PAGENO="0001" CORPORATION FARMING HEARINGS BEFORE THE SUBCOMMITTEE ON MONOPOLY OF THE SELECT COMMITTEE ON SMALL BUSINESS UNITED STATES SENATE NINETIETH CONGRESS SECOND SESSION ON THE EFFECTS OF CORPORATION FARMING ON SMALL BUSINESS GREAT PLAINS AND UPPER MIDWEST OMAHA, NEBR.-MAY 20 AND 21, 1968 EAU CLAIRE, WIS.-JULY 22, 1968 0 00° ~ Printed for the use o~f the Select Oommittee on Small Business U.S. GOVERNMENT PRINTING OFFICE 95-253 WASHINGTON : 1968 PAGENO="0002" 4 SELECT COMMITTEE ON SMALL BUSINESS (Created pursuant to S. lies. 5S, Sist Cong.] GEORGE A. SMATHE'RS, Florida, Chairman JOHN SPARKMAN, Alabama JACOB K. JAVITS, New York RUSSELL B. LONG, Louisiana HUGH SCOTT, Pennsylvania WAYNE MORSE, Oregon NORRIS COTTON, New Ilamishire ALAN BIBLE, Nevada PETER H. DOMINICK, Colorado JENNINGS RANDOLPH, West Virginia HOWARD H. BAKER, JIL, Tennessee B. L. BARTLETT, Alaska MARK 0. HATFIELD, Oregon HARRISON A. WILLIAMS, JR., New Jersey GAYLORD NELSON, Wisconsin JOSEPH M. MONTOYA, New Mexico FRED R. HARRIS, Oklahoma WILLIAM T. MOINARNAY, Btaff Director and General Counsel MONOPOLY SUBCOMMITTEE GAYLORD NELSON, Wisconsin, Chairman HUGH SCOTT, Pennsylvania MARK 0. IIATFIELD~ Oregon JACOB K. JAVITS,4 New York JOHN SPARKMAN, Alabama RUSSELL B. LONG, Louisiana WAYNE MORSE, Oregon GEORGE A. SMATHERS,4 Florida 4EX officio member. (if) PAGENO="0003" CONTENTS Statement of- Alexander, Edward, president, Wisconsin Hatcheries Association Page (written statement) 194 Anderson, Glenn M., general manager, Wisconsin Association of Cooperatives Madison Wis - - - - - - - 260 Berck, Elton L, president, Nebraska Farmers Union, 1305 Plum Street Lincoln, Nebr - - - - - - 41 Bertsch, Howard, Administrator, Farmers Home Administration, Washington, D C - 91 Braig, Rev Joseph U, National Catholic Rural Life Conference, Madison, Wis. - 235 Christianson, Edwin, vice president, National Farmers Union, 1575 Sherman Street, Denver, Cob - - - - 203 Davison, Keith C., counsel, Traverse Electric Cooperative, Inc., Wheaton, Minn (written statement) - - - - 191 DeChant Tony T, president, National Farmers Union, 1575 Sher man Street, Denver, Cob 9 Doyle Hon Philip J, former State senator Rural Route 1, Beboit, Kans., and president, Mitchell County Farmers Union, Omaha, Nebr 107 DuBois, Pat, past president, Independent Bankers Association of America, Sauk Centre, Minn, accompanied by Don F Kirchner, president 70 Dueholm, Hon. Harvey, assemblyman 288 Ebers, Albert J, master, Nebraska Grange, Route 3, Box 200 Seward, Nebr 165 El1ef~on, Norval, president, Farmers Union Central Exchange, Inc., St. Paul, Minn 270 Farris, Paul L professor, Department of Agricultural Economics, Krannert Building Purdue University, West Lafayette, md 175 Gross Sydney L, president, Iowa Farmers Union, 6538 University Avenue, Des Moines, Iowa 14 Heeg, Victor H, Auburndale Wis, on behalf of Steve Pavich presi dent, Wisconsin National Farmers Organization Mason, Wis * 257 Heike James, auctioneer and real estate broker, IViondovia, Wis - 290 Kinney, Bernard - - - - - - - 292 Kirchner, Don F, president, Independent Bankers Association of America, Riverside, Iowa, accompanied Pat DuBois, past president_ 70 Krzykowski, John - - - 293 Lehman, Amer, former Colorado State director, Farmers Home Administration, 1255 Race Street, Denver, Cob 101 Marshall, Douglas G., professor, Department of Rural Sociology, 240 Agriculture Hall, University of Wisconsin, Madison, Wis. - - 227 Miller Arthur H., Ph.D., economist, Pure Milk Products Cooperative, 500 North Park Avenue, Fond du Lac, Wis 272 Moore, Rev. Lester L., pastor, First United Methodist Church, Ninth and Nodaway, Corning, Iowa 172 Onstad, Arnold, chairman, Farmers Union Task Force on Corpora tion Farming, Spring Grove, Minn 263 Pennington, Warren, president, Wisconsin Egg Producers Associa tion, care of Poultry Science Department, University of Wisconsin, Madison, Wis 286 Peterson, Everett E, and Glen Volimar, professors, Department of Agricultural Economics, University of Nebraska, Lincoln, Nebr - 117 Pickerign, William, assistant cashier, the First National Bank, Chip- pewa Falls, Wis 276 (III) PAGENO="0004" Iv &atement of-Continued Radcliffe, Ben H., president, South Dakota Farmers Union, Post Page Office Box 1388, Huron, S. Dak 17 Raup, Dr. Philip M., professor, Department of Agricultural Econom- ics, 301 Haecker Hall, University of Minnesota, St. Paul, Minn~~~- 238 Ray, George E., secretary, Wood County Chapter of National Farmers Organization, Route No. 2, Arpin, Wis. (written statement) 196 Robinson, Clark, president, North Dakota Farm Bureau (written statement) 194 Rohde, Gilbert C., president, Wisconsin Farmers Union, 117 West Spring Street, Chippewa Falls, Wis 198 Schultz, Erhardt, vice president, Sauk County National Farmers Organization, Baraboo, Wis 287 Smith, Edwin W., president, North Dakota Farmers Union, James- town, N. Dak 210 Sommers, Edwin, master, Wisconsin State Grange, Route 1, Clinton, Wis 217 Staley, Oren Lee, president, National Farmers Organization, Rca, Mo_ 169 Staniforth, Sydney D., professor, Department of Agricultural Eco- nomics, University of Wisconsin, Madison, Wis 220 Struck, Vernon C., executive director, Wisconsin Council of Agri- cultural Cooperatives, 111 South Fairchild Street, Madison, Wis__~. 250 Tyler, Robert, vice president, Wisconsin Turkey Federation, Madison, Wis 282 Weber, Msgr. John George, executive secretary, National Catholic Rural Life Conference, 3801 Grand Avenue, Des Moines, Iowa~~_. 112 Wolff, Eliward, president, Wisconsin Poultry Improvement Associa- tion, Belleville, Wis. (written statement) 195 APPENDIXES I. Report, "Small Business and the Community-A Study in Central Valley of California on Effects of Scale of Farm Operations," pre- pared by the Special Committee To Study Problems of American Small Business, 79th Congress, December 23, 1946 295 II. Statement of George D. Levin, Hereford, S. Dak., and accompanying article, "Beef Profits-Safeway Hikes Price $188 on Each Carcass," by Douglas Bradley, from Cervi's Rocky Mountain Journal 443 HEARING DATES May 20, 1968: Morning session 1 Afternoon session 91 May 21, 1968: Morning session 169 July 22, 1968: Morning session 189 Afternoon session 257 PAGENO="0005" CORPORATION FARMING MONDAY, MAY 20, 1968 U.S. SENATE, SUBCOMMIrrEE ON MONOPOLY OF THE SELECT COMMITTEE ON SMALL BUSINESS, Onw~1ta, Nebr. The subcommittee met, pursuant to notice, at 10 a.m., in courtroom No. 2, Federal Building, Omaha, Nebr., Senator Gaylord Nelson (chairman of the subcommittee) presiding. Present: Senator Nelson. Also present: Tom Bennett, legislative assistant to Senator Nelson. Senator NELSON. Today the Monopoly Subcommittee of the Senate Select Committee on Small Business opens this investigation on the effects of corporation farming on small business and on the economic and social structure of rural America. At the outset, the subcommittee wishes to make it clear that incor- poration of family farms by their owner-operators is not at issue in these hearings. Instead, the subcommittee is vitally interested in learning more about the implications of the rapid movement of large conglomerate corporations and other nonfarm absentee interests into agriculture. We want to determine what the effect of corporation farming will be on small businesses in rural communities, what the consequences will be on the sociological and moral environment of rural America, what the implications will be on existing independent family farms and how we can expect our country's natural resources to be used by giant farm operators. This hearing in Omaha will be the first in a series that the subcom- mittee will conduct across the country on these matters of growing concern in rural America. Subsequent public hearings are being planned for the upper Midwest, the Pacific Northwest, the Northeast and Washington, D.C., as well as other possible sites as time permits over the coming months. These hearings will give us an opportunity to gather testimony from family farmers and ranchers, from businessmen and bankers, from clergymen and community leaders, from public officials and private observers, and from the opponents of present-day corporate farms as well as from their current operators. There have been a few individual studies of corporation farming made, including one by this committee some 20 years ago.1 But, there 1Th~e study, by the committee, "Small Business and the Community-A Study In Central Valley of California on Effects of Scale of Farm Operations," appears as app. I, beginning at p. 295, infra. (1) PAGENO="0006" 2 has not yet been an in-depth, comprehensive investigation of this texpanding trend in American agriculture and its implications. There is mounting evidence supplied by private sources and reported by the public news media that more and more corporations are turning to agriculture as a means to diversify their corporate activities. Some have had no previous connection with agriculture while others are vertically integrating their operations to move a few steps closer to a final merger of the production, processing, and marketing of food. Some observers say that the movement toward corporation farming is not yet a significant national phenomenon However, the subcom mittee believes that the time has come to begin this pioneering study concerning the specific and general implications of corporate owner- ship of the land and corporate control of the production of food and fiber. I suspect that if corporation farming becomes the wave of the future it not only spells the doom of small rural businesses and family farms but it raises other grave questions-questions whose answers hold as much importance for the citizens of our cities as for those in the countryside. If corporation farming means fewer family farms and rural busi nesses then our already overcrowded cities will be the target for even more outmigration from the countryside This further pileup of people in the cities will only compound the problems that have led to riots and civil disorder. If corporation farming means placing the control of food produc- tion in the hands of a few giant food growing, processing, and market- ing chains, then consumers, whether they shop in a city supermarket or a country store, will be faced with food prices established by cartels and not by competition. The American family farm has proven itself year after year to be the most efficient and effective producer of food in the world Compared with retail prices in other countries, food is still a bargain in the United States Today, we only spend an average of 18 percent of our income for food, a smaller percentage than any other country and the lowest in the history of the world. By comparison, the British spend 29 per- cent of their income for food, the French 31 percent and the Russians ~3 percent. This advantage that American consumers enjoy today is bound to be eliminated if a few vertically integrated firms gain control of the country's food production and dictate food prices. If corporation farming means continued abuse of our tax laws by operators who farm at a loss to gain tax writeoffs, then responsible citizens everywhere will be forced to carry more than their fair share of the tax burden Recent information released by the Internal Revenue Service shows that thousands of corporations and other absentee farm investors are using financial losses from farming to offset taxes on income earned from other nonfarm enterprises. In 1965, there were 119 millionaires who were involved in some phase of farming. Of these 119, 104 reported a net loss on their farm operations for tax purposes. This is unfair to the ordinary taxpayer and to the family farmer who has to live on what he earns and cannot enjoy the luxury of investing his already scarce capital in outside business ventures PAGENO="0007" 3' If corporation farming means the future unplanned use of our land and water, then we can anticipate ill conceived industrial development with the attendant blight of landscape, and the creation of massive irrigation projects which imperil or totally deplete existing water tables and destroy the quality of the table by infusions of brackish water This is already occurring now in many parts of the country Since a large part of the future growth of America must be where the land is, we will soon see innumerable burgeoning new cities and revitalized old towns Control of the land will critically affect the direction and quality of that growth and hence the quality of American life. The land and its resources determine the potential of any nation Its management and control are of vital concern to everyone As I mentioned previously, this is not the first time that the Senate Small Business Committee has considered the subject of corporation farming In 1946, the committee conducted an extensive study of how the size and structure of farm operations affected two rural communi ties in California. One community was surrounded by independently owned and operated family farms while the other community was adjacent to large corporation farms The two communities were iclen tical in many ways-they were located in the same climate zone and had about the same volume of agricultural production, some $25 per year They were about the same distance from other small towns and major urban areas and were equally served by the various modes of transportation Despite these basic similarities, the study disclosed some striking differences between them-differences that were directly lrnked to the kind and size of agriculture associated with that comunity The family farm community supported 20 percent more people at a better standard of living than the corporation farm community It had ne'irly twice as many individual establishments with 61 percent more retail trade The family farm community had more and better schools, churches, recreational facilities, civic organizations, and public services than the corporation farm area This was a single study but an exhaustive one The subcommittee plans to update this report and seek new information and new observa tions about the future of farming in America At this time I would like to place a summary of the 1946 study in the hearing record and an article on this study by Don Ringler that appeared in the Omaha World Herald on Friday, May 17, 1968, and also a statement on corporation farming by Gov William Guy of North Dakota who could not be here today (The materials to be furnished for inclusion in the record follow ) [Reprint from the Congressional Record Apr 30 1968] SMALL BusINEss AND THE COMMUNITY-THE EFFECTS OF THE SCALE OF FARM OPERATIONS DECEMBER 23 1946 (Report of the Special Committee To Study Problems of American Small Business II S Senate) The family farm is the classic example of the American small business enter prise For generations this institution and the community it supports have held the esteem of all who have known and understood the American heritage~ States- PAGENO="0008" 4 men, historians, economists, and sociologists have generally agreed that the spread of the family farm over the land has laid the economic base for the liberties and the democratic institutions which this Nation counts as its greatest asset. The great declaration by Daniel Webster still stands as perhaps the clearest and most authentic expression of America's deep-rooted belief in the intimate and casual relation between the family farm and the distinctively popular character of our Government. "Our New England ancestors, he said, `brought thither no great capitals from Europe; and if they had, there was nothing productive in which they could have been invested. They left behind them the whole feudal policy of the other continent. * * * They came to a new country. There were as yet no lands yielding rent, and no tenants rendering service. The whole soil was ureclaimed from barbarism. They were themselves either from their original condition or from the necessity of their common interest, nearly on a level in respect to property. Their situation demanded a parceling out and division of the land, and it may fairly be said that this necessary act fheed the fsture frame and form oj' their government. [Webster' italics.] The character of their political institutions was determined by the fundamental laws respecting property. * * * The conse- quences of all these causes have been a great subdivision of the soil and a great equality of condition; the true basis, most certainly of popular govern- ment. * * * The advances in technology during the past century have greatly benefited farmers who, with their families, work the land. The industrial revolution has eased the burden of the farmer and rendered his labors more productive. ~et these technological advances have, at the same time, brought a threat to the very institution to `whose personnel they have brought so much aid. The threat is this: That with increased mechanization will come increasied industrializaton of the farm enterprise; that with industrialization will come an increasing con- centration of economic power in the hands of fewer and fewer men at the head of of great organizations, and an end to that broad diffusion of social and economic benefits that has long been characteristic of American rural communities. There is foundation for the belief that industrialization is on the increase. The United States Census of Agriculture has been recording the gradual increase in average farm size in America. This is not a result of the disappearance of under- sized farms; family farmers on the better lands appear to be particularly vul- nerable. Census statistics are supported by other information. In those areas particularly suitable to high-value specialty crops, the concentration of land and production into large units has been reported by various agencies and stu- dents of American agriculture. A committee of the United Senate has pointed out that within the decade of the thirties the percentage of all farms in California which produce just over one-half the total agricultural production of that State fell from 10 to 6.8 percent, making a growth in concentration of nearly one-third. It is not without significance as evidence of this trend that at least one group of specialty crop producers has so far changed its character away from that of family farmers in that direction of becoming industrialists that it has found itself indicted for violation of the antitrust laws of the Nation. The development of large-scale farming has been foremost in California. The influence of Spanish land policy, the monopolization of large areas by early corners after American statehood, the soil and climate favorable to the produc- tion of specialty crops, and congeries of other historic and economic circum- stances have made California particularly amenable to industrialized agricul- tural production. But development of this pattern of agriculture, often operated like industry from urban centers and worked by wage labor, is not peculiar to any one part of the Nation. It has been reported in some degree from all sections. Whether industrialization of farming is a threat not only to the family farm, but also to the rural society founded upon the family farm, is the specific sub- ject of the present report. The purpose of this study is to test by contemporary field research the historic hypothesis that the institution of small independent farmers is indeed the agent which creates the homogenous community, both socially and economically democratic. The present inquiry consists of a detailed analysis and comparison of two communities, one Where agricultural operations are on a modest scale, the other where large factory-like techniques are practiced. Both communities lie in the fertile southern San Joaquin Valley in the Great Central Valley of California, where highly developed and richly productive agriculture is characteristic. PAGENO="0009" 5 Limitations of time and resources dictated that no more than two communities be studied. Numerous other pairs might have been chosen which doubtless would have yielded comparable results. The two communities studied here naturally vary in some degree with respect to proportions of surrounding lands devoted to this or that crop, with respect to age, to depth of water lift for irrigation, etc., as well as with respect to the scale of the farm enterprises which surround them. Controls as perfect as are possible in the chemist's laboratory are not found in social organizations. Yet the approximation to complete control achieved by selection of the communities of Arvin and Dinuba is surprisingly high. Other factors, besides the difference in scale of farming, which might have produced or contributed to the striking contrasts of Arvin and Dinuba have been carefully examined. On this basis the conclusion has been reached that the primary, and by all odds the factor of greatest weight in producing the essential differences in these two communi- ties, was the characteristic difference in the scale of farming-large or small- upon which each was founded. There is every reason to believe that the results obtained by this study are generally applicable wherever like economic condi- tions prevail. SUMMARY OF FINDINGS Certain conclusions are particularly significant to the small businessman, and to an understanding of the importance of his place in a community. Not only does the small farm itself constitute small business, but it supports flourishing small commercial business. Analysis of the business conditions in the communities of Arvin and Dinuba shows that- (1) The small farm community supported 62 separate business establish- ments, to but 35 in the large-farm community; a ratio in favor of the small-farm community of nearly 2:1. (2) The volume of retail trade in the small-farm community during the 12- month period analyzed was $4,383,000 as against only $2,535,00 in the large~ farm community. Retail trade in the small-farm community was greater by 61 percent. (3) The expenditure for household supplies and building equipment was over three times as great in the small-farm community as it was in the large farm community. The investigation disclosed other vast differences in the economic and social life of the two communities, and affords strong support for the belief that small farms provide the basis for a richer community life and a greater sum of those values for which America stands, than do industrialized farms of the usual type. It was found that- (4) The small farm supports in the local community a large number of people per dollar volume of agricultural production than an area devoted to larger- scale enterprises, a difference in its favor of about 20 percent. (5) Notwithstanding their greater numbers, people in the small-farm com- munity have a better average standard of living than those living in the com- munity of large-scale farms. (6) Over one-half of the breadwinners in the small-farm community are inde- pendently employed businessmen, persons in white-collar employment, or farm- ers; in the large-farm community the proportion is less than one-fifth. (7) Less than one-third of the breadwinners in the small-farm community are agricultural wage laborers (characteristically landless, and with low and insecure income) while the proportion of persons in this position reaches the astonishing figure of nearly two-thirds of all persons gainfully employed in the large-farm community. (8) Physical facilities for community living-paved streets, sidewalks, gar- bage disposal, sewage disposal, and other public services-are far greater in the small-farm community; indeed, in the industrial-farm community some of these facilities are entirely wanting. (9) Schools are more plentiful and offer broader services in the small-farm community, which is provided with four elementary schools and one high school; the large~farm community has but a single elementary school. (10) The small-farm community is provided with three parks for recreation; the large-farm community has a single playground, loaned by a corporation. (11) The small-farm town has more than twice the number of organizations for civic improvement and social recreation than its large-farm counterpart. PAGENO="0010" 6 (12) ProvisIon for public recreation centers Boy Scout troops and similar facilities for enriching the lives of the inhabitants is proportioned in the two communities in the same general way favoring the small farm community (13) The small farm community supports two newspapers each with many times the news space carried in the single paper of the industrialized farm community (14) Churches bear the ratio of 2 1 between the communities with the greater number of churches and churchgoers in the small farm community (15) Facilities for making decisions on community welfare through local popular elections are available to people in the small farm community in the large farm community such decisions are in the hands of officials of the county These differences are sufficiently great in number and degree to affirm the thesis that small farms bear a very important relation to the character of American rural society It must be realized that the two communities of Arvin and Dinuba were carefufly selected to reflect the difference in size of enterprise, and not extraneous factors. The agricultural production in the two communities was virtually the same in volume-2'/2 million dollars per annum in each-so that the resource base was strictly comparable. Both communities produce specialized crops of high value and high cost of production, utilizing irrigation and large bodies of special harvest labor The two communities are in the same climate zone about equidistant from small cities and major urban centers similarly served by highways and railroads and without any significant ad vantages from nonagricultural resources or from manufacturing or prooessing The reported differences in the communities may properly be assigned confidently and overwhelmingly to the scale-of-farming factor. The reasons seem clear The small farm community is a population of middle class persons with a high degree of stability in income and tenure and a strong economic and social interest in their community Differences in wealth among them are not great and the people generally associate together in those orga nizations which serve the community. Where farms are large, on the other hand, the population consists of relatively few persons with economic stability, and of large numbers whose only tie to the community is their uncertain and relatively low Income job Differences in wealth are great among members of this corn munity and social contacts between them are rare Indeed, even the operators of large-scale farms frequently are absentees; and If they do live In Arvin they as often seek their recreation in the nearby city Their interest In the social life of the community Is hardly greater than that of the laborer whose tenure is transitory Even the businessmen of the large farrn community frequently express their own feelings of impermanence and their financial investment in the community kept usually at a minimum reflects the same view. Attitudes such as these are not conducive to stability and the rich kind of rural community life which is properly associated with the traditional family farm. ______ (From Omaha World-Herald, May 17, 1968] RFD-CoRPoRAPIoN FARM EFFECT AN OLD Tonic Corporation farming and the entry of non farm interests into agriculture is a hot sub)ect but It isn t exactly new Nearly a quarter of a century ago on December 23 1946 to be exact a special Senate subcommittee issued a report on the effects of large farm operations on small business and the community And this report essentially embraces the arguments the National Farmers Union and others are emphasizing in leading the fight against corporation farming. Senator Gaylord Nelson (Dem., Wis.), who will conduct the first of a series of field hearings on corporation farming in Omaha Monday, has read into the Congressional Record the 1946 report. TOWNS STUDIED The report was the sociological study of two California towns (one in a family farm area and the other surrounded by corporation-type farms) and came up with the following findings PAGENO="0011" 7 -The small-farm community supported 62 separate business establishments, compared to 35 in the large farm community -The volume of retail trade in the small farm community during the 12 month period analyzed was $4 383 000 compared to $2 535 000 in the large farm community -The expenditure for household supplies and building equipment was more than three times as great in the small-farm community. -The small-farm community supported a 20 per cent larger number of people per dollar volume of agriculture production. -The people in the small-farm community had a better average standard of living. -More than half of the breadwinners in the small-farm community were independently employed business men, persons in white-collar employment, or farmers; in the large-farm community, the proportion was less than one-fifth. WAGE WORKERS -Less than a third of the breadwinners in the small farm community were agricultural wage laborers (characteristically landless and with low and insecure income) the proportion of persons in this position was nearly two-thirds of all persons gainfully employed in the large-farm~ community. -Physical facilities for community living-paved streets, sidewalks, garbage disposal `and other public services-were far greater in the small-farm commu- nity; in the large-farm community some of these facilities were entirely lacking. -The small-farm community had. four elementary schools and one high school while the large-farm community had just a single elementary school. -The small-farm community had three parks for `recreation:, its counterpart a single playground, loaned by a corporation; the smailtown community also had twice the number of organizations for civic improvement and social recrea tion and held a 2 to 1 edge in the number of churches RICHER LIFE -Facilities for making decisions on community welfare through local popular elections were available to the people in the small community in the large farm area such `decisions were in the hands of officials of the county. These vast differences in the economic and social life of these two communi ties affords strong support for the belief that small farms provide the basis for a richer community life and a greater sum of those values for which America stands, than do industrialized farms. And this belief, in a nutshell, is what opponents of corporation farming want to preserve. DON RINGLER, Farm Writer. STATE OF NORTH DAKOTA, EXECUTIVE OFFICE, Bismarok, April 16, 1968.. Hon. GAYLORD NELSON, U.s. ~enator, Washis~gton, D.C. DEAR SENAToR NELSON: It has come to my attention that your Senate Com- mittee studying monopoly and small business is holding a hearing on May 20 in Omaha regarding the effect corporation farming has on small busines'~ It is my belief that a broad base of private ownership of real estate and small business is absolutely essential to the health of our economic system I am alarmed at the obvious trend of constantly merging business enterprises which in some cases, stifle competition by bringing competitors into one company, and, In other cases, branch out to merge unrelated corporations' to diversify investment. In the latter instance this diversification has shown signs of including large agricultural land holdings. It should not take a very sophisticated study to show that large corporation farming eliminates the need for small farm units living on the land When small farm units are eliminated and the families who farmed them are moved to the cities, some very grave economic and social problems arise in the rural areas. PAGENO="0012" 8 Personal property tax income diminishes; and the financial support and, for that matter, the need for such `things as schools, churches, recreation and health facilities in rural communities diminish. Corporation farming does not buy its large purchases through local retail dealers, but rather has the economic leverage to deal oi~ a wholesale basis or even direct from the factory. North Dakota has barred corporation farming since the middle 1930's. During those depression years, land foreclosures placed so many farms in the bands of the corporation lender, that there was grave danger of the majority of our state's farm land being in the hands of corporations. A law was passed in the 1930's which required corporations to dispose of their farming interests within 10 years. I grew up in the shadow of the corporation farm in North Dakota. My father was the manager of one of the original bonanza farms that were formed in the late 1880's in the Red River Valley. It was not a creature which sprang up from depression foreclosures, but rather was a business enterprise formed by eastern investors who traded Northern Pacific Railroad stock for land granted to the railroad by the federal government. This corporation owned its own grain marketing facilities in several adjacent towns. It bought `its machinery direct from the Minneapolis-Moilne farm equip- ment manufacturing company. It formed a cooperative gasoline and oil company which granted credit and gave service to the farm tenants of the corporation. The retail gasoline dealer was forced out of business. At one time, this corpora- tion owned every building in the corporation town. Businesses w'ere run on a concessiOn basis. It might be argued that this could never come to pass again, but I believe that it could. If we in this nation are interested in population distribution or in balance of opportunity between rural and urban areas, we need to be concerned about the economic trends that take place. Historically, we have encouraged private ownership of reasonably-sized com- mercial farms. This is evidenced in the homestead laws of ~t century ago and in the regulations of the Bureau of Reclamation which limit the amount of irrigated acres that one owner may have in a federal irrigation project. We have a program to stimulate our small businesses. Certainly, to ignore the trend of large corporation farming or to regard it as a necessary development in our economic system is to court the social and eco- nomic problems `that come from a dc-populated countryside and dried-up rural community. I am strongly opposed to corporations taking over the farming industry. Thank you for receiving my testimony. Sincerely yours, WILLIAM L. Guy, Governor. Senator NELSON. We have a group of distinguished witnesses who have come to testify at this initial hearing. In order to give all of them an opportunity to present their complote statements, we will have an additional hearing tomorrow morning starting at 9 a.m. in this courtroom. We had hoped that Mr. Howard Bertsch, the Administrator of Farmers Home Administration, would be our first witness today. However, Mr. Bertsch will not arrive until later this afternoon. Therefore, our first witness will be Mr. Tony DeChant, president of the National Farmers Union, who will be accompanied by the State presidents of the Nebraska, Iowa, and South Dakota Farmers Union. We will `then `have Mr. Pat DuBois, past president of the Independent Bankers Association of America from Sauk Centre, Minn.; Mr. Amer Lehman, former Colorado State director of the Farmers Home Admin- istration of Denver, Cob.; Mr. Philip Doyle, former Kansas State senator, Beloit, Kans.; Msgr. John George Weber, executive secre- tary of the National Catholic Rural Life Conference, Des Moines, Iowa; Prof. Glen Vollmar and Prof. Everett Peterson, Department PAGENO="0013" 9 of Agriculture Economics from the University of Nebraska at Lincoln, Nthr.; and Mr. Albert Ebers, master, Nebraska Grange, Seward, Nebr. Tomorrow morning at 9 o'clock we will hear first from Mr. Oren Lee Staley, president of the National Farmers Organization; Rev. Lester Moore, First United Methodist Church of Corning, Iowa; and Prof. Paul Farris, Department of Agricultural Economics, Purdue University at Lafayette, md. We will now call upon Mr. Tony DeChant. Welcome to the com- mittee hearing, Mr. DeChant. We were very pleased to see that you were able to come here from Denver, and we're very pleased to have your State presidents from Iowa, Nebraska, and South Dakota. Mr. DECHANT. Thank you very much, Senator Nelson. I would like to introduce my associates. To my left is Sydney Gross, president of the Iowa Farmers Union: Ben Radcliffe of the South Dakota Farmers Union and a member of our national executive committee; and on my right is Elton Berck, president of the Nebraska Farmers Union. Senator NELSON. We are very pleased to have you here as well as your associates. You may proceed to present your statement in any fashion you see fit. If you wish to depart at any time to extemporize on it, please feel free to do so. I assume you have no objection if I should happen to interrupt with a question from time to time? Mr. DECHANT. By all means. Senator NELSON. If any one of your associate presidents wishes to make an observation at any time, if you will just identify yourself for the record and interject your comments as you wish. STATEMENT OP TONY T. DeCHANT, PRESIDENT, NATIONAL FARMERS UNION, DENVER, COLO. Mr. DECIIANP. With your permission, Mr. Chairman, I'd like to call on my associates during my presentation to supplement some of the comments I make. Well, first of all, we appreciate very much the opportunity to pre- sent our views on the problems posed by the trend to corporation farm- ing in America. I want to commend you for the energy and the con- cern that has brought you here tie the heartland of America to hear testimony on an issue that affects so vitally the welfare of the Nation. The issue is really one of a disparity of power between two vastly unequal `segments of our society-a disparity of power between the large, conglomerate corporation, and the power of the farm society it seeks to invade. We are talking here about the large, nonagricultural, often diversi- fied, corporation. It is frequently involved in packaging distribution, and even retail sales of the products it is now producing on the farm. Its capital comes from Wall Street, or manufacturing, or oil or some other prosperous segment of the economy. Its ability to interfere with and manipulate the market is enormous. Its financial resources stagger the imagination of most farmers. Its political influence astounds us. Its ruthlessness sometimes disgusts us. Frankly, we are no economic match for its unrestrained competition. This kind of corporation farm represents power without conscience. Its continued freedom to invade without restriction will depersonalize PAGENO="0014" 10 rural America. It will deplete its resources-its land, water, and peo- pie-and it will put the city dwellers of America at the mercy of a monopoly controlling the cost of food and clothing-things it cannot postpone buying. I would like to discuss five points: 1. The corporation farm interferes with the market system that exists for farm commodities. 2. The corporation farm cheats us of our taxes-by operating fre- quently on tax writeoffs from profits in other fields, and by practices at the farm level that cut local and States taxes 3 The corporation farm results in a decline of population in rural areas, a depleting of community resources in small towns, contributing to the problems of already overcrowded cities, and further diminish- ing the welfare of rural America by diminishing its political influence. 4. There is evidence that the corporation farm-with its impersonal pressures on management for quick profits-cannot be trusted with our basic natural resources-soil and water. 5. There is urgency in the matter. It is already very late. Without help, the farmer is powerless to stop the corporate invasion. He is weakened by a farm program that at best has only prevented utter disaster to his segment of the economy, and parenthetically, Mr. Chairman, as you well know, Farmers Union is a strong proponent of the farm program. Without it we would have chaos in agriculture. The 1965 act is a very fine act. We are seeking its improvement and its ex- tension. It has not been funded properly. It has been funded inade- quately to provide the kind of income that's needed. The farmer is denied the right to participate in the setting of most of the prices he receives. He is at the mercy of other segments of the economy which are protected and strengthened by Government programs. The farmer is no match economically for his foe. He needs the help of his State and Federal Governments. Before entering the discussion of the five points mentioned above, I would like to challenge one myth that has been spread across America- frequently by the public relations departments of the giant corpora- tions. That myth concerns the so-called efficiency of corporation farms. I say this to you without qualification. There is no relationship what- ever between efficiency and corporation farming. There is perhaps a relationship between efficiency and size of operation, but only up to a point. After that it diminishes quite sharply. And that point is well within the scope possible for family type farms That is, a 3,000 acre farm is not necessarily more efficient than a 300-acre farm. In fact, the 300 acre unit operated by a family whose roots are deep in the soil may be a good deal mOre efficient than its corporate neighbor of 3,000 or 30,000 acres. in your line State of Wisconsin, Mr. Chairman, the Uni- versity of Wisconsin has come out with a number of studies, and one in particular which shows that an independent farm operator that is well equipped can make the best return on his investment. In Texas, this is true in cotton. We have found that an independent owner-operator, properly equipped, can make the best return on a cotton farm and that larger farms nearby are not getting the same kind of return Senator NELSON May I interrupt here for just a moment ~ On page ~iñ item 4 you made the comment that the management of these corpo- PAGENO="0015" 11 rations could not be trusted with our basic natural resources-soil and water I raised the same question in my opening statement This aspect of the management of the resource concerns me because the mdi vmdual farm owner has a personal, immediate, direct interest in his resource and is concerned about its management It is his , he makes his livelihood out of it, and he has been the beneficiary of over 100 years of educational training through the land grant colleges Now, if a corporation gets into corporate farming and starts, for example, vast irrigation projects and is only concerned about the immediate profit for the next 5 or 10 years or anticipates that they may just develop the land into a community, may they not simply destroy the soil and deplete the water table and then walk off and leave it? Mr. DECHANT. I think this is true. It has already happened in many areas and this seems to be the pattern Senator NELSON I conducted some hearings that I think you are familiar with on the Central Valley, Calif, project where we now have a Federal reclamation project costing $500 million There were vast corporate landholders One of the railroads is holding 55,000 acres, who have punched wells down 600 feet and drained the water table down to what's called the corcoran clay. They soon were out of water, so they punched through the corcoran clay some 300 feet and drained the water table down there. it is down 1,200 feet and they're beginning to get brackish water in all parts of that Central Valley So now we re engaged in a reclamation project, part of the objective of which is to spend some taxpayers' money to restore the water table and bring it above the corcoran clay again Now, isn't this the kind of problem that we could run into with uncontrolled exploitation and use of the land by irrigation and otherwise Mr DECTIANT I certainly think so, Mr Chairman, and this is why we in the National Farmers Union are so much concerned about what is happening in all of these Midwestern States Senator NELSON Go ahead, Mr DeChant Mr IDECHANT One of the most serious aspects of the entry of the corporation into farming is its ability to mterfere with and manipulate the market One kind of corporation that does this is the so called "integrated" corporation It is often large enough to be a key factor in establishing local prices for products These prices may be entirely fictitious-with the corporation making up for losses in other aspects of its operation Poultry corporations can make up for losses at the farm be receiving a high price for feed or by setting the price it sells dressed chickens for at the supermarket Indeed, it might be said that the only meaningful price in the entire operation is at the grocery counter, whether the product is meat or vegetables or frozen orange juice In other words they can manipulate beyond that market at two or three parts The National Commission on Food Marketing, a Presidential Corn mission, warned in 1966 that "powerful buyers" are interfering with the free market As an example, I'd like to quote from the National Observer on January 29, 1968 "The rugged, proudly independent western cattle man may soon become as much of a relic of American history as the Plains Indian and the buffalo," said the Observer It continued PAGENO="0016" 12 with a report from Sturgis, S. Dak., telling how supermarkets that sell 85 percent of the red meat consumed in the United States pay producers artificially low prices while charging artificially high prices to consumers. The farmers were holding meetings about the situation. And through their organization-the Independent Stock Growers of America-they were instrumental in the filing of an antitrust suit in San Francisco charging the Nation's three largest supermarket chains with conspiring to fix meat prices. Named in the action were A. & P., Safeway, and Kroger. Another market value that the corporation farms interfere with is land values. The Gates Rubber Co. has been buying land at a rapid rate in the Yuma County, Cob., area. The exact acreage is not known because some secrecy seems to surround the company's operations and motives. But Edgar J. Lengel, of Burlington, Cob., said in a letter to the Denver Post on December 31, 1967, that the result of the Gates buying activity was that land values had gone so high in the area that local farmers were uuable to expand opera- tions. And others, Mr. Lengel said, who want to gain a foothold in farming are being forced out of agriculture because "Gates has set land values so high in the area that the local farmers cannot afford it." In other words, there is little relationship to the earning power of land. Senator NELSoN. Is Gates using the land for agricultural purposes? Mr. DECHANT. Yes. They're sinking wells. They acquire land where the flow of water is to their advantage, and they're in agricul- ture in a big way. They have some 175,000 acres of rangeland. They have an egg operation that produces some 325,000 eggs a day, and more recently they have moved to eastern Colorado to get into diver- sified farm areas because they can get water there. And we're con- cerned about the thing you just mentioned a few moments ago, Mr. Chairman, that of lowering the water table. In fact, another example that I have here in my statement refers to the Yuma County paper which indicates that a couple of individual farmers were denied the right to sink wells because of the pressure that has been put on by these larger operations. In other words, there is some concern about the availability of water. Senator NELSON. On this question of water, I don't know what is happening to the water table, but we have some rather large vege- table irrigation projects going on in my State now. The problem that concerns me is that the underground aquifers hold a certain amount of water and they rejuvenate at a measurable pace in the water cycle. If you are going to extract water from the underground aquifers at a pace faster than the water cycle will return it, then you destroy the underground aquifer. Water comes in large aquifers from distant sources. Some of the water that is used in my State is Lake Superior water that travels 100 miles. Do you think that in view of these de- veloping irrigation projects that there should be consideration of legislation, either at the National or State level, protecting the status of the table? That is, legislation that prohibits anyone from extract- ing water more rapidly than it will rejuvenate itself. Have you given consideration to that? PAGENO="0017" 13 Mr. DECHANT. By all means. Let me say first of all, Mr. Chairman, that I certainly do agree that legislation is needed. The aquifer that some of the witnesses will be referring to here in terms of western Nebraska, eastern Colorado, western Kansas, part of Oklahoma, and even parts of `Texas, is one of these aquifers that you just mentioned. It does not get replenishment except `by rainfall in that area, and there is only one way for it to go, and that's down. I mean, as you start taking out more than the normal replenishment, why, it's going to move that water table down. This is why we have so much concern in terms of western Nebraska, eastern Colorado, and Kansas because it's a rather large area. It's part of four or five States. Nebraska is most concerned. It's not just 20 or 30 miles. It's an area that runs several hundred miles. A matter of special concern to us all is that many corporations have gone into farming, and their losses are written off against profits in some other enterprise, as you indicated, Mr. Chairman, in your opening statement. In fact, the Internal Revenue Service reported that in 1965, 119 individuals with incomes of more than $1 million were engaged in farming: 103 out of the 119 lost money in their f arm- ing operations. How much is this kind of thing costing the Nation? Some rather shocking figures are available. When Senator Lee Metcalf of Mon- tana looked into the matter, he found 31 of the 100 largest metro- politan areas reported net tax losses from farming. Four metropoli- tan areas in California reported a net loss of $60 million. Four metro- politan areas in Texas reported a collective net loss in excess of $40 million. These were all absentee farmers, many of them using these losses to reduce the amount of taxes they owed on other enterprises. Recent occurrences in our major cities make it unnecessary to re- mind you that our ghettos are filled with people who have been dis- placed from rural areas of our Nation. Dairy farmers from Wis~ consin, farmers from Nebraska and Iowa, all of these Midwestern States, Mideast States, we've been losing farmers by the hundreds and thousands, and they've moved into the cities to compete for jobs and to compete for housing and schools and classrooms, and already the water facilities 15 years ago were overtaxed. The sewage disposal was overtaxed, education, health, all of these things. And since that time in the last 1'S years we've moved some 15 million farm people, rural community people into the large cities. This is one of the reasons we have the ghetto problems because they've competed for jobs and taken the jobs that were normally held by the people that live in the ghettos. Last October 21, the St. Louis Post-Dh~patch reported in some de- tail on a "cowtel" financed by an out-of-State investor. This elabo- rately equipped installation keeps 110 cows in total confinement, the newspaper said. It is operated by a 25-year-old manager and his younger brother. Two other such installations are located at Fort Madison and Mount Pleasant, Iowa, the newspaper reported. Earlier last year, it was reported that an Oklahoma corporation invited 200 representatives of 90 leading companies to "brainstorm" on how their corporations might move into the open fields. They visualized giant "hothouses," pushbutton irrigation, photo- sensitive skyroofs to flood interiors with sunlight, buildings span~ 95-253-68-2 PAGENO="0018" 14 fling `thousands of acres using conveyor belts and electric tractors, and vegetable farms with their own canning and freezing operations under the same roof as the farm. I invite you to ponder this "vision" of tomorrow, along with the forecast of Lawrence G. Chait, president of a New York City ad- vertising and sales consulting firm that "the 200 largest firms in the United States could control two-thirds of all manufacturing assets by 1975," and recent articles in such magazines as Business Week urging businessmen to consider farm investment for tax writeoffs, weekending, and/or retirement. The next section relates itself to the study that you referred to, Mr Chairman, in California, and I will pass it by' Then that brings me to a report that relates itself to some of the studies that have been done by the Des Moines Register in Iowa, and since I have my associate, Mr. Syd Gross, of Iowa, here with me, if I may, Mr. Chairman, I'd like to ask him to comment specifically on happenings in Iowa. STATEMENT OF SYDNEY L GROSS, PRESIDENT, IOWA FARMERS UNION, DES MOINES, IOWA Mr. GROSS. Senator Nelson, I want to express my appreciation for the opportunity to testify on this important matter in behalf of the Iowa Farmers Union. Iowa, like many of `the other Midwestern States, was settled by family farmers, mostly on a homestead basis of 160 acres. Even with a measure of farm enlargement as a result of a technological revolu- tion in production methods during the last 25 years, farming in Iowa until recently has remained predominantly a family affair. Suddenly, however, we are faced with a new dimension Large amounts of capital, for various reasons, are entering the farming picture. The profitability of the vertical integrated livestock feeding and poultry operations has long been recognized Their built in ability to influence price or provide a captive market for their own particu lar product are advantages of major proportions. However, while the purpose, in Iowa, of this new conglomerate con cept seems to be for other reasons, the character is such that the real purpose cannot readily be discerned. As revealed in a story of the Des Moines Register, March 19, 1968, ~i case in point is the recent purchase of 6,000 acres near Odebolt, Iowa, by the Shinrone Corp, of Detroit, Mich Listed as principal stockholders, vice president and president respectively, are William o Bridges and his wife, Frances, of Detroit The irony of the situation is that at the same time and parallel to the purchase of the estimated $3 million ranch, William 0 Bridges was claiming assets of only $10,768 and was negotiating the settlement of a Federal income tax claim of $594,398 for 14 cents on the dollar, or a total of $110,000 to be paid in yearly installments. Bridges is chairman of the board and his wife is president of the iThe complete prepared statement submitted by Mr DeChant begins at p 66 infra PAGENO="0019" 15 Baker Driveaway Corp., delivering Chrysler cars to dealers through- out the Nation. In 1966, Baker Driveaway listed total assets of almost $2 million with a net income of $691,114 before taxes Bridges and his wife are officers and directors in three or more cor porations, including a thoroughbred racehorse `breeding farm `Although Bridges `works `for those corporations oiwned by his wife and children, he has no stock in his own name. All this again leads to who owns what, and for what purpose? *The family farm still prevails in Iowa, but the intrusion o'f large amounts of capital from outside farming and outside the State is be- coming more commonplace `The contract purchase last winter and spring of between 15 and 20 farms in a 10,000 acre unit located in Decatur and Wayne Counties in Iowa by a Kansas City area resident can very well, in the final set- tlement, lead to a corporate setup. I made an investigation in one county This area is situated in sev eral counties. It's kind of in the corner of three counties. I checked in one county and I would like just for the record to show the size and the kind of farms that were purchased and what is `happening there. There was one farm of 320 acres, one of 360, one of 320, one o'f 240, one of 900 acres, one 160-acre farm, a 237-acre farm, a 240- acre farm, a 1,374 acre farm, and a 240 acre farm for a total of 10 farms and 4,000 acres of the approximately 10,000 Here aie 10 farms now being farmed, as I understand it, as two They were family farms before this purchase was made, which can indicate what will happen in this community.. Senator NELSON. Do the farmers who owned those farms, varying in size up to 1,000 `acres, then leave the land? Mr GROSS Yes, they have all moved off the farm He has taken pos session This farm was purchased on contract with settlement to be made in September, but he has possession and these people have moved off this farm and it's being farmed by this new owner operator This was just done in late spring What will be the future of this commu- nity, it's hard to foresee at this time Senator NELSON Is this all around one community ~ Mr GROSS One whole area It happens to be in the corner of a county, which includes more than one county, but it is just in one area around this one particular town or two-Garden Grove and Humeston, Iowa Senator NELSON Do you happen to know how many people were living on those 4,000 or 10,000 acres then and how many will be living on it now? Mr. Guoss. No, except that `a's far a's I know each one `of these farms were owner operated or operated by farm families, and, as I said, it is my understanding that this 4,000 acres will be farmed by two men, which will make quite a `difference in thi's community in this area. Senator NELSON. What are they producing there? Mr GROSS Predominantly corn and soybeans There is some rough land in pastureland, but it is predominantly pretty good corn and bean land, corn `and cropland. It's not rough pastureland. This is good corn `and `agricultural land. PAGENO="0020" 16 There are many of these farm corporations in the up to 2,000- and 3,000-acre size. Some are Iowa based using their own capital, others with outside capital financing. Most of these have been formed in the last 2 or 3 years. Caught up in what is seemingly a never-endmg race in the cost- price squeeze, the `access to large amounts of capital becomes more and more the determining factor in who stays in farming and who get's out. The individual farmer, especially the new, young potential farmer, is being irreversibly placed in a more and more disadvantaged position. Many of these corporate units, `such `as the Shinrone Corp., the Midwest Farm Co. in Cedar County and the new 10,000-acre unit in Wayne and Decatur Counties do not participate in the Federal farm programs. Thus they not only exploit their capital access position but also their family farm neighbors, who are idling acres in a supply man- agement-price enhancement endeavor. Iowa Farmers Union sees no place m American agriculture for the State-owned type of the Communist countries nor does it see any place or need for a corporate agriculture of the Fascist type. We believe now is the time to legislate, in law, a priority on the family farm as the basic structure of a prosperous rural America on which to buil'd a peaceful, yet'dynamic society. Iowa Farmers Union joins the other States in the National Farmers Union urging such legislation be enacted. Sen'ator NELSON. Thank you very much, Mr. Gross. Mr. DECIJANT. Thank you, Mr. Gross. Not all of the displaced people on the farms and in the small towns find their way to the cities, of course. Many of them remain, not as a Gates Rubber Co. executive said, "living on their rocking- chair earnings" after selling out to Gates, but on. welfare. There's a need for some seasonal labor in some of the corporate op- erations, of course. And these people work when needed. Out of sea- son they are on the welfare rolls, just as many of their former neigh- bors are on the welfare rolls in the great cities of our land. Mr. Chairman, to my knowledge, nobody has estimated how much this welfare "subsidy" costs this Nation, but it must be a very large amount of taxpayer dollars. We in the National Farmers Union have been painfully aware of the declining population in rural America. There are fewer of us going to the polls. Some would have us believe that the welfare of the "Na- tion" is less involved, therefore, with the help of our agricultural establishment. One effect :then of the decline of population on farms is that it makes it more difficult to balance our national purpose. I've now discussed three of the five points I referred to at the begin- ning of my statement-interference and manipulation of the market, the loss of taxes, and depletion of the resources and strength of rural America. I do not want to suggest that these are the three worst effects of the corporate invasion of agricultural America because the two remaining areas of concern are equally important. In Arkansas and other Southern States lumber and paper companies own thousands of acres of timber land. Their holdings sometimes cover most of an entire county. Trees, cut selectively on most of these hold- PAGENO="0021" 17 ings, provide the cover that protects the topsoil and forms the water- sheds. We have reports that some of the companies, under the pressure of the demand for profits and in order to pay off `high initiai invest- ments, are following a "deep cutting" policy. This, of course, is leaving the land less protected than it was when they came on the scene. We all know the practice in some corporations of lettmg buildings go unpainted, machinery unrepaired-this is particularly true in some of our Southern States-and permitting other resources of the cor- poration to depreciate without adequate maintenance in order that immediate profits are increased. I `do not approve of this practice in any corporation. But do we dare to permit corporations-with the impersonal pressures that sometimes descend upon management for profits-to come into possession of our natural resources? A cut-over timber stand can expose the land to a rainstorm `that can take an inch of topsoil in a single night-topsoil that might require 700 years to replace. There is evidence that the water table in the Ogalalla Reservoir in western Nebraska and eastern Colorado that lies beneath the farm~ land of the Gates Rubber Co. in the vicinity of Joes, Cob., is going down at an alarming rate. Gates was reported buying land on the basis of the flow of gallons of water per minute. Farms where the flow was too slow were rejected. And there is competition involved. The Yuma (Cob.) Pioneer re- ported on October 5, 1967, `that two small farmers had water well per- mits turned `down because their land was situated among already heav- ily developed corporation interests. I cannot over emphasize the urgency of the situation. The corpor- ate invasion is moving at an unprecedented rate. Let me name just a few of our leading corporations that have entered farming-CBK, Inc., of Kansas City, a giant corporation that has begun a 5-year pro- gram to divest itself of all manufacturing and distribution operations and has `announced that it will farm 80,000 acres of purchased and leased land from the Mexican border to the Canadian border. (mci- dentally, as a result it reported losses of $3,605,715 during the first 9 months of 1967 compared to earnings of $410,853 during the same perind of the previous year.) A few others are: Pacific-Gamble-Robinson Oo., a large grocery chain headquartered at Seattle the Jewel Tea `Co.; Gulf & Western; Del Monte; H. J. Heinz; American Cyanimiid; International Systems & Controls Corp.; the Goodyear Rubber Co., and there are many, many more. I'd like now, Mr. Chairman, with your permission, to have my as- sociate from South Dakota who is tremendously interested in this matter of corporation farming to spend a few minutes outlining some of the work that he has done in that State. Mr. Radcliffe. STATEMENT OF BEN H. RADCLIFFE, PRESIDENT, SOUTH DAKOTA FARMERS UNION, HURON, S. DAK. Mr. RADCLIFFE. I am h'onored to have the opportunity `to be here today and `discuss this very vital issue that we `are `discussing here today. PAGENO="0022" 18 The independent farmer in many rural communities throughout this great Nation could face oblivion unless the movement of huge nonfarm corporations into agriculture is halted. I think you have my statement, Mr. Chairman. I'm going to sum- marize very briefly. Senator N~soN. Your statement will be prmted in full in the record and you may condense it if you wish Mr. RADOLrI~'FE. Certainly one of the most important issues of 20th century America reimlves around the question "Who Shall Control Agriculture?" This struggle attracts few headlines. Changes in the cont~i4oi of agriculture have come about so gradually in the last quarter century that policymakers are inclined to attribute it to evo- lution rather than t;o use the more appropriate term, revolution. Nearly every third farm in a broad area of the agricultural mid- section of America stands empty today with the silent migration to the cities `accelerating. Meanwhile, thou~and's of small towns through- out `the country feel the impact from the loss of their farmer cus- tomers which were the lifeblood of the community's economy. South Dakota has not escaped this trend During the years of 1959-64, our State lost 6,027 farms for an average loss of 1,205 farms per year, and the picture is getting darker instead of brighter The South Dakota Crop and Livestock Reporting Service recently esti- mated that our State lost another 1,500 farms in 1967. Equally alarming is what h'as been happening to our small towns and, actually, our entire rural community. During the years 1959 to 1964, as I stated before, our State lost over 6,000 farm's. In a similar 5-year period, 1958-63, we lost 1,101 business places, according to the 196~3 U S Department of Commerce census of business This means that for every six farms left vacant, one business place closed its doors Furthermore, according to a recent study by Marvin Riley, a rural sociology professor at South Dakota State University, one out of every seven South Dakotans left the State to seek a living elsewhere durrng the decade from 1950 to 1960, including one out of four young adults, the real productive se'ment of any State's population. Dur- ing that 10-year period, according to Mr. Riley's report, the State had a total exodus of 94,279 people Senator George McGovern, in an address on the Senate floor in February, declared We are more and more accepting technology, unquestioningly, as an irresist- ible force and optimum mechanical efficiency as the goal of existence It is time to take a look `at what is being done to people. It is time that we took a look to see of the change is either inevitable or desirable and whether the new society toward which we are heading, a sort of corpora'te collectivism, is what we really want. Our farms in rural America have been disappearing not because the farmer has not been working hard and efficiently. In most cases hi's nroductivity exceeds that of his city cousin. But while our farmers have been producing more and better food, `they have been continually asked `to produce it `at lower wages for `themselves. The exodus from rural America has been brought about by two ele ments which go ha rid in hand: low farm prices and the increasing entrance into agriculture by giant, nonf arm corporations PAGENO="0023" 19 I am sure that during this hearing today, the entrance into agricul- ture by some of these giant, nonfarm corporations will be actually illustrated so our organization will stick primarily to what has hap pened in South Dakota On learning of the millions of acres of farmland being purchased around the Nation by corporations and individuals, as a hedge against inflation and for fax loss purposes, we decided to conduct our own in vestigation into the extent of corporate farming in South Dakota. Do you have a copy of this investigation, Senator? Our survey, conducted with the assistance of county assessors and the State ASCS office, reveal that there are more than 400 corpora- tions owning agricultural land in South Dakota, totaling 1,633,529 acres, or the equ ivalent of five medium si7ed South Dakota counties Corporations now own one out of every 27 acres of farmland in our State A copy of this survey is enclosed with our statement Senator NELSON. This survey will be printed in full in the hearing record at the end of your statement. Please continue. Mr. RADOLIFTE. During the course of the survey we attempted to determine how much of this acreage was owned by family corporations, family farm or family ranch corporations. By using the name of the corporation and the home office of the corporation, we concluded that probably not more than 20 percent of the total acres involved here was owned by family corporations There were 56 out of State cor porations involved, holding nearly one third of a million acres of this farmland Some of the larger holdings by these out of State firms include lust to give you an idea, Western Cattle Co., headquartered in New York. They own 70,948 acres in two counties. Senator NELSON. How recently have they acquired this land? Mr RADOLIFFP They have had this land for 10 years or so Homestake Mining Co of California owns 42,282 acres in two counties The Shur Gro Irrigation Co, from Clovis N Mex, owns 36,688 acres in four counties Hickman & Jordan, a Texas firm, with 28,327 acres in one county, and the Norris Grain Co, of Illinois, 41,874 acres in two counties These are lust some of the larger ones Senator McGovern, in his address to our National Farmers Union convention in March, declared that a little more than 10 percent of agricultural production in this country is now by corporations And, Senator, I hone that you will confer with Senator McGovern and his aide because they have developed a lot of material on the sub ject that we're discussing here today What's more out of 3 million farm income tax returns in 1965, there were 680,000, or 22 percent, filed by people who deducted farm losses from nonfarm income and still had income tax to pay on their nonfarm income Senator McGovern declared that these nonfarmers are avoiding $200 to $400 million in Feder'~l income taxes by going into farming each year. Senator NELSON Was this survey conducted by the South Dakota Farmers Unions? Mr. RADOLIF~E. That's right. Senator NELSON. With the assistance of county assessors and State ASCS? PAGENO="0024" 20 Mr. RADCLIFFE. That's right. Senator NELSON. How much of a job was it to do this? Mr. RADCLIFFE. It turned into quite a job before we were through. We contacted every county assessor's office by mail and then finally a followup with many of them by phone calls, personal contacts. Then we also were able to get the complete cooperation of our ASOS county offices and they submitted to us the corporate owners of land that they dealt with; and by combining these two reports we have come up with what you `see before you, and we have detailed information county by county. Senator NELSON. Did the county assessor do the actual work of viewing the assessment rolls? Mr. RADCLIFFE. Yes; they did. To make it easier for them we sent them a form which listed township by township and city by city in their county and asked them to fill this out, `and we were pleased with the kind of cooperation we got from the county assessors. These county assessors are concerned about what's happening in their county, their rural county, and they cooperated very well. Senator NELSON. How long a period did it take to acquire this infor- mation from all the assessors? Mr. RADCLIFFE. About 60 days. We were in a hurry to get it done because our legislature, which was in session in January and February of this year, considered legislation restricting ownership of agricul- tural land by corporations, and we needed to get that finished in time to present it to our legislature. Senator NELSON. Did the legislature pass any legislation? Mr. RADCLIFFE. No, they didn't. They took it under advisement. During the hearings that were conducted 300 or 400 farmers attended, including all the major farm organizations of the State, in support of legislation controlling corporate ownership of agricultural land, but the Senate agriculture committee of our legislature decided to send it to the legislative research council to study for a year and it will be presented back to the legislature in 1969. Senator NELSON. What specifically did the legislative proposal provide? Mr. RADCLIFFE. The bill that was introduced in the South Dakota Legislature, Senate bill 92, was patterned very closely after the North Dakota Anti-Corporation Farm Act, which you may be familiar with. Their act, which has been on the lawbooks of North Dakota since 1932, specifically prohibits any corporation from owning agricultural land in North Dakota. They allow cooperatives, a bona fide coopera- tive, but no corporation since 1932 has been allowed to legally, at least, own agricultural land in North Dakota. Senator NELSON. Does that mean that an owner-occupied farm can- not be incorporated by the owner? Mr. RADCLIFFE. That's the way I understand it. The proposal that was submitted to the South Dakota Legislature would have allowed a family corporation to own agricultural land. Now, it's a very difficult thing, as you know, to write into law an exception to allow a family corporation to own land and yet prohibit a nonfamily corporation type PAGENO="0025" 21 unit to hold land, but with the services of attorneys, we believe that we did draft one. I have a copy of it here. Senator NELSON. That will be printed in the record. Please con- tinue. Mr. RADCLIFFE. Thank you. I'd like to make another point that Senator McGovern developed in the study that he and his aides have done, and that is in regard to the largest corporation in the country which has as its main enterprise that of agriculture. This corporation, according to an IRS report, has assets of $293 million. This one farm corporation had total gross receipts in 1964 and 1965-the one year of 1965, total gross receipts of $432 million. This was more than 1 per- cent of the total gross receipts of all the farmers in the United States in 1964. So 100 corporations like this one already in existence could replace all the 3 million remaining family farms, and yet despite this $432 million gross receipts, this one big farm corporation paid only $970,000 in Federal income taxes or less than one-fourth of 1 percent of their total gross return. The exodus of our farm people, triggered by low farm prices and this corporate farm onrush, has produced economic and social decay in small towns and cities throughout the Nation. You can drive almost anywhere in the rural areas and see the results of our failure to weigh social consequences in determining our eco- nomic objectives: the weathered, abandoned farmhouse, a curtain flapping through a broken window; the soaped-up plate glass of the store front with the "closed" sign taped to the door; the weeds standing tall around the vacant service station, and the growing ratio of older people on our main streets in areas like South Dakota. Farmers Union has long cofitended that programs exist for people, not people for programs, and that social consequences should be weighed in determining our economic objectives. In March the President's Riot Commission reported on results of a several month's study and made recommendations for at least a start in solving the problem of riots-by cleaning up the ghettos and slums. The cost, in round figures, was estimated at $100 billion. So now we are paying the penalty for our failure to help our people stay on the land, and we are paying many times over what it would have cost initially. It is not too late but the time to start is now. We must look beyond the sacred cow of efficiency and begin thinking more about people. We feel there are several steps that could be taken to assist our inde- pendent farmers in their battle for survival. I will run through some of them very briefly. Enact Senate bill 2613, which is the Metcalf bill. Appoint a committee to thoroughly investigate the encroach- ment into agriculture by nonf arm interests. Enact legislation to assure parity prices and income protection only up to a family farm level of production with USDA defining family farmers on a county-by-county basis in every State. And, Senator, the Farmers Union is also happy to endorse the Young Farmers Investment Act, S. 1567, introduced by you, and cosponsored by numerous others. PAGENO="0026" 22 Young people today are finding it increasingly difficult to get started in farming Farming investment, according to the USDA Economic Research Service, has increased from an average of $6,158 per farm in 1940 to a current figure of $59,519. What's more, capital needs have doubled in the past 20 years and are expected to double again in the next 5 years. In closing, we sincerely hope that this committee and the Congress will follow through on the problems brought to the surface in this series of hearings and do everything possible to curb this threat to our independent farm families from the corporate giants and recommend enactment of progressive legislation aimed at keeping our farm f am- ilies on the land. Thank you. Senator NELSON. I thank you very much, Mr. Radcliffe, for your very fine statement. (The complete prepared statement and supplemental information submitted by Mr. Radcliffe follows:) STATEMENT OF BEN H. RADCLIFFE, PRESIDENT, SOUTH DAKOTA FARMERS UNION Mr. Chairman and members of the committee, we are honored that you have taken the time from your busy schedules to conduct this hearing and to look into what we feel is one of the most serious problems facing American agriculture and family farmers today. The independent farmer and many rural communities throughout this great nation could face oblivion unless the movement of huge non-farm corporations into agriculture is halted. Certainly one of the most important issues of 20th Century America revolves around the question: "Who Shall Control Agriculture?". This struggle attracts few headlines. Changes in the control of agriculture have come about so gradual in the last quarter century that policy makers are inclined to attribute it to evo~ lution rather than to use the more appropriate term, revolution. National agriculture policies, for nearly two centuries, have encouraged devel- opment of the family farm. And the nation has benefited from this policy, as in- dustrious family farmers built the greatest agricultural production plant the world has ever known. But all is not well in rural America these days. A vicious cost-prize squeeze has driven thousands of family farmers off the land, many of whom emigrated to the already overcrowded cities. Farm prices declined from 74 percent of parity in mid-March to 73 percent of parity for mid-April, according to the USDA report for the month ending April 15. During the same period, farm prices and government farm payments combined, went from 80 percent of parity in mid-March to 79 percent in mid-April. The 73% level for parity compares with 71% In 1934 in the depths of the depres- sion and the purchasing power of farm products, when adjusted to today's values, is very little more than it was back in the 30s `Nearly every third farm in a broad area of the agricultural midsection of America today stands empty with the silent migration to the cities accelerating Meanwhile, thousands of small towns throughout the country feel the impact from the loss of their farmer customers which were the lifeblood of the commu- nitty's economy. This year the number of farms will be the lowest since 1872 and considerably less than `half of the peak of 6,812,000 farms in 1935 and 25% below the number ~just 10 short years ago. According to the U.S. Department of Agriculture, there were 3,057,000 farms on January 1 of this year and the decline is continuing at a rate of about 80,000 annually. Farm people in 1947 made up nearly 17 percent of the national population. Twenty years later they accounted for only 6.4 percent, and today the percentage is still declining. PAGENO="0027" 23 South Dakota has not escaped this trend During the years of 1959-64, our state lost 6,027 farms for an average loss of 1,205 per year, and the picture is get- ting darker instead of brighter. The South Dakota Crop and Livestock Reporting Service recently estimated that our state lost another 1,500 farms in 1967. Equally alarming is what `has been happening to our small towns and actually, our entire rural community. During the years 1959 to 1964 our state lost 6,027 farms. In a similar 5-year period (1958-~63) We lost 1,101 business places, according to the 1963 U.S. Dept. of Commerce Census of Business. This means that for every six farms left vh,cant, one bus'ine's~ place closed its doors. Furthermore, according to a `recent study by Marvin Riley, rural `sociology profe~s'o,r at South Dakota State University, one out `of every seven South Dakotans left the `state to seek a living elsewhere during the decade from 1950 to 1960, including one `out of four young `adults, th'e `real productive segment of `any state's population. During that 10-year period, according to Riley's report, the state had a total exodus of 94,279 people. We are confident that the Administration recognize's the present plight of farmers. Secretary Freeman pointed `out in Fargo, ND., Feb. 8th that "70 percent of our population lives on only 1.3 percent of the land * * * From 1940 to 1960, 17.4 million persons left farms `or the farming way of life. * * * The total exodus from the countryside, from `small town `and farming America, `since 1950 has been 20 million people. "Thi's march to the cities," he `added, "is continuing at the rate of 500,000 to 600,000 a year-half `a million living, breathing bodies added to the 21/2 ~ni1li~n yea'rly that are crowding into `our `already glutted urban areas by virtue of `natural population increase. And the migrants are leaving behind a decaying countryside of dwindling `economic `and human resources." So there i's no lack of awareness `of the crisis in Washington. But somewhere along the way this nation ha's gone astray in its concept `of values. `Sen'ato'r George McGovern, in `a'n address `on th'e Senate floor in Feb,rua'ry, declared "We are more `and more `accepting technology, unque~stioningly, as an irresistible force and optimum mechanical efficiency as the goal of existence. It is time to `take a look `at what `is `being done to people. It is time that we took a l'oo'k to see if the change is either inevitable o'r desirable, and whether the new `society toward which `we `are heading, `a sort of corporate collectivism, is what we really want." Our farm's in rural Amorida have `been `disappearing not becau's,e the fa~rme'r has n~t be'en `working bard `and `efficiently. In most cases his productivity exceeds that of his city cousin. But while our farmers have bee'n producing more `and better food, `they have been continually `asked to produce it at lower wages for themselves. The exodus from rural America has been brought about by two elements which go hand `in hand: low farm price's and the increasing entrance in'to agni- cultu're `by giant, non-farm corporations. I am `sure that `during this hearing today, the entrance into agriculture by some of these giant non-farm c'orpo'ratio,nis will be aptly illustrated so `ou'r organization will stick primarily to what has happened in South Dakota. On learning of the m,l'lli'ons of acres `of farm laud `being purchased around the nation by `corporations and individual's `as a hedge against inflation `and for tax loss purposes, we decided to conduct our own investigation into the extent of corporate farming in South Dako'ta. Our `survey, conducted with the `assistance of `county assessors and the state ASOS, `revealed that there are 452 corporations `owning agricultural l~an'd in South Dakota, `totaling 1,633,529 acres, o'r the equivalent of five medium~s'izcd South Dakota counties. Corporations now `own one `out `of every 27 acres `of farmland in our `state. A copy `of this survey is enclosed with our statement. Equally alarming was that there `are 56 corporation's listing `an `out~of-state address owning nearly a th'ird of a million acres (312.589.) Some of the larger holdings by these out-of-state firms include: Western Oattle Company `of New Y'ork-70,948 acres in two counties. Ho,mestake Mining Company of C'alifornia-42,282 `acres in two counties. Shur-Gro Irrigation Company, Clovis, New Mexico-36,4188 acres in four counties. Hickman & Jordan, `a Texas firm, with 28,327 acres in one county. Norris Grain Company of Illinois, 41,874 acres in two counties. PAGENO="0028" 24 Senator McGovern, in his `address `to our National Farmers Union Oonvention in March, declared that `a little more ,th~an 10 percent of agricultural production in this country is now by corporation~s. (With your permission I would like to insert as part of this record, a copy of that speech delivered by San. Me(liovern to our national convention, since many of the figures ontlined by the Senator apply to the corporate farm problem you are investigating.) Out `of 3 million farm income tax returns in 1965, there were 680,000, `or 22 percent, filed by people who deducted farm losses from. non-farm income and `still had income tax to pay on their non-farm income. That `included 86 percent of all persons who paid on $1 million income or more, 85 percent of those who hiad $500,000 to $1,000,000 income, and 73 percent of those with $100,000 to $500,000 income. Senator McGovern declared that thesse non-farmers are avoiding $200 to $400 million in federal income taxes iby going into farming, claiming farm losses as an offset to other income, `and later recapturing the income as a capital gain suhj~ct to a much lower tax rate. So gentlemen, you are looking at a major tax loophole as well as a system of unfair competition which puts bona fide farmers out of farming, and closes down the stores, the churches, the schools and the rural communities which the family farmers have built and supported over the years. I would like to call your attention to a few other statistics from the speech by Sen. McGovern-statistics from a Source Book on Statistics of Income soon to be published by the Internal Revenue Service. There is a table included in this book which analyzes only the returns of the 17,578 corporations whose principal business is farming. This group has total assets of over $5 billion and has gross receipts in the 1964-~65 fiscal year of $4.3 billion, which represented 10 percent of the total gross income of all farmers in `the United States that year ($42.2 billion). Of the 17,578 farm corporations, as of June 30, 1965, about 5,000 of them have assets under $50,000. Another 9,000 have assets between $50,000 and $250,000. Around 3,500 have assets between one quarter and a million dollars and there are 766 with assets over a million dollars. Thirty-four list assets over $5 million, 21 top $10 million, 7 have assets over $25 million, one lists i'ts assets at $50 million, another at $152 million, and one great giant with assets of $293 million. Let's take a closer look at this largest corporate farm operation. This one farming corporation had total gross receipts of $432 million. That was more than one percent of the total gross receipts of all the farmers in the United States in 1964. One hundred corporations `like this one already iti existence would equal the operations of all the `three million remaining family farms. And yet, despite this $432 million gross, this one big farm corporation paid only $970,000 of federal tax, listing a net income of only $3.1 million out of the $432 million gross. What's more, out of all of the 17,578 farm corporation tax returns, only 9,244 had taxable income, and that only amounted to $199 million of income subject to tax out of gross receipts of $4.3 billion. They ended up paying Uncle Sam as corporation income tax only about 11/2 percent of the $4.3 billion they grossed. Similarly, many individuals have offset high non-farm income by using farm investments as a tax haven. A study by National Farmers Union was published in the Sept. 15, 1967 issue of the Washington Newsletter and is based on a report of the Internal Revenue Service entitled "Statistics of Income, 1965." The results of this study show: Millionaires-Of the 119 engaged in farming, only 16 reported a profit on their income tax returns. $500,000 to $1,000,000-Of the 202 in farming, 32 showed a net profit and 170 showed a loss. $100,000 to $500,000-Of 3,914 involved in farming, 1,040 showed a profit and 2,874 reported a loss. $50,000 to $100,000-Of 12,398 involved in farming, 4,974 showed a profit and 7,424 reported a loss. $20,000 to $50,000-Of 69,132 involved in farming, 38,752 showed a profit and 30,380 reported a loss. PAGENO="0029" 25 $15,000 to $20,000-Of 66,003 involved in farming, 42,160 showed a profit. and 23,843 reported a loss. $10,000 to $15,000-Of 211,673 involved in farming, 132,109 reported a profit and 79,564 reported a loss. $5,000 to $10,000-Of the 793,689 involved in farming, 473,948 reported a profit and 319,741 reported a loss. I think these figures point out the two major reasons non-farm interest, and especially corporations, are entering farming: (1) Land has been a good investment, increasing nationally at the rate of five percent or more annually. (2) To give these non-farm interests a tax advantage through their farming operations. A great majority of the people in our state, I am sure, want to see our present independently owned farm and trade center pattern continued, and are alarmed at the increasing entrance into agriculture by corporations and other non-farm interests. When these outfits are trying to lose money, it makes pretty tough and pretty unfair competition for a farm family trying to make a living at farming. In addition, corporations, in general, do not make good Main Street customers or good neighbors. They contribute little to a community in the way of church or school endeavors and they also are making it extremely difficult for young farmers to get started in farming or to expand their present farm unit to an adequate size because the giant corporate farms are generally able and willing to pay more than the going price to get what they want. When corporation farming comes in, farm families move out and they are replaced by the inevitable seasonal worker with the accompanying welfare and educational problems. To illustrate this point, I call your attention to a report by a special comm.ittee to study problems of American Small Business, created by the 79th Congress. The committee studied two communities in California in areas of equal pro- ductivity-Arvin and Dinuba. They differed only in the type of agriculture they served. Arvin was in a large, corporate farm area and Dinuba in a family farm area. The contrast in these two towns was striking. Arvin was governed from the county seat and had unimproved `streets, poor housing, one elementary school, few stores or service clubs, and virtually no home furnishing, lumber, hardware and farm equipment `businesses. Dinuba, in the family farm area, had paved streets, water and sewer, three elementary sclio~ols plus a high school, 35 service clubs and social organlsatiions, perix~anent churches and numerous durable goods stores. The exodus of our farm people, triggered by low farm prices and this corpo- rate farm onrush, has produced edonomic and `social decay in small towns and cities `throughout the nation. You can drive almost anywhere in the rural areas and see the results of our failure to weigh social consequences in determining our edonomic objectives: the weathered, abandoned farm hods'e, a curtain flapping through a broken window; the s'oaped.