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All manufacturers and food processors are facing somewhat higher labor costs this year than prevailed last year, and this is in spite of the fact that the present wage rates in the butter industry are the highest ever experienced.
In the fall of 1946, our organization in Chicago was called upon to assemble some detailed cost figures from butter manufacturers whose 77 plants produced almost 150,000,000 pounds of butter annually. These figures reflected accurately the big increases in the costs of materials and labor required to produce butter in 1945 as compared with 1940, a prewar year. They showed that the total cost of manufacture, including printroom costs, overhead or indirect costs, and direct selling expenses, had increased 37 percent.
When applied to the total butter made, this meant an increase of $15,000,000 a year.
Butter is still the basic barometer of the dairy industry, and affects other dairy products' costs as well.
During the last few days we have surveyed butter production costs in 1947 and 1948, compared with 1945 and 194
Labor costs in 1947 and 1948 have increased from 7 percent to 15 percent over those in 1946. That means an increase of 10 to 20 cents per hundred pounds of butter manufactured, with supply costs increasing from one-fifth to one-third in 1 year.
Added to these principal items is a reduction in volume per plant. Thus, total manufacturing costs have been increased about a cent a pound, compared with the same months a year ago.
Using typical cost figures supplied us from various types of creameries, it is evidence that it costs at least 46 percent more to produce and market a pound of butter now than it did in 1940 and somewhere between 5 and 8 percent more than it did 2 years ago.
The CHAIRMAN. Is that the creamery level!
Every merchandiser in the food business is aware that grocers and other retailers expect greater mark-ups in 1948 than before Pearl Harbor, when they used butter as a loss leader, or for its turn-over and ability to draw trade into the store.
Labor costs have affected the retailers' cost of operations also, and these costs will be added to the consumer's food bill, whether she buys butter or oleomargarine. That is a factor in the retail price of butter as well as margarine or another food product today; the higher labor costs involved on the part of the retailer.
You might like to know just what it costs to manufacture and merchandise a pound of butter.
We have made a pretty careful check, and we believe that we are conservative in indicating that processing costs range between 6 and 61/3 cents a pound, compared with about 4 cents a pound in 1940. It is to be expected that in many small plants where butter is churned as a side line, or as a part of other processing operations, costs are somewhat higher.
I would like to urge the committee to weigh carefully the economic impact upon industrial labor in this country if two and one-half million dairy farmers are suddenly deprived of the cash income they have been receiving for butter and cream.
Our neighbors to the north, in Canada, have long recognized the importance of this trade relationship between farmer and laborer. Within the past month the Canadian Şenate has again supported this "fair trade position by voting overwhelmingly to continue a ban on the sale of any oleomargarine whatsoever in Canada.
We believe that consideration, so far as labor is concerned, is a very important item over the years to come, when labor will be seeking more and more outlets, more and more customers for its output.
In summary, I would like to emphasize to the committee that the repeal of these taxes on oleomargarine are in reality a double-edged sword, one edge opening the doors to wholesale fraud which other agencies available will not be able to prevent, and the other edge causing higher prices for oleomargarine, instead of reducing them.
Neither of these results will benefit the working people of the Nation and, on the contrary, can cause them serious harm.
If Congress wishes to take the word of the oleomargarine industry literally and provide the "poor man's spread” at a truly economical price, I propose an investigation of the unreasonable margins they have effected between the producer and the consumer. Let's really protect the "poor man's table” from an industry that returns only 30 percent of the consumer's purchase price to the farmer, while butter returns farmers 76 percent, or more than three-fourths of the price paid by consumers.
Rather than encourage imitations of butter, one of the finest foods available on the dining tables of America, I propose that this committee recommend an investigation by Congress into way and means of making butter more readily available, in larger amounts, and at prices within reach of the wage earners of America—all of whom would rather have genuine butter than imitations; or, at least, to know the spread they are eating is the one they paid for.
The CHAIRMAN. Are there questions?
