STATEMENT OF GEORGE W. McLATCHEY, VICE PRESIDENT, AMERICAN DAIRIES, INC., KANSAS CITY, MO. Mr. McLATCHEY. My name is George W. McLatchey, and I am vice president of the American Dairies, Inc., Kansas City, Mo. Our company manufactures and sells butter, milk, cheese, condensed milk, ice cream, and other related dairy products. Our plants are located in Arkansas, Kansas, and Missouri. I am speaking on behalf of the American Butter Institute, 110 North Franklin Street, Chicago 6, Ill., a national trade association of butter manufacturers. Our association represents approximately 550 butter manufacturing plants in 42 States. Our member companies provide a daily market to over 1,000,000 cream producing dairy farmers. I am a member of the board of directors and of the executive committee of the American Butter Institute. The American Butter Institute and its members are strongly opposed to the repeal of present oleomargarine taxes and license fees as proposed in H. R. 2245. The resolution adopted at our last annual meeting in November 1947 is as follows: Resolved, That we retain present State and Federal laws on oleomargarine to prevent the fraudulent misrepresentation of this product to the consuming public. Butter manufacturers and cream producers do not seek to deprive anyone of oleomargarine. They seek only to protect their markets and their customers against fraud and deception. Any housewife who wants to buy oleomargarine in the money-saving uncolored form should be able to do so, as she can now. Nearly 97 percent of all the oleo withdrawn tax paid in 1947 was uncolored according to the most recent report of the Commissioner of Internal Revenue. By the same token, any consumer who pays for butter is entitled to get butter-real butter. Oleomargarine colored yellow in imitation of butter is an incentive to fraudulent sale. It is, moreover, an incentive to fraud and deception which the Pure Food and Drug Act is not designed to prevent, since this act applies only to interstate commerce. We maintain that the Federal Food and Drug Administration cannot adequately protect the consumer against fraud in the sale of oleomargarine for butter. I quote in part from Report No. 1221 from the Senate Committee on Interstate and Foreign Commerce, during the second session of the Eightieth Congress, to accompany H. R. 4071: More than $25,000,000,000 worth of these commodities annually flows through the channels of interstate commerce. The Food and Drug Administration has approximately 200 food and drug inspectors on its rolls. The opportunity for inspection while the goods are in transit is quite inadequate. It is inevitableat least in the absence of an increase in inspection personnel beyond anything that might be considered practicable-that the bulk of Federal inspection activities take place after merchandise has been transported in interstate commerce and while it is stored pending further processing or disposition to consumers. Only Federal regulation that has jurisdiction within State boundaries can prevent the widespread substitution of oleomargarine for butter. It is to maintain this control that the dairy industry opposes the repeal of Federal taxes on oleomargarine. No other form of control is practical. No other effective control method has been suggested by the oleo industry. Prior to 1902 the tax on colored and uncolored oleomargarine was 2 cents a pound on each product. During the period from 1886 to 1902 fraudulent sale of colored oleomargarine was so great that Congress saw fit to revise these laws and place the present taxes of one-fourth cent on uncolored and 10 cents on colored oleomargarine. On January 26, 1901, the majority report of the House Committee on Agriculture and Forestry described the situation as follows: So far as the identification of the commodity (oleomargarine) is concerned, the law of 1886 has been successful. So far as the identification of the commodity to the consumer is concerned, the law or 1886 is of little value, the evidence being that a very large proportion of the oleomargarine manufactured goes to the consumer finally as butter, either as a purchaser of the retailer or as a guest at a hotel, restaurant, or boarding house. In the testimony given by Mr. Credicott, representing the American Butter Institute, before the House Committee on Agriculture hearing March 10, 1948, he stated: After the passage of the present Oleomargarine Act of 1902 it took the Government years to clean up fraud at the wholesale level. The records of the Internal Revenue Department from 1902 to 1910 will disclose the conviction of many concerns who purchased uncolored oleomargarine in bulk and secretely colored it for sale as butter. In that period I was an employee of the Dairy Division, United States Department of Agriculture, and was directed to assist the Internal Revenue agents in uncovering fraud. During the 15-year period 1911-26 for which records are available there were 29,846 convictions of fraud-the selling of oleomargarine for butter as covered by the Commissioner of Internal Revenue in his annual reports. The penalties and fines imposed in these convictions totaled $19,986,889. The fact is mentioned only to show that even with these severe penalties the incentive to fraud in the sale of oleomargarine for butter is great enough for unscrupulous individuals to chance these penalties. This large record of convictions shows also that the present laws have been effective in the control of the fraudulent sale of oleomargarine when aggressively administered. During the past 10 years there have