~up plate glass `of the store front with the "Closed" sign taped to the door; the weeds standing tall around the vacant service station, and the growing ratio of older peo'ple on our main Streets in areas like South Dakota. It has had an equally depressing effect upon our cities. It has compounded existing dondi'tion's of congestion, pollution, tension, unemployment and despair, and added to the problems of `already pro'biem~ridden urban officials. You need look no farther than your local newspaper or television screen to `see what this incredible pile-up of people has meant-~riots, fires, killing, looting-the instruments of desperate people, crowded, with no hope, into the ghettos `of o'u'r metropolitan cities. If the traditional independent farm family is to regain control of American agriculture, the first order of business should be to free them from this unfair compe'titi'on with dorporation farms, and to provide them with better and stronger programs so that they can make a living on the land. Stanley Andrews, Alamo, Texas, a `member of the National Advisory Committee on Rural Development, also believes it is time `that some thought was given PAGENO="0030" 26 to what our rapid technological advance is doing to people, aside from the econcmiic factors invotived. He wrote in a farm pulhcation recently They talk ahout creating ~jobs btlt in the 100,000 fami1y~size farms Whtch went out `of existence in the United States last year, there were lost, 100,000 jobs, 100,000 family homes, and a great deal of `part-time and individua~ ~snork for ~e~ple. "At the same time, in those very communities, there were young men and women `capable, willing and anxious to have this land and to ~tart on the way toward farm ownership Yet the very economics or economic power that is being more and more concentrated in the `hands of a few big operators simply wipes out these efficient-and they are efficient-medium-size family farms." Farmers Union has long contended that programs exist for people, n~t people for programs and that social consequences should be weighed in determining our economic objectives In March the President s riot commission reported on results of a several months `study and made recommendations for at least a start on `solving the prob- lam of riots-~by `cleaning up the ghettos and slum's. The cost, in `round figures, was ertimated at $100 billion. So now we are paying the penalty for our failure to help our people stay `on the land, `and we are paying many time's over what `it would `have cost initially. It is not to'o `late `but the time `to start is n'ow. We must look beyond the sacred cow of `efficiency `and `begin thinking more about people. Our organization feels there are several step's that could be taken to assist our independent farmers in their battle for suirvival 1 Enact SB 2613 introduced by Sen Lee Metcalf of Montana This meas `ure would prohibit `persons who are not bonafide farmers from using losses incurred in their farming operations as an offset to in'come from other sources This type of practice by these big city investors has year after year denied the government its rightful share of taxes on income while helping drive prices down `so that family farm operators are forced out of business and as is happening in South Dakota forded out `of the state 2 Appoint a committee to thoroughly investigate the encroachment into agriculture by non-farm interests. 3 Enact legislation to assure parity prices and income protection only np to a family-farm level of production with USDA defining family farmers on a county~by county basis in every state Present farm programs have too often benefited the giant corporations A re port issued by the USDA in mid 1967 lends credence to that charge Of the three billion plus dollars paid out in Federal Farm Progi~am benefits in 1966 over `one `billion went `to farms receiving $5,000 or more. Nine farms collected over one million dollars eacti and two of these colledted over two million each It would be in the broad national interest to utilize our farm program ap propriations to provide maximum `benefits to our independent farm families. Olianneling these program benefits to family farmers also would quiet the voice of the farm program critics. South Dakota Farmers Union is also `happy to endorse the Young Farmers Investment Act, SB 1567, introduced by Sen. Gaylord Nelson, and co-sponsored by numerous others. Young people today are finding it increasingly difficult to get started in farm i:ng. Farming investment, according to the USDA Economic Research Service, has increased from an average of $6 158 per farm in 1940 to a current figure of $59 519 Wh'at s more capital needs have doubled in the past 20 years and are expected to double again in the nOxt five years We were therefore enthusiastic over the Nelson bill which would enable b'or rowers to borrow money at a maximum interest rate of 4% with a 40 year period to repay 50% of the loan The bailance of the loan would be due and payable in a lump sum `or balloon payment at the en'd of that 40-year mortgage period, with a provision for refinancing if necesSary It a a goo'd bill and could be a big help i'n keeping some of our young people on the farm. PAGENO="0031" 27 A SUMMARY OF O0RP0RATI0NS OwNING AGRIOULTURAL LAND IN SOUTH DAKOTA (By the South Dakota Farmers Union-January 1968) Oorporation ownership of agricultural land has been a concern of the inde- pendent farmer for some time but in recent years movement of corporations into farming and ownership of `agricultural land `has come to the forefront of attention. This survey shows the amount of South Dakota `agricultural land owned by corporations, both `domestic and foreign, in each county of the state. Of the total 452 corporation's owning agricultural land in South Dakota, 396 giving `South Dakota home office addresses own a total of 1,320,940 `acres. There are 56 corporations listed with out o'f state addresses owning 312,589 ac'~es. Grazing Associations in 37 counties account for 204,987 acres. From `the names and home office addresses of corporations `surveyed, it is estimated that no `more than 20 percent of the acreage listed is `owne'd anid operated `by family corporations. Total ownership of agricultural land in South Dakota by all corporations amounts to 1,633,529 acres. This is equal to `the area of `the combined counties of Jerauld Miner Hanson Sanborn and Davison Lid In closing I would like to quote a question posed by President Johnson in a speech in Pennsylvania in September, 1966. It applIes as well today as it did then whether we are considering the need to improve farm income or control and regulate corporations encroaching into agriculture The President said and I quote Must we export our youths to the city faster than we export our crops and our livestock to market'? We sincerely hope that this committee and the Oongi~ess will follow through on the problems brought to the surface in this series of hearings and do ever~y thing possible to curb this threat to our indepenclenit farm families from the corporate giants `and recommend enactment of progressive legislation aimed at keeping our'farm families on the land. SOUTH DAKOTA 1,633,529 Acres in Corporate Far7ns 5 Counties PAGENO="0032" 28 CORPORATIONS OWNING AGRICULTURAL LAND IN SOUTH DAKOTA County South Dakota Acres Out of State Acres Total corporations owned corporations owned corporations Total acres Aurora Beadle Bennett Boo Homme Brookings Brown Brule Buffalo Butte Campbell Charles Mix Clark Clay Codington Corson Custer Davison Day Dewey - Deuel Douglas Edmunds Fall River Faulk Grant Gregory Haakon Hamlin Hand Hanson Harding Hughes Hutchinson Hyde Jackson Jerauld Jones Kingsbury Lake Lawrence Lincoln Lyman Marshall McCook McPherson Meade Mellette Miner Minnehaha Moody Pennington Perkins Potter Roberts Sanborn Shannon Spink Stanley Sully Todd Tripp Turner Union Walworth Washabaugh Yankton Ziebach 1 1,280 0 0 1 1 280 24 28,903. 78 7 5,908. 73 31 34, 812. 51 5 23,815 0 0 5 23,815 2 2, 828 0 0 2 2,828 7 3, 114 2 621 9 3,735 16 23,778.93 9 10,737 25 34,515.93 2 2, 320 1 3, 801 3 6, 121 2 20, 198 1 6,033 3 26 231 50 11 75, 327. 46 1 160 12 75, 487. 46 3 3,040 0 0 3 3 040 2 9,659 0 0 2 9 659 9 9,340 4 3,760 13 13 100 3 1,200.91 2 1,384.22 5 2 585.13 7 6,328 1 565 8 6 893 4 21,176 0 0 4 21176 3 21,979 1 31,618.30 4 53'597 30 30 11,416 1 266 31 11682 3 13,599 0 0 3 13599 2 12,419 0 0 2 12'419 4 3,758 0 0 4 3'758 3 2,314.22 0 0 3 2,314.22 7 21, 131 0 0 7 21, 131 7 59,360 0 0 7 59 360 4 8,720 0 0 4 8 720 1 3, 120 1 2,555. 33 2 5 675. 33 3 27,093 1 10,720 4 37 813 8 60,622 2 88,555.80 10 149 177.80 1 791. 71 0 0 1 791 71 8 20,520.05 0 0 8 20520.05 9 14,743.13 0 0 9 14 743 13 10 101,573.50 0 0 10 101 573 50 6 8,886 1 2,080 7 10 966 0 0 0 0 0 ` 0 7 30,390 2 17,804 9 48 194 2 13,269.52 0 0 2 13269.52 2 3,036 1 160 3 3 196 4 19,025 0 0 4 19 025 7 5,067 4 1,668 11 6 735 2 3,384.37 1 873.90 3 4258 27 5 13, 591 1 8, 883. 23 6 221 474:23 28 8, 138.01 0 0 28 8, 138. 01 2 14,286 0 0 2 14 286 3 4,640 0 0 3 4 640 1 480 0 0 1 480 24 37, 334. 20 0 0 24 37 334 20 21 126, 528. 17 3 52, 845 24 145' 973 79 7 42,386 0 0 7 42386 0 0 0 0 0 `0 8 5,645 0 0 8 5 645 2 400 0 0 2 `400 16 71,607.54 2 12,898.63 18 84 506 17 8 51,040 0 0 8 51 040 3 8,033 0 0 3 8 033 11 8,200.46 0 0 11 8200 46 8 9,451.96 1 2,505.04 9 11 957 4 16,966 1 2,443 5 19 409 12 19,388.69 2 1,040 14 20 428 69 10 135,838 0 0 10 135 838 13 30,788.11 6 6,244.26 19 37 032 37 1 942 2 34,570 3 35 512 5 19, 356.78 0 0 5 19 356. 78 3 4,530 0 0 3 4 530 1 160 3 1,727.20 4 1 887.20 1 748 0 0 1 748 4 10,640.54 0 0 4 10 640 54 0 0 0 0 0 ` 0 4 14,693.61 1 160 5 14,853.61 Total 1438 1,320,940 `63 312,589 1501 1,633,529 1 Since some corporations own agricultural land in more than 1 county, the totals on this chart are greater than on the summary page where each corporation was counted only once. PAGENO="0033" 29 OORPORAT]0N FARMS IN NEBRASKA, MAY 1967 ADAMS COUNTY Blame Farms Inc , 5607 Hartley, LInColn, Nebr Fricke Farms mc, Ayr, Nebr Harmon Farms Inc , Trumbull, Nebr Shurigar Bros mc, Kenesaw, l~ebr Shattuck Farms me., 8~7 ~`T. Pifle, Hastings, Nebr. Mid Rivers Oo Inc Roseland, Nebr Morrison Quirk Grain Oorp , Box 609 HastIngs, Nebr Garvey Elevtator Inc Box 177, Hastings~ Nebr B L Kahif Rance Co mc, York Nebr Hastings Skyways mc, Route 2, Hastings Nebr ANTELOPE COUNTY Barr Oross Farms Inc., c/o John Donner, Elgin, Nebr. 68686 Flebert md Inc , e/o L H Vanderheiden, Elgrn Nebr 68686 Kouizan & Sons mc, c/o Dwaine Koinaan, Elgin Nebr 68630 Sunshine Ranch Ce, mc, c/o S B Hall Pres Neligh, Nebr 68756 Loyd West Farms Inc do Loyd West C'reighton Nebr 68729 ARTHUR COURTY None BANNER COtflSITY C P Van Pelt & Sons Inc Kimball Nebr 69145 Van Pelt Ranches, Inc Kimball Nebr 69146 Grand View Ranch Inc Harrisburg Nebr 69845 V&A Olsen Farms Inc , Harrisburg, Nebr 69845 Olsen Ranches Inc., Harrisburg, Nebr. 69845 Sehuler-Olsen Ranches Inc., Harrisburg, Nebr. 69345 The Bend Corp, Box 183, Kflnball, Nebr 69145 Bull Canyon Ranch Inc 613 S Burg, Kimball Nebr 69145 Kleven Land Co Inc 724 Hillcrest Dr, Scottsbluff Nebr 69361 BLATt4IE COURTY Zutavern Ranch Co Dunning Nebr Wiebusch Land & Cattle Co., Broken Bow, Nobr. BOI'(E (~OUN~ Choat & Sons Inc, do Clarence Choat Pros, 988 S 7th St, Albion, Nebr 68620 Babcock Farm's Inc c/o Harold Babcock, Route 3, Alblon, Nebr 68620 BOX BUTTE COUNTY Bagenieister s Inc Hemingford Nebr 69348 Hemingford Equip Co Hemingford Nebr 69848 Dee & Dee Livestock Co Frank Dee Pres , Hemingforcl Nebr 69348 Alliance Grain Co Box M Alliance Nebr 69348 J H Minor Co Inc c/o Milton Green Mitchell Neb'r 69357 Alliance Development Corp Walter Mischniek Pres Alliance Ne'br 69301 Aria Cattle Co., Richard Murphy, Alliance, N~br 69301 Burke Cattle Co., do Jack Burke, Angora, Nebr. City of Alliance Roberts W Laing manager Alliance Nebr 69301 Durland Trust Co Box 767 Norfolk Nebr 68701 Durland Trust Co, Trustee Box 767 Norfolk Nebr 68701 Cook Livestock Co Box 101 Scottsbluff Nebr Syndicate Block Co Della Dickerson Pres 602 Box Butte Alliance Nebr 69301 Hammond mv Co % Farmers Natl Co Box 783 SIdney, Nebr 69162 Diocese of Grand Island % Wayne Deaver 1012 Big Horn Alliance Nebr 69301 Holy Rosary Catholic Church Raymond Dooley Pastor Alliance Nebr 69301 Myers Land & Cattle Co E J Ressegieu 1220 Toluca Alliance Nebr 69301 Reitz Farms Inc 1600 Avenue A, Scottsbluff Nebr 69361 KCOW Radio Station by KLOE Inc Alliance, Nebr 69301 95-25a-68-----3 PAGENO="0034" 30 Ancient & Accepted Order of Scottish Ries, Box 509, W. H. Pittam, Agent, Alliance, Nebr. 69301 U.S. Nat'l Bank of Omaha, trustee, Omaha, Nebr. Univ of Ndbr Expt. Sta., Paul Ehiers, Supt., Fowling Route, Alliance, Nebr. 69301 O'Brien Land & Cattle Co., 219 West 12th, Alliance, Nebr. 69801 Jessen Farms Inc., Ray Jessen, Sec., Lodgepole, Nebr. 69149 Western Fertilizer & Cordage Co., Box 657, Alliance, Nebr. 69301 BOYD COUNTY None. BR~OWI~ COUNTY None. B~XFS~AI~O COUNTY None. BURT COUNTY Shumway Farms Inc.,t. L. Sbumway, Lions, Nebr. 68038 Logan Land Co., Byron Reed Co Agt., 19th & Douglas, Omaha, Nebr. 68102 Breckenridge Farms Inc., W'm Breckenridge, Tekamah, Nebr. 68061 Miller's Inc., Marguerite Miller, 1506 Covell, Sioux Falls, S. Dak. Hancock Farms Inc., PaulHancOck, Herman, Nebr. 68029 Eaton Farms Inc., W. D. Eaton-Box 226, Fremont, N~br. 68025 Burtco Farms Inc., Byron Reed Co., 19th & Douglas, Omaha, Nebr. 68102 Tekseed Hybrid Co., Tekamah, Nebr. 68061 E. K. Buck Retail Stores, Inc., Farmers National Co., 4820 Dodge St., Omaha, 68132. Gustafson Corp., Martha Gustafson, Lyons, Nebr. 68038 Hansen Corp., Harry Hansen, Lyons, Nebr. 68038 Valley Land & Loan Co., Roy I. Andersen, Blair, Ncbr. 68008 Fontenelle Homes Inc., Tekamah, Nebr. 68061 Tobin Farms Inc. & Gramke, Melvin Gramke, Tekamah, Nebr. 68061 BUTLEB COUNTY Moore Farms, Kenneth Moore, Ulysses, Nebr. 68669 Siffring Farms, Raymond Siffring, Rising City, Nebir. 68658 Cedar Lane Farms Inc., Box 674, Columhns, Nebr. 68601 Lazy L Corp., Roland Langemaier, Scbuyler, Nebr. 68661 J. B. Farms Inc., Box 573, Oolumbus, Nebr. 68601 OASS COUNTY None. CEDAR COUNTY Sudbeck Farms Inc., Donald J. Sudbeck, Pres., 1005 5. 131st Ave., Omaha, Nebr. 68154 CHASE COUNTY Leslie E. Smith & Sons Inc., Imperial, Nebr. 69033 Hughes Farms Inc., Imperial, Nebr. 69033 Yaw Farms, Inc., Champion, Nebr. 69023 Matchless Farms, Inc.., Imperial, Nebr. 69033 CHERRY COUNTY Hoffman Cattle Co., Nenzel, Nebr. 69219 Stotts Cattle Co., Cody, Nebr. 69211 Hollers Ranch Co., Cody, Nebr. 68211 Roseberry Cattle Co., Whitman, Nebr. 69306 Goodin Angus Cattle Co., Gordon, Nebr. 69343 Rolling Stone Ranch, Wood Lake, Nebr. 69221 Red Deer Gun Club, Woodruff Printing Co., Lincoln, Nebr. 68508 Lost Creek Cattle Co., Wood Lane, Nebr. 69221 Lazy Trails Angus Ranch, Wood Lake, Nebr. 69221 Angus Valley Cattle Co., Wood Lake, Nebr. 69221 Willow Grove Land & Cattle Co., Wood Lake, Nebr. 69221 0. 0. Young Cattle Co., Valentine, Nebr. 69201 PAGENO="0035" 31 CHEYENNE COUNTY Ivan B. Walker, Inc., Dalton, .Nebr. 69131 CLAY COUNTY Aspegren Farms Inc., Harvard, Nebr. 68944 B H & L Grain Co. Inc., RFD #1, Hastings, Nebr. 68901 Grove Inc., Edgar, Nebr. 68935 Kreutz Bros Iuc~, Giltuer, Nebr. 68841 COLFAX COUNTY Langemeier & Wagner Inc., Schtiyler, Nebr. CIJMING COUNTY' None. CUSTER COUNTY SRW Inc., 7702 Hascall St., Omaha, Nebr. 68124 Western Livestock Sales Inc., 704 Missouri, Alliance, Nebr. 69801 McClure Land & Cattle Co. Inc., Arnold, Nebr. 69120. Wiebusch Land & Cattle Oo~ Inc., Broken Bow, Nebr. 68822 The Four Freds, Inc., Mrs. Mamie Fred, Pres., 331 Marlyn Rd., Broken Bow, Nebr. 68822 Alvis Ridder Herefords Inc., Callaway, Nebr. 68825 Lazy S. L. Ranch, Inc., Callaway, Nebr. 68825 Arnold Livestock Sales. Co. Inc., % Don Werner, Thedford, Nebr. 69166 Fairways Farms Inc., Mrs. Mamie Fred., Pres., 331 Marlyn Rd., Broken Bow, Nebr. 68822 Devine Ranch Inc., Charles Devine Pres., Ocouto, Nebr. 68860 Sargent Dehy Inc., Paul D. Hart, V. Pres., Sargent, Ne;br. 68874 Pirnie Bros. Cattle Co. Inc., Weissert, Nebr. 69880 DAKOTA COUNTY A 2 Z Investors Inc., % R. Smith Sec., 2601 Dakota, S. Sioux City, Nebr. 68776 Beermann Farms Inc., Gordoa D. Beermaim, Dakota City, Nebr. 68731 Buckwalter~Stldworthy Corp., ~ Ada S. Westover, Box 111, Sioux City, Iowa 51102 . Grain Belt Farm Inc., J. Cullinaiie Pros., Farmers Nat'l Co., 4820 Dodge St., Omaha, Nebr. 68132 Iowa Beef Packers Inc., Gerald P. Franki, Box 248, Dakota City, Nebr. 68731 K-R Farms Corp., John F. Kayl, Agent, Box 4, S. Sioux City, Nebr. 68776 Soo Electronics Inc., Phil Maher, Gen. Mgr., 2309 Dakota Ave., S. Sioux City, Nebr. 68776 Terminal Grain Corp., Security Nat'l Bank, 6th & Pierce, Sioux City, Iowa 51101 DAWES COUNTY Benthack Cattle Corp., Rt. 1-Box 123 A, Chadron, Nebr. 69337 Freed Enterprises, Star Rt. 2-Box 89, Chadron, Nebr. 69337 Valley View Acres Inc., Margaret L. Hebbert, Pros., RFD 2-Box 4, Ohadron, Nebr. 69337 Gasseling Cattle Corp., RFD, Hemlngford, Nebr. 69348 DAWSON COUNTY Gothenburg Feed Prod., W. H. Healey, Gothenburg, Nebr. 69138 96 Ranches, IL M. Williams Mgr., Gothenburg, Nobr. 69138 Brooks-Stebbins Hay Co., Walter Brooks, Gothenburg, Nebr. 69138 M & R Milling Co. Inc., Box 158, Gothenburg, Nebr. 69138 Bauman Farm Inc., Don Bauman, Gothenburg, Nebr. 69138 Geiger Land Co., Rogert Geiger-Rt 2, Cozad, Nebr. 69130 German Land & Cattle Co., Calvin German, Cozad, Nebr. 69130 Allan Armbruster, Box 245, Cozad, Nebr. 69130 Menke & Son Co., Benjamin Menke-Rt 3, Cozad, Nebr. PAGENO="0036" 32 Menke Livestock/Patsy Land, Marion Menke, Pres., Lexington, Nebr. 68850 Nebr. Farm Proc. Inc., Ray Bates, Cozad, Nebr. 50130 Biehl Cattle Co., W. A. Biehl-Rt 1, Lexington, Nebr. 68850 Magritz Cattle Co., Rt 1-Box 152, Lexington, Nebr. 68850 Progress Products Co L E Carpenter Overton, Nebr 68863 Mann Hay Co., Milton Mann, Gothenburg, Nebr. 50138 Roberts Cattle/Roberts Farms James Roberts-Et 2 LexingtOn Nebr Rohde Livestock Inc Homer Rohde Eddyville Nebr 68834 Platte Valley Prod Harold Beyl-Box 618 Lexington Nebr Caple Land Co A B Caple Co Oregon Road Toledo Ohio 43605 Platte River Cattle Co Harold Beyl-Box 618 Lexington Nebr Skinner Cattle Co., Richard Seberger, Mgr., Lexington, Nebr. F. L. Beattie Inc., J. G. Beattie, Sumner, Nebr. 68876 Dawson County Feed Inc., Clifford Bossumg Pres., Lexington, Nebr. ()entral Alfalfa Inc., Geo Pfister Pres., Lexington, Nebr. 68850 Nebraska Alfalfa Farms Inc., Jack Dillard, Pres., Box 340, Lexington, Nebr. Harold Presser Co Harold Prosser-Rt 2 Lexington Nebr Boether Angus Farm 410 N Jackson Lexmgton Nebr 68850 Progress Livestock & Feeds, Inc Overton Nebr 68863 Archer Daniels Midlands Co Odessa, Nebr 68861 Cozad Cattle Co Fred Sukup, Cozad, Nebr 69130 Lemmon Mills mc, Raymond Bates Willow Island, Nebr 69171 Rosenau Farms Inc Dee Rosenau V Pres Cozad Nebr 69130 Atchison Land & Cattle Co, Paul Atchison Pres 701 West 11th Cozad, Nebr 69130 Belamy Elevator Inc., Willard Bellamy-Rt 2, Elwood, Nebr. 68937 Leo Neil & Son Inc Novall Neil Pres-Rt 2 Cozad Nebr Kugler Co Henry Kugler-Rt 2 Cozad Nebr Gruber Land & Cattle Co., Otto J. Grober-Rt 2, Cozad, Nebr. Hanna Land & Cattle Co., Lloyd Hanna, Prea-Rt 2, Lexington, Nebr. Four L Holding Co Norman Reynolds-Rt 2 LexIngton Nebr Whaley Land & Cattle Co Norman Reynolds-Rt 2 Lexington Nebr Gothenburg Alfalfa Prod., Harvey Suttonr-Box 24, Willow Island, Nebr. 69171 DEUEL COUNTY ~one DIXON COUNTY Nedrow Inc., Hartimgton, Nets?. 68739 Hulac Inc Bryon Reed (Jo Inc Omaha Nebr 68102 Ponca Land Co., Bryón Reed Co., Inc., Omaha, Nebr. 68102 Conservative Savings, Walthill Nebe Valley Land & Loan `Co., Box 323, BlaIr, Nebr. 0806 DODGE COUNTY l~el Pox Inc 2~78 8th Ave S Ft Dodge Iowa 50501 Dakaib Agri Ass n Inc Sycamore Road Dekaib Ill 60115 Dehy Alfalfa Mills Inc., 247 E Washington st., Fremont,NObr. 68025 Consolidated Blenders E Front Fremont Nebr 08025 Hills Farm Inc West Court Bldg Freniout Nebtr 68025 Ruwe s Inc Nickerson Nebr 68044 Lyman Richey, 750 Omaha N~at'l Bank, Omaha, Neibr. 68102 Idlewild Farms Inc., 1770 N. (Jolson, Fremont, Nebr. 68025 Goodland Inc., Byron Reed (Jo., Continental Bldg., Omaha, Nebr. 68102 Hercules Powder Co., Rt 1, Fremont, Nebr. 68025 DOUGLAS COUNTY Wedak Farms Inc Willard Wedberg-Rit 1, Valley Ne~br 68064 Valley Feed Yards Valley Nobr 68064 Dawson (Jo Feed Products Co Lexington Nebr 68850 DUNDY COUNTY None. PAGENO="0037" FILLMORE COUNTY Alfs Implement & Well Drilling Inc., Shickley, Nebr. D & J, Inc., Fairmont, Nebr. A. Koehier Oo, Inc., Geneva, Nebr. M. S. Farms, Inc., Fairmont, Nebr. Schepers Farms, Inc., Fairinont, Nebr. FRANKLIN COUNTY hawkins ~onst. Co., 2512 Deer Park Blvd., Omaha, Nebr. 68105 FRONTIER COUNTY Triple F Farms & Ranches Inc., E'ustis, Ne:br. 69028 Lakevi'ew Ranch Inc., Cambridge, Neb'r. 69022 Coon Creek Cattle Oorp., Indianola, Nebr. 69034 Kester Land Co., C~ambridge, Nebr. 69022 FURNAS COUNTY H.J. ten Bensel & Son's `Corp., H.J. ten Bensel, Pros., Can~bridge, Nehr. 69022 Lueking Farm & Ranch Corp Harold Lueking Pres Oxford Nebr 68967 GAGE COUNTY Adee Honey Co Inc Wymore Nebr 68466 Burrows Hereford Farm Inc., `Adams, Nehr. 68301 Callan Farms Inc Kenneth Reed Agt 640 Dorsey St Beatrice Nebr 68310 Comrnco American Inc Box 218 Beatrice Nebr 68810 Damkroger Farms Inc DeWitt Nebr 68841 Flo-Wail Farms Inc., DeWitt, Nebr. 68341 Frantz Farm Equtp. Oo Inc., Highw:ay 77 North, Beatrice, Nebr. 68310 Fritz Farms Inc., Adams, `Nebr. 68301 Gronewold Farms Inc., 719 N. 18th St., Beatrice, Nebr. 68310 Hylo Farms Inc., DeWitt, Nebr. 68841 Mahloch Farms Inc., DeWitt, Nebr. 68341 Meyer Farms Inc., Route 2, Beatrice, Nebr. 68310 Phillips Petroleum Co Box 666 Beatrice Nebr SAD Corporation, 440 S. 5th St., Beatrice, Nebr. Waddell Farms Inc., 17018. 4th Sit., Beatrice, N~br. 68810 GARDEN COUNTY GARFIELD COUNTY Kryger Ranch Inc., Neligh, Nebr. Wolf Bros & Reich Inc., Albion, Nebr. Loup Valley Alfalfa Inc., Burweil, Nebr. GOSPEE COUNTY Whaley Cattle Co., Norman Reynolds, ER #2-Box 105, LexIngton, Nebr. GRANT COUNTY Rex Ranch Corp., Byron Reed Co.-720 Farnam Bldg., Omaha, Nebr. Bunner Cattle Co Hyannis Nebr Helen Hager Ranch Hyannis Nebr Farrar Cattle Co., Hyannis, Nebr. Monahan Cattle Co., Hyannis, Nebr. Grant Co Cont Manning 00 Ranches Inc Hyannis Neb~ Rushcreek Land & Livestock Co Mullen Nebr Moran Cattle Co Hyannis Nebir J L. Snyder ~Jo, 136 N Hillcrest, Ogallala, Nebr 33 None. PAGENO="0038" 34 OREELEY COUNTY RBW Agency Co of Nebr., H. F. St. John, Jr. Agt., Box 206, Commerce City, Cole. 80022 Wilson Land Co., H. F. St. John, Jr. Agt., Box 206, Commerce City, Cole. 80022 Dutcher Land & Bldg Co., Box 452, Hastings, Nebr. 68901 HALL COUNTY B & B Farm Inc., Leo & Margaret Bowden, Doni'phan, Nebr. 68832 Dobesh Farms Inc., Wood River, Nebr. 68883 Gangwish Farm & Grain Inc., Wendell J. Gangwish, Wood River, Nebr. 68883 Harmon Farms, Inc., Demet/Miidred Harmon, Trumbull, Ncbr. 68980 Home Trade Corp., Rex Otto, Farm Mgr., Daly Realty Co., Grand Island, Nebr. 68801 Peterson Farms Inc., Donald Peterson, Pres., Grand Island, Nebr. 68801 ~hurigar Bros Inc., Ed, Marion, Dave Shurigar, Kenesaw, Nebr. 68956 Beal Enterprises Inc., Brule, Nebr. 69127 Brule Alfalfa, Dennis Kastler, Mgr., Brule, Nebr. 69127 Dawson Co. Feed Products Inc., Lexington, Nebr. 68805 Baldeen Inc., Brule, Nebr. 69127 ~Kjeidgaard Farms Inc., Big Springs, Nebr. 69122 Mueller & Mueller Corp., 915 N. Spruce, Ogallala, Nebr. 69153 Nichols & Son Inc., 1231 East A, Ogallala, Nebr. 69153 Rankin-Prochaska Inc., 128 S. Hillcrest, Ogallala, Nebr. 69153 HAMILTON COUNTY Farms, Inc., 1305 11th St., Aurora, Nebr. 68818 Kreutz Bros Inc., Glitner, Nebr. 68841 York Alfalfa Mills, Inc., York, Nebr. 68467 HARLAN COUNTY Schleusener Farms Inc., Oxford, Nebr. 68967 Bernard Luekiug Inc., Oxford, Nebr. 68967 Ott Farms Inc., Orleans, Nebr. 68966 HAYES COUNTY None. HITCHCOCK COUNTY None. HOLT COUNTY Phoenix Investment Co., % L. P. Larsen, 700 Cotner Blvd., Lincoln, Nebr. 68501 Sun Valley Acres Inc., % A. B. Trowbridge, Box 24, Columbus, Nebr. 68601 Holt Co. Land Co. Inc., % Willis Peterson, Atkinson, Nebr. 68713 Schaffer Ranches, Inc., 412 No. 2nd St., O'Neill, Nebr. 68763 Triangle Land Co., % W. A. Woodyard, Box 1266, Grand Island, Nebr. 68801 Galyen Land & Cattle Co., % Wayne Galyen, Atkinson, Nebr. 68713 HOOKER COUNTY Revere Cattle Co., Mullen, Nebr. Tucker Ranch Inc., Mullen, Nebr. HOWARD COUNTY None. JEFFERSON COUNTY Colman Foundation Inc., % Max G. Logan, Agt., Diller, Nebr. 68342 Fairbury Industrial Dev. Oorp., B. C. Kruger-Box 422, Fairbury, Nebr. 68352 Huinmel Farms Inc., Daykin, Nebr. 68338 Meadowvue Farms Inc., Route 8, Fairbury, Neb'r. 68352 Twentieth Oentury, Inc., Box 202, Belleville, Kansas 66935 PAGENO="0039" 35 JOhNSON COUNTY LoQo Land Inc., Oliver E. Wolff, Sec/Treas., 1984 Lake St., Lincoln, Nebr. 68502 Logan Land c~o., Byron Reed Co., Agt., Continental Bldg., Omaha, Nebr. 68102 KEARNEY COUNTY Johnson Farms, Inc., Box 92, Hastings, Nebr. 68901 Melnroy Feed Yards, Inc., R.R. 4, Kearney, Nebr. 68847 Nebr. Turkey Ranch Inc., Box F, Gibbon, Nebr. 68840 KEITH COUNTY Beal Enterprises Inc., Brule, Nebr. 69127 Brule Alfalfa, Dennis Kastler, Mgr., Brule, Nebr. 69127 Dawson Co. Feed Products Inc., Lexington, Nebr. 68805 Haldeen Inc., Brule, Nebr. 69127 Kjeldgaard Farms Inc., Big Springs, Nebr. 69122 Mueller & Mueller Corp., 915 N. Spruce, Ogallala, Nebr. 69153 Nichols & Son Inc., 1231 East A, Ogallala, Nebr. 69153 Rankin-Prochaska Inc., 128 S. Hillcrest, Ogallala, Nebr. 69153 KEYAPAHA COUNTY None. KIMBALL COUNTY Herboldsheimer Farms Inc., Rt. 1, Kimball, Nebr. 69145 Kimball Farms Inc., Ray Gunderson-Box 132, Dix, Nebr. 69133 Lukassen Farms Inc., Rt. 1, Kimball, Nebr. 69145 KNOX COUNTY None. LANCASTER COUNTY by Enterprises, Inc., Rt. 1, Lincoln, Nebr. 68502 Pine Lake Inc., R. R. Perry, 615 Lincoln Bldg., Lincoln, Nebr. 68508 Eliker Enterprises Inc., Rt. 1, Wairerly, Nebr. 68462 Valley View Farms Inc., Waverly, Nebr. 68462 o & D Inc., Earl Lampshire, Pres., 1324 Aldrich Road, Lincoln, Nebr. 68510 J H & J Enterprises Inc., Waverly, Nehr. 68462 Booth Seed Co. Inc., Crete, Nebr. 68333 Oonstructors Inc.. James W. Hewitt, 1815 V Street, Lincoln, Nebr. 68508 Beckler's Inc., 5900 Cornhusker Hwy., Lincoln, Nebr. 68507 Waverly Cattle Co. Inc., Waverly, Nehr. 68462 The Catholic Bishop of Lincoln, a Corp., Box 708, Lincoln, Nebr. 68501 Valley Land & Cattle Co., Howard Hall, Pres., 314 Anderson Bldg., Lincoln, Nebr. 68508 ITy~Gain Electronics Corp.; Hiway 6, N.E., Lincoln, Nebr. Hi Acres Inc., H. R. Bookstrom, 3260 Leighton Ave., Lincoln, Nebr. 68504 Louisa Hamer, Inc., M. L. Hamer, Box 822, Lincoln, Nebr. 68501 LINCOLN COUNTY Applegate Ranch Inc., Sutherland, Nebr. 69165 Gamble Bros. Inc., Route 4, North Platte, Nebr. 69101 Art Henry & Sons, Route 4, North Plate, Nebr. 69101 .Jadkson Ranch Co., Maxwell, Nebr. 69151 Meyer Triangle L. Ranch CO., Maxwell, Nebr. 69151 M. Lloyd Miller Ranch Clo., Maxwell, Nebr. 69151 Olson Farms Inc., Hershey, Nebr. 69143 Paulinan & Sons Inc., Sutherland, Nebr. 69165 Pawnee Springs Ranch Co., Maxwell, Nebr. 69151 ~houp Farms Inc., Sutherland, Nebr. 69165 PAGENO="0040" 36 LOGAN COUNTY Pawnee Springs Ranch Co S A Nicholas Mgr Maxwell Nebr 69151 Milldale Ranch no., 114 W. 5th St., North Platte, Nebr. 69101 Big Bluestem Grazing Assoc W m Rickerton Sec Gothenburg Nebr 69138 Myers Land & Cattle Co Glen Eberspacher Arthur Nebr 69121 LOUP COUNTY None M'PHERSON COUNTY None. MADISON COUNTY Acklie Farms, Inc., William Acklie, Rt. 3, Norfolk, Nebr. 68701 Bd of Trustee Nebr Annual Conf Methodist Church Columbus Nebr 68601 Elkhorn Valley Cattle Co., Norfolk, Nebr. 68701 Emerick Livestock Co., 1501 S. 1st St., Norfolk, Nebr. 68701 Klein Farms Co William Klein Pres Battle Creek Nebr 68715 Nebr Christian College J F Contrils Dr Box 116 0 Neill Nebr 68763 Pioneer Land Co Roy Christiansen Pres 620 Hillcrest Wayne Nebr 68787 The Greater Norfolk Corp., Norfolk, Nebr. 68701 Warrick & Sons Inc., J. W. Warrick, Pres., Meadow Grove, Nebr. 68752 MEREICK COUNTY None. MORRILL COUNTY Empier Farms F E Scudder Dalton Nebr 69131 1st Nat'l Investment Co., Jim D. Stockwell, Pres., Bayard, Nebr. 69334 Abel mv. Co., Eldrige Scriven, Agent, Bank of Gering, Gering, Nebr. 69341 Nerud Inc., Tom Nerud, Treas., Bayard, Nebr. 69334 F&P Covalt Co., Floyd Covalt, Broadwater, Nebr. 69126 Indian Creek Ranch Inc., Latha Shannon Bonnewell, Pres., 1628 N. Elm, Ottumwa, Iowa Wright & Sons Inc., Bridgeport, Nebr. 69336 Schuler-Olsen Ranches Inc., Bridgeport, Nebr. 69336 Snow Redfern Memorial Foundation Inc Alliance Nebr 69301 Cedar Bluffs Ranch Co. Inc., Walter H. Wilson, Lemo~rne, Nebr. (The following are not filed at the Merrill Co. Court House) Central Realty mv Co C C Henrichsen Agt Bayard Nebr 69334 Ferguson & Co., C. C. Henrichsen~, Agt., Bayard, Nebr. 69334 Imperial Land Co., Bayard, Nebr. 69334 Redding Inc., Dale Redding, Minatare, Nebr. 69356 Chambers Land Co., Inc., Eldridge Scriven, Bank of Gering, Gering, Nebr., 69341 Chimney Rock Land Co., John R. Watson, Pres., Bayard, Nebr. 69334 Home Owners mv. Co., Bayard, Nebr. 69334 G M Peterson Inc Hickory Rt Alliance Nebr 69301 Burke Cattle Co., Jack Burke, Alliance, Nebr. Rush Creek Land & Cattle Co., G. Campbell, Bayard, Nebr. 69334 Bonner Cattle & Loan Co., Alliance, Nebr. 69301 Ivan Walker, Inc., Dalton, Nebr. 69131 Durland Trust Co., 312 Norfolk Ave., Norfolk, Nebr. 68701 NANOE COUNTY Central Grain Inc., J. A. Dinsdaie, Pres., Palmer, Nebr. 68864 Davis Bros Const Inc Arthur Davis Palmer Nebr 68864 Dinsdale Bros., Inc., J. A. Dinsdale, Palmer, Nebr. 68864 Rinkol Inc., Edwin Rinkol, Genoa, Nebr. 68640 Cedar Lane Farms Inc., Box 674, Columbus, Nebr. 68601 Ash Creek Ranch Co. Inc., John C. Klosterman, Treas., David City, Nebr. 68632 Osborne-Wright Co. Inc., Jack 0. Wright, Sec., Genoa, Nebr. 68640 PAGENO="0041" 37 NEMAHA COUNTY Nebr. Managmt. & Developmt. Corp., Dwaine Rogge, Pres., 1835 Monterey Dr., Lincoln, Nebr. GGG Farms Inc., Glade G. Goings, Route 2, Auburn, Nebr. 68305 Wilhelm Farm Inc., Donald Wilhelm, 6144 Lafayette St., Omaha, Nebr. 68132 HECA Inc., John Ferneau, Mgr., Auburn, Nebr. 68305 Nelson Quarries Inc., Everett Reimers, 505 N. 12th, Nebr. City, Nebr. 68410 Auburn Machine Works Inc., Lawrence Bernard, Agt., Auburn, Nebr. 68305 Nemaha County Devlopmt. Corp., Lawrence Bernard, Agt., Auburn, Nebr. 68305 Nemaha Land Corp., Lawrence Bernard, Agt., Auburn, Nebr. 68305 NUCKOLLS COUNTY Ruttman & Son Inc., Nelson, Nebr., 68961 OTOE COUNTY Farm Co., Unadilla, Nebr. 68454 GED Inc., 308 Lyncrest Drive, Lincoln, Nebr. Home Farms Inc., 4228 Ames Ave., Omaha, Nebra. Gibbs Farms Inc., 12th & Central, Nebraska City, Nebr. 68410 Klaasmeyer Farms Inc., Syracuse, Nebr. 68446 Ramacciottil Realty & Deveip., 10551 Martha St., Omaha, Nebr. *Sheridan Farms Inc., 3646 Burt St., Omaha, Nebr. 68131 PAWNER COUNTY Far-Bo Farms Inc., Phanetta Farwell Bohm, Pres., DuBois, Nebr. 68345 Searcey Grain Co. Inc., John Searcey, Pres., Lewiston, Nebr. 68380 Waddell Farms, Inc., Wm. W. Wadell, Jr., Pres., 114 S. 6th St., Beatrice, Nebr. 68310 PERKINS COUNTY Svoboda & Hannah Inc., Box 57, Ogallala, Nebr. 69153 Farm Products Corp., 321 Terminal Bldg., Lincoln, Nebr. Nelson Farms Inc., W. H. Nelson, Brule, Nebr. 69127 Kjeldgaard Farms Inc., Big Springs, Nebr. 69122 Lawbead Co. Inc., 220 West 3rd, N. Platte, Nebr. 69101 PHELPS COUNTY ]3BT Corporation, L. J. Titus, 1st Nat'l Bank Bldg., Hoidrege, Nebr. 68949 A & A Equip. Co. Inc., Box 194, Hoidrege, Nebr. 68949 B & R Mills Inc., 27145 Glenwood Rd., Perrysburg, Ohio 43551 Christian Homes Inc., Route 2, Holdrege, Nebr. 68949 Consolidated Blenders, Box 158, Odessa, Nebr. 68861 Farm Products Corp., 821 Terminal Bldg., Lincoln, Nebr. 68508 Forsyth Ins. Agency Inc., 1235 N St., Lincoln, Nebr. 68500 Four L Holding Co., do Norman Reynolds, Lexington, Nebr. 68850 Carl D. Hanson Inc., Bertrand, Nebr. 68927 ~Jarl D. Hanson Farms Inc., Bertrand, Nebr. 68927 H & L Corp., F. Roger Olson, Pres., 507 Burlington St., Holdrege, Nebr. 68949 `Clyde McClymont & Sons Inc., 3 `Park Drive, Hol*drege, Nebr. 68949 `Clyde McClymont-Armstrong Inc., Route 2, Holdrege, Nebr. 68949 Norco Inc., 615 West Ave., Holdrege, Nebr. 68949 Perry Farms Inc., Box 104, Holdrege, Nebr. 68949 PCH Farms Inc., 1001 Blame, Holdrege, Nebr. 68949 Prairie Homes Cemetery Inc., 520 Garfield Sit., Holdrege, Nebr. 68949 Westmark Evangelical Church Inc., Overton, Nebr. 68863 S. Platte Investment Co. Inc., 417 East Ave., Holdrege, Nebr. 68949 PIERCE COUNTY Brodersen Farms Inc., Randolph, Nebr. 68771 Elkhorn Valley Cattle Co. Inc., South 13, Norfolk, Nebr. 68701 PAGENO="0042" 38 PLATTE COUNTY Acres, Inc., Columbus, Nebr. Cedar Lane Farms, Inc., Box 687, Columbus, Nebr. Curry Farms Inc., 303 Morton Road, Columbus, Nebr. Frederickson Inc., Box 948, Columbus, Nebr. J. B. Farms, Inc., Box 573, Columbus, Nebr. Larson Farms Inc., Creston, Nebr. Wagner Land & Cattle Inc., Box 246, Columbus, Nebr. POLK COUNTY None. RED WILLOW COUNTY Red Willow Farming Co., Perry Phillips, Cambridge, Nebr. 69022 East Valley Farming Co., Perry Phillips, Cambridge, Nebr. 69022 R & M Inc., Bartley, Nebr. 69020 Hilton Farms, Inc., Cambridge, Nebr. 69022 RICHARDSON COUNTY Pullman Cattle Co. & Columbian Hog & Cattle Co., M. V. Hall, Field Rep., 503 Kickapoo, Hiawatha, Kansas 66434 Witwer Bros. Inc., Ron Wittwer, Pres., Humboldt, Nebr. 68376 Cedar Farms Inc., Herbert Vollmer, Pres., Falls City, Nebr. 68355 Arben Angus Inc., Jack Railsback, Pres., Humboldt, Nebr. 68376 ROCK COUNTY None. SALINE COUNTY Bar "Q," David R. Bartlett, Dc Witt, Nebr. Machloch Farms Co., Inc., Harvey Mahlocb, Pres., De Witt, Nebr. Machioch Farms Inc., Harvey Mahioch, Pres., De Witt, Nebr. SARPY COUNTY Allied Chemical Co., Byron Reed Co. Agt., 19th & Douglas St., Omaha, Nebr. 68102 Ash Grove Cement Co., S. M. Davis Agt., Plattsmouth, Nebr. 68048 Commuter Developmts & Invest., Robert Rondhove, Pres., Gretna, Nebr. 68028 Foxley & Co., 604 Livestock Exch. Bldg., Omaha, Nebr. 68107 G & S Farms, Inc., Rose Grebe, Treas., Gretna, Nebr. 68028 Handy Homes Inc. (Freeman Realty), 114 Mission, Bellevue Nebr. 68005 Heartland Inc., Byron Reed Co., Omaha, Nebr. 68102 Hulac Inc., Byron Reed, Co., Omaha, Nebr. 68102 Krajicek Inc., Marie Krajicek, Pres., 2419 F St., Omaha, Nebr. 68107 Madam Land Co., Harvey Mahlock, Dc Witt, Nebr. 68341 Metropolitan Utilities, J. Charles Dueser, 5002 Decatur, Omaha, Nebr. 68104 Richland Corp., 510 Service Life Bldg., Omaha, Nebr. 68102 D. M. Shorthorn Inc., Gretna, Nebra 68028 Southroads Corp., 131 S. 39th St., Ted Peterson, Agt., Omaha, Nebr. 68131 W.A.Y. Clinic Inc., Farmers Nat'l Co., 4820 Dodge St., Omaha, Nebr. 68132 Lyman Richey Sand & Gravel, S. M. Davis, Agt., Plattsmo'uth, Nebr. 68048 SAUNDERS COUNTY Mason Farms Inc., Robert F. Mason Pros., Ashland, Nebr. 68003 Bachand Grain Co., H. A. Bachand Pres., Malmo, Nebr. 68040 Wolf Sand & Gravel Co., EmIl E. Wolf, Pros., North Bend, Nebr. 68649 Lawyer Farms Inc., Richard L. Lawyer, Weston, Nebr. 68070 Broth & Brown Enterprises, Ralph I. Brown, Box 202, Mead, Nebr. 68070 M B & Q Farms, Ralph I. Brown, Box 202, Mead, Nebr. 68070 Breunig Rendering Works, Joe Breunig, 131 East 3rd, Wahoo, Nebr. 68066 BLAO, Lee Bronson, Pros., 523 N. Linden, Wahoo, N&r. 68066 Lyman Richey Sand & Gravel Corp., c/o Valley Dehy., Valley, Nebr. 68064 Woodcliff Inc., John P. Clasnen Co. Inc., Agt., 6901 Dodge, Omaha, Nebr. 68132 Cuming Co. Gravel Co., Inc., Pkul Christensen, Pros., 1445 W. Nye, Fremont,. Nebr. 68025 PAGENO="0043" `39 S0O~TTS BLUFF COUNTY Redding Inc., Minatare, Nebr. 69356 Jirdon Livestock Co. Inc., Merrill, Nebr. 69358 Kiowa Land & Livestock Co., M~rrill, Nthr. 69858 Cook Livestock Co., Box 101, Scottsbipff, Nebr.69861 Pathfinder Land & Livestock, Morrill, Nebr. 69358 J A J Hereford, Inc., Route 2, Minatare, Nebr. 69356 SEWARD COUNTY Cornhusker Television Corp., KOLN TV-4Oth & Vine, Lincoln, Nebr. 68503 P & H Inc., Lucile Palmer Johnson, Agt., 324 S. Maync St., Valley, Nebr. 68064 Reinmiller Development Inc., Otis J. Reinmiller Sec., Sltapiehurst, Nebr. 68439 Reinmiller Enterprises Inc., Elton F). Reimmiller Mgr., 815 E. 9th, Schuyler, Nebr. 68661 Schmieding Inc., Wilbert H. Schmieding, Pres., Gresham, Nebr. 68367 SHERIDAN COUNTY Abbott Co., Hyannis, Nebr. Boguin Ranch Co., Rushv'llle, Nebr. Rush Creek Land & Livestock, `Gordon, Nebr. Sipp Cattle Co., Hay Springs, Nebr. Loew Oattle Co., Hyannis, Nebr. Cross Heart Ranch Go., Gordon, Nebr. Forney Ranch Go., Lakeside, Nebr. Lakeside Ranch Co., Lakeside, Nebr. Paul Metzger Go., Gordon, Nebr. Dan Hill Cattle Go., Gordon, Nebr. Hamilton Valley Ranch, Ellsworth, Nebr. Myers Land & Cattle Co., Alliance, Nebr. Stansbie & Engel Co., Hyannis, Nebr. Hull Cattle Co., Gordon, Nebr. Spectacle Ranch Co., Gordon, Nebr. Double Bar Open A, Gordon, N~br. SHERMAN COUNTY Fairway Farms, Mamie Fred, Pres., Broken Bow, Nehr. 68822 Harmony Ranch, Jim Harmon, Pres., Loop Oity, Nebr. 68853 Gilroy Land Corp., C~ F). Gilroy, Pres., Ord, Nebr. 68862 K & N Mac Farms, K. B. McDonald, Pres., Box 393, Loup City, Nebr. 69953 Bochart Farms Inc., Robert Bochart, Pres., Box 349, Grand Island, Nebr. 68801 Rarenna Land & Lives'tock Inc., Clinton Smith, Pres., Hazard, Nebr. 68844 sioux COUNTY Pathfinder Land & Livestock Co., Carl Thomas, Morrill, Nebr. STANTON COUNTY Bremer Inc., Stanton, Nebr. 68779 Maplecreek Farms Inc., John Faltys, Pres., Howeils, Nebr. 68641 THAYER COUNTY K & F Farms, Chester, Nebr. 68327 Twentieth Century Inc., Belleville, Kans. THOMAS COUNTY Ayres Land & Cattle Co., Thedford, Nebr. H-Z Cattle Co. Inc., Theciford, Nebr. The McMillan Co. Inc., 1408 West C, North Platte, Nebr. THURSPON COUNTY B. J. Kruse & Sons Inc., Walthill, Nebr. 68067 PAGENO="0044" 40 VALLEY COUNTY G1lroy Land Corp., % C. E. Giiroy, Ord, Nebr. 68862 Bossen Livestock (Jo, Richard Bossen Arcadia Nebr 68815 W 0 Zangger & Son Inc % Charles Zanger, North Loup Nebr 68859 Wallow Dell Stock Farm Inc % Geo B Clement Ord Nebr 68862 Miska Farm In~., % Joe Miska, Ord, Nebr. 68862 WASHINOTON COUNTY B & S Farms % Lyle Stock Murdock Nebr 68407 Ruwe's Inc., Nickerson, Nebr. 68044 Rasmussen Feed L~ts Inc., Arlington, Nebr. 68002 B. F. Lmidt Co. Inc., Blair, Nebr~ 68002 Marshall Nurseries, Arlington, Nebr. 68002 J & P Corp., % Byron Reed Co., Continental Bldg., Omaha. Nebr. 68102 Sibbernsen Farms, Bennington, Nebr. 68007 Rhea Farms Inc., Arlington, Nebr. 68002 Dunklau Dairy Inc., Arlington, Ndbr. 68002 Ft. Calhoun Stone (Jo., Blair, Nebr. 68008 Twin L Inc % George Petersen Ft Calhoun Nebr 68023 Tyson Farms Inc., Blair, Nebr. 68008 WAYNE COUNTY Beverly Land Co % Hatfield Farm Mgmt (Jo, 630 Ins Exchg Bldg, Sioux Q~ty Iowa 51100 Biermann Bros Ptners, % Paul L. Biermann, Wisner, Nebr. 68791 Hatfield Nebr Farms Inc 630 Ins Exch Bldg Sioux City Iowa 51100 Janke Farm Acct., % Werner Janke, Route 1, Wayne, Nebr. 68787 Marotz Highland Farms, Inc., % Lyle Marota, Hoskins, Nebr. 68740 Logan Land (Jo, % Byron Reed Co Agent, Farniun Bldg Omaha, Nebr 68102 Mortenson Bros Ptners % Marvin Mortenson Wakefield Nebr 68784 H J Nuernberger Estate, % W R Nuernberger Kingfisher OkIa 73750 C H Leonard & Sons Inc Cornelius H Lonard Wakefield Nebr 68784 Henry E. Ley, Agt for Ley Heirs, 122 Main, Wayne, Nebr. 68787 Smith, Cora F., % Nati Bk of Commerce, Lincoln, Nehr. 68501 WEBSTER COUNTY None. WIIItELER COUNTY None~ YORK COUNTY Grotz Inc., R. B. 3, York, Nebr. 68467 C.E. Norquest & Sons Inc., McCool Jet.., Nebr. 68401 J & B Farms Inc., Box 114, York, Nebr. 68467 Broadwell Inc. Farm, B. R. 3, York Nebr. 68467 TripleD Farms Inc., Gresham, Nehr. 68367 [Forty-third Session, Legislative Assembly, State of South Dakota] SENATE BILL No. 92 A BILL FOR AN ACT ENTITLED, An Act to provide farming by corporations, requiring disposal of rural real estate now owned by corporations, or real estate hereafter acquired by them, to establish a procedure for noncomplying corporations to exempt nonprofit and other corporations when specified conditions are met Be It lJnaoted by the Legislature of the S~tate of south Dakota: Section 1 All corporations both domestic and foreign except as otherwise provided in this chapter are hereby prohibited from engaging in the business pf farming or agriculture. Section 2 All corporations both domestic and foreign which now own or hold rural real estate which was acciulred prior to the effective date of this Act, and which is used or usable for farming or agriculture except such as is rea- ~onably necessary in the conduct of their businesses shall dispose `of the same on PAGENO="0045" 41 or before July 1, 1978, and said corporation may farm and use said real estate for agricultural purposes until such date. The ownership limitation provided by this section shall be deemed a convenant running with the title and to the land against any grantee, successor, or assignee of a corporation, which is also a corporation. Section 3. Any corporation, either domestic or foreign, which, on or since the effective date of this Act, has acquired or hereafter shall acquire any rural real estate, used or usable for farming or agriculture, by judicial process or opera- tion of law or pursuant to section 5 hereof, shall dispose of such real estate, except such as is reasonably necessary in the conduct ,o.f its business, within ten years from the date it was so acquired. During said ten year period, the corpora- tion may farm and use such lands for agricultural purposes. The ten year limi- tation provided by this section shall he deemed a convenant running with the title to the land against any grantee, successor, or assignee of such corporation, which also is a corporation. Section 4. Nothing in this chapter shall be construed to prohibit corporations when at least 75% of the amount in value of the stock is owned by stockholders who are, or 75% of whose members (if a non-stock corporation) are actual farmers residing on farms or depending principally on farming for their liveli- hood, or non-profit corporations, from acquiring real estate and engaging in farming or agriculture. Section 5. The title and ownership of any real estate acquired In any manner by any domestic or foreign corporation since the approval and adoption of this Act shall be valid for all purposes notwithstanding any provisions in this law contained, subject, however, to all of the provisions now contained in this chap- ter. It shall be lawful for any corporation, domestic or foreign, subject to the other provision of this chapter, to take and acquire title to real estate by deed or other conveyance where such deed or conveyance is taken or given in exchange for lands acquired prior to the effective date of this Act, or in partial or in full satisfaction of any mortgage, lien, or other encumbrance held or owned by such corporation on such real estate. Any and all deeds and conveyances of real estate taken by any corporation prior to the effective date of this Act, either in exchange for lands theretofore acquired or in partial or in full satisfaction of any mort- gage, lien, or other encumbrance on such real estate, shall be valid for all purposes. Section 6. In case any corporation, either domestic or foreign, violates any pro- vision of this chapter or fafls, within the time fixed by this chapter, to dispose of any real estate to which it has acquired title and which is not reasonably necessary for the conduct of its business, then title to such real estate shall escheat to the county in which such real estate is situated upon an action insti- tuted by the state's attorney of such county, and such county shall dispose of the land within one year at public auction to the highest bidder and the proceeds of such .sale, after all expenses of such proceedings shall have been paid, shall be paid to the corporation which formerly owned the land. Mr. DECHANT. I'd like now to ask my associate from the home State of this hearing, Nebraska, to make some comments. Elton Berck has been very much interested in this subject for several years and has some interesting figures to present to you, Mr. `Chairman. Senator NELsoN. We are very pleased to have you here today. Mr. BEROK. Mr. Chairman, I believe you have a full copy together with exhibits of my statement. If you do not have, I have one here for you. Senator NELSON. Yes, we do; and your statement will be printed in full in the record as well as the `accompanying exhibits. STATEMENT OP ELTON L. BEROK, PRESIDENT, REEBASKA PARMERS UNION, LINCOLN, 1~TEBB. Mr. BERCK. Very good. I will summarize. I will try not to repeat what has already been covered. First of all, let me say that Nebraska Farmers Union concurs PAGENO="0046" 42 most heartily with the statements that have been made by my col- leagues here at the witness table. We agree very definitely that this is a threat, and to indicate that this is the feeling of our organization, I'm going to repeat very briefly the statements of policy adopted at our most recent annual meeting held in Norfolk, Nebr., last fall. Whereas the growing interest of giant non-farm corporations in farming threatens disaster to family farmers and the rural economy, we therefore call upon the N~braska Legislature to enact legislation prohibiting such non-farm corporate interests from engaging in farming, and we further seek the aid of rural `bankers, businessmen `and co-op leaders in gaining passage of such legisiabion. We `strongly recommend adequate protectIon for family farms through federal farm programs with upper limits on government payments, so that city-oriented larger-than-family farms will no longer compete unfairly with farmers trying to make a living on the land. Therefore, we call upon federal farm agencies to establish the criteria for defining `a commercial family farm in every agricultural county in Nebraska. And we also endorse S. 2613 which would prevent person's who are not bona fide farmers from using losses incurred in farming as an offset to income earned from other sources. I'm not going to repeat the statement adopted at the National Farmers Union convention. President DeChant has very aptly por- trayed `that philosophy. It can readily be determined from the language of this statement that our organization views the advancement of large, conglomerate corporations into the area of agriculture and farm operation as a destructive force, posing threats not only to the family farm but also to the strength and `stability of the `entire rural structure of our State, the banker, the implement dealer, and all of those of the small town business community who earn their livelihood through serving the needs of the family farmer. You `will note from the statement of pol- icy previously quoted that the Farmers Union of Nebraska proposes to seek legislative and regulatory remedies which will prevent further encroa~hm'ent of the large, conglomerate corporation into farming. I might add here for the record that our board of directors has empowered our attorney to draw up `suitable legislation to be intro- duced in the coming session of the Nebraska Legislature, meeting in 1969. In support of our organization's position that new regulatory or legislative enactments are imperative if we are `to remove the unfair tax advantage accruing to purchasers of farm and ranch properties by those who have no intention of making a living on the land, we include for the record at this point `some `excerpts from a very excel- lent publication titled "Fame and Fortune Selling" pithlished by the Executive Reports Corp. in Englewood Cliffs, N.J. I have prepared for the exhibit photocopies of p'age 1 and page 2 of `thi's particular publication, `and `I'm just going to quote very briefly from `a `couple o'f paragraph's. The heading `of `the one paragraph is "How the Tax Law Helps Gentlemen Farmers Build Wealth." In other words this is `a magazine `written to encourage investors to investigate `the advantages in buying farm properties. Uncle Sam watches yeu. PAGENO="0047" 43 The article says: `The government ts aware `of the favorable tax aspects of the farm as a second business. Because `of that it will examine your farm operation with a gitulet eye. And if it determines that you are not trying ~o operate the farm for profit, it will disallow any losses. Well, first of all, you want the farm to produce income, but there's an even bigger reason, and that's to be found in the heading of the article. We quote as follows: Here `are some key factors that will help you support your contention that you really operated the farm as a business: (1) No extensive social or recreational facilities. (2) Improvements i,n's'tailed and techniques adopted to reduce expenses. (3) Substaatial receipts from farm sales with a record of decreasing l~sises. `I think that's an `important point to make, "with a record of decreasing losses." They envision losses, a loss operation as being one of the advantages of buying this land. Page 2, the title of the article is "How to Gross Tax-Sheltered Fortunes in Cattle." This is a repetition of the same advantaged por- trayed, the same incentive, the same tax advantages of investing in cattle ranching property. Our next exhibit consists of a photocopy of the testimony pre- sented at a committee hearing during the 1967 session of the Nebraska Legislature in which a bill known at L.B. 670 was under discussion. Briefly, and not reading from the printed copy, Nebraska has `an industrial development act, `as most States do, which permits com- munities to issue revenue `bonds to encourage the coming of industry in a particular locality. A certain city in Nebraska had conceived the idea of purchasing `a part of the Hastings Naval Ammunition Depot at Hastings, Nthr., and turning at least a portion of `that land into a corporate farming `activity which would house a tremendous hog fattening project. Well, the testimony in thi's particular bill is lengthy, `an'd I'm just going to call you'r attention to a `couple of key points made in this testimony; and you will find them on the last page. Senator Carpenter of Nebraska, Scottsbluff, was chairing this committee, and you will find his comment on the third page of this testimony which is a photocopy of the Nebraska Legislative Proceed- ings. Senator Carpenter speaks to the point of what the Hastings com- munity expected to gain for their community by turning this prop- erty-this Federal property into a huge commercial hog feeding oper- ation. The point made by Mr. Hegstrom is that they wanted to get people-employees in the land to take the place of some 9,000 that had been dismissed because of the closing of the ammunition depot. Sen- ator Carpenter refers to a big-giant operation of the Kern County Land Co.-I'm sure that name rings a bell for most people-that were feeding 45,000 head of cattle at Minatare near Scottsbluif. Senator Carpenter says "as a result of that they are destroying for all practical purposes markets that the farmers once had." "Now, is that what you propose to do?" he asks. "Is this a possi- bility?" Mr. Hegstrom says, "It is a possibility." I call your attention now to a couple of paragraphs at the bottom of that page. PAGENO="0048" 44' Mr. Hegstrom says, We are talking about the fact that we're trying to attempt. to provide a replacement for about 9,0~ jobs that existed at the Hastings Naval Ammu- nition Depot. Senator Carpenter says, They out there- Referrmg to the Kern County cattle feedmg operation- they out there employ 15 people to feed about 40-some thousand cattle. What are you going to do with the rest of them'? This is the crux of the matter and this is the crux of the discussion.~ When we talk about giant industries coming into a State to engage' in agriculture, what do we do with the people who are on the land ~ We have a couple of other exhibits here that I'm going to call your attention to very briefly. By the way, we have an article-photocopy of an article also from the Lincoln Journal of October 18, 1967, whic'h tells of" the final disposition of that property to the city of Hastings and the immediate sale by the city of Hastings to these industrial concerns. It is very difficult, as I report in my statements here, to get to the bottom of the extent of corporate farming activity in Nebraska We turn first to the registration of cattle brands as an indication. Cattle, livestock production, is one of the major sources of farm income in Nebraska. There are some 38,000 cattle brands registered at the state- house of Nebraska, and we found in only one instance where one company has a sizable number of these brands registered, and this was to a company at Kansas City which had 115 brands registered in the name of the Oppenheimer Industries with offices in Kansas City. We don't know how many of these are in the' name of one cor- poration, how many of them represent individual operations Now, we have a closing statement that I'd like to make in connec- tion with this. The A S C S, the agricultural stabilization conservation commit tee, under a directive from the department of agriculture in Nebraska and, I suppose, throughout other States, conducted a survey of the ex- tent to which corporations are engaged in agriculture in Nebraska~ Now, this involved only those corporations which had some dealing with the A S C S Therefore, it's only a partial record and it also, in some instances, does not report from some very important counties But in this report, and I have also attached this to your committee print, we htwe a list of 500 corporations m Nebraska which are engaged in some degree or another in agriculture If the South Dakota finding is true, we would think about 20 per cent of these as being family type corporations-a farm family incor- porating its members. There is no quarrel with th'is. Be that the case.. Then we still have some 400 individual corporations doing business in the State `of Nebraska. It's very difficuit to find the size of the corpo- ration, its location You go through this list and you will be struck by the fact that not over half `a dozen a"re listed as out-of-State corpo- rations. Now, in each case they have resident representatives in town, so it would take and will take-and we expect to do some further research PAGENO="0049" 45 along this line-it will take some research with the county assessors to~ find out to what extent these are out-of-State corporations of some considerable size, and this will be a very necessary part of the data we will have to procure before the legislature meets next year. Senator NELSON. Are you pursuing a survey now on the ownership? Mr. BERCK. That is right, between now and the time the legislature comes in session in 19:69. Senator NELSON. Is the State assisting in this survey? Mr. BEROK. The State would have no particular reason for assisting.. I have no reason to believe that the State would not assist us. In fact,. we have been assured that we can have whatever assistance we wanted from county clerks and from the appropriate State offices, but it's going to take the work of a considerable number of people for a considerable length of time to trace down even in one county the ownership of these corporations. This concludes my testimony, and if there are any questions we would be happy to try to answer them. Senator NELSON. I want to thank you very much for your very use- ful, constructive testimony. You've made a valuable contribution to the record. (The complete prepared statement and supplemental information submitted by Mr. Berck follows:) STATEMENT OF ELTON L. BERCX, PRESIDENT, NEBRASKA FARMERS UNION Mr. Chairman, members of the committee, I am Elton L. Berck, State president of Farmers Educational and Cooperative State Union of Nebraska, Inc., more familiarly known as the Farmers Union of Nebraska, an organization of family farm operators which has for more than a half century dedicated its major effort toward strengthening the family farm system in Nebraska and America. Our most recent expression of policy is that which was adopted without dis- senting vote by delegates to our annual convention held at Norfolk, Nebr., No- vember 29 and 30, 1967. We include for the record at this point the policy statement herein referred to as follows: "Resolved: Whereas neighboring States, namely Kansas, North Dakota, Cob- rado, and Oklahoma now have or are seeking statutory authority prohibiting cor- porate, nonfarm-related industries from engaging in farming and whereas such statutory limitations are now under attack and whereas the growing interest of' giant nonfarm corporations in farming threatens disaster to family farmers and the rural economy, we therefore call upon the Nebraska Legislature to enact legis- lation prohibiting such nonfarm corporate interests from engaging in farming and we further seek the aid of rural bankers, businessmen, and co-op leaders in gaining passage of such legislation. "Resolved: That we strongly recommend adequate protection for family farms through Federal farm programs with upper limits on Government payments, so that city oriented larger4han-family farms will no longer compete unfairly with farmers trying to make a living on the land. Therefore, we call upon Federal farm agencies `to establish the criteria for defining a commercial family farm in every agricultural county in Nebraska. Agricultural programs and policies of' Federal and State Government should be administered to protect and preserve the- family farm, including appropriate limitations on payments. "Resolved: We endorse 5. 213 and similar measures introduced In the Congress of the United States to prevent persons who are not bona fide farmers from using losses incurred in farming as an offset to income earned from other sources. Such legislation will discourage `hobby farming' and eliminate the possibility of' corporate, nonfarm-'related industries getting Federal tax rewards for engaging' in loss operations in farming." We further call attention of the committee to a policy sta'temefit concern~~~ing~ 95-253-68------4 PAGENO="0050" 46 corporate farms which was adopted by delegates in attendance at the annual meet- ing of our national body in March of this year, 1968, at Minneapolis, Minn. We quote as follows: "The rush of nonfarm interests into agriculture is undermining the independent family farmer. "Unless entry of corporate farms into farming is forestalled, agriculture in the Nation will move toward a worker-sharecropper system with all its social and economic evils. "Corporation farms contribute nothing in terms of efficiency when compared to family farming. Earnings as reported by the Internal Revenue Service indicate in fact `that corporate farms are less efficient. "The advantage these corporate farms have over family farms is (1) The access to adequate capital, (2) the ability to shift earnings from nonfarm bsuiness into farming, (3) avoid payment of interest and, (4) in tuany Instances taking tax losses on farming operations. "We direct to `the attention of consumers, Main Street businesses, bankers, church and other groups, the ill effects of these corporate farms: (1) communities will suffer loss of families engaged in agriculture and their taxpaying ability which support present rural institutions such as schools, libraries, et cetera, (2) Main Street businesses dependent on the purchasing power of farm families will be bankrupted due to volume out-of~State buying, a common practice of corporate farms; and (3) the monopoly pricing of food will be the inevitable result of con- centration of power under a corporate agriculture. "We urge every State organization to conduct an educational campaign designed to bring pressure on State legislatures which will result in banning corporate farms." it can readily be determined from the language of this statement that our or- ganization views the advancement of large, conglomerate corporations into the area of agriculture and farm operation as a destructive force, posing threats not only to the family farm but also to the strength and stability of the entire rural structure of our State, the banker, the implement dealer, and all of those of the small town business community who earn their livelihood through serving the needs of the family farmer. You will note from the statement of policy previously quoted that the Farmers Union of Nebraska proposes to seek legislative and regulatory remedies which will prevent further encroachment of the large, con- glomerate corporation into farming. In support of our organization's position that new regulatory or legislative enactments are imperative if we are to remove the unfair tax advantage accruing to purchasers of farm and ranch properties by th'ose who have no intention of making a living on the land, we include for the record at this point some excerpts from a very excellent publication titled `Tame and Fortune Selling," published by the Executive Reports Corp. in Englewood Cliffs, N.J. The excerpts are from volume 1, No. 8, the April 19, 1968, issue, and they deal with `the perfectly legal and forthright investment information advising "gentle- men farmers" how they can build wealth through tax breaks surrounding the purchase and operations of farm and ranch properties. In the interest of brevity we present herewith pages 1 and 2 only of the men- tione'd publication. The complete `issue will be attached to the report as provided the hearing committee secretary. It should be obvious that we do have here a factual presentation concerning ways in which farm and ranch ownership can be made to provide an `attractive investment motive, an investment income which may not be realized by the resi- dent farm and ranch operator who has farm or ranch operation as a principle source or income. It should also be evident that the young farm family wishing to make farming or ranching a full-time job and intending to m~ake a living on the land can not possibly compete with this' type of purchaser in acquiring farm or ranch land. Our next exhibit consists of a photocopy of testimony presented at `a committee hearing during the 1967 session of the Nebraska Legislature in which a `bill known as L.B. 670 was under discussion. This bill, introduced by Senator Eric Rasmussen, proposed amending Ne- braska's industrial development act through the addition of certain prohibitions which would prohibit `the issuance of revenue bonds' under the act for the pur- pose of livestock production. In it"s original form this measure, "the industrial development `act" as `adopted and made a part of Nebraska's statutes, was sup- PAGENO="0051" 47 ported by farm groups generally as a measure which promised encouragement for the entrance of new industry into the State. As will be noted from the testimony herewith included the amendment was proposed because of the apparent intent to use the powers granted under the act to aid a Nebraska municipality in purchasing certain sizable portions of the Naval Ammunition Depot located near Hastings, Nebr. which would in turn be transferred under a lease-purchase arrangement to a corporation for the pur- poses of initiating a huge hog feeding plant. The amendment proposed under LB. 670 was adopted and is now a part of Nebraska's statutes however the General Services Administration did sell the land to the city of Hastings, the land was promptly resold to certain industries one of which is the hog feeding plant and the action was, as a matter of fact, consumated outside of and without benefit of Nebraska's industrial development ~act provisions. We introduce the testimony therefore as an indication of what can happen and is now happening in this area of transfer of farm and ranch operations into the hands of other than family farm operators. The key point of the argument seems to be most clearly identified in the dialog between Senator Carpenter, chairman of the legislative committee and a Mr. Hegstrom representing `the city of Hastings. The particular section can be found on page 18 of the April 7th testimony and we call attention to' the fact that Mr. Hegstrom speaks to the interest of the city of Hastings in finding means to pro- * ride jOb opportunities while Senator Carpenter, from his first hand informa- tion concerning `the numbers of actual jobs that are provided by `such giant corporation farm `activities states `and I quote "they out there, (referring to the ~Kern County Land Co. cattle operation in his district) employ about 15 people to feed about 40 some thousand cattle." Here w'e have the crux of the problem attending farm operations by giant * conglomerate corporations. The rural `community will wither and die when the integrated feedlot operations of one giant conglomerate corporations' can replace the services of hundreds of family farm feedlot operators. According to the latest statistics furnished us by the State Federal Statistical Reporting Service as of the first of this year feedlot operations under the 1,000 or less head grouping in Nebraska numbered 21,960 with 741,000 `hea'd on feed while in the group feeding over 1,000 head we had some 400 feeder operations reported with 613,000 h'ead on feed. In our study regarding the movement of corporations into agriculture in Ne- brask'a `it becomes evident that while many have spoken or voiced an opinion concerning the problems attendant thereto few studies have `actually been m'ade concerning th'e dimensions of `the movement. In other words, few `studies have have been m'ade concerning just ho'w fast this movement is taking place. Such information is not readily obtainable and few farm groups have the financial resources to devote to such a statistical `analysis. Agencies of State gov- ernment which we have contacted have been helpful, but this specific area is one which ha's n'ot to date apparently become the su1bject of an intensive analysis. By w'ay of example `there are over 38,000 cattle brands registered at the secre- tary `of state's `office in the State capitol `but in only on'e instance do we find a substantial number of brands registered to one corporation and this is the regis- tration for 115 brands in the name of the Oppenheimer Industries with offices in Kansas City, Mo. Whether th'e `brands In this instance are registered by the Oppenheimer Oorp. in its own interests or instead as agent in behalf of `a number of individual out- of-state owners is a matter which would require further investigation for which we have neither the staffif or the finances. T'he moist recent investigation was carried out during `the `pa1st winter by the State A.S.C.S. uhder a directive from the U.S.D.A. It should be realized that this survey, a copy of which has been attached by permission, does not reflect a complete and accurate picture of the situation for a number of reasons `as follows: 1. The report indicates only the corporations which have, at some point or at a given time, been involved in Federal farm programs. 2. Since out-of-State corporations `are, or as it appear~ they might be using agents with a local `or State residence to i~epresent their interests within the State it is difficult to estimate what percentage of the corporate farms listed in thi~ report are owned by out-of-State or foreign corporations. PAGENO="0052" 48 By way of illustration we also attach to this statement the copy of a news~ story which appeared in the Lincoln, Nebr. Star, issue of February ~, 1968 in~ which we note an account of a Gates Rubber Co. Ranch operating in the North Platte, Nebr. area yet the survey made by the A.S.'O.S. does not indicate such a corporate ownership. & It is not possible to indicate without further investigation how many of the~ öOO corporation's listed in the A.S.O.S. report are family farm organizations. A recent South Dakota research `project estimated that only about 20 percent of~ the so-called farm corporations were family farm operations. Whether this be true for the Nebraska survey is of course open to question. In summary the Farmers Union of Nebraska believes that there is enough evidence to suggest that investment in agriculture by off-the-farm corporate interests i's a growing threat to the family farm. We believe also that tax ad- vantages `and integrated or conglom;e'rate ownership creates `an unfair c'o'mpeti- tive advantage for such corporate investments as opposed to `a like investment by the family farm operator who will live on t'he land. Finally we `believe that such eneroachmen,t *by corporate interests into the field of `agriculture is `damaging to the enti're rural community. We `sincerely appreciate `the opportunity to present the views of the Farmers Union of Nebraska. We wish the committee God'speed in its investigation and~ we would press for enactment of remedial legislation without delay. `[From Fame & Fortune Selling, vol. 1, No. 8, Apr. 19, 1968] SPECIAL REP0RP-SHOESTRING FORPtJNES IN REAL ESPATE Real estate offers a prime opportunity for building fortunes on a minimum investment. This Special Report `highlights the techniques of the really `astute investors w'ho are already taking advantage of tax~sh'el'tered, wealth~building real es'tate opportunities. It also show's you how to `arrange the necessary financing. HOW THE TAX LAW HELPS GENTLEMEN FARMERS BUILD WEALTH I1o~ would you like to (1) Rave a cra& `at some tinu'su'al pro'fit's-~right now,. (2) Take advantage of some big tax breaks, and (3) Provide `relaxing weekends~ alid summer vacatiohs-all free-for you and your family? You may be able to do all this while building your fortune in real esta'te. You buy a `fa.rta (or farmland) `and `hire a competent manager to run it for you. If you're lucky you may `be able to buy a gois~ `dairy o'r product farm. (Of course, you'll also loek at `the farm's poteii'tial a's a fine real estate i.n~estmen't). In some cases, you eat purchase the farm outright and `then hire the ~a'rmer to continue rutining it for you until you eithe'r develop the land or get a competent manager. Why the empha's'i's on a competent manager? Well, first off, you `want the farm. to produce income. But there's even a `bigger reason- UaCZC &rm watches you.-The government is aware of the favorable tax aspects of "the farm `as a `second business." Because of that it will examine your farm operations with a gimlet eye. And if it determines that you are not trying to operate the farm for profit, it will disallow any losses. Having' a competent manager goes a long way to show you mean business. Here are some key factors that Wifl tiel~ you support your contention that you really operated the farm as a `business. (1) No `extensive `social or recreational facilities. (2) Improvement's installed arid techniques adopted to reduce expenses.. (3) Substantial `recei~ts from `farta sales with a record of decreasing losses. (4) Size of farm-the bigger the better. You may feel `that `buying farmland and de~elop4ng It into a going business is too ntuch trouble. Bet before you do, look `at all the angles. For example, suppose you `buy `some well located acreage at $145 `an acre. You know `tha't the exploding' population and demand for new "housing will `reach the area in say, 5 years. Your acreage co'uld then double ot even triple in value. How do you keep of~ei~atffig the farm In the meantime'? Let's take a look at a- .boZta~r-makin~g ease hThtory.-Y'o~b~y a t60-ac're farm `at'$145 `an acre. `He're are some figures .~rovi'ded by a top farm nian,a'~ement company. Remember, these~ PAGENO="0053" 49 are approximations-not exact figures. And, for the sake of our example yon buy the farm with no monet down. Cost of farming for 3 years: Lime, fertilizer, seeds, insectinides, taxes, etc $9, 600 Wages for manager 22, 800 Interest at 6 percent on $28,200 mortgage (3 years) 4,176 Total outlay 36,576 Estimated farm income for the 3 years: 1st year 6,400 2d year 9,600 3d year 11,600 Total income ~7, 600 Net loss for 3 years 8, 976 But would you really be out $8,976? Not st all. Your farm losses aire fully deductible from your personal income taco. Your actual loss depends on your tax bracket. A Look At Taco Advantages Waiting For You First off, you'll get those tax advantages you might ordinarily expect: `depre- ciation deductions on farm machinery and buildings, expenses deductions on farm supplies, and a deduction for labor and management costs. $pecia,l farm taco breaks.