manifold, as you gentlemen can understand. I frankly want to do something about inflation and do not know how to do it. A very good friend of mine, who was a former member of this committee, just introduced an amendment to the supplemental appropriation bill in the Senate to cut it 5 percent-the military bill. The military has already lost 20 percent through inflation since the bill was started. It was testified to us the other evening that the money that is in the supplemental bill would only do 80 percent of what the budget had intended it to do in January, because of special types of work, and so forth, so he suggested cutting it 5 percent, and since inflation has. already cut the bill 20 percent, I just do not know what to do.

Mr. FRANZ. I recognize to a certain extent the terrific weight of your problem, and I am sorry that you were unable to see the charts that were presented by Dr. Carpenter.

The CHAIRMAN. The only thought we did have, as I remember from what Senator Bricker said in the last writing of the law, and Senator Frear of course knows more about the poultry business than I do-I know about the cotton business-it was suggested at that time that the Army was making these purchases and the farmer was not getting much benefit out of it. The thing varied so much that the public was paying, and the money did not come back to the farmer.

Senator FREAR. Yes, I have another question or two. I do not know whether I can clarify my position or not.

The CHAIRMAN. I can readily appreciate your problem as a processor. But we have to solve this problem we are trying to solve so our dollars will not be worthless a year from now. Something has got to be done.

Senator FREAR. I understand you are from the St. Louis market.
Mr. FRANZ. Yes, sir.

Senator FREAR. But you do observe the New York market?

Mr. FRANZ. Oh, yes; we ship to New York, and buy from New York, and buy from Delaware, and we produce in Arkansas.

Senator FREAR. You are perhaps familiar with the figures put in the record by Senator Williams a couple months ago regarding prices paid to the producer on the Del-Mar-Va area?

Mr. FRANZ. Yes, sir.

Senator FREAR. Since the regulations of OPS went into effect, and the price to the producer dropped from approximately 32 cents to 24 cents, and the price on the New York market dropped approximately half a cent-I think maybe I should preface that, that the increase in the New York market price took the same cents per pound increase as did the increase in price paid to the producer at the time, but on the decline, there was about a 6-cent margin over the average; in other words, practically doubling the margin. Going back to a former statement you made when I asked that question that you did not think it was possible to have these regulations so that they could fall back or go up according to the prices paid the producer, they could go up all right, you saw no difficulty in that, as I understood it, but when they went to go back, there would be difficulty in reducing the price. Did I understand you correctly?

Mr. FRANZ. Basically, that is correct, and I think that I might say that that points up our argument that poultry is difficult, if not impossible, to control. I would not say that it is perfectly satisfactory to have a control that will go up and will not come back. I

will say that we do not have trouble with a control which keeps out of our way above our ceiling price, but the minute the control tries to take effect, we have very, very serious difficulties, and it causes a diversion of product.

I am not as well qualified to answer the particular question in Delaware that occurred during that period of time. However, from the sidelines, out in St. Louis, we heard the comment that there was a strike I believe it was in the processing plants-a strike in some processing plants. Such a matter might be compared to a railroad strike during the strawberry marketing season. The price of strawberries would naturally drop very sharply on the farm, and yet on the other end there might be a shortage of strawberries caused by the same strike, which might have to be brought in from some distant. point.

Senator FREAR. I think that is a very good point, only the New York market did not reflect that directly. There was a strike on the Del-Mar-Va Peninsula, which would certainly force more broilers to go on the market than into the freezing plants.

Mr. FRANZ. It caused a diversion from the routine channels through the processing plants.

Senator FREAR. But that increased the supply on the New York market rather than decreased it.

Mr. FRANZ. Of a different type of product, sir. They went into New York possibly alive, and there are literally no processing plants in the city of New York of the type that you have in Delaware, so they bypassed, let us say, the strawberries had to go into preserves and were not available for the fresh strawberry market.

Senator FREAR. But I do not know as they have any facilities in New York for feeding live poultry up there, so they have to kill them and put them either in a freezer or on the market.

Mr. FRANZ. The live market did drop sharply in New York during that period of time, caused by the oversupply.

Senator FREAR. But that New York price market-and I will say this, too, that there were considerable amounts of poultry coming in from Georgia at the same time, but the price in the New York market did not drop in proportion to the price that they dropped on the Del-Mar-Va Peninsula, and also in the Georgia market, but it did not reflect as adversely in the Georgia market as it did in Del-Mar-Va.