been only four cases referred to the Department of Justice for prosecution for violations of the labeling, marking, and branding provisions of the oleomargarine-tax laws. It is common knowledge that the Bureau of Internal Revenue prefers to settle cases out of court. We respectfully urge the committee to request a full and complete list of all violations, including taxes and penalties paid on such cases not referred to the Department of Justice. We also respectfully urge the committee to request of the Commissioner a detailed break-down of personnel and enforcement policies relating to the oleomargarine laws and regulations. The Hon. A. Lee M. Wiggins, Under Secretary of the Treasury, in testimony before the House Committee on Agriculture last March and also in yesterday's hearing before this committee, stated that onequarter cent or less per pound on all oleomargarine-colored or uncolored-would be sufficient for such regulatory purposes as Congress may decide were necessary. Can the Bureau of Internal Revenue guarantee consumers and the butter industry that no fraud will prevail at this tax level? It must be remembered that the incentive to defraud is considerably lessened by the present prospect of high penalties. The removal of present laws and regulations can only lead to a great increase in the fraud perpetrated on the consuming public. It is evident from testimony that the United States Food and Drug Administration cannot adequately protect the consumer against fraud. It has been maintained, falsely, that butter is no longer a major factor in the dairy industry. It so happens that the experience in seven States answers this false assumption with complete and utter finality. I refer to the States of Minnesota, Iowa, North and South Dakota, Nebraska, Kansas, and Oklahoma. These States accounted for 50 percent of our total creamery butter production in 1946 and half or more of the milk from their dairy herds is sold in the form of farm-separated cream. The repeated impacts of Government discriminations against butter production during the war were felt most strongly in these seven States. Butter production declined and has not yet recovered. Senator HAWKES. I recall the other day the statement of the decrease in production of butter and the increase in the sale of milk in its natural form. That does not quite fit in with what you just said a moment ago. Mr. McLATCHEY. I am referring to these particular States, Senator, in these seven States. Senator HAWKES. You are only referring to those seven States, not the over-all picture of the country. Mr. McLATCHERY. Not in this sentence, in this clause here. Senator HAWKES. Do you dispute the over-all picture of the country as stated here, I think by Senator Fulbright, who gave some figures on that? Have you read those? Mr. McLATCHEY. I believe I heard some discussion about it a few minutes ago in regard to the total milk production. That is down. It is less than it was a few years ago. Senator HAWKES. I am referring more particularly to the sale of milk as milk or milk products, rather than the sale of cream to go into butter. In other words, he showed if I recall correctly, and the chairman I am sure was here, he showed that the production of butter had decreased very substantially in the last few years, whereas the sale of milk as milk products, not butter, had gone up very substantially, and the purpose of the testimony was to show that the repeal of these taxes would not injure the dairyman. I was wondering whether you agree with that or not. Mr. McLATCHEY. Not altogether. Senator HAWKES. That is in the record. Mr. McLATCHEY. The consumption of fluid milk has increased in the cities. Senator HAWKES. On the other hand, has butter gone down? Mr. McLATCHEY. Consumption of butter has gone down because we have not had the butter. Senator HAWKES. I am very much interested in your problem. I want to know about the thing. Has the over-all picture injured the dairy farmer, the sale of more milk in the form of milk products, and less butter? Mr. McLATCHEY. I would say that in the United States as a whole, it has not. It has in the seven States. Senator HAWKES. It has in the seven States? Mr. McLATCHEY. I think it has in the seven States Mr. McLATCHEY. The numbers of dairy cattle in those States declined 17 percent between January 1, 1942, and January 1, 1948, while dairy cattle in the rest of the country increased slightly in number. That reduction in dairy herds was an actual, not a theoretical result, of an unfavorable market for butter. If butter is not a necessary outlet for so-called seasonable surpluses of milk, why did the dairy farmers in these States dispose of their cows? The new dry-wholemilk industry, the evaporated and condensed milk industry, and the ice-cream industry did not offer profitable outlets. The dairy farmers in these seven States did not turn to such outlets, because they did not exist in practical form when and where the dairy farmers wanted them, and because they do not offer satisfactory and profitable outlets and because they will not solve the surplus-milk problem. It can be seen that expansion of our fluid-milk production does not take place when dairy farmers are deprived of their butter outlets. On the contrary, many farmers who milk from 3 to 6 cows would be forced to dispose of their herds under these circumstances. Carried to its logical conclusion, this procedure could only result in increased scarcities of milk and meat, since 40 percent of our beef and veal supply comes from dairy herds. It is not certain that the repeal