VALUE TO FARMERS

For more than 30 years our Nation and its Congress have held that a parity price is a fair price-fair to consumers and producers alike—and that farmers deserve to be enabled to earn a parity of income. The all-commodity farm marketing goal and conservation acreage reserve program could be used to keep farm prices at a full income parity average year in and year out. However, to do so in recession and depression years would be a great hardship on consumers. Moreover, tailoring farm production down to less than a volume that consumers would buy at parity prices in a year of full employment would be restrictionist and itself contribute to deepening the recession. Therefore, the Farmers Union conservation acreage reserve proposal does not provide for cutting production below the volume that a full employment economy will buy at 100 percent of income-parity prices.

Establishment of a market supply adjustment program of this type would go a long way toward reducing the severe cuts required by marketing goal and programs for specific crops, and practically eliminate the present tendency of these program to shift the so-called surplus problem from one crop to another and rather soon, always to poultry, dairy, and livestock. Such a program would help greatly to bolster farmers' collective-bargaining activities under the marketing agreement and order programs and otherwise.

ECONOMIC ANALYSIS

A 6 percent cut in national food and clothing supplies in the domestic United States market would cause a 36 percent increase in average prices received by farmers for such commodities.1 The immediate effectiveness of the conservation acreage reserve in raising farm family income grows out of this convenient economic fact.

More than 90 percent of all United States farm acres is used to produce food and fiber for the domestic market. About 10 percent of commodities produced must be exported. No one knows what the supply-price relationships for different export commodities may be from year to year. But assume for the moment that programs can be developed to maintain exports. In that case, using the all-commodity farm marketing goal and conservation acreage reserve to reduce United States farm production by 6 percent would increase farm operator family income about 30 percent. Here's why this comfortable result comes about.

Cotton, wheat, rice, tobacco, and a few other commodities account for the great bulk of United States farm exports. Practically the entire United States production of other farm commodities is consumed in the United States. For these a small reduction in the volume marketed will raise prices received by farmers by at least 61⁄2 times as much as the cut in volume. The following table shows the relationships:

If in a particular year in the free market, farmers could expect to receive about $34 billion from marketings, the all-commodity farm marketing goal and conservation acreage reserve program could be used to reduce this volume by 6 percent with a corresponding 39 percent increase in average price received by farmers. This means that the resulting 94 percent of the volume would sell at 139 percent prices. Thus marketings could have been sold at $44.8 billion

Willard W. Cochrane in the Case for Controlled Production. Grain Quarterly, Spring 1955, gives the scientific explanation of this phenomenon. Cochrane says that "Elasticity of the demand for food approximates 0.3." Now what does this mean? It means that consumers increase their consumption of all foods only 3 percent when prices of all foods decline 10 percent. To farmers this means that retail prices must fall 10 percent to move into consumption at 3 percent increase in output. And when marketing margins absorb 50 percent of the consumer's food dollar. farm prices must fall in the neighborhood of 20 percent to move into consumption at 3 percent increase in output ***. A cut of 3 percent in total food supplies means that farm prices will rise in the neighborhood of 20 percent an increase of 3 percent in total food supplies leads to a decline in prices at the farm level of about 20 percent.

or nearly one-third (30.7 percent) more than the $34 billion free-market gross income from 100 percent production.

Farm operating costs in 1956 amounted to $22.3 billion. Subtracted from an expected farm gross income of $34 billion this leaves $11.7 billion realized net income of farm operators. However, subtracted from $44.8 billion farm gross income that would result from a 6 percent cut in supplies offered to the market, realized net income would be $22.5 billion, or 92 percent higher.

The national all-commodity farm marketing goal and conservation acreage reserve could be used to adjust production by any desired proportion either up or down. The result in farm prices and incomes of different applications is shown in the table which follows:

In addition to its undoubted contribution to increased conservation of soil, water and related resources, the national all-commodity farm marketing goal and conservation acreage reserve would thus make a major contribution to aiding farmers to keep market supplies in reasonable balance with demand. A system of farm production and marketing adjustment programs, federally sanctioned and administered, is absolutely essential to general national welfare. Without them the Nation cannot and will not maintain the specific measures required to improve the farm income situation to the point of 100 percent of parity income for the family farm production of all farm commodities.

In the absence of such programs. falling farm family incomes will continue to threaten the continued prosperity of other parts of the Nation. Falling farm incomes endanger the future food and fiber supply required by a rapidly expanding population. Falling family farm incomes in the United States destroy one of American democracy's finest examples of hope for the more than a billion farm people in other areas of this troubled world.

LITTLE OPPOSITION

There has been little or no recent opposition to the conservation acreage rereserve. Arguments have continued on what kind and whether the program will be used mainly to reduce CCC inventories or to raise farm family income. The only criticism so far voiced of the all-commodity farm marketing goal program is the charge by at least one city newspaper that the farmers would refuse to participate in it.