Mr. FRANZ. As you stated, there are no facilities to just hold the live poultry in New York, but it is my opinion that the live poultry that is dressed in New York finds a different outlet than the dressed poultry that comes in normally from your Delaware processors. It is dressed in the grocery store, in the smaller stores, in the poultry markets throughout the city, and they had an overloaded condition due to too much live poultry, while the processing plants which might supply the larger chain stores, terrific quantities of poultry had to go to Georgia or elsewhere to buy their product.

Senator FREAR. But the gentleman to your left shook his head when I said the prices on the New York market did not reflect the same drop as they did to the producer on the Del-Mar-Va Peninsula. I admit they did drop some, but not in the proportion that they dropped to the producer.

Mr. FRANZ. Mr. Van Wagenen is the Northeast Poultry Producers' counsel.

Mr. VAN WAGENEN. You describe the situation exactly, but the point we are trying to make is this: That normally a large portion of the product of Delaware, Maryland, and Virginia goes through dressing plants, and is quoted on the New York dressed market, and therefore the supply of dressed poultry in New York, due to this strike, was not large and the price stayed up, relatively. It tended to stay up in the New York market, being supplied from these other areas. But the live price on the farm in Delaware, because of the removal of the market, suffered and went down.

Senator FREAR. The price that the consumer in New York paid for the broilers that came from Delaware was the same as the ones that came from Georgia, but the producer of that poultry in Del-Mar-Va received 8 to 10 cents a pound less than he did in Georgia.

Mr. FRANZ. Very true.

Senator FREAR. Now, then, how do you explain that, sir?

Mr. FRANZ. I explain it by the fact that poultry could not move through its normal channels. Who sets the price of poultry? It is the consumer.

Senator FREAR. No, sir; I do not agree with that.

Mr. FRANZ. If the consumer does not buy it—

Senator FREAR. You agree that when you get a large surplus and the consumers can realize that-it has not been proven to me yet that the consumer has been dictating the price on poultry from any of these areas to any large degree, and just on that point there, if the consumer in New York realized that poultry coming from Delaware should have been purchased at 8 to 10 cents a pound less than that coming from Georgia, she would have specified Delaware poultry, I imagine.

Mr. FRANZ. If she could; but she could not.

Senator FREAR. There was an 8- to 10-cent difference that went into somebody's pocket. The producer did not get it on the Del-Mar-Va Peninsula, and the consumer in New York paid the same price as they did for chicken from Georgia.

Mr. FRANZ. This would take an involved discussion, sir, and I think it would take too much of the committee's time, but what happened there, of course, is that a lot of live poultry on the Del-Mar-Va Peninsula-and we have members in Delaware, quite a few of themwhat happened, of course, was that a good many of those birds which normally moved through the dressed poultry plants of Delaware, and therefore the shortest route to market, had to move to other areas for processing and then move back in, and that accounts for the higher

cost.

Mr. VAN WAGENEN. I think it could be said the strikes were the biggest cause of the price at that time.

There was a certain market in New York demanding a certain supply of chickens at all times to be trucked into New York alive. There is a very large demand for chickens to be trucked into New York dressed. If you cut off the supply of dressed to the type of trade that handles the dressed product, and then try to overload the part of the market that handles live poultry, you depress the price of the live, whereas the chain stores, possibly, who are large users of dressed poultry, had to go to Georgia or Arkansas for supplies during that short period of time.

83762-51-pt. 2- -41

Senator FREAR. I think if you will also reflect on your records before the price ceiling regulations went into effect, and when there was no strike in Delaware, that there was a condition 12 or 14 months ago similar to the one that occurred during the strike, and yet the differential on the New York market was practically the same as when you are now comparing the price market there.

Now, what made that difference?

Mr. FRANZ. I don't believe I can answer that, except to say that I have thought that in the past Delaware, Maryland, and Virginia producers, and the producers in general, have been against supports, or regulations, entirely, and I think that it is a generally accepted fact that if we have ceilings we may face the need for support. If we had supports, we are entitled to look for ceilings.

Senator FREAR. I will say this, Mr. Franz: I don't believe the producers of poultry to the Del-Mar-Va Peninsula want any Government subsidies.