of Federal taxes on oleomargarine would result in lower prices of oleomargarine. It is quite probable, however, that a reduction in dairy herds would result in higher prices for our important milk and meat supplies. Any possibility of savings from tax-free oleo would inevitably be outweighed by price increases many times as great, if dairy herds are reduced in number. More than 1,250,000 farm families depend on butter for almost their only source of cash income. The creamery check pays the taxes and buys goods in town when the bottom falls out of other markets. In turn, the economic stability of these farm communities depends upon the continued welfare of these dairy farmers. Regardless of the efforts of men to prevent it by artificial means, whether legislative or otherwise, we have alternating good times and bad times. In the thirties, the cream checks pulled many a farmer through financial difficulty. That was particularly true on the farms where there were only a few cows and where they did not specialize in dairying. There are many such farms in the South and in the Mississippi Valley. If we drive those people out of the butter business now, will they offer thanks to Congress the next time bad times roll around? Another 14 million farm families sell fluid milk for which butter is the balance wheel. Dairy farms produce more milk during the flush than during the slack season. In order to maintain a consumer's supply in fall and winter it is necessary to produce more milk than the market can absorb during the spring and summer months. Butter is the form in which the butterfat content of this surplus milk can best be stored. It is not generally known that butter will keep its freshness and flavor for as long as 2 years under proper storage conditions, and that in this respect it keeps and ships better than any other dairy product. The economics of the dairy industry throughout most of the country require a butter market to accommodate milk surpluses. Dairy products were a No. 1 food requirement, both for our armies and allies in two world wars. With cow numbers down, as they are at present, the dairy industry would be hard pressed to meet another national emergency. It has been estimated that we will lose another 212 million milk cows within the next 3 years if butter is subjected to unfair competition from colored oleomargarine. We are not now prepared to meet the demand for dairy products even among our own people. If any further reduction in cow numbers takes place, we will not be able to supply our children and workers even on an emergency basis. The butter market should be encouraged rather than discouraged at this time for reasons of national defense and security. There is a place in the American economy for both butter and oleomargarine. Each should be sold for what it is, however, and not masquerade under false colors. If we keep the butter industry and add to it the oleomargarine industry, we have a net gain. If we tear down the one industry in order to replace it with the other, we have no net gain. In fact, we have a net loss because dairying is essential to the preservation of the topsoil, the value of which in our national food economy has been emphasized repeatedly by many authorities. Consider the difference between building up the fertility of the soil over a period of years by dairying as contrasted with robbing the soil of fertility by the growing of soybeans and cotton. An injury to the dairy industry would jeopardize diversified farming. It is only a few years back that all States of the Union, and especially the Southern and Central States, were promoting diversified farming with an emphasis on dairying. It is difficult to understand why they should now try to undo what they so laboriously built up. It is worth while remembering that butter is a natural food made of fresh milk and cream. Throughout the entire course of processing and handling it must be treated with extreme care and with every regard to sanitation. Our dairymen and creameries have learned how to apply this care which is the foundation upon which the distribution of all our milk products is based. No artificial preservatives are allowed in the manufacture of butter. No artificial flavoring may be used. Only 25 percent of the butter made is ever colored, and then only during the winter months when cattle are on dry feed. When butter is colored it is for purposes ot uniformity and not to make butter resemble something which it is not. Many creameries never use color at all under any circumstances, but their butter is unmistakably yellow just the same. I quote from a letter by Mr. Henry J. Hoffman, chief dairy chemist, State of Min nesota: To the best of my knowledge and from 33 years of experience in analyzing many thousand samples of butter, no commercial creamery butter at any time of the year and in its natural color from the State of Minnesota would be below 1.6 degrees of yellow, or of yellow and red collectively, but with an excess of yellow over red, measured in terms of Lovibond tintometer or its equivalent. Recognizing the climatic conditions existing in Minnesota with a relatively short pasture season and the necessity to feed dry forage during many winter months, it can be assumed that Minnesota produces the lightest color natural creamery butter in the United States. The Lovibond tintometer is the official instrument to measure the color intensity of any food product. By contrast the manufacturers of oleomargarine are allowed to use benzoate of soda as a preservative, although this is forbidden to the |