University of California College of Agriculture Agricultural Experiment Station Berkeley, California AGRICULTURAL MARKET CONTROL UNDER FEDERAL STATUTES by G. L. Mehren October 1947 UNIVERSITY OF CALIFORNIA LIBRAR COLLEGE OF AGRICULTURE Davis Contribution from the Giannini Foundation of Agricultural Economics Mimeographed Report No. 90 AGRICULTURAL MARKET CONTROL UNDER FEDERAL STATUTES G. L. Mehreni/ CHRONOLOGICAL DEVELOPMENT OF FEDERAL MARKET CONTROL LAWS I. Legal Background of the 1335 Provisions Development of Market Control Statutes .—The market control section of the 1933 Agricultural Adjustment Act was an experiment in new fields of law and economics. There were no statutes directly relevant to these programs and only the voluntary market control of cooperative shippers provided operating precedent for them. How- ever, the Congress had actively fostered agricultural marketing cooperatives and had exempted them from antitrust prosecution for combination. Oil had been prorated by the states as a valid exercise of the police power. The Congress had totally ex- cluded commodities or methods of marketing from the channels of interstate trade. It was considered therefore that the power totally to exclude included the power partially to exclude. While neither law nor directly favorable precedent existed, there were no laws or precedents which were directly unfavorable to the proposals. •Finally, the Congress and not the courts determined public policy and definud the Ipublio interest.' In general, courts had interpreted statutes in terms of the econ- omic context in which they were administered. Therefore, statutes which had been declared invalid in other periods were considered likely to be legally valid m the desperate economic crisis of 1933. The scope of permissible agricultural market control had continuously widened .for a half century. Exemption for agricultural groups had been demanded in the do- •bate on the Sherman Antitrust Act. Explicit, if not effective, relief from the_ antitrust laws had been granted in the Clayton Act. Budget appropriations for its enforcement had prohibited expenditures for prosecution of farm groups. The Food Control Act of 1914 also extended this exemption. When the Capper-Volstead A ct was enacted in 1922, farm cooperatives had obtained a privileged position with respect to market control. This position was further supported in the agricultural Market- ing Act of 1929. Thus, by 1933, federal law had accorded to certain agricultural j groups the authority to combine, and in some measure to control, interstate trade. However, these laws had been entirely permissive in nature. The experience of co- operative groups with voluntary control programs had abundantly demonstrated that permissive authority was inadequate. The relatively small minority which abstained from participation had usually benefited disproportionately, and thus rendered the control unstable. Obviously, statutes which would compel universal participation by all producers and handlers were needed to remedy this fatal defect of the volun- tary schemes. Immedi ate Antecedents of the 195 3 Market Control Provisions — The Dickinson /Bill of 1926 and the third and fourth McNary-Haugen bills had included market \I Assistant Professor of Agricultural Economics, Assistant agricultural Econ- omist in the Experiment Station, and Assistant Agricultural Economist on the Giannini Foundation. 2. control provisions. In the Agricultural Marketing Act of 1929, the declared ob- jective was economic equality for agriculture, and the declared method of obtaining such equality was orderly distribution. Late in 1932, farm groups actively spon- sored a bill intended to provide relief and adjustment for the agricultural economy through federal control and subsidy. This act contained no direct reference either to market agreements or licenses. It did, however, define basic commodities — to which its provisions were restricted — in terms of three attributes: a demonstrable effect on prices of other farm products; an exportable surplus; and a processing bottleneck to facilitate administration. Cotton, wheat, hogs, and tobacco were des- ignated as basic. The need to regulate closely competitive or complementary prod- ucts was conceded. Pressure to expand the list of basic products eligible for relief and control quickly appeared. Both the Administration and the farm groups, conscious of the troubles of the Farm Board in administering more than fifty programs, at- tempted to limit the list of enumerated basic products to the narrowest practicable range. The market control provisions which had not even been considered in December of 1932 were introduced late in the legislative life of the 1933 law. -4 The 1953 Provisions . — Four short and broadly phrased sections of the 1933 act provided tho statutory basis for the compulsory programs in the first two years of the Agricultural Adjustment Administration. These omnibus clauses included no real specification of standards or powers because the problems which would arise, the commodities to which such programs could be applied and the kinds of programs which would succeed could not be precisely predicted. Furthermore, were powers, standards and commodities to be specified in detail, the courts would probably exclude all powers not explicitly specified. J First, the Secretary was authorized after due notice and opportunity for hear- ing to entor into agreements with handlers of any agricultural commodity or product thereof in order to control interstate or foreign commerce in such products. Par- { ties to such agreements were free from prosectuion under tho antitrust laws over the life of the act. Those agreements were first intended as a means of assisting pro- cessors to dump surplus products in foreign countries. At this stage, they v/eru un- related either to the earlier voluntary programs or to the later programs adminis- tered by the federal government. ^ Second, the Secretary was authorized to impose licenses upon interstate hand- lers of any agricultural commodity or product thereof or competing product thereof as a means of eliminating unfair/ practic es o r charges which might prevent effect- uation of the declared policy.^ After hearing, the Secretary could revoke or sus- j pend the license for violation. No hearing was required prior to issuance of the license. Only two limits were placed on the power of the Secretary — that no pro- vision conflict with other acts or regulations of the Congress, and that the res- trictions imposed be necessary to eliminate unfair practices or charges. There was no restriction against the licensing of individuals. The licenses were looked upon as remedial or ancillary to all parts of the act and not uniquely tied to tho agree- ments . - Third, parties to agreements or licenses were required to keep available to the Secretary such books and records as he deemed necessary. It was first proposed to limit applicability of licenses to wheat, cotton, corn, hogs, cattle, sheep, rice, tobacco, and milk and its products. This list had been prepared by farm groups in March, 1933, and presented by the Department with- out change. The final provision was considered to have better chance for passage. 3 • J Fourth, the Department of Agriculture, for the purpose of investigations under these programs, was vested with the same powers accorded the Federal Trade Cc mission. /om- The Secretary was authorized to do virtually anything with any commoditv - I farm or non-farm. While this broad executive latitude was desirable from the ad- ministrative standpoint, it rendered the act dangerously weak before the courts. The First Year.— The first Administrator regarded the agreements section as the major relief and adjustment mechanism. He sought to raise farm prices bv ship- ment control as a means of defense against non-farm monopolies, to subsidiz / foreign consumers by dumping, to decrease handling costs and to improve market practices through the voluntary agreements. His group disapproved of production control, and held that the license power could be effective only as an unused threat. On the other hand, the first Secretary regarded production control techniques as the single feasible relief mechanism for the basic commodities. Market control was to be used for specialty crops for which production control was not practicable. The export dumping plan was quickly abandoned. Licenses were regarded as a general enforcement weapon for all programs under the act. Five powers had been made available to tho Secretary: to control production of any commodity; to effectuate voluntary acreage reduction; to enter into marketing agreements where acreage or production control was unavailing or where relief for producers of minor crops was needed; to impose licenses as supports for either production or market control; and finally to effect- uate cotton option contracts for the current year only. All these powers were used. The first market control programs were fashioned after those developed by California, cooperatives. In their first stages, handlers cooperated vigorously but^well within the year opposition was manifested and violations were occurring. The Recovery Administrati on. --Except for the labor provisions., powers relevant to milk and its products, tobacco and its products, feeds, foods, and foodstuffs, granted the President under the NIRA were transferred to the Secretary. Both codes and market programs permitted licensing. The recovery act pichibibed "monopolistic practices," but agreements and codes together could be used to raise the level of farm prices. Both instruments permitted checks on spreads, operating costs, other charges, dividend policies, trade and group practices and marketing operations. The regulation of farm marketing by joint code and agreement programs was contemplated. However, there was little actual coordination in the administration of the two pro- \ grams. A master code for fruits and vegetables was signed in July of 1934, although* each commodity group separately determined its own program. All shippers availing themselves of agreements were required to file schedules of wages and hours of employ- ment. II. The Proposed 1934 Amendments By the end of the first year, serious enforcement difficulties had arisen, particularly in the milk programs. The 1934 amendments were proposed by the Depart- ment as a means of protecting the control programs against legal defects which by then were obvious. They were favorably roported to the Senate floor without public hearing but a flood of protests required their return to committee. It proved im- possible to reconcile floor opposition and the bill was not enacted. The proposals included most of the present provisions of the marketing agreements act. Efforts have been made at almost every peace-time session of the Congress to obtain passage of various parts of this program. The Jones -Connally Amendment .—This statute had widened the definition of interstate commerce with respect to agreements to include trade which burdened, af- fected or obstructed interstate commerce. The same amendment to the license 4. provision had been reported out but did not come to vote. The Department feared that courts would therefore conclude that Congress had intended licenses to be less widely applied than agreements. The 1934 Proposals.