Here today I would like to read excerpts from this statement and make some additional comments.

Mr. POAGE. How long is this statement?

Mr. SVERDLIK. The statement itself?

Mr. POAGE. Yes.

Mr. SVERDLIK. It is nine pages.

Mr. POAGE. Without objection that will be included in the record. (The statement referred to is as follows:)

STATEMENT OF IRVING SVERDLIK, SECRETARY, CALABRIAN CO., INC., NEW YORK, N. Y.

I. INTRODUCTION

Calabrian Co., Inc., is a corporation engaged in foreign trade. Since 1952, 2 years before Public Law 480 was enacted, Calabrian did barter business with CCC. It has had many barter contracts and has delivered to CCC strategic and nonstrategic items originating in United Kingdom, Netherlands, France, Italy, Japan, Belgium, Philippines, and others. In return, it has exported equivalent surplus agricultural commodities.

II. WHY DOES CALABRIAN TESTIFY HERE TODAY?

We feel that the policymaking officials of the Department of Agriculture have been unjustifiedly hostile to the barter program. We do not question their good intent. However, their conduct, in our opinion, indicates an unfortunate misunderstanding of the operation and potential of the barter program and of foreign trade practices. By a press release dated May 28, 1957, the Department of Agriculture announced a so-called revision of barter program. In practice, this so-called revision kills the barter program.

Our affirmative position is that an aggressive, well-implemented barter program increases net cash grain exports, creates additional barter exports, strengthens CCC assets, and strengthens our foreign allies. It is regrettable that Department of Agriculture officials, who are responsible for the practical termination of barter, apparently did not utilize the experience of major grain exporters and foreign traders.

III. WHAT IS MEANT BY BARTER UNDER THE SURPLUS PROGRAM?

True barter consists of a flat exchange of one item for another. It drastically limits parties who can participate. True barter is extremely complex and difficult, as experienced by CCC, who, in 1955, negotiated an agreement with the Government of Turkey to barter chrome against wool.

Confusion exists concerning the nature of the surplus barter program. This program in practice is not true barter. Rather, each barter contract requires two separate foreign trade transactions, each through normal competitive business channels. For example, the barter contractor buys the exchange material and he sells it to CCC. He buys surplus commodities from CCC and sells them in the international market. This program has all of the advantages of normal competitive business without the disadvantages and restrictions of true barter. This is a modern method of exchange of goods, which necessarily employs modern methods of finance.

IV. GOVERNMENT POLICY TOWARD BARTER

We know this committee is very familiar with the executive and legislative mandates including recent messages by President Eisenhower, which, since 1949, repeatedly authorize and/or direct the extension of the barter technique to help reduce the surpluses. Yet, frequent attempts to prescribe and limit barter repeatedly appeared. Within the Agriculture Department itself there are inconsistencies in expressed barter policy. On October 30, 1956, a Department of Agriculture official information sheet on barter stated: "*** The barter program has been in operation since 1950 and has proved well suited to Government procurement** *. Administration policy is directed to the expansion of barter procurement."

What happened after this October 1956 expression of policy Since this date the Agriculture Department has been discouraging barter and has placed repeated

restrictions upon the barter program. Among the restrictions imposed since that date, in addition to the self-imposed limitation that ODM determine materials which could be the subject of barter, were: Withdrawal of the 72-hour option requirement that 50 percent of the exchange material originate overseas, curtailment of the interest factor. Then, in April 1957, the Department announced suspension of the entire barter program. Finally, on May 28, 1957, the so-called revised barter program which is, in practice, the end of barter activity was announced.

V. THE ADVANTAGES OF BARTER

(a) The replacement of expensive to store, deteriorating surplus commodities with inexpensive to store, nondeteriorating materials saves substantial moneys. According to official Department of Agriculture reports, total storage cost for 1 month based upon December 1956 inventory was $28,968,649, or just under $1 million per day. This is for storage alone. It does not include deterioration. It is estimted that approximately 1 million bushels of corn per day are downgraded to sample grade. Consideration is now being given to sales of large amounts of corn for production of alcohol and other chemicals. Such corn may be sold for approximately 60 cents per bushel, though it may cost CCC_roughly $1.50 per bushel. Wheat is being downgraded daily and sold as feed. It is not difficult to see, therefore, that deteriorations losses are enormous. It would make more sense for these commodities to enter consumer channels and simultaneously increase the natural resources of the United States.