-Expenditures for soil, water, conservation, and land clearing (for the purpose of building up your farm) are deductible. In every other business, costs of a similar character must be oapitaliced. Here's a few more.-(1) Exemption from the Federal gosline tax for all gas used on the farm (non-highway use). (2) Control of income on Commodity Credit Corporation loans-you can pick and choose the most convenient year to report the income. (3) No tax on farm products used by your family. (4) Char- itable deductions for the full value of gifts of farm products. (5) Benefits through farm cooperatives. (6) Capital gain treatment on sale of timber, farm buildings, livestock, and unharvested crops sold with the land. HOW TO "GROW" TAX-SHELTERED FORTUNES IN CATTLE If you're looking around for a "big-return" use for your land, don't overlook cattle. Many investors who have already made it "big," swear by a cattle invest- ment as being as close to a "sure thing" as you can get. Why? Simply because it combines nature, the tax law, and basic economic principles into a dollar-making, dollar-saving wealth builder. Most important.-You must do things right. This means getting and fol- lowing good advice-tax advice included-up and down the line. According to those in the know, there are several very important reasons why `an investment in cattle is hard to beat. Let's take a look at some of them: (1) There's a demand for tim product-the population is exploding and almost everyone likes steaks. (2) It doesn't necessarily take a fortune to get the ball rolling. Assuming you have some suitable land, a judidious investment in some young heifers~-and one bull-will get you off the ground. Just let nature take her course from there on~ (3) All expenses (except the cost of the land) are deductible from ordinary income either as business expenses or by way of depreciation. So, while the herd is building up, you can use these deductions to offset other highly taxed income. (4) Many of the expenses you will incur qualify for the 7% investment credit- producing an immediate dollar-for-dollar slash in your personal tax bill. These would include, for example, the cost of fences to contain the cattle, drain, tiles to improve pasturage, paved `barnyards and water wells, but not the cost of pur- chasing the cattle. (5) The herd builds up tax-free-fast? How? Simply trade o~ the calves pro- duced by your herd for additional helfers, which will produce more calves, faster; trade off for more heifers, and so on. (6) Thanks to the tax law, much of the income produced by the herd will be PAGENO="0054" 50 tax-theltered, long-term capital gain. For example, you get long-term gain if you sell out the whole herd. Furthermore, if you've held them at least 12 months, you get a long-term gain on the sale of cattle culled from the breeding herd, even if they've been fully depreciated. Critical question.-Does investing in cattle really pay off? Like any other investment, you can lose money on a cattle Investment, too. However, if you. do things properly and get some good tax and business advice, a cattle investment can pay off very handsomely. How handsomely? This, of course, depends on a lot of factors-including the price of cattle when you are ready to stop building up the herd and start selling. Pinpointing things to the penny is, therefore, im- possible. However, here's- A reasonable projection.-If you start out with a herd of 10 heifers, the chances are that at the end of 10 years you will be getting an annual calf crop of more than 50-at the end of 20 years, your annual calf crop should exceed. 800. When you consider that your initial investment in heifers will probably be under $5,000, you can see the possibilities. 110W TO SPOT FORTUNE-BUILDING LAND OPPORTUNITIES-USE THE "MAGIC-THREE" FORMULA The best vehicle for building your personal fortune today may be raw land.. Whether you have a lot or a little money to invest, raw land can return an extremely handsome profit. But you must know what you are doing. Before you start skimming off any profit cre.am, there are certain land traits. to keep in mind. Learn these well and you greatly improve the odds that your~ real estate investment ventures will return the kind of profits you've dreamed of.. The "magic three" formula for proftt.-Three prime factors make raw land' a potential gold mine: Accessibility, Utility, and Availability. When all three are present in your `deal you're well on the way to success. Let's take a closer look at what they mean. Aceessibility.-Is the land you are looking at easily reached? Are there good roads running along or near the property? Will there be roads built in the area in the near future? These are crucial' questions. If the land can't be reached, it can't he easily sold.. Landlocked land offers little or no opportunity `for flexibility. We're not speaking of roads on the land itself. We mean main access roads : those t'hat border on t'he property you've selected to be your fortunemaker. Another aspect of accessibility is the e'ase with which the area can be `served. with `such `things as water, sewers, electricity, and the like. Utility.-Here's where your imagination comes into play. Many investors look at a piece of raw land and see no available use for it. Sure, they con- sider the housing subdivision, the shopping center and other standard uses. But if the land is obviously unusable for these purposes, they throw up their hands and walk away. That's where year imagination comes in. The men making big money in real estate have trained themselves to visualize in a piece of property what others don't see. You must be on the lookout for new money-making uses for the property. Availability.-This is a package item. Covering such considerations as price,. financing arrangements, title and cash picture, it boils down to one phrase: Is this fo'r you? Is the land available to you at your price? The mere fact that it's for sale' doesn't necessarily mean that it's available-not as we define the term. You must be able to acquire it for the right price-your price. This doesn't mean, of course, that you won't buy if your first offer isn't accepted. It does mean that ~OU shouldn't buy unless you can close th.e deal for what you've determined is the top price it should go for. Is it a cash deal? Are you ready to lay out the cash? Or will the seller take back a purchase money mortgage? If not, how about a land contract? The answers to these questions also ~o to determine availability. Availability also refers to title problems. Some of the cheapest land is `that which has a slight flaw in the title'. Sure, it's cheap to buy-but it may turn out to he expensive to sell-if your future buyer demands a perfected title. (This may be as good a place as any to make one point absolutely clear. A lawyer is a Gnnst In real estate investmetvts! He's not just a convenience, he's a necessity.) PAGENO="0055" 51 TIMBER TAX SEELTER-WHILE YOU'RE WAITING One way to make sure your raw land actually grows in value is to cut the~ timber on it. Make sure your land is easily accessible so you'll be spared any trouble when it's time (to cut. There won't be any tax problem till then. All the time that stand of timber is growing, you'll not be taxed on the substantial growth it will mean in land value. You'll allocate costs between `the land itseLf, and the timber. If you want to combine tax-favored timberland income with ftture develop~ ment, be sure you get an accurate estimate of how much the timber itself is worth. One good way: hire an expert and take a timber cruise. Revenue Service Form T (for timber) will give you a good idea what to look for; it asks for' the same kind of information you should be seeking. Ta~a~ breaks.-You can get tax-favored capital gains no matter which of the' three ways you choose: (1) You can sell the timber outright; (2) You can grant cutting rights on a royalty basis (retaining an economic interest); or (3) 3~ou can cut the timber yourself. You can even do all three! What to do.-See your tax man for the many details. And look Into the profit potential of raw-land timber. It can cover some or all the cost of holding on to raw land until it's ready to be developed. HOW TO FINANCE THE PURCHASE AND DEVELOPMENT OF LAND The big roadblock to many would-be real estate investors today is financing. Big helping hand.-Because of its awareness of the need to develop raw land economically and efficiently to meet the future needs of our expanding population, Congress has enacted far-reaching PHA land development pro- grams. In addition, the Home Loan Bank Board has liberalized the terms of land development loans by Federal Savings and Loan Assocjations. Here's a quick rundown. FHA's Land Development Program Top interest rate is 6%. Mortgage insurance premium is 2% of the original face amount of the mortgage for three years or less; thereafter, it's 1/12 of" 1% each month. The premium on mortgages for water or sewerage systems running more than seven years is (1) 1/12 of 1% of the original mortgage amount per month before amortization begins and (2) 3/4 of 1% per year of the outstanding amount after amortization begins. Mortgage terms.-The top mortgage amount is $25,000,000 for each land de- velopment project. However, your individual mortgage can't be more than (1) 75% of FIIA's estimated value of the property upon completion of the land' development, or (2) 50% of FHA's estimate of land value before development plus 90% of the estimated cost of the development, whichever is less. Top payoff time is (seven years. However, major water and sewer facilities may run for' a longer term and may be sepa:rately financed. Mortgage payoff.-As lots are released, payments are made on the mortgage (mortgages include provisions for release). The amount of your payment is 110% of the mortgage amount attributable to the released lot (the mortgage' will be completely paid off when 91% of the lots have been released). You can get a release of the `required amount. PHA does not control the sale price of the lots. Big break.-FHA will let the lender give you a reasonable time `to start paying off `the principal, so that you can develop the land and start making' sales. Your mortgage, of course, will spell out the exact time'. You'll also have to pay off the complete mo'rtgage amount in the remaining term of the mortgage (payments will have to be made at least quarterly). After' amortization begins, any payments made for lot releases are `applied to the' amounts next due under the mortgage provisions. Eligible developments.-Your project can be either a new one or an extension of an existing development. However, the project can't include any portion of" a development on which improvements (except minor ones, such as general grading or site clearance) have been installed. Eligible improvements which ear~ be financed with funds from the loan in- elude: roads, streets, curbs, gutters, sidewalks, water lines and water supply installations, sewer lines and sewage disposal installations, and other related~ facilities to prepare land for residential and public or common use. PAGENO="0056" 52 Private financing.-As in all PHA programs, yôn'll ha~re to get your financing from a private lender (almost all institutional lenders are approved FHA lenders). Your choice.-You can develop section by seotion~ using a single mortgage large enough to cover the entire development, or you can use a series of separate smaller loans. Double-Barreled Loans From Federal ~ ~ L's Federal Savings and Loan Associations can (1) Finance FHA land development loans, and (2) Were recently given perm~ission to lower downpayment re- ~quirements on conventional loans for the purchase and development of land. Better yet, they can make package conventional loans that finance the purchase and development of the land and also finance the actual construction of homes. (A conventional loan is a loan not guaranteed or Insured by the government.) Land acquisition and development.-First mortgage loans can finance the acquisition and development of land for primarily residential usage. This means that loan proceeds can be used to buy and develop land for apartment houses as well as homes, or a combination of both. "Development" means the installations and improvements necessary to produce building sites that meet government regulations and community practice so that they are ready for the construction of buildings. Top mortgage amount on purchase and development of land is 70% of the value of the land after completion of the development into building lots or sites ready for construction. Top dollar amount of a loan an S & L can make to a single borrower depends on the size of the S & L, but even the smallest S & L van generally make a single loan of up to $100,000. Top payoff time Is three years with interest payable semi-annually. As is the case with other conventional loans, Interest rate is negotiated by the borrower and the lender. Periodic payments on principal are not required. However, If you sell a lot or want to release it from the mortgage, you must pay off a proportionate amount of the loan. ~Pop mortgage amount on package loans is 80% of value after completion of the home; top payoff time is 6 years. HOW TO 5NAP UP THE RAW LAND YOU WANT NOW-ON YOUR TERMs-AND 55W UP MORE FOR FUTURE PROFITS Many landowners prefer to sell raw land on the Installment plan. Reason: As long as they don't receive more than 30% of the selling price in the year of sale, they can count on the dollar-saving benefits of installment reporting and spread their gain over the years in which they receive the proceeds. Sounds simple enough, but it's not always so easy for them to qualify. For example, suppose an owner has been holding a large tract of land for investment for some years. Problem: The downpayment, added to the extra payments Owner receives in the year of sale to release specific lots for building purposes, will exceed the ~0% installment reporting limit. Dilemma: Owner wants the deal-but he wants installment reporting as well. What to do.-A U.S. Tax Court decision gives you the ammunition you need to convince Owner to sell to you-on your terms. Show him how to split the deal. You get (1) Enough lots to get a development underway immediately (in a straight cash deal) and (2) You nail down the rest of the property with a small downpayment with Owner taking back a mortgage for the balance of the purchase price. Here are the details of this- Dollar making case history.-The amounts may seem a bit high but the principles apply no matter what the purchase price. Collins contracted to sell ~2 acres to Developer for $262,800-19 acres for $98,350 in cash; and 33 acres for $19,670 In cash, with the balance of $144,780 covered by a 3-year purchase- money mortgage. Additional lots would be released from the mortgage on pay- ments of $6,000. Collins consummated the deal with one contract, one closing, one deed, and one mortgage. The sale of 19 acres was reported as an all-cash capital-gain transaction; but the 38 acres was reported as a capital-gain Installment sale spread over three years. PAGENO="0057" 53 "Perfectly okay," said the Tax Court. The mortgage specifically exempteti that 19-acre tract, so "there was a transfer and payment for two separa~te prop- erties." For Developer to get work started in an orderly manner, those 19 acres had to be free of the mortgage. The sale was okay. Winning Argunient8 Here are some other points you can use to persuade owners it's worth their while to sell property on the installment basis: (1) Owner can get the top price for his land when he's willing to sell on credit. (Cash buyers drive harder bargains because they're putting up the com~ plete price at once.) (2) Owner can draw interest on the unpaid balance of the purchase price,. as well as turn unproductive-but taxable-land into profits. (3) Owner retains `title, under an installment-sales contract, until he's paid in full; so he needn't worry about losing his land. Warnisig: Put a clause in the installment contract for the release of Individual lots as you need them (with stated payments to the owner). Big persuader.-This "split personality" concept will let you get the land you want on your terms. Use it and you'll find you may be able to get the land you're after-even If the owner is reluctant to sell-once you show him the tax break he can get. Of course, advise him to check with his tax man to bear you out. Remember, too, that not all owners want more than 30% in cash; you'll often be able to buy with a downp'ayment below the 30% ceiling. How TO USE REPAIRS TO TURN ORDINARY INCOME INTO CAPITAL GAINS Repairs to income-producing property qualify as currently deductible cx- penses. But the cost of improvements must be added to the capital cost of the property and is recoverable usually through depreciation deductions spread over the life of the property. However, apart from these general principals a~ to deductibility, the repairs deduction can sometimes be used to convert ordi- nary income into capital gain. Ea~ample.-Assijme that you own rental real estate worth $60,000, with' a basis to you of $20,000. You want to sell out. As it stands, the property will bring its $60,000, leaving you with a $40,000 gain. However, some repairs are needed, and you think that by spending about $5,000 for repairs, you can sell the building for at least $65,000. The $5,000 spent for repairs will be a ordinary deduction, deductible in full from your other income. The $5,000 added gain on the subsequent sale will `be added capital gain under the tax law, only one-half of which is taxable. Thus, if your taxable in- come is $24,000, this transaction would save you $900 in net tax saving. In effect, you h'ave converted $5,000 of ordinary income into capital gain. MAKE PROFITS MULTTPLY WITH MULTIPLE DWELLINGS You've probably heard this statement very often from tenants: "I've lived' here for years and `the landlord hasn't spent a cent on the place !" It's an old and often inaccurate gripe. But `this familiar cry of woe started Robert W. Kent, of Brookline (Mass.) o'n his million-dollar career as real estate investor and consultant. Immocable tenants.-~Kent first heard the com'plaint while visiting a relative with the unlikely name of Aunt Toby. She uttered it every chance she got, but she remained in her $30-a-month fiat for 38 years despite the wretched service. Some fast figuring revealed to the astonished Kent that his disgruntled (but immovable) aunt had `spent $13,680 on space in `a building that originally cost $8,000. And she was only one of six tenants! Naturally, when he had the funds available, Kent began to invest them in the kind o'f multiple dwelling he came to call "Aunt To'by." The term refers to' a class of rental, not a type of `building. The property may have been built any- where from 30 to 90 years ago. The average "Toby" tenants.-Middleclass workiugmen and their families find that these multiple units `suit them best. The necessary expenses' of the chil- dren's education or a new car pta off their building a home of their own. "Aunt Toby" fills the bill. PAGENO="0058" 54 Important.-Present construction costs automatically reduce the chance of a new building's having the same reasonable rent as most of the present units. Kent feels that the existing "Tobys" are the last of their kind and therefore all the more valuable. IProperty tests.-The property must pass Kent's three crucial tests. (1) Location: Kent has found this to be the most important factor in choosing property. An old and frankly ugly building in a good neighborhood has proved to be more profitable than a new, attractive one unfortunately located. Tenants just won't remain in a bad or inconvenient neighborhood, no matter what. Kent has the scars to prove it. In judging location, don't ash yourself what kind of neighborhood you would be willing `to live in; ash yourself what kind of neighborhood the average work- ing man in your area would like. (2) Modest rent: Once 25% of a family's income went for this item, but now, in the income range of the "Aunt Toby" `tenant, the proper ratio is closer to 15%. The amount will vary throughout the country but $75 a month is just about average. (3) L4)niited services: Tenants should be responsible for practically all their needs, especially heat. The land lord responsible for heating his building soon finds that 95% of the complaints he will get will be about heating. Making the tenants responsible for this and most of the repairs is a saving of time and money. Prieo.-Mr. Kent has devised this "Value Formula" based on a rule-of-thumb used by many real estate investors: A piece of real estate sh~uld earn, as annual gross rent, fifteen percent `of Its cost'or value. (To find the value, multiply the rent by 6%.) But, and it's a big but, this rule of thumb isn't enough. Your profit isn't `determined by gross, but by net. Gross is only the starting point. Any unusual cost of maintaining and paying for the property must be deducted from the gross before you apply the rule-of-thumb. Moat important cost is mortgage cost. Mr. Kent's formula allows a mortgage interest rate of 6%. Anything extra (say on a second mortgage) must be deducted from the gross rent. By the sa'me token, you ean `buy for more than 62/3 of the gross if expense's are less than usual. Knowledge 01' `this fact has led Mr. Kent to buy properties turned down by other investors-on which he made a lot of money. Using these standards', Ken't has pyramided his investments with a minimum of cash into a million-dollar business. His formula for success has `also worked for many investors who have taken his advice. There's no reason why it can't work for you as well. (Condensed from "How to Get Rich in Real Estate," by Robert W. Kent. Pub- lished by Prentice-Hall, Inc., Englewood Cliffs, N.J. Price $7.95.) CosT-CUTTING SECRET IN PLANNING A SUBDIVISION Once you've purchased raw land, you'll have to file plans on subdivided lots before you can go ahead with development. Here's a practical suggestion to save money. File a plan for only that part you expect to sell first. Reason: When yo'ur subdivision is filed, each lot is individually assessed and taxes levied on it. Almost invariably, this increases taxes on the property. So it will pay you to keep part o'r all of the tract on `the tax rolls as a single parcel. Of course, you need a complete `s'et of plans for yo'ur own use before you start selling. But this `shouldn't stop you from actually filing plans for only the part of `the `tract you expect to' sell first. INCOME PRODUCING PROPERTY DOESN'T HAVE TO PRODUCE INCOME Many taxpayers are guilty of a common misconception-they think that it's `necessary to have income from property for its expenses to be `deductible. But that's just not `so. Take a- Typical situation-Jones lived in `one apartment in the two-family house he owned. After `his upstairs tenant moved out, Jones tried unsuccessfully to rent the apartment. Question: May Jones deduct the maintenance and depreciation attributable to the un'rentcd upstairs apartment? PAGENO="0059" 55 Answer.-He can. Once t1~at "for rent" sign was put up, Jones was holding the property for the productk~n `of inoome-an'd `it doesn't matter that he was unsuccessfuL Don't miss out.-The deductibIlity test is clear: As long as you're holding the property for production of in'eome-upkeek and depreciation are dethiicti- ble. Whether or not the property is actually producing income is immateriaL HOW TO PINPOINT RAW LAND OPPORTUNITIES Check the newspapers! All across the country local papers carry ads spelling out raw land opportunities. Weekly papers put out by `small rural towns often carry a wealth `of Information that can help you cash in on a land buy. And the Sunday real ~s'tate sections `of large papers like the New York Times or the Los Angeles Times `almost always carry page after page of good raw land buys within a `radius of hundred's `of miles from the city in which they print. What to do.-Subsoribe to `different papers within a radius of `a `hundred miles `or so from your `own backyard-especially `those rural weeklies. Get `at least `one Sunday paper from another section of the country, `and you'll be surprised at What you can find. Turn newspaper leads into opportunities.-O'nce you spot `a likely land oppor- tunity in an `ad, chances are it carries a real estate broker's name and `address. Write him a letter `at once asking `him for details and a photo `of the property- and a'sk the terms of the sale. (Or if the property `really looks promising, put in a long d'istance call.) You'll be pleased how many solid leads you'll get once you start to follo'wup. As you `build a relationship with brokers in `different area's, you'll soon find them coming to you with solid deal's. Once they know you're interested in invest- Ing, you'll get first crack at a lot of fine `opportunities for profits from `raw land. HOW TO BUILD IN TIME FOR AN AUTOMATIC TAX BREAK If you're planning to build, you may be able to make a big `on'e-sli'o't tax saving. Hew? Simply keep your eye on the calendar wh'en you plan your building `at the right time can `save you a substantial part `of a full year's real estate taxes on your `new building. Here's why.-Real estate `taxes are usually based on the value of your prop- erty as of an assessment cutoff `date. If `the `building is in existence on the cutoff date-you'll be taxed on its value. If not, you usually won't be taxed on th'e build- ing's value until after it's picked up on the next cutoff `d,ate-~one year later. And it's this quirk in the way `real estate taxes `are often figured `that gives you this- Taw-saving opportunity.-The `thing t'o do is to schedule your construction so that (1) The building won't `be `in existence on a cutoff date, hut (2) It will be completed as soon thereafter as possible. Bigger savings possible.-Sometimes you'll even be able to jump the gun by starting construction before the assessment date and still have your property assessed as vacant land. Reason: In some taxing districts a building in the course of construction is no't assessed for taxes unless it's substantially or completely finished on the `a'sses~me'nt `day. FINANCING LEVERAGE IS THE KEY TO TOP REi~L ESTATE PROFITS Making money on other people's money: That's the opportunity real estate offers far beyond any other field of investment. It's the big reason why more and more astute `investors are daily joining the ranks of the thousands Who have already made fortunes in real estate. In practically every other field, a person must dig into h'is own resources to put up the major portion of the money. Take the stock market, for example. At the present time you bave to put up 70% of the price of the stock you want to buy. (The percentage varies from time to time.) In re'al estate, on the other hand, you can buy a piece of property with a small downp'ayment-gener'ally not more than 30% of the `selling price, Many times this 30% can be shaved even smaller. PAGENO="0060" 56 This is the prime reason so many investors have been able to start from scratch and build a fortune; also the reason they have been able to go on from there to build even larger fortunes. Better yet, despite the interest you pay on the money you borrow, you actually increase the rate of return. (The next page shows bow it pays off in dollars- and-cents.) 110W LEVERAGE INCREASES YIELD AND PROFITS It pays to borrow money on investment real estate property. That's because any income property really wort~t buying gives you a bigger yield (on a cash basis) than the interest you must pay on a mortgage. In effect you're earning money on other people's money. That, in a nutshell is "leverage." Example: You buy an office building for $125,000 cash; $25,Q00 for `the land, $100,000 for the building. Its net income is $10,000 a year-a return of 8%. Using Ieverage.-You buy the office building With $25,000 downpayment and a mortgage for $100,000 at 6% interest. The mortgage interest is $6,000 a year which reduces your net income to $4,000. But since you have only $25,000 cash invested, your yield has increased to a `booming 16%. That's how a good deal becomes a lot `better. And of course, when you put up only $25,000, you have $100,000 that you can use to pick up other top real estate deals. Using all-out Zeverage.-Let's assume that you can pick up four more buildings with the same cost and yield. We'll also assume that you can get the same kind of mortgage on each building. New result: Now your net return- after interest payments-is $20,000 on a $125,000 cash investment. Now let's go back to the one building and see what `happens if the property increases in value and you decide to sell it. How it works.-Suppose in 10 years the same property doubles `in value to $250,000. If you've put all cash into it, you have doubled your money. But if you've only put in $25,000 you can come away with $150,000 ($250,- 000 less the $100,000 mortgage). That's `six times your cash investment. Now let's see what the story would be if you owned the five buildings. Idea in action.-You sell the five buildings for $250,000 each. After paying off the mortgages, you come out with $T50,000 cash on your $125,000 cash investment. That's what leverage can do for you and that-in brief-is What leverage is all about. It's simply a technique of using somebody else's money to send your net profits soaring. The examples also graphically show why astute real estate in- vestors use borrowed money instead of laying out their own cash. While leverage is an effective technique for investors, there is a darker side. In a falling market, it works against the investor, reducing the rate of return and increasing the percentage of loss. However, over the long run, real estate values generally go up, and even over the short run-4n normal times-the trend in values is up rather than down. So if you've chosen your property wisely following the guidelines we've set throughout this Report, you can use the lev- erage principles to start you on the ro'ad to fortune. HOW LEVERAGE P11ODUCE~ TAX-FREE REAL ESTATE INCOME The tax law gives you a big break when you borrow money to buy property for investment or for the production of income. In addition to a deduction for interest, you get the same depreciation allowance, whether you pay all cash or part cash-part mortgage, or no cash-all mortgage. If you are the first user of a new building, you can take accelerated depre- ciation and your depreciation allowance may be high enough to more than meet the annual principal payments on the mortgage. In other words, you get a chance to build up your equity in the property with tax-free funds. Watch this: You can't depreciate the cost of land. Ea'ample-You buy a new office building; you'll write It off over a 40-year period, using the 200%-declining-balance method of depreciation. Cost: $125,- 000-$25,000 for land, $100,000 for the building. Net rental income before taoes: $10,000 a year. PAGENO="0061" 57 Afl-cash.-If you pay all cash for the building, you get a depreciation deduc. tion of $5,000 the first year. Using lecerage.-Same facts except that this time, you only put up $25,000 cash and get a $100,000 mortgage at 6%. Big break: You still get the full depreciation deduction. That's because your basis for depreciation is the full price of the building-$100,000--despite the fact that you in- vested only $25,000 cash. So the $4,000 net rental (remember, $6,000 had to be paid in Interest costs) completely escapes tax. And you still have $1,000 In deductions left to offset income from other sources. The net result Is that $5,000 of income escapes taxation. And that's on a cash outlay of only $25,000. Using all-out leverage.-You own five office buildings. Using the same facts and figures you would have $25,000 of tax-free Income on a $125,000 cash investment~-~and that's hard to top in any league. HOW TO SUBDIVIDE: SELL AS MANY LOTS AS YOU PLEASE AND STILL COME UP WITH CAPITAL GAIN As you may already know, the tax law provides a specific statutory path to capital gain-in whole or in part-on sales of subdivided real estate~ Why "in whole or in part"? Well (assuming you meet all the other requirements), all of your profit is capital gain until the year you sell your sixth lot. In that year-and later-gain up to 5% of the selling price of all lots sold from the tract is ordinary income; the remainder is capital gain. "But, you say, ordinary income is exactly what I want to avoid. Is there any way of skirting that 5% deal?" Answer.-Yes, sell 5 lots in one year, let 5 years pass without selling any more lots from the tract, and then sell 5 more lots. If you follOw this path-It will all be capital gain. "That sounds fine on the surface, but it isn't very practical. After all, who can wait that long to sell real estate? I'd like to unload these lots as quickly as possible. But I'm afraid if I do this the tax law will say I'm a dealer and all my gain will be ordinary income. I~n't there some way out?" Answer.-~-Don't sell "the 5% deal" short. It may Still be just the thing for you. Chances are that you'll be able to sell as many lots as you want in the first year and still escape being hit with any ordinary income. Reason: True, 5% of the selling price will be ordinary incothe. How- ever, and here is the key, the tax law provides that selling expenses (broker's fees, legal fees, and the like) are first applied against ordI~ nary income; only the excess reduces capital gain. As a result, in many cases, selling expenses will completely offset ordinary income, leaving you with nothing but capital gain to report. To show you exactly how it might work out, let's take a look at a hypothetical- Eean~plo.-~-Ten years ago you purchased a 50'acre plot of land in the country for $2,000 as an investment. During the past 10 years, things have changed drastically. Your once-secluded acreage is now surround by hous- ing developments, shopping centers and industry. One thing more has changed-~-the value of the land. One developer has already offered you $100,000. A local real estate broker, however, had advised you that you could gross at least $150,000 if you subcllvideand sell off the lots. Problem.-What should you do? If you sell to the developer, you'll have a maximum capital-gain tax of $24,500 and a net profit of $73,500. On the other hand, if you subdivide and sell the lots yourself, you ma~ come out even better. Assume that you subdivide into 100 lots-selling price, $1,500 each. Deduct- ing the cost of the land leaves $148,000-before selling expenses and taxes. Let's say that the selling expenses for each lot total $75. This will bring your profit down by $7,500 (100 lots x $75). Here's how your profit picture will look, even if you sell all of the lots in one year: PAGENO="0062" 58 Sales (100 lots at $1,500) -`_ $150, 000 Costs of lots 2, 000 Gross profit 148, 000 Selling expenses (100 lots times $75) 7, 500 Profit to be reported 140,500 So, you have a before-tax profit of $140,500. But the big question still has to be answered-will any of this gain be highly taxed ordinary income? Or, will it all be tax-favored long-term capital gain? Here's how it breaks down: Potential ordinary income: 5 percent of $150,000 (selling price) $7,500 Selling expenses allocated to ordinary income 7,500 Ordinary income 0 Result.-The selling expenses completely cancel out the ordinary income element. All the gain will be capital gain, despite the fact that all the lots were sold within one year. Your maximum tax on the $140,500 is $35,125. Your net after~tax profit: $105,375. Is it as easy as all that? Yes it is-if, as we said earlier, you meet all these other requirements of the tax law: (1) You are not otherwise.a dealer in real estate in the year of sale; (2) You never held the subdivided tract as a dealer; (3) You have held the property at least 5 years-unless it was inherited, in which case the 5-year rule does not apply; and (4) You haven't made "substantial improvements" which increased the value of the property. Important.-Most people overlook the fact that the 5% ordinary-income rule is not as dangerous as it looks. In many cases it will be completely offset by selling expenses. you must incur anyway. And, even if the selling expenses don't, completely offset it, what's left may be a very small price to pay for being able to receive the lion's share of your profit a's favorably taxed capital gain. INVESuOR OR DEALER? IT MAKES A BIG DIFFERENCE Making money in real estate isn't simply a matter of buying low and selling high. You've also got to' make sure that `taxes won't eat up the bulk of your profits. For instance, take the real estate investor who wants to subdivide and develop his property to get the best price for hi's investment. If he~s too active in developing or selling, he runs the risk of losing his "investor" status-and being hit with ordi- nary income on `the deals he makes. But here's- Good news.-If he handles things right, he can still develop his property and get favored capital-gain treatment on his profits. To' illustrate, look at this- AotnaZ case.-V'an Drunen `and Baldwin were co~owners of a tract of land in Indiana for a number of years. Van Drunen was an insurance salesman who was heavily engaged-about 70 hours a week-with his selling job. Baldwin was a real estate broker. They wanted to liquidate their holdings but couldn't sell the property in its "underdeveloped" state. So, they agreed `to subdivide and improve it. Baldwin handled all the details: development, advertising, selling and `so on. They even agreed to allow Baldwin the usual broker's commission on the sales. Van Drunen did absolutely nothing except pay his share of the costs. He re- ported his profits as capital gain. But the Revenue Service said ordinary in- come-insisting he was a dealer. Resalt: The Tax Oourt tossed the Revenue Service's "dealer" argument out of the window. Reason: Van Drunen had handled things the- R'ight w'ay.-Ile let his "broker"-Baldwin---take care of all the details. The Court pointed out the complete lack of dealer-type business on Van Drunen's part. He was just liquidating his investment in the best pos~ible way. Unfortunately, not every investor is as careful as Van Drunen. was. Look atthis- PAGENO="0063" c~9 ~ad situation: Mr. Gault, sales manager of a prosperous cor~oration, invested in a large tract ~f l'and~ He, too, subdivided and improved the land prior to sell- ing it. However, though he only devoted 2 or 3 hours a week to the property~ he personally saw to all the details. He even handled all the sales himself. Result: Mr. Gault was a dealer and his profit was ordinary income. Reason: A Federal Court of Appeals held that his dealer-like activity put him into real estate. What to do.-Belng too `active in developing and selling real estate can `be fataL But getting capital-gain or ordinary-income treatment on your deals depends on all `the facts and circumstances involved. A seasoned tax advisor will know how to handle things. HOW A LITTLE TAX KNOW-HOW CAN SAVE LONG-TERM CAPITAL GAIN ON A SHORT-TERM DEAL Suppose you buy an apartment house as an investment.' Then, three months later you receive 4n extremely good offer for it, so you go ahead and sell. Capital gain? Sure-but it won't save you a single penny in income taxes. Reason: You didn't hold the property for more than six months-eo it's short- terni capital gain, taxed the s4me as Ordinary income. Suppose, hoiwever, that y'ou have an apartment built. You start work, say, in J~anuary, finish in August, and sell in November. Apparent result: it `still looks like a short-term situation-you sold only 3 months after the building was fin- ished. Yet, if you're acquainted with one of the little-known tax facts, you can still preserve a good part `of iong~term capital gain. How? Here's where a very special measuring rod comes into play. It's known as a- split holding-per'iod.-The courts say you're in effect, selling `two proper- ties-one held for more than 6 months, the other for 6 months or los's. Re- suit: The gain attributable to `the part held more than 6 months gets taxed at the more favorable capital-gain rates. Case in point.-T.o see just what a split holding period can mean to you in actual dollars an'd cents, let's say you start construction of an apartment house in January. Total cost of construction is $60,000; through the first week of May it was $40,000. You sell for $90,000 on November U. The computa'tion.-First, count back 6 months and one `day from the sale date. This makes May 10 your critical date: Only gain attributable to construction on or before May 10 is long-term. Since the cost of pr&May U work was. $40,000, 2/~ of the total cost ($40,000/$60,000) was incurred more than 6 months before sale. Result: $20,000 (2/s x $30,000 profit) is taxed at long-term' capital-gain rates. You pay ordinary rates on'ly on the other $10,000. Other situations are covered, too.-Th'e split holding-period isn't limited to build-it-from-scratch situations. For example, it applies where you buy a half- built apartment house. You then `have It completed and sell less than six months after completion, but more than six months from `the date you first purchased it. Watch this.-In figuring long-term gain, it"s the cost of work actually `completed more than 6 months before sale that counts. An advance payment won't help. `SPLITTING THE FEE' CAN STILL WORK WONDERS FOR YOU Astute real estate investors all over America are nailing down tremendous tax savings through an extremely sophisticated tax technique. It's known as splitting the fee. It merely involves splitting up the ownership of a valuable piece of real estate: One investor-or investment syndicate-owns the land; another holds title to the building on the property. It works.-For instance, during the last thirteen years the famed Empire State Building has changed hands twice-and each `time the `buyers molded their operations around the sophisticated `~split-fee." It can work for you.-Sure, the various Empire State deals involved strato- spheric amounts-but the basic tax and financial techniques employed can work for all investors and investment properties. With this in mind, let's look art one of the deals involving the Empire State with particular attention to the way the classic tax~saving strategy wa's used. PAGENO="0064" 60 A ta.ce-favored capital gain deal.-Some thirteen years ago, a group headed by Ool. Henry Crown bought the building. Financial objective: A top-dollar write~off in the early years, followed by a capital-gain deal when they sold off the property. How they did it.-When the3r bought the Empire State Building-theY bought only that. The building, that is. The land was owned b~V the Pru- dential Life Insurance Co. These investors leased the land from Prudential for a period of 30 years, with options to renew for an additional 60 years. By taking title to the building and leasing the land, in other words, splitting the fee, Crown nailed down its objective. Here's why.-The building, of course, was depreciable and the Crown group used 150% accelerated depreciation. This provided maximum write-offs in the early years. The land, however, was a different story. It wasn't depreciable. But, by leasing the land instead of buying, these astute investors were able to deduct every cent of the rent. The trouble with accelerated depreciathm is that, after a while, the tax bo- nanza starts to run out. After 10 years, the depreciation deduction had been drastically reduced. What was worse, it happened at a time when the Income from the property was going up. Faced with his situation, the Investors ware left with one thing to do. Sell out.-Once the advantage of accelerated depreciation was exhausted, the sale of the building and the lease completed the tax-saving parley. Not only did they get capital gain on the property's increase in value, they also recaptured, at capital-gain rates, all the depreciation that bad been deducted against ordinary income in prior years. What about recapture of depreciation?-True, the 1964 tax law turns some post-63 depreciation back into ordinary income. Despite this, however, you can still reap either all Or a substantail part of the benefits we've been talking about. First of all, there's no recapture at all on buildings held ait least 10 years. In our illustration, for example, since the Crown group held the Empire State Building for that period of time, the benefits it reaped wouldn't have been affected in the slightest even if the recapture rules had been in effect. Suppose you sell the building in less than 10 years? Even here, you can still come out way ahead. Reason: As long as you've held the property at least 12 months, recapture of real estate depreciation is limited to the difference between the accelerated depreciation taken and the amount that would've been depreciated by the straight-line method. Short cut.-To figure out the applicable percentage, simply subtract the number of full months you will have hold the property from 120. For example, if you will have held it for 4 years-48 full months-the applicable per- centage would be 72% (120 minus 48). Resnlt: If you hold the property for 7, 8 or 9 years, you'll still convert most of your depreciation Into capital gain. Your real estate deal may not be of the skyscraper type-but the tax principles are exactly the same. Your tax adviser is an indispensable man. Consult him first. HOW TO BYPASS TAX ON CONDEMNED PROPERTY If your property is condemned and the proceeds exceed your cost basis, you can escape any current tax by making a proper replacement. Actually replacing the old property isn't necessary-rearranging the land you have left can turn the trick. But the use of the proceeds must put you in essentially the same posi- tion you were in before. New case: State condemned part of Plant Owner's land for a superhighway. He had used the grounds as a storage area for his products. Thanks to the forth- coming 6-inner, land costs have skyrocketed, so Owner uses the condemnation proceeds to rearrange the layout of his remaining facilities `to build a new storage area there. Plant owner wins: He doesn't have to pay tax now on his gain~. He doesn't have to buy new land; he can spend the proceeds to restore what he has left to its original usefulness. PAGENO="0065" 61 MAKE YOUR RAW LAND PROFI~ABL1~-CONvFgp IT TO CAMPING GEOtTNDS You can get it on the ground floor of the camping boom. How? Provide picnic ~tnd campsites to meet the ever-growing demand of outdoor loving families in the country. Where to look -A. recent survey by the Forest Service shows that picrnc sites should be about 35 miles and overnight camp grounds about 100 miles from densely populated areas These are considered prime locations but don t overlook the remote spots. These offer attractions like swimming, boati~g, fishing, hunting, points of historical interest and nearness to other resort areas. People will go those extra miles to get what they want Campsite developers range from the farmer who rents an acre for camping to the investor with a completely stocked picnic and camping site that covers hun- dreds of acres with elaborate all-year-round hunting and fishing lodges. What makes a campsite ?_Basically all you need is a table, a barbecue pit and a garbage can for each picnic unit; add a levul foundation for pitching *a tent and it's suitable for a campsite. Each unit should be about 75 feet from the next to afford privacy, preferably separated by shrubbery. A typical 20-acre project would have 20 picnic sites, 15 camp or trailer sites and a picnic area for 50 people Other essential facilities 3 pit toilets 2 units housing flush toilets for men and women, hot showers, and a laundry room. Paved roadways, a central building and a play area are also desirable. Here's a Forest Service list of estimated costs: Pit toilet (single seat) $300 to $500 Table (light plank) $25 to $50. Table( heavy plank) $35 to $75~ Grill (fireplace) $25 to $30. Clearing a campsite $35 to $50. Fireproofing and cleanup $35 per acre. Incinerato~' $100 to $500. Entrance sign (rustic) $100 to $500. Other costs to consider.-Road construction, sewers, water, electricity, garbage disposal, maintenance and insurance. Also check on local sanitation laws and water requirements. Financing aidr.-There are government and private sources of funds. Here are Some to keep in mind: Farmers Home Admsmstrat~on Makes loans up to $60 000 to farmers who per sonally manage their own family size farm and cannot get financing from another source If the farm is mortgaged the amount of the mortgage plus the loan cannot exceed the top of $60,000. Payoff time is 40 years; interest, 5%. F~r details write: Farmers Home Administration, U. S. Department of Agriculture, Washington, D.C. 20025. ~maZI Business AdminSstratiOn: A good bet for loans when financing can't be secured from private lenders. SBA helps sponsors by participating with lenders to finance privately owned profit-making recreation areas. A "small" campsite, by SBA standards is a campsite that doesn t take in over $1 000 000 a year For i~ull details write Small Business Admlinistration Washington D C 20025 Import ant -There 5 plenty of technical advice available for the asking from federal ~tnd state agencies For more information write Superintendent of Documents, GPO, Washington, D.C. 20025. Enclose 50ç1 and ask for Agri- `cultural Information Bulletins #264 (Drawings For Basic Facilities F~r Campground Development) and #265 (Forest Recreation For Profit) Private sources Don t overlook unions insurance companies and profit sharing and pension funds Many of these orgamr~ations have large amounts of surplus money and are eager to finance income-producing projects at reasonable rates. SELLING YOUR HOME? HERE S A DOUBLE BARRELED TAX BREAK There are many brand new deductions on tap for everyone in 1968 Suppose you buy and move into a new home and still have to find a buyer for your old one While waiting to sell the old home you may have to lay out money for maintenance and repairs on it-iand it Will be depreciating too But you can t deduct these items on residential property unless `and until It s changed into 4'property held for the production of income." 95-253-68--5 PAGENO="0066" 62 Taos Lw~ Breakthrough.-The Tax Court now says that when you put your home up for sale, it is immediately converted into "property held for the production of income." There are two essential elements here: You must move out of the house, and you must put it up for sale. Break #1.-You can deduct depreciation on your former home from the time you move out of it and put it up for sale until the time you actually sell it. Break #2.-You can also deduct any repair and maintenance expenses you incur in connection with your old home. Refund opportunities.-If you have your former home up for sale during a year or years that are still open (generally, the preceding three years) you may want to claim a refund. The upkeep and depreciation deductions which you may now be able to get can bring substantial tax refunds. COMMITTEE HEARING, 77TH SEsSIoN, NEBRASKA LEGISLATURE, L.B. 670, pr. 4, 12, AND 18-APRIL 7, 1967 * * * * * * * Senator CARPENTER. Will you have it available sometime next week? Mr. BRERMANN. I am sure we can. Senator CARPENTER. Anyone else who is for LB 666? If not, anybody opposed to it? (None) The Chair declares the hearing on LB 666 concluded. Let's take Senator Rasmussen's bill LB 670. LB 670 Senator E~tio RASMUSSEN. Mr. Chairman and members of the committee, LB 670 is an amendment to the Industrial development Act which I believe is the original intent of the act as it was passed in 1960 in a special session and in a session in 1961, the Enactment Law. As you are aware the I.D.A. Act, Industrial Development Act that was instigated by a special session in 1960 by the then Governor Brooks of Nebraska, was a method of introducing and bringing in industry into the State of Nebraska. However, in the meantime, there has been efforts to operate underneath this law possibly on an extended basis and it is strictly livestock operations. In my opinion this was not intended under this act. Going back over the records of what 1960 done, I visited with one of the co- introducers of the original act on the I.D.A. law in 1960, the original constitu- tional amendment which was introduced for the people to vote on in that general election. There was very definite evidence, and there was very definite statements within the committee report to the Legislature stated that this should be restricted to specific areas and I would like to read one sentence in particular In this com- mittee report. It says, "The committee amended the bill to give counties as well as cities and villages the right to issue bonds and gave these governmental bodies the right to develop as well as to acquire, own, and lease property since it felt this work was necessary, the committee removed the word `commercial' so that the bonds can be issued only for manufacturing and industrial enterprises. I re- peat "manufacturing and industrial enterprises"; otherwise there could be financ- ing of supermarkets and so on. For this reason, they removed the word "com- mercial" because there was some fear that they would be financing filling stations and supermarkets, etc. with the Industrial Development bonds. However, I am sure that at the time tis act was passed, they never even assumed that they would be using this for agricultural enterprises because * * * * * * * Mr. WAY. In this respect, Senator, I would like to submit an amendment to put this thing on the rolls of taxation, for your committee's consideration. For your committee's consideration I will give you our taxes as they are formulated in Adams County for your consideration depending upon whether or not it is ac- ceptable or minimal involving the taxes. I will leave with this, as far as all are consigned, only 34 or 35,000 producers in the State of Nebraska raising four or seven million hogs annually. The volume of any great amount across the nation, affects seriously, our home market of which we know of right today. For this reason, we support this legislation. Senator CARPENTER. Any questions to the gentleman? Thank you sir. Anyone else who is for this bill? Those who are opposed to the bill? Are there more than. this one gentleman who are opposed to LB 670? PAGENO="0067" 63 Mr. Ronaiir W, HEGSPROM. Mr. Chairman and members of the committee, my name is Robert Hegstrom, and I am Executive Vice-President of the Hastings Nebraska Chamber of Commerce. I might give you a little bit of history as we seem to be the prime target for the presentation of the opponents of LB 670. I would like to clarify one thing first, and that is that we have no intent to issue revenue bonds for the particular project that might be of the greatest concern to those here today. AU over the United States for the last few years, the federal government has been phasing our military installations. We are phasmg one in Hastings, Nebraska right now; we are phasing one in Sidney, Nebraska in, the very near future and there is a possibility of several others around the state that may come up for phase-out over a period of time. Searching the state stat- utes, our attorneys found only possible way to acquire a municipality to such phase out land is under the provisions of the Industrial Development Act, passed by the Legislature several years ago. One of the requirements of the Genera' Services Administration has... Senator CARPENTER. Now, are you sure that what you are talking about is ott this bill? Mr. HEGSTEOM. Yes sir, I am. I have to set a certain background in order to bring the committee up-to-date and give them the full facts on why we oppose the bill. When a base is phased out, `the General Services Administration * * * * * * * Senator CARPENTER. So, let us project this then a little bit further. Let's say that, you are going to lease this land in order to supplement the practicability of buying or leasing the land, whatever you are doing to acquire the land you have in Hastings like we have in Scottsbluff, the Kern County Land Company, who now feed forty-five thousand head of cattle. As a result of that, it is destroying for all practical purposes markets that the farmers once had? Now, is that what you propose to do? Is that a possibility? - Mr. HEGSTROM. I would say it is a possibility. The land that we are talking about in `the main industrial area, we have not arrived at a definite conclusion on how we are going to dispose of it, how we are going to lease It. We don't have any resolutions or anything like that, but the intent now is put this thing up for a public lease situation and I would offer also that we have not kept anyboily from coming up to talk to us about leasing land. There seems to be one concern; we have never turned anybody down on when they want to come out and visit with us and file a letter of intent on any piece of property out there. Senator CARPENTER. I am a little bit surprised that the City of Hastings has an official policy practically, the policy of going in direct competition of thos? people who built up and made the community. No policy to do it.. . is what it amounts to. You bring these large people in with which these farmers cannot even begin to compete with. I know what I am talking about from actual experience, they have destroyed the livestock market in Scottsbluff County. M~. HEGSTEOM. We are talking about here the fact that we trying to attempt to do provide a replacement for about nine thousand jobs that existed at the Hast- ings Naval Ammunition Depct. Senator CARPENTER. They out there employ about fifteen people to feed about forty-some thousand cattle. What are you going to do with the rest of them? Mr. HEG5TROM. First of all, we are not talking about cattle operations. Senator CARPENTEE. Well, you could be. That is what the bill prohibits to some extent. Mr. HEGSTROM. Right. [From The LInco~n Star, February 5, l~968J Toun To VIsIT RANCH ALONG SOUTH PLATTE.. . OWNED BY COMPANY (By Glenn Kreuscher) NORTH PLATTE.-~One of the nation's best known corporate names that has entered the field of livestock and agriculture will entertain livestockmen here Feb. 15, on a stop of the Lincoln County Feeder-Rancher Tour. The stop will be at Gates Rubber Co. State Line Ranch that is located in a beautiful setting southwest of here along the South Platte River. The 640-acre State Line Ranch looks like a paradise for wintering calves and that is just what Gates Rubber Co. has developed the ranch for with about 2,0~ head of Hereford, Angus and Hereford-Angus cross calves making the most use of chopped hay and tasty additives. PAGENO="0068" 64 AREA BANKED HIGHLY State Line Ranch manager Don Brown is no stranger to Nebraska cattle oper ations Born and raised near Cambridge, where he grew up with bee~f cattle, Brown has worked in the South Platte area of Lincoln County for quite some time and ranks it highly as one of `Nebraska s good cattle areas A 10 foot tub forage grinder will supply a sight never before seen for many feeders and ranchers on their visit to the Gates operations From the well constructed lots to the preparation of feed it is easy to see this operation is aiming for utmost efficiency with manpower IDEAL SIZE The calves being wintered on State Line Ranch will be an ideal size to head toward summer pasture or ready for a trip to the feedlots, probably depending on which route the owners choose when spring arrives. The 1,700 feet of portable steel fence-line bunks simplify feeding from a truck that rolls along the feedlots dispensing chopped feed Brown says the Gates operation is in its second year of operation and he has not been advised about further plans the owners might have for cattle production In Nebraska. Other operations in the area that will be visited on the tour `are the Lester Stenger farm the Loren Woodcock operation and the 7R Ranch owned by tin Reynolds Ranch Company. Mr DECHANT Mr Chairman, I have only now just a few minutes We have heard from South Dakota, Iowa, and just now Nebraska Let me quote the editor of the Wellington, Kans., Daily News because last October he commented, and I quote The thought of one giant corporation controlling all of the agricultural wealth of Sumner County would provide a lifetime of nightmares for our merchants. Small town insurance firms wouldn t have anyone to insure Realtors wouldn t have anything to sell to anyone Implement dealers could forget it Petroleum dealers would go out of business or out of town, or like most of us, both. Just last month, Representative James P Buchele, of Topeka, Kans said, "Corporation farming has nothing to offer Kansas but loss population." A poll early this month in North Dakota showed that 82 percent of the people opposed corporation farming But, Mr Chairman, not everybody is concerned, of course On Janu ary 25 of this year, for example, H G E Fick, president of the Doane Agricultural Service, issued a news release saying there is "no cause for alarm over corporation farming" A footnote to this comment appeared in the May 5, 1968, issue of the New York Times, describing a new farmmg venture-mutual fund types of investment firms to acquire diversified farming properties This is a new one and this is one that I think is going to' cause us a great deal of difficulty because this is not only acquiring or accumulat- ing the funds of large corporations but here is a mutual fund type of investment where many people can invest to build up a very large fund to acquire farming properties I was quite amused to note that after Mr. Fick had said that there was no cause for alarm over the corpora- tion farming that one such firm is the Doane Landco, mc, with an address of 8900 Manchester Road, St Louis, a subsidiary of Doane Agricultural Service, Inc The Times reported that a similar cattleraising investment firm is Oppenheimer Industries, mc, 353 East 53d Street, New York City PAGENO="0069" 65 The point I'm making is that Mr. Fick says there is no concern about it, but I noticed they have a firm now set up to handle mutual type investments. I have described our concerns about this alarming and pressing problem and of course, the key question is always what can be done? In summary, Mr. Chairman, I would say that we must act now to strengthen the family farmer in our society so that he can survive and compete with other segments of the economy. The Agriculture Act of 1965 should be extended and made perma- nent, as President Johnson has suggested. The House committee, as you know, now has a 1-year extension introduced or it cleared the House Agriculture Committee and Senate Agriculture Committee, and the Senate Agriculture Committee has it under consideration and hopes to report it out by mid-June. We are hoping that it will be more years than one. I understand it may be as many as 5 years. We support collective bargaining for farmers, as provided for in Senator Walter Mondale's bill. I'd like to join my associate Ben Radcliffe, as well as, I know, Mr. Berek and Mr. Gross in commending you, Mr. Chairman, on your Young Farmers Investment Act. You can be assured of Farmers Union all-out support for that very needed legislation. We believe that legislation should be passed to establish strategic reserves of farm commodities, which will constitute a National Food and Fiber Reserve. We must protect the family farm. This is why I answered emphati- cally yes when you asked me a little while ago whether we would support legislation on this corporation farm issue. We should explore graduated direct payments in order to give the family farm the extra protection it needs. There needs to be a limitation of payments based on a county-by-county determination as to what constitutes an average commercial family farm. The large corporations must be disarmed of some of their unlimited financial resources that are gained at the expense of our Government through writeoffs from taxes owed on profits made in other, often pro- tected, sectors of the economy. We support the legislation proposed by Senator Lee Metcalf of Montana to prevent such tax writeoffs. We favor the enactment of legislation which would prohibit chain stores and others engaged in food processing and distribution from operating feed lots and other agricultural facilities~. This ties right into the whole business of corporation farming. We ask for continuous enforcement of the antitrust laws, together with impartial enforce- ment of the Packers and Stockyards Act. Mr. Chairman, I appreciate very much having the opportunity to appear before your committee and I also want to thank you for allow- ing my associates to join me in making this statement. Senator NELSON. Mr. D~Chant, we appreciate your valtiable contri- butions to these hearings and the contributions made by your State presidents who came here this morning. I thank you very mttch, gentlemen. (The complete prepared statement submitted by Mr. DeChant follows:) PAGENO="0070" 66 STATEMENT OF TONY P. DEOHANT, PRESIDENT, NATIONAL FARMERS UNION THE EFFECTS OF CORPORATION FARMING Mr. Chairman and members of the subcommittee, we appreciate very much the opportunity to present our views on the problems posed by the trend to corpora- tion farming in America. I want to commend you for the energy and the concern that has brought you here to the heartland of America to hear testimony on an Issue that affects so vitally the welfare of the Nation. The issue is really one of a disparity of power b~tween two vastly unequal segments of our society-a disparity of power between the large, conglomerate corporation, and the power of the farm society it seeks to invade. We are talking here about the large, nonagricultural, often diversified, corpo- ration. It is frequently involved in packaging, distribution, and even retail sales of the products it is now producing on the farm. Its capital comes from Wall Street, or manufacturing, or oil or some other prosperous segment of the economy. Its ability to interfere with and manipulate the market is enormous. Its financial resources stagger the imagination of most farmers. Its political influence astounds us. Its ruthlessness sometimes disgusts us. Frankly, we are no economic match for its unrestrained competition. This kind of corporation farm represents power without conscience. Its con- tinued freedom to invade without restriction will depersonalize rural America. It will deplete its resources-its land, water and people-~and it will put the city dwellers of America at the mercy of a monopoly controlling the cost of food and clothing-things it cannot postpone buying. I would like to discuss five points: 1. The corporation farm interferes with the market system that exists for farm commodities. 2. The corporation farm cheats us of our taxes-by operating frequently on tax write-offs from profits in other fields, and by practices at the farm level that cut local and state taxes. 3. The corporation farm results in a decline of population in rural areas, a de- pleting of community resources and small towns contributing to the problems of already overcrowded cities, and further diminishing the welfare of rural America by diminishing its political influence. 4. There is evidence that the corporation farm-with its impersonal pres- sures on management for quick profits-cannot be trusted with our basic natural resourcea-soil and water. 5. There is urgency in the matter. It is already very late. Without help, the farmer is powerless to stop the corporate invasion. He is weakened by a farm program that at best has only prevented utter disaster to his segment of the economy. He is denied the right to participate in the setting of most of the prices he receives. He is at the mercy of other segments of the economy which are protected and strengthened by government programs. The farmer is no match for his foe. He needs the help of his State and Federal Ootvernments. Before entering the discussion of the five points mentioned above, I would like to challenge one myth that has been spread across America-frequently by the public relations departments of the giant corporations. That myth concerns the so-called efficiency of corporation farms. I say this to you without qualification. There is no relationship whatever be- tween efficiency and corporation farnving. There is perhaps a relationship be- tween efficiency and size of operation-but only up to a point. And that point is well within the scope possible for family-type farms. That is, a 3,000-acre farm is not necessarily more efficient than a 300-acre farm. In fact, the 300-acre unit operated by a family whose roots are deep in the soil-may be a good deal more efficient than its corporate neighbor of 3,000-or 30,000-acres. For example, studies show that on the Texas high plains, a one-man farm of 440 acres had the lowest production costs. One-man wheat farms in Oregon had lower average costs than two- and three-man operations. In southern Iowa, the cost revenue ratio was lower on a one-man, 280~acre farm. And there are many more examples. One of the most serious aspects of the entry of the corporation into farming Is its ability to interfere with and manipulate the market. One kind of corpora- tion that does this is the so-called "integrated" corporation. It is often large PAGENO="0071" 67 enough to be a key factor in establishing local prices for products. These prices may be entirely fictitious-with the corporation making up for losses in other as- pects of its operation. Poultry corporations can make up for losses at the farm by receiving a high price for feed, or by setting the price it sells dressed chickens for at the supermarket. Indeed, it might be said that the only meaningful price in the entire operation is at the grocery counter-whether the product is meat or vegetables or frozen orange juice. The National Commission on Food Marketing, a Presidential commission, warned in 1966 that "powerful buyers" are interfering with the free market. As an example, may I quote from the National Observer on 3anuary 29, 1968: "The rugged proudly independent western cattleman may soon become as much of a relic of American history as the Plains Indian and the buffalo," said the Observer. It continued with a report from Sturgis, South Dakota telling how supermarkets that sell 85 percent of the red meat consumed in the United States pay producers artificially low prices while charging artificially high prices to consumers. The farmers were holding meetings about the situation. And through their organization-the Independent Stockgrowers of America-they were in- strumental in the filing of an antitrust suit in San Francisco charging the Na- tion's three largest supermarket chains with conspiring to fix meat prices. Named in the action, were A & P, Safeway, and Kroger. Another market value that the corporation farms interfere with is land values. The Gates Rubber Company has been buying land at a rapid rate in the Yuma County, Colorado area. The exact acreage is not known because some secrecy surrounds the company's operations and motives. But Edgar J. Lengel of Burlington, Colorado said in a letter to the Denver Post on December 31, 1967 that the result of the Gates buying activity was that land values had gone so high in the area that local farmers were unable to expand operations. And others, Mr. Tengel said, who want to gain a foothold in farming are being forced out of agriculture because "Gates has set land values so high in the area the local farmers cannot afford it." A matter of special concern to us all is that many corporations have gone into farming, and their losses are written off against profits in some other enter- prise. In fact, the Internal Revenue Service reported that in 1965, 119 individu- als with incomes of more than $1,000,000 were engaged in farming. One hundred and three ott them lost money in their farming operations. How much is this kind of thing costing the Nation? Some rather shocking figures are available. When Senator Lee Metcalf of Montana looked into the matter, he found 81 of the 100 largest metropolitan areas reported net tax losses from farming. Four metropolitan areas in California reported a net loss of $60 million. Four metropolitan areas in Texas reported a collective net loss in excess of $40 million. These were all absentee farmers, many of them us- ing these losses to reduce the amount of taxes they owed on other enterprises. Recent occurrences in our major cities make it unnecessary to remind you that our ghettos are filled with people who have been displaced from the rural areas of our Nation. Last October 21, the St. Louis Post-Dispatch~ reported in some detail on a "cowtel" financed by an out-of-state investor. This elaborately equipped instal- lation keeps 110 cows in total confinement, the newspaper said. It is operated by a 25-year-old manager, and his younger brother. Two other such installations are located at Fort Madison and Mount Pleasant, Iowa, the newspaper reported. Earlier last year, it was reported that an Oklahoma corporation invited 200 representatives ott 90 leading companies to "brainstorm" on how their corpora- tions might move into the open fields. They visualized giant "hothouses," pushbutton irrigation, photosensitive sky- roofs to flood interiors with sunlight, buildings spanning thousands of acres using conveyor belts and electric tractors, and vegetable farms with their own canning and freezing operations under the same roof as the farm. I invite you to ponder this "vision" of tomorrow, along with the forecast of Lawrence G. Chait, president of a New York City advertising and sales con- sulting firm that "the 200 largest firms in the United States could control two- thirds of all manufacturing assets' by 1975," and recent articles in such maga- zines as Business Week urging businessmen to consider farm investment for tax write-offs, weekending, and/or retirement. Not all the population loss is from the farms themselves, of course. Suffering equally are the small towns. One of the most exhaustive studies of the effects PAGENO="0072" 68 of corporation farming was made some 20 years ago by Walter Goldsehmldt. He studies two towns in California-Arvin a town serving a corporate farming area, and Dinuba, serving an area `of family farms. , Dmuba the small farm community served 62 separate business establish ments compared to 35 in the large farm city of Arvin The volume of retail trade in the small farm community during the 12 month period was $4 383 000 as against only $2,535,000 in the large-farm community. Why did this occur? Recent events tell us much The Des Momes Register has reported extensively In recent months on a new corporation farming venture in Sac County Iowa Two of the three directors of the operation-Shinrone Inc -are William Old field Bridge and his wife Incidentally according to the Des Moines Tribune on March 18 1968 Mr Bridge-a Michigan truck company executive-settled a $598 398 tax bill to the Federal Government for $110 000 ]ust 11 weeks before Shinrone Inc purchased this 6 000-acre farm valued by neighbors at around $3 million On March 17 1968 the Des Moines Sunday Register reported that Shinrone had bought $250 000 worth of farm equipment-all of it painted white by the way-from manufacturing plants at Detroit Brantford Canada and Algoma Wisconsin Local farm implement dealers in the town that is bounded on tw& sides by Shinrone Inc must have been dlsappomted Reports in Colorado are that in some cases the big corporation farms dealing directly with the factory play off local dealers against each other so that low bids leave little or no profit John A Hopkin professor of agricultural finance at the University of Illinois says candidly that the big corporate farms will either be closely linked with certain suppliers or they will set up their own supply subsidiaries' Not all of the displaced people of the farms and in the small towns find their way to the cities, of course. Many of them remain-not as a Gates Rubber Com- pany executive said, "living on their rocking-chair earnings" after selling out to Gates-but on welfare. There is a need for some seasonal labor in some of the corporate operations of course And these people work when needed Out of season they are on the welfare roles just as many of their former neighbors are on the welfare roles in the great cities of our land. To my knowledge nobody has estimated `how much th~s welfare `subsjdy' costs this Nation but it must be a very large amount of taxpayer dollar's We in the National Farmers Union have been painfully aware of the declining population in `rural America There are fewer of us going to the polls Some would have us believe that the welfare of the Nation i's less involved therefore with the health of our agricultural esta'blishment. One effect then of `the decline of population on farms is that it makes it more difficult to balance our national purpose. I have now `discussed three of the five points I referred to at the beginning of my `statement-4nterference and manipulation of the market, the loss of `taxes; and `depletion of the resources and strength of `rural America. I do not want to suggest that these `are the three worst effects of the corporate invasion of rural America because the two remaimng area~s of concern are equally important. In Arkansas-and other southern states-lumber and paper companies own thousands of acres of timber land Their holdings sometimes cover most of entire counties. TIr~es-cut `s'elec'tively on most of these `holdings-provide the cover that `protects the `topsoil and forms the watersheds. We have `reports that some of the companies-under the pressure of the demand for profits and in order to p'ay off `high initial investments-are follo'win.g a "deep cutting" policy. This, of `course, `i's `leaving the land less protected than it wa's when they came on the `scene. We all know the practice in `some corporation's of letting buildings go un- painted, machinery unrepa:i'red, `and permitting o'ther resource's of the corpora- tion to `depreciate without adequate maintenance, in order th'at immediate profits are increased. I do not approve of this practice in `any eorpo'ra'ti'on. But do we dare permit corporation's-with the impersonal pressures that `sometimes descend upon management for proflts.