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DEPARTMENT OF AGRICULTURE,

Washington, D. C., July 14, 1955. Hon. HAROLD D. COOLEY, Chairman, Committee on Agriculture,

House of Representatives. DEAR CONGRESSMAN COOLEY: This is in reply to your oral request for a report on H. R. 7252, a bill to permit sale of Commodity Credit Corporation stocks of basic and storable nonbasic agricultural commodities without restriction where similar commodities are exported in raw or processed form.

The Department recommends that H. R. 7252 be enacted.

H. R. 7252 would amend section 407 of the Agricultural Act of 1949 as amended. It provides that, for purposes of section 407, sales for export may include not only sales made on condition that the identical commodity sold be exported, but also include sales made on condition that commodities of the same kind and of comparable value or quantity be exported, either in raw or processed form.

The provisions of H. R. 7252 would facilitate the export sales operations of the Department and would be of assistance in the disposition of our surpluses abroad. Experience has shown that those grades or qualities of commodities frequently most desired by our foreign customers are not always those which the Department has in inventory. The provisions of H. R. 7252 would expressly authorize the substitution by the private trade of those grades or qualities which are desired.

Use of such authority would, of course, be discretionary with the Secretary, and the Secretary would be free to require, as appeals appropriate for any commodity, the export of the identical commodity, or the export of the same kind of commodity either on the basis of comparable value, or of comparable quantity.

In view of the request that this report be submitted immediately, we have not obtained advice from the Bureau of the Budget as to the relationship of this proposed legislation to the program of the President. Sincerely yours,

J. A. MOCONNELL,

Assistant Secretary. Mr. ABERNETHY. Has the Senate passed this bill? Mr. GATHINGS. No.

I would like to hear from Mr. Sid Y. West, Memphis, Tenn. He is from the Advisory Council on Cotton. It just happened that Mr. West is in the city and we are proud, indeed, that he consented to come and give us his views. He has been in the cotton business in the city of Memphis for many years.

We are delighted to have you.

STATEMENT OF SID Y. WEST, MEMPHIS, TENN., MEMBER OF

COTTON EXPORT ADVISORY COMMITTEE

Mr. WEST. Thank you, Mr. Chairman. I am a cotton exporter largely and do a little domestic business. Mr. Rhodes has outlined some of the advantages of this legislation. I am a small dealer. We buy a thousand bales from the Commodity Credit Corporation for export and the only way we could get an export order from the Commodity Credit Corporation is selling cotton cheaper for export than it will sell domestically. I have to buy it from the Commodity Credit Corporation because the price would make me have a serious loss if I took the business without knowing where I was going to get it.

Mr. Rhodes' statement about the desirability of having the cotton for quick shipment is quite important. The stocks of the cotton in the consuming centers of the world are very small. Every one has been waiting to see when we are going to start to sell cotton again and

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your demand that you get now is for immediate stock. You cannot wait to get it from the Commodity Credit Corporation.

There is just this very business of getting it into your own hands that is slow. If you have it at a port you can send it in the next steamer.

Mr. GATHINGS. It will be a considerable saving in time.

Mr. WEST. Yes; and I cannot get an order except for immediate movement, and that probably will be the way it will be. Now, we will sell 1,000 bales of cotton to some customer abroad. We will sell it on the description of the universal standards and staples.

We sell a great deal of it against private type where a sample represents everything that that buyer thinks he needs to make a shirt, for example.

Then we buy from the Commodity Credit Corporation some quality that we think they have that matches this sample that we have established with that man. Even if he took the 1,000 bales out of my home stock they would not all match that particular type. I would have bales that were better and bales that were worse. You would have the same thing from the Commodity Credit Corporation more so than you would out of your own private stock, because your classer is trained to class that particular sort of thing. If I buy 1,000 bales from the Commodity Credit Corporation on reclass, that is reclass by the Commodity Credit Corporation classes, on cotton better than the contract I pay them the premium, the difference between that.

If I apply this cotton on the contract, I have lost that much money. If the cotton is worse they pay me the loss that I have sustained, based on the difference. I would find myself possessed of that part of that thousand bales that was too low to ship with a contract with the United States Government to ship that cotton export. I might not be able to find a market. I have got to find a market where I have to pay 105 percent of parity and in the meantime I am still hooked with this part of that thousand bales which I have to go into the open market and find.

Unless this bill goes through, in my humble opinion it will be practically impossible to sell if I must ship the identical bale that I buy.