— A single amendment with respect to agreements was offerr- ed, through which the Secretary would have been able to control production of non- basic crops by producers of basic crops who retired acreage in compliance with other programs. . r The license power would have remained applicable to any agricultural commodity or product thereof or competing product or product thereof. Control would have been widened to encompass all trade directly affecting, even if not within, the stream of interstate commerce. Under the 1933 statute, licenses could include only those terms necessary to eliminate unfair practices or charges which tended to prevent effectuation of the declared policy. Under the 1934 proposals, licenses could in- clude those powers which in the judgment of the Secretary were necessarv either to eliminate these practices or to effectuate the declared policy. Power to revoke or to suspend the licenses of violators would not have been affected. Despite the careful specification of administrative standards and procedures, the opposition of handlers centered almost exclusively around this license section. Approval of the parallel agreement by two-thirds of affected producers by number or by control of ac-sage or commercial production was specified. Penalty provisions were widened. The books, records, and assessments sections were reaffirmed and clarified. Hand- lers were entirely unsatisfied with the proposed restrictions on executive power. A license could be approved by producers but be entirely unacceptable to the pro- cessors. Exposure of books and records and payment of assessments to control boards with which they wore unsympathetic were further bases for processors' opposition. Neither the Department, nor the major farm organizations nor the organized handlers have been disposed to compromise this issue. The Department considered that the license was necessary to assure participation by handlers in programs designated for producer benefit. Growers held that this reserved right to impose programs on hand- lers was essential to prevent veto by handlers. Handlers, and particularly pro- cessors, sought defense by excluding their products from control under the act. The Administration regarded this bill as a clarification of powers already held and of administrative procedures already used and as a defense against the charges then being made in milk litigation. The interest of producers dominated as the de- clared policy of the act required. It had been settled that programs of the types developed by California cooperatives would be applied to non-basic crops produced in small scattered areas. Programs were contemplated for twenty-two groups of commod- ities, including products for canning. It was agreed that market control programs would not generally be used for basic products and that specialty crops would not be 'eligible for other forms of adjustment. Processors opposed granting the power to impose licenses without consent of at least a majority of handlers. They held that the terms of the licenses seotions were excessively broad and that administrative standards were inadequate. The re- vocation and suspension clauses were deemed to be a violation of their due-process rights and to provide no real facilities for appeal. Opposition was nominally di- rected towards including in the act canning commodities and other products for which inter-area equities were pressing problems. However, except for the power arbitrarily to impose licenses, the act is and was permissive in nature. The in- sistence of canners and other processors that eligible commodities bo enumerated is and was quite obviously a means of protecting themselves against an undesired license or order. 5. Thus, in these 1934 hearings, the issues which havo persisted through 1947 were clearly drawn: should licenses (or orders) be used only in conjunction with an agreement; should they be applicable to all or only to enumerated' commodities; and should the consent of affected handlers be required? III. The 1935 Amendments of the Agricultural Adjustment Act In the winter of 1934, the Department conducted a series of conferences at which most of the conflicts between processors and producers were resolved. The amendments of 1935 provided the basic structure of the present Marketing Agreement Act. The views which processors and handlers presented at the 1935 hearings have {not been altered significantly over the following twelve years. Defects in the 1953 Statute . — In the twenty months of experience with market control prior to the 1935 hearings, the Adjustment Administration had promulgated 68 plans involving about 7,700 licenses directly affecting somo two million growers. This experience had broadly indicated the kinds of products, problems, and powers to which market control techniques were applicable. The reasons for the generality of the 1933 statute no longer existed. Further, obvious legal defects had compound- ed the gravity of administrative problems. Commodity representatives demanded pro- secution of all violators. General counsel advocated prosecution only of those casos in which convictions were almost certain. In consequence, violations increas- ed and failure to punish violations engendered new violations. The Government had been defendant in 22 cases and plaintiff in 20 cases up to May 1935 — with 16 and 11 cases respectively involving milk licenses. These cases had disclosed three major deficiencies in the 1933 act. / Courts had ruled that even in industries clearly affected with the public interest, Congressional intervention could not vitiate the constitutional guarantee of due process of law. In the milk cases it was decided that no federal police power existed in the absence of specific delegation by the states. While there had been no directly adverse decisions involving the due-process issue, failure to pro- vide procedures for administration constituted a continuous threat to the programs. Courts had also declared that federal control could be imposed over intrastate trade only whore there was a direct effect on interstate trade. Seven decisions had been lost on this issue in milk cases. Milk enforcement had almost completely bro- ken down and enforcement in other programs was jeopardized. ^Two aspects of invalid delegation of powers threatened the programs. Dele- gation of undefined legislative powers by the Congress to the Executive had led to contradictory court decisions, but general precedent clearly required an explicit statement of such delegation and the provision of specific standards in the act it- self. The delegation of executive powers by the Secretary to private persons on local control boards was an even greater weakness. Ultimate authority was clearly vested in the Secretary, but in fact, regulations were issued from local boards v/ith only nominal action by the Secretary. Processors attacked the books, records, and the assessment provisions, on the grounds that they were thereby required to make records and funds available to private persons. NIRA Decisions. — Meanwhile, in Panama Refining Co. v. Ryan, the courts had de- cided that in the absence of standards the delegation of virtually unlimited control authority to the President was unconstitutional. In the Schechter case of May 1935, \ the app rova l of codes was declared an essentially legislative function which could 'not be delegated to the executive department. Further, federal control was not valid if imposed on intrastate commerce where no clearly demonstrable and direct 5. i effect on interstate trade was shown. While not directly relevant to the control i programs, these decisions further weakened the 1933 law. J Remedial Amendments . — The Department offered nine ame ndments which were ac- ceptable to most producer representatives. Firs t, specific requirement for notice and hearing prior to the issue of license was intended as a defense against the due-process issue. Second, broadening of the interstate commerce definition in the licensing provision was aimed to strengthen milk control. Third, it was proposed that licenses be restricted to those terms requisite to effective administration and essentially parallel to the terms of an agreement approved by more than 50 per cent of affected handlers. Fourth, the crucial provision from which nearly all dis- agreement has arisen, provided that where less than fifty per cent of affected han- dlers approved a parallel agreement, the Secretary could impose the license upon them where he found: (a) that the license would effectuate the declared policy; (b) that no other means to effectuate the policy existed; (c) that the required num- ber of producers had approved the agreement and (d) that the approval of the Presi- dent had been obtained. The Department and producers were entirely unwilling to .yield up this right to license handlers without their consent. Handlers, however, quite reasonably resisted and still resist the imposition of a control the object- ive of which is the benefit of another class with whom their own interests may not ^e congruent. They discounted, and again quite reasonably, the Secretary's assur- ance that this "big stick" would be used only in extreme cases. The Secretary con- sidered that the 1933 act had already clothod him with this power. Fifth , the De- partment recommended that no licenses be applied to individual handlers or to pro- ducers. Sixth, renunciation of the revocation or suspension power was recommended. This would mean that the control instrument was no longer a license. Court en- forcement was to be provided as further protection against attack on the due-process issue. Again the circumscription of executive power with standards and appeal pro- visions was considered inadequate protection by handlers. Seventh, the requirements \for maintenance and inspection of books, records, and reports was reaffirmed. Eighth, it was proposed that quota or allotment provisions be used only with the approval of at Least two-thirds of the producers by number or volume. Jlinth, it was proposed that the Secretary be required to terminate programs at the end of the cur- /rent season, on petition of fifty per cent of producers. This was essentially the program introduced into the House. The Senate pro- gram differed mainly in that it specified that licenses be applicable to fruits, pecans, walnuts, tobacco, soybeans, hops-, package and queen bees and to all products derived from these commodities and to naval stores rather than to all agricultural products , The 1935 Hearings .—The Administration contemplated limiting the market control programs to products grown in small regions where interests were homogeneous and contact with control committees could be maintained. In rejecting a proposed nationwide program for meat packers, the Department opposed broad powers in indus- tries where danger of collusion existed, and where handlers stood to benefit more than producers. Where, as in products for canning, more than one region produced the product, determination of interarea equities and of satisfactory regional parities had proved difficult. It was preferred to effectuate programs for in- dustries in which strong cooperative agencies had already formulated successful voluntary programs. The Department objected to enumeration of eligible commodities. It was willing to circumscribe but not to renounce its reserved power to impose orders without handler approval. 35o further efforts were to be made to use market controls with basic crops as a general policy, although joint use in the sugar, ,flax, peanut, and rice programs was contemplated. The parity price limitation was 1 affirmed as permanent policy. 7. Opponents resisted the license provision, vigorously attacking the "all agri- cultural commodities" proposal as a defense against the application of licenses over their disapproval, which had occurred in milk, naval stores and Florida citrus fruits and which was once threatened in tobacco. Other reasons were presented. Some canners held that demand for thoir product at prevailing prices was elastic. The licensing of individual producers for whose benefit the controls had been under- ■ taken was widely advocated. Canners claimed that prices on canning commodities were already near parity and that controls were therefore unnecessary. Crops for canning were held to be unsuited to market control. It was asserted that after four months of effort, no workable programs could be formulated. Since prices and acreago wore generally contracted before planting, it was necessary — they claimed — to estimate sales at the desired prico level a year in advance and then to divido this estimate by the average yield per acre in order to dotermine the appropriate volume of pro- duction. The canners held that errors in estimation or deviation from average yields would defeat the control. They asserted that in the long run, control must rest on regulation of production. They have long claimed that since the Secretary "deter- mines" facts, there is no real appeal from his decisions and they are therefore help- less to protest against programs imposed upon them. The National Association of Man- ufacturers, the United States Chamber of Commerce, Swift, and organized processors 'of cotton, butter, groceries and wool participated in presentation of this case. Farm organizations frankly conceded that market control was a device to give monopoly power to farmers in a world of monopolies. The success of the first twenty months of operation had lod to plans for many new programs. These groups would not relinquish the power to impose the license or the order over the opposition of hand- lers. They clearly recognized the divergence in producer and handler interests. Some of the disagreements were resolved in the joint conference committee. The Senate expanded the scope of the interstate commerce definition. The two houses formulated a list in which fruits and vegetables for canning were with a few except- ions exempted. The growers were able to retain the power to impose the order and | the... processors protected themselves. .by narrowing the commodities to which market control could be applied. This impasse has never been resolved, Canners are unable | to use the act. Growers can impose orders on the enumerated products, but they are unable to use the act at all for any other commodity. The 1935 Statute .