stant, consequently all of the price advance can be attributed to price inflation and to an increased consumer demand. This conclusion was further evidenced by the rapid flow of meat into consumption all during the period when prices were advancing. Furthermore, there has been nothing evidenced in the trade to indicate more than the normal resistance to higher meat prices. In fact, there has been considerably less resistance than usually, considering the upward trend in retail prices. For the country as a whole, consumer purchasing power has been greatly increased and considerably more consumers have been shifted into higher income brackets. It is also important to recognize that the livestock industry has been making attempts to meet this increased consumptive demand for meat. During the past year, cattle inventory numbers were increased approximately 5 percent. In the case of hogs, the increase amounted to 7 percent, and for sheep and lamp production was advanced from a record low by approximately 4 percent. More cattle generally were put on feed but a greater percentage of these were calves, consequently would not have shown up in the way of increased beef production before the latter part of this year. Recognizing that higher livestock and meat prices were only an end product of definite economic forces, it should be appreciated that any price-control measures should be directed at the causes, namely, the depreciation of the dollar, or inflation, and the increased purchasing power of the consumer; these are not within the control of the livestock and meat industry, consequently any attempt to stabilize and particularly roll-back prices of livestock and meat can only make a bad situation worse. Any lowering of meat prices to the consumer will create an additional consumptive demand and will not curb inflationary pressures. In all probability, the over-all net result, as in OPA days, will be a diminishing meat supply that will be accompanied by further price inflationary pressure and an increased demand on the part of meat, consumers. With the present regulations, it is possible to be most specific in regard to what can be expected in the case of cattle and beef. As has been previously indicated, cattle and beef prices can be fully justified on the basis of supply and demand conditions and by the general decrease in the value of the dollar, consequently the present and prospective price roll-backs in the beef market and in correspondingly low compliance prices for live cattle will result in a substantially increased consumptive demand. The consumer will have the ability to purchase more beef and if the volume is not available he will be willing to pay a higher price. Also, if necessary, the consumer will not object to taking a lower grade product and will not hesitate on receiving reduced retail services. With demand being increased and no corresponding increase in the supply, the consumer most closely located to the source of production will be able to satisfy his increased demand. This naturally will be at the expense of the consumer most distant from producing areas, which will promptly force the rationing of beef. All of this was experienced during OPA days and regardless of efforts to curb black market operations, the net results will be the same. The most serious result will be reduced beef production. Price ceilings have been set up to discourage finishing cattle on the Corn Belt. Consequently much of the fed crop now in the Corn Belt will be held in hopes of recovering present inventory losses. This means a general shift of all beef production to a growing basis, which means slowed-up production lines and a particularly reduced turn-over in slaughter numbers. Calves, instead of being finished the following year at 1,000 pounds, will tend to be held two or more years to reach such weights and will only produce beef of low quality. The urgent demand for desirable beef in producing areas will result in heavy calf slaughter and will tend to hold down cattle numbers at the expense of beef production. Under such conditions the net result would be for cattle numbers to moderately accumulate in producing areas, with a general curtailment in the over-all supply of beef. As to the extent of future black-market developments, that remains to be seen; but with the prospective demand for beef, consumers in general, as in OPA days, will be inclined to get beef by hook or crook. In fact, during World War II, if black marketing had not developed and beef not been generally upgraded, production would have been seriously curtailed for military needs. Such conditions enabled many feed-lot operators to continue. Therefore, if present price controls are fully enforced, the beef supply situation will rapidly become extremely critical. With price-control policies not yet announced for hogs and lambs, I can deal only in generalities, with the assumption that the announced objective will be cheap meat for the consumer. Hog prices are very important in determining the hog-corn ratio, which primarily governs production. At this time farmers are formulating policies regarding fall pig production. Current hog prices make it unprofitable to convert corn into pork; consequently, it is only logical to expect a downward trend in hog numbers. Sheep numbers were depleted by inequitable price ceiling during OPA days, with the result that the industry was practically sacrificed, and now we are paying for the lack of