If food distributors' net profits had been allowed by an absence of controls and competitive conditions to rise through increased prices to a level twice what they actually were, the total cost to American consumers would have been about $500 million in 1973, compared with the $5.5 billion added to U.S. food prices by the increase in 1973 of net farm income. This would have added 25 cents to the $50.85 a week the average family of four spent for food last year.

A similarly negligible impact on consumer food prices would have occurred had an absence of controls and competitive conditions allowed total gross margins on food to return to the higher levels prevailing during the late 1960's and in 1970. Our calculations are that it would have taken food price increases of 1.51 percent to return margins on food to this previous level. This increase would have added about 77 cents a week to the food bill of the average family of four.

And since most firms in the industry were operating well under both their margin and their profit ceilings, it was competition-and not the control structure that prevented even these insignificant increases from being passed along. In sum, as indicated by the meat price example cited earlier, as far as consumer food prices are concerned the only effect of the entire Economic Stabilization Program has been to raise them rather than lower them and there is no reason to believe that the ultimate effect of any conceivable future program would be any different.

As we see it, the problem facing Congress in terms of extending the Act itself is one of timing. While beef prices are now beginning to come down because of an unusual supply situation, all of the estimates we have seen indicate that this is relatively temporary and that no lasting decline in meat prices will occur until late summer at the earliest. Additionally, supplies of processed food and vegetables are now extremely tight and new contracts for the 1974 pack have been signed at enormous increases over the 1973 pack for most products.

Congressional floor debate on extension of the Act will almost unquestionably be going on when the Consumer Price Index for March is released and the food price portion of this can be expected to show another increase above the same period in 1973. These increases will be entirely a reflection of earlier farm-level rises that have never been controlled under the Economic Stabilization Program, as will whatever future increases that occur during the rest of the year.

Because food prices will continue to be rising during this crucial period, we would be less than realistic were we not to admit that the temptation to extend the Act to give at least the appearance of activity will be very strong. We must emphasize, however, that the increases will occur whether the Economic Stabilization Act is extended or not-or if the current controls on food distributors are extended or not-and it is our sincere hope that it will simply be allowed to expire.

Mr. GETTYS. Thank you. Your charts are included in your full statement?

Mr. ADAMY. They are. They are planned up only for your convenience, sir.

Mr. GETTYS. May I ask if Patrick B. Healy is here? Patrick B. Healy, secretary of the National Milk Producers Federation.

Mr. Healy, would you proceed, and would you be good enough to submit your full statement for the record and summarize as briefly as you can?

Mr. HEALY. Mr. Chairman, I will be as brief as is possible.

STATEMENT OF PATRICK B. HEALY, SECRETARY, NATIONAL MILK PRODUCERS FEDERATION

Mr. HEALY. I do represent virtually every dairy farmer cooperative in the country. The dairy farmers who own and operate these cooperatives have been the victims of the Cost of Living Council since its inception.

While the price of raw agricultural commodities is not controlled, nonetheless, through every other Government regulatory process, the Cost of Living Council has managed to hold down farm prices for milk to the extent that we have had a massive decline, a dangerous

decline, in the production of milk in this country. The Cost of Living Council has done this by usurping the statutory authority of the agencies which direct or regulate the dairy industry.

For example, 2 months ago I was called by the Cost of Living Council to talk about the collection of countervailing duties, the expansion of import quotas, the level of price support for milk, and the operation of the Federal milk marketing order program.

These activities by law, are assigned to the Treasury Department, the Tariff Commission, the Commodity Credit Corporation, and the Agricultural Marketing Service. Not one representative of any of these agencies was at the meeting, but it was made quite clear to me that the decision on all of these items would be made by the Cost of Living Council.

The decisions which the Cost of Living Council has been making since its beginning, as I said, have led to a massive decline in production of milk. If this decline is not reversed, we will become dependent upon a highly volatile foreign supply of milk, which costs more to produce than our domestic supply costs. This can lead only to truly inflationary pricing, which neither dairy farmers nor consumers of this country want.

We as dairy farmers do not want inflationary pricing. We want stable markets at reasonable prices, which will return our cost of production and some reasonable return for the capital, labor, and management that we put into the operation of our farms. Therefore, it is without question that the Cost of Living Council should be allowed to expire, because so long as there is this body of expertise, of misdirected expertise, exists, it will continue to usurp the authorities of agencies which have long been operative in the interest of supplying an adequate supply of food to this country.

I have only one chart, Mr. Chairman, and I would like to call your attention to it. It is appended to the back of my prepared

statement.

I did not draw the chart; the Cost of Living Council did. Through this chart they tell us that the profitability of dairy farming can only start to be returned in April of this year. I think it is highly significant that that is the time the Cost of Living Council is supposed to expire. Perhaps by their own admission they are telling us that dairy farmers cannot recover their costs of production until the Cost of Living Council goes out of business.