— Orders were substi tuted for license s. Interstate trade was defined to include commerce which affected, burdened or obstructed the stream of interstate trade. The parity objective and administrative requirements for notice, hearing, determination of facts, and promulgation of orders were set out at length. The power of the Secretary was further circumscribed by enumeration of commodities to which orders would be applicable. Any agricultural commodity could still be con- trolled through agreements. The terms to be included in orders were set out in three headings. Terms applicable only to milk and its products were first listed. For the enumerated "other commodities," it was required that one or more of the following terms be included and none other except for terms common to "all orders": (l) limitation of shipments by quantity, grade or size over specified market periods and for spec- ified marketing or production areas; (2) proration of permitted shipments by some uniform rule based on current or past performance; (3) allotment of shipments to specified markets by a uniform rule; (4) determination of the magnitude of a sur- plus and provision for its control, distribution and equalization; (5) establish- ment of reserve pools and provision for distribution of returns. The third category of powers included those of which one or more must be included in all orders: ^ U) v prohibition of unfair methods of competition or unfair trade practices; (2) filing 8. ^ of open price schedules; (3) "provision for selection of administrative agencies and definition of their powers and duties by the Secretary; (4) terms necessary to effectuate the order and not inconsistent with the above. Two relatively minor powers have since been added, governing inspection for grading and programs for hops These powers were made flexible by including in each. the words "or providing methods of," which released the Secretary from dependence on any single technique. Orders were applicable to intrastate trade where direct relationship to the stream of interstate commerce could be established. Careful specification of powers and standards for administration was intended to eliminate further danger of attack on the duo-process basis. Explicit designation of control boards as agents of the Sec- rotary eliminated the issue of delegation of power. The administrative requirements were in general the samo procedures which had been used by the Administration. The executive department was restricted by admin- istrative requirements which would protect handlers from the arbitrary imposition of orders which were intended for the benefit of other classes. Provisions for ap- proval were essentially those demanded by the Administration and farm groups in 1934. Promulgation of an order required approval by at least fifty por cent of af - , f ecte4 handlers^ of a parallel agreement; such an order funther required the approval of at least two^ thirds of producers by number of volumo.2/ Where the required fifty per cent of handlers failed or refused to assent to the parallel agreement, the order could still be imposed if three conditions were mot: (a) imposition was ap- proved by the President; (b) the Secretary determined that failure to effectuate the order would tend to prevent effectuation of the declared policy; (c) promulgat- ion of the proposed order was the only means for such effectuations and two-thirds or more of affected producers had approved the agroement. V This was the same provision to which handlers objected in 1934. Its inclusion was responsible for enumeration of commodities to which orders could be applied in substitution for the broad "all commodities" provision in the 1933 act. Among the powers set out in 1935, authority for any reasonable kind of a control program should be found. The terms are permissive, and there is thus no compulsion to use terms which are inappropriate in the judgment of any affected group. Thus, the issue is not the powers which are authorized nor the propriety of their application to various products, nor is it actually the various administrative standards to which processors regularly take exception. Processors recognize that the interests of various groups with respect to the control of shipments do not usually coincide; that the administration is required under the law to advance the interests of pro- ducers; and that producers could impose such control with the approval of the Sec- retary and the President. The specification of the commodities to which such con- trols can be applied, the exemption of most canning products, and the necessity to obtain passage of an act by the Congress in order to make possible the use of this permissive legislation for other products wero due to the influence of processors. The 1935 statute also included other changes which have carried over to the present act. Provision was made for modification, exemption or review of findings or penalties. The Secretary could terminate programs on finding that the policy of the act was not thereby effoctuated or on petition of persons who had produced or sold at least fifty por cent of the volume regulated. The books and records clauses wore reaffirmed. Processors have continued to resist these clauses despite ?/ Special requirements were made for California citrus fruits. 9. (the fact that such powers are already vested in other agencies of government. It is probable that examination of books and records by a hostile control board, the establishment of which was resisted by handlers, is the major basis for this re- sistance. No actions which had for their purpose the maintenance of prices above parity) levels could be authorized under the amended act. Limitation programs were there- fore required to be terminated when season average prices exceeded parity, although other activities and voluntary limitation might continue. Provision was made for joint formulation, uniform terminology and integrated \ administration for state and federal programs. The President was authorized, after proper findings by the Tariff Commission, to decrease imports up to fifty per oent, wherever it appeared that such imports were impairing effectuation of the declared policy. Thirty per cent of the customs receipts collected in the preceding calen- dar year could be used in each fiscal year for export subsidies, indemnities for domestic diversion and under some circumstances , benefits for acreage or production adjustment. The expanded and refined for market control than had th stitutional weaknesses. They changes had been made: the pa powers and required administra of applicability of orders wa6 specified conditions without a was made for exemption or revi provisions of the 1935 statute conveyed less authority' e 1933 act. The changes were intended to remedy con- did not affoct existent programs. However, sweeping y rity price ceiling was explicitly defined; permissible tive procedures were carefully enunciated; the range limited; orders could be promulgated under carefully pproval by hrindlers of a parallel agreement; provision ow; and the books and records sectionswere reonforced. Permitted control techniques could bo classified under two main heads. First, provision was made for limitation or segregation of parts of the supply, and for equalization of burdens from these adjustments. Second, restrictions were placed on methods of competition, and on procedures for administration. Programs could be voluntary or compulsory or both. They were regionally localized. The legislation was not mandatory but permissive and enabling, authorizing regulatory programs under conditions and for the commodities specified in the act. The changes which have been made are relatively minor. The issues which separated processors and growers in 1934 and 1935 with respect to this legislation have not yet been resolved. IV. The Agricultural Marketing Agreement Act of 1937 The processing-taxes provision of the Agricultural Adjustment Act were declared unconstitutional because such taxes had as their single "objective was to take money from the processor and bestow it upon farmers who will reduce their acreage." (U.S. v. Butler, 297 U.S. 1.) Congress was further restrained from indirectly seeking to control production by "taxing and spending to purchase compliance." No ruling was issued on the validity of the market control provisions which were not before the Courts. These programs would remain effective only if the various parts of the Adjustment Act were in fact separable. The Administration concluded that the parts wore in fact separable. While some courts sustained this view, others ruled adversely without touching the broader question of constitutionality. To re- movo "the technical questions which attorneys for processors raised in the court..." the market control and other relevant provisions of the Adjustment Act were amended ai re-enacted in a separate statute. This action resolved the matter of separability but did not settlo the validity of the new act or the control instruments issued under it. 10. The 1937 Provisions . — The new act set forth that the market control and pro- I I duction control sections of the 1935 statute were separable. Agricultural market-^ " ing was declared to be affected with the public interest and therefore subject to j control. The new act was intended to establish and permanently to maintain orderly conditions of marketing. The market control programs were accordingly removed from the relief and adjustment context of earlier laws. Thus a long-time market controlu^. program was contemplated, to function for the benefit of producers quite apart fromll the relief and adjustment laws. In the main, the provisions included in the 1935 act were reaffirmed J The word "marketing" was consistently substituted for the word "production." Provision was made for referenda at the Secretary's option to determine grower and handler views. Commerce subject to orders was redefined to include trade between any state, terri- tory, or the District of Columbia, and any place outside thereof; trade between two points in any state, territory, or the District of Columbia but through any place outside thereof (trade exclusively within any territory or the District of Columbia was hereafter to bo considered wholly intrastate); trade in commodities ending their transit in one state after purchase in another, including transactions in which either purchase or sale was made for reshipment of the processed product to another state, or for processing within the state in which transit ended for reshipment of the processed product to another state. Products normally in interstate commerce were declared to continue to be so defined despite efforts to remove such products from the terms of the act. The provisions of the act were declared to be separable. No specific provision was made for continuance of existing programs, but since the terms of the act under which they had been formulated were expressly validated, they automatically fulfilled the conditions required by the new act. V. Supplementary and Related Programs '■ Section 32 Programs .—The Agricultural Marketing Act of 1929 had provided for export diversion and for domestic relief diversion.! The Agricultural Adjustment Act of 1933 had provided that appropriated funds or money accruing from taxes could be used for expansion of markets and disposal of surplus products. Several divers- ion programs were undertaken under an appropriation of $150,000,000 in 1934. The 1935 appropriation of thirty per cent of gross customs receipts could be used with- out yearly renewal either for domestic or foreign diversion. Crops administered by the General Crops Section were equally eligible with basic commodities for these programs. For each industry it was necessary to find that: (a) a surplus existed; (b) expansion of outlets was feasible; (c) the industry was so organized that di-^ version programs could be easily administered. Direct purchases for relief distri- bution were later supplemented by the Food Stamp Plan. V Relief Purchases .