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with each other or in combination in order to see that every member of the co-op gets a fair price, as you call it.

Mr. HEINKEL. I think I can give you a good illustration.

Mr. EBERHARTER. Well, can you tell me whether they act in combination with each other through this association ?

Mr. HEINKEL. No, sir. I can give you an illustration of how they affected the price of fertilizer, if you are interested in that. That is that until the members of our association decided to finance and build a fertilizer plant, there had been nothing sold in the State of Missouri in the way of fertilizer except low analysis, numbers 2-12-6, 0-7-14, and so forth, with about 20 units of plant food in a hundred pounds. Now our farmers felt that they had been paying for too much filler and not enough plant food. They went down into their pockets and raised about $1 million to finance these fertilizer plants. In the first year of operation of just one plant only they saved for themselves $138,000--and I am not talking about savings accumulated in the cooperative. I am talking about out-of-pocket money that they paid less for that fertilizer by buying the ingredients and mixing them themselves and distributing it in the form of high analysis fertilizer.

Mr. EBERHARTER. Well, I am not against cooperative associations as such, for as you indicated, they do a tremendous amount of good for the individual farmer and the individual farmer profits by being a member of the cooperative association. He realizes a great benefit from it. Now, in realizing a great benefit from cooperative associaLions, don't you think it would be fair to pay a little bit of taxes inasmuch as they receive so many benefits through their cooperative association? Don't you think it would be fair for cooperatives to pay a little bit of taxes?

Mr. HEINKEL. As a farmer increases his personal income he does pay increased taxes. But if the cooperative operation is within the limitations and restrictions of 101 (12) then I don't think they ought to pay any tax.

Mr. EBERHARTER. You just want the situation to remain as it is and you are satisfied with it as it is?

Mr. HEINKEL. That is right.
Mr. EBERHARTER. Thank you very much.
Mr. MARTIN. Mr. Chairman.
The CHAIRMAN. Mr. Martin.

Mr. MARTIN. Mr. Heinkel, yesterday I made the statement that there was an economic justification for the provision in 101 (12) giving exemption to the farm marketing co-ops. From the discussion a few minutes ago I got the impression that there is some feeling that the justification was measured as the difference between a $3 dividend and a $5 dividend. I can't let that go without adding my contribution, that to me the stabilization of the price of farm products, which by its very nature, would not be reflected in the actual dividend and wouldn't come back to you in the form of a dividend, but rather in better stabilized prices. But there, to me, is the real economic justification for the exemption being extended to the farm marketing co-op. I just did not want what I consider a fundamental point, passed over by omission from this discussion.

Mr. HEINKEL. Thank you, Mr. Martin. I agree with you that the real benefit comes in this increased price for these eggs and milk and grain, and so forth and, as I have just referred to, the fertilizer.


Mr. MARTIN. Why, certainly. Any of us who actually experienced the devastation and disaster to the individual farmer that came to him from the seasonal manipulation of his price for his product when he was helpless to meet that situation, cannot lightly dismiss the fact that there is an economic justification for 101 (12).

Mr. HEINKEL. I think there is great economic justification.
Mr. MARTIN. That is all.
The CHAIRMAN. Are there any further questions? If not, Mr.

? Heinkel, we thank you for your appearance and for the information you have given the committee.

Mr. HEINKEL. Thank you, Mr. Chairman and gentlemen of the committee.

Mr. REED. Mr. Chairman, at this point I ask unanimous consent to have inserted in the record a paper entitled “Political Platforms Since 1920 as They Relate to Cooperatives." This covers both the Republican and Democratic Party.