It is my fond hope, and the hope of all dairy farmers in this Nation, that once this agency no longer continues to exist, that the rise in profitability will be as dramatic as the experts in the Cost of Living Council have depicted on this chart.

So, Mr. Chairman, our total recommendation to you, to your committee and to the Congress, is that this agency cease to exist at the earliest possible date.

Thank you, sir.

[Mr. Healy's prepared statement on behalf of the National Milk Producers Federation follows:]

PREPARED STATEMENT OF PATRICK B. HEALY, SECRETARY OF THE NATIONAL MILK PRODUCERS FEDERATION

The National Milk Producers Federation is a national farm commodity organization representing dairy farmers and the dairy cooperative marketing associations they own and operate.

The Federation has represented dairy farmers and their cooperatives for more than 50 years and has worked with them and with the Congress and Executive agencies of the Federal government in an effort to develop marketing structures which serve both the farmer and the consumer.

As we come before you today, the dairy farmers of the country can find nothing on which to base a recommendation for the continuation of the programs and policies instituted under the Economic Stabilization Act. Our first and basic recommendation, therefore, would be quite simply for an end to this authority. Recognizing that the Committee and the Congress may feel it desirable to continue some form of authority to deal with inflationary problems, we would strongly recommend against any grant of power which would permit the Cost of Living Council to continue to interject itself into matters statutorily assigned to other agencies of the government.

It is an alarming commentary on the processes of government to find that an agency such as the Cost of Living Council can-and has-taken unto itself powers the Congress has specifically delegated to other officials of the Executive. In the case of the dairy industry, this has been the situation time and again during 1973. These actions are continuing into 1974 and, in its request for continuation of certain authority, the Administration has called for the power to continue these actions.

We are short of milk in this country today. That shortage is occasioned, at least in part, by actions taken by the Cost of Living Council. In an effort to deal with price problems, the Council has looked at but one side of the equation. The failure to recognize the consequences of these actions has led to a continuing decline in milk production and further price increases. The result is that today we find ourselves in the situation where we must increase milk production by more than three billion pounds this year if we are to provide adequate domestic supplies of milk and dairy products for the consumers of this country.

We are aware of the need to control inflation. The inflation that has plagued the economy in recent years has been felt as hard at the farm level as anywhere. There must also be an awareness that you cannot adopt policies which deny producers of basic commodities the opportunity to recover their costs and expect them to continue in production.

This is why cattle feeders cut back feedlot placements a year ago. This is why swine producers sold bred sows and gilts last winter and spring. This is why broiler producers cut back placement of birds and, in some instances, killed young birds already on fecd. This is also why the culling rate for dairy cattle increased last year, why the rate of concentrate feeding declined, and why dairy farmers went out of business at an accelerating rate.

The actions of the Cost of Living Council have not been of a veiled or disguised nature. They have been open and direct-literally a notice to the dairy industry that it should expect no relief at the hands of the Cost of Living Council When he appeared before the Subcommittee on February 6, Dr. John Dunlop, Director of the Council, included a detailed account of these actions as part of the appendix to his testimony. In that report, Dr. Dunlop lists 18 specific actions the Council took during 1973 which he contended have helped hold down food prices. Of the 18 actions, five were aimed specifically at the dairy industry. Of the five, each one involved activities that have been assigned specifically to other agencies of the government.

Late last year, the Federation was called to the Cest of Living Council offices to meet with its Food Supply Subcommittee to discuss ways and means of increasing supplies of milk and milk products for this market. Items under discussion during that session included the price support program for milk, the Federal milk market order program, dairy product imports, and the collection of countervailing duties on subsidized imports.

It was clear to us that decisionmaking power in these areas rested with the Cost of Living Council despite the fact that the administrative responsibility for these activities lies elsewhere. In fact, not one representative of the Tariff Commission, the Department of Treasury or the Agricultural Stabilization and Conservation Service, Foreign Agricultural Service, and Agricultural Marketing Service of the Department of Agriculture was included in that meeting even though the programs under discussion each involved one or more of these agencies.

As 1973 began, the dairy farmer was faced with a difficult situation. His costs

of production were rising at an alar ring rate. In many areas of the country, his feed supplies had been reduced in quantity or quality or both by bad weather. In January last year, the Federation and its member cooperatives called for the establishment of the price support level for milk for the 1973-74 marketing year at 85 percent of parity. In support of that request, we cited these feed shortages, a decline in the milk-feed ratio of 12 percent over the last year, the eight percent increase in overall production costs in the last 12 months, and the decline in milk production that was already taking place.

It was the Federation's contention that adequate domestic production would only be assured by providing the additional price incentive and assurance forthcoming from the higher price support level. In addition, it was pointed out that the price support law clearly requires that the price support level be set at a point that will assure domestic production of an adequate supply of milk.

