Since the banks for cooperatives have been authorized to make loans to cooperative associations for the purposes specified in the Agricultural Marketing Act, we recommend that the authority in the act for making loans to cooperative associations from the revolving fund be rescinded as soon as practicable and that the fund with the exception of the investment in the banks for cooperatives be liquidated as expeditiously as possible and that all cash balances in excess of estimated current requirements for orderly liquidation be paid into the Treasury as miscellaneous receipts. Do you care to comment on that? Mr. DUGGAN. We will be very glad to comment on it. PURPOSE OF THE AGRICULTURAL MARKETING REVOLVING FUND Mr. ANDERSEN. First of all, what is the purpose of the agricultural marketing revolving fund? Mr. DUGGAN. Mr. Farrington is Bank of Cooperatives Commissioner and it is under his immediate supervision. Mr. FARRINGTON. The principal purpose of the agricultural marketing revolving fund, Mr. Chairman, and gentlemen, is for capitalization of the 13 banks for cooperatives. This is the revolving fund originally appropriated for the Federal Farm Board. When the Farm Credit Act of 1933 was passed, the law was amended to provide that the sums in that revolving fund could be invested in capital of the banks for cooperatives; and that the amount of capital in the banks for cooperatives could be increased or decreased by the Governor in accordance with the needs of the banks for cooperatives. Also when a capital reduction was made, the funds should be returned to the revolving fund and be available for resubscription in capital of the banks when credit needs arose. AMOUNT OF GOVERNMENT INVESTMENT IN FUND Mr. ANDERSEN. What is the capital investment of the Government in this particular operation? Mr. FARRINGTON. $178,500,000, Mr. Chairman, as of December 31, 1952. Mr. DUGGAN. In the banks there are also some additional funds in the revolving funds-do you remember the figure? Mr. FARRINGTON. In addition to the capital invested in the banks, there is approximately $5 million of cash in the fund. Mr. ANDERSEN. That is my understanding. I think somewhere in this report it refers to approximately $6 million. Is this revolving fund serving any useful purpose at this time, Mr. Farrington? Mr. FARRINGTON. Yes, sir; it is serving a very useful purpose. Mr. ANDERSEN. Will you comment on that? Mr. FARRINGTON. If I may elaborate a little bit on that, Mr. Chairmain, if you look at page 7 of the statement which the Governor presented, the fourth item down shows the net worth of the banks for cooperatives; the fourth item down, BC's, paid-in capital, $198,983,000; earned surpluses, reserved and unreserved, $14,310,000 and $30,275,490.81, respectively, and total net worth of $268,485,268.63. Of that $198 million capital, Mr. Chairman, as of December 31, $178,500,000 was supplied from this revolving fund and $20,500,000 was supplied by cooperatives that borrow from the banks for cooperatives. We have had under consideration in connection with the President's program for reducing Government expenditures and saving money wherever possible the question of how much, if any, of this money could be returned by the banks for cooperatives to this revolv ing fund. Based on our review and conferences with the principal banks from which the Central Bank for Cooperatives borrows and representatives of the investment bankers to whom the Central Bank sells debentures, we have concluded that we could return during the fiscal year 1954 $2812 million to that fund provided the money remained in the fund for resubscription to additional capital if necessary. We think we could do that without adversely affecting the interest rates of the banks for cooperatives or affecting the ability of the banks for cooperatives to sell debentures. It would reduce the annual income of the 13 banks around $812,000 at present money rates. But we think, as I say, that we can get along with that reduction at this time if the money goes in the revolving fund for resubscription. The only one of the 13 banks for cooperatives that has authority to sell debentures is the Central Bank. The Central Bank has $110 million of debentures in the investment market. It has only been in the investment market 3 years. The bankers we have talked with tell us that the investors look at the availability of that fund as something that supports those debentures in the market, and that our interest rates would probably go up substantially on those debentures and our salability might fall off substantially, too, if the Agricultural Marketing Act revolving fund was not there to support the debentures. We feel that fund should remain available until our debentures have been better seasoned in the investment market. Mr. HORAN. I want to know when the revolving fund becomes an obligation of the Government. When do we have to start paying interest on it? Mr. FARRINGTON. It is my understanding that when sums are deposited in the Treasury in the revolving fund they are available for use in Treasury day-to-day transactions and therefore are the same as any other cash balance in the Treasury and do not cost the Treasury any interest. But when they are invested in the banks for cooperatives as they are now, they do cost the Treasury interest. Mr. ANDERSEN. It seems to me that what Mr. Lindsay Warren has reference to is your cash balance in this revolving fund. He raises the question as to whether part or all of that cash balance should be put over into the Treasury. Mr. DUGGAN. The subscription can be made only with the approval of the Bureau of the Budget and in consultation with the Treasury. The Government cannot subscribe to the capital stock without that approval, that is one check and balance. As long as the fund is in the revolving fund in the Treasury, it is of no cost to the Government whatever. It is merely an authorization to subscribe to capital and I think you are correct that he has raised that question but we think at the present time that the revolving fund requirements should not be modified. Mr. ANDERSEN. Mr. Duggan, have you made an official reply to the Comptroller General on this point? Mr. FARRINGTON. We have not, yet. Mr. DUGGAN. Not yet. We have had discussions, informal discussions but no official reply yet. I would like to add one other thing; that original appropriation of the Farm Board was $500 million. This is the salvage of $178,500,000 from that original appropriation and approximately that amount is invested in capital of 13 banks plus $5 million