The CHAIRMAN. Without objection, that will be done. (The paper referred to follows:)

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We will favor such legislation as will contirm to the primary producers of the Nation the right of collective bargaining and the right of cooperative handling and marketing of the products of the workshop and the farm and such legislation as will facilitate the ex

portation of our farm products. 1924

We favor, without putting the Gov. We pledge ourselves to stimulate by ernment into business, the establish- every proper governmental activity the ment of a Federal system of organiza- progress of the cooperative marketing tion for cooperative marketing of farm movement and the establishment of an products.

export marketing corporation or commission in order that the exportable surplus may not establish the price of the

whole crop. 1928

We favor, without putting the Gov- We pledge the party to foster and deernment into business, the establish- velop cooperative marketing associament of a Federal system of organization tions through appropriate governmental for cooperative and orderly marketing aid. We recognize that experience has of farm products.

demonstrated that members of such associations alone cannot successfully assume the full responsibility for a program that benefits all producers alike. We pledge the party to an earnest endeavor to solve this problem of the distribution of the cost of dealing with crop surpluses over the marketed units of the crop whose producers are benefited by such assistance. The solution of this problem would avoid Government subsidy to which the Democratic Party has always been opposed. The solution of this problem will be a prime and immediate concern of a Democratic administration.

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DEMOCRATIC—continued 1933

The Republican Party pledges it- Extension and development of farm self to the principle of assistance to cooperative movement and effective cooperative marketing associations, control of crop surpluses so that our owned and controlled by the farmers farmers may have the full benefit of themselves, through the provisions of the domestic market. the Agricultural Marketing Act, which will be promptly amended or modified as experience shows to be necessary to accomplish the objects set forth in the preamble of that act. 1936

To encourage and further develop We favor encouragement of sound, cooperative marketing.

practical farm cooperatives. 1940

We shall promote a cooperative sys- We pledge ourselves to encourage tem of adequate farm credit, at lowest farmer-owned and controlled cooperainterest rates commensurate with the tives. cost of money, supervised by an independent governmental agency, with ultimate farmer ownership and control; farm commodity loans to facilitate orderly marketing and stabilize farm income; the expansion of sound, farmer-owned and farmer-controlled coorerative associations; and the support of educational and extension programs to achieve more efficient production and marketing. 1944.

Support of the principle of bona fide farmer-owned and farmer-operated cooperatives. 1948

Declares the Nation must have a Pledges efforts to maintain continued long-term program in the interest of farm prosperity, improvement of rural agriculture and the consumer. Says living standards and preservation of such program should have an accele- the family-size farm. Specific Federal rated program of “sounder" soil con- aids include a permanent system of servation; effective protection of "reas- flexible price supports to maintain farm onable” market prices through flexible income on a parity with farm operating price supports, commodity loans and costs, an intensified soil conservation marketing agreements, together with program, improvement in methods of such other means as may be necessary; distributing farm products, adequate development of sound farm credit; financing of the school lunch program, encouragement of family-size farms; development and maintenance of stable support of the principle of bona fide export markets, use of farm surpluses farmer-owned and farmer-operated co- to improve diets of the needy and conoperatives, and "sound" rural electrifi. tinued expansion of the rural electrification.

cation program. Favors repeal of taxes
on oleomargarine and promises encour-

agement of farm cooperatives.
The CHAIRMAN. Our next witness is Mr. Charles W. Holman, sec-
retary of the National Milk Producers Federation.

Mr. Holman, will you please give your name and address to the reporter, and the capacity in which you appear for the benefit of the record.


MILK PRODUCERS FEDERATION, WASHINGTON, D. C. Mr. HOLMAN. My name is Charles W. Holman, and I am secretary of the National Milk Producers Federation.

The CHAIRMAN. Will you give us the name of the gentleman who is seated to your left?

Mr. HOLMAN. I am accompanied by Mr. H. Willis Tobler, who may or may not answer some questions, if there are any asked.

The CHAIRMAN. About how much time will you require, Mr. Holman, for your statement?

Mr. HOLMAN. Considerably less time than it took Mr. Heinkle. I did not calculate the time, but I have a very short statement here of seven pages.

The CHAIRMAN. All right, you may proceed. Mr. HOLMAN. I am appearing before your committee on behalf of the dairy farmer members of the federation. Our organization consists of 89 member cooperative associations and approximately 600 submember cooperative associations in 47 States. These member associations are owned by approximately 450,000 farm families engaged in dairying and producing approximately one-fifth of the production of milk and cream from farms in America. That totals, Mr. Chairman, something over 21 billion pounds of whole milk equivalent, as it is called by the technicians.

