OHIO WOOL GROWERS COOPERATIVE ASSOCIATION, Hon. RUSSELL B. LONG, Chairman, Committee on Finance, New Senate Office Building, Washington, D.C. DEAR SENATOR LONG: The National Wool Marketing Corporation by board of director action at a regularly scheduled meeting Sept. 15, 1969 passed a resolution as follows: "We support the National Council of Farmer Cooperatives in their stand in opposition to Section 531 (Cooperatives) H.R. 13270 in its present form." The National Wool Marketing Corporation (a cooperative) is a marketing agency for the several local member associations assembling wool from the grow ers. We are operating in a business climate of declining sheep numbers, hence declining wool volume. It is our effort to get for the wool grower what we can for him for his wool. By so doing, it is our hope and objective to encourage the producer to reverse the trend and increase sheep numbers. A farm cooperative is a democratic and a partnership method of self help. It is an effort on our part to solve our own market problems. We believe by removing the method of using our own organizational income for future financing it will severely hamper our growth and usefulness to help solve some of agricutures desparity of economic party. I was authorized to forward this information to you by the National Wool Marketing Cooperative board of directors and trust that you will give it your fair consideration. Very truly yours, NATIONAL WOOL MARKETING CORP., RANCHERS COTTON OIL. Fresno, Calif., September 18, 1969. Re public hearings on section 531 (cooperatives), H.R. 13270-Monday, September 22, 1969. Hon. RUSSELL B. LONG, Chairman, Committee on Finance, New Senate Office Building, Washington, D.C. DEAR SIR: At a meeting of our Board of Directors held Wednesday, September 17, 1969, they registered unanimous objection to the inclusion of Section 531 on cooperatives in H.R. 13270 as being restrictive and punitive. Our method of capitalization is controlled entirely by our farmer board of directors. Any retain capital whether on a per unit base or a patronage base is considered constructive receipt and reinvestment. Therefore, these amounts are reported by our members currently as income to them. Although the length of time of repayment of this capital is far less than that suggested in Section 531. we feel that this suggested legislation become discriminatory because there is no law which requires corporations to pay out their equities at any time. In regard of setting a percentage of pay-out in the current year, they feel that this becomes punitive and upsets our methods of not only capitalization but restricts our borrowing power. When and how much is paid out to our members is de termined solely by our Board of Directors who are farmers and, therefore, it is not neecssary to have legislation to tell them when to pay money to themselves. We strongly urge that this section be removed from H.R. 13270. Very truly yours, RANCHERS COTTON OIL. SCOTT COUNTY SERVICE Co., Winchester, Ill., September 19, 1969. Hon. RUSSELL B. LONG, Chairman, Committee on Finance, New Senate Office Building, Washington, D.C. DEAR SENATOR LONG: I am writing in regard to tax reform bill H.R. 13270. I feel the passage of this bill would be a deterrent to cooperatives, and a bill that would provide no added revenue to the federal government. As manager of a smaller local cooperative, this bill would hinder our financing program, and would take the financing of our company away from the users who hold equity capital, and the control and financing through debt capital. I ask your support in discouraging the passage of tax reform bill H.R. 13270. Please include the enclosed statement in the printed record of hearing on H.R. 13270. Thank you for your support. SCOTT COUNTY SERVICE CO., SUPPLEMENT TO SCOTT COUNTY SERVICE COMPANY LETTER OPPOSING H.R. 13270 1. The proposed tax reform bill H.R. 13270 would put no additional funds in the treasury as this would not change the basic tax structure for cooperatives. 2. This bill could possibly make it very hard for cooperatives to provide both the equity and debt capital to finance the growing farmer demand for facilities and services. 3. Since a majority of the conventional sources of acquiring capital that are available to competition of cooperatives, the cooperatives must look to its members and users for its financing. The passage of this bill would not allow this and could force many smaller cooperatives out of the picture or left to be taken over by a large conglomerate type corporation. 4. The proposed bill would not be in accordance with the national policy of supporting and promoting self-help programs to relieve local rural poverty. SUNSWEET GROWERS INC., STATEMENT OF SUNSWEET GROWERS INC., SUBMITTED BY C. D. OWENS, EXECUTIVE VICE PRESIDENT INTRODUCTION 1. Relevant information regarding Sunswect Growers Inc. Sunsweet Growers Inc. ("Sunsweet") is a non profit agricultural cooperative engaged in processing and marketing dried fruits produced by its 2400 Grower Members. Sunsweet markets approximately one-half of the prunes and other dried fruits produced in California. Most of the Grower Members of Sunsweet are also engaged in the production of agricultural commodities other than dried fruits and in many instances these other commodities are marketed through other agricultural cooperatives. A substantial cash advance is made to Sunsweet members at the time of delivery of their product. Additional cash advances are made during the course of the fiscal year as permitted by the financial condition of the association. As soon as possible after the end of the fiscal year final payments in the nature of a patronage dividend are made to growers to account for the excess of net proceeds from marketing members' products (gross sales less expenses of processing and marketing) over advances previously paid to the Grower Members. A portion of the patronage dividend is retained to provide capital. Each Grower Member is notified of the amount of this retain by a qualified written notice of allocation, which the Grower Member has agreed to take into income at the face amount. This non-cash allocation is normally less than 50% of the amount of the patronage refund. Amounts retained in excess of the current capital needs of the association are used to repay the oldest credits. Sunsweet has an unblemished record of repayment of these credits within a period of less than ten years. In recent years the revolving fund cycle has been six years. Sunsweet is in excellent financial condition and has a relatively stable membership. 