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Mr. HOLMAN. Yes, sir. Mr. REED. It really clarified what the farmers could do. Mr. HOLMAN. Yes, sir. That particularly legalized the structure of the cooperative. It did not give them complete exemption from price manipulation. It provided that if there were any evidences of any undue price enhancements, the complaint should be made first to the Secretary of Agriculture, who would then certify the matter to the Department of Justice.
Mr. REED. And then in 1926 came section 101 (12) ?
Mr. Reep. Congress has endeavored over a period of years to protect the farmer and give him an even break. Farming is a basic industry. Unless the farmers are prosperous there can't be a successful businessman in the country; is that not true?
Mr. HOLMAN. I think so.
Mr. REED. I do, too. I do not see any escape from it. Even great industries like General Motors would not turn a wheel or make an automobile without the producers of the basic industry of this country being prosperous.
Mr. HOLMAN. I recall that while I was studying freshman German, I came across an old proverb that the Germans have which is, “If the farmer has gold, all the world has gold.”
Mr. REED. That is right.
Well, that is just a continuation of our fight, and I cannot believe that a Congress of the United States is going to try to cripple the farmer in his endeavor to be prosperous. You have made a fine presentation. We will be glad to hear anything further you wish to say.
The CHAIRMAN. I want to ask the witness one question. I note here that you represent the National Milk Producers Federation of Wash. ington, D. C. Where is your home?
Mr. HOLMAN. My home originally was in Texas.
Mr. HOLMAN. My home is right here in the city, sir. I am the secretary of the organization. We own a building at 1731 I Street.
The CIIAIRMAN. You are not a milk producer?
The CHAIRMAN. I have just one more question. Referring to the statement made by my distinguished friend to my left, Mr. Reed, that farmers are engaged in the basic industry, that is no reason why they shouldn't pay taxes? That does not exempt them from local, county, or State taxes?
Mr. HOLMAN. We pay all those kinds of taxes.
The CHAIRMAN. Being a basic industry is no reason in the world for tax exemption; is that not so?
Mr. Holman. It is, and we do pay all those taxes. There are probably 17 different kinds of taxes that our cooperatives pay.
The CHAIRMAN. I am just asking whether that is any reason at all why they should not pay taxes on the same basis as other people.
Mr. HOLMAN. Well, they should pay taxes where the conditions are comparable.
The CHAIRMAN. The steel industry is a basic industry, but that is no reason in the world why it should be exempt from municipal taxes, county taxes, and State taxes. Steel companies pay taxes just the way other corporations do.
Mr. HOLMAN. Well, so does the cooperative.
The CHAIRMAN, I do not see any reason why the fact that it is a basic industry should cause it to be exempt. That is the only question that I have.
Mr. KEOGH. Mr. Chairman. The CHAIRMAN. Mr. Keogh. Mr. Krogh. Mr. Holman, if an individual member of one of your associations terminates his membership, does he get his proportionate interest in those reserves for losses that have been set up?
Mr. HOLMAN. He will get his interest in it at the time it revolves. For example, suppose it is a 6-year revolution. At that time he will be paid off everything that was taken out of his milk check in the 6-year period before that.
Mr. KEOGH. Maybe I do not make myself clear. Supposing that at the end of the first 6 months of that 6-year period he were to terminate his membership. Would he then be entitled to his proportionate share of the reserves on the day he terminates his membership?
Mr. HOLMAN. In most cases, no. For example, let's take one of our organizations, the Dairymen's League, which is in the State Mr. Reed comes from.
Mr. KEOGH. And Brooklyn is included.
Mr. Krogh. Mr. Reed probably knows that in the district I represent we have from 800 to 1,000 head of milk-producing cattle, that is, in both Brooklyn and Queens.
