lowered to competitive world levels at Government expense?

If it is the latter, the cost of this phase of the program over a period of years cannot be less than the difference between what the farmer gets and what the exporter pays, multiplied by the quantity of cotton exported.

The idea that this cost is not incurred by the Government if the cotton is already in CCC inventory is erroneous. It is true that the cost has already been incurred, at the time CCC acquired the cotton.

However, if growers are to continue to produce additional cotton at a price higher than the price paid by exporters and domestic users, the Government will have to pay that difference or else pay the producer for the cotton at the higher price. If CCC is selling cotton from its inventories for whatever it can get for it, no one is going to pay the farmer a higher price for new crop cotton. Thus, CCC will have to make an equalization payment on the new crop cotton-about equal to the difference between the support price and the CCC selling priceor it will take the cotton in under the price-support program. In either case, CCC at one time or another will bear the cost of bringing the price down from one level to the other.

It has been urged that CCC should announce that it will sell enough cotton to achieve annual exports of 6 million or even 7 million bales, for whatever price it can get. Let's look at the arithmetic of this. If 6 million bales of cotton were exported instead of 5 million, the export subsidy would be increased 20 percent even if the world price did not go down. If, in addition, exporting the additional million bales reduces the world price of cotton 3 cents a pound, as our technical experts estimate it might, $15 a bale Government cost is added on all the 6 million bales-another $90 million. If, in addition, the price for domestic use must be brought down to the export price as is now the case, a corresponding $15 a bale can be added for each of another 10 million bales-another $150 million. Thus, the added cost to the Government of exporting the additional 1 million bales might well be in excess of $250 million-twice the gross value of the million bales of cotton itself.

To export 7 million bales, our technical experts estimate it might be necessary to reduce the world price an additional 3 cents, bringing it down to between 16 and 17 cents a pound. To do this would require annual Government expenditures for the cotton program estimated at more than $1.1 billion, in addition to $356 million realized from a net reduction of 2.5 million bales in CCC inventory.

We should note that this would not be just a one-shot affair. If we could eliminate all our current surplus, it would still be necessary in the future to have offtake equal to production to keep the surplus from building up again. If production is to be 15 to 16 or 17 million bales, offtake will need to be 15 or 16 or 17 million bales. Under the kind of program we have now, the Government would have to continue bearing the cost of bringing all this cotton down from the price-support level to the world price level. And we could still be faced with the prospect that the world price would need to be near 17 cents to move this much cotton.

I would like to quote again from the Department's report on H.R.

8149:

Under H.R. 8149, as under the present law, it will be inescapable that cotton export price levels will be closely managed by the Government, with Government subsidies being used to make it possible for U.S. cotton to compete in world markets and with Government funds being used to finance these subsidies. This places a heavy burden upon the Department to conserve Government funds and to observe rules of international trade so long as cotton is produced for export at a price above the world price.

In order to increase substantially the use of U.S. cotton in competition with cotton grown in other countries and with manmade fibers abroad, market prices for U.S. cotton would have to drop substantially from their present levels. Under

H.R. 8149, we would still be faced with a sharp rise in Government expenditures for the cotton program if we were to increase the equalization payments in order to lower market prices.

Legislation which would authorize loans by CCC near world price levels with supplementary payments to producers participating in the program would be more flexible and would enable the market to determine prices. Otherwise the price level would be directly tied to expenditures by the Government, as under present procedures. Under such a program, it might be possible to increase exports without so drastically increasing Government expenditures and still maintain farm income at reasonable levels.

We emphasize that we do not think the Government should finance significantly larger exports of cotton at a high rate of subsidy. However, if, in the judgment of the Congress, farmers are willing to sacrifice world markets in exchange for high price supports and market prices which encourage the use of foreign growths of cotton and manmade fibers abroad, H.R. 8149 could make it possible to accomplish the necessary reductions in program expenditures and in the cotton carryover. Under the conditions outlined herein, we will not object to the enactment of H.R. 8149, although we would recommend a loan near world price levels with supplementary payments to producers participating in the program as an alternative which would be more beneficial to U.S. producers in the long run.

That concludes, Mr. Chairman, the quotation from the Department's report and also concludes the text of my prepared statement.

I have attached to the statement a very considerable number of tables containing information relating to the cotton situation and its problems. The problem is so difficult that it seemed to us that it was fully warranted that we should provide to the committee a rather large body of information and statistics that have a bearing on the problem and possible solutions.

Thank you very much. Together with my colleagues we will be glad to try to answer such questions as we can.

The CHAIRMAN. The tables will be made a part of the record at this point.

(The tables follow :)

1 Export differential on 1,000,000 bales averaged 7.5 cents per pound. There was no export differential on 1,200,000 bales.

2 Acreage reserve program was in effect in the United States in 1956-58. 3 Estimate.

Upland cotton-Estimates of basic data for 1963, 1964, 1965, and 1966

Upland cotton-Comparison of estimated expenditures for 1963, 1964, 1965, and

1 Includes advance payments on 1965 domestic allotment program.

* Does not include miscellaneous expenses of about $2,000,000 primarily for cotton classing.