2. Scope and purpose of statement. The purpose of this statement is to indicate the immediate adverse effect of Section 531 of HR 13270 on the members of Sunsweet. To avoid redundancy with other statements which will be submitted, this statement will comment only on the specific adverse and unjustified effects on a mature, financially sound cooperative whose practices fully comply with the letter of the proposed legisla tion and which seemingly would be least affected by the proposal. STATEMENT At first blush, it would seem that the provisions of Section 531 of HR 13270 would have no effect on a cooperative such as Sunsweet. This is not correct. 1. The proposal would tend to delay rather than accelerate the flow of cash to the grower members of Sunsweet. In almost every year at least 50% of the patronage dividend paid to Grower Members of Sunsweet after the end of the fiscal year has been in cash. However, if the non-cash portion of the patronage dividend (paid in the form of a qualified written notice of allocation) would be entirely non-deductible unless an equal or greater amount was paid in cash, the practical effect would be to require Sunsweet to reduce the amount of cash advances during the crop year in order to provide a greater reserve for cash payment after the end of the year. This would clearly be inconsistent with Sunsweet's policy of getting the cash to the growers as quickly as possible. It would also tend to place Sunsweet at a competitive disadvantage with respect to the independent handler who purchases dried fruit on a fixed price basis rather than a nonprofit cooperative basis. 2. The proposal would adversely affect Sunsweet's financial condition even though it normally repays non-cash allocations within six years. The Grower Members of Sunsweet provide the necessary capital in proportion to their patronage as described above. The amounts retained to provide capital are taxable to the Grower Members in the same manner as if the amounts were paid out and reinvested in the capital of Sunsweet. Since the credits do not have a fixed maturity date and are subordinate to the claims of creditors generally, they are treated as member equity by financial institutions in establishing the highly favorable lines of credit available to Sunsweet. These lines of credit are essential to the financial well being of Sunsweet. If the amounts retained to provide capital are required to have a fixed maturity date, as contemplated by the proposed legislation, this would effectively convert the retains from member equity to long-term indebtedness. This would unfairly impair the financial condition of Sunsweet by reducing its attractiveness as a credit risk to financial institutions. 3. The harmful effects on Sunsweet would be accomplished without increase in or acceleration of tax revenues. Sunsweet is operated on a nonprofit basis to maximize the income of its Grower Members. All of the income from marketing members' fruit less expenses is taxed currently to the Grower Members. A portion of the amounts so taxed to the Grower Members are effectively reinvested in the association to provide necessary capital. As indicated above, the proposed legislation would tend to delay the flow of cash to the Grower Members and would adversely affect the borrowing ability of the association, but the changes necessary to comply with the proposal would not result in one additional dollar of income being taxed at an earlier time than under the present legislation. Indeed, by requiring a greater proporiton of the total payments to Grower Members to be included in the final payment, the realiza tion of income will in some instances be deferred to a later taxable year of the Grower Member than otherwise. CONCLUSION We respectfully submit that Section 531 in its entirety should be deleted from HR 13270. The proposal meddles with the basic policy of agricultural cooperatives and their relations to their Grower Members without any redeeming justification in terms of the tax revenue or tax fairness. FULTON SERVICE CO.. Lewistown, Ill., September 19, 1969. Hon. RUSSELL B. LONG, Chairman, Committee on Finance, 2227 New Senate Office Building, Washington, D.C. DEAR SIR: Please find enclosed a statement expressing the feelings of the Board of Directors and Manager of a local farmer owned and controlled co-operative. The Board of Directors represent the stock holders who are also the patrons and owners of this co-operative. We ask that this statement be included in the printed record of hearing on H.R. 13270. Very truly yours, Enclosure. GORDON DENISON, Manager. Subject: Statement of opposition to Section 531 of H.R. 13270. As the Board of Directors and Manager of a farmer co-operative representing the interests of 1500 patrons and members, we wish to state our opposition to this bill that will have an adverse effect on co-operatives. Our reasons are as follows: 1. Farmers need all the help they can get through their co-operatives to help them buy their supplies at lower prices and market their products for better prices. Both administrations have agreed to this. This bill if passed would stifle the growth of co-operatives. 2. Large corporations who are evidently pushing this legislation have the privilege of distributing their earnings in the same way if they so desired. 