—Until 1935 relief purchases channeled through the Federal Surplus Relief Corporation. After its liquidation in 1935, the Federal Surplus Com- modities Corporation purchased farm products under funds obtained through the Jones-Connally Act, the LaFolleto amendments for dairy products, and Section 32 funds. Until 1937, purchases wore made by the Commodities Purchase Section of the •Adjustment Administration and distributed by the Corporation, after which the Cor- poration, with greatly expanded powers, undertook its own purchasing program. Control Committees generally recommended the quantities and prices of purchases made for diversion to relief. Final decisions were made by the Corporation, which also set its own grade and size standards. The buying policy of the Corporation was integrated with the control activities of the industry committees. While ship- pers frequently refused government orders in hope of future price rises, charges 3>V; bit it;. i;r i - ? -. I 1 11 were frequently made that undershipment of allotments was attributable to government buying. Exports, Stamp Plan and By-Products Diversion . — The Adjustment Administration regarded export subsidies as a temporary expedient by which foreign contacts could be maintained. Sales under the Food Stamp Plan were charged against regular allot- ments, since they moved through regular channels of trade. With the assistance of the Administration, by-products associations were formed by control committees in order to stimulate diversion and to equalize benefits and burdens. VI. Efforts to Extend Market Control Provisions to All Farm Commodities In its consideration of the Marketing Agreements Act of 1937, the Senate Com- mittee on Agriculture and Forestry strongly advocated extension of the statute to more products, holding that "under the circumstances there appears to be no logical reason for excluding producers of honey bees and canning crops from obtaining the benefits provided in the bill." The efforts of this committee were unavailing. The case for extension to all commodities has been repeatedly and thus far unsuccessfully presented. No major changes have been made in powers or in administrative procodures. The 1939 Bill . --In the first session of the 76th Cong., H.R. 6208 was intro- duced. While most of the provisions were relevant to milk, the concluding section would have eliminated the enumerated commodities and substituted therefor "orders issued pursuant to this section may be applicable to any agricultural commodity or product thereof, or to any regional or market classification of any such commodity or product provided that in no event shall such orders apply to apples except apples produced in the states of Washington, Oregon, and Idaho." Organized cooperatives and the American Farm Bureau Federation supported the proposal, while opposition from the processors was spearheaded by representatives of canners. The case of the canners was much the same as that presented in earlier and again in later hearings. The following points were stressed: (l) With the except- ion of cling peaches and asparagus, federal market control of canning crops has proved unworkable. (2) Production control and acreage allocation were essential since growers would otherwise overproduce and necessarily be required to dump large parts of their crops. (3) Proration would require either historical or current bases, either of which would involve inequities, particularly whore growth rate3 in various regions differ. (4) Controls for canning crops must be prepared a year in advance and weather or yield variations will preclude accurate estimates. (5) There is no adequate secondary outlet for crops which are restricted from primary channels. (6) Problems arising out of carryover of staple canned goods were held to be insoluble. (7) Canners resist the imposition of control instruments in the formulation of which they have had little part. (8) The necessity to harvest many crops within a few hours precludes effective grade and size controls. The 1940 Statute . — S. 3426, introduced into the third session of the 76th Cong., provided that orders could be made applicable to any agricultural, dairy or horti- cultural commodity or product thereof. The Department of Agriculture sponsored this bill, holding that several commodity groups had been ineligible for orders and since the Department would not effectuate agreements without orders the use of the statute had effectively been denied to producers of all unenumerated commodities. The case of the canners followed the lines laid out above with little deviation. However, in this presentation they did emphasize the broad powers which could be included in orders. They feared that the Secretary might apply the order to an uneconomically small region and that in it he could effectively if not explicitly control quantity, *io snooi'bo-tq ^aibuloxv tc ■Jo duo anLii-i*; am^Xcfonl vO) . slotf i13t& >.ubi/iofnq eiuori Wi jj /firtiiw b< [qqr. oh am otf bLvoo uiMbv: ;);•>{:+ fcobr 12. price, grade or size, allocation, methods of competition, and assessments* Essen- tially, the 1940 case of the canners Was based upon their fear of arbitrary and un- reasonable control by the Secretary and their belief that equitable regional allo- cations could not be achieved. Representatives of the California Canners League stressed the broad powers of the Secretary to limit total pack; allocate it among competing regions; allocate raw products; set up reserve pools and distribute their proceeds; require price lists; set up grade, size and package standards. All this, they hold, could be done with no effective remedy or appeal facility open to pro- cessors upon whom the control would be imposed. I Tho 1947 Statute . — The efforts which began in 1934 to extend the powers of the 'Secretary to impose orders on all agricultural commodities were resumed shortly after the close of the war. In the second sossion of the 79th Congress, a bill was introduced providing for minimum standards of quality and maturity; for assessments deemed reasonable by the Secretary even in periods during which no control operat- ions were undertaken; for extension of the terms formerly applicable only to enum- erated commodities to any farm commodity or product thereof or to any regional or marketing classification of any such commodity or product thereof where a majority of producers had approved or favored the use of the agreemont or order. This last provision would have made market controls applicable to any and all commodities in the American economy. The requirement for approval of fifty per cent of handlers was not affected. This bill was withdrawn and a second bill was substituted for it. Pour major provisions were included in the latter: tho power to establish minimum quality and maturity standards and to require grading and inspection was reaffirmed for all com- modities other than milk and its products; second, the bases of allotment were changed to include amounts sold or quantities currently available for sale rather than amounts produced or sold; third, in raspoct to milk and its products each hand- ler would be required to pay prorata shares of expenses which the Secretary found would necessarily bo incurred; fourth, except for the addition of almonds, the ap- plicability of orders would not have been extended. Thus, under the terms of this bill only one major control power would have boon added. The Secretary would have been able to control grade and size regulations after seasonal average price had reached or was deemed likely to reach parity price levels. Pub. 30 5. 80th Congress, — Tho two bills discussed above were finally resolved into ri.R, 452, v-h"ich~was "Introduced into the first session of the 80th Cong. This act contained four major provisions: that minimum grade and quality standards could be promulgated by the market control boards even if season average price ex- ceeded parity levels; that orders could include terms requiring inspection; tho pro- vision for assessment outlined the preceding two acts was again included; that terms of orders could henceforth be applicable to any agricultural commodity or product thereof provided that prior to the convocation of hearings, at least fifty per cent of affected producers had indicated a favorable disposition toward the order. The first three provisions were enacted. The fourth was not enacted. The basic act of 1937 required suspension of all control activities designed to lift prices in periods during which season average price had reached or was likefy to reach the parity level. This was the single new control powt,r added. Through this statute it has become possible to promulgate grade and size requirements, and to obtain funds to support the administrative activities of the control committees when no limitation is authorized. These provisions wore passed. Tho provision to extend the control terms to all commodities was deleted from the bill. Fruits for canning or freezing, except olives, are not eligible, nor are vegetables for cann- ing or freezing, except asparagus. loithnoo eldi t iw bluoo I BldfotO 3« .« 13. In consequence, one power promulgation of grades and sizes and requirement for inspection — have been added to the terms of the 1935 statute. Fourteen years of efforts to extend the benefits of this statute to all farm products have been defeated. 14. PRESENT STATUS OF FEDERAL MARKET CONTROL I. Purposes J The Agricultural Marketing Agreement Act as it now stands authorizes market - control as a permanent adjunct of agricultural marketing^/ It is entirely unrelated to emergency relief or to long-run adjustment objectives* Three declared standards are set out: first; "to establish and maintain such orderly marketing conditions" as will obtain parity prices for the relevant commodities; second, to protect con- sumers both by gradually approaching parity levels and by "authorizing no action which has for its purpose the maintenance of prices to farmers" above parity levels; and third, to " establi sh and maintain such minimum standards of quality and maturity" as will "effectuate such orderly marketing" of products other than milk "as will be in the public interest. "iy If the Secretary determines that a proposed control program which otherwise conforms with the terms of the act may reasonably be expected to re- sult in parity prices to farmers, he must promulgate the proposed program. Similarly, if season-average prices at any time exceed or are likely to exceed prevailing parity levels, the Secretary must terminate any regulatory actions \rhich are intended to raise farm prices. However, minimum grades may be promulgated and enforced after; parity levels have been reached. Whil6 this statute is intended primarily for the benefit of producers — con- sumers and processors and other handlers are vitally concerned with the volume of sales and conditions of distribution. There is no logical compulsion that these three interests be congruent. Parity prices to producers will not necessarily di- minish this conflict of interests, nor will regulations governed by the parity-price limitation necessarily benefit producers, or set the optimum price for consumers or handlers. Theoretically, there is a continuous divergence between the interests of pro- cessors or handlers and of producers. Most control-powers ultimately resolve them- selves into some form of central regulation of sales, in specific outlets if not in total. As a generalization, where demand at the producer-level is inelastic for available supplies, producers vail benefit from limitation. If average marketing or processing costs per unit of output are high and unrelated to volume, handlers or 'processors will benefit to a much lesser degree. In fact, supply-limitation may in- crease net short-run returns to producers, but result in decreased net returns to handlers or processors. The interests of consumers are usually best served by low prices and high volume. Consumer interests will probably diverge less from those of processors than from those of producers, at least in the short- run. With these ob- viously different and apparently conflicting short-run interests, it must be deter- mined whether the parity-prices-to-producers standard does in fact effectuate the most desirable compromise. Very probably, the parity standard will give adequate weight to the interests of consumers and handlers only by accident. Experience with voluntary and compulsory programs alike indicates that short- i run price enhancement may not actually increase farm incomes in the long run. From the viewpoint of producers there are two grave dangers involved in any market con- trol program, quite aside from equity issues. First, seasonal demand may be partly Market control means the manipulation of one or more factors affecting price. y Parity calculations may be based upon all or part of the period August 1919 - July 1929 where the Secretary finds that data are inadequate for the 1909-14 period. Adjustments for "out-of-line" costs may be made for milk. determined by past realized prices. If this is true — and this temporal interde- pendence of demands may be expected to prevail wherever reasonably close substi- tutes for the controlled product are available — the maintenance of controls may lead to a long-run lowering in the level of demand. Increased prices may stimulate production of competing goods, which will further decrease the level of demand. If the evidence introduced at the required public hearings indicates that the proposed control will probably result in parity prices and the program is otherwise legal, the Secretary is technically required to promulgate the control program; even if in his judgment the resulting depression in demand will, over the long-run, adversely affect producers 1 income. Second, industry output and productive plant may increase in response to prices which have boon