-to come into possession of our natural resources? A cut-over timber stand can expose the land to a `rainstorm that can take an Inch of topsoil an a `single night-topsoil that might require 700 years to replace PAGENO="0073" 69 There is evidence that the water table in the Ogalall'a Reservoir that lies beneath the farmland of the Gates Rubber Company in the vicinity of Jeer, Colorado is going down at an alarming rate. Gates was reported buying land on the basis of the flow of gallons of water per minute. Farms where the flow was too slow were rbjected. And there Is competition involved. The Yuma (Cob.) Pioneer reported on October 5, 1967 that two small farmers had water well permits turned down be- cause their land was situated among already heavily developed corporation interests. I cannot overemphasize the urgency of the `situation. The corporate invasion is moving at an unprecedented rate. Let mb name just a few of our leading corporations, not mentioned heretofore, that have entered farming-CBK, Inc. of Kansas City, a giant corporation that has begun a five-year program to divest itself of all manufacturing and distribution operations and has announced that it will farm 80,000 acres of purchased and leased Land from the Mexican border to the Canadian border. (;In'cidentially, as a result it reported losses of $3,605',- 715 during the first nine months of 1967-compared to earnings of $410,853 dur- ing the `same period of `the previous year.) Here `are others: Pacific-Gamble-Robinson Company, a large grocery chain headquartered at Seattle; the Jewel Tea Company; Gulf and Western; Del Monte; H. J. Heinz; American `Cyanimid; International Systems and Controls Corporation; th'e Goodyear Rubber `Company and there are many moire. In Beadle County, South Dakota, the assessor-who did not believe there rw~ere very many corporationis farming in hiis county-found there were 49 dIfferent farm operations owned `by non-farm interest's outside the county. In January of this year, the South Dakota Farmers Union looked into the situation, and found that 1,633,529 acre's of land a're now in corporate farms in their state- an area equal to the area of five counties! There is growing concern over the situation. The editor of the Wellington (Kansas) Daily News was moved to comment last October 24: "The thought of one giant corporation controlling all of the agricultural wealth of Sumner County would provide a lifetime of nightmares for our merchants. Small town insurance firms wouldnt' have anyone to insure. Realtors wouldn't have anything to sell to anyone. Implement dealers could forget It. Petroleum dealers would go out of business or out of town, or like most of us, both." Just last month, Representative James' P. Buchele of Topeka, Kansas said "corporation farming has nothing to offer Kansas but loss of population." A poll early this month in North Dakota showed that 82 percent of the people oppose corporation farming. Not everybody is concerned, of course. On January 25 this year, for example, H. G. E. Pick, president of the Doane Agricultural Service, issued a news release saying there is "no cause for alarm over corporation farming." A footnote to this comment appeared in the May 5, 1968 issue of the New York Times, describing a new farming venture-mutual fund types of investment firms to acquire diversified farming properties. One such firm Isi Doane Landco, Inc., 8900 Manchester Road, St. Louis, a subsidiary of Doane Agricultural Service, Inc. The Times reported that a similar cattle raising investment firm is Oppenheimer Industries, Inc., 353 East 53rd Street, New York City. I have described our concerns about this alarming and pressing problem. What can be done? In summary, I would say that we must now to strengthen the family farmer in our society so that he can survive, and compete with other segments of the economy. The Agriculture Act of 1965 should be extended and made permanent, as President Johnson has suggested. We support collective bargaining for farmers, as provided for in Senator Walter Mondale's bill. We believe that legislation should be passed to establish strategic reserves of farm commodities, which will constitute a National Food and Fiber Reserve. We must protect the family farm. We should explore graduated direct pay- ments in order to give the family farm the extra protection it needs. There needs to be a limitation of payments based on a county-by-county determination as to what constitutes an average commercial family farm. PAGENO="0074" 70 The large corporations must be disarmed of some of their unlimited financial resources that are gained at the expense of our Government through write offs from taxes owed on profits made in other-often protected-sectors of the economy We support the legislation proposed by Senator Lee Metcalf of Montana to prevent such tax write offs We favor the enactment of legislation which would prohibit chain stores and others engaged in food processing and distribution from operating feed lots and other agricultural facilities We ask for continuous enforcement of the antitrust laws, together with impartial enforcement of the Packers and Stockyards Act. Thank you Senator NELSON We'll take one more witness before lunch We welcome you here before the committee, Mr DuBois We're pleased to have you appear I think the last time I saw you was at the Bankers Convention in Las Vegas when you were elected president That was some 2 or 3 years ago Mr DuBois It's about 2 years ago now Senator NELSON We are very pleased to have you appear here to day, and will you identify your associate Mr DuBois Mr Chairman, my associate today is Mr Don F Kirch ner, who is a new chairman of the Independent Bankers Association of America He's chairman of the Agricultural Rural Committee Mr Kirchner lives in Riverside, Iowa, and he is heie today to participate in this hearing by answering any questions that you might care to direct in his direction as we go along He is very knowledgeable in this problem and I value his being with me today Senator NELSON We are very pleased to have you here, Mr Kirch ner At any time that some observation occurs to you that you think would be useful for the record, simply present it Your testimony, Mr DuBois, will be printed in full in the record You may extemporize from it, if you wish, or present it just `is it is STATEMENT OP PAT DuBOIS, PAST PRESIDENT, INDEPENDENT BANKERS ASSOCIATION OP AMERICA, SAUK CENTRE, MINN, ACCOMPANIED BY DON P KIRCHNER, PRESIDENT Mr DuBois I am Pat DuBois of Sauk Centre, Minn, where I am president of the First State Bank I am also a member of the Minne sota Legislature, serving a rural district in the central part of the State I appear here today as a representative of the Independent Bankers Association of America, of which I am a past president and a past chairman of the association's Agriculture Rural America Committee Our association was founded 38 years ago to provide a voice for banks having ownership in the communities in which they operate Our con viction was `md continues to be that the public interest is best served by a banking system in which financial power is dispersed among many owners rather than concentrated in the hands of a few Our associa tion exists because we believe that our country needs and has a place for very large banks and very small banks, and a lot of other banks in between In keeping with this philosophy, we also believe that our country needs and has a place for a full range of business sizes, and a full range of farm sizes. Our association is a national organization of 6,541 member banks, roughly half the banks in the Nation Most of these banks are primari PAGENO="0075" 71 ly engaged in serving the needs of agriculture. Almost half the IBAA member banks are in towns of 2,000 or less and two-thirds of the total membership serves communities of 5,000 or less. We are overwhelm- ingly an organization of small banks. Nearly half our member banks have assets of less than $5 million, some 75 percent have assets of under $10 million, and more than 90 percent of our member banks have assets of less than $20 million. AGRICULTURE IS IBAA KEYSTONE With agriculture as the keystone of the economy of most of our member banks, it is easy to see why we consider the preservation of the family farm to be a major challenge facing our country today. The rural community lives from the gross income of the family farm or the small, closely held family farm corporation. Because towns and banks are in the business of serving people, the banker sees that the disappearance of these families would cause his town and his bank to disappear. So would opportunities for the rural doctor, the rural merchant, or the rural church. The demise of the rural community would also result in an incomprehensible waste of existing municipal facilities. The fact remains that the small town cannot exist without people on the land, no matter how productive a vast corporation farm may be. Because of the critical importance of the family farm to our member banks, the IBAA in 1961 established a farm income study committee to explore the problems of agriculture. Since that time the committee has grown in prestige and size and is today known as the IBAA Agriculture-Rural America Committee. It is composed of 10 bankers representing a~ vast cross section of agriculture and rural America. IBAA resolutions on agriculture and rural America and a position paper adopted by the IBAA are appended to this testimony. We hope they will be of interest to you. THIS IS NOT JUST A RURAL PROBLEM The problems besetting agriculture and rural America can no longer be ignored by the makers of public policy. If positive action on behalf of the rural sector is not taken, the migration of rural people to metropolitan centers will continue. The urban riots within the past year have dramatized the need for halting the rural exodus. The problems of the crowded central cities are really problems of excessive migration from rural areas. The best solution to these prob- lems is to return our people to the rural sector for jobs in agriculture and industry. In the wake of last summer's city riots came the report of the Rural Poverty Commission. It has taken the position that the small farmer should be helped so he can Stay in business. In the Commission's re- port, "The People Left Behind," it sees this vanishing farm unit as one place to take a stand in keeping on the land those who want to stay. It also wants to cut sharply the movement of up to 600,000 persons a year into the cities. Secretary of Agriculture Orville Freeman, jolted by the crisis in the cities, says it's time to ease economic pressures forcing hundreds of thousands off the land. PAGENO="0076" 72 ~ AMERIOA~S PROSPERITY IS AT STAKE But Americans have an even wider stake in the prosperity of the rural economy. Despite the urbanization trend in our country, nearly one out of three Americans lives outside a metropolitan center The basic industry of these people-either directly or indirectly-is food production, America's biggest and most important business Farmers pump billions of dollars into the economic bloodstream every year They spend nearly 70 percent of their gross income in running their farms, which benefits every sector of the American economy Tabulations published in U S News & World Report magazine on March 11, 1968, show that among America's 12 largest industries, farming is first in the number of workers employed-4,206,000-first in annual spending for equipment-$5.3 billion-first in assets-$256 billion-second only to the machinery industry in annual income- $21 billion-and fourth in sales-$43 billion-behind only the food products, primary metals, and motor vehicles industries "Thus, when farm income drops, the effects spread far and wide," the magazine concluded "Millions of farmers have to trim their spend rng, and that hits their suppliers Even when economizing, farmers spend billions more for machinery and supplies than most other groups in the United States." RELATIVE FARM PRICES ARE LOW It seems incredible, then, that public policy has failed to recognize the importance of this 30 percent of the population. While national income has increased 223 percent since 1947, farm income has dropped 9 percent Farm prices in relation to the rest of the economy are at the level of the worst years of the great depression Some observers have looked at these figures and decided that the family farm is finished Some economists in our land grant colleges, the U.S. Depa:rtment of Agriculture, and agribusiness firms have said that all of our food and fiber should be produced by a relatively few corporation farms or large, family-owned farm enterprises. One fig- ure frequently used by Federal farm planners is that the United States needs only about 500,000 farms. The arguments against continuation of the family farm appear credible on the surface, and thus are easily accepted by nonrural peo ple who share the common human trait of wanting simple answers to complex questions The fact is that the thesis of inevitability about the demise of rural America is based on the very narrow premise of economic determinism If present trends continue, such changes may take place. But there is nothing inexorable about trends. Many years ago the ithoring man reversed an economic trend by learning how to command a price for his labor. Today laboring people are highly organized and enjoy a good etandard of living. Their prosperity has made them enthusiastic consumers of the production of a highly organized indus- trial complex, and we have a dynamic economy that is preponderantly niiddle class as a result. On the other hand, laboring people are also consumers of the pro duotion of a poorly organized economic segment-agriculture-and PAGENO="0077" 73 thus we have what is known as the cost-price squeeze. Productive efficiency alone is not enough for the farmer when he has no power in the marketplace. FAMILY FARM IS EPRIGIENT The American farmer is tremendously efficient. On the average he produces enough food and fiber for himself and 37 others. His produc- tion efficiency has become the envy of the world. This is the story of the family farm. What the family farm has lacked is the ability to command a fair price for its production. This is not entirely their fault. Proponents of corporate farming say bigness is the answer to all of agriculture's problems, which includes commanding an adequate price for agricultural production. Some Government planners appear determined to destroy private enterprise in agriculture and to encourage farming on a gargantuan scale. The technological revolution is only a part of the story of what has happened in American agriculture. In 1950 there were 8 million farms-mostly family farms-in the United States; by 1960 only 5 million remained, and today there are only 3,176,000 left. FOOD SUPPLY WILL BE ENDANGEEED Chairman W. B. Poage o~f the House Agriculture Committee said recently that "our whole food supply will be endangered if we do not restore to agriculture prices which will enable farmers to stay in business and produce abundantly * * ~. P~ssibly four great farming corporations might well be able to produce all the food and fiber we need, but they would certainly never do it for anything like the small percent of the consumer's disposable income which between 3 and 4 million farmers are now getting." EFFECT OF CORPORATE FARMING ON PRICES There are those who advonate a cheap food and fiber policy for America. They like the abundant productive ability of the family farm and they encourage even greater production. Giant corporate farms will be able to produce in abundance,, too. No one denies this. But with the takeover of American agriculture by these giants will come the organization of agriculture's labor force, control of supply and mar- keting of agricultural production and the setting of agricultural prices on all commodities based on cost of production, return on invest- ment and a profit for the corporation. The result of all this, of course, will be higher prices. Maybe these prices will be fair and accepted by the consumer, but in any case, food and~ fiber will cost the American consumer more. His dollar will buy less meat and potatoes. He will feel the effect of corporate farming on his pocketbook. The IBAA believes that farmers, like rural bankers, must compete in today's market in order to survive. We believe that competition is the great regulator in our society, and that the public interest is best served when there are many economic units competing against each other for the money the public spends. There are many ways that competition can be destroyed. One is PAGENO="0078" 74 through Government ownership of the means of production and dis- tribution. Another is through concentration of business enterprises into monopolistic organizations that can control the market. The point is that before competition can prevail, rules must be enforced to assure the opportunity to compete fairly. Independent bankers have been quite successful in maintaining a competitive climate for their industry. They have supported the anti- trust laws and have sought judicial interpretations to assure that the giants in the industry could not destroy fair competition and gobble up the smaller institutions. ESTABLISH FAIR GROUND RULES The least our Government can do is to take measures to assure that public policy does not give the advantage to large-scale operators, and that rules are established that permit the family farm to compete. Our association is concerned about the tax law which permits corporations or investors who are not primarily engaged as farm operators to take advantage of tax loss deductions against income produced from non- farm enterprises. Senator NELSON. Does your organization take a stand on that exact point? Mr. DuBois. We do not have a resolution to that effect, but a com- mittee is studying the issues. We bankers recognize that with the ground rules fairly established, then it is up to us to compete in the market. Just as we believe that opportunity must exist for all sizes of banks2 we also believe that such opportunity is equally important for all sizes of farms. I do not say this because I think the farmer has a right to have his cake and eat it too. The farmer, like the rest of us, has got to be worthy of his income, and to make the adaptations which our modern, complex econ- omy requires. But just because the American family farm has not become union- ized does not mean that it should be trampled out of existence, as some economists and others advocate. The family farm is not obsolete. Rather, rural society is merely unorganized and fragmented. We do not want to turn back the clock, or to stop it from running. But neither will we sit back and permit our farms and towns and banks to be eroded through someone else's greed or apathy. Indeed, we must change in rural America. But by change we do not mean abandoning the good things which we have worked so hard to build. The value system in rural America has its roots in agriculture organized on a family basis. Not all of us may choose to live in rural America, but one of the values which Americans cherish is the right of choice. The IBAA believes that the concentration of landownership is a step backward, if Americans still believe that political and eco- nomic freedom are worth preserving. LOSS OF P1~OPLE This Nation has been losing its farm people for the last 20 years. It is now apparent that our Nation finally sees the evil of encouraging PAGENO="0079" 75 migration out of rural areas into crowded metropolitan centers. We have begun to see the need for maintaining a dispersion of people throughout our Nation. Rural people and communities are important, and needed in America. We have begun to understand that excess migration into the center cities has finally caught up with us as we experience most serious civil and domestic problems. A trend is developing not only to hold people still living in rural America, but also to find ways of returning them to the farms and small cities across our Nation. Intensive study and planning is under- way to devise ways and means to create whole new cities; cities designed to provide ample room, modern facilities, and controlled living. The studies also look into revitalization of existing smaller communities. This important trend toward betterment in rural America will be dealt a severe blow if giant corporate farming becomes the order of the day. This type of farming will remove a great deal more farm people off the land and strike a death blow to many in jobs and busi- nesses serving the family farm and the rural community. Corporate farming doesn't require a large work force. Instead, it uses giant machines and machine specialists who move from one area to another as crop seasons vary and needs exist. As a result, the farm family and farm facility and its service center are gone, never to return, and our metropolitan and urban areas become more crowded and complex and their problems more serious. If large corporate farming becomes predominant, it will eliminate the need for many main street banks and businesses, schools and churches, and municipal facilities. Acceleration of corporate farming will increase migration and add to the problems of our central cities and urban areas. CONCLUSION In conclusion, I would like to affirm on behalf of the IBAA that the family-owned, family-operated farm has proved itself to be highly efficient, productive, and capable of meeting the Nation's needs for food and fiber. The IBAA believes that a family-type agriculture is preferable to the corporate factory-type farming operation. The IBAA believes that a system which permits a family farm in rural America to prosper results in a better society, a better community, better schools, well-attended churches, more opportunities for small businesses, and a more sound rural economy, with continuous benefits economically and socially to this Nation and its security. The IBAA believes in laws that provide ground rules to permit the continuation of family farms and rural communities across America and the dispersion of people in a more healthy and vigorous environment. I'm appreciative, Mr. Chairman, for your invitation to permit us to appear here today, and I'm honored that I can speak for the mdc- perident Bankers Association of America. Senator NELSON. Mr. Pu Bois, we're very pleased to have you come here today with Mr. Kirchner. (The supplemental information submitted by Mr. DuBois follows:) PAGENO="0080" 76 SUPPORT OF THE FAMILY-SIZE FARM (Resolution adopted at the 26th annual convention, Independent Bankers Association of America, Denver, Cob., May 25, 1960) Whereas, the independent family-size farm together with the independent community banks and small business organizations form the economic backbone of our country and cannot survive in an economic atmosphere dominated and controlled by monopolistic merger-minded giant corporations and other mo- nopolistic management-serving organizations; and Whereas, much of the present financial problems of the independent family- size farms are due to inflation and restrictive marketing and processing prac- tices and not to the alleged inefficiency of small unit farming operations: Now, therefore be it Resolved, That the Independent Bankers Association in convention, duly as~ sembled, do hereby support all sound local, state or Federal anti-trust legisla- tion, economic plans or regulatory actions that will strengthen our independent American system of family-size farming without regard to partisan politics. OUR WILL-O'-THE-WISP PROSPERITY (Position paper adopted at the 31st annual convention, Independent Bankers Association of America, Hollywood, Fla., April 10, 1965) Should the disaster of the Thirties seem remote in these Soaring Sixties, re- member that the lengthening shadow of the Great Depression went unnoticed as America danced its way through the Roaring Twenties. Depressions have always had their beginning at a peak of prosperity, and they always are farm-led and farm-fed. It is now apparent that the mistakes of the Twenties are being repeated.. Commercial banks are loaned up to historically high levels in ratio to available deposits. The easy money of the Sixties has made us a seemingly Affluent So- ciety and we are now reachin.g for the Great Society. NEW SHADOW But those who see a bright future for America apparently are not aware of a new shadow that has crept over the horizon. The most significant feature of the American economy today is this: rural banks cannot much longer continue to supply the credit needs of rural America Since 1951 farmers have been using credit as a substitute for earned income because of depressed agricultural raw material prices. With the inception of its agricultural research program 31/2 years ago, The Independent Bankers Association has warned repeatedly that such cretht could~ not continue indefinitely. The Association has urged that action be taken to revive the economy of rural America before the point of no return was machod,. but the downward drift has been allowed to' continue. The Association now finds it necessary to caution its member banks to be con- cerned with the quality of their loanable assets. Country bank loans to farmers' are dangerously close to deterioration. The IBA is not alone in Its concern.. At the recent convention of the American Bankers Association, the ABA. urged a retreat from easy credit. In a convention resolution the ABA said "it is difficult to find justification for the degree of ease which now prevails in credit markets." Insurance companies and large as well as small lenders are voicing the same caution. Similar experiences are being reported by the Production Credit Asso- ciations and by the Farmers Home Administration. It has been said that un- less corrective action is taken soon, the FHA will one day be known as the grave- yard for bankrupt farm loans. UNOEBTAIN VALUE First-hand experience of bankers throughout rural America shows farmers' holding assets of uncertain value which appear to support bank loans as col- lateral. The farm borrower continues to demonstrate excellent Integrity. But PAGENO="0081" 77 his house falls in when his integrity and assets are measured against the profit entry on his operating statement. There just isn't enough left to make a dent in his debts. In case after ease, depreciation transfers are completely used up in paying operating expenses or providing food, clothing and other bare esesntials for the farm family. Rural bankers believe we have been building our economic future on a weak foundation. Our facade of prosperity has been achieved at the expense of the producers of agricultural raw materials. We have not constructed true economic wealth at all, but a will-o'-the-wis~ prosperity in which s~ome segments of the economy have been fatened by feeding upon another. Since the land represents the beginning point of our country's wealth, such prosperity can only be temporary. It will eventually fall of its own weight. In the absence of adequate profits in agriculture, essential to reduction of ever- increasing debt, the time approaches when banks will have to terminate credit availability to thousands of farmers in rural America. This will force liquida- tion of numerous farm units and subsequently the destruction of thousands of rural businesses that serve farmers. One result will be the loss of a market for an important portion of our total output of goods and services. This indicates a cutback in industrial production and an increase in unemployment, Whatever gains can be made through the Ad- ministration's antipoverty program will be more than canceled out by the in- ability of the rural population to earn a living. COST-PRIOE SQUEEZE And remember-some 30 per cent of the United States population lives in rural communities of 2,500 and under and on the farms surrounding them. Because net farm income has declined while the income of other segmenta of the economy has soared to record levels, the farmer has been caught in a cost-price squeeze. The result has been a drop of more than three million in agricultural employment since 1949. This would seem to have been the source of `a large percentage of the total unemployment today. It is now contributing more to the poverty of the nation than any other single factor. OVERLOOKED OBVIOUS ANSWER In the face of this, the prevailing economic philosophy calls for the elimina- tion of 21/2 million additional farmers. These would not just be the "little in- efficient farmers." They would be a broad category of farmers-large and small `alike. We have appareriJtly overlooked the most obvious answer to the unemploy- ment problem. An expanded rural economy would slow down the out-migration o'f farmers. It would create an expanded rural labor force, both on the farm and in the rural communities'. Government figures show that the largest pocket of poverty in America `today Is in the rural areas. The farmer is in a state of economic depression because he is no't getting a fair price for his production. That is, farm raw material prices are not in balance with the prices o'f other segments of the economy. The situation has occurred not because of any inexorable laws o'f economics, but because important political and business interes'ts have served to gain from maintaining farm raw material prices at depressed levels. Our profit-starved rural economy has been dependent o'n massive doses of credit every year stncS 1953. This credit will one day have to be repaid. When we do this we will deprive the market in some future years of the in- come necessary to consume our annual production `at a profitable price level. The farmer has been using credit to keep his head above water. His bor- rowing `always is in anticipation of future profits, but the sad fact remains that repayment often is made from liquidation of assets accumulated in prior years. There Is a limit to the amount of credit that is available in the United States. Expanded credit cannot much longer serve as a substitute for adequate earnings In agriculture. Ten thousand banks collapsed between 1931 and 1934 because of the neces- 95-253-68-6 PAGENO="0082" 78 sity for rural bankers to withdraw loanable funds from agriculture. The rea- son the bankers were compelled to colleet farm loans at an accelerated pace was severe underpayment for agricultural raw material production. PREVENT CATASTROPHE To prevent a repetition of this catastrophe, we recommend that the federal government give the same attention to farm prices that it has given to civil rights, the war on poverty, tax reduction and other priority measures. If farm prices are restored to relative balance with the rest of the economy, we can achieve a huge bonus of output and income by making full use of all of our resources and raw material, human and financial. We can provide full employ- ment, full plant capacity, balance the budget and commence retirement of the na- tional debt. ECONOMIC IMBALANCE IN RURAL AMERICA (Resolution Adopted at the 34th Annual Convention, Independent Bankers As- sociation of America, Houston, Tex. April 6, 1968) Whereas, the Agriculture-Rural America Committee of the Independent Bank- ers Association of America has for the past seven years been making an extensive study of the problems of rural America and has found that a prosperous agricul- ture is essential to continued prosperity in our total American economy, and Whereas, despite the importance of agriculture, the farm segment of our econo- my has been sacrificed for the other economic segments, and Whereas, in 1967 the American farmer was called on to increase production as a matter of fulfilling U.S. Government projections of increased needs for domestic and foreign markets, without being assured parity of price protection, and Whereas, the market for the increased production failed to materialize and prices fell to disastrously low levels as our domestic markets became saturated, and Whereas, it is now recognized that farmers are entitled to more bargaining power and legislation on this subject has been proposed, and Whereas, the exodus from rural to urban America has caused crowded condi- tions in our cities resulting in extensive need in the area of public facilities, law enforcement, education, transportation, urban renewal and social problems, and Whereas we continue to have excessive unemployment and underemployment in rural America and rural poverty is widespread and acute: Now, therefore be it Resolved, That the Independent Bankers Association of America urges' that the Congress and the Administration give the problem of agricultural income a priority position among national issues, with the aims of restoring farm prices to relative balance with the rest of our economy; and be it further Resolved, That the Agriculture-Rural America Committee make a study of proposed legislation to enhance the bargaining power of the farmer; and be it further Resolved, That the Agriculture-Rural America Committee make a study of proposed legislation that would promote industrial expansion and development of rural America, and prepare testimony in support of legislation that would help to restore rural America to balance with the rest of our economy; and be it further Resolved, That the Independent Bankers Association of America re-affirms its official position on agriculture originally adopted at the 31st annual conven- tion on April 10, 1965, and re-affirmed at all subsequent annual conventions of this association. T~z INDEPENDENT BANKERS ASSOCIATION OF AMERICA POSITION ON AGRICULTURE The need for effective action to end discrimination against the American farmer and rancher prompted the Independent Bankers Association of America to form its Agriculture-Rural America Committee in 1961. The goal of the com- mittee has been to study the problems of rural America and to convince others of the plight of our rural people and of the rural economy. The committee found during its seven years of study that credit has been used PAGENO="0083" 79 as a substitute for profits in agriculture for many years. Our profit starved rural economy has been dependent upon massive doses of credit every year since 1953. This iorrowed money must some day be repaid, and when that time comes our country will be deprived of the tremendous buying power that has been made available through the injection of credit into the rural economy. Our American farmers and ranchers are financially hard pressed. They have borrowed heavily for the past 15 years in anticipation of future profits, which have failed to materialize. Often the borrowed funds have been repaid from the liquidation of assets. Farm prices have now fallen to their lowest level since parity figures were started in 1937. Our government has been controlling and administering farm prices for many years. Farm prices have been intentionally lowered by our government in order to provide the consumers of our country with more funds to spend for manufactured goods. This action has, in effect, subsidized both our consumers and our industries at the expense of our rural people and the rural economy. The human and financial resources of rural America are being depleted at an alarming rate. In the past 15 years the number of people employed on our nation's farms has dropped from ten million to just over five million, an out migration of almost one-half of our farm workers. During these same 15 years the number of farmers has dropped from 8.5 million to just over 3 million. Farm operating loans have deteriorated due to the lack of profits in agriculture. What started out to be a short term loan has turned into a long term loan with a workout problem. The solution to the problem for many has been to sell out and quit farming or ranching. Many of our nation's farm economists favor the elimination of many more of our nation's farmers. Some economists feel that as few as 500,000 farmers and ranchers could produce all of our nation's farm products. These people would like to see another 2,500,000 farmers and ranchers forced from the land. If these additional people are forced to leave the farms they will only add to the untrained-unskilled millions who are already crowding our urban slums. The roots of urban poverty grow from a rural America that is not able to attain sufficient profits from the production of its products to retain its people. Our nation's farm organizations, up until this time, have failed to attain either sufficient size or scope to control the prices that they receive for their products or to control the production of their products sufficiertily to control price. Our Committee feels that farm problems will continue to plague our rural people and the rural economy because there is no long range program for agri- culture. Agricultural programs are adopted and they are administered for the short range only. It seems to be the intention of our government to continue to use the farm segment of our economy as a `scapegoat' for the other segments which have prospered for many years. Our government is continuing the cheap food policies which have led to the present situation. We feel that our country lacks true economic wealth. We feel that we can only have temporary pros- perity as long as other segments of our economy are feeding upon our agricul- tural economy. Such a temporary prosperity must eventually fall of its own weight. The continuing and fostered exodus of more and more people from the farms and ranches and rural communities of our country will put more and more industrially urtirained rural migrants into the slums and ghettos of our nation's cities. The Agriculture-Rural America Committee of The Independent Bankers As- sociation of America feels that to solve the problems of American agriculture our government must give top priority to the raising of farm prices. The levels of these prices must be sufficient for our farmers and ranchers to attain a standard of living that is commensurate with the rest of our nation's people. Farm prices must be high enough to provide the profits that are necessary to allow for capital investment in agriculture, exclusive of inflationary gains. They must be sufficient to provide the profits necessary to service the operating debts that already have been accumulated. Long range programs must be adopted that will attain and maintain a con- tinuing parity of Income for agriculture, an income sufficient to attract long range capital to be invested in agriculture. PAGENO="0084" 80 Finally, farmers and ranchers should iiot be asked to increase the production of agricultural products unless and until the government can guarantee that the extra production can be used and marketed at profitable levels without caus- ing future drops in prices. [From ~U1ie Wall Street Journal, Aug. 9, 1967] FARMER BROwN INC.-PROMISE OF PRoFIT LURES MORE Bia CoRPoRATIoNs INTO MASS AGRICULTURE; SOME SAY "FACToRY" METHODS CAN LOWER FOOD PRICEs; MANY FAMILY FARMS FAn~; TIME-MOTION IN THE CORNFIELDS (By John A Prestbo) KANSAS Crry.-OBK Industries Inc. has decided to get out of the women's apparel business. Also the foreign film, asphalt and label-printing businesses. Instead its taking up the unlikely business of farming It wasn't nostalgia for the soil that prompted executives of the Kansas City- based conglomerate company this year to begin swapping CBK s sundry manu facturing and distribution facilities for corn and soybean acreage. They are simply searching for bigger profits, and they expect to find them In farming. This may sound surprising at a time when farmers complain bitterly about low prices for their products and when financial failures are steadily reducing the number of U.S. farms. But a growing number of companies are joining CBK in committing all or part of their resources to farming for profit. The trend i.s based on a belief that labor-saving machinery and potent new fertilizers and pesticides now make it possible to produce crops in greater quan tity and at lower cost than ever before-for those who have the money or credit to buy good land and sophisticated equipment and the know how to use them efficiently CBK says Its studies show that cost conscious management of commer cial farming operations could reap profits "well above the average on Invested capital." FADING FAMILY FARMS Some farm economists say the recent growth of corporate involvement in farm- ing `is just the start of a broad-scale conversion of agriculture to a profit-oriented industry. They foresee the day when the old family farm will fade into extinction and corporations will mass produce the nation's food as efficiently and imper- sonally as they today produce its autos and vacuum cleaners. Federal farm planners say privately that eventually the U S will need only about 500 000 `farms, compared with today's 3,176,000, and that the farms will be big, factory- like operations. One beneficial effect of corporate farm management, companies claim, is that food prices will be held down as cost savings from automation and mass pro- duction are passed on to the consumer. But the trend has its negative aspect too. Independent farmers, many of them tied by generations of tradition to their family farms, see themselves being forced off the land `by the thousands. The independent farmer typically has neither the capital nor the technical and business know-how to compete with the vast resources of corporations that go into farming, though a few of the more successful independents are now incorporating themselves. JUST LIKE RUSSIA? Feeling against corporate farms runs high in many farming areas The Spring field (Mo.) Leader and Press in a recent editorial equated corporate farms with the state farms of the Soviet Union. Some farmers believe corporate farms should be outlawed In North Dakota the state legislature earlier this year abolished a law that had prohibited farming by corporations in the state since the 130's. But the North Dakota branch of the National Farmers Union aided by a wing of the state Democratic Party suc cessfully circulated petitions to get the measure before voters in the 1968 general election. Political and legal fights also are shaping up in Kansas and Oklahoma over corporate operations in agriculture. In WasbinSton, some farmer lobbyists are seeking Federal laws that would restrict corporate farm activity while providing cheap loans and higher price supports to bolster independents. PAGENO="0085" 81 There seems to * be little chance of stopping the trend to corporate ownership, however It s already well established in some segments of agriculture and it S rapidly spreading to others About 40% of the estimated 2 7 billion broiler chickens to be produced in the U S this year for instance will come from highly automated factory like farms run by a dozen big corporations such as Ralston Purina Co Pillsbury Co Swift & Co and Textron Inc Similarly big canners like Minute Maid Groves Corp a subsidiary of Coca Cola Co and Libby McNeill & Libby now own an estimated 20% of Florida s citrus groves compared with less than 1% in 1960. Many companies until recently limited their farm operations to such lines as egg, poultry and cattle production, which can be automated and systematically organized with relative ease. But new machines and chemicals that boost the yield of heretofore low-profit row crops like corn and soybeans! have prompted companies to begin growing them as well. 9,000 ACRE5 OF POTATOES Many companies have entered agricultural production as a supplement to their main operations Food packers for instance increasingly are setting up their own farms to assure a constant supply of raw materials of reliable quality H J Heinz Co through a subsidiary of its Ore Ida frozen potato products divi sion, planted 9,000 acres of potatoes in western Oregon last spring. Some grocery chains, similarly seeking a steady supply of meats, dairy prod- ucts and eggs of consistent quality, are deciding they can produce these things best themselves Godfrey Co operator of a Wisconsin retail food chain is build ing an "egg factory" 35 miles southwest of Milwaukee that will start out with 180,000 laying hens next spring. Godfrey also plans to grow 600 acres of corn to help feed the hens~, and a spokesman says both operations will be expanded greatly in the next few years. Increasingly however companies with no agricultural connections are going into farming strictly for profit. Textron, a widely diversified maker of products ranging from pencils to helicopters bought Into the broiler chicken industry by acquiring Caroline Poultry Farms Inc in 1963 Gates Rubber Co a Denver based tire maker started a highly automated chicken farm to produce eggs seven years ago its hens now produce 300 000 eggs a day More recently Gates has bought three Wyoming ranches that raise 18000 head of cattle The company says its planning to start more egg factories else- where in the country and is "looking at other agricultural opportunities." OBK Industries turned to farming because it was having trouble competing with bigger conglomerates in acquiring small companies with good earnings po tential according to J R Dominick II president The systematic fashion In which CBK is setting up its farm operation illustrates the consciousness of bust ness management techniques that companies are bringing to the farm CBK s changeover began this summer with an exchange of the stock of its film distribution division for 10000 acres in southern Texas some irrigated and al ready growing corn and nub Mr Dominick says CBK plans to own 20 000 acres by the end of the year and to increase its total farm acreage to 80000 witlnn five years The land will be scattered from Texas to Minnesota Half will be owned outright and the rest leased on a long term basis The changeover to farming has caused CBK to run at a deficit so far this year Income from its manufacturing operations has dwindled as they are sold off while its newly acquired farmland isn t yet in full production Though the company is confident its farming operations will prove profitable in future years stock brokers and investment analysts for the most part regard the new venture as highly speculative Farming continues to be sub)ect to such van ables as weather and widely fluctuating prices that can affect the size and profit ability of crops The company expects to begin broad scale argricultural operations next year Mr Dominick says Its land will be divided into 10000 acre units each supervised by a resident manager paid $6 000 to $9 000 a year Working for each manager will be four other men whose families also will live on CBK land A superm tendent with a college degree or equivalent agricultural experience will oversee two or three such units' at a salary of up to $18000 Mr Dominick says several farmers have offered to exchange their land for CBK stock and work for the company as managers or superintendents. PAGENO="0086" OBK workers will operate their field equipment 24 hours a day during crucial. periods such as planting and harvesting. Machines will be moved from farm to farm, following the planting and harvesting seasions as they move from south to north. Mr. Dominick says. To ease the impact of price fluctuations, CBK plans to build storage facilities on and near its farms so that it can store grains during periods of low prices and sell them when prices improve. TIME-MOTION STUDIES For the present, CBK is running tests on 1,300 acres near Butler, Mo., to test varieties of seeds, fertilizers and pesticides. It also is making time-and-motion studies on farm operations. Data from the experimental plots will be used in planning the start of commercial farming next year. Another company that specializes in farming is Midwest Farm Corp., formed by a group of farmers and businessmen to grow corn on eastern Iowa acreage. It is farming nearly 1,000 acres this year and plans to expand to 2,000 acres in the next year or two, produces a high-quality corn that brings a premium price from food processors. Economist Lester Kellogg, an adviser to the company, says a profitability study concluded that Midwest could earn after-tax profits of 12.1% on shareholders' equity the first year and 18% in the sixth and later years. SOME PRICE DROP ALREADY There's evidence that the entrance of corporations into agriculture already has caused some food prices to drop-though corporate farms probably will pro- duce only about 5% of the $43 billion worth of livestock and foodstuffs that will be marketed in the U.S. this year. Fierce competition among companies that raise broiler chickens has helped reduce the price of ready~to-cook chicken to 29 cents a pound in some cities, compared with 47 cents 10 years ago. New corporation-owned orange groves in Florida helped produce a record orange crop last season that caused the price of a 6-ounce can of frozen orange juice to drop 7 cents below the average of 18 or 19 cents a decade ago. Independent farmers and their trade organizations contend, however, than any price decreases will be only temporary. They argue that if the trend to corporate farming continues, eventually a few giants will control the farming industry, cur- tailing competition. "Whoever heard of reduced competition lowering prices ?" asks a lobbyist for one farm group. [From the Independient Banker, October 1967J LETTER TO "WALL STREET JOUBNAL"-CORPORATE FARMS-No ANSWER TO AMERICA'S AGRICULTURAL Cnrsis Editor's note: A recent Wall Street Journal article ecetolling the virtues of oorporation farming did not please the Agrioultural-Rural America Committee of the Independent Bankers Association of America. The committee has worked for years to preserve the family farm by obtaining a fair income for farmers. The Journal article quoted "federal farm planners" to the effect that America needs only 500,000 farmers to produce all of its required food and fiber. This was too mach for the committee, recogniceing that the vast majority of IBAA member banks are ia small, rural communities. Don P. Kirch- ner, a member of the committee and president and cashier, Peoples Trust and Savings Bank of Riverside, Iowa, volunteered to write a rebuttal to the Journal article. Mr. Kirchner's letter to Journal Editor Vermont Royster follows: Your front page article, "Farmer Brown, Inc.," has drawn much attention. Your reporter, John A. Prestbo, obviously is not very familiar with the problems and the ways of the American farm. As a country banker and a member of the Agriculture-Rural America Committee of The Independent Bankers Association of America, I am In close daily contact with farmers and their problems. Neither the facts nor my direct experience su~bstantiate Mr. Pres'tbo's conclusions. PAGENO="0087" 83 FARMER IS EFFICIENT Mr. Prestbo points out that corporate farms, using labor-saving machinery and fertilizers, will produce crops in greater quantity and `at lower prices than ever before. Does `he think that the American farmer is still using horses to till the land? The American farmer has been told by his government for many years that he must become mechanized and efficient. He has done this. Each farmer now pro- duces enough food and fi~ber for himself and 87 others. He has been able to do this only with the use of sophisticated machinery and equipment, fertilizers, and technology. These, together with his willingness to expand the size of his operation, have brought to American agriculture an efficiency that is admired and envied throughout the world. DROVE PRICES DOWN In 1950 there were 8 million farms in the United States. Through administra- tion of a government "cheap food policy," by 1960 only 5 million remained, and today there are only 3,176,000 left. In the early 1960's the farmer was told that we had a tremendous surplus of farm products. He was told that before farm prices could be allowed to increase, the surplus would have to be eliminated. By cooperating with the federal government in its farm programs, the surplus of the 1950's was eliminated. Then in place of letting farm prices rise so that the American farmer could live on the same standard of living as the rest of our people, the government has used every power at its disposal to keep farm prices low. The government has inten- tionally dumped grain on the markets to lower prices, has allowed increased meat imports to force beef and pork prices down, and has advised consumers not to buy meat products. Also, to top all of this, the government increased 1967 acreages of feed grains and wheat sufficiently to cause another surplus so that prices could again be forced down. Our government has been very successful. Corn, which two months ago cost the livestock feeder over $1.35 per bushel, is now bringing less than $1.10 on the farm. Soybeans, which were worth $3 per bushel at harvest time last October, are now worth only $2.50 per bushel. Wheat prices have gone the same route. LOSE FAMILY LABOR The American farmer has done everything in his power to try to raise his~ standard of living. He has increased the size of his operation. He has developed management ability. Farming has become a business enterprise but to no avail. The "cheap food policies" of our government are continually administering prices at a level where the farmer and the rancher are forced to live as second-class citizens. The family farm of `today has the entire family working-the farmer, his wife and his children, all trying to make one living. The corporate farms, which Mr. P'restbo advocates, will have to pay their management and their labor a living wage, and the labor's wife and children will not be available to work for nothing. This, in itself, will increase the cost of production. Today's farm machinery will only do a given amount of work before it is worn out. Machine cost per acre cannot be greatly reduced. The broiler chicken industry is used in his article to prove that corporate farm- ing is a good thing. It must be pointed out that there is no profit in the broiler industry, as such. These large corporations which grow the broiler chickens are only interested in the profits derived from the sale of their own feed. The same thing has happened in the turkey industry. Mr. Preatbo also uses the commercial cattle feeding operations as an example. These operations have lost money during the past year as they must pay their labor and management a living wage. They cannot continue to lose money over a long period of time without going out of business, and they will never be able to compete with the "family labor" of the present American farm. The food chains are circulating prices among themselves daily, which resulta in control of meat prices. Various cattlemen's associations in the West are now in the process of starting a civil suit against the chains for fixing prices. We have laws that were designed to prevent price fixing, but the Justice Department haa not taken action for fear it would tend to raise food prices. PAGENO="0088" 84 Mr. Prestbo states that "federal farm planners" say that we need only 500,000 farmers to produce all of the food and fiber for our people. I wonder if it occured to him that the 2% million farmers that are now to be foi~ced off of the land may include the most efficient and the hardest working farmers? That the 500,000 that will be left may be those with much capital but no desire or incentive to' produce farm products? YOUNG PEOPLE LEAVING FARMS The average age of the American farmer is now 59 years. There has been no incentive for young people to start farming for almost 20 years. We must have young people enter farming as a profession. We must see that there is sufficient profit Incentive in farming so that the American farmer can live on the same standard of living as his city cousin. We must make every effort to convince government officials that the producers of agricultural products are not receiving a fair share of the consumer's dollar. The farmer s share of the food dollar was 46 cents in 1947 and is estimated to drop to 32 cents in 1967. Farm prices are lower today than they were 20 years ago, yet production costs have increased 35 per cent. Food is a bargain, only 17.6 cents of each dollar of personal income, after taxes, goes for food, compared to 25.7 cents 20 years ago. Just because the American farm has not become unionized does not mean that it should be trampled out of existence. We must get the food chains and the meat packers out of the feed lots, as they are not interested in farm profits, but only in controlling prices. Very truly yours, Dox F. KIRCHNER, President and Cashier Peoples Trust cf~ &ivings Bank Rwerside Iowa [Reprinted from the Independent Banker] Tuu PARADOX OF Low FARM PRICES (By Don F. Kirchner) (Don F. Kirchner, president and cashier of the Peoples Trust and $avings Bank, Riverside, Iowa, is a member of the Agriculture- Rural America Committee of the Independent Bankers Association of America. He was raised in a small Iowa farm community, was Graduated from Hamilton College at Mason City, Iowa, and attended the E~1tate University of Iowa. He entered banking in 1951 as cashier of Peoples Trust and ~a'vings' Bank at Riverside. He has' concerned himself for many years with the problems of the farmer and the rural community.) The performance of American agriculture has been outstanding. It has been far greater than that of any other major industry and far exceeds that of agri- culture in most other countries. The American farmer deserves the praise of all for his tremendous progress and his efficiency. Instead he is often blamed for high food prices and criticized for the federal aid given him in an effort to counteract the side effects of hi's unique ability to produce so much. Farmers seldom have been rewarded adequately in proportion to their contribu- tion to the rest `of the people in this country. The advance in food prices hais been very `small in a time of high over-all price increases. Thus, farmers have made a great contribution in combating inflation. They have provided people to man our industries, `and the things they buy sup- port millions of people in industry. Their food products aid our foreign policy and keep million's alive in the under-developed countries of the world. Peoples around the world look to American agriculture `to learn how to speed up develop- ment `of `their `own food supplies. STARVATION THREATENS Food is `so plentiful and so cheap in relation to income that few in the United States really worry `about hunger. But this is `one `of the few places on earth where `ab'undance is a fact. Somewhere between onehalf and two4hirds of `all the people in the world go' to bed hungry every night. PAGENO="0089" 85 Starvation is the oldest threat to mankind. Today, people are starving in the famines of India, Africa, and Latin America. Recent projections of `six billion people on earth within 30 years have raised new fears for the population to out-run the food supply. NEED PRODUCTION EXPANSION The advance in American farming has been very pronounced. A Roman peasant would have felt right at home on the American farm of a century ago. He would have recognized the `pitch fork, the syth'e, the hoe, and many other tools used at that time. He could have stepped right into a farming job. He could step ri~ght into a farming job in many countries of the world today! The changes of the American farm over the past century have astonished the world. More progress has been made than in all of the thousands of years of previous agricultural history. And the pace is speeding up with each passing year. A look `ahead at the next 10 years points the way to continued rapid growth in farm size and productivity. The population of the United States will increase by more than 32 million people. We will b'e selling more abroad, too. The `combination `of more volume and better demand could mean 00 percent more in farm sales for farmers. Each additional `million people will require another 172,000 beef cattle, 25,417 dairy cows, 433,000 bogs,, and 1,300,000 hens at today's `consumption rates. A population increase of 21/2 million people per year will call for steady expansion of livestock numbers if we are to sustain our present level of nutrition. FARM PRICES RETREATED The past 20 year.s have brought a steady increase in the price of almost every- thing people buy. B'ut the money the farmer receives for a unit `of grain or live- stock has virtually `stood still-or even retreated a little. The result h'as been a major "gift" to every consumer in the United States, year after year. Food has cost far less than if the prices `the farmer receives had m'oved along with the rest of the economy. The farmer has' been able to' operate in the face of steadily rising costs only by becoming more efficient. The figure's, based on USDA data and other Government `~ourc'Os, tell the story: Crop production per man hour, up 148 percent; livestock production per man hour, up 149 percent; crop production per acre, up 124 percent; livestock produc- tion per breeding unit, up 111 percent. The greater the production, the lower the cost. Rec'o'r&breaking production, year after year, h'as heliped to bold the food price line. An important contribution ha's been made `to the entire national `ec'on'omy in combating inflation. And agriculture has a be'tter `record in terms of holding the price line than any `of the `other industry groups. PRODUCES FOE 37 One of the main causes of inflation is a shortage of labor. When wages climb to attract workers, the `speed of the inflationary spiral zoom's `ahead. In the past 15 years, the number `of `people em'pl'oyed in agriculture ha's dropped from 10 mil- lion to just `over 5.5 million. The millions of worker's released have assumed an important place in our industry and distribution system's. Today, one U.S. farm worker with the aid of modern industry supplies food and fiber for 37 others. In 1950 there were 10 million farm workers; in 1955, this figure dropped to 8.3 million; by 1960 it bad dropped to 7 million, and by 1965 it bad dropped to 5.6 million. FARMERS DIDN'T SHARE BENEFITS While prices `of the food you buy and most other commodities have been surging `ahead, the average prices o'f our farm pr'oduct's `have been declining. Farmers have not reaped the benefits of their own efficiency. High levels of production have tended to over~supply the markets. The increasing importance of marketing service's and costs is reflected by price increases at the supermarket. The index of wholesale farm prices stood at 106.4 in 1950 (using 1957-59~100). Fifteen years later that index was down to 98.4. By contrast, consumer foo'd prices climbed from 85.8 to 108.8 during the sam's period. S'o'me `comparisons are shown in Table I. PAGENO="0090" TABLE I 1950 1965 All commodities Up from 86. 8 to 102. 5 processed foods Up from 92. 6 to 105. 1 Chemicals Up from 87. 5 to 97. 4 Metals Up from 72. 7 to 105. 7 Lumber Up from 94. 1 to 101. 1 Fuel Up from 90. 2 to 98.9 Machinery Up from 72. 6 to 103. 7 Farm prices Down from 106. 4 to 98. 4 These figures clearly show that farm prices in recent years have been headed in a different direction from much of the rest of the economy. WHO CONTRIBUTES MOST? Farm income has been falling behind the rest of our economy at an alarming rate. For an illustration, ask yourself this question: "Who makes the greatest contribution to the milk you pour in your home? Is it the farmer who owns the cows, grows their feed, and milks them twice a clay-seven days a week? Seems logical doesn't it? But judging from the financial rewards, the man who delivers it must be the most important. A Chicago milkman working a 5-day week averages $3.45 per hour, or $215 per week of income, or more than $10,000 per year, without an investment. The average Wisconsin dairy farmer, with a $75,000 investment in land, equipment, and livestock, averages only 75 cents per hour after allowing interest on his big investment. The comparison indicates that the dairy farmer is a long way from getting his fair share of the milk dollar. The average wage of a factory worker in 1965 was $2.61 per hour. Here are some average farm wages, after interest on investment: New York Dairy Farms $ .60 Cattle Ranches 1. 15 Corn Belt Beef-Hog Farms 1.62 Wheat Farms 1.80 You can see that the average farmer would be much better off working in a factory. And that's one reason why 41/2 million of our farmers have left the farm in the last 15 years. SHOULDN'T BLAME FARMER Any housewife can tell you that it costs more money each year to feed her family. And her average food bill has taken a particularly sharp jump in the last year, but she shouldn't blame the farmer. Only a small part of the increase in the cost of the market basket trickles down to the farmer. Out of the $157 increase since 1957-59, only $12 has wound up in the farmer's rocket. The changes have been very small that have occurred. In the 1957-59 base period, farmers received $388 out of the $938 retail price for farm origin foods. In 1966, they were up to only $409 out of $1,095. The largest dollar increase was in receipts from fruits and vegetables. Meat products were up a bit and the bakery and cereal products added $1. Dairy products, poultry, and eggs returned fewer dollars. The farmer's share of the market basket changed little over the past 10 years. INCOME DOWN-CO5T UP The bill for marketing America's food was $52.1 billion in 19435. This figure covers all of the steps in food handling between the farmer and the supermarket check-out counter. There are charges for transportation, processing, wholesaling, and retailing farm foods. This represents a major part of the money the housewife spends *for food-and it is where the great bulk of price increases in food have occurred. The marketing bill has shot upward over the past 20 years. In 1947, the total food bill was $41.9 billion. Farmers got $19.2 billion and marketing cost was PAGENO="0091" 87 $22.6 billion. In 1965, the food bill for a much larger population was up to $77.6 billion. Farmers got only $3 billion more-and the marketing cost was up $29.5 billion! REAL FOOD COSTS LOWER An hour's labor buys mere food than at any time in our history. Food prices are not as high as they seem. The average factory worker can buy more food now with an hour of labor than at any other time in history. Incomes have been rising twice as fast as food costs. This makes the real cost of food lower. Table II shows the increase in the purchasing power of an hour's factory wage between 1957 and 1965, and the percentage increase. TABLE II 1957 1965 Percent increase Tggs 3.7 doz 5 doz Butter 2.8 lbs 3.5 lbs Milk 8.4 qts 9.9 qts Steak 2.1 lbs 2.4 lbs Bread 11 lbs 12.5 lbs Pork chops 2.4 lbs 2.7 lbs 35 25 14 14 14 12 FARM ECONOMY VITAL SEGMENT Food production is America's biggest business. It is three times larger than automobile manufacturing, bigger than steel, and bigger than aerospace. The developments in this great industry may not be as dramatic as space travel, but they seem more important to the people of the United States and to the world. Farming and marketing industries not only are important because they supply food-they also represent a substantial portion of the country's business activity. What is good for farmers usually is good for the nation's economy. Production and marketing of food amounted to $77.6 billion in 1966, the automobile industry produced $23 billion, the steel industry produced $21 billion, and the aerospace industry produced $20 billion. The spectacular improvement in farm production has been achieved primarily because farmers have been willing to invest in the products of a wide range of U.S. industry. Farmers are pumping billions every year into the bloodstream of the economy. They spend nearly 70 per cent of their gross income for the inputs needed to run their farms. The capital and operating investments of the farmers benefit every sector of the American economy. In 1965 farmers purchased and spent: $3 billion for tractors and other machinery $2.1 billion for automobiles $1.6 billion for fertilizer $1.5 billion for petroleum, fuel and oil. One out of every 15 new trucks is sold to a farmer. A high level of farm efficiency is necessary to make a country prosperous. In the poor, underdeveloped countries of the world almost all of the population is engaged in the race to keep a single step ahead of starvation. There are few people left over to develop an industrial base. Back in 1880, when the United States was an underdeveloped frontier country, 85 per cent of the population was on the farm. There has been a steady drop in the farm population ever since-and it isn't over yet. Today, one farm worker, using modern technology, supplies the food and fiber for 37 people. That leaves most of the others to contribute to further exnan~inn of the gross national product. RURAL YOI~TH LEAVES The most important crop of all is harvested every spring in the farm corn- munities across the country. It is the class of high school graduates. A. very high percentage of these boys and girls immediately move to the cities to join the urban labor force. PAGENO="0092" 88 The cost of their education, averaging $6,000 to $8,000, is borne in large part by the farm community. But that community does not necessarily get the benefit of their productive years. The farm population dropped from 23 million in 195~ to 12.4 million in 19~5. That's a contribution of nearly 11 million people to the city in just 15 y~ears. Farm products have become the leading commodity exported from the United States. Exports for fiscal 1966 totaled $6.7 billion. Nearly three-fourths of this total was sold for hard dollars. The remainder was exported under various programs developed to help. hungry peoples or to further U.S. foreign policy. Farm product exports make up 25 per cent of all of the products sold abroad. One of our country's greatest problems is the balance of trade. We spend more overseas than we get back. To correct the difference, foreign countries are de- manding gold. U.S. gold reserves now are at the lowest level in this generation, and the value of the dollar is under pressure. Farm exports earned more than $5 billion worth of dollar exchange and greatly helped the nation's balance of payments. The U.S. is the world's leading exporter of farm products, with 20 per cent of the trade. Since 1954, we have shipped 145 million tons of food abroad. We now export half of the wheat and rIce crops and one-third of our soybean and grain sorghum crops One fifth of the cotton crop also goes to foreign markets One out of every four acres is harvested for people living in a foreign country~ MOiiE FOR PUBLIC THAN FARMER The U.S. Department of Agriculture budget provides more for the public than for the farmers who are supposedly the recipients of the money expended by the Department. The Department of Agriculture budget doesn't automatically flow into farmers' pockets. In recent years, about $2 has been spent for programs tha,t primarily benefit consumers, businessmen, and the genera:l public for each $1 spent to support farm income. The 1966 budget included $4.5 billion for programs of general benefit. Direct payments to farmers were only $1.9 billion. Foreign relations and de- fense objectives were backed up with $2 billion from the USDA budget last year, including wheat to keep India going and other food donations. The school lunch program and distribution to the needy took $737 million. Rural electrification and FHA loans required $279 million. These are repayable loans that help many besides farmers. Another category that aids the public is $1.5 billion of improvement of agricul- ture and natural resouces. This includes prese'rvhtio'n and operation of national forests. Land conservation protects that vital resource for the future benefit of alL Research, food inspection, and many other program.s have broad benefits for all. Price support programs are requiring less money each year. E'mptying of the surplus bins is returning money ito the Treasury. The COO's investment wbs re- duced $445 million in 1966 and is expected to drop $903 million in 1907. Out of the $1.9 billion for stabilization programs, $270 million goes for storage, handling and transportation Railroads `truckers storage firms and the grain trade get most of `this sum. While much of the remainder goes directly to farmers, it still is an investment in the niati~n~al interest. Consumers have a long-term Interest in providing farmers with a fair income so that adequate food supplies will be maintained. The weed of urban poverty, slums, ghettos, overcrowding and crime has its roots in a rural America lacking enough jobs and health and education services- the essentials needed to halt the out-migration of people from country to' city. Since 1959, nearly 200,000 farm families have moved from the $5,000 to $9,999 annual gross income class to the $10,000 and over class. This is the highest rate of "graduation" in agricultural hIstory. In terms of net income, this means they have moved from the $1,500 to the $3,333 net income class. Nearly half of the U.S. poor live in rural areas. Rural citizens `lag almost `two years behind urban residents' in educational facilities. Rural children receive one-third less medical attention than urban children. Both the ABOD Abundance Balance Conservation Development program and the COO Commodities Conservation Communities program recognized the problem `and the folly of failing to halt a trend that has crowded 70 per cent of PAGENO="0093" 89 the nation's population into one per cent of its land area. This is a migration which has crowded the urban slums with untrained, unskilled rural migrants who found little opportunity in their rural `hotnes. Nobody can afford to ignore the problems of agriculture. Farming is more than just a business enterprise operated for profit by farmers. Since men cannot live without food, agriculture is the one essential industry on the planet. It would be impossible for any of us to take so vital an industry for granted. Yet this is what we have done for many years as the granaries of America have bulged. Agriculture isn't considered a growth industry by those who keep a close watch on the stock market. As much as 90 percent of all resource inputs come from labor and less than 10 per cent come from capital in many of the less develoved countries of the world. Even as late as 1910 in the United States, labor and land represented 85 per cent of all resource inputs used by American agriculture. As economic development has progressed in the United States, just as will happen under economic growth in other parts of `the world, the price of labor has risen and the real price of capital, both in interest rates and the materials of production, has declined. Consequently, it has become profitable to substitute capital in every form for labor. This process has occurred rapidly in the United States over the past 25 years, and we are now at a place where capital represents 80 per cent of all inputs and labor represents only 20 per cent of all inputs. By 1980, capital will represent 90 per cent of all inputs' used in farming. OWlS MILLION FARMERS DY 1980? In the last 20 years the amount of capital investment that is required to gen- erate $1 of farm income has increased from $4.73 to more than $15 and the pro- portion of unpaid inputs has declined from approximately 60 per cent to 25 per cent. Cash expenditures as a percentage of cash farm income have increased from 50 per cent to more than 80 per cent. The profit margin in farming will continue low according to leading farm economists. By 1980 there will be only one million farmers left in this country. The lower 40 per cent of the farmers left in 1980 can be expected to have a capital investment of $225,000, which will provide them with a gross income of $20,000 an- nually and a net annual income of $6,000-$7,000. This amount of net income will be approximately a 3 per cent return on their investment. With a projected population of 245 million people in the United States in 1980, and a projected average per family disposable income of $11,550, the American farmer is not going to be any better off in relation to the rest of the people in this country in 1980 than he is today. In fact, he will be in an even worse position. There are five questions to be considered: Isn't it the responsibility of those who live on the farms and in the rural communities and our government to find a way to hold a reasonable number of alert, interested, and trained young people on the farms, and in the farm communities, who will provide the backbone of tomorrow's agriculture? Should not the people who reside on the farms and ranches and in the rural communities be entitled to prices on a par with other prices in the economy? (I refer back to 1952 and the price structure that was adequate, when we had 43 per cent more people living on the farms and ranches and our cities were not as congested. Should not this have been the more desirable situation?) Isn't it the responsibility of government to do what is necessary to insure fair agricultural prices for all farm communities-prices that will permit the rural economy to prosper? Isn't it unfair for some overly zealous economists to call for a program to get rid of our farmers and our ranchera-a planned evacuation of the land? (They rationalize their position by claiming that 21/4 million farms are nothing but social-economic problems.) Isn't agriculture today really, in the broad sense, made up of more than just the producers of food? Doesn't agriculture also encompass farm supply organizations? These are all components of American agriculture, and as such, should they not be singly and collectively nurtured, safeguarded and permitted to grow and prosper for what they alone and together contribute to the growth of this nation and to its stability? PAGENO="0094" 90 PUT PROFIT INTO FARMING In the year 1950 there were 8.5 million farmers in this country. Today, there are 3.3 million left. By 1980, it is projected that there will be less than 1 million farmers left. Isn't it about time that this business of forcing the farmer off of the land is halted? We must put the necessary profit incentive into agriculture to maintain farming as an industry, and provide the incentive for young people to. enter farm- ing as a means of providing their living. We must insist that the United States Department of Agriculture be admin- istered for the benefit of the farmer and the rural communities in this country, rather than to be the instrument used to force farmers off of the land. We must take action to see that agriculture receives the same status in our economy that other industries have. Senator NELSON. Mr. Kirchner, did you have further comments? Mr. KIRCHNER. I think Mr. DuBois has very well covered the subject. Our committee this year is going to delve as deeply as possible into this corporate impact on the community, what the social repercussions are, and we don't have any material at this time. IFlowever, we will as time goes on. Senator NELSON. You mentioned, Mr. DuBois, the question of cor- porations using farms for tax writeoff purposes. Did your association evuiuate this question so they would be prepared to suggest specific legislation? Mr. DuBoIs. We have spent considerable time discussing it but we are not prepared specifically at this time to propose legislation that woui'd go in this direction. This, as you well know, is a complicated matter and we would want to certainly develop the sophistication in order to make a proper and timely discussion on our position. Senator NELSON. We had testimony this morning from the presi- dent of the Farmers Union of South Dakota, as well as Iowa and Nthraska. In South Dakota they have done what appears to be quite an extensive statistical study of how many corporate farms there are in South Dakota and what the ownership is. Has any such study been made in Minnesota? Mr. DuBoIs. Yes, sir. That study is being undertaken by the Min- nesota Farmers Union at this time. I don't know whether they have completed thdir work to where they have compiled the data on it, but I know they have carried ~t on in each county. I have seen some of the statistics on Stearns County, the county I live in; and I suspect they will have it ready to submit for the record. Senator NELSON. Do you observe in Minnesota the trend toward the acquisition of large hoidin~s by corporations? Mr. DtrBois. We see in Mumesota generally a movement on the part of corporations to acquire more and more land. In my immediate area, the area that I am most familiar with, my legislative disti~igt wh'ic'h I travel in and get around a great deal, my banking area, we see the corporate farm coming in, and while the takeover hasn't been of great proportion yet, the trend is there. And one of the things they're doing is that they come in and they bid the price of land up. This dollar cost of land doesn't seem to be significant to them but it becomes very significant to our farmers who would desire to increase the size of their operation to accommodate another member of the family that rrdght be growing up and ~ho would like to stay on the farm. So the PAGENO="0095" 91 land is be~ing bid up by nonresidents, so to speak, to where it is becom- ing an increasing problem for those ~ho are residing on the land as family farmers. Senator NELSON. Does the fact that they pay much higher prices affect the assessmer~t of similar land around? Mr. DtrBois. I don't believe that there has been a noticeable effect upon the assessed value of the land as such. Certainly the land that they acquire develops a new assessed valuation when the purchase price is disclosed. I don't know that it basically is disturbing the gen- er~1 tax base thoug~h at this time. Senator NELSON. Has the Independent Bankers Association made any studies of its own on the effects upon smailtown businesses in- cluding banks where corporate farm operaLions have moved in? Mr. DiiBois. We have not specifically dealt with the effect of the corporate farming upon the smaIltown bank. We have been preparing an ongoing study of the effects of low agricultural prices on the rural community and its businesses and which, necessarIly, involves the bank to a great degree. And we see also th'a~t the poor price structure has caused the migration from the rural sector which is taking our people and which also takes, in many cases, weaftth with them. Senator NELSON. We thank you very much for your statement. Do you have an~th'ing to add, Mr. Kirchner? Mr. KIRCHNER. No, Mr. Chairman. Senator NELSON. We appreciate it very much. Your statement has been most valuable to the record, and we thank you for taking the time to come here and appear at these hearings today. We will recess for lunch for 45 minutes. (Whereupon, at 12:50 p.m. the subcommittee was recessed, to re- convene at 1:50 p.m. of the same day.) AFTERNOON SESSION Senator NELSON. The monopoly subcommittee will resume its hearings. Our first ~dtness will be Mr. Howard Bertsch, the Administrator of the Farmers Home Administration. Mr. Bectsch, the committee is pleased to have you here, and your statement will be printed in full in the record. You may present it in any fashion you desire. Please proceed. STATEMENT OP HOWARD BERTSOH, ADMINISTRATOR, FARMERS HOME ADMINISTRATION, WASHINGTON, D.C. Mr. BERTSCH. Mr. chairman, members of the committee, I deeply appreciate being asked to appear before this committee to give my per- sonal viewpoint as an observer of the current trends in agriculture and particularly of the effects of corporation farming on small busi- ness and rural America as a whole. I ain a part of the school that believes that the family farm, the smalitown merdhant, and the small rural community are threatened by the existence of large-scale, nonfarmer owned, corporation farms. I am even concerned about the threat to the family farm system that is inherent in the growth of supersized family farms. PAGENO="0096" 92 I propose that: We wake up and move against the big operators before it is too late. We place our national land policy on the same level as our national price policy. We recognize the threat in integrated farming. We recognize the threat in the supersize family farm We stop worshiping everything that is big. We give family farms the same break that corporate farms re- ceive in access to capital-in the marketplace. We alert the public to the danger of corporate farming. President Johnson, Secretary Freeman, and the Congress have taken many steps to make certain that the position of the family farm remains secure. But despite the efforts that have been made in Washmgton to bolster the family farm and thereby check the alternative system-. corporation farming-I