Mr. REED. They keep them in garages and milk them dry,
Mr. HOLMAN. The Dairymen's League issues at the end of each year certificates of indebtedness that pay a small amount of interest. They usually pay 6 percent. Those certificates are negotiable. Very often it happens that the league itself calls in certain of these certificates. In the first place, a man cannot leave except once a year. His contract ends in the first 2 weeks of February. He signs a written contract to sell all his milk through the league, and once a year he has a chance to withdraw. Now, such certificates of indebtedness as have been issued to him may still be in his hands, or he may have sold them to the local feed dealer for feed. But in another case, where the books are the only record of indebtedness, it is my understanding that the withdrawing member does not receive his money any earlier than the active member.
Mr. Krogh. You are talking about certificates which are, in effect, stock, are they not?
Mr. HOLMAN. Well, no; they are similar to debentures. They are debentures.
Mr. KEOGH. Debentures representing the amount the member has deposited with the association ?
Mr. HOLMAN. Yes, sir.
Mr. KEOGH. Now, on those debenture certificates of indebtedness he receives interest?
Mr. HOLMAN. Yes; he receives it in this case.
Mr. KEOGH. In addition to that, the association sets up these reserves for losses?
Mr. HOLMAN. Yes.
Mr. Keogh. Under any system, if the member either turns those certificates back to the association or sells them to another individual, is there added to the value of those certificates that member's proportionate share of the reserves for losses that have been set up?
Mr. HOLMAN. Not in that instance.
Mr. KEAN. Mr. Holman, in answer to Mr. Cooper's question, yon said that the members controlled the cooperative and that, therefore, no excessive reserves would be set up. In a large cooperative do the members actually control the workings of the cooperative any more than the stockholders of a corporation do? They technically can, but do they actually do so!
Mr. HOLMAN. In a large cooperative, let's say with this same type of organization we are discussing, that organization is organized into 24 districts. The producer members in each of those districts meet in their locals once a year and cast their ballots for a director for that district. After that balloting is over, they hold a district convention, and there they weed out every person who was named by a local, and finally they determine who is to be their director for 3 years.
Those directors are the directors of the central organization, and of course, are responsible for the detailed policies of the organization. Once a year, however, the membership holds an annual convention at which they ratify the action of these districts in electing their directors and they also pass on major policies. For example, when this organization decided to put in a very elaborate retirement fund which would make necessary the voting of over 1 million dollars, as a start, that was too important for the directors to handle. So the matter was worked out by a committee of directors, a committee of the producer members and a committee of employees. It was finally passed on by the directors and laid before the general body. The larger questions are handled by the members as the rest of the questions are handled by the directors and by the executive committee of the directors in their absence.
Mr. KEAN. Is there a large attendance of members at these local meetings!
Mr. HOLMAN. Well, it depends on the size of the organization. In the case of this one we were discussing, the attendance is about 3.000. In the case of Land O'Lakes, which is a federation of several hundred creameries, they will hold their annual meeting next week and they will have between 5,500 and 6,000 persons in attendance from all over that territory.
In the case of the association that Mr. Mason mentioned, the Maryland-Virginia Milk Producers Association, they have 1,650 members and pretty close to 1,400 will come in every year. They held their
annual meeting the other day. Incidentally, while I am on that, may I divert a minute to say that I think Mr. Mason is somewhat wrong in his conception of the nature of the lawsuits that the Government brought against the Maryland-Virginia Milk Producers Association. Judge Holtzoff's ruling, as I recall it, was primarily not about pricing but about the fact that the milk was sold on a classified-use plan. He held that that plan, not being under the Federal order system, was not legal. Of course, that case is going up, we think, to the United States Supreme Court and it has by no means been determined that Judge Holtzoff is right, because if it is right we will have to go back and revert to the infamous old one-price plan which prevailed from the sixties to the nineties, in which the dealer paid the farmer just a flat price and put more profit than you can imagine in the way he handled the milk. It was the cooperatives of the country who were responsible for the inauguration for this classified-use plan. Pardon me, I just wanted to get that into the record before I forgot
, about it.
