But I would like to make this point: The same problems that are faced by the school lunch people in purchasing foods for their School Lunch Program are faced by the mother at home, and this is why we believe participation declines are a temporary effect. Because I still believe, Mr. Chairman, that the school lunch is a very good buy, and a very important asset to the school child.

Commodity Phaseotjt Will Increase Local Costs

Senator Mcgovern. Well, I quite agree with you that the School Lunch Program is under all kinds of pressures. It is that concern that makes me especially alarmed about the proposal to phase out the Commodity Program because the indication that we are getting—at least on a preliminary basis from administrators out in the field—is that this is going to add one more pressure to the program that you so properly state is already under pressure. It seems to me that pressure is going to come in this way.

The Department of Agriculture has some of its best experts in the country purchasing food. They have an expertise buildup there that is going to be very difficult to match by the local administrators out in the field. They have experts on the inspection of food, on the grading of food to insure quality. They know when to purchase, when to get the best buys. They know how to insure high quality in food.

Do you see that kind of expertise readily available to local school administrators without a material increase in the cost to them of purchasing, grading, inspecting and handling the food that they are now getting through the Commodity Program?

Just 20 Percent To Be Phased Out

Mr. Herman. Mr. Chairman, we are aware of those concerns.

We feel that things are changing, and witness the fact from some of the charts that I had up here earlier, about 80 percent of the food is now purchased locally. What we are talking about is just this 20 percent. And what we would like to do is to phase out that 20 percent.

Mr. Chairman, there are 500 people in the Federal establishment who are running this program, and largely because of the fact that by Act of Congress the Family Distribution Program was phased into food stamps, making this a very small program compared to what it was, that we don't think that this is the time, under present conditions.

Senator Mcgovern. Are you saying 500 is a lot of people?

Mr. Herman. I think 500 people for a Commodity Program of this size, that can be done at the local level, Mr. Chairman, is becoming increasingly difficult to justify.

Even if we go out with bids, we are just not getting the bids. In other cases, if we get back to what the purpose of surplus removal was in the first place, the way it has been presented to me, it was to act as a sort of a blotter and to remove surplus commodities, and therefore, help reduce the groups to hold the price.

Well, I would suggest that if that was true then, that the very opposite has to be true now, and that is

Are Surplus Commodities Gone Forever?

Senator Mcgovern. You state on that point, Mr. Hekman, that the days of large surpluses are gone?

I don't know how anybody can be sure of that. It may be gone in 1974, or 1975, but I have been reading letters the last few weeks from cattle growers in my State who tell me that they now have cattle on hand that cost them $50 to $55 to bring to a market level that they are going to have to sell for somewhere between $39 and $42 apparently because of the temporary glut. Something is driving the price down.

Now, if you assume that we don't need this Commodity Purchase Program any longer, I think you create a situation—when we have a dip like this in an important commodity—where we don't have the resources we need to stabilize the market. In the long run that is a threat to the consumer because it means the people that are producing cattle are going to go out of business. Then, in a short period of time, you are going to have a shortage instead of a glut.

I don't see how you can so glibly make this statement that the days of large surpluses are gone. We don't know that, do we?

Mr. Herman. Obviously, Mr. Chairman, I don't feel I should respond to general agriculture concerns, as to cattle and the like of that. That is not my role in that.

Senator Mcgovern. Well, you made the statement.

Mr. Herman. Yes, sir, and I would like to have a chance to elaborate on that statement, and that is that the Department is aware that things might change at some point, and if they do change, we would propose, and we have, under study a program to use the commercial system through a voucher program to do what is presently being done by Government direct purchases, and we think that will work very well, from our experience with voucher programs, such as the stamp program.

Fund Impoundments Create Programs Crises

Senator Mcgovern. Mr. Hekman, you know one of the reasons that isn't very often spelled out publicly. But, one of the reasons I am very apprehensive about extending this Commodity Program is that I am not at all sure that we are going to be able to sustain, in the administration, any real lasting assurance that the necessary cash is going to be available.

We have seen one important program after another authorized and funded by Congress. Then when the budget got a little tight, the administration impounded the money and the programs faltered and lost valuable gains.

Now, this is one of the things that worries me. I remember, 10 or 12 years ago, when I was connected with the Food-for-Peace program, there was a move in the administration to transfer that program out of the Department of Agriculture to the State Department under the Foreign Aid program. And there is a certain logic in that. It was, in a sense, a foreign assistance program.

But it was clear to me that if we lost the great constituency of agriculture out there—that saw that Food-for-Peace program as a benefit for them—we lost a very powerful ally here in the Capitol and in the administration.

I think that you may very well be setting the same trap for this program by the proposal to phase out commodities.

If you once lose that authority—you lose the apparatus and the mechanism for making commodities available to these schools—I don't think the day is very far down the road when we are going to lose the whole program. The pressure is going to be from the Office of Management and Budget all the time to hold back those funds.

STATEMENT OF SENATOR PERCY

Senator Percy. Mr. Chairman, may I interject a thought here?

I don't think, when we look at the Office of Management and Budget, there is a single case that is on a sounder basis than this one. I, for one, have advocated since I have been here, 7 years, to scrap the agricultural price support programs. We paid farmers for not producing; instead, let us use that money to buy nutrition for needy Americans.

Senator Mcgovern. I don't disagree with that at all.

Senator Percy. So we are down to zero, virtually, now funding on those programs, and certainly the administration has supported that.

So we save $4.5 billion in those programs. We have increased nutrition from $0.25 billion to over $2 billion. But still we are spending less money in overall programs than we were when we started, so that OMB has a solid answer, if they say this doesn't fit in with our national priorities.