(b) Barter, as we know it under Public Law 480, has strengthened many small businesses.

(c) Barter has increased exports from our surplus.

(d) This program has admirably suited stockpiling requirements by permitting use of surplus commodities rather than dollars to acquire stockpile material.

(e) The Department of Defense has directly benefited from barter transactions like the recent French military housing program.

(f) Barter purchases for stockpiling of CCC assets have frequently resulted, because of Government practice to purchase at prices below market, in increased assets during storage, due to increase in the world market price of the material. (g) The purchase of materials for exchange with surplus commodities has benefited friendly foreign countries by strengthening their internal industrial and financial structures, particularly where the United States may otherwise support their economies by grants or other assistance. In other words, it has stimulated "trade, not aid."

(h) United States domestic mineral and mining industries have substantially benefited from the barter program to such extent that, as included in the Congressional Record of May 8, 1957, a meeting of the western governors in April 1957, resolved that the barter program "be continued and expanded."

(1) American labor has benefited by processing foreign ores.

A. General

VI. THE MAY 28, 1957 PRESS RELEASE REVISED PROGRAM

Based upon our barter experience, we believe this so-called revised procedure is wholly impractical and unworkable. The release states that a principai concern of the Department is the possibility that some of the barter sales have merely replaced dollar sales, with no net export gain. It is incredible that the entire barter program has been essentially terminated because of theoretical possibilities that some barter sales may have replaced dollar sales. No proof is offered by the Department. The release refers to a study and indicates that the release reflects the findings of that study. We think the study should be made public. assume such study includes a thorough analysis of past and current trade balances and trends, including such currency clearing facilities as the European Payment Union.

B. Does barter really replace cash sales

We

The answer based on Department of Agriculture statistics would appear to be definitely no. Both cash sales and barter sales have substantially increased. The reason is that the foreign market has grown. The role of barter in expanding this market has been substantial and is discussed further below.

Cash sales for export have increased from $261 million in fiscal year 1954 to $497 million in fiscal year 1955 to $526 million in 1956, and to $836 million in the first half of fiscal year 1957. During the same period barter exports rose from $37 million in fiscal year 1954 to $122 million in fiscal year 1955 to $298 million in fiscal year 1956, and to $201 million in the first half of fiscal year 1957.

These statistics in no way whatsoever substantiate any claim that barter has prevented cash export sales. If anything, the statistics show that cash sales for export have been rising substantially.

We do not say no cash sales have been displaced by barter sales. However, the overall advantages of the barter transactions far exceed the disadvantages, if any, of such displacement. For example, Calabrian has offered in excess of $200 million of exchange material on a barter basis to CCC during the past 9 months. Out of the $200 million offered, who can say that $100 million would not have been saved in storage and deterioration charges? Conversely, can the Department of Agriculture guarantee that it has sold the equivalent $200 million worth of surplus commodities for cash? If it has not, the estimated $100 million is an outright loss.

As Assistant Secretary Butz advised the Senate Committee on Agriculture and Forestry on June 11, 1957, it is likely that some title I local currency sales actually replace some cash sales. Of course, this is true. But, as Secretary Butz indicated, this does not require the prohibiton of title I transactions.

We contend however, that the barter program itself has been actually responsible for increasing cash sales. Barter transactions have offered the enterprising contractor the possibility of acquiring exchange material to be delivered to CCC at profits, which are sharply limited by the policy of CCC to pay less than market prices, and by the intense competition among barter contractors for this Government business. This technique, however, permits the barter contractor, or the grain exporter with whom he is associated, to compete with foreign producers who would otherwise undersell.

Further, in this competitive international market, volume business and establishing new outlets and new markets are major considerations. Grain exporters benefit, apart from the immediate commodity profit or loss, by freight facility ownership, storage facilities, and other related profitable incidents of large scale exports. Prestige and status in the international market are themselves substantial desired assets. Through the barter technique, grain exporters are able to extend the small advantage created by the barter procedure by averaging barter grain export sales prices with cash sales prices, and purchasing from CCC substantial additional quantities of cash surplus commodities.

