We believe provisions are "a must" in Federal milk orders to prevent bases becoming overvalued or capitalized at such excessive rates as to make it impossible for new producers to purchase existing bases or otherwise acquire entry to the necessary grade A market outlets. High capitalization of bases may be windfall to present day fluid milk-grade A-farmers, but a large and efficient dairy farm already requires huge capital outlays. We must be very careful not to bring about unreasonable increases in these capital requirements by giving huge windfall profits to a particular group of individuals who, just by chance, are supplying milk to established and large bottlers or processors on a particular date. Therefore, we urge that any class I base be authorized on a temporary basis for a period of from one to not more than 4 years.

In conclusion we recommend that H.R. 7996 be amended to:

1. Provide terms for orders under which new producers shall be assigned bases representing an equal percentage of the class I proceeds as that represented in payments to all of those producers in the market who had previously acquired bases.

2. Provide that such bases or allocations to new producers entering an order market be made within 60 days of their entry into the market, and

3. Provide that all bases be wiped out and reassigned at least once every 4 years.

We believe it important that these specific changes be incorporated into legislation to prevent the indefinite postponement of action and to eliminate debate and disagreement as to what may be considered as "equitable" treatment to or for new producers.

We do not believe movement of milk should in any way be restricted by Federal order provisions. The basic intent of the legislation is to provide for the orderly marketing and movement of milk. It is in the interest of orderly marketing that provisions of orders not be a barrier to the opportunity of producers to market their milk in any area of the United States.

In conclusion, I would read to you for emphasis section 608c (5) (G): No marketing agreement or order applicable to milk and its products in any marketing area shall prohibit or in any manner limit, in the case of the products of milk, the marketing in that area of any milk or milk product thereof produced in any production area in the United States.

Mr. Chairman, that concludes our formal presentation. If you have questions you would like to ask Mr. Affeldt or I, we would be happy to answer them for you.

Mr. STUBBLEFIELD. Mr. Wampler?

Mr. WAMPLER. No.

Mr. ZWACH. I have one question.

How many members of your cooperative?

Mr. ECKLES. About 14,000.

Mr. ZWACH. 14,000?

Mr. ECKLES. In the State of Wisconsin, there are 65,000 or 66,000 dairy farmers.

Mr. ZwACH. Are you affiliated with any other regional milk cooperative?

Mr. ECKLES. Not directly.

Mr. ZWACH. You are an independent co-op.

Mr. ECKLES. Right.

Mr. ZWACH. Do you have cooperative arrangements with any

other

Mr. ECKLES. Oh, yes, we do work with many others. We are members of the Central Milk Producers Cooperative that represents 20 cooperatives marketing fluid milk under Federal orders in the region of Chicago and Rockford and Madison, Milwaukee, Green Bay.

Mr. ZWACH. You really believe that this bill as now written will interfere with the free movement of high quality milk?

Mr. ECKLES. We want to be assured that it does not and we think the language is ambiguous and nebulous as far as being able to determine just what you are going to do in the way of treating new producers coming into the Federal milk order market from the manufactured field or from other grade A markets that are not presently regulated by Federal orders.

We just want the assurance that the farmers have the opportunity to move in there and be treated equitably.

Mr. ZWACH. You do not have prepared amendments that would carry out your objectives 1, 2, 3?

Mr. ECKLES. No, we do not. We could prepare them, though, awfully fast, and present them to the committee.

Mr. ZWACH. Thank you, Mr. Chairman.

Mr. STUBBLEFIELD. Thank you, Mr. Eckles.

Mr. AFFELDT. I would like to make one statement, Mr. Chairman and members of the committee, that would clarify things.

I think our position, as one gentleman said here, they had changed the word to "shall," and I think it would clarify our position a great deal if the committee would write into the bill that they will, and as I understand the bill at the present time, each area of the United States that would decide on a class I base program would decide amongst themselves what share of the class I sales the new producer would get, and we think that in order to sell this to our membership back home, that it must be written into the bill, the share that they will obtain, not what possibly they could obtain in 1 year or 4 years, and we also feel that we must know how soon.