raised through limitation of shipments. In- creases in output of the controlled product in the regulated area or in competing areas or of competing commoditie s may occur. In the absence of counter-changes in demand or costs, long-run income to producers will fall and the administration of the control program will require increasingly drastic limitation. The probable long-run effects of supply limitation upon on-farm demand and- " upon supply-response are also related to the interests of consumers and handlers, insofar as these groups are directly interostod in an equilibrium allocation of re- sources. Control programs do not necessarily preclude such adjustments where price is manipulated by means other than continued limitation. However, no attribute of the parity-price formula assures that its use as a governor of market control pro- grams will contribute towards achieving an equilibrium in agriculture. In sum, the parity-price standard does not necessarily resolve the conflict among the groups concornod in controlled marketing and it may not contribute to the solution of production or marketing maladjustments. If parity-price is not an ade- quate standard either for the benefit of farmers or 'of the whole economy, it must be determined if better standards can be formulated, provided that the entire con- trol mechanism is not rejected. The parity price objective has already been modified in two ways.6/' First, whenever the Secretary finds that the calculated parity price of milk is "not reasonable in view of economic conditions which affect market supply and demand . .. he shall fix such prices as he finds will reflect such factors, insure a sufficient quantity of pure and wholesome milk, and bo in the public interest." It is first implied here that the parity price may not in fact be the most desirable price ob- jective from tho' viewpoint of producers nor bo consistent with the interests of consumers. Thus, the Secretary is quite free of the parity-price limitation inso- far as setting or adjusting minimum milk prices is concerned. Second, the Secre- tary can now promulgate minimum quality and maturity standards for the enumerated commodities other than milk and can support this objective with requirements for inspection and grading. Since desired grade or size specifications should ulti- mately result in increased prices, this now section may conflict with the provision requiring suspension when parity levels are reachod. The important fact, howovor, is the modification of tho parity standard. Procedent for broader and more reasonable goals to guide the Secretary already exists. 6/ Ihen the 1919-1929 period is used, tho Secretary may effectively free himself from the parity-limitation by using all or any part of the prescribed period. :1 gffsiiii 16. II. The Control Powers la appraising tho permissible terms of federal market controls, the adequacy of the powers vested in the Secretary to obtain the stated objectives of the act must bo assessed. Then it is necessary to determine if these powers are adequate or excessive to obtain ends which, first, will give reasonable weight to all of the various and conflicting interests involved; second, will actually contribute to the long-run bonofit of producors; and, third, will contribute to the establishment of economic equilibrium in the farm economy. Agreements ,-- Marketing agreements must bo intended to obtain or maintain pari- ty-prices or to establish minimum grade categories. Due notice and opportunity for hearing are required. Such agreements bind the Secretary and handlers of any agri- cultural commodity or product thereof insofar as such handling is in or affects the stream of interstate or foreign commerce as defined in the act. if Latitude for con- trol is virtually unlimited. There are no specified terms. In consequence, pro- visions not in conflict with other laws and conforming to the declared policy are valid. As a result of the instability of voluntary market control, it is not the policy of tho Department of Agriculture to enter into an agreement for which no parallel order has boon effectuated. YJhere less than 100 per cent of the industry participates, outsiders benefit disproportionately and affiliated firms arc thereby induced to withdraw. If tho full industry participates, there is continuous induce- ment to affiliated firms to violate the control regulations if it appears that a large majority of shipments will remain under regulation. The order is the con- trolling instrument, even if all shippers sign the agrooment. There is in fact some question that retention of tho agreement-provision serves any useful purpose other than to provide a basis for voluntary initiation of programs. Orders,— To issue an order, tho Socretary must have roason to, believe that its promulgation will load to obtaining or maintaining parity prices. 8/ He is required to give notice and opportunity for hearings, upon the record of which he must make his findings. The terms which may be included in orders are classified under throe headings: (a) milk and its products; (b) other enumerated commodities; (c) both milk and other enumerated commodities. Milk and Its Products. — One or more of the following terms and no others ex- cept ^EhTbse relevant to all commodities must be included in milk orders: (a) classi- fying milk by form of use, sotting times for payment and fixing minimum prices for each such category where such prices are uniform among handlers except as adjusted for three specified differentials; (b) payment of 'uniform prices by each handler to all producers, except that for milk products only, approval of throe-fourths of pro- ducers by number or volumo is necessary for payment of uniform prices by all hand- lers regardless of the uses made of the milk, where such uniform prices are correct- ed if necessary by four spocified adjustments; (c) adjusting payments among handlers so that total payments by each handler shall equal the price as determined in (a) or (b) multiplied by the quantity purchased by him; (d) paying for two months the low- est use-classification prico to producers who were not regularly selling milk in the rogulatcd milk shed in the thirty days prior to effectuation of tho order; (e) pro- viding trade services; (f) permitting cooperative associations to pool receipts i/Tho definition of interstate commerco has boon set out to make clear that Congress did not intend to use this statute as a means of governing intrastate trade. a/ z-t Technically, tho establishment of minimum grades as an objective is coeval 17 from various classes of milk, provided thoy do not soil at prices less than those determined under (a) above; (g) prohibiting limitation of marketing areas. The major controversies which have arisen in the control of milk marketing by this statute wore manifested in the first years aftd appear now to have boon reason- ably well rosolvcd. Prior to the 1935 amendments, milk handlers attacked the pro- grams on the basis of the due process, interstate trade and delegation of power issues. Since then, tho use of state laws as sanction for milk control has expanded. .While not actively supporting federal programs, handlers and processors apparently have accepted their applicability. It seems generally to bo considered by produc- ers, handlers and processors that tho powers set out in tho act aro adequate. Com- plaint with respect to slowness in issuing rulings — "particularly amendments — is quite general. Those complaints aro not, in tho main, directed towards tho provi- sions of tho Marketing Agreement Act; rather thoy relect disapproval of tho pro- cedures required under the Administrative Procedures Act, Protection for interests other than producers and processors is clearly necessary as part of general adminis- trative policy. Amendment of the administrative statuto is beyond the scope of the present discussion. It is possible, however, that tho present omorgency powers of that act may be broadened, or that changes with respect to handling or processing milk may bo desirablo. Tho control of milk marketing under the Marketing Agreement Act is, both in the law and in administrative practice, quite separate from tho control of the other cr.uincrated commodities. As noted, the Secretary is frco of the parity-prico ob- jective which governs promulgation of orders for other products. Ho need not ter- minate or suspend regulation when parity-prices are reached or are likely to bo reached. Permissible terms aro separately enunciatod in the act, oxcopt for tho four common terms. Provisions governing assessments and approval by producers of certain control techniques aro different for milk. Administration is handled by a scparato branch of tho Department of Agriculture. Two major conclusions seem to bo generally acceptable with rospect to the milk provisions. First, neither handlers nor processors want major changes in tho sec- tions governing milk contrel, although there is a general desire that administra- tion bo oxpoditod, Socond, since for all practical purposes the law and tho ad- ministration of milk aro separate and distinct, it may be desirable to ro-enact the milk terms in a separate statute. The controversy in tho control of other products centers around tho approval provisions. Milk handlers apparently do not want this section changed. If it becomes possible to compromise tho divorgent views of pro- ducers and processors of other products with respect to approval terms, it may be dosirablo oither to retain tho present provision for milk or to re-enact the milk terms into a separate statuto. The Enumerated Commodities .-- Except for milk and its products, orders may be applied only to the following commodities: fruits (including pecans and walnuts but not including apples, other than apples produced in the states of ITashington, Oregon and Idaho, and not including fruits, other than olives, for canning or freezing) and their products, tobacco and its products, vogetables (not including vegetables, other than asparagus, for 'canning or freezing) and their products, soybeans and their products, honoybecs, and naval stores as includod in tho Naval Stores Act and standards established thereunder (including refined or partially refined oleoresin) and hops. From the viewpeint of producers, this is a, permissive and not a manda- tory act. No order can bo imposed upon handlers of any commodity without assent of at loast two-thirds by number or volume of producers, who arc further protocted by tho provisions for termination. Yet to avail themselves of the programs authorised bobneqzo znd iot&naa aXxR no.v rtoxcr. , r«.3a 3£ tv./iu cSfdXV to oasr eta ||xor»c oPti^is YX4ncra»qqa euoneooonq Sttfi snoXbxiad ^awsn^otq £;)ncbol *}£ri4uoqqtfB ^XvnrJslftWS #on oX -oubonq >jd fcono'-iastoo od o4 \tLi%x>au% aicoaa 41 «T£41X.Wj3oiIqqji tiew b«4qoooa a -noO #o4uj»pofca o*ejs 4 or. oil* ai 4tro fto fc-rovoq orTJ- 4;:44 onoeaosonq baa tnolbtmti % si — B^oisifa«OBtB YXifiltfoX^taq'-* eartiXtfn 5M*/««i ni stacMft'/cXs or 1 4ooqnon 4/ti «»Xvonq Qiti afenawotf bodootib t nia/u ©rto tti l d - oxi' oi« ^rU'aXq.ntoo ricoiiT • Icuon*.^ oj *otq add lo XavdnqqxmXb 4ao£on i{©d4 norf4an t4aA 4n<.'ia«iousA $tti&x{&tau odd lo an eiacnu'd-iii nol no 1400401* »4oA aontfboaon'l tfri*c , x4aXiti&&A oii'-t nofift» boui«|ion *k>1* -ainitaufl XanortOM d"ts>c en vicasooon yXiioXo fcX ano-KiOodnq biu. sn-nufbonq; WWfJ' nc lo Biw/oq" i£otfo-noe<.o 4ao3onq ©da- dad4 ^movowon % .>£diaecq Si 4T ♦rtolsaj/o&li; 4xtdz girlseoootq no jinlX&i'aH o4 4ooqB'.*n rf4iv Bo^aodo 4ayti4 io 4 bs>tfobaond ad %&& dtw. a • o£ "^XXxsnonog od o4 moott ertoiawXdroo id'r^rn ottf -ooa'ox!4 ni - 003^0 nofcxars *ttm snossocosq non auoXbftr.it norfiXon t *BnX1 »wtoia.'i -flnieiithtixo 4;"«ri4 oni»iwb Xnnw;oa a cl o^o/iv dgtfOxi^Xvt % :dn4ftoo sfXir: ^rtlftt'ivoa zi *bo orf4 baa *Kpi ©ii4 soaoqnirq Iooi.-J-oj3'iq IX/> no*i ooixlc ^o^^l •fcorfibwqjj-j od • odd" 4i'ir.cio»-oi o4 fjXc r j3nX3i) r i od Y c,r! 4x ,4oxJi4:;x^^ brta ccr.cncqoH one sXXnt 10 COiD^nrr;:. a4otfLoiq nodd-o lo Icnartoo criy ni Y&uovon:rr;66 odT *o*tf4£t; ; G o4jinBqt..s a flX airfio4 J aldJ 4rwx" 4on o^ v£4ito4doq<} ancXbru«I ^XiK »snoiei;vv:q £*jVotqq« orld fedtfonfl ano; -oiq lo m/eXv dxzo^ovXb cdi oainonqntoo o4 oXrf.^.aaoq aomoood 4i 11 ♦b^ado ctoii H%ot odit j-j^no-f>T od no stXiitt uol aoxci-sronq drjnsonq ori4 alAiot od noxf^io oitf;jn. od ^fa« b nob no t s4o;/bonq t.4i bxso a(Xim nol 4qoox3 — tz vif lbompd b- JyKfipsjft 4yd s4wnlw bxts snacoq ^ibulorii) 3-.'v»/nl »feoXfifco«»8 ^itr-voTXP'i Jf!i ; o4 ^Xr(o ^bUi no?jonO .fioorffidaxiV' lo '.