Senator Mcgovern. I am not sure I know what point the Senator is making. I certainly don't disagree with him, that we need to make use of our agricultural abundance.

Senator Percy. Let me make perfectly clear what point I am making. When this administration came in we were funding agricultural price support programs at a level of about $4 to $5 billion that it was costing us to pay farmers for not growing products.

I advocated at the time, and others joined me, that we scrap those programs and we move to use this money to buy nutrition for needy Americans—infants, children, whatever—and overall it would balance out.

It would not cost us any more. We have $4.5 to $5 billion to work with. We have now eliminated those programs. We have saved that. And all we have increased the nutrition program is a couple of billion dollars, which sounds like a great deal, and it is, but still it is only half of what we were actually spending on price support programs that were giving us no nutrition at all.

Senator Mcgovern. I don't have the slightest argument with the Senator on the performance of that.

Senator Percy. I am not arguing with you at all. We agree in this field.

Senator Mcgovern. The point I am trying to make to Mr. Hekman is that the track record has not been very good when we have phased out programs of this kind and tried to rely on cash. There has been too much of a tendency to freeze that cash at an inopportune time.

We have a raft of letters from food service people all over the country. Let me just read a typical statement. It came from the Board of Supervisors, Lake Forest School District in Delaware.

This is one paragraph from this letter. "Although the values of the commodities we are presently receiving is about 7 cents per lunch served, it would cost at least double that figure to purchase these items locally."

Then many other people go on to make the case that to replace the present service that the USDA provides in purchasing, grading, inspecting, and quality maintenance, would double the cost of the program.

What assurance do we really have that this kind of money will be available to the school districts if we lose commodities?

Mr. Herman. First of all, Mr. Chairman, I would like to comment on this double deal, because I can bring in other witnesses that would state that there is a great deal of inflexibility in commodities, and that they would rather have the cash than the commodities.

Now as to the doubling, a good bit of the commodities are flour and I submit to the committee that the Government is not buying flour for less than what the people can buy it for in the communities.

It is just not that way. So that the administrative costs, Mr. Chairman, that are associated with this, this 500 people that we are talking about, we talked to the school people about it and we are willing to recognize, as my testimony states, we are willing to recognize that cost in setting a figure, and all that we are trying to do is to recognize that things are changing, that the Federal role in buying these commodities in large amounts and distributing them through a very cumbersome system could better be done by the commercial system, by the use of cash.

USDA To Work Out Program With States

And we are willing and have indicated these guidelines to sit down with the State school lunch directors and the State commodity directors to work out a program, Mr. Chairman, that will do exactly what you have indicated with your question should be done, and that is to assure the integrity of the program.

That this money, as my statement said, will go on, and that the 7 cents plus will be there. Now what is going to happen 10 years from now with this cash or those commodities obviously I can't say.

Senator Mcgovern. You recognize, Mr. Hekman, that there may be rather significant variations in the capacity of various school districts to handle this program. A sophisticated big city school may be in a better position to handle it than one in a sparsely settled area.

Let me read you another line that comes from the food service director of Grants Pass, Oregon. She writes, ". . . because some of our districts are so sparsely settled and so far away from the metropolitan area, to receive commodities at the same value and freight rate as we are receiving them now, we would need at least 17 cents per plate reimbursement rather than the 7 cents suggested in lieu of commodity foods."

With the prices rising so rapidly, 17 cents per plate reimbursement might not replace this loss.

Now I don't know whether those figures are right or not, but I can tell you that we have received a great many letters expressing that kind of concern and anxiety from people who are operating this program out in the field.

You show great concern and confidence in their capacity to handle the program that is now being assisted in part by the Department of Agriculture.

If they have that confidence, we also like to give some attention to their judgment, it seems to me, as to what the cost is going to be.

Commodities Crucial To Rural.Communities

Mr. Herman. We are planning to, as my testimony indicates, to work very closely with the interested parties.

Now as for the availability of food in the remote communities, what the Department is doing now is shipping to the State. All intrastate shipments are a matter of State concern.

Now what I am saying is that there is a viable commercial system available in every county in the United States to get that food there Obviously there is because 80 percent of the food is going that way now, and what you are talking about, Mr. Chairman, is basically 20 percent, and what we are trying to say, what the Department is saying is that we would like to work on a phaseout basis and maintain the integrity of the program, to work this out over the next 16 months so that the integrity of the program will be maintained, that those costs like you have indicated there will be recognized, these administrative costs that I indicated in my testimony.

We are not trying to—and the use of the word trap as it relates to our program, I think, Mr. Chairman, from my point of view is unfortunate, because I am not trying to set a trap for anybody.

In fact, I have met with these people endlessly. I met on six different occasions with them on this, and I think if you ask the people in the room, they would indicate that I have been very open within the Department, and in this whole matter.

Senator Mcgovern. I am not accusing you or your associates of deliberately setting a trap. I just warn you of the danger that I see, personally, in this proposal. I hope the Department is, also, cognizant in this area.

Another question, Mr. Hekman, and then I will yield to Senator Percy.

Is the Department—the top officials in the Department, including the Secretary—under the impression that when the Congress voted to phase out the family commodity program and replace it with food stamps that we, somehow, were telling you we wanted the USDA to end all commodity programs? Is that where this idea came about?

You seem to think we were luring you to move in this direction, when we suggested that the food stamps should replace the commodity distribution programs.

Mr. Herman. Mr. Chairman, obviously on this point I can't speak for the Secretary. What I am saying is the way it looks to me.

The Department asked for this extension of the authority, which we absolutely needed to maintain a viable, nutritionally adequate,