It will be very difficult for the Commodity Credit Corporation to sell its cotton. Only a few big people can go part of the way, but they, too, will get clogged up after a while.

There is no windfall for me. It just makes the thing more salable. If the Commodity Credit Corporation was in a position where they could take back the cotton that did not fit, both the too good and too bad, you might not need it, but that is impossible to visualize how they could handle the matter that way.

I will be glad to try to answer any questions if any of you have them.

I am fortunate enough, or unfortunate enough, as the case may be, depending on the way you look at it to be on the Cotton Export Advisory Committee and that is the reason I am in Washington.

I do not think I am betraying any secret when I tell you that the whole committee recommended this and I think that if they were here each one of them would tell you what I have told you. Not all of them are cotton shippers. There are producers and other folks.

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Mr. GATHINGS. I have a letter from you, Mr. West, dated July 8, in which you tell the story very well, but I believe your testimony goes into more detail and is more convincing even than your

letter.
Mr. West. Thank you.
Mr. GATHINGS. Are there any questions?
Thank you very much.
Mr. Flautt?

STATEMENT OF J. R. FLAUTT, SWAN LAKE, MISS., MEMBER, COTTON

EXPORT ADVISORY COMMITTEE

Mr. FLAUTT. I am J. R. Flautt from Swan Lake, Miss. I am a member of the Cotton Export Advisory Committee. We have been in session here 2 days. I am not a cotton merchant. I am a cotton producer and know nothing about the merchandising of cotton.

This committee consists of 8 members, and I happen to be the 1 producer member on the committee. The rest are cotton merchants or cotton shippers.

I do know that it is the consensus of opinion of every man on the committee that this bill, H. R. 7252, is very desirable. I know that the Department of Agriculture would like to see this.

Ỉ do not think there is any use for me to go into the plight of the producer with all this surplus hanging over our head, but anything that we can do as producers or shippers to help dispose of this surplus of cotton, which the Commodity Credit Corporation now owns, will work to the advantage of the economy of the entire Cotton Belt.

We are confronted with the problem of a big surplus building up here. We are on a restricted-acreage basis about as low as we can go and unless we can dispose of this surplus and increase our plantings of cotton, why, I think we are just going to have to go out of business.

We are a natural cotton country. We can raise other things but when we do raise soybeans and corn and things like that, we are going into competition with areas in the Middle West and areas that cannot produce anything except corn, soybeans, and small grain. We can produce anything in our country but I think it is a very bad condition when we have to take our land out of cotton and go into competition with those crops in the Middle West and other areas that cannot grow any other crops except those crops.

I do not think it is a healthy condition.

We believe that by passing this H. R. 7252, that it would very much help the moving of this cotton surplus.

Mr. GATHINGS. Did I understand you to say that the feeling among the advisory group is unanimous in behalf of legislation of this kind?

Mr. FLAUTT. That is right; yes, sir.
Mr. GATHINGS. You feel it will expedite the movement of cotton.
Are there any questions?

Mr. Hagen. As I understand, the only possible objectors to this would be the cotton mills.

Mr. FLAUTT. No; the cotton mills would not object.

Mr. ABERNETHY. I do not think there is any quarrel from any source on this bill.

Mr. FLAUTT. It would be just clearing up language. As Mr. Rhodes said, I do not believe the Solicitor has made an opinion but it is just a matter of tradition the way it has been handled over the years and

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there is a technicality that they do not know how to get around. They do not want to break the law. We cannot say whether there is penalty to it but we would like to get the technicality out of the way and clear

up the law.

Mr. Gathings. I wanted to ask Mr. Rhodes about the Surplus Disposal Act of 1954. Maybe I could ask our counsel, Mr. Heimburger, whether the act we passed last year on disposal of surplus commodities carried a provision that you need not export the identical bale or commodity.

Mr. HEIMBURGER. Yes; it did, Mr. Chairman, and at first that provision required that the exporter must replace from Commodity Credit stocks the identical type of commodity he exported as to grade and so on. However, that provision was taken out of the act this

year, so that now it is wide open and there is no requirement that the exporter must even replace his stocks from Commodity Credit Corporation stocks to do business under Public Law 480. That involves only, as you are fully aware, sales for foreign currency.

Mr. Chairman, were you finished with Mr. Rhodes?
Mr. GATHINGS. That was the only thing I had in mind.