wool as well as lamb. Inasmuch as price-control policies involve the parity concept for agricultural products, I would like to point out that the cattle and sheep industry has been put in a very embarrassing position. Consumers generally have been misled by the so-called parity position of cattle and lamb prices. The natural assumption is that such prices are unduly high, thus resulting in special benefits to such producers. I might explain that the data utilized by the Government in computing parity for cattle and sheep are very erroneous. In the first place, the base period of 1909-14 for lambs and wool represented a period of extreme liquidation. Since that time the sheep industry has been shifted largely to a lamb basis. Consequently, there has been a general shift in the character of the product represented. A somewhat similar transition in the character of the product had also taken place in the case of cattle; thus, average cattle prices have never been comparable with the base period. More recently this extreme error has been in part recognized, with an arbitrarily adjusted base period being utilized. This has been represented by the 10-year moving average, which is equally erroneous because of a still further lack of representatives in cattle, lamb, and wool prices during most of the past decade. Furthermore, the parity concept does not basically take into consideration variations in supply and demand. Its true measure is also greatly obscured during periods of price inflation and deflation. Anyone with any appreciable knowledge of the parity concept would know offhand that the indicated parity position for the cattle and sheep industry is erroneous. I might add, however, that, in the case of hogs, price data have been maintained on a more comparable basis and that the original base period was reasonably representative. I might further add that the parity concept is no accurate measure of the position of any specific commodity; in fact, it would be just as logical to calculate the parity position of agriculture as a whole on the basis of the cost or price of some single commodity purchased by farmers and stockmen. In conclusion, I trust that this committee appreciates the vicious cycle and the many inequalities created by price inflation and also appreciates the importance, and particularly the responsibility, of the Government in maintaining stability in the value of the dollar. Assuming such responsibility is a first logical basis of procedure for price control. Such action should be considered the major safeguard to the welfare of this country as a whole. With the upward trend of price inflation, it can be only a matter of time until national confidence in the dollar will be lost. Such a situation has been evidenced in many countries, and the consequent uncontrolled inflation has been devastating. With no serious effort manifested along this line, the futility of price controls on livestock and meats is without question. None of the responsibility for price inflation, as well as increased purchasing power on the part of meat consumers, can be attributed · to the livestock and meat industry. The unfortunate situation under such conditions will be the final net effect on the meat consumer. With the probability of diminishing meat supplies, the consumer will in reality be forced to pay a higher net cost by receiving a lower-grade product and having all of the inconvenience of trying to obtain this needed food product. Senator ROBERTSON. My attention has been called to the fact that the regulation that fixed a quota of 90 percent on cattle, 80 percent on lambs, and 110 percent on hogs; and the order goes on to say, “In each instance it has all been available." Senator CAPEHART. Well, I can well understand that that might be all that is available, but then what is to be gained? One man might not want to buy more than 90 percent, and another man might want to buy 120 percent. Senator ROBERTSON. Did you sit in on this conference when the quota was discussed? Mr. CONWAY. No. Senator CAPEHART. Can Mr. Foster tell us? Senator BENTON. Were you here this morning, Mr. Conway, when I questioned Mr. Bamert? Mr. CONWAY. No; I was not here. Senator BENTON. Well, this, of course, is the thing that puzzles me about this whole problem, because I do appreciate these great difficulties of controlling prices in your industry; it is probably as difficult a place as any aspect of our economy you could talk about. If we are not operating in the normal market of supply and demand to which you referred at the top of page 7-and increasingly the market will become abnormal as more and more goods are withdrawn from the market, as our whole industry potential switches more and more toward production of war goods and there are fewer and fewer consumer items available to the customer for the money in his pocketthe pressures for meat will mount in all probability very steadily as we look 6 months and a year ahead. Now, as this demand for meat mounts in an abnormal market due to the lack of availability of other commodities, at what point do we stop the expansion of production, or at what point do we attempt to control the spiraling price that results from this abnormal demand? Secretary Brannan in his testimony brought out that 1947 was the point of high consumption of meat in this country, with 155 pounds per capita in contrast to the present 148 pounds. He explained it on the grounds that there were not other