These arguments were met by the announcement of the new price support level at the lowest level permitted by law. At the same time, the Cost of Living Council announced they had asked the President to direct the Tariff Commission to investigate the expansion of cheese import quotas by 50 percent-61 million pounds of cheese-to meet expected shortages and to reduce cheese prices.

Milk production continued to fall. Recognizing this, the Congress included provisions in the Agriculture and Consumer Protection Act of 1973 raising the minimum dairy price support level to 80 percent of parity and restating and strengthening the mandate that the level be such to assure adequate domestic production.

By the time action was taken to adjust the price support level as required by the new law, the United States had imported the increased cheese and had increased imports of nonfat dry milk by 165 million pounds. These actions had been taken at the urging of the Cost of Living Council which argued they were to provide adequate supplies and to lower prices.

Despite this, the Council blocked any price support action which could have provided increased price assurances to dairy farmers. The price support level was once again set at the minimum allowed by la v and production continued to decline. Seeking the urgently needed price assistance through the Federal milk marke order program, dairy farmers prevailed upon the Department of Agriculture to convene an emergency public hearing on the need for a price advance in late August. Despite a conclusive demonstration of proof that improved prices were needed to maintain the economic and productive capacity of the industry, no action was taken. Instead, on October 17, the Cost of Living Council announced that the Department of Agriculture had decided that no action was necessary. What the news release making this announcement really meant was the Cost of Living Council had vetoed any such action.

In the meantime, the Council had deemed it necessary to expand imports of nonfat dry milk by an additional 100 million pounds and, on the day they made the announcement regarding pricing under the Federal order program, Dr. Dunlop told the press that the Council had urged the President to expand butter imports. That action was subsequently taken and the equivalent of 84 million pounds of foreign butter was brought into this market.

The expansion of supply from foreign sources has continued right up to the present. Only last Monday (March 4) the importation of 150 million lbs. of nonfat dry milk during the next four months was authorized. This action too was instigated by the Cost of Living Council.

At that time Council Director Dunlop stated that one of their major objectives is to "encourage greater capacity in areas of the economy experiencing domestic shortages." Actually these actions are doing just the opposite. They are discouraging rather than encouraging-the domestic dairy industry at a time when U.S. milk production is dropping at an alarming rate.

We share the view of members of the Congress that the surest way to control inflation is to provide adequate production in this country. We do not feel that the consumers of this country should be subjected to a dependence on highly volatile foreign supplies of basic food products. The illusory hope of reduced prices by expansion of imports and denying needed price adjustments for domestic producers has not benefited the consumer. It has, however, served notice to the domestic industry that its government is willing to take conscious actions which

deny dairy farmers the opportuni'y to recover their costs, much less to realize any profit from their efforts.

Nor can the argument be made that these actions have been taken without a knowledge of their effect on the dairy producer. I would like to call the Committee's attention to the chart attached to my statement which portrays the estimated not returns to milk production for the period January 1970 to October 1974. The total lack of net return from late 1972 until later this year is a grim outlook for any industry. Worse, this report and projection was prepared by the Cost of Living Council itself as a part of the material o 1 which decision regarding the dairy industry have been based.

One must note that according to the Cost of Living Council's projection, profitability does not return to the dairy industry until after the present authority for the agency's existence expires. We would agree that, given the type of decisions that have been forthcoming from the Council, there is no hope for an improved profit picture. We would sincerely hope that the dramatic increase in profit projected by the Council following its demise will be realized.

Thus, it cannot be argued that the decline in milk production could not have been foreseen or that the departure from the dairy business of significant numbers of farmers could not have been predicted.

And that decline in production has been very real. Milk production in 1973 totaled 115.6 billion pounds compared to 119.9 billion pounds in 1972. Using USDA consumption estimates, the Federation has estimated that milk production in 1974 will have to reach 118.4 billion pounds to provide the milk and milk products demanded in this market. In view of the past record, there is little reason to expect that the necessary actions to encourage the production expansion needed to attain that goal will be permitted by the Cost of Living Council if authority to continue these actions is granted as requested by Dr. Dunlop.

We are frankly alarmed at the request of the Administration for authority to review governmental programs which have an impact on price and supply. This is exactly what has been done in the dairy industry for the past year without statutory authority and with disastrous results. Any legislation which may be approved by the Congress must restore basic program responsibility and authority to those agencies which the Congress has designated to administer the various programs.

We have had programs of economic stabilization for the past two and one-half years now. The visible result in the dairy industry is declining production, strong upward price pressures for consumers resulting from decreased production, and an almost total loss of confidence in his market on the part of the domestic milk producer. Unfortunately, this will continue unless the Congress takes specific action removing the causes.

We appreciate the opportunity to present the views of the nation's dairy farmers and their marketing cooperatives to the Committee. This issue is of deep concern to these people as it deals directly with their continued ability to produce milk for the markets of this country. At the same time, it is an issue of direct concern to the consumer as it raises great questions on the adequacy of supply of a vital food with the resultant truly inflationary prices which neither dairy farmers nor consumers desire.