My appearance before your committee this morning is directed specifically to opposing any repeal or modification of section 101 (12) of the Internal Revenue Code. For several years, the voting delegates of the National Milk Producers Federation have adopted resolutions on this subject. Our position on this matter was reiterated at our thirty-fourth annual meeting held in Minneapolis in November 1950. At that time the following resolution was adopted:

During recent years the National Milk Producers Federation has led the fight against the proposal to double-tax producer members of bona fide farmer-owned and farmer-controlled cooperative associations. We pledge the continuance of this effort, and we oppose any change in sections 101 (12) and (13) of the Internal Revenue Code. Our organization is fully cognizant of the problem confronting this committee in its efforts to secure the necessary revenue with which to place our Federal Government on a sound fiscal basis. In this connection, the following resolution was adopted at our recent annual meeting:

We view with deep concern the ever-increasing national debt. We believe that a sound national fiscal policy should provide for the necessary taxes to balance the budget and allow for the general reduction of the national debt. However, such taxes must be reasonable and nondiscriminatory. They should not unduly discourage private initiative. Neither should such taxes be used as a means of social reform.

We are cognizant of the fact that exceptions must be made during abnormal times such as are confronting the Nation today in its rea rmament program. However, even under such circumstances, every effort should be made to be on a payas-you-go basis. Although it appears that (because of the critical international situation and the Government domestic policies) deficit financing will be con. tinued, we urge that all nonessential governmental expenditures be eliminated.

With the present high level of employment, the tax base should be broadened and tax rates placed high enough to balance the budget as nearly as possible. Also during a period of inflation as at present a sufficiently high tax rate will

contribute greatly to controlling further inflationary pressures and may aroid imposition of price ceilings and wage controls. Between the two resolutions I have just quoted we maintain that there is no contradiction of position.

As to the type of organizations making up the National Milk Producers Federation, they are incorporated either as nonstock or stock cooperatives. Practically all of those engaged in marketing fluid milk and cream are nonstock cooperatives. They have no capital escept that provided by loans from the members for capital purposes, or such necessary reserves as are required for bad debts, depreciation, and so forth. The loans for capital purposes are usually deducted from proceeds of sales of milk and cream, and are represented by interestbearing certificates of indebtedness issued to each member at the end of a fiscal year. These certificates are usually maturable at the end of from 5 to 10 years, and are on a revolving basis.

Our members engaged in the manufacture and marketing of dairy products are usually set up on a stock basis, but frequently the amount of stock which any member can own is very limited. Irrespective of the amount of stock held by individual farmers, these cooperatives are operated on the basis of one-man one-vote. Also, the stock capitalization of these cooperatives, whether they are the locals or the central sales agency for the locals, is usually too small to permit adequate and efficient business operations. Consequently, the capital usually is augmented by issuance of preferred stock, or by borrowings from both private and Federal cooperative banks.

Such cooperatives must necessarily finance their operations from the proceeds of the sales of the products handled. Because of the continuous uncertainty of market prices, these proceeds must provide not only the reserves which the fluid milk nonstock cooperatives must have, but also additional reserves to allow for depreciation in the value of the product either in warehouses or en route to markets, but not sold. For example, I know of several large-scale cooperative butter-handling organizations which must take all of their members product in the spring when production is flush. They must store it, generally in public warehouses. They must defray the costs of storage and risk possible changes in prices to lower levels than those at which the product was acquired. This obligation to accept all of the product shipped by members is not shared by the cooperatives commercial competitors, who at any time may exercise their power to refuse shipments of milk or cream from farmers. Also, these organizations enstomarily pay their members monthly, even though all of the butter on which payments are made may not have been sold at the time the parments were declared.

That is true throughout all of the cooperative operations that I know of where the sales are made by central selling agencies, such as Land O'Lakes Creameries in Minnesota, United Dairy Farmers Association of Washington State, Challenge Cream & Butter Association of California, and the Iowa State Brand Creameries of Iowa.

It should be readily seen that there is a great deal of ebb and flow in this type of operation, and the balancing of books at the end of the fiscal year does not mean that all transactions have been completed. Organizations of this type may also suffer unforeseeable operating losses due to price changes among the several manufactured dairy products. That is particularly true in States like Wisconsin, where a

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