BIBLIOGRAPHY

1. Address of James G. Patton at National Farm Institute, Des Moines, Iowa, February 16, 1957.

2. Farmers Union statement to House Agriculture Committee, January 8, 1957. 3. James G. Patton's statement to Senate Agriculture Committee, January 1956. 4. Willard W. Cochrane, the Case for Controlled Production.

5. Stephen Raushenbush, Proposal To Make the Soil Bank Solvent, published by Public Affairs Institute.

6. Legislative Analysis Memorandum No. 56–19, Farm Production and Marketing Adjustments.

7. Legislative Analysis Memorandum No. 56-21, Marketing Quotas.

8. John Kenneth Galbraith, professor of agricultural economics, Harvard University, address before University of Wisconsin Farm and Home Week, Madison, Wis., February 5, 1957.

Mr. BAKER. We very deeply appreciate the efforts that you and others have put forth and to Mr. Dixon and other gentlemen and, particularly, the efforts of Mr. Albert and Mr. Jennings and Mr. Johnson in bringing these hearings at this time, and the interest they have shown by introducing the bills that they have. We hope they will pass.

Thank you very much.

Mr. POAGE. Thank you.

Mr. McINTIRE. I would like to ask Mr. Baker a few questions. Do you not think there is substantial merit in improving the soil bank-on the basis of the broad subject, on the basis of the principle-rather than perhaps doing it item by item?

We

Mr. BAKER. The problem is much broader, Mr. McIntire. would have greatly welcomed an opportunity to completely recodify and improve the entire farm program legislation as one package. Fortunately, and unfortunately, that is not the way legislation sometimes gets written. One improving amendment gets adopted at one time and another improving amendment at another time.

When conditions are particularly favorable every once in a while the chance comes along to consider the entire program. That is desirable, if possible, but we certainly would not say that your bill to include potatoes in the acreage reserve should await a complete revamping of the entire farm program, nor should the grazing bills be held up.

As you know, we also approve potatoes in the acreage reserve.

For your information, I haven't had a chance to tell you we also favor your bill just recently introduced with respect to forest-lands operation.

It would be better if all of these things could be considered at one time. But if they can't be, let us not hold up whatever improvements we can make.

With respect to grazing land, this grazing-land consideration is one of the big, wide, glaring loopholes that you could drive a six-horse stage through on the feed grain and livestock program as it is now set up and should be closed at the earliest possible date, in my opinion.

Mr. McINTIRE. Thank you.

Mr. POAGE. Are there any further questions?

If not, we are much obliged to both of you gentlemen.

Mr. BAKER. Thank you.

Mr. POAGE. Now we have with us a former member of this committee, a member who has been with us the past few days waiting to present his views to the committee.

And the committee is expressly anxious to hear his views, and to receive the advice of a man who served with a great deal of merit on this committee and who in private life has proven an exception and made quite a successful operation in the agricultural field. We are glad to have you with us, Mr. Ferguson.

STATEMENT OF HON. PHIL FERGUSON, WOODWARD, OKLA.

Mr. FERGUSON. I have some of these tables that were prepared by the Oklahoma A. and M. College that contain rather valuable material. I gave some of you copies.

For the record my name is Phil Ferguson, of Woodward, Okla. Mr. ALBERT. You are testifying on H. R. 5857?

Mr. FERGUSON. H. R. 5857 and H. R. 5856-I am testifying in behalf of them.

I am a member of the Texas and Southwest Livestock Association, and the American National, as well as being vice president of the Oklahoma Cattlemen's Association, and spokesman for the committee that worked in conjunction with the A. and M. College.

Mr. Chairman, I would like to include some written material in my statement, but to speak extemporaneously to the committee.

Mr. POAGE. Without objection, Mr. Ferguson will be granted that permission.

(The tables and material are as follows:)

OKLAHOMA CATTLEMEN'S ASSOCIATION, INC., REPORT OF STUDY COMMITTEE ON PUTTING GRAZING LAND INTO SOIL BANK

In the earlier part of 1956 during the “talking" stages of the soil bank, our association became concerned as a result of projecting the probable effects of such a program on the future of the cattle business. Among the ideas that came out of this thinking that went into a resolution was to make grazing land eligible for the soil bank. This, apparently, alarmed some producers because they felt that (1) it had a possibility of increasing lease cost on grazing land; (2) that it might throw more beef on the market, thereby further depressing prices. As a result of the two above objections, a committee was appointed to make a study of the situation with the objective of making a recommendation to our board. The following is a summary of facts of the findings of the committee:

1. That even though the cattle business is not directly involved in any support program, it is affected directly by support programs to other commodities which, in general, have the effect of increasing beef production. For example, restricted acreage on crops have been converted to grass, thereby increasing cattle numbers. Also, the increased yields on grain crops which have caused surpluses are being marketed through beef cattle, thereby adding more pounds of beef to our market.

2. The trend since World War II has been toward more commodity assistance programs rather than less, regardless of the administration in power. The most recent expansion of this trend was the invention of the soil bank and particularly by the conservation reserve part of it, which is to be in effect for a number of years. In projecting this program, in all probability it will have the effect of further increasing cattle numbers at a time when they need to be reduced in order to improve the price situation.

