with the cooperatives that have letters of exemption and generally arrive at a pretty reasonable decision for the needs of that particular association. I doubt very much whether you can lay down a hard and fast rule that would apply nationally in the case of a problem of this kind.

Mr. EBERHARTER. Then there is no yardstick, and the statute does not cover what a reasonable reserve is, and there are no regulations setting forth how you arrive at a reasonable reserve. Is that correct? Mr. HOLMAN. That is my understanding, sir.

Mr. EBERHARTER. And you think it would be impossible to draw any language either in the regulations or in the statutes which would set forth what should constitute a reasonable reserve?

Mr. HOLMAN. The only way the Congress could do that, in my judgment, would be to set a maximum.

Mr. EBERHARTER. A maximum amount?

Mr. HOLMAN. A maximum reserve on a percentage basis.

Mr. EBERHARTER. But how would you know whether that maximum is enough? One organization might need a 5-percent reserve while another organization might need a 25-percent reserve. So the Bureau of Internal Revenue is faced with what is practically an impossible problem when it tries to arrive at a reasonable reserve. In other words, it is entirely in their discretion, and they have to investigate each and every cooperative that wants to be exempt under section 101 (12).

Mr. HOLMAN. It appears that they do that now. We have many cases coming up in our own organization where we have to help our people in connection with some little infraction of the regulations which they have made. The Bureau agents are right after them.

Mr. EBERHARTER. Don't you think the matter of discretion in the Bureau as to what is a reasonable reserve is giving it a little too much burden to bear, and also too much responsibility? It might be subject to abuse.

Mr. HOLMAN. Well, of course, every law can be subjected to abuse by unethical administrators. But we have not yet found anybody who criticizes the Bureau of Internal Revenue with regard to these matters. We think they have been fair, and they have generally proven to be right.

Mr. EBERHARTER. If there haven't been many complaints, and in fact practically none, it indicates that they must be very generous in arriving at what they consider to be reasonable reserves. Otherwise, there would be plenty of complaints, wouldn't there?

Mr. HOLMAN. That I do not know.

Mr. EBERHARTER. Thank you.

Mr. COOPER. Mr. Chairman.

The CHAIRMAN. Mr. Cooper.

Mr. COOPER. Mr. Holman, let me inquire briefly for information on this question of reserves mentioned by Mr. Eberharter.

Is it true that the Bureau of Internal Revenue passes on the question of the amount of the reserve that a cooperative should retain Mr. HOLMAN. I am sure that they do. I would say that they have the power to do that under the law.

Mr. COOPER. So far as the law is concerned, they have the power to do that.

Mr. HOLMAN. Yes, sir.

Mr. COOPER. Now, then, this angle of the reserve question appears to me: Does all of the money in the possession of a cooperative belong to its members?

Mr. HOLMAN. Yes, sir.

Mr. COOPER. Well, then, is it reasonable to assume that these members of the cooperative are not going to be willing for their own cooperative to retain more of their money from their possession in a reserve than a sound business judgment would indicate is required? Mr. HOLMAN. That certainly is true among our own member cooperatives, and I imagine it is true of most of the others.

Mr. COOPER. After all, the money belongs to the members.
Mr. HOLMAN. Yes, sir.

Mr. COOPER. And if it is retained by the cooperative of course the member doesn't get his money?

Mr. HOLMAN. No. If he thinks that too much of his money is being retained, he will raise a complaint about the idea of leaving it there. Mr. COOPER. That is what I am getting at. If he is convinced that the cooperative in which he has a voice is retaining more of his money in reserves than is necessary then he is in position to control that and require that his money be paid over to him, is he not?

Mr. HOLMAN. That is true.

Mr. COOPER. That is all.

Mr. HOLMAN. I want to make a point on that, if I may. The contingency reserve for losses, as I stated in my paper, cannot have a cutoff like a fiscal year. It flows on. Perhaps the losses that you incur in connection with the clearance of stocks will take place in the second fiscal year or the third fiscal year after the stocks were acquired. People in the tobacco business understand that very well and people in the cotton business understand it very well. It is also true of many storage crops.

Mr. REED. Mr. Chairman.

The CHAIRMAN. Mr. Reed.

Mr. REED. Mr. Holman, I am glad to see you here because, in a way, you represent quite a large segment of the economy in my district. Mr. HOLMAN. Thank you, Mr. Reed.

Mr. REED. They are very proud of their farms and of the fact that they conserve the soil and are not a drag upon the Government for building up the soil.

Now, this fight aimed against the cooperatives is not a new activity is it?

Mr. HOLMAN. No, sir; it goes back to 1915 under another name. Mr. REED. Yes, sir. And even after they passed the Sherman Antitrust Act they tried to prosecute any kind of a farm organization as a monopoly under that, did they not? That was one of their aims? Mr. HOLMAN. Yes.

Mr. REED. That was back in the early twenties. It was really earlier than that; as far back as 1914. Then came the Clayton Act of 1914, which exempted the farmers from the Sherman Antitrust Act, did it not?

Mr. HOLMAN. Yes; but the situation was not entirely clarified under the Clayton Act, as I understand it. That was one of the reasons why they came to the next step.

Mr. REED. Exactly; and even after that they still tried to punish the farmer and indict him on the ground that he was creating a monopoly. Then along came the Capper-Volstead Act, did it not?

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. HOLMAN. That was the Cooperative Marketing Act of 1926. Mr. REED. 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 Washington, D. C. Where is your home?

Mr. HOLMAN. My home originally was in Texas.

The CHAIRMAN. I mean now.

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 CHAIRMAN. You are not a milk producer?

Mr. HOLMAN. No, sir; I am not a milk producer.

The CHAIRMAN. You are a member of the organization?

Mr. HOLMAN. I am the elected secretary of the organization. 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 prob ably 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. KEOGH. 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. REED. That is a great farming area.

Mr. KEOGH. 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. HARRISON. They also have a tree there, Mr. Chairman.
Mr. HOLMAN. Shall I answer the question now?

Mr. KEOGH. Yes, please.

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. KEOGH. 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. And the interest is generally at a fixed rate, is it not? Mr. HOLMAN. Yes, sir. And the debentures also are negotiable. 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. KEOGH. Thank you very much; that is all I wanted to know. Mr. KEAN. Mr. Chairman.

The CHAIRMAN. Mr. Kean.

Mr. KEAN. Mr. Holman, in answer to Mr. Cooper's question, you 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. 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.

The

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