believe the country continues to move in an inexorable manner, away from the family farm. I have the feeling, that in the years following World War II, we took a negative position about the family farm that became so firmly rooted in our thinking that recent efforts of the national leader- ship have been, to a great extent, nullified. Allow me, for a moment, to inject a bit of personal history that supports the point that I am making. During the 1950's I was out of this country a good deal of the time. I spent some 7 years in Iran. In Iran they are trying to build a family farm type of agriculture. There, the land is mainly in the hands of a few. They are trying to work their way to the American standard. The experience I had in helping Iranians bring about improved land tenures renewed my faith in the family farm. For there, as in every other underdeveloped country I visited, I found that when the land resources are in the hands of a few you find poverty `and political unrest. Placing the land in the hands of the people was obviously the way to raise meomes, bring about a stable government Then I returned to my own country to find the standard I had been nurtured on was still receiving some lip service but no real considera tion. Farming had become a business, pure and simple, the farmer a busi- nessman, his operations had to be evaluated strictly in business terms. Where in ±ormer days, farm professionals `would hotly argue the best approaches to obtaining more resources for small farmers, establishing families on better land, getting better marketing co-ops started among `farmers, now many seemed to be more `concerned with the techniques of production on only the biggest farms, automated devices, input-output models, computers, that sort of thing. Now, I am not criticizing the business-scientific approach to agri- culture It is necessary, of course, and proper For agriculture is a business. To make a success `of it, farmers must have enough resources and apply enough management skill to stay competitive Agriculture is also a science, `and farmers must continually take advantage `of every scientific breakthrough. PAGENO="0097" 93 What I deplore, however, in the climate that the postwar years cre- ated, is the general complacency about the relationship of people to the land. In fact, though I hate to admit it, even in the New Deal days our actions fell far short of measuring up to the spirit of our slogans. We passed the Bankhead-Jones Farm Tenant Act in 1937 to enable tenant farmers to use long-term, low-interest loans to acquire land of their own. We amended, broadened, and perfected the act in following years. But it was not until the sixties that the program was funded at a significant level. In the past 7 years we have advanced $1.4 billion to help farmers buy and develop family farms. That is more than the amount loaned in the entire previous history of the program. To be really effective this program should be placing $1 billion a year in the hands of young farmers to help them acquire and hang on to the land resources of this country. I hope I live to see the day when this is done. I believe we should work as hard at implementing our national land policy as we do at implementing our national price policy. We concentrate our attention on making our price policy effective. We should recognize that price policy is no substitute for land policy because if our land winds up in the hands of a few the price policy will benefit only those few. We do have a national land policy. The free-hold pattern of family farm agriculture in pioneer days was recognized as the system most consistent with the democratic precepts upon which the United States was founded. Many of `our Nation's farmer settlers came from countries where those who owned the land also owned the people. As they settled this continent the ideal of family farm agriculture was always before them. Certainly for the past hundred years, it has been the official stated policy of this country to foster, encourage, and protect the concept of an independent family farm structure in agriculture. The Homestead Act, the Merrill Act, the Smith-Lever Extension Act, the Bankhead- Jones Farm Tenant Act, were all expressions of this idea. Officially, we continue to strongly endorse this policy. But in my opinion, our official statements and our official actions are being negated by forces beyond our control. Unless the people of our country as a whole, can be made aware of the way in which the family farm is being undermined, the offioial position of the U.S. Government is of little value. To use the term "corporation farming" as the threat to the tradi- tional American farming system is an oversimplification. Farming that is carried on by corporations that own the land, hire the labor, and provide the management are certainly the antithesis of the family farm. But what about the type of integrated farming that is representa- tive by the poultry industry where the farmer makes none of the basic decisions. That, too, is hardly my idea of family farming. And what about those farmers who work under contract and find themselves stripped of any decisionmaking power so far as the price, 95-253-cs------7 PAGENO="0098" 94 quality, and amount of the products they send to market are con cerned? These farmers are also somewhat less than full-fledged fam- ily farmers in the old American tradition. And finally I see a very real threat to the family farm system-a very real possibility of corporation takeover-in the rapid increase m the numbers of supersized family farms Let me explain what I mean Between 1954 and 1964 there was a 122-percent increase in the num- ber of farms that have annual gross sales of more than $40,000. By 1964 this group of farms, which then totaled 140,000, was pro ducing 37 percent of the marketed farm products Now, first of all, I see a threat to the family type farm when that small a number of farms can produce that large a percentage of our marketed farm products. But the economists tell us that these farms are family owned and operated. That may be the case. But how long can a group of 140,000 farms that have enough size and capital resources to produce 37 percent of our farm products remain as family farms? It is my contention that these farms will only remain family farms when some young man is both lucky enough to inherit one, and cap- able enough to take over the management reins I greatly fear that we will find ourselves in the next few years watching these farms pass into the hands of the only agents who have access to the kind of capital needed to acquire these properties-the managers of the rapidly growing conglomerates. Some idea of what it would cost to obtain one of the farms that prochices 37 percent of our marketed farm products can be gained from the most recent USDA study of a group of typical farms. Here are two examples; neither are a part of the group we have just been talking about. But even on these farms I think we are facing a transfer problem. Take the typical cash grain farm in the corn belt. The investment in that farm has now reached the level of $203,000. Only 10 years ago the investment in its counterpart was $97,000. Less than half the present figure. Senator NELSON. May I interrupt? Is it the same size farm operation? Mr. BERTSCH. This is the typical grain farm-cash grain farm and it is not the same size. Senator NELSON. It's a larger farm? Mr BERTSCH It's a larger farm Or take a typical cattle ranch in the Southwest The capital in- vested in that ranch is approximately $205,000 compared to $141,000 10 years ago Senator NELSON. With more cattle? Mr. BERTSOH. That's more cattle and. acres. It represents a merging,. a consolidation of family-type ranches into supersized family ranches. Senator NELSON. You used the word "typical." How are you using that word? Mr. BEETSCH. Typical is average. This is the average size of cattle ranches in the Southwest. PAGENO="0099" 95 Senator NELSON This is a family owned opei ation ~ Mr BERTSCH These may be These probably are family owned operations. The point I'm making here, Mr. Chairman, is that as the investment in these very large family owned and family operated farms and ranches becomes greater and greater, their transferability from one generation to another becomes more and more hazardous, more and more difficult, and I think I see the time when the only party, the only agent who's able to take over this ranch or this cash grain farm is the corpoarte agent; because I have difficulty visualizing a young man about to enter the farming business, raising $200,000 worth of capital to do it. And I have difficulty visualizing that young man having acquired the managerial experience or managerial compe tency to manage that large of an investment even if he could raise the capital. So I see as the only alternative here, the only outcome here, the outcome of the substantial investments, the substantial man agement jobs moving to the only agent I see who's likely to be in a position to take advantage of them, and that's corporate management I do feel that this trend toward bigness poses a real threat to the family farm. Why is it that we cling to the moderate size family farm system when so many forces seem to be pushing us in the other direction ~ We do so partly because the family farm is a symbol of agrarian- ism and many of us still harbor Jefferson's belief that: Cultivators of the earth are the most valuable citizens. They are the most vigor. ens, the most Independent, the most virtuous, and they are tied to their country, and wedded to its liberty and interests by the most lasting bonds Agrarianism, I fear, is a term of derision in some quarters these days, but, as for me, I'm a bit proud of being labeled among those Jeffer sonian agrarians who are still around We also favor the family farm because we believe that the family farm s~ystem is the best system so far as consumers are concerned Food is a bargain in America today. But if the time should ever come when a handful of men in walnut paneled offices in Denver, Chi- cago, Atlanta, and New York could set the price of farm products at any level they chose and hold to that level because they were the prime source of supply, consumers would be at their mercy We favor the family farm because it is good for smalltown America Rural communities to survive and flourish need to be surrounded by the maximum number of farm families that it is economically feasible to keep on the land Only in this way can rural communities build the tax base needed to support decent schools, hospitals, roads, and water systems Family farms place the maximum number of people on the land. Rural communities to survive and flourish need to have the capacity to absorb people that widely differ in their skills and managerial abili ties Only in this way can they serve all people Family farms come in a wide range of sizes and stages of development We favor the family farm, too, because it is good for urban America Studies of the troubles that affect urban centers show that the influx into the cities of rural people, unskilled, unable to find employment, unable to cope with city life, has been a major factor in creating unrest, overcrowding, and general discontent. PAGENO="0100" 96 A well-developed system of family farms, small as well as moderate in size and stage of development, will help stem the tide of migrants from the farms to the cities. We are convinced that rural people will stay in rural areas, will stay on farms, if they are given a chance to make a decent living. A recent survey by the Gallup report showed that 56 percent of Americans prefer to live in rural America. The percent of people who would like to live in cities, suburbs, or small towns is declining. The number preferring the farm is rapidly rising. We favor the family farm because it is good. for small business, is, in itself a small business. Family farm.ers trade at home. The managers of large-scale corporation farms deal directly with the wholesalers or even the manufacturers of the products they need to run their farms, raise their crops. In an area where corporation farms dominate there is no place for the village farm supply dealer, the co-op grain elevator, the small banker. You simply cannot have corporation farms and small business enter- prises cheek by jowl. On the other hand, where family farms thrive, small businesses flourish too. Take the impact on rural small businessmen that was created by the 190,000 farm families that used the supervised credit services of my agency, the Farmers Home Administration during 1967. With average gross incomes estimated at $17,000, these farmers had a total gross income of more than $3.2 billion to spend on Main Street. Out of this, $736 million was spent for clothing, food, drugs, tele- vision sets, and other consumer items. In addition some $1.7 billion was used for goods and services to produce crops and livestock and $704 million for the repayment of debt and purchase of new farm equip- ment. And every dollar was spent locally, in support of a small business. We favor the family farm because we question the type of farm- ing that does not accept year-round responsibility for its work force. We believe that large-scale farming with its dependence on migrant labor has created the most degrading type of labor imaginable in the modern world of today. We favor the family farm because the family farm supports decen- tralized decisionmaking and diffused economic power. We recognize that vast segments of our industrialized economy long ago became highly centralized so far as controls and decisionmaking are concerned. But we are not at all satisfied that just because this has happened in the steel industry, the automobile industry, the communications in- dustry, to name a few, that is necessarily good. We do not advocate going back to the horse and buggy days but we do believe that the makers of our modern buggies would be more re- sponsive to our needs for antismog devices and safety devices if they had a few more competitors. Why then, if we sense the superiority of family farming ove~r all PAGENO="0101" 97 other types do we feel that corporate farming poses some sOrt of a threat? Certainly not because corporate farming is more efficient. Because it is not. The well-developed, well-managed, family farm can out produce the corporation farm per dollar invested any day of the week, 4~an outlast the corporate farm in times of strain and duress. Part of our fear of the corporate ~farrn seems from our knowledge that, generally speaking, Americans place the seal of ~pproval On any- thing that is big without questioning whether or not that institution is really superior to one of smaller scale. For decades, we pointed to New York City with its skyscrapers, its bridges, its subways, and its tunnels as one of our greatest creations. It is so big, it holds millions of people. But in renent years as the place has become more and more unman- ageable, we often have bitterly wished that we could cut it up into little pieces and place those pieces out in the countryside. We Americans are always reaching out for a bigger automobile, a bigger boat, a bigger house, a bigger tractor. There is something that appeals to our imagination and our pride when we contemplate a computerized farming system that would rely upon highly skilled crews with air-conditioned machines that would travel from south to north with the season, planting, cultivating, and harvesting, working on fields that were numbered, living in air-condi- tioned motels. There is a very real danger that the American people will accept corporation farming as the ideal system, simply because it is big. Part of our fear of corporate farming comes from the fact that large- scale farming operations have a superior advantage when it comes to buying fertilizer, tractors, and fuel oil. They can and do deal with the source of si~ppiy at a discount. Corporation farms also have a superior advantage when it comes to tapping the supply of capital. They have close connections with the larger credit institutions. They are often formed by groups that have large amounts of investment capital. Corporation farms also have a superior advantage when it comes to marketing their produce. They can promise to deliver large quanti- ties, of a set quality, at a set date. In addition, because of their very na- ture, they can have close financial and managerial connections with food processors, wholesalers, and retailers. How, then, can the family farmer, even though he is superior within his own gates, survive in competition with the corporation farming? The answer, I believe, has two parts- Senator `NELSON. May I interrupt just a moment. In your last sen- tence on page 14 you referred to the fact that "they have close financial and managerial connections with food processors, wholesalers, and retailers." Do you visualize the possibility, or perhaps, the probability, that if the landholdings become large enough and integrated enough, you will, in fact, have a situation where the producer producing the commodity on land is also the same fellow who retails it? Mr. BERTSCH. I think, Mr. Chairman, this already exists in many instances, and I think the trend-4he dangerous trend-is in that di- PAGENO="0102" 98 rection. It is common knowledge in Maine, for example, that potato processors who largely control the potato marketing-~the marketing of processed potatoes-are now deeply involved in growing potatoes And this story can be repeated for many, many enteI~prises in which the integration of production is clearly established I observed within the last month a situation in which a farming cor poration called, I believe, First American Farms, Inc. This is a sub- ordinate corporation of Bunge, Inc., B-u-n-g-e. It is reputed to be the largest exporter of soybean products in the world. This farming coiiporation has recently acquired 40,000 acres of land. They have drilled an irrigation well on every quarter section. They have cleared 29,000 acres of land and they have installed an irrigation well on each quarter section. Senator NELSON. Where is this land located? Mr. BERTSCH. Walton County, Fla. It's northwestern Florida. They've established these automatic irrigation systems, self pro pelled irrigation systems on each quarter section, and they propose quickly `to get this 40,000 acres in soybeans; and they're looking for more land. They've kept this acquisition very quiet. The local leader- ship really didn't realize what `was going on there. I suppose they kept it quiet to prevent land prices from reacting until they had acquired more. They're now in the business of producing soybeans, processing soybeans, and marketing soybeans. As an interesting sidelight, for the lack of regard for what they do to a community, this was in the area of flowing wells, artesian wells, but since they started irrigating, all the flowing wells have stopped flowing; and the whole section of the county represented by this is now finding out, of course, what's hap pened when a rather ruthless and merciless corporation, not concerned at all about the welfare of the community into which they moved, moves in :and dominates their social and economic life. Senator NELSON. Do I understand that you're saying that the draw- down of the `water table affected the artesian wells? Mr. BERTSCH. Right. Senator NELSON. We had some testimony this morning respecting the problem that confronts us as we develop large irrigation projects with no policy established respecting the withdrawal of water from the aquifers. `If there isn't some policy established, we will deplete~ the water supply If you draw water more rapidly than the aquifer is rejuvenated by its sources of water, you can draw it down until you destroy the whole aquifer with brackish water and so forth. Do you think that kind of problem poses a serious threat wherever you get involved with these large irrigation projects? Mr. BERTSCH. I think it poses a more serious threat where the of- fenders, let us say-and we might want to put offenders in quotes at this stage of the hearings-but where the offenders are big and power- ful and well financed and big enough to control local government, to control public opinion through the `weekly newspapers, which they have demonstrated they've been able to do in this particular instance. It's far more dangerous when it's being perpetrated by an institution so big and strong that they can ignore the public reaction than if the same offense were being perpetrated by small farmers. They'd be subject to the public reaction. This is what I really fear. PAGENO="0103" 99 I think we can control quite effectively abuses of our resources, whether water, timber, or grass, until the exploiters become stronger than the agents of control of exploitation I think it would be very difficult for this small, rural county in western Florida, for example, to control Bunge, Inc. It would be no problem at all for them to cor- rupt and oppress and harass public officials in the county government, newspaper editors in the small country newspapers. Comparable of- fenses couldn't be perpetrated by the small farmer who owned and operated and made the decisions with respect to his own farm And I believe that the 1946 study of the two communities in San Joaqurn Valley in California, the study which was inspired by this subcommittee, the study of Arvrn and Dinuba, which was classic in 1946 and which unfortunately hasn't been repeated since 1946, they demonstrated quite graphically how the small farm community was responsive to local welfare, to local issues, to local leadership, whereas the large farm community, the absentee-owned farm community, cor- poration farm community, was in a position to completely disregard the welfare of the community and the wishes of the community. And may I say parenthetically here, sir, you see, I was right in the middle of the land tenure debate in 1940 to 1950, and there wasn't an agriculturist in the United States who didn't know the Arvin- Dinuba story It was a subject of debates in any professional gather rug, and this is what I meant when I came back to the United States in 1960 after being gone for nearly a decade The dialog was dead My people in my organization, who are fine people, the best there are, incidentally, they didn't even know about Dinuba Arvin Agricul- tural writers, for who I have the highest regard, they haven't even read this study. The whole dialog of the social virtues and social values of family farming in this country has died And I believe the most important product, perhaps of these hearings which this corn mittee is conducting, will be the renewal of this dialog because if we ever get the American people talking about this issue and under- standing this issue, I have the greatest faith in the ultimate outcome But when we let dialogs like this subside, then we encourage evils like corporate farming to grow And I really feel that we should have a resumption of the dialog which was started with the Arvin Dinuba study. I believe that there are some remedial actions that we ought to at least think about. Senator NELSON. Let me interrupt here once more. I would think that you are correct that it's much more difficult perhaps to control the operations of the large, powerful, corporate combine. But I am concerned about another point The Congress passed a law 2 years ago requiring all the States of the Nation to establish water quality standards and submit these water quality standards for intrastate waters to the Secretary of the Interior by the last day of June this year Then the Federal Government will be establishing water quality standards for all interstate waters, and then each State will be required to enforce the standards after the water quality standards are estab- lished In other words, standards will be established for streams and rivers and lakes, and then those who are introducing pollutants into those waters that will reduce that standard will be compelled to stop PAGENO="0104" 100 But no action was taken on the question of the underground water table, The water table is one of the most valuable resources that we have in the country. There is a measurable amount of water that can be taken out of any water table without depleting it and ultimately destroying it. In other words, it's a renewable resource at some meas- urable rate depending upon the trends of the climate in 5- and 10- year cycles. Whenever there is a project which withdraws water from the acquifers, a study can be made because you can measure the drop in the water table and you can measure how much is going back into that water table. In order to protect this resource, whether it be against excessive withdrawals by large corporations or large numbers of small operators, it may be necessary to establish some policy to maintain the level and the quality of that accjuifer. Do you think it's important that we establish some kind of a national policy and that we have some regulation in the use of the water from the acquifers and the water tables? Mr. BERTSCH. Water law and water policy is perhaps the most complex problem with which we are faced in this country. I think that in the Western States generally there are more thoughtful, more thoroughly developed water use control measures than in the States east of the Mississippi River where water was really never considered much of a problem until recent years. I think the answer to your question is; "Yes," indeed. The economy of whole regions, not just the agricultural economy but the total economy of whole regions is dependent in large measure upon, let us say, the rationing of that ground water to preserve and protect and continue its availability. I have traveled extensively in my work around the United States and I have been in areas recently in west Texas, for example, which when I visited them in 1949, 1950, the ground water which was being pumped for irrigation was being pumped 40 feet. Today it's being pumped 400 feet and the recharge, they tell me, of this acquifer is somewhere in Wyoming or Montana and the recharge is slow and the use of water has been infinitely greater than the annual recharge. The result is that what was feasible economically, from an agricultural standpoint, in that area 15, 20 years ago, is not feasible now because the cost of raising water has increased. The tremendous investment that's gone into that whole region based upon 40 foot water is now being threatened because available water is now 400 feet. So all the small businesses, all the schools, all the institutions, both public and private, which were developed and established and based on an econ- omy of water with a 40-foot lift, all of them are now threatened by the fact that there is a 400-f not-lift requirement. And this is obviously, it seems to me, a subject for natironal concern. It is a far more complex problem than I am qualified to deal with, with any expertise, Mr. Chairman, but there are many who have made a career of studying only this phase of rural resource conservation and development. First we have to help family farmers reach a competitive position in purchasing fertilizer and tractors, in obtaining capital, and in sell- ing their produce. The recent proposals that have been made to increase the bargain- mg power of farmers, the further development of our system of PAGENO="0105" 1~0'1 farmer cooperatives, and a refinement and expansion of our farm credit system would help achieve this goal. But in addition we should consider legislation that would close the present Federal and State income tax loopholes that allow city busi- ness interests to operate large farming operations at a loss, and then offset these losses against profits in nonfarm business enterprises. We need legislation to tighten up antitrust law. We need to make it impossible for one corporation to produce, process, and retail farm products. We need to give serious consideration to a graduated land tax and to take further steps to tailor farm programs to family farms. We need to work out ways of enabling young farmers to take over the farms of their retiring elders. All these, and additional measures need to be considered. Second, we have to find some way of `bringing `about a better under- standing, so, far as the general public is concerned, of the danger of continuing to `bow down before the altar of bigness. Unless we can achieve such an understanding there is a real possi- bility that the American people will automatically assume that as consumers~ as taxpayers, and as citizens seeking pride in their coun- try's accomplishments, they will be better off supporting large-scale farmin'o'. The ~`amily farmers will never `be able to gain the support they need from the general public-and they will need support `as `they expand their bargaining power and other cooperative activities `and make greater use of credit-unless the public understands the true value of the family farm. Again, Mr. Chairman, let me say that I greatly `appreciate the op- portunity to appear before this distinguished committee and com- ment on a subject so vital, I believe, to the welfare of our whole country. And that, sir, concludes my statement. Senator NELsoN. Thank you very much, Mr. Bertsch, for a very thoughtful, useful contribution to our hearing. We appreciate your taking time to draft this paper and come here to present it. Our next witness is Mr. Amer Lehman, former Colorado State Di- rector of the Farmers Home Administration from Denver, Cob. We are pleased to have you come h'ere and appear before the committee today. Your statement will `be printed in full in the record. You m'ay pre- sent it in `any fashion you desire. STATEMENT OF AMER LEHMAN, FORMER COLORADO STATE DI- RECTOR, FARMERS HOME ADMINISTRATION, DENVER, COLO. Mr. LEHMAN. May I say, Mr. ~h'airman, to begin with that since I've left the Farmers Home Administration, I'm engaged in farming myself. I thank you for the opportunity to appear. I propose to direct my testimony primarily to the effect of the farming operations conducted by industrial corporations on soil and water resources in eastern `Colorado, where I live, and where I am familiar with recent developments. PAGENO="0106" 102 Since the first white men came to the Great Plains, they have al- most destroyed the land three times. Today there is a chance to bring stability to the Great Plains, but this can only happen if appropriate social and political decisions are made within the very near future When the first white men saw the Great Plains, it was a sea of grass. It was a place to cross, for Lewis and Clark, for the fur traders and for the gold seekers after 1849. It was not until the 1870's that the first exploitation began, with the idea of running cattle on free grass. Men from London, Boston, Paris, and New York were entranced with the potential for great profits. They formed what we then called syndicates to run cattle on the open range. Overgrazing, homesteaders, and the great cattle-killing blizzard of 1885-86 brought the syndicate era to an end. The homesteaders came by the thousands about this time. Many were quickly defeated by the unfamiliar `climate, but some learned how to farm in a semiarid country `and survived. Then came World War I and the world need for food. High prices, combined with the mechanical po'wer of the first b'ig tractors, turned the sod. There had been visionaries in the early days who believed that rain would follow the plow. Of course, it didn't happen. Instead the war and the plow were followed by the drought of the `thirties The wind wrote the epitaph of the boom in dust. By now the Nation was conscious of the need to protect its re- sources. The Great Plains were partially restored with the `advent of soil conservation practices which returned much of the marginal cropland to grass. The next period of destruction came with the drought of the 1950~s-again preceded by a war. Land which had been reseeded and should have remained in grass was again broken `out `and `planted to crops, and `again it sifted with the wind. The `soil bank program was a partial `savior and many fields were returned to grass a `second time. Most of the farmers who survived these natural and economic storm's had built flexible units `around the naturally `adapted ca'sh crop of wheat, grass, and feed reserves-husbanded against recurring drought. The mean's to flexibility and `stability is present in much of the Great Plains area in the form of great underground water resources. One `of these, known as the Oga'liala formation, underlies 9,000 square miles of all or parts of nine counties in eastern Colorado. But t'hi's resource can `be exhausted in a generation or less in some areas. The U.S. Geological Survey estimates the reservoir `contains about 80 million acre-feet of water. Upward of 30 million acre-feet is con- sidered to be recoverable. However, the resource is replenished only by rainfall at the rate of less than 1 inch per year. Senator NELSON. As I understood you2 30 million acre-feet is cons'idered to be recoverable from the 80 million? Mr. LEHMAN. From the 80 million; that's right. Senator NELSON. But then you'r nex't `sentence is that the resource is replenished `at the rate of less than 1 inch per year. How much is that in terms of this acquifer? Mr. LEHMAN. Well, the aver'age annual rate of recharge is estimated at 430,000 `acre-feet. PAGENO="0107" 103 But the recharge rate is not a significant factor in the development of the reservoir for beneficial use since the recharge is balanced by outflow. This balance in the reservoir has been established over many centuries. Consequently any withdrawal from the reservoir is, in effect, "mining" of the water. It begins to throw that reservoir out of bal- ance as it is tapped. Thus the critical policy question in the develop- ment of the nonrenewable resource devolves around how rapidly it will be exhausted and who will benefit from its use. Everyone, not only the farmers, ranchers, and businessmen in the area, but the whole national community have a stake in the proper development of the resource. Senator NELSON. Do you mean to say that `this acquifer is not re- chargeable? Mr. LEHMAN. It is rechargeable but picture, if you will, a bathtub with a faucet on this end and a drain on the other end. The intake is equal to the outgo. Then you put a pump in the bathtub and the bal- ance is immediately disturbed, so you are, in effect, mining as soon as you tap it. Senator NELSON. Are you saying that in this acquifer the outflow is equal to the inflow? Mr. LEHMAN. That's right. Senator NELSON. Regardless of what you pump out the input cannot restore that which is taken out because the outflow is equal to the inflow? Mr. LEHMAN. Your balances are immediately disturbed. Senator NELSON. It cannot be restored? Mr. LEHMAN. Well, except artificially. It can be restored artificially, but if the natural balance is disturbed it will continue to be disturbed and will remain that way. Senator NELSON. If you pumped out 10 million acre-feet, regardless of what the rainfall was, is it correct that the inflow wouldn't restore that 30 million acre-feet? Mr. LEHMAN. Within a brief period of time this will change. In years of high precipitation there would be a high level of restoration. In years of low rainfall periods there would be a low level of restoration, but over a long period of time, if you will again look at this proposition of a faucet running into a bathtub and an outlet draining out of the bathtub with the water level stable at the moment. As soon as you begin to put pumps in, you begin to disturb this balance', you begin to mine the water. It is a nonrenewable resource unless there is arti- ficial recharge. Now, of course, there is a good deal of research going into the question of how artificial recharge could be accomplished. There are any number of methods being explored. Senator NELSON. Is it a peculiarity of this acquifer? Mr. LEHMAN. Yes. Senator NELSON. If they reduce the water table and not disturb it, will it come back up again? Mr. LEHMAN. Yes. In the case of an acquifer being recharged by a stream, this is not true. But this acquifer is what is commonly referred to in popular language as a closed basin. That is, it is not directly associated with a surface stream or with any body of water. Some industrial and conglomerate corporations see the underground PAGENO="0108" 104 water supply as a way to quick profits. They are unconcerned that the resOurce is limited. The means of making beneficial use of the water supply has become available only in this generation, and the exploitation of the under- ground water suppiy has exploded in the last few years. During the forties and fifties the development followed a gradual and rational pattern as independent farmers recognized the feasibility of using irrigation to stabilize their operations. The first dramatic change occurred when the Great Western Sugar Co., looking for new production areas, introduced sugar beet produc- tion in the area. About the same time self-propelled sprinkler systems capable of applying water to light and rolling soils, not adapted to leveling and flood irrigation, came on the market. Widespread interest in potential quick profits flared. The number of irrigation wells in the eastern Colorado groundwater basin grew from about 100 in 1950, to over 400 in 1960. In the next 5 years the total had jumped to 1,200. The present number of wells is estimated at more than 1,900, and the development is still going on. The withdrawal rate per well for high water demand cash crops averages about 250 acre-feet annually. Thus the 1,900 wells in use are already withdrawing more water from the reservoir than the annual recharge rate. The 1965 Colorado Legislature passed regulatory legislation much too late, and the adequacy of the legislation is questionable. It has, however, served to retard unlimited exploitation. You were asking me a little earlier, Senator, about legislation of this t;ype. As you know, most western legislation is based on the appropria- tion doctrine. This 1965 law does return to the appropriation principle primarily, but it does take into consideration reasonable use. The prob- lem, of course, is to determine reasonable use, and gives authority to a State ground water commission,, which, in turn, is supported by a local management district. Senator NELSON. Is this a 1965 law? Mr. LEHMAN. Yes. Senator NELSON. What authority was it necessary for the State to get from the Federal Government for the purposes of managing water levels in the acquifers or water tables? Mr. LEHMAN. As far as I know, none. I think this was basically a State law. Senator NELSON. I thought I understood you to say the 1965 con- gressional act gave authority to State commissions to regulate the water tables. Mr. LEHMAN. Well, this is the closed basin type of thing that is not directly and immediately connected with the surface flow in the ac- quifer. Now, I'm not an expert on water legislation. I think the one thing that might interest you is that one of the arguments frequently offered by people for the rapid development of the acquifer is that this ground water is moving very, very slowly through the acquifer, but it does move from west to east, so in a sense it is certainly interstate water, I assume. Corporate enterprise has been a significant element in the exploita- tion. The character of the corporations varies widely, and the sources PAGENO="0109" 105 of their ca~pital and credit are often obscure. Aside from family cor- porations they include large conglomerates, such as Gates Farms, a subsidiary of Gates Rubber Co~ of Denver; corporations owned by professional men; agribusiness corporations primarily engaged in the manufacture or sale of farm equipment; feed processors; contractors and building material suppliers; and capital derived from petroleuni production. The farm management service corporation is a collateral element attracting nonfarm capital into agriculture. The farm man- agement service makes feasible the investment of nonfarm capital in agricultural land. It's advertisements encouraging investment in agri- cultural land are not an uncommon thing. Corporations engaged in nonfarm enterprises operate properties served by more than 100 irrigation wells in Yuma County alone, most of them using the self-propelled sprinkler method of water application. About half of this number have been developed by Gates Farms in the last year. Many wells have been developed on sagebrush covered dune sand, generally considered to be unsuited to crop production. By the heavy application of fertilizer, high yields of feed grains are being obtained. However, these soils under row-crop production will sift during the winter months without fall cover crops. If the water resource is ex- hausted, these fields will have to be abandoned and they will become barren, blowing deserts. In one of these areas a check of 63 livestock and domestic water wells by the local water management board in- dicates that the static water level in 63 wells has already fallen from 1 to 15 feet. This lowering of the water table is a potential threat to rural households and livestock production. The expansion of underground water development by individual farmers and small corporations between 1960 and 1966, as a result of the introduction of new cash crops and mechanical irrigation methods, was very rapid. Then in 1967, a real estate broker began optioning land for an un- disclosed principal. The option required the seller to establish the availability of ground water in a minimum amount of 1,000 gallons per minute under puzmpage and to obtain i well permit from the State ground water commissiOft as required by the 1965 law, When the options were e~ercised, the undisclosed prinripal was iden- tified as Gates Farms, a subsidiary of the Gates Rubber Co~, a sub- stantial oonglome~rate corporation. The already disordered develop- ment at this point began showing signs of panic. Some farmers ob- tained permits, drilled wells and capped them in order to protect their potential development rights. At the same time the Ground Water ~Jommission, influenced to a considerable degree by local pressure, tightened its policies for grant- ing permits. As a result a good many small farmers cannot now obtain permits, including some who had sold part of their land to the Gates Farms. The permits are now granted on the basis of a formula. This is not the only consideration, but a formula that says in effect, if more than 40 percent of the resourCe in a 3-mile radius will be exhausted within a 40-year period- Senator NELSON. Within what period? Mr. LEHMAN. Forty-the permit will not be granted. There is a great deal of research still needed on this because the resource is in- PAGENO="0110" 106 terconnected It appears intermittently and it's interconnected and this 3 mile radius principle, in my mind, needs some additional research The nonf arm corporation has three built in competitive advantages over the independent farmer It has available capital resources earned outside agriculture, combined with easier access to credit; the ability to purchase equipment and supplies at volume prices, and a better bargaining position in `the market because of volume production or in- tegrated enterprises, or both. The Gates incident is a dramatic exam- pie of the first advantage cited. Wherever you turn, you encounter economic pressures for scale. Farmers are urged onto the treadmill of increased volume to stay alive. The May issue of a western farm magazme quotes a sugar company fieldman as follows: "Farmers in top producing counties have the ability to keep pace with rising costs through volume production These counties (in the pump-irrigated area) are blessed with long, straight rows-in many cases 12-row equipment is being used." Commercial farm real estate lenders apply similar indirect pressures. They prefer to invest their resources in the smallest possible number of large loans. If the customer has substantial nonf arm income, the security is so much the better. The small farmer seeking credit, secured primarily by his agricultural earnings, is bypassed At the same time he could not afford to capitalize or obtain intermediate credit to equip himself with machinery of this scale-nor is such large scale necessary to production efficiency The evidence is preponderant that the typical commercial family farm is competitively efficient in production. The wide range of forces pointed at planned and structured efficiency in production and marketing are concerned only with economic effi- ciency. They are unconcerned with social efficiency. If it is desirable as a matter of national policy to maintain independ- ent enterprise in the agricultural sector, public policy will need to be amended and innovated on several fronts. High on the list, I think, is the extension and improvement of legis lation to limit the capacity and the thrust for corporate growth and expansion at the expense of independent small enterprise. Since 1890, about every 25 years the Congress has found it necessary to refine re straint of trade, monopoly, and unfair trade practices legislation The contemporary phase of corporate expansion has the label of conglom erate This time family agriculture is in its orbit There is also a corollary need to close tax loopholes that foster the investment of nonf arm capital in agricultural land and to limit the availability of retained earnings for conglomerate investment. Even so, the limitation on conglomerate expansion will not be enough. On the positive side there must be capital and credit resources made available to family farm enterprise at rates and terms commen surate with the cost of agricultural land and contemporary technology The competition for productive agricultural land has driven present market values well above the present capacity to earn a reasonable re turn on investment. N~nfarm capital has been a major factor in the inflationary competition. Senate bill 156~T, the Small Farmers Invest- ment Act, is a necessary step in this direction PAGENO="0111" 107 Senator NELSON. We want to thank you very much for your fine con- tribution in these hearings and we appreciate the time you took in coming here today. Our next witness is Mr. Philip Doyle, a former State senator from Beloit, Kans., president of the Mitchell County Farmers Union. We appreciate your coming here today, Mr. Doyle. Your statement will be printed in full in the record. You may present it to the committee in any fashion you desire. STATEMENT OP HON. PHILIP J~. DOYLE, FORMER STATE SENATOR, BELOIT, KANS., AND PRESIDENT, MITCHELL COUNTY FARMERS UNION, OMAKA, NEBE. Mr. DOYLE. I want to thank you for the opportunity to appear before you today and I'm here speaking for myself and I also feel that I'm speaking for the businessman and the family farmer throughout all of Kansas, and as far as that's concerned for the family farmer and small business throughout the Nation, because we all realize that we're in serious trouble. The idea of Federal legislation setting up barriers to huge non- f arm corporations trying to take over agriculture simply makes sense to me as a farmer * * * and to my neighbors up in Mitchell County * * * and to the business people in Beloit where my family has done business for three generations. That's one of the main reasons I am here today, hoping that Federal legislation can be passed, restricting corporation farming in America. I am at a complete loss to explain why America * * * a nation built with family farm agriculture and still dependent on a strong rural.. based economy * * * has permitted corporation farming to gain such headway * * * and threaten the family farm system. Now there are those who contend corporation farming is necessary to provide the additional financing, the tax benefits, and the genera.. tion-to-generation transfer that family-owned operations need. I want to lay that argument to rest right atthe outset. The incorporation of family farms is not the issue before us. Rural people in our State are fortunate to have the Senate com- mittee interested in this problem. Laws to keep big corporations out of farming are in effect in only two other Statesr-North Dakota and Oklahoma. And in both of these, just as in Kansas, big corporate interests are pushing to get them repealed. Senator NELSON. What does your Kansas law provide? Mr. DomE. Well, it provides, I think, simply that corporations can- not operate farming operations. An agricultural or horticultural busi- ness can produce wheat, corn, grain sorghums, barley, oats, rye, or potatoes, or milk cows for dairy purposes. They can own land but they cannot operate it. The law is a little weak but at least we do have an anticorporation law in Kansas. Senator NELSON. Has it kept corporate farming out of Kansas? Mr. DomE. No. It hasn't kept ownership out; no. Senator NELSON. What do you mean? Mr. Domr~. They can lease. PAGENO="0112" 108 Senator NELSON. A contract with someone? Mr. DomE. Yes, they can lease with operators there but they cannot operate it themselves, which is what they'd like to do, but they can own land-o'~n operations and then lease them out to private operators. The present Kansas law must be strengthened or strOng Federal regulations must come soon or the family farmer, as we know him today~ will pass quickly and quietly from the scene. In Kansas vast landed areas are being taken over by nonfamily corporations. They have already been purchased. It has been estimated that two-thirds of the best grassland is now under corporation control, and within 5 years, if the present trend continues, 75 percent of the State's farmlands will (be operated by corporations. Kansas is one of the few States with legal restrictions on the use of the orpo'rate form of business in farming. The law, passed in 1965 and presently in force, provides: At present, an agricultural or horticultural business (corporation) can produce wheat, corn, grain sorghums, barley, oats, rye or potatoes, or milk cows for dairy purposes if: (a) The corporation has no more than 10 stockholders. (`b) The stockholders are individuals or representatives `of indi- viduals such as guardians or trustees. (o) All incorporators are residents of Kansas. (d) The corporation does not directly or indirectly own con- trol, manage, or supervise more than 5,000 acres of land. (e) No stockholder owns stock in another corporation produc- ing products on the restricted list. The 1965 law does not restrict the use of the corporate form of busi- ness in the production of farm products not on the restricted list. Any farm may be incorporated or any corporation can produce the restricted products so long as it conforms to the five conditions of the law. Most farmers in Kansas feel the present law is weak in a very impor- tant area. It permits nonfarm corporations to own as much land as they can buy. Even the president of a foreign cartel to own one of the best ranches in the State. 1 believe the time has come for drastic action. I would like to introduce here for the record house bill 2008 of the 1968 session of the Kansas Legislature. This act would prohibit corpo- ration farming and require the disposal of rural real estate no* owned by corporations. It gives them a 10-year period to dispose of this profit. The threat to American agriculture posed by huge diversified corpo- rations `which are misusing their great economic power to drive thou- sands of farmers and ranchers from the land is not fully understood by the Nation's leadership. I strongly disagree with those who look at farming and farm people "through a maze of statistical tables and computer tapes" `and suggest that all agricultural production could be better handled by a half million giant operators. `Corporations taking over agriculture have nothing to offer rural America except loss o'f population, low economic activity, poverty, and a monopoly in the Nation's food supply. I believe there will be no monopoly control ocf price in agriculture until the family fanner is eliminated. This is why. Indirectly at least, there has been such a vast propaganda campaign over the years designed to convince the Ameri- can people that the family farm is inefficient and that domination of PAGENO="0113" 109 agriculture by the factory in the field is inevitable, and must be accepted by the U.S. Government because the U.S. Government ~hou1d not go on subsidizing the inefficient family farmer. No study that I know of has ever been made which proves that giant corporations are more efficient than th~ family farm. The Washington office of the Farmers Uniun recently completed a study which indicates that family farms gener~J1y are more efficient. If the big `250,000-acre farm is the answer to low cost food production, then why has Russia moved away from it so quickly? It is not surprising that big nonfarm corporations are trying to take over farming. A recent report shows the Nation's big companies will have $28 billion in undistributed profits this year to invest somewhere. A lot of this money is taken out of the hide of farmers hit by con- stant increases in prices of farm machinery, trucks, seed, tools, and other production items. It is a slap in the face to have these corpora- tions, that are making so much money off of farmers, to come back to try to buy them out and undermine their communities. The way these big companies ale taking over agriculture, even in States with `a strong family tradition, has been widely reported in the newspapers in the last few months. I'm sure most of you have heard about the front page story in the Wall Street Journal some time ago that told how fast these big cor- porations are moving into farming. The story said there's little chance the trend to corporation farming can be stopped. It said economists foresee the day when family farms will face extinction and corporations will mass produce the Nation's food as efficiently and impersonally as they now produce its vacuum cleaners. This sto~ry says nothing, of course, about what will `happen to `farm co-ops and `Main `Street businesses when the big corporations-with their direct buying `of everything from fertilizer to irrigation pumps- take over. It doesn't say anything, either, about what will happen to all the farm people pushed `off the land. The Wall Street Journal, as you know, is recognized as the voice of big business in this country. You can be sure it knows what it is talking about when it says family farming is "out" `and corporation farming is "in." It is `no isurprise, then, that all this talk about big c~rpo'rations moving into agriculture is viewed with alarm `by farm people across the country, and I'll ~dd also some nonfarm people in this country. They look at `OBK, Inc., of K'an~as City, `which `has been phasing `out of the garment-making and the asphalt business so it can `put its money into a huge grain farming operation stretching from Texas to the `Canadian border. This giant already has 10,000 acres, part of it irrigated and all of it in southern Texas, plus another 1,500 that gives it a foothold in Mis- souri. It has announced that it will have 80,000 acres in soybeans and feed grains within 5 years. They look at the H. J. Heinz Co., which is growing potatoes in Idaho, Michigan, and several other parts of the country. This huge food processor recently started a 9,000~acre potato opera- tion in eastern Oregon, using water pumped from the Snake River. 95-253-e8-8 PAGENO="0114" 110 This is in an area where independent growers this summer were left with 8 million bags of potatoes they were unable to sell at any price. They look at Textron, a widely diversified maker of products rang ing from pencils to helicopters, which is deeply involved in broiler production. The broiler situation brought so many complaints to the Depart- cment of Agriculture from farmers in the Southeast that the Govern- ment finally was forced to investigate to see what was going on. The investigation showed that giant corporations like Textron, in dog-eat- dog competition, are running all the independent broiler producers out of business. But probably the most aggressive corporation farmer of all is the Gates Rubber Co., a widely-diversified Denver company that accumu- lated its wealth making tires and V-belts for machinery. It's likely there are few Kansas farmers who haven't, at one time or another, put a Gates tire or a Gates belt on a tractor or a combine. That kind of business built up with farmers doesn't make this corporate giant any more loyal to agriculture, however Its answer has been to compete directly with farmer-customers with a 180,000-acre cattle ranch in Wyoming and 420,000-layer operation near Denver that makes it one of the Nation's leading egg producers. Recently this company went even further. It announced it is going to Yuma County, Colo.-just across the line, from Kansas-to' set up the first of a series of big, irrigated factory-in-the-field opera- tions. The announcement, to say the least, shook up Colorado farmers, who have no State laws protecting them from corporations moving into agriculture. Gates Farms, Inc., the new subsidiary set up to run this new farm- ing venture, says the 20 percent return on investment it hopes to make in Colorado will be used to buy land for corporation farming in neighboring States. A farm reporter who visited the Yuma County area recently says farmers and businessmen are very upset by the Gates announcement. The company has options on about 70 farms in the area, which means the business establishments in the nearby small towns of Joes and Kirk may soon disappear. I say this because recent figures show that, in a typical farm State, one smailtown businessman fails for every six farm families that have to leave a community The ratio would be roughly the same in any Kansas area where a big corporate operation came in and forced large numbers of people off the land. Gates also plans to sink a large number of deep wells to draw water to irrigate the entire Colorado operation. The water under this High Plains area is the same pool that under- lies a wide dryland area, including part of northwest Kansas Con- servationists say this water resource, though ample as used by farmers now, can be exhausted quickly by heavy pumping because it recharges very slowly from surface water coming from rains Farmers and ranchers on the fringe of the Gates area, aware of how precious this water is, are saying they will run short as the Gates irri- gation pumps pull more and more water to the surface Eventually, some will run out, even for watering livestock. PAGENO="0115" ii' The same thing could happen in Kansas In fact, it probably will because the water the Gates pumps draw out in Colorado will come from the underground pool that serves part of our State as well The backers of the big corporation farms say this means more busi. ness because they buy their supplies locally ~ ~ ~ just as Gates told Yuma County businessmenthat they would. It was something of a surprise, then, when it was learned that Gates is trying to buy its expensive irrigation equipment outside of Colorado and direct from the manufacturer The only thing the Main Street businessmen will see of this business is the big trucks going through town on their way to the Gates farm, loaded down with equipment bought in Chicago or St Louis Now, how about the farmers who are being forced off the land in this big operation ~ They are told, as you might expect, that the com- pany will try to get them some high-paying jobs in the big city. Or that they can work on the Gates farm. What they don't realize is that factory-in-the-field operators all over the country pay such low wages that they can attract only migrant workers. The sugar beets, potatoes, and other irrigated crops involved are both seasonal and highly mechanized. About the only thing Yuma County will see of farm jobs in the Gates operation will be the trucks going through the area loaded with migrant workers on their way to the fields And to top it off, when Gates was criticized for the displacement of farm families, a company spokesman replied, "The economists say 40 percent of the people in agriculture are going to have to leave the farms eventually anyway-we're just helping some of them to make that change." Now, how ridiculous can you get in dealing with farm people who have struggled for 20 years with surpluses and low prices and still hope somehow to stay on the land they work both as a living and a way of life~ I'm sure we don't need any big corporations here in Kansas helping us push our farmers off the land Soil and water conservation are highly important in our farm areas Yet we know that corporations are profit and loss motivated and they make no bones about it. In view of this, however, is it good national policy to permit them to buy and control large land areas * * * to put them in charge of a national resource that must be handed from gen- eration to generation ~ You can always replace a factory building when it is rundown or obsolete And you can i~sually get away from polluting a river in an industrial area, as every corporatiou executive knows, or fill the air with smoke and soot But the land is too precious to allow it to be exploited One needs only to look ait history to see how the big lumber com- panies cut over the forests in the North and the cattle kmgs `over grazed the Great Plains This 19th century folly brought the public indigna- tion that set the stage for the sound natural resources policies we have today Let's don't allow off farm interests to repeat these mistakes with agriculture in Kansas Now some people will ask what's wrong with a little old fasluoneci corporation efficiency in agriculture so we can get food prices down a PAGENO="0116" 112 little lower. The answer to that is thait this won't bring food prices down. One reason is that huge farming operations, as the Russians have found out the hard way, simply aren't efficient. Even the experts in our land-grant universities agree with this. One recent study, for example, shows that the one-man dairy unit with 30 to 50 cows is the most efficient size operation. Another shows that a one-man cotton operation, with 6-row machinery, is the most efficient producer of upland cotton. Others show similar findings. Corporate agriculture can succeed only by monopolizing both pro- duction and distribution * * by getting rid of all the competition so that administered prices can prevail. The giants, in other words, want to grow the food on the farm, process and package it, and then retail it. I hope the country can be spared this kind of food industry. We `all know corporations well enough to know that once they get control of an area of business the prices go up. It's a foregone conclusion this is exactly what would happen to food prices. In closing I wonder how many farm people realize what it would be like to have a 40,000-acre corporation farm for a neighbor. Do you think it would east a vote for a school bond issue? Or support good roads down every section line? Or help you combine wheat if you were laid up and unable to work? Or support the church building fund drive? Unless something is done soon to stop the growth of corporation fanning by the Congress, some of us may well not be around much longer. Don't let it happen. The American working farmer deserves a better deal. rphis concludes my testimony, and again I wish to thank you for the opportunity to appear before this committee. Senator NELSON. The committee is very grateful for your taking the time to come here today to present your testimony. We appreciate it very much. We will recess for 5 minutes while 1 call my office in Washington. Then our next witness will be Msgr. John George Weber, executive secretary of the National Catholic Rural Life Conference. (Whereupon, `a short recess was taken.) Senator NELSON. We'll resume our hearings, and the next witness will be Msgr. John George Weber, executive secretary of the National Catholic Rural Conference, Des Moines, Iowa. Monsignor, the com- mittee is very pleased to have you here today, and you may present your statement in any manner you wish. STAT~ENT OF HSGR. JOHN GEORGE WERER, EXECUTIVE SECRE- TARY, NATIONAL CATHOLIC RuRAL LIFE CONFEItENCE, DES MOINES, IOWA Monsignor Wi~ER. Mr. Ohairman, I am very happy to be here on the part of the National Catholic Rural Life conference to present our ideas regarding corporate-type farming in agriculture. I'm going to summarize some of my `high points in my presenta- tion because some of the topics have already been touched, and in the interest of time, I'm just going to summarize it. PAGENO="0117" 113 The NationtiJ Catholic Rural Life Conference firmly believes that the family-type farm is good for families on the land and for the Nation as a whole. This conviction is based upon the spiritual, cultural, and social values as well as upon economic values. Man needs "daily bread" to live as a man, and the church has worked for the rightful betterment of this world in which all live, hut it is also true that "Man shall not live by bread alone," The root reason for human dignity lies in man's call to communion with God. Those who live on the land, working in close harmony with nature and its Creator, have many opportunities daily to com- mune with their God. Their work deals with the life of plants and animals, a life that is inexhaustible in its expression, rich in allusions to God the Creator and Provider. Man can place the seed in well- prepared soil at the right time but he canuot give it life. Only God can give that. I would like to quote from Pope John's encyclical, Mater et Magistra, paragraph 215. He states, "Let men make all the technical and eco- nomic progress they can, there will be no peace nor justice in the world until they return to a `sense of their dignity as creatures and sons of God, who is the first and final cause of all created being. Separated from God a man is but a monster, in himself and toward others." We are nOt saying that people in the city cannot and do not worship God, but we insist that people on the land have more reminders and more opportunities to think of their Creator. So the spiritual values that are inherent in this life on the land is the important point that I'm making there. Work of man has a subjective and an objective factor inherent in its very performance. When man works he not oniy alters things and society, he develops himself as well. This subjective development of man is more important than `the objective results' produced by his labor. The work on the land demands a capacity for orientation and adaptation, patient waiting, a sense of responsibility, and a spirit of perseverance and enterprise. A man is more precious for what he is than for what he has. I think that can be the crux of all these con- siderations-the value of a human being, man; and if we get into the greed and just striving for the money that is involved, we lose sight of the value of man. We have heard a lot, ever since our country was young, about the beneficial effects upon young men and women growing up close to nature and good, honest work. And it isn't a myth either. Cheek the 4-H Club work, the FFA and FHA. programs; review the biographies of many of our Nation's leaders. We could also perhaps come up with a story at the present time as we listen to the reports~ of the boys that have given their lives for our country over in Vietnam, especially in Iowa. I've been becoming very conscious of that the last couple of months. A good number of the boys-~I would say the majority of the boys are from rural areas, some little towns you don't even know where they are. I think if we would go into research on that, we might find that this very statement is `borne out~-that the people on the land develop a sense of responsibility and enterprise and initia- tive that other forms of living do not give them the opportunity to develop. PAGENO="0118" 114 We could go into our cities `and we know the many problems, and it has been already stated here today, that exist in the cities. I would just like to touch on one, and that is the personal noninvolvement that strikes at the very roots of the human personality which develops in urban living. You do not know your neighbors. In the countryside you still have the "face to face" or "man to man" relationship. Here in ~vork, play, marketing, school, and worship people know one another by name and by association. This is helpful to each individual's personality. Scientific research shows that when `animals are confined to crowded conditions, there is a constant harass- ment of each `o'ther. Man needs living space and it makes very little sense to have 70 percent of our people living on 1 percent of our land. *We `have already touched on what corporate-type agriculture will do to the rural community and what happens to them. Their schools suffer; their churches suffer; the tax base is eroded, and so on. I'd like to go on as to what happens to the family. The well-being of the individual person and of society is intimately linked with the healthy condition of the family. The family planted on the land will put down its roots deep in the soil, which will give it a stability offered by no other surroundings in which man can live. Stability is the first requisite for any family; without it nothing permanent can he a~hieved. A family on the land lives together 24 hours of the day, works together, and prays together, thus establishing the unity of human relationships, `that strong bond so necessary to achieve gre'at human development. `Civilizations have toppled, but never before family life had disintegrated. I think we have already heard enough about the efficiency of the family farm system. I might just make this one statement. Many large corporate farming operations have succeeded only because of cheap labor and huge Government payments. The minimum wage of $1.60' in the urban sector against $1.15 in agriculture does tell us something. Specifically, we recommend-and I'm speaking for the Catholic Rural Life Conference: 1. That State governments adopt laws prohibiting the purchase of farmland by corporations with stockholders exceeding a specified number. 2. That no corporation or individual be permitted to write off farm losses against income earned in nonfarm operation. Such loopholes deprive the Government of needed revenue and constitute an unfair competition with families who must earn their support `from agriculture. 3. Federal payments for land retirement and crop reduction should be limited to a specified number of units. Distributive justice demands that huge sums of money should not be paid to already wealthy indi- viduals and corporations. Moreover, such a policy enables these in- dividuals and corporations to purchase still more land and push family farmers out of agriculture. 4. The Federal Government should strictly enforce existing laws limiting the use of public irrigation water to a specified number of acres per user. Moreover, appropriations for future water develop- ment projects should include similar limitation. 5. State governments should seriously consider the enactment of' PAGENO="0119" 115 graduated land taxes which would discourage very large holdings of land by individuals and corporations. We feel that these steps are required by justice and would help preserve the family farm system which has contributed much to our Nation's welfare Senator NELSON Thank you very much, Monsignor Weber, for your thoughtful statement We appreciate your taking time to come here today and being so patient to wait until this hour to present your statement. (The complete prepared statement submitted by Monsignor Weber follows:) STATEMENT OF MSOR. JOHN GEORGE WEBER, EXECUTIVE SECRETARY, NATIONAL CATHOLIC RURAL LIFE CONFERENCE Mr. Chairman and Members of the Committee, my name is Monsignor John Geo. Weber. I am Executive Secretary of the National Catholic Rural Life Con.~ ference with national headquarters at 8801 Grand Ave Des Moines Iowa I am grateful for this opportunity to present the views of the National Catholic Rural Life Conference regarding corporate type farming in agriculture The world and its resources were created by God for the use and welfare of all His people. God intends that these natural resources help man live a good life, develop his personality and contribute to the betterment of society. The National Catholic Rural Life Conference is convinced that more wide spread-not less-ownership of income producing property is urgently needed in technologically advanced nations such as the United States Since land is a most fundamental form of productive property this issue is of special concern to farm families The National Catholic Rural Life Conference firmly believes that the family type farm is good for families on the land and for the nation as a whole This conviction is based upon the spiritual cultural and social values as well as upon economic values Man needs daily bread to live as a man and the Church has worked for the rightful betterment of this world in which all live but it is also true that "Man shall not live by bread alone." (Luke 4. 4.) The root reason for human dignity lies in man's call to communion with God. Those who live on the land working in close harmony with nature and its Creator have many opportunities daily to commune with their God Their work deals with the life of plants and animals a life that is inexhaustible in its expression rich in allusions to God the Creator and Provider Man can place the seed in well prepared soil at the right time but he can not give it life. Only God can give that. According to an article in the Wall Street Journal corporations are now failing to convince elite students that they will find the kind of work and life they want through secure employment at a high salary in organizations whose motive is economic not spiritual Let men make all the technical and economic progress they can, there will be no peace nor justice in the world until ~they return to a sense of their dignity as creatures and sons of God who is the first and final cause of all created being. Separated from God a man is but a monster~ in himself and toward others Pope John-Mater et Magistra-par 215 We are not saying that people in the city can not and do not worship God but we insist that people on the land have more reminders of their Creator Work of man has a subjective and an objective factor inherent in its very performance When man works he not only alters things and society he develops himself as well This subjective development of man is more important than the objective results produced by his labor The work on the land demands a capacity for orientation and adaptation patient waiting a sense of responsibility and a spirit of perservance and enterprise. A man is more precious for wbat he is than for what he has. We have heard a lot, ever since our country was young, about the beneficial effects upon young men and women growing up close to nature and good, honest work. And it isn't a myth either! Cheek the 4-H Club, the FFA and PHA pro- grams; review the biographies of many of our nation's leaders. Are we to deny this value to an ever greater proportion of our young people? PAGENO="0120" 116 The cities are importar~t, and that they enrich life as collection and distribu- tion points for wealth and culture no one in his right mind would deny. As places for human habitation they leave much to be desired. Air pollution, water pollu- tion, crime that drives citizens from their streets at nightfall, transportation problems, and above all, personal non-involvement that strikes at the very roots of the human personality are some of the undesirable factors of our urban society. Man lives in the midst of a jungle of men and does not belong. None other than New York's Mayor John V, Lindsay described the cities thus, "Our cities exact too much from those who live in them. They are not only increasingly expensive places in which to live and work; more and more the price of city living is being paid by a sacrifice of fundamental personal freedoms." In the countryside there is a continuance of the "face to face" or "man to man" relationship. Here in work, play, marketing, school, and worship people know one another by name and by association. This is helpful to each indi- vidual's personality. Scientific research shows that when animals are confined to crowded conditions, there is a constant harassment of each ether. Man needs living space and it makes very little sense to have 70 percent of our people living on 1 percent of our land. Mrs. Lyndon Johnson travelling through the midwest last fall stated, "There is no secret in this land that many of our cities are beset with problems that breed crime, bad housing, rats, pollution, congested traffic and streetside bore- dom-perhaps the most dangerous of all. Re-energized small towns across the country may offer one of the important answers to the rising problem." It takes little imagination to realize what happens to a rural town as. it becomes sur- rounded with corporate-type agriculture; business on main street declines, churches and schools suffer, the tax base is eroded. Corporations negotiate loans at metropolitan banks instead of the local hank; cattle and other produce are sold directly on the major markets; feed is purchased directly from the mill; machinery is purchased directly from the manufacturer. The well-being of the individual person and of society is intimately linked with the healthy condition of the family. The family planted on the land will put down its roots deep in the soil, which will give it a stability offered by no other surroundings in which man can live. Stability is the first requisite for any family, without it nothing permanent can be achieved. A family on the land lives together twenty-four hours of the day, works together, and prays together, thus establishing the unity of human relationships, that strong bond so neces- sary to achieve great human development. Civilizations have toppled, but never before family life had disintegrated. Our agricultural production is a shining light of efficiency in a world dark- ened by the clouds of malnutrition and starvation. Our family farm system is chiefly responsible for this success story. We believe that the rule-of-thumb efficiency formula, one set of machinery with two sets of hands, is still valid. Many large corporate farming operations have succeeded only because of cheap labor and huge government payments. The niLinimum wage scal~ of $1.60 against $1.15 in agriculture tells us something. Yet, nearly all the individuals engaged in farming with the biggest incomes ($500,000 a year and up) show losses on their farm activities. Either they are incredibly inefficient or they are deliber- ate1y~ using farming as a method to get into lower tax brackets. Neither is justi- fiable and should be eliminated. These are some of the reasons the National Catholic Rural Life Conference is concerned over the entry into agriculture by an ever increasing number of corporations. We do not oppose the incorporation of a farming enterprise by a few members of a family. We are, however, opposed to the purchase of land of the operation of farms by large, nonfamily corporations. Specifically, we recommend: 1. That State Governments adopt laws prohibiting the purchase of farm land by corporations with stockholders exceeding a specified number. 2. That no corporation or individual be permitted to write off farm losises against income earned in non$arm operation. Such loop holes deprive the Gov- ernment of needed revenue and constitute an unfair competition with families who must earn their support from agriculture. 