■.jdjS'yB On4 ft/ boonbonq fjoiqqiJ rL*.r!o" noxiiro ^ a oiq^/ • ^.rtxji.ionj bnx) f^nixoonl no nntnttno nol ,KoviXo |udrf4 n^ildo ,sd*y:l 3ftXfc;/Xofrl 4on £ma ^od^bl 18. by this statute, producers of agricultural commodities other than those specifi- cally enumcratod must obtain passage through the Congress of an amendment to tho lav/. Thus the effective use of a permissive statute is denied to producers of many farm products. Tho 1953-1935 programs were open to all commodities. In 1954, enumeration of eligible commodities was proposed by processors, but not enacted by the Congress. In 1935, this enumeration was included in tho Act, Since then, now commodities havo boon added only by action of the Congress. For twelvo years the Department of Agriculture and the producer-organizations have pressed for amendments which would open this act to all products. For twelve years representatives of proces- sors and handlers have vigorously and successfully resisted these proposals. Neither faction has been disposed to compromise. Tho 'issue is not the suitability of markot control programs for various com- modities, but rather, the possibility of imposition upon handlers of an order in- tended primarily for tho benefit of producers and to the terms of which processors or handlers arG unwilling to assent Jt/ By excluding their commodities from the e- numoratod list, processors have protected themselves against the imposition of un- do sired orders. However, they havo sacrificed to this end the opportunity to use the statuto whore their own interests or tho interests of producers of unonumc rated products might be furthered. Grower-representatives havo defended the principle that programs may be effectuated vathout the approval of processors and handlers. In turn, they have been unable to use the act for canning products or other unc- numorated commodities. It may be possible to resolve this impasso by altoring tho provisions for approval of orders to make them applicable to all commodities with- out permitting processors and handlers to dictate the terms of the order or growers arbitrarily to impose controls on other groups. Such a change would bo consistent with the suggested alteration of the declared-policy section to give additional weight to consumer and handler interests, Tho alternative is effectively to close off to producers of crops for oanning and freezing and of unonumc ratod products, the controlthc control opportunities accorded to other groups. The case of tho canncrs against extension of the terms of this permissive statuto to all agricultural commodities may be resolved into two broad sots of objections. First, they hold that freezing or canning operations render unsuit- able tho uso of control techniques which they admit to be suitable for unprocessed products, Thoy point out, quite reasonably, that canncrs arc less benefited by supply limitation than are producers. They assort that contracts with growers arc signed in advance of planting vegetables and in advanco of setting for many fruits. Deviations from average yields render precise prediction of merchantable production oxtrcmcly difficult. Therefore, they hold that complex provisions for readjustment of contracts in responso to yield changes must bo written into tho orders. Canned ' goods become grocery staples and can be carried over into subsequent periods. Thus, canncrs point out that the automatic elimination of surplus products which supposed- ly lessens tho problems of market control for perishable products does not occur with canning goods. Finally, thoy hold that determination of equitable regional allotments who to competing producing areas 'have different histories, growth rates, maturity dates, life on tree or in storago, weather hazards, and market opportuni- ties is virtually impossible. These arc compelling arguments. However, the terms of this permissive statute 2/ The Department considers this to be a reserve power. Its use would probably involve sufficient administrative difficulty to destry tho program. Processors rofuso to submit thorns olvo 3 even to the remote chance that this provision would bo usod. 19. authorize the use of broadly defined control techniques in specified producing or marketing areas only when publicly-received evidence indicates that' such techniques may ho oxpectcd to effectuate the declared policy of the act. Thus, whilo the Sec- retary is required to restrict applicability of orders to the smallest practicable areas and to rocognize regional differences, he may promulgate the order only upon demonstration that it Trill probably raise on-farm prices to the parity level. Thus the objection here is actually directed towards the declared policy of the act to obtain price benefits for producers. If this section were altered to require demon- stration that processors would not be unduly damaged, and if further their approval wore required where their financial interests wore signif icont, tho case of the canncrs would be' dissipated. For then, if the proposed control program wcro not clearly suitable, the Secretary could not effectuate it, Furthormoro, the difficulties specified by canncrs arc not uniquo to their products. Producers will always desire a more drastic limitation of output than will any handler or processor when margins arc largo and unrelated to volume* Orders for canning products havo specified adjustments in prices to growers for varying volumes of pack, Tho sizo of carryover may in fact be a compelling reason for centralized limitation of pack and equalization of the burden of limitation. Equitable allocations, regionally and individually, which do not freeze production or marketing patterns havo boon by far tho most difficult phase of administration for all control programs. It is not demonstrable that control programs will always mitigate theso problems. It is certain, however, that these problems will exist without control and their cxistenco cannot be attributed to the cxistcueo of tho control program, For are these difficulties in allocation of shipping or packing rights unique to products for canning or frcozing. Processors have long objected to the scope of p6wors vested in the Secretary and to tho administrative provisions for assessments, exposure of books and records and petition for review. This resistance is also attributable to tho fact that tho present statute is intended for the benefit of producers who, with the Socrotary, can impose control programs on processors. If these two issues wore compromised, the applicability of orders to all com- modities would probably be acceptable, Tho nccossity for producers to go to the Congress each time it is desired to initiate a program for an unonumcratod com- modity would bo eliminated. The facilities of tho act would bo available for all who wish to uso thorn. It would be a somewhat different act, and somewhat less restricted to the interests of producers alone. But many producers who now can find no bonofit from the act would bo able to effectuato programs. It vrould not be nocossary to deprive producers of their veto power over processors. It would, how- everi be noccssary that whero interests and investments 6f processors arc signifi- cant, tho proposed program be mutually acceptable. Such, in fact, is the necessity now if administration is to be successful. To make the orders provisions applicable to all agricultural commodities is not to imply that su6h controls should actually be used in the marketing of all products. Obviously, the effectiveness of any specific control program will de- pend upon the characteristics of the product, the nature of the economic problems facing its producers, tho organization and location of the industry and the pre- vailing methods of marketing. Experience is now s^lfficicnt broadly to indicate tho limiting kinds of programs which can be used for various problems and commodi- ties. There is, moreover, no need to specify in the act tho commodities which can bo effectively controlled or tho powers which can bo effectively used. It is far simpler to establish tho objectives of such programs in the policy section of the governing act; to specify a scries of terms permissible for inclusion in ordors and broad enough to provido authority for any reasonable type of program; to require »Xl£jX} oeii o-r ^o$w J o&i 1o 02.- o ijrf* «4tf.;CiX'tjta$*3 Of few >f Kfi^Hi |g ItjjaAKi'i acp^* •^oci:; f»ca'i;v •- oytQ j.j..,. • . .. ■ Acifi 1 *wc ; .*as "is ff3,H-^ttj!jP £jtf*;>«/) .Q'i.oa y ?W r X.c i^j-j; ano|*;.bp i, & Vfwbwfrorjj CX afmr^w; X^-'to £w ^^steR**^ ~i #1 XArtlfayj XXvl " ?o3 vcrTO- ok: .a;_. cn^ -.BttSMBlLvr.. •/««: -,^X«IW9P .jX^'p; :kc-.;I ''wfcwwjc '^ac . t% f' 5 - : : uJi} dl ' '.af:.-? ax 20* open hearings and findings that tho proposed program for a given commodity can reasonably be expected to contribute towards the attainment of the declared policy* If there is doubt With respect to the propriety of any proposal, such doubt should be clearly manifested in the hearings. Furthermore, unsuccessful programs may bo terminated by the Secretary or by affected producers. To specify cither the com** moditics or precisely to define the permissible control mechanisms would require a comborsomc act unsuitcd to tho broad variety of problems likely to rise in the mar- keting of farm products. Permissible T e rras for Enumerated Commodities .— Marketing orders for commodi- ties othor than milk must includo" one or more of tho following terms and none other except those common to all orders: (a) limitation of marketings by quantity, grado, size or quality in specified markets or market 'periods; (b) allotting volume to handlers over any specified period by quantity, grade, size or quality according to a uniform rule based on past sales or ambunts currently availablo for sale; (c) allotting volume to handlers by quantity, grado, size or quality according to a uniform rule based on past performance or curront merchantable supplies to any specified market or markets in interstate ' or foreign commerce; (d) determining tho magnitude of a surplus by quantity, grade, size or quality and providing for con- trol and disposition of such surplus and for equalising tht3 burden of its control or elimination; (c) establishing reserve pools by quantity, grade, size or quality; (f) requiring inspection of tho commodity during specified periods.^ A wide variety of programs has been undertaken under these terns. Since those powers were first defined in the 1935 statute, programs have been formulated for bees; cantaloupes and Honcyball and Honoydow melons; caulif lower; celery; citrus fruits; California fresh deciduous tree fruits; grapes; hops; lettuce; milk; onions; peaches; pears; peas; potatoes; prunes; tomatoos; walnuts; and watermelons. Some of those programs have governed handling by all shippers. Some have been confined ' to single producing areas while competing areas had no program. In other instances, several areas producing a given product have been under regional programs simul- taneously. Only two major changes have been mado in the terms applicable to enumer- ated commodities since 1935. Thero has boon no indication that it has boon impos- sible to formulate any dosircd type of program under one or more of those powers or that tho powers are either excessive or unreasonable. Ter ms Comm on to All Orders. — All orders must contain one or more of tho fol- lowing "provisions": (a} prohibiting unfair methods of competition or unfair trado practices; (b) oxcopt for fluid milk and cream, providing for open prico filing; (c) providing for selection of the control agency by the Secretary and defining their duties and powers; (d) terms necessary to effectuate the provisions set out in tho two preceding sections. Those three sots of terms provido the authority for tho actions of all control boards. Thoy have boon broad enough to permit formulation of a wide variety of programs. Thero has been relatively little recorded dissent to these pcrmittod powers. Both supporters and opponents of tho market control programs have agreed that given the ends sought, the pcrmittod p6wors arc woll'conccivcd. Dissent has centered around tho provisions for approval, effectuation, assessments, books and records, and appeal, No affirmative provision for ad\ r ertising is mado in these t^rms, although po\TOrs which prohibit, regulate, or restrict advertising cannot bo included. Industries in which private brands, comprehensive advertising and dealer Separate provision is mado for limitation and allocation of hops. ,vo ; Uoq frv-jrXso^ off* ^ 7n*.noo 03 bcJGoqxo o; iiA^SPQOWBflW |<»*W!fic#iB5 l l »f3Pil9ofi wis- «1 .ovhsolinc*: ^X*o >Xo swf £ oej&pvt f 4j»v>vt »u-«4o?uoo« fo-tfrwo 4X«J:;i n :A-t rr.iloh o. L v£o.-/eo*iq no • . i»xwt orf* nj ?>* etio|v/«iq 'ijjdruinov Jiootd cffcr ci ocy&iu.w sf:w> ixaOa-ieo'^o .i^oil&at-} /vrtr.*£ ">.c vni-J.'A ~ ' "' • - ' ; ••' ' -» ♦ ft^H-o>.y.y»;> g ^t ^-^H rsg** cmoY cXcf It. a fcf&a afto$ gaiira? iVi To"'~V -"-i .^v.^ ;r..n£c.oq<*. ai vd-il^vp no ssia 4 >;:,*«:. nv... :•>... ^i^!3t^ .*» «*f»0$g *^l$itft«^i ^« fcoJhXi fc6Jl£.?oora tovo IttoibfasA (a) |$£ftti ^c>^ Q£W»»»" M W&fi*^* •. • '■ ' * ■ . . . . . . ■ ■ . . ' Si : Sti ■ f -' ■ 3-f isig^^^st ^x«^fia^.ns ^w3j3a» Sfocai^ wt»rf ^ewi'-a^ amx*i- ~ sjs^atfepw^ Sfssaj: wn a*»t on^iig: .