The grain exporter then is in position to bid upon and be awarded substantial foreign tender contracts which are filled by the exporter from both barter and cash commodity sources. Thus the barter technique is responsible for substantial cash purchases from CCC.

The barter procedure has frequently resulted in the creation of new markets for United States surplus exports. The contractural requirement that the barter contractor dispose of the full exchange value of surplus commodities has created large additional sales forces for United States exports. At least one substantial domestic grain company has greatly expanded its export department because of business activity. The impetus which barter trading has created necessarily extends to further cash sales because organizations, once established in the grain trade through barter, expand their activities into the cash market as well.

Further, by paying foreign producers in United States dollars, barter necessarily strengthens the balance of trade position and dollar availability in these producer countries. These countries may and do then purchase further commodities or other material from the United States. It is sometimes stated by opponents of barter that barter commodities are sold to dollar balance countries, and therefore displace cash sales. A thorough analysis would undoubtedly disclose that where this occurs the actual cash balances have been created by the barter program itself in connection with stockpile acquisitions.

C. Other restrictions

The "revised" program contains the following restrictions. It requires that a specific commodity be designated; that the contractor satisfy CCC that the transaction will effect a net increase in United States exports of the commodity involved to the receiving country, if such receiving country is one of an inclusive list contained in the release; that the commodity will not be transshipped; that interest be paid to CCC even though letter of credit is furnished. The Department of Agriculture has established an incredible standard whereby barter contractors must prove in advance that a certain proposed transaction will mean "a net increase in United States exports of the agricultural commodity involved." The Department itself vaguely speaks in terms of possibilities. Yet the contractor is expected to satisfy CCC when apparently CCC's own investigations have failed to reach any definitive results. This requirement is absolutely impractical. The factors which enter into estimated total commodity exports of a specific item to

a named country are innumerable, often unrelated, and are subject to the complexities of foreign trade and rapidly changing trade balances. The only thing sure about commodity business is unpredictability.

The requirement that the barter contractor in almost all cases name the commodities and the recipient country at the time of offering the exchange material runs completely contrary to the practice in the grain business where commodity prices fluctuate constantly and where options never extend for any substantial period, let alone for the time necessary to negotiate a complex CCC contract.

The interest requirement also apparently stems from an improper evaluation of barter business. It cannot be assumed that this interest factor is in the nature of any windfall. In the first place, the Government benefits substantially from prompt physical acceptance of the surplus commodities by the contractor since storage charges and deterioration and downgrading cease. Secondly, to the extent that this interest factor may benefit the contractor, it enters into both the competition between barter contractors for the available business and into the negotiations between the Government and the contractor in fixing the price of the exchange item. Barter business is basically private competitive market-place business. All of the factors necessarily involved are carefully taken into account by all of the competing parties. In the course of barter contracting, just as in all other business, a wise or an unwise transaction may be made, and a profit or loss occasioned. The fact that the interest factor may have facilitated certain barter contracts, and so helped to export surplus commodities, is hardly ground for its removal unless such removal is part of a scheme to destroy the entire barter program.

The further requirement that barter material may not be produced or processed in the United States is an unwarranted blow to domestic industry. This rule appears unnecessarily to hamstring barter authority to acquire strategic materials where, as is frequent, the raw material is foreign, but the best processors are domestic.

VII. COMPLAINTS FROM FOREIGN EXPORTERS

Competitive techniques are known and employed in all countries. Present indications are that current crops will be larger throughout the world. In the United States our production controls are reported ineffective. We anticipate further heavy surpluses and intense foreign competition. Now, more than ever, we need every possible disposal technique.

Basically, however, it is not conceded that any of our agricultural policies are unfair to any foreign exporter. We live in an expanding world food market. United States efforts are substantially responsible for this expansion. It is contrary to our economic and diplomatic perspective to look upon the agriculture markets of the world as static, clearly defined, and allocated.