Now, maybe 60 days is not the right period. Maybe it is 90 days. Maybe it is 6 months. But I certainly hope that the committee will give these four conclusion points consideration.

We in no way are opposed to class I base programs if we can be assured that our producers on the manufactured side, when they decide to go grade A can share in the class I sales.

Mr. WAMPLER. I think all of us are concerned about new producers but we are likewise concerned about existing producers. Do you not feel that we should have an equitable formula to permit new producers to share in the increased market but not discriminate against existing producers?

Mr. AFFELDT. I think-what little I know about the Seattle, I think that the old producers over there had a legitimate gripe. I think they are entitled to share also in the increasing class I sales and I think that the legislation specifically spells out that they will be able to share but it does not spell out specifically how the new producer is going to be taken care of. And while we are correcting the legislation, let us spell it out both ways.

Mr. WAMPLER. I think there are many of us on the committee that are sympathetic with this view but we do not want to discriminate against existing producers.

Mr. AFFELDT. I do not think anything in our testimony, Mr. Congressman, means that we should discriminate against those on the market. Our intent is that we feel that any farmer that can meet the qualification is entitled to share in the class I sales of any given market.

Mr. WAMPLER. I think if I were a producer and was paying 4 cents a hundredweight for promotional activity and then was not permitted to share in the increased market, I would be a little bit reluctant to pay the 4 cents.

Mr. STUBBLEFIELD. Thank you very much.

The next witness is Mr. E. L. Tipton, administrative assistant, Milk Industry Foundation. We are happy to have you with us, Mr. Tipton. STATEMENT OF E. L. TIPTON, ADMINISTRATIVE ASSISTANT, MILK INDUSTRY FOUNDATION, WASHINGTON, D.C.

Mr. TIPTON. Thank you very much, Mr. Chairman.

Mr. Chairman, members of the committee, my name is E. Linwood Tipton. I am appearing on behalf of the Milk Industry Foundation, which is a trade association representing fluid milk processors throughout the United States as well as several foreign countries. The foundation's members include handlers regulated by each of the Federal milk marketing orders now in effect.

While the foundation has not opposed class I base plan legislation per se, it has consistently opposed provisions which can be construed to permit substantial restrictions or barriers to milk movements between markets and to the entry of new producers. We continue to pursue this objective here today.

The House committee Report No. 1939, 90th Congress, second session, which accompanied H.R. 19910, a bill similar to H.R. 7996 and others now under consideration, clearly stated the committee's intent that section 8c (5) (G) of the act was to apply to the class I base plan provisions and that "the policy expressed by 8c (5) (G) to prevent Federal milk orders from operating as economic trade barriers" was to remain a fixed policy.

Last year, with these assurances of congressional intent, the Foundation withdrew its opposition to H.R. 19910. However, during hearings before the Senate Agriculture and Forestry Committee on S. 4064, a bill quite similar to H.R. 19910, witnesses from the Department of Agriculture indicated that the insertion of a direct reference to 8c (5) (G) in the bill would be objectionable and, furthermore, that a class I base plan would inherently include certain restrictions. One Department witness, after testifying, "To say that a class I base plan would not be restrictive I think would just be playing with words," also stated that he thought the Department would try to keep the movement as free as it could, and not put any more restrictions on the movement of milk than the operation of the class I base plan in itself would require.

While this is a commendable attitude, we know from past experience other considerations and influences often dictate different results.

Certain groups of producers and/or handlers may find it in their interest to erect barriers to the entry of either bulk or packaged milk from other sources, as well as new producers.