^dfi'l onftfa ao5fflh2*aasa»i?. ftotfo tft rt?v/9«E. y».«Mi*- ^ o-\oet; •*»• otsa- xs^««s.: to 9$^* I«k2bips^ Terrs ••K&tfiwnwi'- &"to 2^o. OR). Therefore, he would conclude, quite reasonably, that were he alone to withdraw from the control group, he could extend his output (as to OB', OC, OD' etc.) and thereby increase his net returns. This is one of the weaknesses of volun tary control. If enough shippers withdraw and extend output to break the price, the control fails. If only a few withdraw, those remaining are faced with the con- tinuous spectacle of differential benefit to unaffiliated firms and are thereby themselves induced to withdraw, and again to expand shipments to the competitive level. In short, if the industry is to avail itself of control techniques by which to manipulate volume of sales in any output, such controls must be compulsory, par- ticipation must be universal, and penalties must be assessed to dissuade firms which still regard themselves as atomistic enterprises from expanding output to the competitive equilibrium level. The second major method for controlled manipulation of quantity sold on given demands — with no effort to affect the demands themselves — is to distribute sales over various outlets in such a way as to yield maximum returns to the control group as a whole. 31. Figure 3 A EC Price Price Price . Price Let Figures 3B and 3C be the on- tree or in-the-f ield demands for a given product in two independent outlets. If total industry supply is OM, then under atomistic competition OB and OC will be sold in markets B and C respectively at the same price OP. This will be duo to tho fact that each individual firm disregards its effect on price and will divert shipments to the higher-priced market. Ultimately, this process will result in equal net f.o.b. shipping-point prices. However, larger industry returns could be obtained by so distributing the supply OM that net marginal revenues would be equal in both markets , since if these functions were unequal, diversion of a car from the market in which marginal revenue (the change in total industry revenue associated with a small change in shipments in any out- let) was lower would decrease total industry receipts by a smaller amount than that which would be added by diverting the car to the market in which marginal revenue was higher. These marginal revenue functions are shown as BE and CR in outlets B and C. Since those functions indicate the increments to total receipts on- tree or in-tho-field , it would clearly pay to ship no more than OB' in outlet B and no more than OC 1 in outlet C. To ship more than these amounts would mean a decrease in total revenue to the industry. A slightly larger amount 'would be sold in market C at the slightly lower price 0P r . Sales in market B would be restricted to OB' and price would rise to OP'. In total, these two quantities equal OM' in Figure 3A. Thus, to discriminate between these two markets, with their assumed demands, the industry should permit the quantity OM - OM 1 to remain unshipped. Thus, wherever demands are different in independent outlets, discriminatory marketing — distribution which equalizes marginal revenues but does not equalize prices — will benefit the industry. But again, if each shipper is free to act, he will divert his product to the higher- priced markot in the belief that a change in his own market distribution will not sensibly affect market price. Thus again, if industry returns are to be enhanced by controlled manipulation of sales over unrelated markets, some means must be provided by whi ch all individual shippers are required to abide by the decisions of the control board. Summary. — All techniques for control may be resolved into manipulation of level of demand or manipulation of quantities sold on given demands. Furthermore, in either event, most techniques may be resolved into some form of quantity manipu- lation. Thus rate-of-f low, grade-size and geographical controls of distribution are designed to lift or to maintain levels of demand by controlling sales in one or more of the related outlets.. As an example of control operations in independent markets, grade and size programs are based upon the belief either that demand for available quantities in any grade category is inelastic, or less elastic than 1 32 demand for quantities available in alternative outlets; or that such control may rest upon the notion that the level and shape of demand for one grade or size cate- gory is causally related to prices or sales realized in some other grade -and size category. Thus, limitation of output in the specified grade or size outlet is designed either to increase group returns by controlled distribution in independent outlets or to lift demands in. interrelated .outlets. Control and the Structure of Competition . --To establish a control program, tho factors effecting prices to growers must be identified and their interrelationships must bo measured. Ono or more of tho profit-affecting variables must be selected and an administrative mechanism for their manipulation must be set up. Methods of requiring individual shippers to abide by the decision of the control board must be formulated. When this is done, the right to make some or all of the decisions which affect the profitability of his enterprise is removed from the discretion of the indi- vidual entrepreneur. Decisions once made by him for his own benefit are after the initiation of control made by representatives of the group for tho benefit of all affiliated firms. In general, only a few of the major decisions affecting the profitability of the individual enterprise affiliated with the market control are transferred from the authority of th9 individual shipper. Once control is initiated, the single firm is no longer able to disregard the effects of a change in its own output upon market price because ordinarily all firms participating in the program will change output by an equal proportion. Thus, the price-elasticity of demand facing the individual enterprise in any market outlet and at any level of market price closely approximates the price-elasticity of the total industry demand funct- ion. The group or industry marginal revenue function becomes relevant to the con- trol group as a whole, and the group equilibrium adjustment takes on the attributes of monopoly. . Thus , one of the major attributes of the competitive industry is eliminutadiZ/ Insofar as other decisions, particularly those associated with production ac- tivities are unaffected, central control does not completely destroy entrepreneurial dependence nor does it translate an atomistic industry into a monopoloid firm. However, the level of competition, at least with respect to output adjustment, is lifted to the group level, and if the entire dndustry is actually affiliated, to -t Structure of competition will bo defined in terms of three attributes: the elasticity of substitution between the product and the most closely related com- modity, which will range in magnitude from infinity for conceptual atomistic com- petition to zero for conceptual monopoly; second, the number of firms and the elas- ticity of price in respect to output for any single firm, price will be unaffected by any possible output adjustment by any enterprise in atomistic competition, and the capacity of firms to affoct price through output adjustment will increase as the monopoly limit is approached; third, changes in the number of firms as a result of deviations from prevailing rates of return. Where in response to a slight up- ward deviation of not returns to entrepreneurship, there is an increase in the number of firms, atomistic competition may be presumed to exist. At tho concoptual extreme of monopoly, a change in net receipts to entroprcneurship will not be associated with any chango whatever in the number of firms in the industry. 33 the industry level.— 7 There are other moans of competition than adjustment of out- put. But in yielding up the power to adjust his own output according to his own independent judgment of the market situation, the entrepreneur loses an important element of his managerial individuality. Thus, market control intensifies the mo- nopoly -aspects of industry organization, but unless the ability or willingness of shippers independently to adjust other factors affecting profit than output is eliminated, regulation does not necessarily create a single monopolistic firm in which competition among separate enterprises is wholly eliminated. Instability of Control . — It is important from the view of public policy to note that controls necessarily are monopoloid or monopsonoid techniques. From the view of the control agencies and the industry itself it is equally important to note that enterprises yield up little managerial independence other than their con- trol over output. From this fact stems the fundamental instability of all market controls, both compulsory-universal or voluntary-partial in nature. The tendency of the separate firm in the compulsory control embracing the entire industry to regard itself as a competitive entity has been noted. The con- sequent tendency to expand output past the competitive level when the control has succeeded in lifting prices by monopoloid techniques has also been analyzed. The result is the continuous temptation to the individual to overship in total or in specified outlets. If enough shippers yield to this inducement, the control mech- anism will fail . Some controls encompass only a part of the industry. The same two questions which emerged in the pre-1933 voluntary programs are relevant here. Can the con- trol group benefit itself when shippers in its own or other areas are free of regulation? How stable are those partial controls relative to the compulsory programs in which all shippers participate? The equilibrium adjustment of output under partial control can be shown in Figure 4A. Figure 4 Equilibrium Under Partial Control A B Sales — ' In the California citrus industry, for example, all firms are nominally in- cluded but representation on the Distribution Committee is such that there are still competitive adjustments of their actual shipments by the dominant cooperative shippers and other cooperative or commercial handlers. 34. Let DD be total industry demand. Let S 0 be the supply function of the unaffiliated shippers not subject to control. Since, acting separately., they will adjust in- dividual output so that price and marginal cost are equal, the demand facing the shippers in the control group is DD - S 0 or D c D c* The su PP^y function of the con- trol group is S c . In setting the desired level of shipments, the control group adjusts its output to equalize its aggregate marginal cost function and the mar- ginal revenue function relevant to D C D C . This is shown as M C R C , The control group will produce output 0M C at price 0P C . At this price, the unaffiliated shippers will produce M C M Q . Outsiders will benefit disproportionately. Under atomistic competition, the two groups together would turn out output OM which would sell at price OP. If all firms wore in the control programs, the two groups together would sell output 0M m , which would sell at price 0P m determined by the equalization of the aggregate mar- ginal revenue and marginal cost functions at OR. Industry returns would be largest under full control and smallest under competition. But with the assumed demand and cost functions, the outsiders would benefit more from partial than from full control. The affiliated firms would receive larger total returns from partial control than from competitive organization of the industry. Their membership, however, will be faced with the spectacle of differential benefit to outsiders when control is par- tial. Thus, "umbrella-holding" has been the major factor leading to the disinte- gration of voluntary controls. The effect of partial control on. the two groups is shown in Figure 4B in which the cost functions of the two groups are reproduced. With no control, the two groups would produce outputs 0C o and 0G C , determined by the nature of their cost functions. Under monopoly or complete control, they would produce 0Q o and 0Q C respectively, in response to the marginal cost-marginal revenue equilibration at OR in Figure 4A. However, individual shippers in both groups would be tempted to expand output in response to price 0P m . Under partial control, the unaffiliated group will sell 0L o , determined by equilibrating individual marginal costs and out- put 0P o . The control group Will turn out 0L C , determined by equilibrating the mar- ginal revenue function M C R C and the aggregate marginal cost function 3 C at OS. Thus the control group under these circumstances will sell a smaller amount at a lower price than under full control. On the other hand, the unaffiliated shippers will receive a lower price with partial than