3. Federal payments for land retirement and crop reduction should be lim- ited to a specified number of units. Distributive justice demands that huge siums of money ~hould not be paid to already wealthy individuals and corporations. Moreover, such a policy enables these individuals and corporations to purchase still more land and push family farmers out of agriculture. PAGENO="0121" 117 4. The Federal Government should strictly enforce existing laws limiting the use of public irrigation water to a specified number of acres per user. Moreover, appropriatiotis for future water development projects should include similar limitation, 5. State Governments should seriously consider the enactment orf graduated land taxes which would discourage very large holdings of land by individuals and corporations. We feel that these steps are required by jttstice and would help preserve the family farm system which has contributed much to our Nation's welfare. Senator NELSON. Our next witnesses are Profs. Everett Peterson and Glen Volimar, Department of Agricultural Economics, TJniver- sity of Nebraska. We appreciate your taking time to come here today, gentlemen. Professor PETERSON. I am Everett Peterson and Twill read the state- ment that w~s prepared jointly by Professor Vollmar and myself. A cony of this has been submitted for the record. Senator NELSON. The statement will be printed in full in the record. If at any time either of you wish to elaborate on your printed text, please do so. STATEMENT OP EVERETT E~ PETERSON AND GLEN VOLLMAR, PROP~SSiO'RS, DEPARTMENT OP AG~ICULTTYRAL ECONOMICS, UNIVERSITY OP NEBRASKA, LINCOLN, NEBR. Professor PEThRSON. Farmers, businessmen, and other citizens earn- ing their living in the rural areas of Nebraska and the other Great Plains States are greatly concerned over reports of land purchase and the formation of farm enterprises by large, conglomerate industrial corporations. This concern will be expressed repeatedly by spokesmen for agriculture during these hearings. As agricultural economists at a land-grant university, our purpose here is to raise questions for con- sideration in planning further study of this problem so that results will provide a meaningful basis for future policy decisions and pro- gram development-in other words to indicate the need for scientific research. The first question: Do we know the extent of "factory farming" in the Great Plains and Corn Belt regions? If Nebraska is typical of these important farming areas, all we have to go on at present are reports of land purchases or options to buy in a few communities and rumors of such activities in other areas. Factual information is needed on: The growth of `factory farming in the past 5 years the financing, management, input purchasing, production `and marketing practices of such enterprises; their hori- zontal and vertical relationships to other enterprises in the corpora- tion; and tax advantages, if any. We think these corporations are going into farming primarily to make profits, rather than for offsetting losses for income tax purposes, realizing, of course, that such tax pur- poses do exi'st, and the need for consideration of opposing loopholes if they give corporations advantages that family farm's do not enjoy. The family farm is probably the most thoroughly studied producing unit in the national economy in the research programs of the U.S. Department of Agriculture and of the land-grant universities. It is doubtful that comparable information would be made available vol- PAGENO="0122" 118 untarily to research workers on the organization, operation, and fi- nancial results of the conglomerate corporation engaged in farming What we're suggesting here is that this committee might be able to obtain such information but that we probably could not. The second question that we pose- Senator NELSON. May I interrupt just `a moment. Has anyone in the agricultural economics field or elsewhere attempted to make a study of this `aspect of agriculture? Professor PETERSON. Not of this type that I'm talking about where we really go into the financial structure of the corporation and try to find out just what their motives are and how they stand to gain from it. I don't know of `any such study. `The second question: Do we know whether factory farms can pro- duce food and fiber at lower cost per unit of product than c'an well- organized, efficiently operated family farms? Here is another gap in currently availaible researc'h information. Agricultural economists in the past, and still today, talk glibly about diseconomies of scale wi'th rising costs per unit of production as the business unit gets bigger without being able to pinpoint the size of farm firms where such diseconomies begin if, in fact, they do occur. Most cost production studies do not `adequately allow for advantages that the largest family farms have in managerial ability, and in the purchase of `seed, fertilizer, insecticides and pesticides, machinery and other production items. Beyond this, factory farms probably have additional advantages in management, financing, purchasing of in- puts, and marketing of products. The historical trend toward fewer `and `larger family farms is well known. Our opinion is that this trend will continue with its impacts `upon rural communities. T'he growth of nonfamily corporation farm- ing would hasten the decline of `small agriculturally oriented towns in the Great Plains and `Corn Belt States. These towns are in serious trouble in either case since they are being `bypassed when `operators of large family farm's sell their products and `buy goods and services and would also `be bypassed for items bought or sold by factory farms. The main difference is that purchasing agents on factory farms would gcs directly to manufacturers for production items, while operators of large-scale family farms are likely to go to towns of 25,000 or more population in their immediate trading areas. Third, have we faced up to the basic policy issues involved in corn- `mercia'l agricultural development in America? With nearly 95 percent o'f our population now living in towns and cities, an important goal of national `food and agricultural policy i's The production of an abundant, nutritious, and varied supply of food `at low cost tO consumers. Up to now this goal has `been quite effectively `achieved by large-scale commercial family-operated `farms w'hich have adopted new technology and have increased in size and volume of `business. `One question for future agricultural policy is whether such family farms can compete effectively with factory farms. The research needed `here is to determine whether conglomerate corporations enjoy tax privileges, access tO management and financing, and buying `and `selling advantages not now available to individual farmers. If they do enjoy such advantages, then new programs can be developed or existing programs expanded to improve the competitive positio'n of PAGENO="0123" 119 large-scale commercial `family farms. Another set of programs would be needed to provide jobs for some people now on small farms and in small towns,, and to provide training opportunities for those jobs with- out aggravating existing problems of large cities. A more difficult policy issue arises if research shows that factory farms can produce food and fiber significantly at lower cost per unit of output; than the. most efficient commercial family farm. Then, the American people have to decide whether there are sufficient social benefits accruing to society in general from keeping a minimum num- ber of families on farms to justify the cost of subsidizing inefficiency in agricultural production. Senator NELSON. Are you aware of any studies by agricultural econ- omists on the unit cost production of any particular products? Professor PETERSON. There are studies on wheat, `for example, and to other products which have been made on commercial family farms. Senator NELSON. Would those be corporate farms? Professor PETERSON. Not on corporate `farms. There have been studies of different sizes of family farms, but not the' large-scale `fam- ily farms against the factory farm or the noufarm corporation en- gaging in agricultural production. Senator NELSON. Has that been bec'ause the information wasn't available to the researcher or just because it hasn't been undertaken by anybody? Profes'sor PETERSON. The information has not been available because such farms, until fairly recently, have been quite few in number. An- other reason is that most agricultural economists come from family farms originally and `are subject to the `same biases in regard to fam- ily farms that other people with similar backgrounds will have, the kind of biases we heard expressed here today several times. The recency of the development, the fewness in number and lack of availability c~f information has so far prevented research o'f this type. Among the possible benefits-social benefits would be the slowing down or even the reversal of the farm-to-city migration and lower public costs for solving urban problem's. This is a social benefit that should be weighed against the social cost of subsidizing certain min- imum populations on farms or in rural areas. Other `social and po- litical benefits have long been attributed to `farm life. These are dif- ficult to quantify through empirical research, and have lost much of their significance in an urban society. We can talk about the benefits of `family farm life and what it does to the human spirit, but, when only 5 percent of our population lives on `farms, such benefits are cer- tainly not available to very many people if, in fact, they do actually exist. However the values of space and clean air of the countryside should not be underestimated in planning future industrial develop- ment. Programs to implement a policy of keeping people in rural areas or even of encouraging city-to-rural migration could range from subsistence farming-this would be the cow-sow-hen approach-to guaranteed annual incomes to financial incentives for relocation of industry and urban-rural labor movement. The latter two make more sense today than a back-to-the-farm program. PAGENO="0124" 120 We hope this brief statement has raised some important points for your consideration, and has shown that agricultnral development and associated problems are part of national economic growth, and that farm problems cannot be solved simply by passing State or Federal laws to prohibit large-scale farming. That completes our statement. Senator NELsoN. Does your last statement indicate that you would be in disagreement with those who suggest that large, conglomerate cor_porate farm operations should be prohibited by law? Professor PETERSON. What I tried to say was that, before we pass such legislation, we need considerably more research information than is now available to us. Senator NELSON. Did you have anything to add, Professor Vollmar? Professor VOLLMAR. I would say that the cost studies we have done with enterprises on some of the largest family farms in Nebraska have shown that these enterprises have as low cost of production as our medium-sized family farms. We haven't been able to get access to data from some of the large, conglomerate firms to see how they measure up as to comparative costs, but I would guess that their cost of production will, at least, be lower than on our very small family farms. We find that our very small family farms, with the problems they have in using present-day technology-the larger machines and so forth-have a relatively high cost of production. Senator NELSON. The smaller ones? Professor VOLLMAR. The real small ones; yes. Even though the average cost curve is flat for a considerable distance as size of farm increases, it turns up eventually. We have questioned how fast it will turn up and if it would go up as far as costs on the really small farms. Senator NELSON. Did you find much difference in the comparative cost of production between ~ medium-sized farm operation and a large family `operation? Professor VOLLMAR. These were almost exactly the same. As soon as these economies are realized in the use of labor and equipment, the costs level out. We haven't been able to go far enough in size to determine whether some very large operations would have higher costs or lower costs. Senator NELSON. Do you suspect they might be lower? Professor VOLLMAR. If I would say anything, they would he possibly the same or higher. I wouldn't say they'd be lower. The field ineffi- ciencies of labor supervision and so forth may be overbaTanced with v~lume purchases of inputs and the marketing advai~tages that the very large firm can enjoy. I think that the medium-sized or larger family-sized farm can strengthen their bargaining position through cooperatives. Sen~tor NELSON. Do you have anything further at this time? Professor PEPERSON. I don't think so. This is all I had to present at this time. Senator NELSON. We appreciate this very much. I think this was a very valua~ble contribution. I wasn~t aware that no studies had been done on the cost of production on the corporate farm. This committee should undertake to explore the situation since the information may very well be made available to us and to other independent researchers. PAGENO="0125" 121 Professor VOLLMAR. Senator, I think cost studies have been done on the corporate farms, but most of these are smaller family corpora- tions. Studies have not been done on such firms as Gates Rubber oper- ation and some of these firms that we have been talking about today. Professor PETERSON. The information that we use in our cost of production studies in agriculture is obtained through our farm ac- count projects and other research activities where the farmer volun- tarily submits information to the univer~ity for analysis, summariza- tion, and publication. No individual farmer's record can be detected but it does yield information on family farms. We have nothing com- parable from what we call the factory farm or the nonf arm corpora- tion engaged in agriculture. Such firms don't come to us for farm accounting work. They have their own accountants. This is why we're at a disadvantage in trying to compare their unit cost of production and the advantages in purchasing which we mentioned. We don't have the information to be able to slay they do or do not have advantages over the family farm. Senator NELSON. Do you have any coSt of production studies-unit cost of production studies-that have been made on the vatious farm operations that you mentioned that would be useful for us for our record. Professor PETERSON. Yes, we do. Senator NELSON. I would like to print in the record the cost studies that you do have. If you would send any others to me at the Senate Office Building in Washington, D.C., we will incorporate them as part of the hearing record. I want to thank you both very much. (The supplemei~tal information follows:) Wgg~vj~ PRoDucuoN CosTs IN TIER NEBRASKA PANH4NDLE' (By Glen J. Vcsllmar, Glenn £ ileimers, and Robert B. J. Retziaff 2) Wheat is the principal crop grown in the Nebraska Pan~iandTe, Wheat produc- tion costs are important to farm adjustment and farm ~oIicy decision by wheat growers. This article summarizes a study of wheat production costs in the Neb~ask'a Panhandle. The major objOetlivas of this study were to Osltimhte the average production costs of wheat and to determine if cost efficiencies in wheat produc- tion are related to the size of the wheat euter~rise. Exiaminatilon of the wheat enterprise cost components of 07 Panhandle farms made possible some conclu- sions as to "why" some growers produce wheat at lower costs per bushel than others. Where economies of wheat production are related to enterprise size, larger wheat farn~s may have cost advantages ovur smaller wheat farms. Over time, farm managers tend to adjust the size of their operations and resource use to take advantage of cost efficiencies and to increase their volume of business. PROORDURE Three areas of the N~braska Panhandle, as sthowp in Figure 1, were selected for study. Area 1. Banner and Kimball Counties~ Area 2. Cheyenne, Garden, and Denel Counties. Area 3. Box Butte, Dawea, and Morrill Oounties. 1Thi~ Nebraska Agricultural Experiment Station study was partially financed by a grant from the Nebraska Wheat Growers Association. This Is a summary of the material which will be discussed in detail in a Nebraska Agricultural Experiment Statloa bulletin which is in process. 2 Professor and Chairman, Associate Professor, and former Research Assistant, Depart- ment of Agricultural Economies, University of Nebraska, respectively. PAGENO="0126" 1:22 Five size classes of commercial diryland wheat farms were stuthed The size classes were developed around the numher of acres in the Wheat enterprise Size class Acres of wheat 1 Less than 90. 2 90 to 199. 3 200 to 349. 4 350 to 799. 5 800 and over A survey of 67 wheat growers in the Panhandle was taken in 1966 and 1967 Farms which were selected represented all five classes for each area. The survey data were used to develop detailed, enterprise cost budgets for each grower's wheat enterprise. COST COMPONENTS Figure 1. The three study areas and the number of wheat grower surveys1 Nebraska Panhandle. All costs of wheat production with the exception of management were de- termined. These costs are based on the wheat crop harvested in 1966. Informa- tion on which to base management input cost assumptions were not available; therefore, the return to management was considered as a residual after all other enterprise costs were accounted for The variable and fixed costs of wheat production included in the study are as follows: Variable costs.-These costs represent out-of-pocket expenditures which vary with production. Variable costs included were: (1) Tractor fuel and oil, (2) combine fuel and oil, (3) owner hauling, (4) machinery repair and building main- tenance, (5) seed, (6) chemicals, (7) fertilizer, (8) hired labor, (9) food and shelter for hired labor, (10) custom harvesting, (11) hired hauling, (12) corn- mercial storage, (13) crop insurance, (14) miscellaneous costs, and (15) inter- est on variable costs at 7% for 10 months. Ficoed costs.-Fixed costs are incurred regardless of level of production. Land was either charged the landlord s share or if owner operated a land charge was computed by taking the current value of two acres (one wheat and one fallow) times 5% interest plus taxes on the two acres. A commonly reported land value was $110 an acre. The labor of the operator (both direct time spent with wheat production and overhead time) was charged at the rate of $1.85 per hour. This .~; Si * Al fIL1Ij~' Area 1. (20 wheat growei surreys). Area 2. (26 wheat grower surreys). Area ~. (21 wheat grower surveys). PAGENO="0127" 123 was the average opportunity cost' reported for operators labor Other fixed costs were personal taxes and machinery and building depreciation. Interest on fixed costs was charged at ~% per annum. Yields.-Wheat yields on the study farms were taken from Agricultural Sta- bilization and Conservation Service records Five year average (1901-1965) normal yields were used to avoid the problem of basing costs of production on one production year Prwes -Wheat prices were required in the calculation of some elements of cost and in analyzing costs and returns of the wheat enterprise. The average wheat price for the Panhandle for 1961-65 was $1.79 per bushel. This includes market price plus average value of 44 cents per bushel for wheat certificates. COST ANALYSIS Total costs of producing wheat were determined for the wheat enterprises in each size class. A weighted average cost per acre of producing wheat was then found for all wheat enterprises in each size class for each of the three study areas The data for the three study areas are combined in this article since our intent is to discuss the effect of wheat enterprise size on cost efficiency In Table 1 the budgeted costs of wheat production are presented for the five wheat enter- prise size classes Wheat production costs were $183 $1 5~ $144 $143 and $144 per bushel for size classes 1 to 5 respectively. TABLE 1.-BUDGETED COSTS PER ACRE BY SIZE CLASS, NEBRASKA PANHANDLE Size $33. 14 item - Class 1, Class 2, Class 3, Class 4, Class 5, 11 growers 14 growers 15 growers 17 growers 10 growers 35-77 94-198 200-319 355-640 807-1,488 59 142 258 482 1,Q06 $28. 68 $26.64 $26.76 $23.83 14.23 14.77 15.19 16.33 15.95 .81 .46 .31 .44 .38 9.32 5.82 4.65 5.16 4.50 7.71 6.84 5.84 4.24 2.56 1.07 .79 .65 .59 .44 Range In acres Average acres of wheat per farm Fixed costs Land charge Personal taxes Depreciation Operators' labor Opportunity interest, fixed costs - Variable costs Hired labor Harvesting' Custom hauling Own hauling Storage, commercial Crop insurance Buildings maintenance and machinery repair. - - Miscellaneous Seed Fuel, oil, grease Food and shelter for hired labor Fertilizer Chemicals Opportunity interest, variable cost Total costs 48. 78 Cost 1.83 15.64 12.95 13.00 13.19 14.63 - .90 .47 - .62 1.43 3.08 2.51 2.38 2.31 2.36 2.38 1.04 .77 1.25 .96 1.19 .92 .70 .51 .56 .44 .09 .33 .22 .17 .08 1.14 1.02 1.62 1.24 1.27 2.46 1,45 1.05 1.29 1.19 2.71 2.46 1.93 1.41 1.26 1.54 1.47 1.50 1.60 1.58 1.01 .87 .73 .68 .61 .35 .13 .36 .42 .33 .03 .02 .06 .07 .09 .08 .15 .13 27 .32 .86 .73 .71 .73 .81 41.63 39.64 39.95 38.46 1.53 1.44 1.43 1.44 I The cost of custom harvesting was prorated over all wheat acres harvested. The typical custom harvesting charge was $3.50 per acre plus 5 cents for each bushel of yield over 20 bushels per acre. Fixed costs declined from $33.14 per acre for size class 1 to $23.83 for size class 5. Depreciation and operator labor were the cost items mainly accounting for a $931 per acre decrease Variable costs decreased from a high of $1564 per acre for size class 1 to a low of nearly $13 00 per acre for size classes 2 3 and 4 then increased to $14.63 per acre for size class 5. HIred labor cost~ increased from $90 per acre to $308 per acre from size class 1 to 5 Other variable costs remained nearly iionstant or declined Economies of size therefore result from more efficient uses of machinery, labor, and some of the variabl~ cost items by larger farmers. Increased efficiency In operator labor for the larger wheat enterprises is partially offset by higher PAGENO="0128" 124 hired labor costs. By adding operator and hired labor costs the following total labor costs are obtained for size classes 1 to 5; $8.61, $7.31, $6.46, $5.67 and $5.64. Over the range of enterprise size studied, the managers of larger enterprises were able to use labor more efficiently than the managers of smaller wheat enterprises. The economies in operator labor costs, depreciation,, and variable costs can be further demonstrated in analyzing the returns from growing wbeat in the Panhandle. Shown in Table 2 are the returns of growing wheat for the five enter- prise size classes using a wheat price of $1.79 per busheL Gross returns per acre and the ASOS normal yields were nearly the same for all five size classes. Fixed costs as a percent of gross returns declined throughout all five size classes with the major difference between size classes 1 and 2. TABLE 2.- RETURNS PER ACRE, AGRICULTURAL STABILIZATION AND CONSERVATION YIELD, HOURS OF OPER- ATORS' LABOR, AND RETURN TO MANAGEMENT BY SIZE CLASS FOR WHEAT ENTERPRISE, NEBRASKA PANHANDLE. Item Size class 1 Size class 2 Size class 3 Size class 4 Size claas 5 Gross returns per acre Variable cost as a percent of gross returns Fixed cost as a percent of gross returns Total cost as a percent of gross returns Returns over budgeted cost per acre ` Hours per acre for the operator Returns to operators' labor and management per acre Returns to operators' labor and management per hour Return to management per hour Agricultural stabilization and conservation yield (bushels per acre) $47. 67 32. 8 69. 5 1Q2. 3 -$1. 11 4. 17 $6. 60 $1. 58 -$0. 27 26. 68 $48. 18 26. $ 59, 5 86. 4 $0. 55 3. 6$ $13. 38 $3. 63 $1. 78 26. 97 $49.27 ?6. 5 53. 9 80. 4 $9.63 3.. 1. $15. 48 $4. 90 $3. 05 27. 57 $49.84 26. 4 53. 8 80. 2 $9. 89 2.39 $14.31 $5.99 $4. 14 27. 89 $47. 63 30. S 50. 2 80. 7 $9. 17 1. 39 $11. 74 $8. 45 $6. 60 26. 64 I Since no management cost was included, this is the return to management. Total budgeted costs as a percentage of gross returns were over 100%. in size class 1 indIcating that some grower resources included in size class 1 (average of 59 acres of wheat per farm) did not receive the retijrims assumed in developing the budgets~ A negative $1.11 per acre was budgeted as the return over costs, the return to management. Returns to management per hour in size classes 1 to 5 were-$0.27, $1.78, $3.0~, $4.14, and $6.60 respectively. Farms in size classes 4 and 5 produced wheat at nearly the same cost as in size class 3. However, the return to management per hour increased throughout these classes since fewer hours of the operators' time were used in producing wheat on farms with the larger wheat enterprises. CONCLUSIONS The cost of wheat production in the Nebraska Panhandle is summarized by enterprise size class and production area in Table 3. TABLE 3.-SUMMARY OF WHEAT COST OF PRODUCTION PER BUSHEL BY ENTERPRISE SIZE CLASS AND PRODUCTION AREA, NEBRASKA PANHANDLE1 Size class 1 Size class 2 Size class 3 Size class 4 Size class 5 Overall (11 farms) (14 farms) (15 farms) (17 farms) (10 farms) averages Area 1(2Ofarrns) $1.68 $1.49 $1.31 $1.32 $1.36 $1.36 Area 2(26 farms) 1.79 1.61 1.47 1.58 1.53 1.54 Area3(21 farms) 2.01 1.48 1.47 1.34 1.31 1.39 Size averageS 1.83 1.53 1.44 1.4~ 1.44 1.45 1 Costs do not include a management charge. 2 Weighted average cost per bushel for the 5 size classes for each of the 3 areas studied. 3 Weighted average cost per bushel for the enterprise in the 3 areas included in each size class. Economies of size in wheat production were found to be statistically signifi- cant. As illustrated in Figure 2, costs of production decline from size class 1 to 3 and remain at approximately the same level for the larger size classes studied, PAGENO="0129" 125 These economies indicate that wheat farms in the Nebraska Panhandle must have at least 250 acres of wheat in order to reach competitive cost efficiencies in production. However, beyond 300 acres little cost efficiency advantage can be gained by increasing the size of the wheat enterprise. Beyond 300 acres of wheat production per farm, income levels can be increased by increasing the volume of business but not from per bushel cost of production advantages. The size economies determined for Panhandle wheat production resulted mainly from the efficient use of machines and the operators' labor. Productior CostBuehel $2.00- $1.83 $1.79/Bushel Price Line 1.8~ -. 1.60 $1~53 (142A~ * ~$l.Z3 ~(i~6A.) 1.40 . C 1.20 0 - --j-.- r ~r~.JMi 14Tflfl ~r" ti'~ t lit !~$UI1~ ri-fl1 ~f--r - 0 150 300 450 600 750 900 1050 Acres in the Wheat Enterprise Figure 2. Planning curve showing size economies in wheat production, Nebraska Panhandle NEBRASKA-PROPORTION OF TOTAL AGRICULTURAL PRODUCTION COMING FROM FARMS OF VARIOUS SIZES AS MEASURED BY VOLUME OF PRODUCTION FOR SALE PER FARM IN 19641 Number Economic class of farm of farms Percent of all farms Cumula- tive percent of all farms Value of products sold (millions) Average value of products sold per farm Percent of total value Cumula- tive percent of total value Commercial farms, gross sales of: Class I: $40 000 and over 4,904 6. 1 $539 $110, 019 40.5 Class II: $2O,000 to $39 999 10, 766 13.4 19. 5 291 27, 108 21.9 62.4 Class III: $10,000 to $1&999 20,993 26.2 45.7 296 14,121 22.2 84.6 Class IV: $5000to $9999 20,130 25.2 70.9 148 7,362 11.1 95.7 Class V: $2,~00 to $4 ~99 11,322 14. 1 85. 0 42 3,741 3.2 98.9 Class VI: $50 to $2,4~9 2 3,229 4.0 89.0 4 1,437 .3 99.2 Total, commercial farms 71, 344 89. 0 89. 0 1, 323 18, 544 99. 2 99.2 Other farms: Part time3 4, 076 5. 1 94. 1 4 1,081 . 3 99. 5 Part retirement4 4, 724 5. 85 99.95 5 1, 104 . 4 99. 9 Abnormal~ 19 .05 100.00 1 92,668 .1 100.0 Total, other farms 8, 819 10. 1 10 1,280 . 8 Total, all farms 80, 163 100. 00 100. 00 1. 333 16, 646 100. 0 100. 0 1 All figures are estimates based upon sampling. 2 With the operator under 65 years of age and worked off the farm less than 100 days and farm sales greater than other family income. 3 With the operator under 65 years of age and working off the farm 100 or more days, or other family income exceeding farm sales. 4 With the operator 65 years of age or older and sale of farm products $50 to $2,499. 5 All institutional farms and Indian reservations were classified as "abnormal." 95-25~ O-68-9 PAGENO="0130" PAGENO="0131" ECONOMIC AND OPERA TIONA L CHARACTERIS TICS OF ARIZONA `p (127) PAGENO="0132" 128 ACKNOWLEDGMENTS The data used in this report were obtained during a regional study of western livestock ranching conducted by the Farm Production Economics Division, Economic Research Service, U. S. Department of Agriculture, and several ~tate agricultural experiment stations in the West. Assistance in obtaining ranch records and gracing statistics was furnished by the Bureau of Land Management, Department of the Interior, and Forest Service in the Department of Agriculture. Others who provided helpful suggestions as the work progressed: U. S. Department of Agriculture Economic Research Service C. W. Crickman, Washington, D. C. R, G. Welch, University Park, N. Mex, Forest Service Robert S. Rummell, Washington, D. C. U. S. Department of the Interior Bureau of Land Management Myrvin E. Noble, Washington, D. C. PAGENO="0133" 129 ECONOMIC AND OPERATIONAL CHARACTERISTICS OF ARIZONA AND NEW MEXICO RANGE CATTLE RANCHES By Calvin C. Boykin, Douglas D. Caton, and Lynn Rader 1/ INTRODUCTION New Mexico and Arizona are widely known for range cattle operations and the production of feeder and stocker calves. In 1959, 21 percent of all farms in New Mexico and Arizona were livestock ranches. These ranches contained over 88 per-. cent of the land in farms (table 1). Over 64 percent of the 2 million head of cattle and calves in New Mexico and Arizona in 1959 were located on range cattle ranches. The value of cattle and calves sold in that yearfrom farms and ranches in these two States amounted to almost $226 million. These sales comprised about 80 percent of the total value of all livestock and livestock products sold in these States, and 38 per-. cent of all crops and livestock sold during this period. In 1959 the average ranch in New Mexico and Arizona was 10, 320 acres (exclu- sive of public land), with an average investment per ranch in land and buildings of $140, 906, and an average of $12, 705 in livestock (table 2). Average gross sales per ranch amounted to $22, 651. Many ranchers in New Mexico and Arizona use public land under grazing permits. The majority of these permits are issued by the Forest Service and the Bureau of Land Management. The Federal ranges are grazed under regulations as to seasons of use, number of livestock, and the grazing period. Federal grazing land amounts to about 39 percent of the total land in the two-State area. There is great variation in types of range in Arizona and New Mexico, also in types and sizes of cattle ranch operations. Incomes among ranches vary because of differences in productivity of range types, and because of differences in organization and costs. Annual variations in ranch income are due to variations In livestock prices and trends in costs and range conditions. 1/ Calvin C. Boykin is an agricultural economist, Farm Production Economics Division, Economic Research Service, U. S. Department of Agriculture, stationed at Texas A & M University; Douglas D. Caton was formerly an agricultural economist, stationed at the University of California; and Lynn Bader is range economist, Divi- sion of Range Management, Forest Service, USDA, Washington, D. C. PAGENO="0134" 130 Table 1. --Number of ranches, percentage these ranches are of all farms, land in these ranches as a percentage of all land in farms and of land not in Federal ownership percentage of all land in Federal ownership, Arizona and New Mexico, 1955 and 195 Land in ranches as a-- *~um1, r f:Ranches as a : . :Percentage of all State ranches :percentage of Percentage ofPercentage of all: land in Federal 1' : all farms : all land in : land not in : ownership - : 1/ : farms :Federal ownership: 2/ 1/ 1/ - Percent Percent Percent Percent Arizona : 1,156 16.0 84.9 62.3 44.5 New Mexico 3 771 23 8 90 2 58 4 33 7 Total 4 927 21 4 88 4 60 4 38 9 1/ From Farms and Farm Characteristics by Type of Farm Census of Agriculture taSle 19, 1959. ~/ Wooten H. H., and Anderson, J. R. Major Uses of Land in the United States, Sum- mary for l9~4, U.S. Dept. Agr., Agr. Inform. Bul. 168, table 31, Jan. 1957, Table 2.-.~Average.acreage, average value, and average gross sales per range livestock ranch, Arizona and Hew Mexico, 1959 Acreage of Value of land Value of Cross sales a e private land and buildings livestock per ranch Acres Dollars Dollars Dollars Arizona : 13,907 241,089 20,019 32,730 New Mexico : 9,220 110,195 10,463 19,561 Average 10 320 140 906 12 705 22 651 Source: Type of Farm Report, Census of Agriculture, 1959, tables 12, 57-59, PAGENO="0135" DESCRIPTION OF THE STUDY AREA The areas in New Mexico and Arizona include the Southe9 Intermountain Ranch- ing Area and the Southern Desert Ranching Area (fig. 1). These ranching areas con- sist of broad plateaus and benchlands, mesas, foothills, and mountain ranges. Aver- age annual precipitation is from less than 10 inches at the lower elevations to 30 or 40 inches in the mountains. Most of the precipitation occurs as rainfall in late spring and early summer. This is also the period of maximum growth of range forage. Range forage growth varies considerably from location to location within each area because of differences in soils, temperature, and rainfall. The ranges in the Southern Desert Ranching Area are generally less productive than those in the Intermountain Area; the Desert Area also has lower annual rainfall and higher average temperature. The number of Federal grazing permits2/ and the number of cattle grazed on Forest Service and Bureau of Land Managen~nt lands in the Southern Intermountain and Southern Desert Ranching Areas in the study period are listed in table 3. Many of these permittees have small operations; in 1960 over 60 percent of the permittees in each ranching area operated with fewer than 200 head of cattle (fig. 2). OBJECTIVES The objectives of this report are: (1) To present the cost, income, and investment of typical ranches in the Southern Intermountain and Southern Desert Ranching Areas as of 1960, and (2) to evaluate the effect of changes in costs, prices, and range forage supplies on the net income of these ranch~es. ASSUMPTIONS AND BUDGET TECHNIQUE The investment, cost, and ranch organizational data used in developing represent- ative ranch budgets were obtained from interviews with about 140 ranchers in the two ranching areas. These data were supplemented with additional data from other re- search, and from Forest Service and Bureau of Land Management records. Repre- sentative ranch budgets were developed for cattle ranches holding both a Forest Service and a Bureau of Land Management permit, and for cattle ranches with' either a Forest Service or a Bureau of Land Management permit. A total of 14 ranches were budgeted for the two ranching areas. The investment in the representative ranches is based on 1960 market values. The market value includes whatever capitalized value the market has ascribed to grazing privileges. Investment in land is derived by subtracting the computed invest- ment in buildings, equipment, and livestock from the estimated total value of the ranch. Buildings and equipment investments are 1960 replacement costs depreciated by 50 percent; livestock investment is January 1 livestock inventory at projected 2/ The National Forest ranges in the Southern Intermountain and Southern Desert Ranching Areas are grazed primarily in the summer, although some yearlong graz- ing is practiced on ranges at the lower elevations. The Bureau of Land Management ranges are primarily grazed yearlong, although fall-winter-spring grazing also Is common in the northern section of the Southern Intermountain Ranching Area. 131 PAGENO="0136" 132 I H-H-I-H EJ Figure 1 PERCENTAGE FREQUENCY OF RANCHES BY SIZE, 1960 NUMBER OF CATTLE PER RANCH U. N. DEPARTMENT OP AGRICULTURE HOG. ENS 3970.63(9) ECONOMIC RESEARCH SERVICE~ Figure 2 PAGENO="0137" Table 3.--Cattle grazing permits issued by Bureau of Land Management and by Forest Service in 2 Southwest ranching areas, 1960 Item : : Forest~jerv - ice : Bu~g~e~nd .aI Number Number Southern Intermountain Area : Total number of permits 2,155 1,253 Cattle permitted to graze : 184,948 106,265 Southern Desert Area : Total number of permits 461 , 3,623 Cattle permitted to graze 49,303 189,228 1/ Includes horses. ~/ Includes permits on both Section 3 and Section 15 lands. PAGENO="0138" 134 market prices. The family home is excluded from ranch investment; depreciation and repair costs on the home are excluded from annual ranch expenses. Production costs of the representative ranches reflect 1960 prices paid in each ranching area. Only the estimated ranch business share of telephone, utility, and automobile costs is included in the budgets. Interest on operating capital is charged at an annual rate of 6 percent for 6 months. Labor use on the representative ranches is the normal amount of labor for each size and type of ranch included in the survey, which means that small ranches used less than a full-time man equivalent. Hired labor Is paid at the local 1960 wage rate, operator labor is charged at the rate of a full-time hired man, and family labor is charged at equivalent hourly wage rates. The projected U. S. prices used in the budgets were developed by the Farm Pro- duction Economics Division U S Department of Agriculture for use in this and other research studies. Comparable projected prices were developed for the Omaha livestock market for cattle. The price projections based on this livestock market were adjusted to each ranching area by relating the projected prices on the base markets to 1953-60 average prices at a centrally located market for each ranching area The cattle prices thus obtained were then adjusted to each ranch locality by subtracting an allowance for marketing and transportation charges Required monthly and seasonal cattle prices were determined by relating the 1953-60 average monthly prices to the 1953-60 average annual price. The marketing practices and time of marketing for each ranch were the typical patterns for ranches of the type budgeted in each locality. In addition to the estimates of receipts based on projected prices, 1953-60 average cattle prices were also used to show the effect of a price change on net ranch income. The animal unit months of feed required by livestock for each representative ranch budget were based on feed standards expressed in the following animal unit equivalents: Mature cows, 0. 91; yearling steers, 0. 68; yearling heifers, 0. 67; bulls, 1. 20; calves, 0. 51; and horses, 1. 00. CHARACTERISTICS OF REPRESENTATIVE RANCHES Both cow-calf and cow-cilf-yearling operations are included in the representative ranch budgets. The smaller cattle ranches are predominantly of the former type and the larger cattle ranches are mainly of the latter. Mature cows and replacement heifers average about 74 percent of livestock inventory numbers (table 4). The percent of year- ling. steers in each ranch inventory increases as ranch size increases. The dependency of the representative ranches on Federal range forage varies from 27 to 93 percent of the annual feed requirement (table 5). The dependency is lowest for ranches with seasonal grazing permits, and highest for ranches with year- long grazing permits. The animal unit months of grazing obtained from Federal range of the representative ranches varies from 120 to 5, 724 animal unit months. The relationships which apparently affect the acreage of owned land are permitted animal unit months of grazing, carrying capacities, and cropland and pasture acreages. Ranches located at higher elevations require fewer acres of range and pasture per ani- mal unit. For example, Forest Service permit ranches have 0. 4 acres of cropland and pasture and 4. 9 acres of rangeland per animal unit, as compared with no crop- land and pasture and 32. 6 acres of rangeland per animal unit for the cattle ranches PAGENO="0139" Table 4. --Livestock inventory, representative cattle ranches, Southern Intermountain and Southern Desert Ranching Areas, January 1, 1960 Ranching area : Southern Intermountain : Southern Grazingpmit : (BLM-0) (FS-S) : (BLM-0) (FS-Y) : (BLM-Y) (FS-0) : (BLN-FWSp) (FS-S) : (BLM-Y) (FS-0) ~ ~s~/ 35 125 118 240 512 35 247 471 34 210 337 68 182 423 ~i2~ No. i!~2~ 2~ ~ ~ ~ ~ :~ Cows: : Nature 22 73 72 145 300 24 175 296 22 140 210 50 120 256 2-year heifers : 3 12 8 20 40 4 21 56 3 20 32 5 16 56 Yearlings: Heifers : 4 13 17 38 68 4 24 56 3 21 35 5 16 58 Steers : 0 12 8 30 50 0 12 53 4 10 60 3 10 9 Bulls 1 5 5 12 22 1 8 18 1 7 10 2 7 16 Horses 1 3 4 5 11 1 211 1 2 3 1 2 5 1/ BLM=Bureau of Land Management, FS=Forest Service, 0=None, S=Summer, Y=Yearlong, Sp=Spring, W=Winter, F=!all. 2/ An animal unit is equal to the annual feed requirement of a mature 1,000-pound cow. PAGENO="0140" 136 with a Bureau of Land Management permit only. The representative ranches having both Forest Service and Bureau of Land Management permits average 0. 1 acres of cropland and pasture and 11. 3 acres of rangeland per animal unit. INVESTMENT - REPRESENTATIVE RANCHES Investment in land of the representative ranches varies from $5, 636 to $155, 581 (table 5). This is an investment per animal unit of from $68 to $330. Land invest- ment per animal unit decreases directly with the number of animal unit months of grazing permitted on Federal range. The representative ranches with Forest Service and yearlong grazing permits have the lowest per animal unit investment in land. Investment in buildings and improvements of the representative ranches varies from $2, 515 to $45, 182. This is an investment of from $40 to $264 per animal unit. Buildings and improvements investment varies directly with ranch size, animal unit months in the Federal grazing permit, and the amount of cropland and pasture in the ranch. In general, investment in buildings and improvements per animal unit de- creases directly with ranch size. Investment in machinery and equipment for the representative ranches varies directly with ranch size and acreage of cropland and pasture, decreasing as ranch size increases, and increasing with cropland and pasture acreage. The investment in livestock for the representative ranches varies between $130 and $160 per animal unit. This difference is primarily related to differences in the age and class composition of the livestock inventory, and to differences in livestock weights. Total investment in land, buildings, improvements, machinery, equipment, and livestock varies among the representative ranches from $21, 280 to $288, 578. Total investment per animal unit varies from $256 to $722. RELATIONSHIP OF TOTAL INVESTMENT TO THE SIZE OF THE FEDERAL GRAZING PERMIT AND THE NUMBER OF ANIMAL UNITS IN THE LIVE- STOCK INVENTORY In figure 3, average total investment per animal unit is plotted against the number of animal unit months in the Federal grazing permit per animal unit in the livestock inventory. The total investment per animal unit decreases in direct ratio to animal unit months of grazing per animal unit on Federal range. The relationship between ranch size in total animal units and total investment per animal unit is shown in fig- ure 4. Total investment per animal unit is inversely correlated with animal unit months in the grazing permit and with ranch size. A total investment per animal unit equation was derived from the relationships as shown in figures 3 and 4 as follows: Xlc = 784. 11 - 28. 39 X2 - 0. 46X3. ~I As the 3/ Xic = total investment per animal unit; X2 = animal unit months in the grazing permit per animal unit in the livestock inventory; X3 = ranch size in animal units. PAGENO="0141" 137 4-I 0 coinOOO~,-4COr-- 00-i~-~ 01 * 0000000 4-~Nc-l OO0--.~ - 01 H in c-i c--i c-i -ii- co in 0 c-i in in .4- Co in c0.4 0 4.1 Ui ~ -~ in -4 Co H on cn Iri in CO c-I 00 c-t 0- 1-i o iii c--i c-i c-i -~ r- C. r- --i -~ co in in Co -~ 01 ,.4,-4c--i,-4 c-I i~I `.4 .4 `0 in O~ -~ 0 in Co in 0-000 N Co in H o in c-i cc-c coo a~ in ~- c-i o~ i-- ~ c--i i- ii CO cO-~c~oOCo-l-~Cn r-o\oo ~cc o ~ -~~r---~f~-OO 0cm - C) ..44.1 c-I H in in c-n in f-Co c-I c-i Co 00 0 K 01 I C)0O.4~CO1f-in 000Co 1 I 0 Cm N NO -~ -~ cn in Co -4 Co c-i N in ~ I `d~ in Co N N in in Co NO c-1 ,-I CO -~ ~m Co 4.1 ,014 - - - I 01 0 0)0 Coc-ICor-inOCo c-i-~N p~ Z 01 c-I ,-I,-I Co `0 - 01 Cl CO 00 4,i ci bO'O I QNLn000cnoc-c-4 ,-Iiri4 0 Cl ~ 0001 * ic--JCOc--JCON c-4inCm 0 bO 0 `CO ~ CO -4 OmC~J in Co Co in Nc--IC' H CO in CO Co ,-4 `0 H `OHOl,i 0 - - - - - 0 H 1 0 0 oOQic--i in Co c--i am co c--i iri ,- iriN 00 CO .0 `c-It) 0-0) c--i c--i in -~ c--i ,.1 ,-4 in Cl 000101 Cl c-t~i'.4 4.1 Co.-INOmCoCoOCOOHCO inCoCi -ø inc-n in in c--I in cn in -~ c-a a- 0 -~ -~ 44 010 * CoOiramCoNinonOinlOO Co-~CO 44 o 00 H --- Cl ~C0 0 OamOCoc-iHinin-t 0-CoCO 4~I OH 0 H H -~ c-i c-i -~ -~ in in H c-n 0 H 010 ` Co ~ `~ ~`0 cc 0000000NONO ininCo icc-I `o cc b0~ ci am cn co inamCo Cl 0 cc 04 ~ ~ c-c N-C~in 10 Cl iOH C) - - ` 01 0(0 c-I ~., ~ -~ in c-~ c-lCo 0 .401 ` - 0 .0 H Z H C) CO 01'O CO H H in 0 in c-- 0 in -~ in in c-- OH II COO 14 000 41 c--cnHc--Iinr--inc--iOamN LnLnH 0 CO 01 0 0 44 c-i am H Co Co Co Co in Co N am H CO c-n 01-i `0 00-4 C) - - - 44 Cl `0 fl~ -~ c-i -~ininH HH-~ Cl Cl N Cl H C) `OH I 0 `0 04-1 0 ~ 0 41 01i~i 0 0 C0'014 CO c--OOinUI0000inOO 000 CO Z H00 Cl CoinCOHN in Cl .OC) 0-COO ~ H Co C) 0 CC (I 0-c-I O0'O H 0 `.444 `.4010 COW * N ~ 4lC)~14b0 o oO-z4aml---NCoCmOOc-IHin 4 `0 1~1Cl,Id 0 Cl 0 C) Co in c-i co c-i Co CO .i~ Co in ~m Co 0 0 CO44'OCO ~ N CO 0-440440111 H 00.0 N i-I H .4 COOl ~inincOinOOr-r--Hc-l oOc--iin 01 014-1 in in in H c-i H -~ -~ in N H Co CO c-i 01) 44 .,-1*.4 H H c--i c--i c-i in -~ in H -.t Ci 01 00 0 0- 00 1111111*111 III 0 - 0 IIIIIIIIIII II `0 `c-I Hj `.4 11111111111 III 0 N CO t~IIIIIIlII III CO CO Cl 4~I 11111111111 .4 III 1-1 0- 0 11111111111 44 III 0- 0 IIIIIIIIIII Cl III 4-I 4~i 0 ~ CO III 0 01 CoIIIICoIICoII Cl III * `0 44 IIIIIIIIIII 0 ii 0 in 0 Cl Co CoCo--~- ~-~-- 10 CO 4-I ~OCo~Co 00400-I 000 Cl CO CoCoCoCo CoCo CoCo 41 CoCoCo 0 ,0 Cl -~NNNN-"--NN-'---NN .0 040404 00 CO 14 0 0- P---'c--'0-" 41 --~-- ft 1-I 14 14 Co Co Co 0 Cl --~--~- r-,- i-c'- 0 41 .0 0400000-40-0 Co 040404 Co ~000c0cbcO00cO 000000 -~-~-`- -`-~- N PAGENO="0142" 138 INVESTMENT RELATED TO AUM'S IN GRAZING PERMIT $ INVESTMENT - PER ANIMAL UNIT 700 ______ . ______ - 400 300 200 0 2 4 6 8 10 12 NUMBER OF .ANIMAL UNIT MONTHS (AUM) OF GRAZING PERMITTED ON FEDERAL RANGE PER ANIMAL UNIT ON RANCH. Figure 3 .~ .1 $ PER ANIMAL UNIT a INVESTMENT RELATED TO TOTAL AU'S PER RANCH INVESTMENT 600 ~ /Uu-~ ~ .~ .~ . f~-I. 0 100 200 300 400 500 600 NUMBER OF ANIMAL UNITS (AU) ON RANCH Figure 4 PAGENO="0143" 139 ratio of the number of animal unit months of grazing on the Federal range to the num ber of animal units in the livestock inventory (X2) Increases one animal unit month the average investment per animal unit decreases by $28 Also as the average number of cattle in the inventory (X3) increases one animal unit, average investment per animal unit decreases by $0. 46 ($46 per 100 head). These relationships indicate that as ranch size (X3) approaches 512 animal units (the largest representative ranch in the study), investment per animal unit might be as little as $350. 43. On the aver- age size ranch (217 animal units), if the average animal unit months in the grazing permit is as much as the observed maximum (11. 2 animal unit months), total invest- ment per animal unit might be as little as $366. 21. LIVESTOCK PRODUCTION RATES Differences in production rates such as calf crops death losses and average livestock weights depend upon climatic and physical factors affecting forage produc tion as well as forage utilization practices supplemental feeding programs and times of marketing. Net production per animal unit of the representative ranches varies directly with ranch location and ranch size (table 6), and generally increases as the size of the ranch increases or as the ranch location becomes more favorable. The larger ranches and the Forest Service permit ranches have the highest produc- tion per animal unit. PRODUCTION COSTS Cash Costs Supplemental feed hired labor fuel and oil taxes and grazing fees comprise about 70 percent of total cash costs (table 7) On an animal unit basis average cash costs decrease with ranch size from $42 on the smaller ranches to $29 on the larger (table 8) Cash costs per pound of livestock sold also decrease with ranch size (table 9) they vary among representative ranches because of differences in winter feeding programs and the proportion of Federal range grazing and fees charged for this grazing Noncash Costs The noncash costs consist of depreciation and death loss on purchased livestock and an allowance for operator and family labor (table 7) Depreciation costs per animal unit generally decrease with ranch size varying from an average of $34 on the smallest ranches to $12 on the largest (table 8) The comparable costs per pound of beef sold are 11 8 cents and 3 97 cents for small and large ranches (table 9) For comparable size ranches depreciation costs varied with duration of the grazing permit on Federal range ancF with the amount of crop and hayland owned There was little variation in labor costs among ranches of similar sizes except that more oper~ ator and family labor was required on ranches with base properties that included cropland and pasture Total operator and family labor costs vary directly with ranch size however these labor costs per animal unit decrease with ranch size Labor costs per animal unit average $47 for the smaller ranches and $5 for the larger ranches (table 8) PAGENO="0144" 140 Table 6. - - Net beef production per animal unit by ranch size and ranch size group, representative cattle ranches, Southern Intermountain and Southern Desert Ranching Areas, 1960 Grazing permit type and ranch location 1/ Annual Animal calf death : units crop loss : 2/ : 3/ A 1 ow Net beef :he~1~~e lace- :production : ~ rate 4/ :per animal :men - : unit Number Percent Percent' Percent *Pounds SI-(BLM-FWSp) (FS-S)--: 34 92.0 9.4 12.0 290 SI-(BLM-0) (FS-S) 35 75,9 3.4 14.0 286 SI-(BLM-Y) (FS-0) 35 85.7 6.2 16.0 286 Average : 34.7 84.5 6.3 14.0 287 SD-(BLM-Y) (FS-0) 68 76.4 3.2 9.1 255 SI~(BLN-0) (FS-Y) : 118 77.8 2.8 16.5 292 SI-(BLM-0) (FS-S) 125 77.6 2.0 17.8 313 Average 103.7 77.3 2.7 14.5 287 SD-(BLN-Y) (FS-0) 182 83.8 3.1 10.3 273 SI-(BLN-FWSp) (FS-S)--: 210 84.4 4.2 13.1 290 SI-(BLM-0) (FS-Y) : 240 77.6 2.6 20.2 319 SI-(BLN-Y) (FS-0) 247 81.6 2.6 12.2 293 Average : 219.8 81.8 3.1 14.0 294 SI-(BLM-FWSp) (FS-S)--: 337 82.6 2.7 14.0 308 SD-(BLN~Y) (FS-0) 423 81,1 2.4 18.6 278 Average 380.0 81.8 2.6 16.3 293 SI-(BLM-Y) (FS-0)-----': 471 84.9 2.2 15.9 305 sI-(BLM-0) (FS-.Y) 512 77.5 2.8 17.4 296 Average : 491.5 81.2 2.5 16.6 300 Average : 216.9 81.3 3.4 15.1 292 1/ SI=Southern Intermountain Ranching Area, SD=Southern Desert Ranch- ing Area, BLM=Bureau of Land Management, FS=Forest Service, ONone, S=Summer, YYearlong, Sp=Spring, W=Winter, F=Fall. ~/ Calves produced during the year net of death losses, divided by total cows and 2-year-old heifers in the livestock inventory January 1. ~J Cattle died exclusive of calves divided by number of cows and 2-year-old heifers on hand January 1. 4/ Heifers selected from the annual calf crop to replace aged cows soTd and mature cows that have died. - PAGENO="0145" 141 p4.) `U 9.I0~ o w C) C) * COO) `.0 C") `.0 NI Lf) NI NI a) .Cr C-. 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C") ,-4 NI ~ 0 0' C) `p1 C' Z C") C") C") `0p-4 1'.) 00 p.4.4. .4- C") NI N. ,-4 U) C) 14 `U ,-h-4 ,-.INJNINI C").4- -.4-LI') C' ,-C) C' `~ *~IC)C)C'U) C) C)C)'rIOU) Ill III liii II Ii 41',-I14 0 C) iii lus sill ii Ii C)9C'..C'14 C) ill iii Sill II II C'1..i 0(5 o C)C' SSI Ill ISIS Si IS 0C)'U"4 C) 0.0 III Ill suit II Si C)U)C)4) C) H.r') III ill liii 55 Si 14 4.)C).. `i-I 4)4) III 115 5511 IS SI C)4.)C)-.-IC) C) ,-..l I SI S I.'--.I S #-.l S I 4.)U)C)C) p-I 4.) C) U) I I S I S I U) I S U) I I $ ~ 4) `~ C) C) `-10 lii ill liii ii SI 1-11.101-IC) 4) C) ,-I-.. U) ~ ~ `-.U) ,-..-. U),-'. -`.,--. 0 14 0. 0 O 14 -`)~ HU)O OHU) OHHO HO OH C'HQ.C)") H C) ,0 "-` I I I I S I ~` I S `~-` S S S 14 ii `U I P.C) tl)U) U)U)U) U) U)U) U) U)U) C)U)4.J ,0 C' -.HH HHH H.-.HH ~-.H 14.14. ,O14ICUU)C) - 80 C) P.'.-"-' "~`~` `-` P.-"- P."-' `.-".-` 4~) C) C' N. 014 U) U) U) C''-C)'UC) "4 ~ .--..-`. i-.~-~'--~ ~ ~ ~ ~-. ,-`.~.-`. 0 4.) C) C' 14 C) N'U 14.0144 H0O HH0144 HH HO U)00,-') ,-.I C)C' 51$ III 1114 II SI iC)C)C)4) H ~ I I I * I I I S I I I S S I ,-.I~C'N)JrI'1~.4-~ HHI-4 0I-4H OI-4HH HO HH U)~ U) U) U) U) Cl) U) U) U) CO U) U) U) U) 95-253 0 - 68 - 10 PAGENO="0146" No. SI-(BLM-F~Sp) (FS-s) -----: 34 SI-(BLM-0) (Fs-s) --------: 35 sI-(Bu~1-Y) (Fs-O) -----~-- - 35 Average - - - SD-(BLM-Y) (FS-0) 68 SI-(BLN-0) (FS-Y) 118 sI~(BLN-o) (FS-s) 123 Average SD-(BLM-Y) (FS-O) SI- (BLM-F~.YSp) (FS-S) SI-(BLM-O) (FS-Y) sI-(Bret-Y) (Fs-o) Average : - - - SI-(BLN-FWSp) (FS-S) : 337 SD-(BLN-Y) (FS-0) : 423 Average . - - - SI-(BLM-Y) (FS-0) 471 SI-(BLM-O) (FS-Y) 512 Table 8. --Relation of ranch income and costs per animal unit to ranch size, representative cattle ranches, Southern Intermountain and Southern Desert Ranching Areas, 1960 1/ Grazing permit type and ranch location 21 . Gross : income Animal er units animal Cash unit cost : Cost per animal unit : Net income per ~~nal unit . . Net 1 Net ranch °ot cash income c income : - Depreci- ation ~ : Operator and family laborS Dol. Dol. Dol. Dol. Dol. Dol. Dol. 54 42 42 33 117 12' -30 58 41 25 75 141 17 -8 54 42 33 32 lflQ 12 -23 55 42 34 47 123 13 -21 48 58 60 36 43 40 31 13 13 22 22 21 89 78 74 12 15 20 -19 2 7 --- 57 40 17 22 79 17 0 182 210 240 247 54 57 61 54 27 27 36 27. 17. 19 10 16 12 11 11 9 56 57 57 52 27 30 25 27 10 11 15 11 : .. 57 57 50 53 60 57 59 30 28 29 29 29 34 32 15 18 14 16 16 8 12 11 7 5 6 5 5 5 56, 53 48 51 50 47 49 27 29 21 24 31 23 27 12 11 7 8 15 15 15 Average 1/ Sale value or gross income was calculated on the basis of 1960 costs and on projected prices for livestock. 2/ SI=Southern Intermountain Ranching Area, SD=Southern Desert Ranching Area, BLM=Bureau of Land Management, FS=Forest Service, 0=None, S=Sumner, Y=Yearlong, Sp=Spring, W=Winter, F=Fall. 3/ Sales less cash costs, depreciation, and death loss of purchased livestock. PAGENO="0147" 143 Table 9.--Cash, noncash,and total cost of production per pound sold, by ranch size, representative ranches, Southern Intermountain and Southern Desert Ranching Areas, 1960 Cost per pound of beef sold Cn~r~a~ :Animal: ~De~eci- :Operator:Total cash 1/ units Cash death family noncash labor : cost ;Number Cents Cents Cents Cents SI-(BLM-FWSp) (FS-S) -------- 34 14 55 14 48 11 30 40 33 SI-(BLM-0) (FS-S) 35 14 47 8 85 26 28 49 60 SI-(BLM-Y) (FS-0) 35 14.86 12.24 11.15 38.25 Average --- 14 63 11 84 16 26 42 73 SD-(BLM-Y) (FS-0 : 68 14.03 12.14 8.59 34.76 SI-(BLM-0) (FS-Y 118 14 73 4 48 7 62 26 83 sI-(BLM-0) (FS-S 125 12 65 4 25 6 72 23 62 Average --- 13 81 5 84 7 42 27 07 SD- BLM-Y) (FS-0) 182 9 95 6 33 4 49 20 77 SI- BLM-FWSp) (FS-S) 210 9 35 6 60 3 67 19 62 SI- BLM-0) (FS-Y) : 240 11.43 3.09 3.43 17.95 SI- BLM-Y) (FS-0) 247 9 30 5,55 3 09 17 94 Average --- 10.07 5.22 3.59 18.88 SI-(BLM-FWSp) (FS-S) 337 9.26 5.98 2.15 17.39 SD~(BLM-Y) (FS-0) - 423 10 ~4 4 94 1 90 17 18 Average -- --- 9 84 5 43 2 02 17 29 sI-(BLM-y) (FS-0) 471 9 42 5 38 1 55 16 35 SI-(BLM-0) (FS-Y) : 512 11.48 2.63 1.73 15.84 Average --- 10 48 3 97 1 65 16 10 ~/ SI-Southern Intermountain Ranching Area, SD-Southern Desert Ranch- ing Area, BLMBureau of Land Management, ES-Forest Service, 0-None, SSummer, Y-Yearlong Sp-Spring W-Winter, F-Fall PAGENO="0148" 144 This range of labor costs represents a cost of 16, 3 cents per pound of beef produced for the smaller ranches as compared to 1. 7 cents for the larger ranches. Labor costs per animal unit are quite similar for ranches of about the same size. Total Cost Cash and noncash costs of the representative ranches range from $3, 828 for a 35-animal-unit ranch to a high of $24, 027 for a 512-animal-unit ranch. Total costs per animal unit average $123 for the smaller ranches and $49 for the larger (tables 8 and 9). Among the representative ranches total costs per animal unit are related to ranch size, costs per animal unit month of Federal range grazing, and the acreage of crop and hayland on the ranch. RANCH INCOME Gross income per animal unit varies only slightly among the representative ranches; the differences in gross income are due to differences in productivity per animal unit and to price differentials by ranch location (table 7). Gross income per animal unit in the livestock inventory averages from $53 to $59 andvaries only slightly among the representative ranches (table 8). Ranch income net of cash costs increases with ranch size as a ~sult of the de- crease in cash costs per animal unit as size increases. The main decreases in cash costs per animal unit are associated with land taxes, hired labor, and machine op- erating costs. Ranch income net of cash äosts per animal unit varies from an aver- age of $13 for the smaller ranches to an average of $27 per animal unit for the larger ranches (table 8). Because of differences in productivity by ranch location, the ranches at higher elevations received more income net of cash costs than did other ranches. Ranches with fewer than 68 animal units in size have a negative net ranch income (table 7). Net ranch income per animal unit increases with ranch size, ranging from an average of $-21 for the smaller ranches to $15 for the larger ranches (table 8). Net ranch incomes are similar among ranches of a similar size regardless of loca- tion or type of grazing permit. Rates of Return on Investment The rate of return on investment±'var~es from -4. 18 percent for the 35-animal- unit ranch in the Southern Intermountain Ranching Area to 6. 12 percent for the 512- animal-unit ranch (table 7). Rates of return are highest for ranches with the highest productivity per animal unit, the largest size, and the lowest total investment per animal unit. 4/ Net ranch income, including returns to operator and family labor, divided by total investment. PAGENO="0149" 145 SHORT-RUN COST AND INCOME EFFECTS OF CHANGES IN LWESTOCK PRICES, RANGE FORAGE SUPPLIES, AND FEDERAL RANGE GRAZING FEES AND PERMITS Changes in Livestock Prices Average prices received for cattle in 1953-60,which were slightly higher than the projected prices, were used to show the effect of a price Increase on net ranch iflcome. The average price received for cattle was 19. 10 cents per pound using projected prices while the 1953-60 average price was 19.80 cents per pound (table 10). Although this price increase was very slight, it increased the average gross income of the 14 repre- sentative ranches by 3. 69 percent. Consequently, average net ranch income at 1953-60 average prices waS $2, 663 as compared with $2, 105 at the projected prices, an aver- age increase of approximately 22 percent. The break-even points between costs and returns at projected prices and 1953-60 average prices are shown in figure 5. The break-even points occur at a ranch size of about 110 animal units for the projected price level and about 100 anImal units for the 1953-60 average price level. Changes in Grazing Fees Grazing fees are incr,eased frOm 1960 average fees of 20 cents (Bureau of Land Management) and 60 cents (Forest Service) by four 20-cent increments per animal unit month to determine the cost effect on net ranch income.~/ The fee increases are applied simultaneously against 1960 fee levelá of both Federal agencies. Each 20-cent grazing fee increase raises average cash costs by $325 to a total cash cost increase averaging $1, 300 (table 11). The increases in cash costs are directly re- lated to the number of animal unit months permitted. Besides reducing the amount of net ranch income, the first 20-cent increase in grazing fees changed the net ranch income of an additional ranch from positive to negative (table 12). Changes in Range Forage Supplies Five of the ranches, each representing a typical ranching situation iti either the Southern Intermountain Area or the Southern Desert Ranching Area, were selected to evaluate the cost and income effect of an increase and a decrease in range forage. The forage available to these ranches was assumed to vary from normal by 20 percent. Livestock inventory numbers and supplemental feeding practices were changed as re- quired with the reduction and the increase in forage,. and livestock prices were held constant. The cost and income evaluations of the effect on net ranch income of a 20-percent increase or decrease in forage were made under two conditions with re- gard to the Federal range grazing permit. The grazing permit was first held constant and then it was increased or decreased as range forage was permitted to increase or decrease. 5/ The highest fee level evaluated was $1. 00 per animal unit month for Bureau of Land Management grazing and $1. 40 per animal unit month for Forest Service grazing. PAGENO="0150" Table 10. --Effect of a price change on gross ranch income of the representative cattle ranches using projected prices and 1953-60 average prices : Grazing permit type : and ranch location *A 1/ - : Estimated cattle : prices per cwt: nimal, units:Pro.ected: l9s3-6o:~ p~ices average * Gross income at-- * o~ ted: 1953-60 rp~es average . :Absolute~and relative dif- ,ference in gross income using projected prices and 1953-60 average prices No. Dol. Dol. Dol. Dol. Dol. Pct. SI-(BLN-FWSp) (FS-S)..--; SI-(BLM-0) (FS-S) sI-(BLM..Y) (FS-0) Average SD-(BLN-Y) (FS-O) SI-(BLM-0) (FS-Y) SI-(BLN-0) (FS-S) Average 34 18.73 35 20.14 35 18.87 19.70 20.61 19.88 1,851 2,014 1,888 1,946 2,061 1,990 - 95 47 102 5.13 2.33 5.40 --- 19.25 68 18.99 118 19.69 125 19.31 20.06 20.00 19.92 19.63 1,918 3,288 6,790 7,546 1,999 3,463 6,868 7,671 81 175 78 125 4.22 5.32 1.15 1.66 --- 19.39 19.81 5,875 6,001 126 2.14 SD-(BLM-Y) (Fs-0) SI-(BLM-FWSp) (FS-.S)---: SI-(BLN-0) (FS-Y) : SI-(BLM-Y) (FS-0) Average SI-(BLN-FWSp) (FS-S)---~ SD-(BLN-Y) (Fs-0) Average s]~-(BLM-Y) (FS-0) : sI-(BLM-0) (FS~Y) Average Average 182 19.74 210 19.67 240 19.13 247 18.67 20.79 20.72 19.29 19.69 9,808 11,965 14,663 13,483 10,332 12,605 14,786 14,219 524 640 123 736 5.34 5.35 .84 5.46 --- 19.24 337 18.37 423 18.04 20.02 19.32 18.81 12,480 19,087 21,193 12,986 20,075 22,096 506 988 903 4.05 5.18 4.26 --- 18.20 471 19.66 512 19.42 19.05 20.66 19.64 20,140 28,246 29,431 21,086 29,686 29,770 946 1,440 339 4.70 5.10 1.15 --- 19.53 20.13 28839 29728 889 3.08 --- 19.10 19.80 12,232 12,683 451 3.69 1/ SI=Southern Intermountain Ranching Area, SD=Southern Desert Ranching Area, BLN'Bureau of Land Management, FS=Forest Service, 0=None, S=Summer, Y=Yearlong, SP=Spring, W=Winter, F=Fall. PAGENO="0151" 147 * COST OF RANCHING RELATED. TO RANCH SIZE AND GROSS INCOME, 1960 $ PER ANIMAL UNIT - - - oI~~t ~ i~ ,,__ ~I* Figure 5 Table Il.--Increase in cash cost on representative cattle ranches associated with four 20-cent increases in Federal range grazing fees jJ G~i~nPi~a~ 2/ Animal A~a5i~ Net increase in cash cost unit pernit 0 40/0 80~' 0 60/1 00 0 80/1 20 1 00/1 40 ~er' ~flg~s Dollars Dollars Dollars SI-(BLM-FWSp) (FS-S) 34 277 57 114 171 228 SI-(BLM-0) (FS-S) , 35 120 25 49 74 99 sI.(BLM-Y) (Fs.0) 35 226 46 93 140 185 SD-(BLM-Y) (FS-0) 68 452 93 186 279 373 `SI.(BL24-0) (FS-Y) : 118 1,236 254 509 764 1,019 SI-(BLM-0) (FS-S) 125 400 82 165 247 330 SD BIN Y) (FS 0) 182 1 208 249 497 747 995 SI BIN FWSp) (FS S) 210 1 673 345 689 1 034 1 378 SI- BLS4-0) (FS-Y) : 240 2,556 526 1,053 1,580 2,106 SI- BL~(.Y) (FS-0) : 247 1,413 291 582 873 1,164 SI-(BLM-FWSp) (FS-S) 337 2 461 507 1,014 1,521 2,028 SD (BIN Y) (FS 0) 423 2 631 542 1 084 1 626 2 168 SI (BIN Y) (FS 0) 471 1 728 336 712 1 068 1 423 SI-(BLM-0) (FS-Y) : 512 5.724 1.179 2.359 3.537 4.71.6 Average 325 650 975 1 300 Excluding operator and family labor. !/ SI-Southern Intermountain Ranching Area, SD-Southern Desert Ranching Area, BIB-Bureau df Land Managem nt FS-ForeRt Service 0-None S-S~sauer T-Yearlong Sp-Spring, W-Winter, F-Fall. ~/ 40 cents per AUM for Bureau of Land Management and 80 ents per AUM f r F rest Service grazing, etc. 70 50 4; 0 TOO 200 300'~ 400 500 600 RANCH SIZE IN ANIMAL UNITS PAGENO="0152" Table 12,--Net ranch income of the representative cattle ranches at each of five Federal grazing fee levels starting with 1960 average Lees and increasing 1960 average fees by four 20-cent increments per animal unit month 1/ Grazing permit type An ~ in~ and ranch location grazing 2/ . units permit Net ranch income with fees at-- 0.20/0.60 2./f 0.40/0.80~0.60/l.0 0 ~0.80/l.20 ~l.00/l.40 :Number Number Dollars Dollars Dollars Dollars Dollars Southern Intermountain (BLN-FWSp) (FS-S) 34 277 (BLM-Y) (FS-0) : 35 226 (BLM-0) (FS-S) 35 120 (BLM-.0) (FS-Y) 118 1 236 (BLN-O) (FS-S) 125 400 (BLM-FWSp) (FS-S) : 210 1 673 (BLM-0) (FS-Y) 240 2 556 (BLM-Y) (FS-0) : 247 1 413 (BLM-FWSp) (FS-S) 337 2 461 (BLM-Y) (FS-0) 471 1 728 (BLN-0) (FS-Y) 512 5,724 Southern Desert BLM-Y) (FS-0) 68 452 BLM-Y) (FS-0) -----: 182 1,208 BLM-Y) (PS-0) 423 2,631 -1,017 -824 -318 165 945 2,268 3,546 2,750 3,252 6,972 8,031 -1,244 1,714 3,240 -l 074 -1,131 -870 -917 -343 -367 -89 -344 863 780 1,923 1,579 3,020 2,493 2,459 2,168 2,745 2,238 6,616 6,260 6,852 5,672 -1,337 -l 430 1,465 1 217 2,698 2,156 -1,188 -964 -392 -599 698 1,234 1,966 1,877 1,731 5,904 4,494 -l 523 967 1,614 -1,245 -1,009 -417 -854 615 890 1 440 1,586 1,224 5 549 3,315 -1,618 719 1,072 * 1/ Projected prices received for cattle; 1960 prices paid. ~/ BLN=Bureau of Land Management, FS=Forest Service, 0=None, S=Summer, Y=Yearlong, SpSpring, W=Winter, F=Fall. 3/ 20 cents per AIIM for Bureau of Land Management grazing and 60 cents per AIIM for Forest Service grazing. PAGENO="0153" 149 Adjustments were made in livestock and grazing management in accordance with the findings of a drought adjustment study in New Mexico.~/ A 20-percent decrease in forage with no change in the grazing permit increases cash costs 7 percent. A 20-percent increase in forage increases cash costs 4 per- cent (table 13). Net cash income increases an average of 14 percent and decreases an average of 14 percent with the 20..percent increase or decrease in range forage. If the Federal range grazing permit also increases or decreases proportionally with changes in forage, net cash income will increase 25 percent or decrease 22 percent (table 14). Reduction in the Federal Range Grazing Permit An animal unit month reduction of 20 percent in the Federal range grazing per- mit, with only reductions in the livestock inventory being considered, resulted in a reduction in gross ranch income of 11 percent and a reduction in cash costs of 10 percent (table 15).!! With tciese adjustments, net cash income of the five ranches was reduced an average of 12 percent. LONG-RUN COST AND INCOME EFFECTS OF CHANGES IN LIVESTOCK PRICES, RANGE FORAGE SUPPLIES, AND FEDERAL GRAZING FEES AND PERMITS In the long run the short-run losses in ranch income may be offset by investment in additional land or range improvement and similar opportunities. Whether these opportunities are profitable will depend upon the additional costs and the addition to range forage supply.~/ If profitable adjustments are not possible, in the long run eventual reduction in the capital structure of the ranch will occur. For example, if the average reduction in net ranch income of the 14 representative ranches were caused by a 20-cent 6/ Boykin, C. C., Gray, J. R., and Caton, D. D. Ranch Production Adjustments to Drought in Eastern New Mexico. N. Mex. Agr. Expt. Sta. Bul. 470, Dec. 1962. 7/ Ranch production adjustments with a reduction in the Federal range grazing permit, such as leasing additional rangeland, improving rangeland, or buying addi- tional feed, were not considered. Therefore the livestock inventory was reduced 12 percent. 8/ Pingrey, Hazen B., and Dortignac, E. J. Economic Evaluation of Seeded Crested Wheatgrass on Northern New Mexico R.angeland. N. Mex. Agr. Expt. Sta, Bul. 443, Feb. 1959. Pingrey, Hazen B., and Dortignac, E. J, Cost of Seeding Northern New Mexico Rangelands. N. Mex. Agr. Expt. Sta. Bul. 413, 1958. Caton, D. D., McCorkle, C. 0., Jr., and Upchurch, M. L. Economics of Range Improvement on Western Grazing Lands. Jour. Range Management, Vol. 13, No. 3. 1960. PAGENO="0154" Net Net Change Change Net Change Change * cash * Cash * cash in net * Cash cash . in net income cost income cash cash cost income cash cash income income Table 13. --Estimated cash costs and net cash income of 5 of the budgeted cattle ranches with a 20-percent increase or a 20-percent decrease in range forage supplies and with no change in the amount of feed furnished by the Federal grazing permit ~Previous cash~ Cost and income changes cost and net associated with a cash income : 20-percent decrease in range forage Grazing permit type:AnJ~1:_ and ranch location: units~ - : Cash :cost Cost and income changes associated with a 20-percent increase in range forage No. Dol. Dol, Dol, Dol, Dol, Dol, Dol. Dol. Dol. Dol. Southern Intermountain (BLM-0) (FS-S) 125 4 942 2 604 5 052 2 241 +110 -363 5 204 3,049 +262 +445 (BLM-0) (FS-Y) 240 8 752 5 911 9 094 4 993 +342 -918 8 875 6 438 +123 +527 (BLM-Y) (FS-0) 247 6 723 6 760 7 534 5 723 +811-1 037 7 098 7 703 +375 +943 (BLM-FWSp) (FS-S)-. 210 5 685 6 280 6 041 5 839 +356 -441 6 035 7 485 +350 +1 205 Southern Desert (BLN-Y) (FS-0) 182 4 947 4 861 5 628 3 988 +681 -873 5 155 5 488 +208 +627 Average 6 210 5,283 6 670 4 557 +460 -726 6 473 6 033 +263 +750 Pct Pct Pct Pct Average per-: centage change +7 -14 - - --- +4 +14 1/ BLM=Bureau of Land Management FS=Forest Service 0=None S=Summer Y=Yearlong Sp=Spring WWinter F=Fall PAGENO="0155" AIiM' S in ~ Gross ranch income Cash costs Grazing permit type Animal grazing permi and ranch location ~its Prior to ~ ~:~"b~~- Adjusted rb A4justed ment ment 2/ - 2/ No. No. Southern Intermountain Southern Desert (BLM-Y) (FS-0) --------- 182 1 208 966 9 808 ______________ Average 11 493 Table 15 --Estimated effect on costs andgross ranch income of selected ranches with a 20-percent reduction in the AUM' a permitted on Federal range No. Dol. (BLM-0) (FS_S): 125 400 320 7,546 (BLM-0) (FS-Y) 240 2,556 2,045 14,663 (BLM-Y) (FS-0) 247 1,413 1,130 13,483 ~. (BLM-FWSp) (FS-.S) : 210 1,673 1,338 11,965 Dàl. Dol. 6,933 4,942 12,035 8,752 12,771 6,723 10,448 5,685 Dol. 4,774 7,371 6,349 4,859 8,805 4,947 4,512 - 10,198 6h210 5.573 Pet Pct Average percent-: age change --- --- --- -Il --- -10 1/ BLM=Bureau of Land Management, FS=Forest Service, 0=None, S=Summer, Y=Yearlong, Sp=Spring, W=Winter, FFall 2/ See table 7, page 13 ~/ Caused by a reduction in the number of animal units in the livestock inventory PAGENO="0156" Table 14. --Estimated cash costs and net 20-percent increase or a 20-percent dec cash income of 5 of the budgeted cattle ranches with a rease in both private and Federal range forage supplies :Previous cash: cost and net: cash income : Grazing permit type.Animal. . and ranch location: units: : : 1/ Cash cash : cost ~income~ . . Cost and income changes Cost and income changes associated with a : associated with a 20- ercent decrease in : 20-percent increase in ~ range forage range forage : Cash : Net :~h~flg~;Cham~e; : in Cash : Net cash : in net cash cost ~income~ cash cash : cost ~income~ cash :ca~h . . cost . . . cost . . :income: . *income No, Do]. Do]. Do]. Do]. Do]. Do]. Do]. Do]. Do]. Do]. Southern Intermountain (BLM-0) (FS-S) : 125 4,942 2,604 (BLN-0) (FS-Y) : 240 8 752 5,911 (BLM-Y) (FS-0) : 247 6:723 6,760 (BLM-FWSp) (FS-S)--: 210 5,685 6,280 5,002 1 856 +60 -748 5,444 3,401 +502 +797 8,529 4:633 -223 -1,278 10,073 7 124 +1 321 +1,213 7,163 5,220 +440 -1,540 7,592 8634 1-869 +1,874 5,737 5,262 +52 -1,018 6,362 7,715 +677 +1,435 Southern Desert (BLM-Y) (FS-0) : 182 4,947 4,861 5,084 3,650 +137 -1,211 5,540 6,106 +593 +1,245 Average : --- 6,210 5,283 6,303 4,124 +93 1,l59 7,002 6,596 +792 +1,313 : Pct. Pc1~ Pc~ Pc~ Average per-: . centage : change : +1 -22 +13 +25 ~/ BLM=Bureau of Land Management, FS=Forest Service, 0=None, S=Summer, Y=Yearlong, Sp=Spring, W=Winter, F'Fall. PAGENO="0157" 153 increase on 1960 average grazing fees, with livestock prices and production being constant, average ranch capital value could be reduced by $6, 500. The average re- duction in net ranch income capitalized at five percent is $325. A 20-percent reduc- tion in the grazing permit, under the same assumptions, would reduce by $13, 120 the average capital value of the five representative ranches to which the permit re- duction was applied. This is the average reduction of net ranch income of $656 capi- talized at five percent. Summary and Conclusions The purpose of this study was to evaluate the economic effects of alternative levels of livestock prices, range forage supplies, grazing fees, and grazing permits on the organization and net income of representative types and sizes of cattle ranches that use Federal grazing lands in the Southern Intermountain and Southern Desert Ranching Areas of Arizona and New Mexico, The representative ranches vary in size from 34 animal units to 512 animal units with a total iflvestment per animal unit of from $256 to $722. These representative ranches have average costs, including cash costs, depreciation, and an allowance for operator and family labor, of $49 per animal unit, and an average net income of $15 per animal unit. About half of the ranches do not cover the oomputed total costs, and four of the ranches do not cover total costs exclusive of the allowance for operator and family labor. Ranches of more than 100 animal units in size are estimated to have positive net incomes. A slight change in livestock prices has a more than pro~ portionate effect on the number of animal units necessary, to cover costs. The cost and income effects of changes in Federal range grazing fees and graz- ing permits were evaluated for a selected number of the representative ranches. Under the assumptions of the study, each 20-cent increase from the 1960 average grazing fee levels would reduce net ranch income an average of $325. A reduction of 20 perc nt in the grazing permit would reduce net ranch income an average of $656.. A 20-percent decrease in range forage supply could reduce net ranch income up to an average of 22 percent, With no changes in livestock prices or production these reductions in net ranch income could, over time, reduce the capital value of the representative ranches. PAGENO="0158" By Gene L. Swackhamer The structure of agriculture its organization competitive economy The history of legisla and control is changing Although the tion gives ample testimony to the development changes now perceived are not sudden devel and protection of family farming the Home opments they will determine the nature of ~tead Act Morrill Act Hatch Act Smith tomorrow s agribusiness The focus of this Hughes and Smith Lever Acts Farm Credit article is on corporate farming one of the Acts Capper Volstead Act and numerous institutional changes being observed in agri- other agricultural acts. culture. Yet, almost from the day the first fence The approach is to look first at the re- went up on the prairie, agriculture began sources in agriculture and to evaluate the changing The extension services of land grant significance of trends and changes in order to universities distributed information on re gain a clearer perspective of future develop search in animal husbandry cultivation prac ments This discussion layc the groundwork tices farm management production economics for the remainder of the article in which the and marketing The use of purchased nonfarm following aspects of corporate farming are inputs increased rapidly An agricultural revo analyzed (a) capital and credit use (b) closely lution was underway It has never stopped~ held (family) corporations contrasted to publicly held (investor) corporations (c) factors influ AGRICULTURE IN THE UNITED STATES TODAY encing agricultural investment, and (d) the economic and social implications of corporate farming. Small-unit agriculture has been a dominant feature of our agrarian past. The family farm has been cherished and protected because it represents the ideal of a democratic free- enterprise society The farmer is laborer man ager and frequently land and capital owner all in one At his best he is an entrepreneur in the truest sense. The atomistic structure of agriculture approaches the assumptions of a 9 154 CFrom Monthly Review, May 1968, Pages 9-.19J The Growth of Corporate Farming Land, labor, and capital are still agriculture's principal resources, and the farmer is still the entrepreneur masterminding their productive combination. Yet, the mix of resources is ever changing and the entrepreneural role of the farmer is much changed from the nearly self- sufficient status of pioneer farmers. Land Although our national land base has re- mained nearly stable at just under 1.4 billion acres for crop and livestock production during PAGENO="0159" 155 /47415 iiiiii~+~i+i+$iiii$i1 14 Labor The decline in the farm labor force is evi- dent in Chart I. Although the net outmigration of rural people hIss risen to an annual rate of 5.9 per cent during the 1960's, compared with 5.3 per cent for the 1950's, absolute out- migration has become smaller with declines in the rural population base.2 But, the factors leading to outmigration of rural youth and adults seem likely to continue: 1. Increasing prices for land and labor, rel- ative to capital resources, encourage capital substitution for land and labor in the production process. 2. Inadequate supplies of seasonal labor and increasing labor skill requirements `Max F. Jordan, "People in a Changing Rural America- What Is Ahead?" Talk presented at she 45th Annual Agricultural Outlook Conference, Washington, D. C., November 14, 1967. The Growth of Chart 1 MAJOR FARM INPUTS AS A PERCENTAGE OF TOTAL INPUTS Farm Labor Real Estate Power and Machinery Feed, Seed, ~ Livestock Fertilizer and Lime Other ___________]I4 L~~1 1950 ~ 966 +10 +20 +30 +40 0 SOURCE: Handbook of Agricultural Ckorts, U. S. Department of Agriculture, 1967. recent decades, substantial changes are occur- they operate only about one fourth of the ring within this base Total cropland has been land declining at a rate of about 2 million acres per year since 1954, whereas the total land in farms has been declining at an `iverage of 3 5 million acres per year since 1950. We now h-sve around 3 million farms `is defined by the Census The number of farms in the United St'ites h'ss been declining ne'irly 100 000 per year, causing the average farm size to increase to around 360 acres. In addition to changes in farm size, there has been a move toward part ownership. Only 7 per cent of the full owners had farms with sales of $20,000 or more in 1964, compared with 24 per cent of the part owners and 16 per cent of the tenants with such sales.' Al- though one half of our farmers are full owners, `M. L. Upchsrch, "Farming and the Rural Scene- Changes in Organization, Opportunities and Problems." Talk presented at the 45th Annual Agricultural Outlook Conference, Washington, D. C., November 14, 1967. 10 PAGENO="0160" encourage mechanization-a capital-for- labor substitution 3. Continued high levels of economic activ- ity and a tight labor market have made movement to urban employment rela- tively easy. 4. The demand for additional farm land by expanding farms has made liquidation of small holdings and early retirement more feasible and attractive. 5. Rural nonfarm job opportunities have grown and the potential for continued growth in recreation and small-scale in- dustrialization seems likely to continue to offer opportunities for rural living and nonfarm employment. 