Senator Lucas. I should like to ask Mr. Potter one or two questions.
Mr. Potter, on the last page of your manuscript you state: I propose an investigation of the unreasonable margins they have effected between the producer and the consumer. Let's really protect the "poor man's table” from an industry that returns only 30 percent of the consumer's purchase price to the farmer, while butter returns farmers 76 percent, or more than three-fourths of the price paid by consumers.
My question is: Do you have a break-down, a total break-down, where all of the costs of butter and margarine are set forth, from the time it is first produced until finally the consumer gets hold of it?
Mr. POTTER. Senator, I do not have a complete break-down for margarine. I have not made a study of that. But I have it for butter.
Senator Lucas. Do you have a complete break-down for butter
Senator LUCAS. And I would like to have the margarine fellows make a study of that same problem and submit that to the committee.
I would like to see where all of the costs go, for a pound of butter, from the time it starts from the farm until it finally gets into the consumer's hands; a complete break-down as to who gets all that money.
The consumer has to pay approximately 90 cents a pound for butter today, and I would like to know who gets the 90 cents.
The CHAIRMAN. Mr. Potter, will you take it upon yourself to supply that?
Mr. POTTER. Yes.
Who is here on the part of the oleomargarine people who will undertake to give us that information!
Will you come forward, please, and give your name and address to the reporter?
Mr. TRUITT. I am Paul Truitt, president, National Association of Margarine Manufacturers.
The CHAIRMAN. And will you give us that information within the next few days! Mr. TRUITT. Yes, sir. Senator Lucas. You understand my question? Mr. TRUITT. I think so; yes.
(The information to be supplied by Mr. Potter and Mr. Truitt in response to the request of Senator Lucas is as follows:)
Source: Cooperative Auditing Service, Inc., Minneapolis, Minn. Data are averages of records of 118 plants for the fiscal year, 1946–47.
NATIONAL ASSOCIATION OF MARGARINE MANUFACTURERS,
Washington 4, D. C., May 21, 1948. Hon. EUGENE D. MILLIKIN, Chairman, Senate Committee on Finance,
United States Senate, Washington 25, D. C. DEAR SIR: This is to advise that notwithstanding the fact that I accepted your oral request for data on margarine production costs in good faith and answered affirmatively that I would furnish such information, I now find this impossible. There are several reasons.
The association has never collected, nor does it have in its possession by any other means, any cost or price data. In fact, I am governed by a policy which limits my source of such information, hence information while I may, in turn, supply, to such data as I may obtain from published Government material.
Further, but with the foregoing aside, I made a quick attempt to gather this data, only to find that cost studies requiring considerable time and expense would be required. Each company in this association makes from several to hundreds of food products. No company making only margarine, of which there are only three or four, is available to my inquiry, since none of these are members of this association.
I may, however, point out a fact which is common knowledge, but which may possibly have escaped the attention of the committee. Margarine, by law, must contain a minimum of 80 percent fat. Hence, at least 80 percent of the price of any given pound of margarine is determined by the price the manufacturer paid for the oil going into that margarine. The remaining 20 percent of the price of a given pound of margarine necessarily therefore covers all other ingredients' manufacturing and selling costs.
With the hope that this fact will prove helpful to the committee, and that the absence of highly detailed information will not raise insurmountable problems,
PAUL T. TRUITT, President. The CHAIRMAN. Albert J. Nelson? Will you please identify yourself to the reporter, Mr. Nelson?
STATEMENT OF ALBERT J. NELSON, SWANVILLE, MINN., ON BEHALF
OF NATIONAL CREAMERIES ASSOCIATION
Mr. NELSON. I am Albert J. Nelson, of Swanville, Minn.
I have been somewhat indisposed the last few days, and I hope the committee will bear with me if I have a little difficulty in giving this paper.
The CHAIRMAN. Just take it easy, Mr. Nelson.