commodities for people to buy; when they were not and they could get meat, they bought meat. When there were other commodities on the market, they did not buy meat and the per capita went down. How do you propose to control either the spiraling price that will result from this rapidly growing demand for meat, or the spiraling production, because we certainly cannot convert our agricultural economy over to greater and greater production of meat and make meat. the outlet for the increased purchasing power of the country? You have got to control, it seems to me, at some point. You might rationally argue that the point is not here yet; but, if you let this thing run as you suggest, how can you avoid that point coming at some future time; and when it does come how do you propose to control it? Mr. CONWAY. I would like to first explain that we consume all the meat we produce, and the reason we consumed more meat that year was because we produced more. The figure question is the price. I have tried to point out that prices have gone up as we devalued the dollar, and we have increased consumer purchasing power, and the supply has held about constant. Consequently the advance in livestock and meat prices has been the direct result of inflation and of an increased demand on the part of consumers for meat. Senator BENTON. Would you let the price in this abnormal economy be the regulator of consumer demand? Mr. CONWAY. Strictly speaking, nothing can take its place. Senator BENTON. Well, let us say, then, that as your demand mounts, as the consumer can buy less and less of other commodities and diverts his demand into meat, that over the next year we can look forward to a rapidly accelerating demand for meat. You would let the price, let us say, double or triple or quarduple until it finally reaches a point where he will cease to demand meat, and we will come into balance. Mr. CONWAY. The livestock industry is set to increase meat production. We were set to increase it this last half of this year. Senator BENTON. That would be the second way to try to control, but I do not know any reason why the consumer might not want to eat twice as much meat if that is the one thing he has got to spend his money on. Do you think the livestock industry should double its production? Mr. CONWAY. If he has got the money to spend, it will be just like it was during OPA days; we will go out and get the meat. Senator BENTON. We admit these are very evil choices, but I am trying to see what the other choice is that you propose. Mr. CONWAY. The choice I propose is to stabilize the value of the dollar, stop this inflation, and the consumer has got too much purchasing power; do something about that rather than to curb meat production and increase the demand for meat, which creates a vicious cycle as we had back in OPA days. Senator BENTON. As the consumer can buy fewer automobiles and other products, would you not agree that the demand for meat will rise? Mr. CONWAY. It will rise to a certain extent, but it will not double. Senator BENTON. Well, suppose it goes up 20 percent in the next 2 years. At the time that we are curbing production of all other commodities from the standpoint of the war efforts, you would favor allowing meat producers to step up their production 20 percent? Mr. CONWAY. We have got feed, corn, stored up, and we are going all-out for production; feeding range and those should be converted into meat. Senator BENTON. I just want to make it clear because this crisis, some people think, may last over a period of years. Let us say that the consumer, unable to get vacuum cleaners, buys meat in the next 2 years at 20 percent above present ratios. I gather you would favor having no policy to prevent the adjustment of our agricultural economy to produce the 20 percent? Mr. CONWAY. Three things. One is to encourage meat production; the other is to stabilize the value of the dollar; and if we want to curb the consumer's extending power, pay as we go on this war, and maybe pay off some of our national debt. Senator BENTON. At the end of 2 years, if we are in this same kind of situation, you would then propose letting it go up another 20 percent in the 2 years that follow, or 30 percent? Mr. CONWAY. It will take care of itself. You do not have to worry about that. Senator BENTON. How will it take care of itself unless we either let prices mount in order to curb demand, or production mount in order to fill demand? Mr. CONWAY. Practically all of this advance is outright inflation. Senator BENTON. I agree with you it can curb itself if we embargo a national policy of allowing the meat industry unlimited free rein on maximum and unlimited production during the period of this crisis. That would be one procedure for handling it. It would give us, it seems to me, a most disjointed economy, a most disjointed agricultural economy, if we tried to take up this surplus purchasing power that is developing by expanding meat production. Mr. CONWAY. We would not take it all up, but there are ways and means of curbing credit, and a lot of ways the consumers will get purchasing power. Senator BENTON. The second way of course is on the price side. Many of the witnesses have emphasized the relationship between wages and meat prices. I think large numbers are fixed income people, teachers, and others whose wages admittedly have not gone up in any remote proportion to meat prices Senator ROBERTSON. Will you yield for a suggestion there? |