in revolving fund. It was salvaged from the old $500 million through the sale of elevators, quite a number, some 136, were taken over. We have sold all of those, I believe, except seven and are in the process of selling those. In fact, a few years ago, we sold half a house at St. Paul and got back more for half a house than the total loan made against it. It was taken as security. Mr. ANDERSEN. You would then feel that it is necessary to satisfactory operations to retain this $5 million cash balance? Mr. FARRINGTON. Yes. Mr. DUGGAN. Plus the $2812 million we propose to return to the revolving fund during the next fiscal year. That would give you $332 million in the revolving fund or $34 million, depending on when we sell the elevators. Mr. ANDERSEN. You feel that should not revert to the Treasury? Mr. FARRINGTON. Mr. Chairman, I do, and here is the reason. As I say, we think we can return $281⁄2 million to the revolving fund. As long as it is available there we have no question because it will not disturb the investors. But the minute they take money out of the revolving fund, and put it into miscellaneous receipts, it indicates a trend toward depletion of the funds, and it might disturb investors. Mr. ROBERTS. The advantage of the transaction which Mr. Farrington has been discussing, namely, the transfer of the $2812 million back from capital of the banks to the revolving fund, will save the Treasury interest on those funds. Also, the funds will be available, as the Governor has said, for general Treasury use; thus there really is no loss to the Government. Yet, the fund will provide additional security for the bonds and debentures that are issued. Mr. ANDERSEN. It will add to the confidence in the whole operation. Mr. ROBERTS. That is the importance of it. Mr. DUGGAN. It is like going to the bank to get a line of credit. You are authorized to borrow so much and you don't pay interest on the money until you get it. FARM-OPERATING COSTS Mr. LAIRD. Somewhere along the line here I would like to get developed in your testimony the costs of operations on farms, cost of equipment, and the costs between different sections of the country. I think this has a direct bearing on the work. Mr. DUGGAN. I did not bring the tables with me. I have some on the change in cost of operating a corn and hog farm in the Corn Belt, beef farm, and dairy farm. Mr. LAIRD. I would like it developed in the record. I think it is important and has a direct bearing on your work. Mr. DUGGAN. I can give you actual cases on about four types of farms, some surveys made by the Bureau of Agricultural Economics, and one of the outstanding or most significant points in those studies was the increase in the capital required for non-real-estate-capital purposes that is, for machinery, for livestock, and those types of capital requirements that are not covered in a mortgage. Mr. LAIRD. I would like to have the figures presented in such a way that we could see a comparison over a period of a few years. Mr. DUGGAN. They are based on 1937 to 1941, I believe, compared with a later date, about 1949 or 1950. Mr. LAIRD. Is that agreeable with you, Mr. Chairman? (The information requested follows:) The changed financial picture for farmers is brought out in two accompanying tables. The first, entitled "Capital Requirements in Farming," shows the sharp increases in the non-real-estate capital required, particularly since before the war. For each of the three areas covered there has been approximately a 300-percent increase in the investment in machinery, equipment, livestock, and crop inventory. While the value of the real estate also has increased, the percentage of the total investment represented by the land and buildings has declined. The second table, relating to selected groups of farms in the Corn Belt, brings out again the sharp increase in the total amount of capital required. In addition, it shows increases in cash receipts but even greater increases in cash expenditures. The latter trend may be illustrated by comparing the annual cash expenditures with the total investment in the farm. While in 1940 it took from 41⁄2 to about 7 years for expenditures to equal total investment, by 1951 it had dropped to from 31⁄2 to about 4 years. These large capital investments and the heavy cash operating expenses both result in increased demands for credit. In addition, the high level of expenses, many of which are relatively fixed, add to the risk in the event of fluctuations in farm income. 1 Data from Farm Costs and Returns, 1951, with Comparisons, F. M. 93, Bureau of Agricultural Economics, U. S. Department of Agriculture, June 1952. Average acres, investment, and cash receipts, expenditures, and net income per farm in 1940 and 1951, for selected groups of Corn Belt farmers 1 1 Data from University of Minnesota, Iowa State College, and University of Illinois cooperative recordkeeping projects. Adjusted to current market value basis. HIGH AVERAGE GRADE OF THE FARM CREDIT ADMINISTRATION Mr. ANDERSEN. Mr. Duggan, your average grade, 8.3, is far above the average for the Department of Agriculture. Just why is that? Mr. DUGGAN. That is in the Washington office of the Farm Credit Administration. The majority of the employees in the Cooperative Research and Service Division are technical men who are making research studies. Many of them have their masters' and doctors' degrees. In the supervisory work we do, we have to have men with special qualifications, experience, and technical training; the majority of our men are of that type. We have 83 examiner positions. I believe the minimum range in that position is 7. These examiners have to have the same qualifications as national bank examiners. They are the ones that examine and audit the district banks and corporations, and they examine and audit annually the 499 production credit associations and 1,153 national farm loan associations. PERSONNEL ANALYSIS Mr. ANDERSEN. Mr. Duggan, I wish you would describe the duties of the 57 people in your Administrative Division, the 10 people in personnel, the 10 people in the Information and Extension Division, and the 58 people in the Finance and Accounts Division. That can be done by insertions in the record. (The requested information follows:) FUNCTIONS OF CERTAIN DIVISIONS OF FARM CREDIT ADMINISTRATION EXAMINATION DIVISION Conducts annual examinations of the banks, corporations, and associations of the farm credit system; makes special examinations and investigations when required; prepares reports and analyses of facts disclosed by the examination |