Mr. NELSON. I operate a dairy farm and I am appearing here today on behalf of the National Creameries Association which represents approximately 270,000 dairy farmers and their families through the patronage of our 911 member creameries, of which approximately 80 percent are farmer-owned cooperatives.
I will present my case today as a farmer interested in the probable effect of this bill upon other dairy farmers, leaving it to other witnesses to set forth the other problems and repercussions which would be likely to arise from the passage of such a measure.
Believing that the interests of the southern farmer are not very far removed from those of his northern country cousin, I venture the opinion that if the southern farmer were fully acquainted with the facts of the case, he would conclude that this is a piece of legislation which is less concerned with his welfare than it is with the welfare of those who seek to exploit him.
In common with those who have preceded and who will follow me upon this witness stand, I maintain that the real issue is not one of taxation but of seeking to sell a product in the guise of something that it is not.
I join with others in saying that the dairy farmers of the United States have no more desire to restrict the sale of oleomargarine, if it is sold for what it is, and will be willing to have it sold without tax, providing it is not colored yellow. But as long as oleo is colored yellow, it constitutes an open invitation to fraud upon the consuming public. Evidence presented at this hearing shows how great a temptation to fraud is represented by the difference in the price of butter and of oleomargarine.
As a dairy farmer, I am well aware of the fact that the immediate effect upon butter of removing all barriers to the sale of yellow oleomargarine might not seem to be very serious on the face of it. A shortage of dairy products still exists and butter, particularly, feels the effects of that shortage, since it is the end product which gets only the milk fat that is left after the demand for other dairy products has been satisfied. But, gentlemen, it is also that end product which must absorb all surpluses, and the loss of every pound from its market in times of surplus affects not only the farmer who produces raw material for the butter factory, but every dairy farmer in the United States.
We appreciate that oleomargarine interests now enjoy a rare opportunity to further their cause because butter prices are high. I believe every dairy farmer would like to see lower-priced butter, but those butter prices are high because the supply of milk is short. If dairying were as profitable as some would have you believe, why is it that there are approximately 3,000,000 fewer cows on our farms today than there were in July of 1944? Milk production is down because the costs of its production make it unprofitable for dairy farmers to produce milk. They can make more money and do it with less effort by producing other farm commodities.
I know this for certain: If our markets are further restricted by turning over our butter business to oleomargarine manufacturers, there is going to be a further reduction in dairy herds, with the inevitable result that the consumer will pay far more for fluid milk and other dairy products than is represented by the difference in the cost of butter and uncolored margarine at the present time.
Not too well understood is the role played by butter in contributing to the economic stability of the dairy industry.
Milk iş not produced in an even flow, month by month. A major share of the production is concentrated in the three flush period months from April 15 to July 15, when pastures are at their best and the largest number of cows freshen. It is during those months that most of the reserve stocks of manufactured dairy products are produced.
In order to have sufficient fresh milk for the consumer's table during the months of lowest production, it is obviously necessary for any milkshed area to have more cows and more spring production than that marketing area can absorb as table milk. Thus, as a protection to the consumer, there must be what is, in fact, an overproduction during about 7 months of the year to provide a sufficient supply of fresh milk during the remainder of the year.
It goes without saying that no farmer could afford to produce fresh milk throughout the year in sufficient quantities to safeguard the table supply, at prices the consumer could afford to pay, if he did not have some market which would absorb his seasonable surpluses. Of course, various dairy products take various shares of that milk supply, but there is only one that fulfills all the characteristics of a satisfactory surplus product, and this is butter.
Those characteristics are three in number:
2. It must concentrate a relatively large quantity of milk into a small compact unit which can be transported long distances at minimum cost.
3. It must be capable of being stored without deterioration for long periods of time.
Of all dairy products, only butter meets all of these requirements.
Destroy the market for that basic product and you destroy the dairy industry. Follow through this reasoning logically and you will have the answer to any question regarding my previous stateinent that he loss of butter markets will mean reduction in dairy herds