Mr. FRANZ. I agree.

Senator FREAR. But by the same token I think that they would like to have the proportionate share of the dollars that the consumer pays in New York City, whether there are price regulations or not, and when this great differential in price between that paid to the producer and that which the consumer has to pay in New York, or the sales that go out of New York, they should have some adjustment in that price.

Now, I don't know whether I am for regulating the price or not, but I am trying to get information to see whether it is feasible, or whether it isn't feasible. If it is an unworkable thing, and the producers don't want subsidies, then I think we are going to have to approach it from a different angle.

Mr. FRANZ. We think that free enterprise has raised the poultry production to the standard which it now occupies, and we hate to see it regulated in any way that will be detrimental to the industry or to the consumer or producer.

Mr. Van Wagenen would like to say a word.

Mr. VAN WAGENEN. I would like to explore the point a little further, Senator, and that is the situation 16 months ago. I was closely tied in with that. We did have a situation in which the New York price was out of line in comparison with the producer price, but what did we do? We corrected that in the space of about 2 weeks by simply joining forces and putting on a campaign to get consumers back to eating poultry, and the matter corrected itself within about 2 weeks.

Mr. FRANZ. I can recognize, Senator, that as a group of producers, if we could find any way that we could get the benefit and not suffer the hardships, we are all trying to promote such a thing for our own industry, but when we go further than supply and demand, and use regulations, we very often find that they bounce right back and hurt us in a way that was not anticipated.

For instance, if we bid high on an Army contract, we don't get the contract, we don't sell the Army anything. If we estimate a price that we are going to pay the producers, and have to pay more, the processor suffers. If we bid low, they would get it back, so it doesn't work both ways, even in the amendment, and when you try one regulation you immediately have to counter with another one to equalize it.

Senator FREAR. Mr. Franz, I think as far as I personally am concerned, I certainly would be willing that the processor caught in such a predicament also have an escalator clause that he could add to this as well as have to pay back if it cost him under that; by that same token I also think that the free market should operate the

same way.

Mr. FRANZ. It certainly should.

Senator FREAR. A producer, if his normal cost or his normal differential is 6 cents a pound, I can see no excuse why he gets 12 cents a pound.

Mr. FRANZ. I think Mr. Van Wagenen stated that that situation corrected itself quite quickly. Those situations do occur, and that is one of the reasons why our production economy on poultry can expand so rapidly when a price goes up, and can contract rapidly when it goes down.

Senator FREAR. And those prices on every pound that was in storage, when those prices went up and were taken out at that time, took the expanded price, not the price paid the producer.

Mr. FRANZ. We bought quite a few of the chickens out of storage, and we have a generally accepted policy in our own business that when we put fresh chickens into storage they have to go up about 6 cents a pound. The market just increase 6 cents a pound for the frozen product to be worth as much as the fresh product.

Senator FREAR. I think I can readily appreciate that, Mr. Franz. But, based on the same percentage it would make no difference whether the price was 18 cents to the producer or 32 cents to the producer, your percentage would be the same?

Mr. FRANZ. Yes.

Senator FREAR. Then I can't understand why the differential was so much greater than it would be on the average differential by percentage advancement.

Mr. FRANZ. Well, mentioning the frozen poultry as though the owner of that poultry was possibly getting an unconscionable profit, I might say

Senator FREAR. Unconscionable?

Mr. FRANZ. I am sorry-an excess profit, shall we say, that he had no increased costs to cover.

We were buying frozen poultry in Del-Mar-Va at from 5 to 6 cents below the New York market during that period of time, mainly because of the fact that it was frozen, so there was a serious discount below the New York market on larger sales of the frozen product. It doesn't demand the New York price.

Senator FREAR. The processor took that loss?

Mr. FRANZ. I didn't say he took a loss. He had bought it at a previous time. We know not what his cost was, but was selling at 5 to 6 cents per pound below the fresh market, so I don't think we can assume he got a windfall price because of the higher fresh market. Senator FREAR. I don't want to monopolize the time, but for my own information, I would like to ask you a question:

On storage, frozen poultry, do you as a warehouseman, or if you are not, from your knowledge, do you have a running cost per pound daily on the price of your stored poultry, frozen poultry?

Mr. FRANZ. I operate as a poultryman rather than a warehouseman. A warehouseman is a separate industry, and is not really con