156 The net impact of these changes is for pres- sure to remain on the rural labor resource, and it is likely that substantial off-farm migra- tion is yet ahead. Cap~taI Capital has become agriculture's fastest growing productive resource, as also seen in Chart 1. The use of purchased nonfarm inputs such as machinery, equipment, and production items has increased rapidly in recent years. Price increases for farm land, buildings, and purchased inputs have pushed capital require- ments still higher. As the capital needs for efficient and profitable farming have increased, new procedures for acquiring sufficient capital have evolved. Leasing of equipment, hiring of custom services, vertical coordination, contract production, and use of merchant and dealer credit have grown in popularity. Corporate farming as a means of obtaining equity capital is often discussed, as are other credit innova- tions such as low equity and semipermanent financing. The accumulation of sufficient capi- tal for efficient farming is a problem-implying that the need for farm credit will continue to be extensive. CAPITAL AND CREDIT USE UN AGRICULTURE Requirements for financing production as- sets and production expenses have increased steadily in the aggregate and at a much more Corporate Farming rapid rate on a per farm basis. The total in- vestment in. production assets has increased from $125 billion in 1956 to $215.4 billion in 1967. On a per farm basis, the increase has been from $28,456 in 1956 to $73,120 in 1967-an increase of 156 per cent. Land and service buildings account for about three fourths of production asset investment and rising market values have contributed substan- tially to recent-year increases. In addition to rising prices, farm mechanization, production specialization, enlargement of farm size, and more rapid capital turnover due to technical obsolescence have increased the needs for more capital in agriculture. Production expenses have risen from $22.3 billion in 1956 to nearly $34 billion in 1967. Average expenses rose from $4,957 per farm in 1956 to more than $10,000 in 1967. How- ever, almost all of the increase has been for large farm operations. Although only 16 per cent of all farms had sales over $20,000 in 1966, they accounted for 70 per cent of all production expenses, averaging over $44,000 per farm. More importantly, these farms real- ized over 56 per cent of the total net farm income in the United States. These conclu- sions thus seem apparent: the most profitable farm operations have large gross dollar sales and are very capital intensive. The magnitude of these requirements places substantial Strain on rural financial resources and on traditional methods of farm finance. One of these methods -the use of credit-has been a principal means of obtaining funds by corporate farms. According to the June 30, 1966, survey of farm loans at commercial banks in the Tenth Federal Reserve District,' corporate farm bor- rowers held approximately $85 million in out- standing loans, or 4.4 per cent of the total dollar amount of all farm loans in the Dis- trict. Partnerships held 5.5 per cent and sole `Colorado. Kansas, Nebraska, Wyoming, and parts of Missouri, New Mexico, and Oklahoma PAGENO="0161" The Growth of Table 1 AVERAGE AMOUNT OF AGRICULTURAL LOANS OUTSTANDING BY FORM OF ORGANIZATION AND DEBT-TO- ASSET RATIO Tenth Federal Reserve District June 30, 1966 proprietorships and other borrowers accounted for the remaining 90.1 per cent. Nationally, corporate farm borrowers accounted for 5.2 per cent of the outstanding loan volume, com- pared with 4.9 per cent for partnerships. Cor- porate farm borrowers in the Tenth District held 13.9 per cent of the total U.S. corporate farm loan volume; partnerships accounted for 18.4 per cent. The growth of corporate farm loans has been impressive in the past decade. A similar survey in 1956 revealed that farm corporations in the Tenth District had $21.8 million in out- standing farm loans-3.1 per cent of the total loan volume. From 1956 to 1966, corporate farm loans increased 288 per cent, compared with 176 per cent for all Tenth District farm loans and 132 per cent for all farm loans made by commercial banks nationally. In addi- tion, it is important to remember that these surveys measured only identifiable agricultural loans to corporate farms. The use of bank credit by predominantly nonfarm corporations engaged in agriculture may not have been measured adequately. The major purpose of corporate farm loans in the District was to purchase feeder livestock. Nearly $56 million in corporate farm loans- 66 per cent of the total-was used to buy feeder livestock. The increase in number of 12 large commercial incorporated feedlots has been a significant factor in the growth of bank loans to agricultural corporations. Purchase of other livestock and current operating expenses accounted for 17 and 13 per cent, respectively. The major purpose of corporate farm loans nationally was much different from in the Tenth District where livestock dominates the agricultural economy. Current operating ex- penses accounted for 39 per cent of the $606 million in outstanding corporate farm loans, while the purchase of feeder livestock used 30 per cent. All other purposes, including the purchase of other livestock, purchase of farm real estate and equipment, and expenditures for improvements to land and buildings ac- counted for the remaining 31 per cent of dol- lar amount of corporate farm loans. Corporate farm borrowers in the Tenth Dis- trict averaged $37,863 in loans outstanding, compared with $12,927 for partnerships and $3,668 for sole proprietorships (Table 1). Corporate borrowers with a total-debt-to-total- asset ratio of 75 per cent or over averaged slightly over $100,000 in loan size. Table 2 shows the proportion of total agri- cultural loans for alternative forms of business organization by debt-to-asset ratios. Again, it Table 2 PROPORTION OF TOTAL AGRICULTURAL LOANS OUTSTANDING BY FORM OF ORGANIZATION AND DEBT-TO- ASSET RATIO Tenth Federal Reserve District June 30, 1966 Aver. Form of Organization 51~~ Sole Propri. Corporote Partner. Debt ____________ etorships Farms ships Ratio (Per Cent) 26.7 7.6 16.3 25.2 42.6 20.7 52.5 42.2 22.9 49.8 22.9 24.1 2.8 20.7 7.3 3.9 5.0 1.2 1.0 4.6 100.0 100.0 100.0 100.0 157 Total Debt of Borrower as a Per Cent of Total Assets Less than 25 25.49 50.74 75 and over Not reported All Borrowers Form of Organization Average Sole Propri. Corporate Partner. for Debt etorships Farms ships Ratio $2,958 $ 8,878 $ 9,784 $3,072 4,317 21,051 18,622 4,642 4,493 93,816 8,885 5,065 3,897 100,308 28,020 5,695 1,958 19,875 2,504 1,985 $3,668 $ 37,863 $12,927 $3,985 Total Debt of Borrower as a Per Cent of Total Assets Less than 25 25.49 50.74 75 and over Not reported All Borrowers 95-253 0 - 65 - 11 PAGENO="0162" 158 Corporate Farming can be seen that nearly half of the corporate bid market prices is not normally restricted. farm borrowers in the Tenth District have a Separation of ownership from management is debt-to-asset ratio of between 50 and 74 per quite common. cent. The cost of credit, as reflected by aver- Most farm corporations are closely held age effective interest rates, is shown in Table family corporations. Their reasons for incor- 3. Both corporate and partnership farm bor- porating are typically: (1) to facilitate gift rowers paid considerably below the average transfer of property for estate and retirement rate for all borrowers. planning, (2) to provide for business conti- These data define the magnitude of agn nuity (3) to gain income tax advantages (4) culture s capital and credit needs The dimen to limit personal liability and (5) to improve sions are large and growing The increasing access to capital These motives however are importance of nonfarm capital in agriculture not always clear cut advantages for the closely will continue to influence structural and organi held corporation Liability may not be limited zational change. if the major stockholder must sign personally CLOSELY HELD AND PUBLICLY HELD FARM CORPORATIONS A closely held corporation is one in which the ownership and the control of the corpora- tion belongs to a small number of share holders. The entire outstanding stock may be owned by a single individual, the members of a family or a small group Officers and directors own the majority of stock and thereby, control the corporation. A publicly held corporation generally has widely distributed stock held by unrelated stockholders The right to buy and sell stock in publicly held corporations at competitively *for obligations of the corporation or if most of his assets are invested in the corporation. There is no assurance of improved manage- ment through incorporation since owner di rector, and officer are likely to be the same person after incorporation as before The availability of equity and debt financing to a farm may not be enhanced. An established market does not exist for the securities of a closely held farm corporation but family members may choose to leave capital in the farm business rather than receive dividends Some financial institutions place restrictions on lending to farm corporations Tax considerations are numerous and com- plex, requiring careful attention prior to incor- poration. Some of the most important are amount of net farm income, motives of prop- erty transfer and estate development, and alter- native tenure arrangements. In certain cases, ` it is advantageous for farm corporations to be taxed as partnerships under subchapter S of A I t I Dbt F m f 0 g t ~ P C t S i P p Co p t P t D bt of Total Assets etorships - Farms ships ~o (Per Cest) Less than 25 6.6 5.8 6.3 6.5 25-49 67 6.3 6.2 6.6 the Internal Revenue Code To date most studies of corporate farming have dealt with the family farm and closely held corporations. Most findings have been favorable toward incorporation. There is gen- eral agreement that the corporate form does 50~74 6.8 6.3 6.3 6.8 `For an authoritative discussion of tax considerations see 75 and over 7.0 6.1 6.3 63 "Technical, Legai, and Economic Aspects of Farm Cor- Not reported 8.4 5.9 60 8.4 All Borrowers 67 6.2 6.2 6.7 poraiions," Iowa State University Cooperative Extension Service, Law-Econ. 19 (Rev.), Juiy 1967. Table 3 AVERAGE EFFECTIVE INTEREST RATES FOR AGRICULTURAL LOANS BY FORM OF ORGANIZATION AND DEBT-TO- ASSET RATIO Tenth Federal Reserve District June 30, 1966 13 PAGENO="0163" The Growth of 159 facilitate the transfer of the farm from genera- tion to generation within the family. Also, as farm size increases, capital, tax, business continuity, and liability considerations en- courage the investigation of the corporate form of organization. Studies of family farm corporations in Indi- ana, Iowa, Kentucky, Oregon, South Dakota, Alabama, Michigan, and Minnesota have been conducted. In general, they conclude that in- corporation, rather than being a threat to the family farm, can aid its development and sur- vival. Where disadvantages were cited, they appeared to focus generally on the difficulty of maintaining a formal organization. Problems of capital acquisition, tax savings, and man- agement improvement were not always solved by incorporation. Perhaps more important are problems that may develop in the future concerning income distribution, ownership, and management when more of the share- holders are nonfarm family members. The growth of family farm corporations was about the same as for well-managed partnerships or other efficient-sized farms. FACTORS INFLUENCING AGRICULTURAL INVESTMENT Most of the present concern in agriculture does not apply to family farm corporations but to other closely held, or publicly held in- vestor corporations entering or engaged in farming. Closely held corporations which repre- sent a compact of business and professional men and, occasionally, farmers, appear to be increasing in number. Many people are motivated to invest in agriculture because they are convinced that its future is very promising. For example, a feasibility study made on a "conservative basis" (assumed corn at $1.28 per bushel) in 1966 by a private consulting firm concluded that with good management, a continuous corn farm of about 2,000 acres in Iowa could yield 12.1 per cent on stockholders' equities after tax the first year and 18 per cent by the sixth Table 4 COMPARATIVE RATES OF RETURN ON FARM INVESTMENT* (Per Cent) Cotton - Cattle San Joaquin Valley1 ~ Medilum Large moun. Average Return on Size Size Spe. tam Farmers' Equities General General cialty Vol. Year U. S. California Farm Farm Farm Icyl I * 1950 6.3 6.3 8.5 16.7 17.6 19.2 7.5 1955 2.5 5.2 7.1 8.6 7.6 11.0 .2 1956 2.5 5.4 7.3 9.0 8.8 363 1.7 1957 2.8 3.9 5.6 8.7 7.8 5.0 5.9 1958 4.5 3.9 5.6 8.2 8.2 6.0 11.1 1959 2.2 3.7 5,2 8.0 8.6 17.7 7.9 1960 3.0 3.0 4.4 7.1 6.9 11.2 3.6 1961 3.8 2.4 3.8 6.7 6.5 1.9 4.9 1962 3.8 2.8 4.2 7.0 6.9 7.2 6.6 1963 3.9 2.1 3.5 8.2 7.5 4.9 4.3 1964 2.9 2.7 4.0 8.5 8.0 18.9 .9 1965 4.8 1.8 3.0 6.2 5.6 22.4 2.4 *9mm the talk by John Hopkln. fOpurotor and family labor compensation at average California industrial wage. fOperator and family labor compensation at average California farm wage. year. A study of rates of return on farmers' equities in California, however, suggests that the returns are low and apparently decreasing (Table 4) ~n Yet, farmers continue to invest their savings into agriculture and land values continue to climb. This apparent paradox may be explained by the unmeasured expected re- turns from capital gains associated with rising land values or in the distortion of true returns to commercial agriculture through the calcula- tion of less-than-meaningful averages. A third view of the profitability of farm investment is given in Parity Returns Position of Farmers, a report to Congress by the USDA.' This publication developed alternative approaches °John A. Hopkin, "Some Implications of Long-Term Outlook for California Agriculture on Capital Require- ments." Talk given to the agricultural economioto of the Federal Reserve System, May 24, 1967. `U. S., Congress, Senate, Parity Returns Position of Far- s,sers: Reports to the Congress u/the United States by the Depart~nent of Agricutture, 90th Cong.. 1st Sets., 1967, Senate Doe. 44. Cited hereafter as Parity Returns Position of Farmers, 1967. 14 PAGENO="0164" 160 Corporate Farming Total Investment Equity Value Stockholder Standard° 16.6 11.2 10.9 11.0 Equity Value Landlord Standardt 11.1 11.7 11.7 11.8 *Assumes liquidation of farm business and investment in a portfolio of common stocks. fAssumes a combined return of net rent from form land plus capitol goin. SOURCE: Parity Retsrns Pasitlos of Farmers, 1967. for measuring returns in agriculture which are summarized in Table 5. Although these studies follow different assumptions and computational techniques, they do show returns sufficient to attract new investors. Other factors also may be encouraging agri- cultural investment. Land, as an inflation hedge, is a primary consideration. Speculation on further real estate appreciation for land near urban or industrial centers, or on land with mineral or irrigation potential, may induce some agricultural investment, Other personal motivations, such as the desire to be a "part of agriculture," must also be considered. Another line of thought by investors in closely held farm corporations reaches the same investment decisions, but for different reasons. These investors anticipate farm prices remaining low or near support levels. They anticipate continued increases in the costs of purchased farm inputs and only modest in- creases in retail food prices. Because of this squeeze on farm earnings, they conclude that only the best-managed, adequately financed, and most efficient farm operations will remain in business. These investors view profits in agriculture as a function of the operation's size, efficiency of production, and marketing procedures. They conclude that incorporation with sufficient capital can provide a competi- tive advantage in reaching profitable operating and market levels. Publicly held corporations investing in agri- cultural production and marketing or diversify- ing into agricultural production are numerous. Concern has been expressed with their entry into agricultural production. Their motives are frequently questioned by farmers and farm- related organizations and may be quite differ- ent than those previously discussed. Some addi- tional considerations behind their entry into farming are the following: Vertical Integration. Technological innova- tions have been a primary consideration in integration. The reasons for integration into contract agricultural production by vested interest firms are usually suggested as being (a) to protect their markets for farm inputs, (b) to increase volume of farm input mar- ketings, (c) to guarantee an ample supply of farm products, or (d) to insure consis- tent quality of product. Diversification. Conglomerate firms and nonagricultural firms entering agriculture may be doing so for protective diversifica- tion into the food industry-a reasonably stable industry with growth closely tied to population. A desire to offset seasonal or Government related business vulnerability may also be an issue. Tax Advantages. The possibility of realizing substantial capital gains, of realizing favor- able rates of depreciation on machinery and equipment, and of incurring losses through cash accounting methods in certain years may produce considerable tax savings to some firms and individuals. These motives are not well understood and are difficult to research. Inflation Hedge. Past rates of appreciation on farm land and rural real estate with de- velopment potential have been impressive. Although there is no assurance of continued increase in land prices, acquisition of farm land remains an attractive inflationary hedge for firms with adequate liquidity. Be- cause of other considerations such as rapid transportation, urban sprawl, population growth, and expanding recreation needs, land may be acquiring a renewed investment appeal. Table 5 NET RATE OF RETURN AS PER CENT OF THE VALUE OF TOTAL INVESTMENT AND EQUITY VALUE Years 1959 1964 1965 9.6 9.5 9.4 1966 9.4 15 PAGENO="0165" The Growth of World Food Needs. Although world famine is not new, our awareness and sensitivity to it is. Major industrial firms reviewing the development of our commodity donation programs and the expansion of dollar export markets, and sensing a clash of population growth with food needs, may anticipate that the United States will assume a role of in- creasing responsibility in feeding much of the world. Firms desiring to capitalize on the world's food needs may be selecting agriculture as a vital growth area. Nonland-based Production. Except for range livestock operations, livestock production no longer requires an extensive land base. Beef feedlots; egg and broiler production; turkey production; lamb feeding; pig farrowing, weaning, and feeding units; and dairy farms are increasingly established as con- finement systems independent of productive farm land. The separation of intermediate production steps such as specialized feeder pig production, cattle feedlots, or custom- hire field work has been facilitated by tech- nological change. The separation of farming from agribusiness and nonfarm activities has become less distinguishable. Many of the economic reasons for small-scale farms dis- appear with the separation of land-intensive farming from nonland-based production. Industrial Management Approach. The po- tential of substituting machinery for labor in crop production on an extensive scale has long been recognized as has the risk of price and weather variability. Yet, an in- dustrial approach has appeal. Large dollar sales can be achieved per unit of labor with only a modest sales force. High volume out- put per unit of labor impresses wage-sensi- tive managements. Continuing technological advances in irrigation and agricultural chem- ical use suggest a new dimension to farm- ing-the substitution of one type of capital (agricultural chemicals) for another (farm machinery). ECONOMIC AND SOCIAL IMPLICATIONS 161 Economic studies of farm size have shown that, as farm size increases, average costs either decrease, remain about the same, or increase slightly for very large farms-but still remain below average returns.7 If this were always so, large farms would be the most profitable, and it might be expected that the size distribution of farms would rapidly shift in this direction. But, as Wilcox reported to the Subcommittee on Antitrust and Monopoly, farm size has been increasing almost uniformly for all size categories~ Of all farms, the largest 10 per cent produced 44 per cent of - all farm production in 1949, 46 per cent in 1959, and 48 per cent in 1964. The smallest 20 per cent of all farms produced about 3 per cent in each of these years. Smaller farms have substantial staying power for several reasons. Farm income may be supplemented by the sale of custom services and by income from off-farm employment. Where resources lack uniformity or where spatial dispersion exists, the degree of man- agement coordination and supervision required may be most efficiently supplied in smaller units. Problems of price and weather predict- ability and unreliable labor supplies increase both the difficulty of management and busi- ness risk, deterring farm expansion. Operators of small farms, especially debt-free owners, may be satisfied with a lower management and risk-bearing return than would be necessary for large indebted operations. Even though small farms are a vital part of our agricultural economy, growing evidence shows that an in- creasing proportion of production comes from large-scale commercial agriculture. Chart 2, based upon 1964 Census data, shows the growing importance of large-scale agriculture. The number of farms grossing $100,000 or more in farm product sales in- creased from about 20,000 in 1959 to 31,000 in 1964. Although representing only 1 per 7U. S., Department of Agriculture, Economic Research Service, Economies of Size in Farming, Agricultural' Economip Report No. 107 by J. Patrick Madden, Febru- try 1967. `Walter W. Wilcox, Statement to Subcommittee on Anti- trust and Monopoly, Committee on the Judiciary, U. S. Senate, September 27, 1967. 16 PAGENO="0166" 162 Corporate Farming Chart 2 MARKETINGS BY FARMS WITH $100,000 OR MORE OF GROSS SALES AS PERCENTAGE OF TOTAL MARKETINGS OF ALL FARMS 1964 Census cent of all farms, this group accounted for 24 per cent of gross sales in 1964, compared with 16 per cent in 1959. These large opera- tions averaged over $160,000 in annual pro- duction expenses on an average of 3,815 acres per farm. Specialty crops, cotton, and live- stock feeding are apparently prevalent on these farms. Information is lacking as to what proportion of this class of commercial farms is incorporated. The most diffh~ult questions concerning corporate farming involve socioeconomic value judgments. Are corporate farms more efficient than family farms? If so, are the economic gains in efficiency achieved at the expense of less tangible, but equally important social bene- fits? If the resources of agricultural production are owned by nonfarmers, will our agriculture remain viable and progressive? Will the growth of corporate farming accelerate out- migration from rural communities, leaving ghost towns? The interdependence of agriculture and our general economy is substantial-many indus- tries rely upon the future of agriculture and many groups have vital interests in it. Con- flicts of national goals such as occupational freedom, efficient resource utilization, abun- SOURCE: U. S. Department of Agriculture. 17 PAGENO="0167" 163 The Growth of dant reasonably priced food full employment These policy alternatives do not fall into of labor and economic growth seldom are clearly defined compartments yet there is a resolved easily Not only do economic goals need for some cataloging to facilitate interpre conflict with each other but they frequently tation One policy approach is to encourage conflict among industries and with presently free or open markets. Under certain conditions, accepted social values, the elimination of price and income programs Under present conditions, transition in agri- could benefit family farms by permitting com- culture is relatively free of obstructions. In petitive forces to direct production and estab- the future, holders of capital for financing lish market prices. Under these conditions, cx- agriculture may share more in management. cess productive capacity in agriculture almost Management itself may require substantial certainly would result in further adjustment of expertise in resource coordination and produc resources In anticipation that the adjustment tion supervision Future farm managers will process would cause further productive realign need to assume these responsibilities, be ade- ment, most advocates of this policy have quately trained, and financially able. recommended a gradual elimination of Fed- What, then, is to become of the family eral agricultural support programs. It also farm?' Regardless of individual feeling, family should be pointed out that, under a free mar- farm survival is likely to be determined by ket policy, the uncoordinated production of how well the farm unit can adapt to changing surplus commodities could depress prices and economic forces. Two contentions seem appro- influence family farm income adversely. priate. First, the argument that family farms A second policy approach can be classified can best achieve optimal organization and pro- as the establishment of more effective farm duction efficiency has much support. Economic bargaining. Farm organizations and the United studies have shown that many economies of States Department of Agriculture have shown size can be achieved on 1 man or 2 man considerable interest in farm bargaining power farms and the ability of agriculture-still pre It is contended that farmers need counter dominantly family farm oriented-to feed an vailing power to offset the strength of farm incre'ising number of people with fewer land suppliers and marketing agencies Many ap and labor resources is well known The second proaches such as cooperative marketing mar `irgument for preservation of family farms has keting orders and commodity withholding have been eloquently stated as support for decen- been advocated and attempted. tralized decisionmaking and diffused economic Continuation of present agricultural pro power in the organization of our society On grams is a third policy alternative Under this the basis of these arguments public policy mixture of production quota and price sup alternatives have been advanced to help port for selected commodities the experience strengthen the competitive position of family of recent years is likely to continue Support farms. programs would tend to establish a price floor and quotas would attempt to coordinate sup `A family farm is defined as a farm business with suffi- plies, reducing price and income fluctuations. cient resources and productivity to yield an income suffi- Such programs may arrest, but are not likely cten~ for (a) famt~i (11 ing (b~ go~h ~ to prevent resource adjustment in agriculture I m e ime t to m ft 0 eff c ncy and t meet In summary without direct legislative re rising levels of living. striction, much of which is likely to be un- Fm ~ E Aite at V 5 fork Ma ntaa ng th desirable further growth in corporate farming (Lafayette, Indiana: Purdue University, March 29, 1968). seems likely. Commercial agriculture-farms 18 PAGENO="0168" 164 Corporate Farming with annual sales of more than $ 10,000-will corporate farms. Nevertheless, the role of the continue to produce most of our farm output, family farm has a promising future; it is a with a higher proportion likely to come from unique business institution. 19 PAGENO="0169" 165 Senator NELSON. Our last ~itness today is Mr. Albert Ebers, master of the Nebraska Grange. The committee welcomes you here today, Mr. Ebers, and we appre- ciate your taking time to come and testify. STATEMENT OP ALBERT I. EBERS, MASTER, NEBRASKA GRANGE, SEWABD~ NEBR. Mr. EBERS. Senator Nelson, it certainly is a privilege to be here and I'm honored to be here. U.S. Senator Garylord Nelson and members of the Monopoly Sub- committee of the Senate Select Committee on Small Business, my name is Albert J. Ebers, master of the Nebraska State Grange, Route 3, Seward, Nebr. I read with great. interest of the work this committee has already done on the effect of large corporate farms upon the family-type agriculture of our Nation. The Grange rejects the idea that bigness is the ultimate answer to agriculture's problems, and is both desirable and inevitable. The Grange favors retaining the family-type agriculture. By that we mean farming units using modern technology, that furnish full- time employment to the family and possibly a few hired. men, `an.d that places the major `reliance of management and financial risks upon the operator. Since my livelihood comes from the production of eggs, I would like to speak of bigness in the poultry industry. An economic study of the broiler industry by the Packers and Stockyards Administration is my principal source of information. It only took 10 years for the broiler industry to go from 3 to 98 percent integrated. The typical integrated broiler producing-markeit- ing firm or corporation has its own hatchery, feed mill, and processing plant, as well as contract broiler growers. Senator NELsoN. May I interrupt a moment. Do I understand you to say that in 10 years the broiler industry went from 3 `to 98 percent integrated? Do you mean the integrated operations now produce 98 percent of the broilers? Mr. EBERS. That~s right. Broiler farms in `the United States declined by one-third from 1954 to 1964. Production per farm tripled, now more than 50,000 birds per year. Senator NELSON. This is t'he `average per farm? Mr. EBERS. Yes; that's the average per farmer grower. Processing or slaughtering firms merged at the rate of 41 percent in the 4 years 19~0 to 1964. The latest figures I have seen, show 25 firms produce over 50 percent of all the broilers pro'duced in the United States. Senator NELSON. Are these `mostly `feed firms? Mr. EBERS. There are quite a few but I couldn't tell you exactly. A producer or grower cannot grow broilers without first having a contract with a processor. There is no market at `the grower level. These summary statements of the broiler in'dustry are given to show that it is reasonable to project that it will not be very many years when PAGENO="0170" 166 a half dozen firms will produce all of the broilers in the United States through contracts with growers; these farmer producers or growers being no more than glorified hired men, deprived of management and financial risks Senator NELSON. How are they deprived of financial risks? A good percentage of them have gone bankrupt now in my part of the coun try. In what way would they get away from having financial risks the way the present integrated broiler operation works? Mr. EBERS. Their feed company or the integrated firm furnishes the broiler to the farmer. All the farmer furnishes is the building and equipment The firm furnishes the broilers and they furnish the feed and it's their chicken When they want you to bring it in, you sell it Senator NELSON But they set the price of the feed and they set the price they'll pay for the broiler ~ Mr EBERS They set the price of the broiler, but I don't know where the market price of a broiler is set It's their chicken and they just take it away I can't sell it to anybody else Senator NELSON They set the price that you're going to get for it, isn't that correct ~ Mr EBERS Yes These farmers will probably never receive the just wages and hours deserved, without becoming a labor union With large firms and labor unions the consumer's product will rise in price just as other indus trial products are doing. The egg and turkey industries are fast following the route of broil ers I think you know that last year the turkey industry has really gone through the wringer, you might say, and the egg business the same. In the South they have a good term for that. They call it a burnout. The firms that can stand the financial strain, will end up owning or controlling the egg and turkey industries Now, we have contracts in beef and swine feeding. In Nebraska, beef feeders say the packing company buy the cattle and they will come out to the feeder and ask him to feed the cattle They have a contract that retains the ownership of the cattle You are paid 22 cents per pound of gain Now, I understand they couldn't get too many takers for that, and now it's up to 24 cents per pound of gain The packing con~pany owns the cattle and when they want to sell the cattle, they come and take the cattle and sell them If there's a profit, you divide the profit half and half If there's a loss, you divide the loss half and half. Now, swine-I understand the contract-as the man told me, that was offered to him, said that the feed company would furnish the swine, you furnish the buildings and equipment as usual, and that you would get $2 per head for feeding the swine to market weight. With livestock feeding integrated, and large firms buying land, where is the place of the family farm, described at the beginning ~ Contracts that do not take away the operator's skill of management and risk of financing will not destroy the family type agriculture Share renting or cash renting have been steppingstones to owner- operator family farms. "Bigness," whether it be a conglomerate corporation, a family corpo ration, or a cooperative, using an integrated type setup, will destroy the family tyj~e agriculture PAGENO="0171" 167 Family farms must adopt modern technology, and if they will work together through marketing and buying cooperatives, they can be competitive. What I mean there is, if we have marketing cooperatives, for instance, in Nebraska we will still have to compete with the large corporations in other States. Really to preserve the independent fam- ily farm, for instance, in the poultry business there would have to be some kind of national supply control in order for the marketing co- operative to really be effective. Senator NELSON. You're talking about supply management? Mr. EBERS. Yes. On a nationwide commodity you have to have a na- tionwide supply control. But, there will have to be legislation to stop a takeover by corpo- rations now, to give the farmers the time to accumulate financing to make the changes. I don't know if we can wait very long, in time live- stock business especially, to save it from being completely integrated if we let things as they *are. Senator NELSON. `When you say "legis]ation," are you talking about the same kind of legislation that has been proposed by some of the other witnesses; that is, the prohibition of corporation farming of the type that has been discussed? Mr. EBERS. Yes. I'm of the opinion that there has to be some kind of a limit like the States of Oklahoma, North Dakota, and Kansas have on corporations to save the family-type farm, and I described the family-type farm in the beginning. I think this gives the most flexibility for the farmer to modernize aiicl to really become as efficient as he possibly can. Full family employment plus the help of a few hired men allows growth to a size that is efficient in our area. And I think this is where we have to stop if we want to keep the family farm. "Bigness" in farming will be inevitable if we leave things as they are now. In fact, it is taking over. But as John K. Gaibraith says: What ~vill be the quality `of life in the new industrial state? Should we con- tinue to subordinate all to niaterial welfare, that is what we will get. On the other hand, should we raise our sights to more esthetic goals, the industrial system will become responsive to the larger purposes of society. I submit, that keeping more people as entrepeneurs in a broadly based capitalistic system on farms and towns, and not in our cities, is a human and social benefit our Nation needs, and it will prove to be the most productive economic system, too. Senator NELSON. I want to thank you, Mr. Ebers, for your very fine statement. We appreciate your taking the time to come here today and your patience in waiting all day for a chance to testify. Our hearings will resume tomorrow morning at 9 o'clock. As I stated previously, our first witness will be Mr. Oren Lee Staley, president of the National Farmers Organization, follow-ed by Rev. Lester Moore, First TTi~ited Methodist Church. Corning. low-n, and Prof. Paul Farris, professor of agricultural economics at Purdue University. These hearings are recessed now until 9 o'clock tomorrow morning. (Whereupon, at 4 :20 p.m., the above-entitled hearings were recessed until 9 a.m., Tuesday, May 21, 1968.) PAGENO="0172" PAGENO="0173" CORPORATION FARMING TUESDAY, MAY 21, 1968 U.S. SENATE, SUBCOMMITTEE ON MONOPOLY OF THE SELECT COMMITTEE ON SMALL BUSINESS, Omaha, Nebr. The subcommittee met, pursuant to adjournment, at 9 a.m., in courtroom No. 2, Federal Building, Omaha, Nebr., Senator Gaylor Nelson (chairman of the subcommittee) presiding. Present: Senator Nelson. Also present: Tom Bennett, legislative assistant to Senator Nelson. Senator NELSON. The Senate subcommittee will now open its hear- ings this morning. Our first witness is Oren Lee Staley, president of the National Farmers Organization. Mr. Staley, the committee is very pleased to have you as a witness here this morning. Your testimony will be printed in full in the record. You may present it in any way you see fit. STATEMENT OF O'REN LEE STALEY, PRESIDENT, NATIONAL FARMERS ORGANIZATION, REA, MO. Mr. STALEY. I certainly appreciate the opportunity to present our ideas and viewpoints concerning what we feel is a very important subject of discussion now. I am Oren Lee Staley, president, National Farmers Organization, headquarters, Corning, Iowa. The subject of corporation farming on which you are holding hear- ings, is of vital importance to the future welfare and structure of rural America. Corporate agriculture, as it is now developing, is like a cancer eating away at the heart of rural America which is made up of family-type farmers and small businessmen. The growth of corporate agriculture is primarily because of low- farm prices. The low-farm prices that farmers have been receiving have resulted in farmers leaving the land and the farm youth deciding on other occupations. The only way a corporate agriculture can grow is for the land to become available in large tracts because corporations are not interested in anything other than giant land holdings. Therefore, the real reason that corporate farms are developing is because of the low-farm prices that farmers are receiving. This is the reason the NFO is pushing its collective bargaining program because in our organized economy of today, farmers cannot compete as indi- viduals. Corporation farming on a large scale will destroy the family- (169) PAGENO="0174" 170 type farm structure and the small businessmen of rural America and the spread and growth of corporation farming at this time is very alarming. Corporate farms bypass the local businessmen and buy their equipment, their fertilizer, their feed, and so forth, direct from the manufacturer. They do not need the local banker and do not become a part of the rural community in which their farm is located. A corporate agriculture will mean higher priced food to the con- suming public because the family-type labor will no longer be used in the production of food. Under a corporate setup, management and labor are employed which takes the personnel incentive out of agriculture. The family-type farm in America is a great example of private ownership operating in a free enterprise society. Corporate agricul- ture, because of its massive financing, can strangle the family-type farm. Corporations, once they are formed and own the land, will not die but will only have an exchange of the ownership of stock. There have been many examples in history-some of them very re- cent-in which it was necessary to have land reforms in order to re- store government and business to the people. It would be foolish for this Nation to allow conglomerate companies to take over the land resources of t.his Nation. In order t.o protect private ownership in a free enterprise society a thorough study and investigation of corporate agriculture should now be made. It is hard to determine the extent of the corporate agri- culture plans. In order to protect private ownership in a free enter- prise society the following steps should be taken: 1. The subpena powers of government should be used to deter- mine the true owners of the corporate farm operation. 2. The investigation should determine if these corporate farms are a part of a giant monopoly that is being built to control food at the processmg, distribution, and production level. 3. It should be determined if the corporate farms are buying their products such as equipment, fertilizer, feed and gas needs at unfair low levels, thus violating or at least being part of a violation of the present antitrust laws. Immediate steps should be taken to prevent unfair use by giant corporation structures in agriculture to build a monopoly that on one hand will strangle the family type farmers and rural businessmen, and on the other hand, control the processing, distribution, and produc- tion of food. The first step should be taken by making it illegal to deduct farm losses from any source of income other than farm income. This will prevent corporate structures from using tax deductions so they can produce farm products at cost of production or below until the family type farmers have been forced out of business. Vertical integration is a type of corporate agriculture that has reduced farmers to being just laborers with very low wages for their work. It is time to enact a law which keeps the retailer retailing, the processor processing, and the manufacturer manufacturing. Most of the farmers and rural businessmen who are forced out of business move to the cities and add to t.he unemployment. problem which leaves more people in the ghettos. `With more corporate farms PAGENO="0175" 171 being added each day to the growing list of giant corporate struc- tures, it's time that action must be taken to give adequate protection to the family type farmers. Senatoi.' Ni~rsoN. Mr. Staley, do you have any observations t.o make about the policy or the implications of having vast corporate holdings managing the resource itself; that is, the source of water and soil? We had testimony yesterday concerning the problem of irrigation, for example, the threat to the water table l.~y uncontrolled extraction of the water from the underground aquifers, the nature and manage- ment of the soil itself. Do you have any observations to make on that subject? Mr. STALEY. Well, certainly this is something that. should be closely watched and should be studied. This is happening in some areas. The water table is being reduced and it's hard to determine when you get to a level that is a level of danger, but certainly with the draining off in several areas of the water resources, it certainly is becoming alarming. Senator NELSON. Has your organization made any studies at all of corporate land holdings in any of the communities in the country? Mr. STALEY. We are, of course, now organized in 41 States, and we have a communication structure from our members, and almost every clay we have a, report of another corporate-type structure being formed. Now, it takes several avenues in forming. Sometimes it means that some farmer in a. community will be chosen to start. I)uyillg land, and then it comes imcler a corporate structure in a very short. time. This is the reason that we. suggested that it takes the po~ver of Government to use a subpena in order to determine just. where this money is coming from and to determine who the real owners are. The point that I'm making on this is when you have a vertical, inte- grated setup, we have seen it grow in the broiler industry, and now in the turkey industry, where some of the feed companies have ended up not. only furnishing feed, but. they have ended up furnishing the bfoilers. They have set up the processing plants, and so they become a tightly knit, monopolistic type of operation. Now, whether this cor- porate structure that is beginning to take at this ti me a real hold in the family-type farm areas-it means that. maybe they're all tied together in the same financial interest., and I think this is where. `the real heart of the studly should be made. Senator NELSON. You referred to the broiler industry. Do you vis- ualize that. the same kindi of `a process of total vertical integration from production `to marketing could occur in any farm product.'? Mr. STALEY. I not only visualize it. happening, I think that ifs going to happen unless farm prices are raised to the family-type farm. Of course, this is the reason that. we believe collective bargaining is an ab- solute necessity. Because what. is happening in all the rural (ommuni- ties is simply the fact that the age of farmers is contim1uing to go lip- ward, 57 years of age or approximately there. This means that practi- cally none of the youth is staying in agriculture. So then as the present family-type farms have mergedi their units iii order to become more. efficient, in order to try to meet. the cost.-pr~ce squeeze, what. is happen- ing is these units are getting so large that the investment is going to become so large that, an individual cannot even buy it. Theii, of course, PAGENO="0176" 172 this gives a real vacuum for a corporate structure to move in and take over. Therefore, the atmosphere and the setting is right now, because of low farm prices, to move in and freeze out the family-type farms. Senator NELsoN. The thing that seems clear from the hearings we had yesterday is that nobody really has the statistical information as to who holds and owns the land in the country. The Farmers Union had done some study in South Dakota. Two professors said that we know something about production and production costs involved in family farms, but that we didn't have any information about the cor- porations. In your opinion, who should do the research to get the infor- mation and the figures on landownership in this country and rural areas? Mr. STALEr. Well, I think it should be partially the responsibility of the land-grant colleges, No. 1. They run studies on everything etise, and there is no reason why they cannot run a study of this. I think the USDA should also do studies on this matter, `and I think in the end we'll find that the record of efficiency of the family-type farm, which has been unmatched in America by any other segment of the economy, is still unmatched in agriculture, but it does not completely tell the picture as far as efficiency is concerned. When you find a corporate structure-and once a corporation is formed, it doesn't die. It is only a matter of transfer of ownership of stock-once it's formed, it's not formed in the terms of immediate profit, but it's long-range profit or long-range power as far as finance is concerned. And land is still the most valuable resource in this Nation. Senator NeLSON. Thank you very much, Mr. Staley. We appreciate your taking the time to come over here and testify today, and we appre- ciate your contribution to these hearings. Mr. STALF~Y. Senator, I think it's certainly a great opportunity, and we certainly commend you and your committee for taking the inter- est in this matter which is of vital importance, I think, not only to rural America, but to the Nation because in the final summary we pointed out that in other nations it has been necessary to bring land reforms to restore business and government to the people; and it's certainly foolish for this Nation to go headlong into the type of policy or allow that type of policy to be pushed that would take this Nation into the same situation that has existed, whether you're talking about Japan or Cuba or whatever nation in the South American and Latin Amer- ican countries. And I think this is where the real concern should be. Thank you for the opportunity. Senator NELSON. Thank you for coming, Mr. Staley. Our next witness is Rev. Lester Moore, of the First United Method- ist Church, Corning, Iowa. We appreciate your coming here today to testify. STATEMENT OF REV. LESTER. L. MOORE, PASTOR, FIRST UNITED METHODIST CHURCH, CORNING, IOWA Reverend MooRE'. Senator Nelson, my name is Lester L. Moore and I `am the pastor of the First United Methodist Church, of Corning, Iowa. I appreciate the courtesy of being given the opportunity to testify before this committee on a matter that is of grave concern to me. PAGENO="0177" 173 Since 1946, I have been serving as the pastor of rural and small- town churches located in the heart of the Farm Belt. I have seen a drastic change take place in our whole farm economy. Twenty-two years ago it was possible for a man to farm 40 acres and supply the needs for himself and three others in the family. I remember in my first parish three such farmers. Of course, they did not have all of the modernization that is now part of the farming picture, but they were able to maintain themselves and pay off the mortage. In those days, a farm of 200 acres was considered large and would have required at least one hired man. In contrast, today we see the average family farm in the 500- to 600- acre size and many are saying that it will be necessary in the near future for the small farmer to go to 1,000 acres to survive. I really have no objection to the family farm being enlarged. In the increased mechanization of the present day, it could well be possible for the in- dividual farmer to manage in an efficient manner the increased size of farm. What does concern me is the continued growth of the commercial or corporate farming organizations. Although my field is theology and social ethics, it does not take a trained agricultural economist to understand the reasons for the rapid rise in the number of commercial farming enterprises. The cost-price squeeze has been taking its toll of small farmers at an ever-increasing pace. Only the most efficient, no matter how large his operation, has been able to survive. He has done this through the use of scientific and technical tools that were unknown a generation ago. But as he has done this technically correct procedure and increased his productive know-how, he has learned that his increase has not been of financial benefit to him. Instead, it was eaten up by higher production and machinery costs. The farmer has many occupational advantages that make it an ap- pealing vocation. He is becoming more and more aware, however, that there are many other occupational opportunities that will allow him to have many of the advantages of farm life with a much higher rate of return for time expended. It is quite understandable why the exodus from the farm has become so rapid. For the farmer who chooses to stay, the obstacles become formidable. The demands for more machinery and larger acreages march down the agricultural road together. Only the fortunate few are able to underwrite the financial requirements of this expanding operation. As more and more individual farmers drop by the wayside, the slack is picked u~ by the commercial enterprises who are looking for invest- ment projects. I live in a community of 2,000 persons and a county with a popula- tion of 8,000. Imagine if you will, the impact this trend toward com- mercialization is having upon our economy. First of all we are losing our population to the urban areas as they leave the farms. This has reduced the economic growth factor throughout the county. As the service area is reduced, so the need for servicing units have declined and we lose more population to the urban centers. At the same time, the commercial investors are gaining a stronger hold on the farm econ- omy. It takes no imagination to see that absentee investors have no 95~-258 O-68-i2 PAGENO="0178" 174 concern for what happens to community economic patterns or com- munity organization in the area where they have their investments Educational facilities may deteriorate, religious institutions may disintegrate, and social organization may evaporate, but it will not affect the investor nor his investment. One is inclined to say that we are sorry about this fact, but it is the coming thing and who is going to be able to stop progress? I submit that it is not progress to dislocate large numbers of our rural citizens and force them into an urban atmosphere that may rob them of their self-esteem and impose upon them a structure of society that tends to depersonalize life It is not progress to encourage a system that treats the land as a mining operation-good for all that can be gotten out of it without much thought of what is happening in the use of soil and water Con servation forces have made great strides in the past 20 years Are we to see this simply cast aside by the land miners who are demanding a profit from their investment? It is not progress to shut off the economic strength of a local com- munity by the bringing in of a corporation that deals in such large quantities of supplies that it is economically cheaper to bypass the local merchants This short circuiting of the economic generation fac tor of the local community can hardly be considered a social good A former teacher of mine once said that it was the sociologist's job to discover trends in our society. It then became the task of that society to decide whether it wanted to follow those trends or to kick some of them in the teeth and send them back where they cam.e from. It does not make sense to me to replace the values, strength, and efficiency of the family-type farm for the depersonalized, inefficient, and socially destructive corporation farm, only to discover after 20 years that the economic power centered in the commercial farming en terprise was centralized enough to force the marketplace to pay a rea sonable return to the producer for his marketable goods Why are we not wise enough to see that it would be a far greater good to encourage the continued development of family type farms with a fair share in the marketplace ~ I know that the immediate question that is raised is, "How is this tobe done~" Certainly I do not have all of the answers. This is not my primary field and most of my ideas have come from observation and not from the laboratory. For this reason I hesitate to make recommendations, but I have been bold thus far and so will make a few personal oh servations First, legislation should be developed to make it economically un profitable to invest in a farming corporation as a tax writeoff No one will dispute that this is being done It is unfair to those tax payers who have no such convenient loss leaders Second, Government agencies should be prohibited from encour aging the organization of corporation farms by giving financial help. At the present time at least the FHA is making loans to help in the organization of such farms-under the name of grazing associations. Third, `bargaining power for the family farmer needs to be encour- aged. It seems to me that this is the road that would make the most PAGENO="0179" 175 sense I am aware of all the objections that have been used at this level, but when I view the alternatives, I am more certain than ever that we must move quickly in this area. Fourth, the whole farm subsidy program needs to be overhauled It should be structured to assist the small operator and not the big one I would recommend that a ceiling be placed on the amount of subsidy that could be received and the volume of production that would permit participation in the program Fifth, in a world where two thirds of its people go to bed hungry every night, while we suffer in America from overproduction, it seems absurd to say that we cannot deal with the problem To always blame the problems of a world market for the fact that we do not feed those in need is a negation of our Judaic Christian ethic Whenever I have raised the question of why the world economy would be shaken from its foundations because we provide food to those persons who would not have otherwise bought any, I am stared at as a pure economic neophyte-but I am not given an answer Surely we can do better than this Sixth, as a nation we pride ourselves on our scientific achievements I feel we should take the agricultural problem seriously and put some of our best minds to work on a solution. This means we should deal with the root problems and not just the surface issues, as so much of our effort has been in the past. Gentlemen, I appreciate this opportunity to present my views on this urgent problem. Senator NELSON. Reverend Moore, we appreciate very much your taking time to come over here and present your testimony this morn- ing Thank you Our next witness is Paul L Farris, professor of agricultural eco nomics, Purdue University Professor Farris, we appreciate your coming over here this morn ing Your testimony will be printed in full in the record You may present it in any fashion ~ ou see fit STATEMENT OF PAUL L PARRIS, PROFESSOR, DEPARTMENT OF AGRICULTURAL ECONOMICS, PURDUE UNIVERSITY, WEST LA FAYETTE, IND Professor FARRIS Thank you very much, Senator It seems timely and appropriate for this Senate subcommittee to examine the issues involved in the changing organization of U S agriculture The topic of this hearing is certainly an important one American agriculture is currently undergoing a profound reorgani zation in which farmers are losing managerial independence Entre preneural functions inherent in family farm agriculture are gravitat ing to decisionmakers elsewhere This trend is disintegrating the family farm in ~ ays not fully visible from trends in farm and farm numbers and sizes Farmers see at stake their freedom and economic status relative to other groups Yet, some of the tendencies toward greater centralization of deci sionmaking and concentration of power do not appear to be inevitable The agricultural economy can probably achieve high levels of effi PAGENO="0180" 176 ciency and progressiveness under a variety of alternative institutional arrangements. The current and acute policy question involves whether and how to guide the course of organizational development. Inade- quate analysis of policy alternatives could result, on the one hand, m unwanted organizational patterns, or on the other, in undesirable forms of legislation. The most forceful ar~ument for taking positive stops to support family farm agriculture is to enhance decentralized decisionmaking and diffused economic power in our society. Rapid change in number and sizes of farms is an important cause of anxiety among farmers and disturbances in rural communities, but this alone is not the central issue. In size of business, most farm produc- tion units can still be classified as family farms. That is, farm fami- lies provide a large part of the labor except for seasonal work and transitional stages in the families. Furthermore, research studies re- lating costs per unit to size have generally shown that all of the econo- mies of size can be achieved by modern and fully mechanized one-man and two-man farms. I'm referring here particularly to the study by the Department of Agriculture which summarized a number of studies involving commodities in various areas of the country, indicating that the economies of size were not significant beyond a one-man or two-man type of operation. Senator NELSON. Have there been any studies that you're aware of, of the corporation farm itself and its unit cost of production? Professor FAinus. I know of no such studies, Senator. Although technology will not remain constant in the future, 10 or 20 years from now we will probably still see large numbers of family size farms. This is not to say that adequate size of business is not important. While the total number of farms in the United States dropped from 4.1 million in 1959 to 3.25 million in 1966, those with annual sales of $20,000 or more rose from 325,000 to 527,000. These farms accounted for about half of the value of all farm products sold in 1959 and about two-thirds in 1963. Senator NELSON. What study is that statistic based upon? Professor FARRIS. This is from a study prepared for the Congress by the U.S. Department of Agriculture on parity returns positions of farmers. Senator NELSON. What year was that? Professor FAmus. I believe that was completed last summer, the summer of 1967. Many operators of small units recognize that they must grow larger to earn returns more nearly comparable with returns to similar re- sources employed outside of agriculture. So farmers themselves com- pete intensely for additional land. The share of business done by large farms is expected to continue rising, but the increase will come mainly from greater numbers of farms in large size classes rather than large farms in existence grow- ing to massive size. Here I'm not including investment in land for reasons other than the productivity of the investment itself. Now I will turn to loss of managerial independence. When we turn to entrepreneurial functions, we often see more profound change. In producing some commodities, farmers are subject to increasing de- PAGENO="0181" 177 grees of managerial supervision from suppliers and creditors. In sell- ing, farmers are faced with increasing pressures and incentives to standardize product quality and to gear large and regular volumes of product supplies to particular market outlets. Options in selling are being narrowed further by a reduced number of buyers and by disappearance of traditional open markets. Many producers are finding it more and more desirable to have a specific sales outlet in sight before making production decisions. How much managerial independence has been lost by farmers varies widely among enterprises and areas of the country. The shift of en- trepreneurial functions off the farm has been greatest for poultry and some specialty crops. Farmers in the Midwest, particularly in Indiana, with which I am most familiar, appear to have retained more decision- making latitude than farmers in other areas, but their traditional types of operations are being strongly challenged by integrated production- marketing systems in other sections of the country. Other well-known `characteristics of agriculture intensify changes in number, size, and managerial independence of farmers as well as bring repeated pressures on earnings. Uncoordinated output frequently results in supplies greater than the market will absorb without sharp declines in prices. Quantities taken by the domestic market are little influenced by income or price changes, and foreign markets are often unpredictable. Relatively high fixed costs in agriculture cause tarmers to keep on producing even when prices decline. The onrush of tech- nology brings constant pressure for adjustment. With purchased in- puts growing in importance and consumption expenses rising as farm- ers obtain an increasing share of family living items from the market, many farmers have become increasingly vulnerable to farm income fluctuations and to the cost-price squeeze from declining farm prices and rising nonfarm prices in an inflationary economy. We turn now to prospective tendencies with no change in public policy. With continuation of present policies, we will likely see substantial further vertical integration both through direct ownership and by contract. We would expect open markets gradually to dry up and prices they generate become less and less representative of general supply and demand conditions. Variability among buyers and sellers in the quality and amount of market knowledge they h'ave to make trading decisions, `and consequently their negotiating skill, may widen. Management will likely continue to gravitate from the hands `of farmers to those of processors and suppliers and the farmer's role reduced further toward `that of a laborer. Integrating companies may not completely take over the production of food and fiber by owning the land and capital and hiring the labor so long as they can earn more with their resources in other uses. Also, by using `contract, inte- grating companies `may be able `to avoid some employee costs, such a's social security, ~ compensation, and possibly union wages, which would likely come with complete ownership of land and other production resources. In addition, extensive outright ownership of farm production resources by nonfarm firms will tend to `be discour- aged as long as relatively free entry into agriculture draws capital PAGENO="0182" 178 and labor of farmers ~n quantity great enough to keep output. pressing on available markets and downward pressure on p1~ceS. But we should recognize that nonfarm capital may be invested in agriculture because of tax advantages or other reasons not directly related to the productivity of the investment.. Where this occurs, land prices will tend to be bid lip further and competitive pressure on tra- ditional agricultural producers will be intensified. Now, I will turn to public policy approaches which will strengthen family farm agriculture. Three broad policy directions appear to have a place. Owing to the great. diversit.y in American agriculture, no single approach is likely to be appropriate and effective in all situa- t.ions. In several ways various approaches may be complementary and interdependent. The emphasis given to each will need to depend on individual situations and on the support each receives. First, improving the functioning of competitive processes. Compe- titive exchange processes, including open markets, could be made to perform more effectively by expanding the broad range of market- ing service and education programs now in existence so that market positions based on superior knowledge would tend t.o be undermined by more informed and skilled competitors. New legislation may be needed to provide that. public agencies could obtain accurate and essen- tial ba.sic data for rapid summarization by computer and immediate transmission of relevant market knowledge over modern commuinica- tions networks to interested buyers and sellers. Grading and ~tandardization programs would be emphasized. Fed- eral agencies might be given specific legislative assignments to develop new product standards and grades appropriate `to changed needs. Antitrust activity has an important role in improving the function- ing of competitive exchange processes by reducing concentrations of power either on the buying or selling sides of markets. Large firms could be forbidden to acquire other firms. Divestiture is an alternative which may be considered in some situations. Where processors, distrib- utors, or suppliers are too small to take advantage of economies of size, mergers among small firms could be encouraged so they could on the one hand, lower their unit costs and, on the other, offer stronger competitive challenges to larger rivals. The extent, form, causes, and consequences of vertical and con- glomerate firm growth are not fully known. New legislation may be appropriate t.o assure competitive behavior by diversified firms. As a first step, specialized firms might be put on a more equal basis with diversified firms so far as information about each other is concerned if data. on sales, expenses and profits, by divisions, of vertically and conglomerately integrated firms were made publicly available. In t.his respect more information is needed about. trends a.nd reasons for changes in land ownership patterns. In order that up-to-date information about changes in industry structure will be available to the Congress and the executive branch, legislation could provide specifically that. continuing economic studies of evolving industry structures of the food and fiber industries would be carried out. Some of the studies could be conducted by educational and private research inst.itaitions, such as the laud grant. coile.ees, others by economic research agencies in the Federal Government or by PAGENO="0183" 179 regulatory bodies, such as the Federal Trade Commission or the Packers and Stockyards Administration in the U S Department of Agriculture The essential thrust of the antitrust approach would be to balance economic power at as low level of intensity as possible consistent with efficiency and progressiveness To the extent that greater information and education would lead to decentralized decisionmakrng and diffu sion of power, emphasis on antitrust approaches might be correspond- ingly reduced. I'll turn now to the second approach, which would be legislation to restrict farm size or land ownership. Direct restriction of farm size by limiting the number of acres or volume of sales pei farm might be an effective way to control farm size and keep a large number of farms Laws could also be passed to prohibit absentee or non farm corporation ownership of land An indirect method of discouraging large scale operations would be to alter income tax schedules so that small size would be encouraged and large size discouraged Tax allowances and treatment of capital gains might also be changed to make agricultural land less attractive to outside investors A low limit could be set on the amount of Govern ment payments per farm, or Government payments could be graduated, becoming less liberal as size of business increased It might be argued that restricting farm size would ret'trd efficiency and technological progress However, certain types of restrictions would seem to be essentially neutral in these respects Where restric tions would enhance family farm agriculture but would impose little, if any, restraint on efficiency or progress, society could choose this pattern of agricultural organization, if it desires to do so, with insig nificant economic loss Furthermore, in addition to satisfying certain social and organizational preferences of society, substantial positive values could accrue to other groups, such as farmers, business firms, and service institutions that make up an integral part of the family farm structure Senator NELSON What kind of restrictions are you talking about ~ Professor FARRIS I was thinking about restrictions on a conglom erate firm or the investment in land-of capital in land-as a tax writeoff Senator NELSON You used the phrase, "However, cert~un types of restrictions would seem to be essentially neutral" Professor FARRIS Yes My feeling there is that we have no evidence that large scale farming is more efficient than family type firming In the absence of such evidence, it would seem that if we prevent such types of investments to occur, we would not be sacrificing efficiency, but yet we would have the choice of maintaining the family farm type structure without giving up anything, perhaps other than the desires of certain groups to invest in land Also, strengthening this structure would also help avoid some popu lation mobility and adjustment costs and perhaps ameliorate popula tion pressures in urban centers But it should be recognized that v'trious techniques and government programs for restricting farm size or land ownership would not necessarily assure that the management and risk taking functions PAGENO="0184" 180 would remain intact in the hands of farmers, nor that farm incomes would be satisfactory unless the legislation would attempt to deal with these matters, too. If subsidy programs which would substantially increase farm earn- ings and maintain them at a high level were to prevail, then in the absence of restrictions to the contrary, more nonfarm capital would tend to be attracted into agricultural production. Increased subsidies along historical lines also would tend to widen the difference in earn- ings among individual farmers and further increase land prices. Now, the third type of public approach is group organization and activity. Farmers appear to have some latitude for furthering their interests through group efforts. Certain directions would `be possible under existing laws and rules; other approaches would require changes in legislation or public policy. First of all, group activity options available under existing legisla- tion. We would recognize that new knowledge, new technology, and changed attitudes may create a climate in which organizational innova- tions which did not emerge in the past can more easily flourish in the future. An important option is through broader use of the cooperative form of orga~nization. The National Commission on Food Marketing believed that "Farmers do not yet fully appreciate the importance of cooperative action in marketing their products." C'ooperatives might become more aggressive in some areas where they have already demonstrated notable achievements, such as the purchase `of farm supplies. Also bargaining efforts might be increased. Where considerable internal group discipline is possible, a group representing farmers can often improve terms of trade for the group. The potential for improvement may sometimes prove to be substantial where farmers are uninformed, disorganized or unable as individuals to match the knowledge, skill and power of `those with whom farmers deal. Cooperatives might also be used to develop new purchasing and marketing arrangements to give independent farmers some of the advantages of vertical `coordination, yet permit farmers to retain greater managerial latitude than allowed under most contract terms~ Where close vertical coordination would be essential for efficiency, quality control, or product improvement, farmers have the option o~ forming cooperatives to integrate forward into processing and distri- bution. In some market situations, cooperatives may find it advanta- geous to build positions of market strength in order to represent pro- ducers more effectively in' competition with other firms or to counter- vial the market power of other buyers or sellers. Group efforts of farmers, either through cooperatives, farm orga- nizations, or other agencies, might initiate beneficial changes in con- tracts between farmers and processors or other integrating firms. New cost-saving innovations and vertical coordination efficiencies, which would be mutally beneficial to farmers and purchasers of farm com- modities, might be obtained through organized group action. Groups representing farmers might thus be able to obtain higher returns for farmers by offering to share some potential new efficiency advantages with their bargaining opponents. But we must recognize the limits of voluntary organization that are inherent in the structure of most of farming if the objective is PAGENO="0185" 181 to affect the level and stability of farm income. Although farms in the future may be counted in thousands rather than millions, they will still be selling raw, undifferentiated products and be too numerous, diverse and scattered, in the absence of Government help, to control supplies in ways to influence significantly the general level of price. That brings me to (b), enabling legislation to expand organization options. Available organizational devices, such as cooperatives and marketing orders as presently authorized, in many cases do not enable farmers to coordinate their individual production efforts, or to nego- tiate effectively with buyers. Increased flexibility and opportunity for group action are often needed. In responding to this need, the National Commission on Food Marketing concluded in 1966 that marketing orders and agreements should be authorized for any locally or region- ally produced farm product. The idea of a new device, termed an "Agricultural Marketing Board," was also proposed. Essentially an extension of a marketing order, such a board could be voted into effect by producers and could regulate production or marketing and negotiate prices. Besides an administrator represent- ing the Secretary of Agriculture, each board would also include representatives of handlers and the public. The Commission further believed specific legislation necessary "to protect the right `of farmers to organize," that is, to prevent obstruc- tion, boycott or intimidation in group activities of farmers to increase their bargaining power. Other new devices which would facilitate joint efforts of farniers in production, in marketing, `or in the acquisition and transfer of farm property, might be considered. Legislation could make it easier for cooperatives to gain a larger role in the total food and fiber sector of the economy, if this were deemed desirable. Discussions along these lines are becoming more active. New orga- nizational proposals are attempts to deal more effectively with the inherent instability of agricultural supplies, prices, and incomes and with the weak bargaining positions in which producers often find themselves. They are efforts to provide the farmer with institutional devices that would enable him to participate in group decisionmaking and perhaps accept some output restraints in order to gain, in return, greater influence over his future destiny and perhaps be able to recover or retain managerial independence which would otherwise be lost. Now we will turn to the question of whether the family farm should be preserved. We must now face up to the question of whether it really makes any difference if the family farm, defined not only in terms of size~, but also to include a reasonable degree of managerial independence, vanishes into history. To answer the question we will consider the family farm in four ways, in terms of morality, democ- racy, efficiency, `and the economic organization of society. Now, with respect to morality, I think I will summarize very briefly by saying that the case has been made that family farmers are more moral than other people. Yet the argument has been offered that there is essentially no difference between family farmers and `other people. I think we cannot demonstrate whether people from family farms are more or less moral than other people, and we will nee.d to look further to make the case for preserving the family farm. PAGENO="0186" 182 A related idea in the development of our country was that an agri- culture made up of family farms was the backbone of democracy. A penetrating examination of the idea by A. Whitney Griswold, late president of Yale University, led to the conclusion that democracy grew from men's minds and spirits in the commercial and industrial atmosphere of cities as much or more than in the agrarian atmosphere of the country It has been argued that a family farm of adequate size is more efficient than `my other organiz'ttional pattern of agricultur'il pro duction M'iny units of 1-2 man years in size h'tve survi~ ed and still dominate the countryside We need to rec'ill, however, that the man agerial function is slipping away from several of these units. We must also recognize that with increasing specialization, possible com- plementary relationships among enterprises decrease and that the farmers' work becomes easier to routinize so that it can be supervised from a greater distance. Yet, it is certainly not apparent that family farm agriculture is less efficient than alternative org'irnzational p'itterns, or that it needs to be ~ ith new institutions or techniques of management and m'trketing If this is true, society will not suffer productivity loss by taking steps to keep the family farm Moreover, sociil `tnd `idjustment costs, which may be associated with some forms of organizational change, would be avoided. This brings us to the final and most forceful argument, in my judg- ment, for preserving and strengthening the family farm, that of sup- porting decentralized decisionmaking and diffused economic power in the organization of our society Economics teaches and history yen fies that if a firm or small group of firms grow large in relation to the market, they generally increase their influence over the livelihood of others and turn terms of trade in their favor Our basic philosophy is in favor of a market economy, but for it to work effectively, buyers and sellers should be sufficiently numerous and vigorous to impose competitive checks upon each other It has been our nationil policy to take steps from time to time that nourish competition By restraining excessive power, by encouraging new competitors, or by enabling weak competitors to become stronger. Strengthening managerial latitude of independent farmers and firming their market positions as individuals and in groups would be in our national tradition toward b'alancing economic power in society It would also give farmers greater influence in shaping the kinds of production and marketing systems which are affecting their lives, their role, and their managerial freedom so profoundly. An agriculture made up mainly of family farms, in which con siderable m'tnageri'tl independence would be retained by the farm family, probably can be saved. If society wants to strengthen the family f'irm, some policy alternatives `tre wailable which would contribute in this direction. Choices and actions at this time can play a key role in forming the organizational pattern in the agriculture of tomorrow. This concludes my statement. Senator NELSON. Thank you, professor. (The complete prepared statement of Professor Farris follows ) PAGENO="0187" 183 STATEMENT OF PAUL L. FARRIS, PROFESSOR, DEPARTMENT OF AGRICULTURAL EcoNoMIcs, PURDUE UNIVERSITY EFFECTS OF CHANGES IN INDUSTRY ORGANIZATION ON FAMILY FARM AGRICULTURE American agriculture is currently undergoing a Profound reorgaiiiz;itioii in which fa rmers are losing managerial independence. Entrel)relleural fuiictions inherent in family fa riii agriculture are gravitating to decision-makers e1~e- where.1 This trend is disintegratiRg the family fariii in ways not fully visible from trends in farm numbers and sizes. Farmers see at stake their freedom and economic status relative to other groups. Yet, some of the tendencies toward greater centralizatioii of decision-makiiig and concentration of power (10 not appeai~ to be inevitable. The agricultural economy can probably achieve high levels of efficiency and progressiveness under a variety of alternative institutional arrangements. The current and acute l)olicy question involves whether and how to guide the course of organizatloinil development. Inadequate analysis of policy alternatives could result, on the one hand, in unwanted organizational patterns, or oii the other, in undesirable forms of legislation. The most forceful argument for taking positive steps to support family farm agriculture is to enhance decentralized decision-making and dif- fused economic power in our society. Highlights of dcvelopiug structural trends Rapid change in number and sizes of farms is an important cause of anxiety among farmers and disturbances in rural communities, but tins alone is not the central issue. in size of business, most farm production units can still be classi- tied as family farms. That is, farm families provide a large part of the labor except for seasonal w-ork and transitional stages in the families. Furthermore. research studies relating cost per unit to size have generally shown that all of the economies of size can be achieved by modern and fully mechanized one-man and two-man farms.1 Although technology will not remain constant iii the future, 10 or 20 years from now we will probably still count large numbers of family size farms. This is not to say that adequate size of business is not important. While the total number of farms in the iTnited States dropped from 4.1 million in 1959 to 3.25 million in lOGO, those with annual sales of p20,090 or more roso from 325.000 to 527,000. These farms accounted for about half of the value of all farm products sold in 1959 and about two-thirds in 196G.~ Large farms also earned higher average rates per unit of labor and capital employed in farming than did smaller farms. Many operators of small units recognize that they must grow larger to garn returns more imearly comparable with returns to similar resources employed outside of agriculture. Hence, farmers compete intensely for additional 1011(1. The share of business done by large farms is expected to continue rising, but the i'icrease will come mainly from greater numbers of farms in large size (`lasses rather than large farms in existence growing to massive size." Loss of managerial in dependen cc When we turn to entrepreneural functions, we often see more profound change. In producing some commodities, farmers are subject to maclea sing degrees of managerial supervision from suppliers and creditors. In selling, farmers are faced with increasing pressures and incentives to standardize product quality and to gear large and regular volumes of product supplies to particular market outlets. Options in selling are being narrowed further by a reduced number of buyers and by disappearance of traditional open markets. Many producers are finding 1 We have generally defined a family farm as one in which the entre'prcneurni functions were vested in the farm family. In addition, the farm thnmlly furnished inost of the labom' except for seasonal work or transitional stages ii, the family. The farm was large enough to employ resources of the farm family efficiently. See Joseph Ackerman and Marshall Harris, ed.. Family Farm Policy, (Chicago : Time tlaiversitv 01! ChIcago Press. 