3. If this bill were passed it would gain little if any new revenue for our government. Farmer co-operatives would sell to their members at cost and ask them to finance their co-operatives by the purchase of stocks. 4. This legislation, if enacted, would surely destroy some co-operatives who are small businesses and it would strengthen the large corporation or conglomerate. This is the food consuming public does not want. FARMLAND INDUSTRIES, INC., Kansas City, Mo., September 19, 1969. COMMITTEE ON FINANCE, 2227 New Senate Office Building, Washington, D.C. MEMBERS OF THE COMMITTEE: On behalf of the half-million Midwestern farmers and ranchers who are its owners and beneficiaries, Farmland Industries registers strong opposition to Section 531 (Cooperatives) of H.R. 13270. Farmland Industries is a regional cooperative, headquartered in Kansas City, Missouri, and owned by some 2,000 local, farmer- and rancher-owned cooperatives in 15 Midwestern states. Farmland manufactures and distributes farm supplies through the local associations to about a half-million agricultural producers. There are three broad reasons for opposition to Section 531. The proposal (1) produces no revenue, (2) imposes additional government regulations on business and (3) injures cooperatives and the farmers and ranchers who own them. The primary purpose of Section 531 seems to be to limit the flexibility of cooperatives by imposing a rigid formula for their payment of patronage refunds. It presumes that Washington can run cooperatives better than the co-ops' owners. It reduces cooperative directors' ability to adapt financial policies to their associations' unique problems. No other form of business is forced to operate under such restrictions. Therein lies the proposal's wide-spread danger to business generally. If such restrictions can be enforced upon one type of business, they can, in the future, be applied to others. Section 531 would hurt different cooperatives in differing ways and to differing degrees. The proposed refund regulations would be especially damaging to new associations that are still deeply in debt or to cooperatives that have recently expanded, merged or had some other reason to borrow interest-heavy funds. These regulations, and anything else that hurts cooperatives, also hurt the farmers and ranchers who own the cooperatives and depend on them to provide production supplies or to market farm products. Herein lies the subtle but particularly injurious feature of Section 531. The proposal implies that members must be protected or helped to benefit from their cooperatives. The simple truth is that cooperatives, as much as or more than any other type of widely-held busi ness, are controlled by their owners. Farmland Industries' structure and poilices are good illustrations of the fact that cooperatives are controlled by and operated for the benefit of the farmers and ranchers who own them. Every one of the more than 2,000 local associations that make up Farmland's membership has one vote in the election of directors and the conduct of business. Farmland's 22-man board of directors includes 15 farmers and ranchers and 7 men who manage farmer-owned cooperatives. A copy is enclosed of a letter signed by all the directors and already sent to Finance Committee members from states in which Farmland affiliates are located. A proponent of Section 531 has attempted during testimony before the Committee to convey that too many cooperatives are becoming too large. He reported that five cooperatives, all farmer-owned and including Farmland Industries, are listed by Fortune Magazine among America's 500 largest industrial firms. In an era in which farmers and ranchers clearly need economic strength, it is perhaps one of their industry's major weaknesses that only five of their cooperatives qualify among the country's 500 biggest firms-and not one of the five is in the top 100. Farmland Industries is one of the nation's largest cooperatives, it is one of the five on the Fortune list. However, its size is modest compared to the larger industrial firms in this nation. In fact, the annual sales of the largest firm in the United States exceeds the total volume of all farmer cooperatives combined. The implied danger of large cooperatives is a myth. Large cooperatives are needed to render effective service to farmers and ranchers. Section 531 of H.R. 13270 is a direct attack on farmers and their cooperatives. We respectfully request that it be eliminated in its entirety. GENTLEMEN: This letter is sent to you as Senate Finance Committee members representing states in which there are farmer cooperatives affiliated with Farmland Industries. Through Farmland Industries, these cooperatives, some 2,000 in number, manufacture for their farmer-members petroleum products, fertilizer, feed, steel buildings, batteries, paint and other farm supply lines. Some of our members are mature and financially strong. Some are relatively new and heavily in debt. Some have been involved in recent expansions and mergers and have had to borrow large sums. They serve almost the complete range of producer interests. In countless rural communities the farmer cooperative is the center of economic strength. As members of the board of directors of Farmland Industries, the signers of this letter are deeply concerned as to what would happen to many of our cooperatives if Congress should include in the pending tax reform bill those provisions relating to cooperatives that are now in the House version. These provisions will not provide new funds for the federal treasury. They were conceived by interests whose primary aim is to find ways to cripple farmer cooperatives at a time when farmers and ranchers need these home-based services more than ever before. They would impose on all cooperatives a rigid formula for payment of refunds. Such legislation is unrealistic. It disregards the individualistic nature of farmer cooperatives. It would make it difficult for many to meet their loan obliga |