In view of the statements made by USDA witnesses who will administer this bill if it becomes law, and the potential inherent interest of some groups to gain restrictive-type order provisions, we urge the committee to be more explicit as to the meaning of phraseology in the bill permitting new producers to obtain bases on an equitable basis with old producers and the extent of the limitations which may be placed on the movement of bulk and packaged milk between markets. The bill itself does not specifically authorize any new restrictions on the movement of either bulk or packaged milk between markets. However, some consider such authority to be inherent. Apparently, this interpretation derives from the new producer provisions. They rationalize that, if the bill grants authority for order provisions which would require a dairy farmer to obtain a base by either purchasing it or producing milk over an unspecified, possibly long, period of time at less than the base price which would accrue to other producers, it carried with it an implication that restrictions may be imposed on the movement of bulk or packaged milk between orders. They argue that it is inconsistent to permit the imposition of highly restrictive provisions on the entry of new producers, but permit milk in bulk or packaged form to move freely between orders. Of course, this interpretation is contrary to the clear meaning of sections 8c (5) (G) and (D) of the act.

It should also be pointed out that class I base plans, which require a producer to either earn his base by producing milk for some period of time while receiving less than the base price or by purchase of the right to a base from another producer, permit and encourage capitalization of bases (i.e., bases becoming valuable assets).

Generally speaking, the more restrictive the provisions are to the entry of new producers, the greater will be the value of bases. This, of course, adds to the producers' incentive to make entry provisions more restrictive.

It must also be recognized that, after a base has value or becomes a capitalized asset, it automatically has the effect of increasing the cost of production. For example, a base which has a $20,000 capitalized value would increase the cost of production by $2,000 annually at a 10-percent interest rate.

While the value of the base becomes a windfall capital gain to the initial producer who receives it, it becomes a cost of production applicable to all future producers just as much as the cost of cows, a barn, or equipment becomes a cost of productions. Increased costs of this magnitude must either result in lower net returns to producers or higher prices to processors and consumers.

In order to prevent artificially inflated values of vases, new producers should be able to receive bases by administratvie action without long delays, and bulk and packaged milk should be permitted to move freely between markets. The expiration date contained in the present law has acted as a restraint on the values of bases. However, this bill will remove that restraining influence by making the authority for base plans permanent. This makes it all the more impor

tant that any restrictions which are intended to be authorized by this bill be clearly stated.

We believe this can be done by including a statement in the committee report as was done last year reaffirming the application of section 8c (5)(G) to the provisions of this bill. However, in addition to this action, we believe the committee report should also clearly define any limitation or waiting period which may be imposed on the entry of new producers. This can be accomplished by reaffirming the application of section 8c (5) (D) of the act to the provisions of this bill. This section provides authority for the payment of the lowest use classification to new producers for 2 full calendar months next following the first calendar month in which a producer begins delivery under the order.

These actions would reaffirm the position taken by the Congress when it originally inserted sections 8c (5) (G) and (D) in the Agricultural Marketing Agreement Act. The two taken together clearly mean that whatever restrictions to the entry of new producers are specifically authorized by these amendments they do not exceed the time limitation specifically set forth and authorized by section 8c (5) (D).

Additionally, we believe the committee should make its intent clearly understood with respect to transfers of bulk or packaged milk between markets. This can be done by also stating in the report that the bill does not authorize any more restrictive provisions with respect to classification and allocation of bulk or packaged milk and milk products received from other markets in an order with a class I base plan than is presently authorized by the act for an order without a class I base plan.

Mr. Chairman, we respect fully request that, for the reasons outlined, the committee report make it clear that the policy of Congress reflected in 8c (5) (G) and (D) of the act is applicable to the provisions of this bill and the report also makes clear that the inauguration of a class I base plan in a market does not carry with it authority to down allocate bulk or packaged milk and milk products from other markets to any greater degree than for orders without class I base plans.

Mr. Chairman, in addition to these remarks I would also like to request of the committee that the record be kept open. Dut to the woefully short notice, several of our members could not make appearances today but would like to file statements.

Mr. STUBBLEFIELD. Thank you, Mr. Tipton. The record will be kept open and available for additional testimony.

Any questions? thank you, Mr. Tipton.

The next witness is Mr. Marvin McLain, legislative director, American Farm Bureau, and Mr. John C. Datt, assistant director, Washington office.

Gentlemen, we are glad to have you with us today.