Mr. KEAN. I am glad to hear about the participation of your members. I only wish that the stockholders of corporations would take a like interest because I think then the management of corporations would be a great deal better if the stockholders, instead of mailing proxies, actually attended and studied the questions of the corporation management.
I have one more question : You have discussed reserves for protection against losses, and you say that these should not be taxed. Would you consider a reserve for expansion a reasonable reserve,
and should it be tax-exempt?
Mr. HOLMAN. Do you mean allocated or unallocated?
Mr. KEAN. Well, either one. If it were allocated it would now be tax-exempt. If it were unallocated in many cases it would be taxable.
Mr. HOLMAN. I am not very familiar with some of these very large cooperatives that were started originally as cooperatives but which have given up their exemptions. Some of them have been mentioned in this present hearing. I know positively that they got to where they were and it was a business proposition for them to hold their exemptions.
Take, for example, Kansas City, or take GLF, of New York State. When they gave up their exemptions they also gave up the necessity which Congress put upon them of paying their nonmember patrons equally with the payments made to the members. So they simply became a big chain store, a rural chain store operation by giving up the exemption.
In our old organization, when we make loans for expansion purposes, we usually get the funds from the Government or from a private bank'or both. 'If we get it in any part from members, it is always represented by certificates of some kind.
Mr. KEAN. Of course, when you borrow from the bank, it has to be paid back.
Mr. HOLMAN. Yes.
Mr. HOLMAN. May I interrupt to say that we pay that on deductions on earnings.
Mr. KEAN. Well, that is a matter of definition. Mr. HOLMAN. No; it is an entirely different thing. Mr. KEAN. The thing that has been bothering me is this matter of allowing a cooperative organization to expand all over the lot on tax-exempt earnings in competition with earnings of businesses that are taxed.
Mr. HOLMAN. I don't see why a cooperative doesn't have a right to expand if it borrows money.
Mr. KEAN. I think it has a right to expand, but I also think that on that portion that it uses to expand it ought to pay taxes the same as everybody else does.
Mr. HOLMAN. I can say that when you undertake an expansion project you can't undertake it on the month-to-month deductions from your members except as security. You have to borrow. Conse. quently, all borrowing has to be paid back, but you don't pay it back out of earnings, you pay it back out of deductions from the price of milk.
Mr. KEAN. That is all. Thank you.
Mr. Harrison. Mr. Holman, referring to this matter of competition with taxable business, of course, that is the basis upon which the most of the complaints I get on this business are founded. The local merchant feels that it is an unfair advantage that the cooperative has against him. He feels that he has to compete with the cooperative, yet he is taxed and his competitor is not.
Now, you are a marketing cooperative; is that not correct?
Mr. HARRISON. Are there any local dry-goods salesmen in the rural towns where you compete for the farmers' dollar?
Mr. HOLMAN. I don't know.
Mr. HOLMAN. The only purchases that any of our organizations do is the purchasing of plant machinery and milk cans and sometimes boilers and things of that kind.
Mr. HARRISON. Now, what is it that you sell to the farmer-I mean that any of your cooperatives could sell to the farmer!
Mr. HOLMAN. The only thing that we would sell to the farmer would be milk cans, and in this particuluar community boilers, because the health department requires the milk cans to be sterilized by steam in most cases. I don't think, as far as I know, that there is any fertilizer handled. There may be.
Mr. HARRISON. How about cattle feed ?
Mr. HOLMAN. Yes; one or two of our organizations. What they do, of course, is that they are not actually selling to the farmers. They are simply buying this thing for the farmers and handling it for them.
Mr. HARRISON. On the whole, your operation is that of a marketing cooperative.
Mr. HOLMAN. They sell to their members. They do not do business with nonmembers.
Mr. HARRISON. But on the whole your operation is that of a marketing cooperative and that operation produces increased wealth in