Then too, we must face the facts of life. These very foreign competitors freely sell without United States competition in the Communist orbit. Canada and Argentina, two of our close competitors, have been making trade agreements with consumer countries. An agreement between Argentina and Germany for the purchase of agricultural commodities has just been announced. These agree

ments can only result in more severe competitive difficulties for United States exporters. In any event our primary concern must be for the serious surplus problem faced by our farmers and by our entire economy.

A. Conclusions

VIII. CONCLUSIONS AND RECOMMENDATIONS

1. The so-called revised barter program of May 28, 1957, intentionally or otherwise, kills the barter program. It is unworkable.

2. Barter has accounted for over $975 million of direct surplus disposal, and is responsible for substantial surplus disposals for cash, which except for the impetus of barter would not have occurred.

3. Barter, as encouraged by legislative and Presidential mandates, has proved to be a sound disposal method.

4. Barter policy has not received the serious consideration it merits. Its history is one of casual, if not hostile, treatment at the policy level of the Department of Agriculture. The Barter and Stockpiling. Division, which administers barter contracts is under policy control of the Deputy Administrator of Price Supports. On the other hand, title I disposals, under the same law, are under Marketing and Foreign Agriculture headed by a different Assistant Secretary. As recommended by President Eisenhower, and enacted by Congress in the Agricultural Act of 1956, the Secretary of Agriculture is authorized to appoint a

Surplus Disposal Administrator. So far as we know, no such administrator has been appointed to analyze and integrate disposal.

B. Recommendations

1. The May 28, 1957, press release containing certain so-called revisions of the barter program should be rescinded.

2. The barter program as authorized and prescribed by legislative and Presidential mandate, should be effectively implemented and should serve, as recommended in House Document 1776 in 1954, as a "priority disposal method.'

3. Restrictions circumscribing barter transactions should be relaxed with appropriate Government agencies observing whether such encouragement effectively accomplishes the prime objective of surplus disposals. This should replace the present trend to jump from hypothetical improbable "possibilities" to the destruction of the barter program. We should respect the advice given by Secretary Benson before this committee on May 15, 1957, when he said:

"*** we must beware lest we fly from the known shortcomings of present programs to the unknown but possibly greater evils of other programs * * *” 4. A Surplus Disposal Administrator should be appointed with overall responsibility for proper integration and policy control of disposal activities.

5. In general, the problem of surplus disposal requires a "steady, persistent, imaginative advance." There is "no easy solution" and a many-sided assault is indicated. These quotations are from President Eisenhower's recent farm messages. We must avoid precipitous, hastily conceived and poorly planned negative approaches. Only by pursuing an aggressive barter disposal program in conjunction with other techniques can we make substantial inroads upon the plaguing surplus.

Mr. SVERDLIK. Thank you, Mr. Chairman.

Calabrian is a corporation engaged in foreign trade. Since 1952, 2 years before Public Law 480 was enacted, Calabrian did barter business with CCC. It has had many barter contracts, and has delivered to CCC strategic and nonstrategic items originating in various parts of the world, in return for which we have taken payments in surplus agricultural commodities which have been exported and sold.

Mr. POAGE. Is it an American corporation?

Mr. SVERDLIK. Yes, sir. It is a corporation incorporated in the State of New York with offices in Washington and in Europe, and in New York.

Mr. HOEVEN. What is the material that you sell?

Mr. SVERDLIK. The corporation generally deals in chemicals, in foodstuffs, and has minerals and ores as well.

We feel that the policymaking officials of the Department of Agriculture have been consistently and unjustifiedly hostile to the barter program. We do not question their good intentions; however, their conduct, in our opinion, indicates an unfortunate misunderstanding of the operation, and especially the potential of the barter program, and of the foreign trade practices.

By a press release dated May 28, 1957, the Department of Agriculture announced a so-called revision of the barter program. In practice, this so-called revision kills the program. We feel very strongly and affirmatively that an aggressive, well-implemented barter program increases net cash grain exports, that it creates additional barter exports because of the barter program, that it strengthens the assets of the Commodity Credit Corporation to engage in barter transactions, and it also strengthens our foreign friendly alliances by encouraging trade with them, and strengthening their internal economies in that we purchase strategic materials from them and pay dollars for such materials. Mr. POAGE. You just touched upon what confuses us. You are talking about barter transactions; you say it strengthens our allies