full control, but may be able to sell a sufficiently larger amount actually to receive larger total receipts. Thus par- tial control will benefit the shippers who hold up the market, but greater advant- age will accrue to outsiders. Individual firms will be doubly tempted to overship under partial control, by the price 0P C 'which exceeds the equilibration level OS, and, by the knowledge that outsiders benefit more than the participants. Controls, then, whether industry-wide or partial in nature, are both restrict- ive and unstable. Continuous inducement exists for violation by the firms in the control group. Producers or handlers submit to these central controls only because there are methods of profit enhancement which can be achieved through combination which cannot be achieved in an atomistic structure of competition. Market controls, both voluntary or compulsory, have usually been directed toward the solution of one or more of five such problems: (a) the short-run surplus; (b) the long-run surplus: (c) interrelated demands; (d) trade practices; (e) market communications. The powers permitted under the Marketing Agreement Act of 1937 are sufficient to affect the structure of competition in the marketing of farm products. In appraising them, one should first inquire whether they facilitate the solution of problems which would remain unsolved if managerial independence were unimpaired and monopoly aspects of industry organization were not heightened. But one should also ask if the real income of consumers or the money income of groups other than 35. producers is diminished. Finally, one should ask if in meeting these five problems, the solution is mere temporary relief which in the long run engenders worse problems than those to which the control was initially directed. Monopoly organization is a dangerous weapon. Its usy may increase short-run returns to the control group. Long-run returns may be greatly diminished or the gravity of the problem for the solution of which producers have submitted to mon- opoly control may be compounded. Monopoly organization by any handlers will ordinarily adversely affect the interests of other groups. For this reason the federal government has nominally committed itself to the eradication of monopoly in most sectors of the economy. In fostering industry organization which is felonious in various other parts of the economy,' the Congress should be certain both that the long-run interests of the producers will in fact be served and that other groups will not be burdened unduly by the privilege extended to farmers, to labor and to other groups. The Congress should be certain that these monopoly techniques will at least mitigate if not solve the major problems towards which they are directed. In most market situations, several of those five problems will ordinarily exist simultaneously, appraisal of the statute will be facilitated by considering each separately and independently, assuming, for instance, that where there is a seasonal surplus there is no serial interdependence of intra-seasonal market periods. II. The Short-Run or Seasonal Surplus The Problem . --This surplus may be defined as the difference between the pro- duced industry output and the volume of shipments which would load to some desired level of industry returns':—' If demands over production periods are independent, returns would be maximized by shipping the output for which on- tree or in-the- ground demand elasticity is unity. However, this price level may result in un- desirable supply responses; where demands are interdependent, a price heightened by supply limitation may lead to shifts in consumption and depression of demands in other outlets. In production areas which are distant from major markets, costs of marketing are large and inflexible. Thus a decrease in the level of retail demand or an increase in marketing costs will be reflected in a proportionately greater fall in the level of on-farm demand. In consequence, the desirable volume of ship- ments will be much smaller for producers than for other interests. There may be a seasonal surplus at the producer level and, as defined here, no surplus at any other level of the marketing process. The seasonal surplus as here defined is a market period concept. Price-elas- ticity of supply for the product is equal to zero. Only marketing costs are rele- vant. The short-run surplus may also occur in some specified outlet rather than for all outlets in a specific geographic market or some intra-soasonal shipping period. 19/ Under any structure of competition, net total receipts will be largest at a volume for which elasticity of demand with respect to output exceeds unity at any level of marketing between the farm and the consumer. This is due to the facts that total cost from farm to shipping point rises with output and that additional costs are incurred at ea ch stage of marketing. Thus the farther removed is the product from the farm, the less is the interest of the handler or shipper in supply limitati on. 36. Origins . — The short-run surplus will emerge in seasons in which yields are extremely heavy or demands are depressed or both. The demand for the product at the farm is such that sale of the total available amount brings less net receipts to producers than would be obtained from the sale of a smaller amount. The problem roots in the fact that without monopoloid control, the total available amount would be shipped, provided that anticipated on -farm price did not fall below the average costs of picking, packing, shipping, and selling. The short-run surplus does not necessarily indicate the existence of excess capital investment. In most agricul- tural commodities, yields will vary with factors not subject to control by the pro- ducer. Furthermore, the productive plant is adjusted to long-run demand conditions. The minimum life of capital for annuals is at least a year, and for tree crops some parts of the capital plant remain productive for as long as seventy-five years. Over this long gestation and life, demand conditions can be foreseen only imperfect- ly and will vary both upward and downward from best estimates of long-run trend values. Thus, returns from a plant well-adjusted to long-run conditions will be affected both by annual variations in output and by variations in factors affecting demand. A decrease in short-run output for tree-crops will generally involve impair- ment or destruction of capital plant, which may not be justified in view of long- run demand anticipations. When demand decreases in the industrial sectors, variable factors are sloughed off into the lap of society and fixed factors lie idle. There is little user-cost in the discarded variable factors and the productive capacity of fixed plant is not destroyed by idleness. The single feasible solution to the same problem in agriculture is the adjustment of shipments. Faced with a seasonal surplus, farmers may benefit through techniques which increase the level of demand, decrease the quantity sold at a given level of demand, decrease the costs of mar- keting or of production. To effectuate the first two of these possible techniques, however, the industry must take on monopoloid attributes. Without group control, individual farmerB who quite reasonably take demand elasticity to be infinite will continue to ship so long as price exceeds the average variable costs of marketing. Under control, shipments will be made so long as group marginal revenue in total or in specified outlets or periods exceeds or is equal to average variable costs of marketing. This will be a smaller quantity, at a higher price and bringing higher net returns to producers. Market controls using limitation are inherently unstable and cannot be con- tinuously used over many production periods. Despite the organization of the con- trol, each shipper continues to regard himself as an individual enterprise sep- arately maximizing returns in an atomistic context. He reasons quite logically that if he were to increase his shipments by any conceivably possible amount while others held fast to the control, he would not affect market 'price and would in- crease his own return. Thus, with complete and compulsory participation, controls are continuously unstable. Where shippers believe that some dominant shipper would continue to regulate the market without the program, they are induced to violate or destroy the control program. Therefore, solution of the short-run surplus re- quires a statute compelling all members to participate and restraining them from violation. No voluntary control program can solve this problem while the interests of firm and group are fundamentally and permanently divergent. Applicability of Act . — The price which would maximize seasonal returns to the control group would only by accident be the parity-level. It is doubtful that either the conceptual maximization price or the parity price would be most desir- able from the viewpoint of any interests involved. To avoid losses to an industry which over the long run is not maladjusted, monopoly organization must be fostered. 57. Abuse of this privilege should be prevented by limiting the rise in prices to a level which will not damage either consumers or producers. While the control of a short-run surplus is entirely feasible, governing standards should be altered in order to protect other groups and to prevent the maintenance of prices high enough to endanger the long-run interests of producers. Powers . — Under the present act, programs may provide for limiting of ship- ments by grade, size or quantity, for diversion programs or for reserve pools. Supply limitation has proved effective in many programs. Quantity limitation has been effectively integrated with other kinds of programs — where tho short-run surplus has been associated with other problems. Provision is also made for allotment of permissible shipments among affected handlers. There has been little difficulty in determining the total quantities which should be shipped in any period pursuant to the seasonal price policy. Dis- agreement has centered around the allotment of total permissible shipments among competing handlers or areas. The act provides for allocation wither on a past per- formance or a current supply basis or on both. Equitable allotment is inherently difficult, but the provisions of the act are broad enough to validate any reasonable method. Suggestion has been made that a provision for a set-aside base bo added to the present provisions authorizing allotment either on past performance or cur- rent merchantable supply. Admini s tr at i on . — Difficulties have arisen in tho representation of competing groups upon the control committees. It is doubtful that the act can be improved to remove these conflicts, with tho possible exception of the discriminatory pro- visions applicable to the citrus industry. Enf or cement .--Pr ogram s are best enforced where some marketing bottleneck exists; where producing areas are small and distant from market; where producer interests are homogeneous; where contact with control boards can easily bo main- tained; where there is no large and easily accessible local market; and where there is some processing or packing. There is an obvious need to control local and sec- ondary outlets. These provisions are, however, permissible under tho act and should be written in to the specific programs rather than in the act itself. Effects . — Under atomistic shipment patterns, sales continue while average revenue exceeds or equals average marketing cost. Under controlled shipments, sales will be adjusted so that average marketing cost is equal to the group mar- ginal revenue. This adjustment will necessarily involve increased returns to growers. There is no administrative need that tho maximization price be obtained. Long-run effects may not be adverse if price is not raised above levels which will induce drastic supply responses or shifts of consumption to competing goods. The declared policy section should be amended to provide that the program shall be terminated if prices are raised to the point at which either producers or consumers are damaged. Handlers will be disadvantaged, as a rule, by quantity controls. Charges are inflexible and there is generally no adjustment of marketing costs to the changes in volume or demand. An a result, the greater part of the burden of increased output, or depressed demand or both is reflected in diminished returns to producers. It does not seem inequitable that some part of this burden of heavy yields or de- pressed demands therefore should be shifted to handlers. Their interests, however, should not be entirely disregarded. In some cases, the financial outlay of hand- lers or processors exceeds that of growers. Moreover, it is doubtful that effect- ive administration of a market control program is possible over the active dis- approval of handlers or processors. , r.*c