Mr. HEIMBURGER. To be sure I understand what this is about, since I am going to write a report on this bill, may I ask Mr. Rhodes a question?

Mr. GATHINGS. Surely.

Mr. HEIMBURGER. This amends 407 which says that the Secretary may sell any surplus commodity in the hands of the Commodity Credit Corporation at any price not prohibited by this section. One of the permitted exemptions to the sales price is for export. This simply expands the definition of the words “for export.” Is that correct?

Mr. RHODES. The present wording in section 407 provides that, The Corporation shall not sell any basic agricultural commodity or storable nonbasic commodity at less than 5 percent above the current support price for such commodity plus reasonable carrying charges.

Then it makes a number of exceptions. One of those exceptions that it makes is: "Sales for export.”

Now, up to this time the only interpretation we have been able to get from the Solicitor's office is that section 407 exception for sales for export provides that you would make the sale for export. Therefore, what you sold would have to go to export. In other words, if you sold 1,000 bales of cotton to a shipper for export, he would have to ship the 1,000 bales as bought. That is what we are trying to get around here.

Mr. HEIMBURGER. This changes the thing so that the exporter can now go onto the export market with cotton of his own, knowing what Commodity Credit's export price is. If he sells 1,000 bales on the market he can under the provision that you are proposing here, go to Commodity Credit Corporation and say, “I have sold 1,000 bales of cotton for export. Now I want to buy 1,000 bales at your export price.”_Is that correct?

Mr. RHODES. I think that is correct. I would rather put it in the reverse.

Mr. HEIMBURGER. Could it happen that way, though?

Mr. RHODES. I think it could but that is a legal question that I will have to refer to the Solicitor's office.

If you put it the other way around, when we sell, the only requirement that we would be confronted with after the passage of this law

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is that the buyer submitted proof that he exported the same quantity of cotton which he bought from us.

As to the date and hour that that sale would have had to have been made, I would not be prepared to say from the technical standpoint how that would have to be decided, but my opinion would be that subsequent to the time this law is passed that it would work that way.

I think, as one of the previous witnesses, Mr. West, indicated, in practice the shipper will buy the cotton in most cases before he will be exporting cotton that he bought at a much higher price.

Mr. West. In a matter of common practice, to get sales abroad in competition with the tremendous outside growth which is yelling for markets, I have to buy it cheaper than the loan price. I have to, or I cannot sell. They will buy the other man's cotton from Pakistan or Lord knows where.

As a matter of practice, I am going to put it up to the Commodity Credit; and, if they do not sell, neither will I.

Mr. HEIMBURGER. As a practical matter, you anticipate that you will try to sell cotton that you believe Commodity does have on hand!

Mr. WEST. No; it is not a question; of course, I would prefer to sell the cotton that they have on hand where I will be able to take that thousand bales I buy from them and apply it on that order which I have, but if I am obligated to do that, I cannot do it because the cotton does not run uniform enough to handle it.

Mr. HEIMBURGER. This is what you would like to do.
Mr. West. That is the cheapest way to handle it; yes.

Mr. HEIMBURGER. I suppose you testified on that. I happened to be in another meeting.

What is the effect of these last half dozen words here, “either in raw or processed form”? Does that mean that a producer of cotton cloth who is now selling in export will be entitled to purchase from the Commodity Credit Corporation at its export sales price an amount of cotton equivalent to his total exports?

Mr. RHODES. Yes; it is my understanding that an American mill who exported equivalent of 1,000 bales of cotton in yarn or cloth would be entitled to purchase an equal quantity of cotton at the export price.

Mr. HEIMBURGER. I think that answers my questions.

Mr. GATHINGS. Mr. Poage, we have heard from all three of these gentlemen and quite a number of questions have been asked.

I wondered if you would like to enter the discussion.

Mr. PoAGE. I have seen this bill before and, frankly, I discussed it yesterday with Mr. Flemming. There is this phase about which you wonder: Down at the end you are saying that it will be all right to buy this provided that the same kind and comparable value or quality be exported either in raw or processed form. I wonder if this bill can be used as a vehicle to enable some cotton traders to get out of the Commodity Credit Corporation stocks the types of cotton they want or the staple length they want. They cannot get types, as I understand it, out of Commodity Credit Corporation, but they can get staple lengths out of Commodity Credit Corporation.

You will accept a bid on the basis of, let us say, fifteen-sixteenths or 1432 inch, and if I want 1,000 bales of 1122 inch, I go and buy

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