3. The modern parity received for beef in 1955 was about 74 percent. Based on preliminary figures from January to November 1956, it was about 71 percent. 4. One of the questions set forth by the committee was: "How many cows would the industry have to reduce in order to bring supply in line with demand to receive (a) 80 percent of parity; (b) 90 percent of parity, based on the parity index for 1956?" In arriving at an answer to the above question, it must be recognized that a portion of beef comes from the dairy industry, but in checking over the statistics for a number of years, we find that beef production from dairy herds has changed very little (table 4); so for all practical purposes, we can assume that it will be relatively stationary and that the changes in the supply of beef for the market are results of expansion from the beef cattle industry.

In order to answer the above questions, it is necessary to estimate the normal dressed beef production per beef cow in the January 1 inventory. Estimates indicate that this has varied from a low of 39.9 pounds of beef in 1932 to 514.8 pounds in 1942 with an estimated production per cow for 1956 of 473.7 pounds (table 4). Based on these estimates it would appear that the normal dressed beef production per beef cow is about 440 pounds. This assumes stable inventory numbers and the present calving rate of about 88 percent.

4. It is also necessary to determine what effect price changes have on consumption. This is best measured by the price elasticity of demand. Price elasticity of demand is defined as the percentage change in per capita consump

tion associated with a 1-percent change in price. Various estimates of the price elasticity of demand for beef at the farm-level range from -0.5 to a high of -0.84 (table 6). Since there is no basis of determining which of these figures is more representative, both figures have been used in making the desired projections. It is recognized that changes in population will have an effect on total beef consumed. Thus, consumption has been estimated at selected population levels.

Changes in consumption associated with changes in per capita incomes have been ignored. Without doubt, income is an important determinant of per capita consumption, but in the short-run period considered, incomes are not expected to change materially.

5. Based on data secured from USDA sources, the estimated production per beef cow, and the 2 elasticity figures used, it appears that it will be necessary to reduce beef-cow numbers by 0.4 to 2.7 million head to achieve 90 percent of parity for beef cattle, assuming a population of 179 million (table 10). If cattle numbers are held at current levels, about 80 percent of parity prices will be attained when the population reaches 179 million. It is expected that the human population will reach 179 million by 1960. A more current evaluation, using the same table, would indicate that in order to obtain 80 percent of parity in 1957, it would be necessary to reduce cow numbers by three-fourths million head.

Estimates indicate that if the surplus cattle are marketed in a 1-year period or over a 3-year period to achieve 90 percent of the parity price in 1960, there would be important price-depressing effects.

6. The preceding analysis shows that if prices received by producers are to reach levels consistent with 90 percent of parity prior to 1960, it will be necessary to reduce cattle numbers materially (tables 7 to 10, inclusive). Also, it will be necessary to inaugurate programs to avoid price-depressing effects of disposing of the surplus inventory. In like manner, it will be necessary to reduce cattle numbers to achieve 80 percent of parity within the next 2 or 3 years. However, prices may be expected to rise to 80 percent of parity with present numbers by 1960.

7. In reviewing our legislation applicable to the beef-cattle industry (last page of appendix) it would appear that the United States Department of Agriculture could enter into a buying program sufficient to bring prices up to a level between 80 and 90 percent of modern parity without further legislation.

A motion was made and passed that the Oklahoma Cattlemen's Association adopt two ideas: (1) That grazing land should be included in the soil bank on a unit basis, with payments made on reduction in herd to the operator with the objective of reducing cow numbers 2 million head by 1960; and (2) that the United States Department of Agriculture inaugurate a purchase program of beef from female animals above canner grade.

The following two resolutions were offered as suggestions of resolutions that might meet the recommendations of the committee:

"Resolution No. 1: That grazing land be included in the soil bank on a cow unit basis with the cow owners paid for reducing the approved Soil Conservation Service unit carrying capacity by from 10 to 25 percent with the objective of reducing cow numbers 2 million head by 1960.

"Resolution No. 2: That the Government purchase female cattle above canner grade whenever the wholesale dressed price falls below 24 cents per pound, provided the packer can show live prices paid to be equitable to the dressed price."

"RESOLUTION NO. 17-GRAZING LAND IN SOIL BANK

"The Oklahoma Cattlemen's Association in annual convention assembled this 8th day of February 1957, commends the efforts of Senators Kerr and Monroney to include grazing land in the soil bank bill as passed by the 84th Congress, Public Law 540, known as the Agricultural Act of 1956.

"The Oklahoma Cattlemen's Association further commends and supports the legislation introduced by Congressmen Albert and Edmundson in the 85th Congress to amend Public Law 540 and include grazing land in the soil bank.

"The Oklahoma Cattlemen's Association agrees with the American National Cattlemen's Association that the cattle industry could survive and prosper with the repeal of all supports and subsidies on all related agricultural products. But the Oklahoma Cattlemen's Association firmly believes Government supports for feed grains used to produce beef and proteins used to maintain breeding