1947). p. 389. 2 ,J, Patrick Madden. `Economies of Size in Farming" Agricultural Economic Rei)ol't No. 107,. USDA. ER'S. February. 1967. 8 "Parity Returns Positions of Farmers," Report to the Congress of th~ United States Pursuant to Section 705 of the Food and Agriculture Act of 1965 by the Department of Agriculture, 90th Congress, 1st SessIon. Senate l)ocument No. 44, August 10, 1967. Radoje Nikolitclm. "The Adequate Family Farm-Mainstay of the Farm Economy." ~4qriculturai Economics Research, Vol. XVII, No. 3, USAD, ERS, July. 1965, pp. 84-89. PAGENO="0188" 1S4 it more and more desirable to have a specific sales outlet in sight before making production decisions. How much managerial independence has been lost by farmers varies widely among enterprises and areas of the country. The shift of entrepreneural func- tions off the farm has been greatest for poultry and some specialty crops. Farmers in the Midwest appear to have retained more decision-making latitude than farmers in other areas, but their traditional types of operations are being strongly challenged by integrated production-marketing systems in other sections. Other characteristics of the agricultural industry Other well-known characteristics of agriculture intensify changes in number, size, and managerial independence of farmers as well as bring repeated pressures on earnings. Uncoordinated output frequently results in supplies greater than the market will absorb without sharp declines in prices. Quantities taken by the domestic market are little influenced by income or price changes, and foreign markets are often unpredictable. Relatively high fixed costs in agriculture cause farmers to keep on producing even when prices decline. The onrush of technology brings constant pressure for adjustment. With purchased inputs growing in im- portance and consumption expenses rising as farmers obtain an increasing share of family living items from the market, many farmers have become increasingly vulnerable to farm income fluctuations and to the cost price squeeze from declin- ing farm prices and rising nonfarm prices in an inflationary economy. Prospective tendencies with no change in public policy With continuation of present policies, we will likely see substantial further vertical integration both through direct ownership and by contract. We would expect open markets gradually to dry up and prices they generate become less and less representative of general supply and demand conditions. Variability among buyers and sellers in the quality and amount of market knowledae they have to make trading decisions, and consequently their negotiating skill, may widen. Management will likely continue to gravitate from the hands of farmers to those of processors and suppliers and the farmer's role reduced further toward that of a laborer. Integrating companies may not completely `take over the pro- duction of food and fiber by owning the land and capital and hiring the labor so long as they can earn more with their resources In other uses. Also, by using contracts, integrating companies may be able to avoid some employee costs, such as social security, workmen's compensation, and possibly union wages, which would likely come with complete ownership of land and other production re- sources. In addition, extensive outright ownership of farm production resources by nonfarm firms will tend to be discouraged as long as relatively free entry into agriculture draws capital and labor of farmers in quantity great enough to keep output pressing on available markets and downward pressure on prices. Thit we should recognize that nonfarm capital may be invested in agriculture because of tax advantages or other reasons not directly related to the produc- tivity of the investment. Where this occurs, land prices will tend to be bid up further and competitive pressure on traditional agricultural producers will be intensified. Public policy approaches to strengthen family farm agriculture Three broad policy directions appear to have a place. Owing to the great diver- sity in American agriculture, no single approach is likely to be appropriate and effective in all situations. In several ways various approaches may be comple- mentary and interdependent. The emphasis given to each will need to depend on individual situations and on the support each receives. (1) Improving the f~inctioning of competitive e~vchange processes Competitive exchange processes, including open markets, could be made to perform more effectively by expanding the broad range of marketing service and education programs now in existence so that market positions based on superior knowledge would tend to be undermined by more informed and skilled com- petitors. New legislation may be needed to provide that public agencies could obtain accurate and essential basic data for rapid summarization by computer and immediate transmission of relevant market knowledge over modern commu- nications networks to interested buyers and sellers. PAGENO="0189" 185 Grading and standardization programs would be emphasized. Federal agencies might be given specific legislative assignments to develop new product standards and grades appropriate to changed needs. Antitrust activity has an important role in improving the functioning of com- petitive exchange processes by reducing concentrations of power either on the buying or selling sides of markets. Large firms could be forbidden to acquire other firms. Divestiture is an alternative which may be considered in some situations. Where processors, distributors, or suppliers are too small to take advantage of economies of size, mergers among small firms could be encouraged so they could on the one hand, lower their unit costs and, on the other, offer stronger competi- tive challenges to larger rivals. The extent, form, causes and consequences of vertical and conglomerate firm growth are not fully known. New legislation may be appropriate to assure com- petitive behavior by diversified firms. As a first step, specialized firms might be put on a more equal basis with diversified firms so far as information about each other is concerned If data on sales, expenses and profits, by divisions, of ver- tically and conglomerately integrated firms were made publicly available. More information is needed about trends and reasons for changes in land ownership patterns. In order that up-to-date information about changes in industry structure will be available to the Congress and the Executive Branch, legislation could provide specifically that continuing economic studies of evolving industry structures of the food and fiber industries would be carried out. Some of the studies could be conducted by educational and private research institutions, others by economic research agencies in the federal government or by regulatory bodies, such as the Federal Trade Commission or the Packers and Stockyards Administration in the U.S. Department of Agriculture. The essential thrust of the antitrust approach would be to balance economic power at as low level of intensity as possible consistent with efficiency and pro- gressiveness. To the extent that greater information and education would lead to decentralized decision-making and diffusion of power, emphasis on antitrust approaches might be correspondingly reduced. (2) Legiskz~tion to restrict farni size or ktnd ownership Direct restriction of farm size by limiting the n'um~ber of acres or volume of sales or volume of sales per farm might be an effective way to control farm size and keep a large number of farms. Laws could also be passed to prohibit absentee or nonfarm corporation ownership of land. An indirect method of discouraging large scale operations won~Id be to alter income tax schedules so that small size would be encouraged and large size dis- couraged. Tax allowances and treatment of capital gains might also be changed to make agricultural land less attractive to outside Investors. A low limit could. `be set on the amount of government payments per farm, or government payments could be graduated, becoming lesis liberal as size of business increased. It might be argued that restricting farm size would retard efficiency and tech- nological progress~ However, certain types of restrictions would seem. to be essen- tially neutral in these respects. Where restrictions would enhance family farm agriculture but would impose little if .any restraint on efficiency or progress, society eoul.d choose this pattern of agricultural organization, if it desires to do so, within significant economic loss. Furthermore, in addition to satisfying certain social and organizationial preferences of society, substantial positive values could accrue to other groups, such as farmers, business firms, and service institutions that make up an integral part of the family farm structure. Strengthening this structure would also help avoid some population mobility and adjustment costs and perhaps ameliorate population pressures in urban centers. But it should be recognized that various techniques and government programs for restricting farm size or land ownership would not necessarily assure that the management and risk-taking functions would remain intact in the hands of farmers, or that farm incomes would be satisfactory-unless the legislation would attempt to deal with these m.atters, too. If subsidy programs which would substantially increase farm earnings and inainitiain them `at a high level were to prevail, then in the absence of restrictions to the contraryr more nonfarm capital would tend to be attracted into agricul- tural production. Increased subsidies along historical lines also would tend to. widen the difference in earnings among individual farmers and further increase land prices. PAGENO="0190" 186 (3) Group organ'~zat~on~ a,,uZ a~ctw~ty Farmers appear to have some latitude for furthering their interests through group efforts. Certain directions would be possible under existing law's and rules; other approaches would require changes in legislation or public policy (a;) Group Activity Options Available Under Existing Legislation-New knowledge, new technology, and changed attitudes may create a climate in which organizational innovations which did not emerge in the past can more easily flourish in the future An important option is through broader use of the coopera tive form of orgamzntion The National Ciommission on Food Marketing believed that "farmers do not yet fully appreciate the importance of cooperative action in marketing their products ~ Oooperatives might become more aggressive in some areas where they have already dem~nstmted notable achievements such as the purchase of farm supplies Also bargaining efforts might be increased ~ Where considerable internal group discipline is possible a group representing farmers can often improve terms of trade for the group The potential for improvement in'ay s~imetimes prove to t~e substantial where farmers are uninformed disorganized or unable as individualis to match the knowledge skill and power of those with whom farmers deal Ooo'peratives might also be used to develop new purchasing and marketing arrangements to give independent farmers same of the advantages of vertical coordination, yet permit farmers to retain greater managerial latitude than allowed under most contract terms Where close vertical coordination would be essential for efficiency quality control or product improvement farmers have the option of forming cooperatives to integrate forward into processing and distribution In some market situations cooperatives may find it advantageous to build positions of market strength in order to represent producers more effectively in competition with other firms or to countervall the market power of other buyers or sellers. Group efforts of farmers either through cooperatives farm organization's or other agencies might initiate beneficial changes in contracts between farmers and processors or other integrating firms New cost saving innovationis and vertical coordination efficiencies, which would be mutually beneficial to farmers and purchasers of farm commodities, might be obtained through organized group action Groups representing farmers might thus be able to obtain higher returns for farmers by offering to share some potential new efficiency advantages w ith their bargaining opponents But we must recognize the limits of voluntary organization that are Inherent in the structure of most of farming if the objective is to affect the level and stability of farm income Although farms in the future may be counted in thousands rather than millions they will still be selling raw undifferentiated products and be too numerous diverse and scattered In the absence of government help to control supplies in ways to influence sigmficantly the general level of price (b) Enabling Legislation to Ecepand Organization Options -Available orga nizational devices, such as cooperatives and marketing orders as presently author- ized, in many cases do not enable farmers to coordinate their individual produc- tion efforts or to negotiate effectively with buyers Increased fiexibihtv and opportunity for group action `are often needed. In responding tb this need the National Commission on Food Marketing concluded in 1966 that marketing orders and agreements should be authorized for any locally or regionally produced farm product The idea of a new device termed an Agricultural Marketing Board was also proposed.7 Essentially an extension of a marketing order such a board could be voted into effect by producers and could regulate production or marketing and negotiate prices Besides an administrator representing the Secretary of Agriculture each board would also include representatives of handlers and the public The Commission further believed specific legislation necessary to protect the right of farmers to organize that is to prevent obstruction boycott or intimi dation in group activities of farmers to increase their bargaining power. Other new devices which would facilitate joint efforts of farmers in produc- tion in marketing or in the acquisition and transfer of farm property might be ~ "Food From Farmer to Consumer," Report of the National Commission on Food Mar- ketlnr. U.S. Government Printing Office, June. 1966. p. 110. Willard F Mueller Cooperatives Contribution to Effeoti~e Competition Keynote Address. Cooperative Month Observances, Washington, D.C., October 9, 1967, p. 14. ~ Food from Farmer to Consumer op cit p 110 PAGENO="0191" 187 considered. Legislation could make it easier for cooperatives to gain a larger role in the total food and fiber sector of the economy, if this were deemed desirable. Discussions along these lines are becoming more active. New organizational proposals are attempts to deal more effectively with the inherent instability of agricultural supplies, prices and incomes and with the weak bargaining positions in which producers often find themselves. They are efforts to provide the farmer with institutional devices that would enable him to participate in group decision making and perhaps accept some output restraints in order to gain, in return, greater influence over his future destiny and perhaps be able to recover or retain managerial independence Which would otherwise be lost. Should the fam4ly farm be preserved? We must now face up to the question of whether it really makes any difference if the family farm, defined not only in terms of size but also to include a reasonable degree of managerial independence, vanishes into history. To answer the question we will consider the family farm in four ways, in terms of morality, democracy, efficiency, and the economic organization of society. First, with respect to morality, Thomas Jefferson declared "Those who labor in the earth are the chosen people of God. . ~ 8 This belief has been widely held in our history, but there have been other views. Abraham Lincoln once observed that farmers appeared to be no better or worse than other people. We probably cannot demonstrate whether people from family farms are more or less moral than other people. Hence, the case for preserving the family farm will need fur- ther arguments on its behalf. A related idea in the development of our country was that an agriculture made up of family farms was the backbone of democracy. A penetrating examina- tion of the idea by A. Whitney Griswold, late president of Yale University, led to the conclusion that democracy grew from men's minds and spirits in the com- mercial and industrial atmosphere of cities as much or more than in the agrarian atmosphere of the country.° It has been argued that a family farm of adequate size is more efficient than any other organizational pattern of agricultural production. Many units of 1-2 man-years in size have survived and still dominate the countryside. We need to recall, however, that the managerial function is slipping away from several of these units. We must also recognize that with increasing specialization, possible complementary relationships among enterprises decrease and that the farmer's work becomes easier to routinize so that it can be supervised from a greater distance. Yet it is certainly not apparent that family farm agriculture Is less efficient than alternative organizational patterns, or that it needs to be with new institu- tions or techniques of management and marketing. If this is true, society will not suffer productivity loss by taking steps to keep the family farm. Moreover, social and adjustment costs, which may be associated with some forms of organizational change, would be avoided. This brings us to the final and most forceful argument for preserving and strenghening the family farm, that of supporting decentralized decision-making and diffused economic power in the organization of our society. Economics teaches and history verifies that if a firm or small group of firms grow large in relation to the market, they generally increase their influence over the livelihood of others and turn terqis of trade in their favor. Our basic ~hilosophy is in favor of a market economy, but for it to work effec- tively, buyers and sellers should be sufficiently numerous and vigorous to im- pose competitive checks upon each other. It has been our national policy to `take steps from time to time that nourish competition: by restraining excessive power, by encouraging new competitors or by enabling weak competitors to become stronger. Strengthening managerial latitude of independent farmers and firming their market positions as individuals and in groups would be in our national tradition toward balancing economic power in society. It would also give farmers greater influence in shaping the kinds of production and marketing systems which are affecting their lives, their role and their managerial freedom so profoundly. 8 Quoted by ~dwnrd Highee. Farn~ and Farmers in an Urban Aqe, (New York: rlThe Twentieth Centi'r~ Fund. 1908). pp. 79-~O. A. Whitney Griswold, Farming and Democracy (New Haven: Yale University Press 1948), pp. 180-181. PAGENO="0192" 188 An agriculture made up mainly of family farms, in which considerable man- agerial independence would be retained by the farm family, probably can be saved. If society wants to strengthen the family farm, some policy alternatives are available which would contribute in `this direction. Choices and actions at this time can play a key role in forming the organizational pattern in the agriculture of tomorrow. Senator NELSON. There was some testimony yesterday about vertical integration in the farming field. One of the witnesses stated that in a 10-year period the integrated production of broilers went from a total of 3 percent of the total production to some 97 percent. Do you vis- ualize, if farm food production becomes concentrated in large cor- porate enterprises, a vertical integration in all fields of agricultural products? Professor FARRIS. I think the extent would vary among commodi- ties. We now have considerable integration in all the poultry industry. Eggs and turkeys are moving rapidly somewhat along the lines that broilers have moved. I think the hog industry presently is in a state of change and if some breakthroughs come in disease control and in management and feeding-and many people are working on this.-that we could see a substantial portion of hog production becoming integrated and perhaps very rapidly. I think it's on the verge of great change and perhaps one of the great challenges that farmers `and farm organiza- tions have at this time is to help shape the direction of change in hog produ'ction and marketing. In cattle feeding we know, from some studies done for the National Commission on Food Marketing, that in the Western States sub- stantial numbers of ca tle `are packer fed, are custom fed for packers, and that a type of verLcal integration is developing. It is not as wide- spread in the Midwestern States of Iowa and Indiana as it is in the far Western States. I think there is a general trend tow'ard closer vertical coordinatIon in fed cattle produ'ction. For major field crops it seems that rapid vertical integration is a little further away. We `are not sure. With purchased inputs, such as fertilizers and seed, becoming relatively more important, it could be that some of the input supply firms will become interested in owning land in order to have outlets for the products they sell.' Senator NELSON. Thank you very much, Professor, for your fine con- tribution to our hearings. We appreciate your taking the time to come here. Professor FARRIS. Thank you, sir. `Senator NELSON. That will conclude the Monopoly Subcommittee hearings. They will be conducted at future dates in the Upper Midwest and Washington, D.C., `and the east coast, west coast and the South. Thank you very much. (Whereupon, at 10:15 a.m. the above entitled hearings were concluded.) PAGENO="0193" CORPORATION FARMING MONDAY, JULY 22, 1968 U.S. SENATE, SUBCOMMIrPEE o~ MONOtOLY or TIlE SELECT C0MMImE oN SMALL BtTSTNESS, Ea~ CZaire, iVis. The subcommittee met at 9 a,m., in the hearing room, Federal Court~. house, Senator Gaylord Nelson (chairman of the subcommittee) presiding. Present: Senator Nelson. Also present: Tom Bennett, legislative assistant to Senator Nelson~ Senator NELSON. We will open the hearings at this time. The Monopoly Subcommittee of the Senate Select Committee on Small Business now continues its investigation of the effects of corpora- tion farming on small business and on the economic and social struc- tureof rural America. At the outset, I would like to state that incorporation of family farms by their owner-operators is not an issue which we are addressing at these hearings. Instead, this subcommittee is interested in learning more about the effect of the rapid movement of large conglomerate corporation and other nonfarm absentee interests into agriculture. We are also concerned about the growing degree of vertical integration in several agricultural areas. We want to determine what the effect of corporation farming will be on small business in rural communities, what the consequences will be on the sociological and moral environment of rural America, what the implications will be on existing independent family farms, and how we can expect our country's natural resources to be used by giant farm operators. We have come here to Eau Claire to hear testimony from witnesses regarding corporation farming in the upper Midwest, T~day we will have 19 witnesses from three States, Several weeeks ago, this sUb~ committee conducted a 2-day hearing in Omaha, Nebr., where testimony was received from 15 witnesses from nine Great Plains States. The testimony given in Omaha by government officials, farm leaders and business spokesmen documented the fact that large conglomerate corporations and other absentee interests are acquiring vast tracts of agricultural land across the Great Plains. This is land that until just recently was owned and farmed by family farmers who have since moved elsewhere. Resource experts testified about underground water~ tables being rapidly depleted by massive irrigated farming operations. Clergymen and civil leaders described how rural communities and small businesses are suffering in areas where corporate farms are being established. (189) 05-253-68----13 PAGENO="0194" 190 This testimony coincides with the mounting evidence supplied by private sources and reported by the public news media that more and more corporations are turning to agriculture as a means to diversify their corporate activities. According to some observers, this movement toward corporation farming has not yet become a significant national phenomenon. How- ever, the subcommittee believes that the time has come to begin this pioneering study concerning the specific and general implications of corporate ownership of the land, which I believe could ultimately lead to corporate control over the production of food and fiber in our country. I am not aware of any comprehensive investigation of corporation farming that has yet been done on a national basis. 1-lowever, there have been a few regional and local studies made that carry a great amount of significance. One such study was conducted by this Senate Small Business Com- mittee in 1946. This extensive study focused on how the size and struc- ture of farm operations affected two rural communities in California. One community was surrounded by independently owned and operated family farms while the other community was adjacent to large cor- poration farms. The two communities were identical in many ways. They were located in the same climate zone, had about the same vol- ume of agricultural production, some two and a half million per year. They were about the same distance from other small towns and major urban areas and were equally served by the various modes of transportation. ~espite these basic similarities, the study disclosed some striking differences between them, differences that were linked to the kind and size of agriculture associated with the community. The family farm community supported 20 percent more people at a better standard of living than the corporation farm community. It had nearly twice as many individual business establishments with 61 percent more retail trade. The family farm community had more and better schools, churches, recreational facilities, civic organizations, and public services than the corporation farm area. This was a single study, but an e~haustive one. The subcommittee plans to update this report and seek new information and new observa- tions about the future of farming in America. I believe that one of our greatest immediate concerns is general public opinion regarding corporation farming. I'm afraid that this new brand of agriculture may be automatically accepted by many peo- pie as being best for America solely because of its size. Americans seem willing to accept any enterprise that is big without raising any ques- tions about its social consequences or actual contribution to our society. In testimony during our hearings in Omaha two University of Nebraska agricultural economists testified that research done thus far on the efficiency of various sizes of commercial farms indicated that once a farm operation meets a certain size further expansion has no effect on reducing the cost of production. For many farm corn- modities, a well-equipped, well-managed family farm can and are reaching its optimum size. PAGENO="0195" 191 It seems to me there are some serious issues that must be resolved before corporation farming becomes an irreversible trend in American agriculture. Corporation farming could place a control of national food produc. tion in the hands of a few giant food growing, processing, and mar- keting chains. Then the consumer would be faced with retail food prices dictated by monopolies and not set by competition in the marketplace. Corporation farming could increase the already devastating migra- tion of people to our overcrowded cities fron~ abandone4 farmhouses and deteriorating rural communitIes. The continuing flow of people from the countryside to our urban areas has already compounded the explosive difficulties facing our major cities. Corporation farming could mean continued abuse of our income tax laws by operators or investors who* farm at a loss to gain tax writeoffs. Recent information released by the Internal Revenue Serv- ice shows that thousands of corporations and Other absentee farm investors are using financial losses from farming to offset taxes on income earned from other nonfarming operations. In 1965, for example, there were 119 millionaires who were involved in some phase of farming. Of these 119, 104 reported a net loss on their farm operations for tax purposes. Senator Lee Metcalf, of Mon- tana, and I are sponsoring legislation to `prevent this~ ~r~ctice and I am pleased to report that our proposal has just receiv~ed tht~ en- dorsement of both the U.S. Treasury Department and the Department of Agriculture. Corporation farming could lead to the massive exploitation of our natural resources. As I already cited, serious water problems have already been created in the Great Plains States due to intensive irri- gation projects that deplete the underground water tables faster than they can be replenished from natural sources. Right now, corporation farming can best be compared to a giant iceberg. Only about 10 percent of it is above the surface and open to public view. The remainder is hidden in a tangle of corporate connections and deceptive arrangements. Over the coming months fl~ope that this subcommittee will be abl~ to work its way through this maze and develop firm facts about corporation farmingtoday and its implications for tomorrow. Before we hear from our first witness, I would like to indulge any~ one here to write your views on corporation farming on one of the cards that are available in the rear of the room. We cannot possibly hear testimony from everyone who has expressed a wish to testify, but we would like to hav~ any comments you might have and' if you wish to submit a statement for the record to the committee, the record will remain open for another 2 weeks on this hearing. (The subsequent statements were received and follow:) STATEMENT OF KEIPR 0. DAvisoN, CouNsEi~, TRAVERSE En~cpnio COOPERATIVE, INC.. Mr. Chairman, my name is Keith C. Davison and I am the attorney for the Traverse Electric Cooperative of Wheaton, Minnesota, a rural electric dis- tribution cooperative serving members in Minnesota and South Dakots, As a country lawyer, I am familiar with the rural economy in this locality. PAGENO="0196" 192 Our electric cooperative organized in 1940 and attained a system with 1,750 miles of distribution lines serving just over 2,915 farm consumers in the early 1950's. Please note that I said "farm" consumers. We have only one country elevator as a commercial load; no non-farm accounts of consequence, and only a handful of cottages. In view of the fact that we have only farm consumers, we are vita~1y concerned with the transition taking place in the rural areas which has brought about larger farming units and has resulted in a decrease In the number of farm occupants. I believe you will agree that some of our most intelligent, talented and aggressive leaders of this country, past and present, are. men and women who were borli and raised in a rural community. It is so vital, today, that people having authority do their utmost to promote a rural environment that will encourage our younger genei~at1on to remain on the farm. I am of the opinion that this can be accomplished, at least to a degree, by Congressional action that will provide some incentive for young people to continue the family farm and a penalty to discourage large-scale ~orporation farming. I do not feel that a family-type corporation would be detrimental to the community and our economy. Perhaps there should be some reservation on this also. Last month's operating report indicated that we were serving 2,478 farms which is a decrease of 15% from the 2,915 figure In the early 1950's. We are situated and serve the members in the Lake Traverse watershed area of Minnesota and South Dakota which Is at the beginning of the Red River Valley of the north. The topography of this valley, as you undoubtedly know, is a level area, free of trees, ravines, creeks, or other obstacles thus lending itself to large scale farming-a bonanza for corporation farming, and thus we are greatly concerned. The independent farmer and many rural communities throughout this great nation could face oblivion unless the movement of huge non-farm corporations into agriculture is halted. Certainly one of the most importaflt Issues of 20th Century America revolves around the question: "Who Shall Control Agriculture?" This struggle attracts few headlines. Changes in the control of agriculture have come about so gradual in the last quarter century that policy makers are ir~clined to at- tribute it to evolution rather than to use the more appropriate term, revo- lution. The pace of the change, however, Is accelerating. A survey shows that in Minnesota 50% of the farms now owned by non-farm corporations have been acquired in the past three years, and that these purchases account for one-third of the total of 300,000 acres held by all corporations. National agriculture policies, from the time the Pilgrims landed at, Plymouth Rock, nearly two centuries ago, have encouraged development of the family farm. And the nation has benefited from this policy, as industrious family farmers built the greatest agricultural production plant the world has ever known. Family farms are efficient and productive and have all the productive capacity needed to feed and supply the nation, with plenty to spare for adequate reserves and to meet existing world market demands for our products. Our American people today spend less than 18 cents out of their budget dollar for food. No other country In the world can point to this type of record. On the other side of the coin a vicious cost-price squeeze has driven thousands of family farmers off the land. ~early every third farm in a broad area of the agricultural midsection of America today stands empty with the silent migration to the cities accelerating. Meanwhile, thousands of small towns throughout the country feel the impact from the loss of their farmer customers which were the lifeblood of the compiunity. For a 5-year period (1958-63) the 1963 U.S. Dept. of Commerce Census of Busi- ness, shows the relationship between the loss of farm families and business places. This figure in laymen's language points out where 6 farms are left vacant, one business place closed its doors. We are confident that the Administration recognizes the present plight of farmers. Secretary Freeman pointed out in Fargo, N. Dak., Feb. 8th, quote, "70 percent of our population lives on only 1.3 percent of the land . . . From 1940 to 1960, 17.4 million persons left farms or the farming way of lIfe. . . . The total exodus from the countryside, from small town and farming America, since 1950 Ims beell 20 mi11i~ ~eôii1e." "Thi~ march to the cities is continuing at the rate of 500,000 to 600,000 a year-half a million living, breathing bodies added to the PAGENO="0197" 193 2i/2 million 3refirly that are crowding into our already glutted urban areas bY virtue of natural population increase. And the migrants are leaving behind a decaying countryside of dwindling economic and hu~nan resources." En~l of quotation. Senator George McGovern, in an address on the Senate floor in February, declared, and I quote, "We are more and more accepting technology, unques- tioningly, as an irresistible force and optimum mechanical efficiency as the goal of existence. It is time to take a look at what is being done to people. it iS time that we took a look to see if the change Is either inevitable or desirable, and whether the new society toward which we are heading, a sort of corporate collectivism, is what we really want." End of quotation. Our farms in rural America have been disappearing not because the farmer has not been working hard and efficiently. In most cases his productivity exceeds that of his city cousin. But while our farmers have been producing more and better food, they have been continually asked to produce it at lower wages for themselves. The South Dakota Farmers Union conducted a survey, with the assistance of county assessors and the state ASCS o*llce, and I would like to quote a portion of their survey. The survey revealed that there are 452 corporations owning agricultural land in South Dakota, totaling 1,633.529 acres, or the equivalent of five medium-sized South Dakota counties. Corporations now own one out of every 27 acres of farmland in this state. Equally alarming was that there are 56 corporations listing an out-of-state address owning nearly a third of a million acres (312,589). Some of the larger holdings by these out-of-state firms include and I quote: Western Cattle Company of New York-70,948 acres in two counties~ Homestake Mining Company of California-42,282 acres ii~ two counties. Shur-Gro Irrigation Company, Clovis, New Mexico-36,688 acres in four counties. Hickman & Jordan, a Texas firm, with 28,327 acres in one county. Norris Grain Company of Illinois, 41,874 acres in two counties. Sen. McGovern declared at a Farmers Union meeting iii Huron, and I quote "These non-farmers are avoiding $200 to $400 million in federal income taxes by going into farming, claiming farm losses as an offset to other income, and later recapturing the income as a capital gain subject to a much lower tax rate." End of quotation. So gentlemen, you are looking at a major tax loophole as well as a system of unfair competition which puts bona fide farmem out of farming, and closes the stores down, the churches, the schools and the rural communities which the family farmers have built and supported over the years. The problem is a serious one, and one that will require concerted action on both the state and federal levels of government if the family farm is to survive. Some remedies that the federal government could use would be reduce the spread between existing corporation income tax rates and the capital gains tax rate of 25 percent, and thereby minimize the incentive to use capital gains as a method of reducing tax liability. A proposal similar to the Metcalf Bill, S. 2613, should be adopted so a~ to limit the use of losses on farm operations by persons who are not bona fide farmers to reduce their income tax liability on income earned in other pursuits. Phe federal farm programs should he extended, added to or improved in such a way as to make the family farm economically rewarding in comparison to similar businesses requiring comparable outlays of capital, effort, management and labor. We hope that the Senators and Representatives in Congress who are from the agricultural states involved, will continue and expand their efforts to show the Senators and Representatives from the urban areas that large scale corporation farming will not result in lower food costs for the consumers, but will instead continue and speed up the migration from farm to city, thereby compounding the numerous problems of the inner-city and metropolitan areas. Furthermore, the federal government could cooperate with the states in their efforts aimed at this problem, The states~, by their own action, could enact or improve anti-corporation farm laws, which particularly exempt family farm cor- porations operated by bona fide farmers. A state like Minnesota should increase the homestead exemption for farm real estate used as the home by a family farmer. This, coupled with a proper PAGENO="0198" 194 farm Income, would assist in keeping the family farmers on the farm where they belong, and Where they can do the most good for our country. The federal government should continue and expand its programs to assist ~the farmer in obtaining capital in amounts sufficient to maintain the tremendous ~efficiency that has been demonstrated by the family farm. The large corporations, with their vast sources of wealth, mean business In ~their efforts to expand into `the farming enterprise. Reports of premiums offered of large amounts up to $100.00 per acre for large tracts of farm real estate point to the determination of the corporations. However, it is not too late. The `time for action is now. STATEMENT OF EDWARD ALExANDRR, PRESIDENT, WISCONSIN HATCHERIES ASsoCIATIoN Be it known that the Wisconsin Hatcheries Association has a vital interest `in the continued existence of the independent producer in agriculture. Realizing that competition is the American way o'f life, Wisconsin Hatcheries Association feels that this competition must be fair and just. To allow large and diverse corporations to take over most of agricultural production is not fair or Just unless they are required to operate on the s'a~ne basis as the independent and individual producer. Wisconsin Hatcheries Association wishes to go on record in opposition to those' practi'ces which are available and allowable to the large diverse corporations hut not available to the individual producer. Examples: 1. Los's-carry'back to other corporate divisions'. 2. Delayed pricing on Intra-company transfers. 3. Credit advantages by net-worth consolidations. 4. Non-uniform price policies (between company divisions and outright sales). Wisconsin Hatcheries Association believes that the independent incentive is the best basis for agricultural production and feels' it must be continued through the employment of those rules and guidelines which will equalize the opportunities available and permitted to all producers regardless of size or corporate structure. STATEMENT OF CLARK ROBINSON, PRESIDENT, THE NORTH DAKOTA FARM BUREAU We appreciate the opportunity to present to the subcommittee the views of Farm Bureau In regard to large, non-farm corporations in agriculture. Rural America today is faced with a dilemma never before confronted by those Involved `in our nation's largest industry, agriculture. Falling farm prices for our commodities coupled with rapidly accelerating prices for land, labor, machinery and other resource inputs has placed an awesome burden on the shoulders of our nation's farmers. The North Dakota Farm Bureau strongly supports the family farm system in America. We believe the family farm system now provides, and will continue to provide, the consuming public with its most economical source of food supplies. Thus it is in the best interest of our nation that the family farm unit be pro- tected and maintained. Our farm people must have at their disposal, every possible means by which they may increase the net income of their farming operations and thus main- tain their farm units. However, the threat of large, non-farm corporations coming into agriculture for ~he purpose of tax write offs needs to be examined in critical context. The potential threat of these large conglomerates to rural America and the consuming public most certainly warrants your present efforts. The North Dakota Farm Bureau believes that the corporate vehicle is a very effective means of maintaining the continuity of the family farm operation. We believe this management tool should be available to all farmers in America. This is the most expedient `and economical means by which the family farm can be passed from one generation to another. Thus, we are opposed to large, non- f arm stock or cooperative corporations in agriculture, `but we believe that our farm people should have the right to incorporate just as other businessmen in America do today. ` , The 1967 North Dakota legislative `assembly passed a Farm Incorporation PAGENO="0199" 195 Act. This Act would allow farmers to incorporate, but would prohibit large, non- farm corporations from entering our state to farm. We are firmly convinced that this is the most desirable and acceptable legislation written in any state relative to farm incorporation. This new law encompasses the following limitations: "Any corporation may own real estate and carry on farming or ranching op- erations, if such corporation meets the following standards: 1. The shareholders shall not exceed ten in number. 2. The corporation shall not have as a shareholder a person other than an estate, who is not a natural person. 3. The corporation shall not have more than one class of shares. 4. The corporation's income from rent, royalties, dividends, interest and annuities does not exceed twenty per cent of the corporation's gross receipts. Notwithstanding any provisions of this Act, a corporation prohibited from owning shares may hold such shares as acquired by bequest or devise or as are acquired in the regular course of business in partial or full satisfaction of any mortgage, lien, or other ineumbrance held or owned by such corporation on such shares, provided such shares are sold or otherwise transferred within ten years to a person qualified as a shareholder under this Act. Any corpora- tion not meeting the specifications and standards set out in this Act may not engage in the business of farming or ranching or own lands suitable for farming or ranching, which are not reasonably necessary for the conduct of it~ business." Those limitations provided in the North Dakota law have already been adopted by Congress in 1958 which provides any corporation meeting these requirements can elect to be fedei~ally taxed as a corporation or a partnership. This election is known most commonly as subchapter S `of the `Internal Revenue Code. The limitations in the North Dakota Act will ensure the following: 1. No publicly held corporation would be allowed to engage in the business of farming or ranching. 2. No corporation, public or privately held, having eleven or more stock- holders would be allowed to farm or ranch. 3. If any large corpoi~ation, does acquire farmland through legal means, they have ten years to dispose of their holdings. 4. That `farmers and their families will not `be placed In an economic dis~ advantage by large corporate enterprises that would engage in agriculture. We offer this Act to your committee in anticipation that this legislation might be recommended for adoption th'roughout the United States. STATEMENT OF ELLWARD WOLFF, PRESIDENT, WISCONSIN POULTRY IMPROVEMENT AsSocIATIoN The Wisconsin Poultry Improvement Association l's made up of poultry indus- try organizations and cooperatives in the state. We are therefore concerned with the welfare of all poultry farmers of Wisconsin. Recognizing the ease with which products are shipped between states and areas of the country, we are equally concerned about national trends in agriculture. The acquisition of large tracts of land `by non-agricultural interests indicates corporate movement into farming enterprises. While poultry operations generally require very little land, W.P.I.A. sha'res `the concern of others regarding the effect of corporate ownership of large farms. The cost of getting started into farming has undoubtedly discouraged many young people from becoming farmers. This problem multiplies as all prices increase and as lower farm prices dietate the need for larger farm operations. Trends through the years have led to fewer, but larger farms. This is a natural trend, as new methods and equipment enable one person to produce more with his labor. The American farmer, generally a small, independent businessman, has produced quality food at reasonable prices. The successful farmer knows that his income depends on the job be does. The employee of a large corporation often feels no responsibility to do more than the mlni'mtim expected of him-his wages vary little, if at all, with the quality of the product he produces. This is the situa- tion corporate farminig will and does face. In addition, corporate farms will en- doubted'ly lead to unionisation of their farm labor, ultimately raising costs to consumers. We feel that the Initiative which accompanies ownership enables the inde- pendent farmer to compete with the largest corporation-in quality and economy. PAGENO="0200" 196 Corporations can gain credit advantages through net-worth consolidations. De- layed pricing on intra-coinpany transfers enables them to adjust profits to their advantage. .~ax laws have given corporations reason to diversify their operatiOns, sInce losses from one operation can be deducted from proilts of un~elated' operations when figuring the tax base~ Los'~es from fatn~ing ha'ee Often been treated this way in recent years. Feedstvffs magazine (Volume 40, No. 30, p~gO 30 (.Tnly 27, 1968)) included the following paragraph in an article reporting Secretary of ~&griculture `Freeman's support of S. 2613. "Of 3 million farm income tax returns in 1965, 22% were filed by persotis who deducted farm losses from non-farm income and still had some income tax to' pay on their non-farm inéome. This included 86% of all persons who paid on $1 mu- `lion income or more, 84% of those WhQ bad $500,000-1,500,00Q income or more and 73% of those' with $100,000-500,000 income." High-income individuals with sideline farms have been restricted by recent tax law changes. We feel tb~t similar restrictions on corporate taxes would p'ro~eet the Independent farmei~.' Senate Bill S. 2613 relates to this' problem and should be giyen consideration. ` ` ` If a corporatiOn's farming enterprises had to stand on their own nie'dts, rather than serving as a tax hedge, then a losing op~ratlon would be given careful eon- `sideratlon by the directors. In the poultry'i~dustry, we have seefl large companies enter into or expand poultry enterprises during years when the potential for profit was little or nonexistent. This ~ctiOn increases fears that large companies want to completely take over agricultural production by forcing `the family farmer out of `business through economic pressure. If the production was more or less controlled by, a few com- panies, some control of production~ and thus prices, would be possible. Consumer prices wOuld certainly increase. We would hope that restriCtIons would ei'tend to large grocery chains, who have also entered into large agricultural production `operations ii~ `recent years. We feel, that individual initiative should be maintained for the benefit of farmers and consumers alike. Your 1ntei~est in agricultural problems is `appreciated. Thank you for the opportunity to present our views. STATEMENT OF GEORGE E. IL&y; SEC'RETAKF, Woos COtNTY ChAPTER oP NArIONAL FARMERS ORGANIZATION GENTLEMEN: I attended your hearings concerning corporations, invasion of `farming.' I was uninformed as to `procedure on bow to be heard as a witness, so wish `at this time to sound-out some challenges that are paving the path for the corporate-conglomerate to invade farming. One major factor, unknowing or unrecognizable is being ignored or covere up; that is OJ~D. CJ3~.D. is committee for ec~rnomic development, which is an ad~ visory service to the President. This committee is a group of about `200 men froth the top conglOmerate corporations of the U~S.A. They have a definite program fully organized to reach a, gh~en goa:l with given steps and procedures. The final goal is financial in nature, but can only be fully aChieved by full social and governmental control. The procedure is unitized steps to distort any r~sistance `as the program develops. Some of the steps have been achieved, some `are oflly in the suggestive stage to condition society to accept units of the program that seem innocent until they are recognized as a building block Of the total program. These units of advancement ar'e secured by becoming a part of legislature and are nearly irreversible as a block of units become over- wheimingl~ stabilized. A a basis to analyse financial control, we' must recognize that production of new wealth Is the substance of finances. New wealth originates with the raw materials of food, `fiber, timber and minerals. When these sources are In the control of a few hands, a~ history has demonstrated over and over, society aiid its government will be at the mercy of those'few. Some of the steps already secured by either legislature or court rulings are: (1) "One-man, One-vote," which means the thinly populated rural areas have lost their voice and are vulnerable to being froze out of resistance to the grab. PAGENO="0201" 197 (2) The consolidation of schools which in itself was a great benefit, but it is being used to glorify the consolidation government. This means the destruction of local town and county govei~nments. On this front the pre- liminary step is to con~~lidate several counties with a hired manager type of governme~it rather than elective offices. And who will dictate to this man- ager? Not the citizens of those cpunties. (3) .Gov~rnment grants. Practically all government grants or aids whether it is school, highway or other local aids carries with It directives which cir- cumvènt state constitutional regulations in many cases and i~ unwittingly destroying the effeëtiveness of local government by, developing, dependency on the Pedergl government for th~ rj~st minute services for the copimunity. A case in point is water and sewage for small villagers. At lilgher echelons, sanitation regulations are in~jected into, the proper channels to spur the small cotnmunity. The regulations set the goals above the financial means of tl~i~ cow- munit~ so they must knock on the door of the federal government. The resulting aids carry requirements a step higher but the aids are easy so why not go the full mile. Steps in, the suggestive stages are the disbandment of the local tax assessor. The June issue of l~eaders Digest carried an article to cause the population to rise In arms to do away with the town assessor and make it a district appointed posi- tion. Directives for the assessor appointee will direct the greater burdens to areas of least resistance and spread the removal of rural populations. A new,trap just breathed into the rural society In recent weeks is the condi- tioning for "permanent debt." That is, let the burden rise beyond the, ability to retire principle up to where only the interest ca~ be maintained. A hidden pro- tective clause for the loaning agency, probably a corporation will give the right to recall principle when a given condition exjsts. When a given percent of a corn- munity is caught in this web, the principle recall conditjon will be declared, and not being able to produce the principle the turn over of the land will have t~ satisfy the mortgage. A community can be swept up in one swoop. Por at least fifteen years C.E.D. has pushed its recommendation, to remove th~ inefficient farmer from the farm, through all sources that would give them a hearing. They were most effective in the USDA. The USDA has been effective by spurring production then before marketing they trot out erronious supply statistics to surpress the market. At this time in mid season they are giving out news releases to the farm magazines of the tons of feed grain carry-over, yet the planted acreage is lower than ever and no one can predict the effects of the elements, we'c~ther that crops must face till harvest time. The CJ~.D. did its greatest stroke of business through the Presidential econom- ic report with jts hatchet job Qfl parity of income. ~ wish to ~bow for th~ record the following misuse of parity which has been revisions since the base period of 1910-14. (n percentj, All commodities Farm products PrOcessed food 1st revision: 1947 96.4 1948 104.4 1949 99.2 3-year average , 100 2d revision: 1957 117.6 1958 119.2 1959 119.5 3-year average 118.7 3d. Not a reviSion but rewriting of 1957-59'figures: I ` 1957 - 99.0 1958 100.4 1959 -----~ -~ 100.6 3-year average 100.0 100.0 107.3 92.7 98.2 106.1 , ~ 7 - 100 100 90.9 94,2 89.1 105.6 110.9 1Q7.'J 91.8 107.8 99.2 103.6 97.2 97.9 102.9 99.2 lU0.0 0 I From the 1966 Presiøential economic report the 1957-~9 parity was rewritten and rigged and justified by declarink the farmer had become that much more eMcient. PAGENO="0202" 198 The 1966 pencil parity just stole 27 points of parity from the farmex~ and as of today the farmer Is only recOiving 73% of the pencil parity or another 27 points lost. The two 27 point losses or 54 points leaves the farmer operating at 46% of trtie parity as compared to the rest of the economy. The exact truth is that the farmer has a 1952 market and operating with 1968 expenses. No other business nor any corporation could or would be willing to operate under such odds. The result is failing farmers where not even moon- lighting can fill the gaps. This adds grist to the mill for the corporations C.E.D. arm to declare that the family farm is financially incapable of being efficient. Their most recent goal is the removal of 11/2 million more farmers. I'm sure the public Is unaware of how low the percent of population that is still farming- latest published figures indicate 6%. The latest real statistics available are from Dec. 31, 1966, (18 months past), given as 4,206,000 farm people of a US popula- tion of over 200,000,000, that means 2.1% and from looking at the 1967 exodus and the first half of 1968, my guess would be that 1.5% is very close. This i~ a drop from near 20% some fifteen years ago. How near to the bottom are we go- ing, to sift out that last inefficient farmer? The results of the above problems are just beginning to get public attention, but without understanding the problems everyone is in a quandry for a solution. Solutions will have to be taken by a process of elimination. Legislation Is a weak and slow step. The rural vote is limited and no Senator or Congressman can muster strength behind an unpopular bill nor can he take an unpopular stand very often and expect to hold his office. More financing is not an aid to the farmer who is under paid for his present production to a point he cannot pay off past financing. If there needs to be incentives to bring the people back to the farm or keep the remaining ones there a fair price for their labor and wealth produced would be a first step. I believe the farmers could do it with their organizations with only a little restraint from the government on the powers that favor the statps- quo. The disarmament of C.E.D., cut their sources down through USDA, the uni- versity economic departments and extension service, and above all stop the gov- ernment or justice department from causing an anti-trust action against farmers attempt to survive where no legal laws have been broken or evaded. The first argument against a fair price is surpluses. If we look at war economics where the farmer was subsidized to produce and produce there never was a sur- plus. Money was started out at the vortex of the pyramid and spread through the gross of the population and every one ate and paid enough taxes to support a world wide war with considerably less national borrowing than today. We now know what surpluses are and a production quota could be set, based on previous production based on bushel or pound delivered-not acreage. So goes agriculture, so goes the rest of the economy and the hour is late. Senator NELSON. Our first witness will be Mr. Gilbert Rohde, presi- dent of the Wisconsin Farmers Union, followed by Mr. Edwin Chris- tianson, president of the Minnesota Farmers Union, and Mr. Edwin Smith, president of the North Dakota Farmers Union. Mr. Rohde, please identify yourself and your associates for the reporter. STATEMENT OF `GILBERT C. RO'HDE, PRESIDENT, WISCONSIN FARMERS UNION, CHIPPEWA FALLS, WIS. Mr. ROHDE. Mr. Chairman, I am Gilbert C. Rohde, appearing before the committee as president of the Wisconsin Farmers Union. However,. before I begin I should like to commend the Senator for choosing Eau Claire, Wis., as `a place for a major hearing on a very important issue. Secondly, I am delighted that you chose Wisconsin as `a place to hold the hearing because it permits me to be host to a couple of very close friends who are important officials of our national organization. Joining me is the national vice president of the Farmers Union `and the chairman of the executive board, Mr. Ed Smith of North Dak~t~. PAGENO="0203" 199 Senator NELSON. We are pleased to have you here as witnesses this morning. Mr. ROHDE. This past February, Mr. Chairman, when yOu ad- dressed our annual convention in Madison, you referred to a statement by Senator McGovern of South Dakota to the effect that sometime this spring the auctioneer's gavel would fall on the possessions of the Nation's 3,000,000th farmer. The gavel sounding this milestone in our agricultural history may have already fallen, but outwardly there has been little show of public concern. One has to go back to the 1870's when my family's Clark County farm was unbroken forest land to find the last time our farm popula- tion was this low. In the midst of the farm depression of the 1930's, when I was helping my father farm, there were nearly 7 million farms, the all-time high. Only 10 years ago when I was still a full-time farmer, the farm population had already declined to 4 million. To us in Farmers TJnion, an organization of family farmers, these statistics represent an alarming trend, `a trend to bigness and corp'o- ratiirism that at this time shows no signs of being rev~rsed. We find little comfort in percentages which show that most farms in the Na- tion are still family operated. There is also little comfort in such statistics for the farmer who has been forced off the land to the city or the smalitown merchant who has been forced to close his business for the lack of customers. If this trend continues and we reach the projected half million or so farmers by the year 2000, are we still going to be able to take com- fort, as some do now, in knowing that most of these farms are still family operated? I seriously doubt that most of these farms would be independent, individual enterprises operating `as family farms. The great consolidations th'at would have to take place would require capital inputs of ~~the size that would, I believe2 exclude most family farmers. Senator McGovern has called this society toward which we are apparently heading "a sort of corporate collectivism." Senator NELSON. I might interrupt Mr. Rohde for a moment just to make an observation. This subcommittee in conjunction wi'th a sub- committee chaired `by Senator Morse has been `conducting `hearings in the industrial aspect of this same problem of the gro'w'th of giant con- glomerate corporations. Last week Senator Morse and I heard testi- mony from Ralph Nader, who has achieved ~ distinguished reputa- tion in this country as an individual interested in consumer rights. He pointed out in his statistics t'hat as of tod'ay some 200 corporations control just about 50 percent `of the industrial production in this coun- try, and that by the year 1980 these 200 will control two-thirds of all the production in this country. It raises a very significant question of the same nature as we are rai'sing here about giant conglomerates mov- ing toward corporate control of all the land in the country. And I think certainly that one purpose of these hearings is the educational aspect of bringing the implications of this trend `to the attention of Congress and people o'f this country. Two or three hundred years ago the struggle in England was to get the land `away from the land gentry and into the hands of the people. It has been demonstrated historically and is true in many countries today that `those who control the land end up controlling the country. PAGENO="0204" 200 I think this is a significant political, economical, and sociological question that is raised by this trend. One rubber company, accord- ing to testimony at Omal~a, has already acquired 80,000 acres of land in' Colorado. They are also irrigating in Texas and have lowered the water table from 60 feet to 450 feet. One of the thingswe want to irnow is how it affects the adjoining farmer when one farmer permanently reduces the water table. Our subcommittee believes that these questions are of great signifi- cance. Eut it is just as important that we investigate what is happen- ing when giant corporations control food production. Mr. ROHDE. Speaking in behalf of the `Wisconsin Farmers Union, we therefore appreciate the concern whIch you, Senator, and members of the subcommittee have demonstrated by holding this series of hear- ings on corporate farming. We are also appre'ci~tive of the opportu- nity to testify in our own State, as we said earlier, where the Farmers Union has been spearheading a campaign to obtain legislation pre- venting further encroachment of family farming by nonagricultural corporations. In his appearance at the Omaha hearing, Tony DeChant, our orga- nization's national president, effectively spelled out the adverse effects of corporate farming on rural America. lie made the following five points which I believe merit repetition here today: No. 1, the corporate farm interferes with the market system that exists for farm commodities; No. 2, the corporation farm cheats us on our taxes, by operating fre- quently on tax writeoffs from profits in other fields and by practices at the farm level that cut local and State taxes; No. 3, corporation farms result in a decline of population In our rural areas, a depleting of community resources and small towns, con- tributing to the problems of already crowded cities and further di- minishing the welfare of rural America by diminishing its political influence; No. 4, there is evidence that the corporation farm with its imper- sonal pressures on management for quick profits cannot be trusted with our basic natural resources, soil and water; No. 5, there is urgency in the matter. It is already very late. Late last year, Wisconsin Farmers Union launched its campaign to get support in the State for our fight to preserve the family farm and to stop further inroads by corporate agriculture. We circulated a statement of support, hoping `to obtain signatures of farmers, business- men, factory workers and professional people who are disturbed by the movement of nonfarm firms into agriculture. The results have been impressive. In the few months that we circu- lated the statement we obtained over 8,000 signatures. The statement which was endorsed read as follows: We, the undersigned, support Farmers Union in its determined efforts to pre- serve the family farm system in America and are in favor of the enactment of laws prohibiting the establishment of corporate farms by `nonfarm interestS in competition with family farmers. Over 1,200 such signatures were obtained from businessmen, factory workers and professional people expressing' their concerrt and support. ~After the announcement that the subcommittee ~ctould hold hearings PAGENO="0205" 201 here in Eau Claire, we called upon our county Farmers Union presi- dents to make a survey in their own counties of instances of corporate takeover of farmlands by nonf arm interests. Here are several examples of their findings: A 900-acre beef cattle operation in Brown County owned by stock- holders of Badger Northland, a subsidiary of Massey-Ferguson, manu- facturers of farm machinery. Over 4,000 acres in four Dane County townships incorporated under several names but operated principally by the chairman of the board of a large Chicago dairy. Over 3,000 acres ,of land in one Price County township owned by the Owens-Illinois Glass Co.'s papermill division. Our Price County Farmers Union president writes a~ follows: Formerly this papermill bought `their pulpwood on trucks and there wa~ a market fOr lO~a1 wood. During the past year, they started bringing in vast amounts of pulpwood by rail from Michigan and other more distant places at a `rnu~h higher cost, leaving a, very limited market for local wood. This, in turn, doesn't encourage local lazido'wners to keep their timberlands and the mill can buy up' more of the land at favorable prices. The mill has its own crews that. cm~it timber Wherever their foresters see fit to cut. This. `helps speed up the exodus from the communitr. When I started `school in our local school 50 years ago, there we're 48 pupils.' Now, if the same school were running as a district, there would be seven cIii'ld~en under big~ school age. There are nO preschool children and all married people in the foirmer district are beyqn'd the childbearing age. ` Other examples cited `by our county officials, include land develop- ment firms which bulldoze out shelter belts `of pine trees in sandy areas in order to sink deep irrigation wells,, corporate consolidations which result in the tearing down and burning of farm buildings and numerous instances of corporation farms, ownçd `by absentee owners, which by- pass local cooperatives and other businesses to buy their farm supplies direct from their own manufacturing outlet or from some other source. In examining the operations of these cqrpora~e farms, nowhere do we find the kind of contributions to the rural community that the farm families make to the well-being of ~chools,, churches, and~ looal busihess institutions. The entrance of nonfarm corporations into agriculture, we are con~ vmced, is based solely on a search for additional investment profits with little, if any, regard for the social consequences. Agriculture, as reported in such news media as Kiplin'ger Agricultural Letter,, the Wall Street Journal, and other business publications, is considered, to be an industry ripe with investment potential. Here are some of the rea~ôns, we believe, why investors find agricult~re so inviting: A projected world population of over 6 billion people by the year 2000 or twice that of the present world population. A relatively limited amount of the earth's surface suitable for agri- culture, about 4 perèent, or 31/2 billion acres. An anticipated technological e~p1osion which will greatly expand our ability to produce on the land. Tax laws which. permit investors to write of~ losses from farming operations against their income from nonfarm ventures. We have had numerous discussions with economists, rural sociolo- gists, and other social scientists concerning the implication of a cor- porate takeover of American agriculture. We have almost always come PAGENO="0206" 202 away from these discussions disturbed by the seeming resignation of academic people to the inevitability of whatever change economic and technological forces, working with as little restraint as possible, will impose upon us. In the absence of much scientific research `in this area and perhaps academic concern, we are indebted to this subcommittee for the under- taking of a public study of the problems associated with corporate farming. We hope and trust that the subcommittee findings will result in. action that will strengthen the family farmer's position in our society. Now, Senator, I should like to talk just a minute about a brief survey that we made in an area within 12 miles of Stevens Point. We have been reading in our State of Wisconsin about the development that is occur- ring there. This is an area that is `sandy soil. Recently geologists have determined there is an abundant supply of water underneath the soil. We find, going into that area, `that during the 1930's when we were in the midst `of the drought and depression that our Government then encouraged people to plant wide areas to ~helter belts, to preserve some of the natural resources that were there. Today we have a pic- torial study of what economic greed can do to those natural resources. We can also refer to the fact what an impersonal management decisionmaking body does to `a community such as that. We have colored slides here which show what happens. The shelter belts have been bulldozed out, trees that were 20 feet tall `have been bulldozed out to `ñ-iake room for the huge irrigation devices. We can `show y'ou pictures we `have here that we will submit to you for `the record; 1 these pictures show `a deposit of `sand which the wind has eroded. It has progressively built up on a fence row until it is 6 to 150 feet high. When the old fence is built up in the sand you build another. In these tw'o pictures overdrift is gradually sifting into the nex't field, it already has destroyed a large part of an `alfalfa crop. It must be remembered `that these drifting-like particles make up part `of the area's topsoil. We can go through this `area and we find where the shelter belt has been bulldozed out, we `see pictures of what happens when winds come along. Someday that impersonal decisionmaking process will decide it is no more economically feasible to produce on this land, `and then the people left in that community will have to live wi'th whatever is there, and our Government again perhaps will have to go on `a planting pro~ram'to `preserve what is still left there. We would like to submit this to the committee and work out some procedure where we could get it back `at some future date. `Senator NELSON. Thank you, Mr. Rohde, for your very fine state- men't. Mr. ROHDE. Mr. Ed Christianson will follow me, who is the vice president of the National Farmers Union. Senator NELSON. We are very pleased to have h,ere today Mr. Christianson, as vice president of the National Farmers Union. You are also, I assume, `still president of the Minnesota Farmers Union? ` Mr. CHRIsTIANsoN. Yes, sir. ` 1 Retained in committee files. ` , : PAGENO="0207" 2O~ STATEMENT OF EDWIN CHRISTIANSON, VICE. ERESID~NT, NATIONAL FARMERS UNION, DENVER, C~OLO. Mr. CHRISTIANSON. Thank you, Senator Nelson, and we want to commend you and the Subcommittee on Monopoly for having sched- uled these hearings, and we are grateful for the opportunity to submit our views. Now, in essence of time I will summarize the prepared statement that I have, but would request with your permission that the entire statement be included in the record. Senator NELSON. Your entire statement will be printed in the record and if you wish to summarize points at any place, please do so. Mr. CHRISTIANSON. Thank you. We regard it particularly appropriate that the hearing is being held by the Monopoly Subcommittee because we believe that monopoly is and should be the central issue in the whole controversy about the kind `of `agriculture that we should have in this Nation. The competitive race `between the family farms and the corporation farms is not a clash of two equally efficient and productive types of agricultural organizations, capable of producing the food and pro- vid'ing the foods and fiber with equal assurance of abundance and comparable costs. Rather, we believe it is a q~iestion of whether an extremely efficient family farm system of agriculture which has provided ample supplies for American consumers and industries over many, many years is now to be displaced by another form of agriculture which provides no assurance that abundance and reasonable costs of food and raw materials are its principal goals for existence. We in the Farmers Union believe that there is no economic need or justification in the term.s of the national interest for the takeover of agriculture by corporations. Our Nation's f'amily farms do have a productive capiacity more th'an capable of meeting all possible needs and demands. We have a produc- tive capacity of 10 to 1~ percent in excess of exi'sting demands. We have had to place a part of this productive capacity on a standby basis for many years, and for some time under the soil bank and currently under voluntary acreage diversion programs associated with the major field crops. Some 50 million acres were held out of production during the past year under these programs. We are not convinced that farm production by corporation farms is needed to assure de.pendthie supplies and given specifications and uniform quality. Family farms are capable of providing what is needed at the time that it is needed and in the grades and quality that are desired. If the family farm is truly superiot as we maintain it is, and. if the corporation farms are n'ot capable of providing a better eco- nomic service to the Nation, it mi~ht be. well asked what the motiva- tions of the corpora'tipns might be, what they are and why they do pose a threat to the economic well-being `of rural Am'eri~a. The truth is that despite the marvelous efficiency `of family farffiing, despite the major gain~ in productivity which overshadow any other major industry, despite the rapidity with which farms have adopted PAGENO="0208" 20.4 new advances in technology, the family farm is still vulnerable on several points through conditions which at least up to this time `have been beyound the control of farmers. American farmers, unfortunately for themselves, have never de- veloped a market power comparable to their productive power. His- torically furmers have been price takers rather than price makers. Farmers today are extremely vulnerable on the credit side. Farming today requires vast amounts of capital aad the needs for capital are rapidly `growing. Use of borrowed capital has doubled in the past 20 years and it is predicted by credit specialists that it will double again within another 5 years. The amount of capital needed on most farms has long since outrun the amount that can be generated on a farm or on the farm or set aside in a lifetime of farming. The use of credit is a necessity and it is expanding rapidly at a time when interest rates are at the highest levels since the Civil War Tfisthne areas, farm demands for credit have already outgrown the le&hng èapacity of the country banks and the country banks have had to turn to city banks and compete with other industry for loan funds. `And this ëondition is likely to worsen in the future. This is a situation in which corpbrations which have unchstributed capital and reserves available fOr investment in land and farming operatiOns can have an `irn~'ortant'competitive advantage over the f am- ily farmer who must get his credit at retail. `All of the handicaps of `family farm agriculture could conceivably be rectified. But,' until measures are taken `to' provide full parity price and other inco~e-~upporte~ assurances for family farmers, until there is, a return'to reasonable interest rates and ample money supplies, until effective supply management tools are available to farmers, and, until w~orkable farm bargaining becomes a reality on the major commodities, agriculture will continñe to be ,in a'position where corporation farms can hope tO invade agriculture production successfully. The corporations, of course, do ,not have to show a: profit im- mediately. Because of the tax loss `gimiek, they can op~rate at a loss, flood the markets at a loss for long enough to drive family farm ers out of the production., Ordinarily the corporations do not disclose why they are going into farming. `No d,oubt, they have a number of reasons for doing this. Some may have felt in the gall of 1966 that a new era of pros- perity and unlimited national and foreign demand was about to begin as a result ,o~ the success of the feed grains programs of 1961 ,t~irough 1966 and finally clearing away the surpluses which had overhung the' market. It is possible that some companies jumped into the agricultural game becauèe of the selling job that some fertilizer companies may have done on the brilliant future just around the corner. But wb rather expect, however, that the motivation of the conglom- erate corporations and the packers and the food chains in moving into agriculture `is to achieve two things, neither of which is the immediate prpfit on the farming operations. , . , ,`We assume that, perhaps the two principal goals aie, first, to develop sufficient economic concentration in the food industry from the farmer PAGENO="0209" 205 to the consumer so that an effective monopoly will enable those who dominate the trade to extract whatever price they wish. The second is to obtain an alternative source of supply of farm prod- ucts so that they can draw on these supplies and for practical pnrposes j~lace a ceiling on the price which they have to pay for farm products in the open market. We hope that there will ndver be a monopoly in the food busniess that can get away wIth the k'i~d ~f markup whicl~ has been found t~ pr~vail 14 some sectors of the drug manuTh~turin~ and wholesaling bu~ines~. This simply would not be tolerable in the food business. The degree of concentration in the food bu~ine~s is already at a danger point. If control of the'prii~iary fOod ~roduction is a1low~d to get into the control of industry `giants, both ~arniers and consumers could well be `victimized. The deleg~tes' to the ~i4nesota ~`armers Union conven- tion representing soniething `Over farm `fathilies at the çonven- tion in De~dember 1967 `had this paragraph on corporate superfarms, a~d I qnbte: Non-farm investment and ~nduetrial firms ~1ave in4icate~j their intent to' operate huge cori4orate farms in Minnesota axid other st~tte's', Phe. production of the' cor- porate superfarrns iS not need4~d `and will On'l~' ~reat~ ne* excess capacity in' addition, to' the already excessive capacity on family type farms. Bçth legis'~a.tive an4 regulatory ipeasures sbo~ld be taken to prevent further inva~1o'n of major industrial and non-farm corporations into' ag~iculturaJ production. S `Wlia,tever administrative,' nr legi~'l~ttive `steps may be nee~le'd to' `~iistingu1sh family farms iii each ~ounty, from corpotate ~uperfàrms' should be taken,. Once the family-type farms have #becn, ~l~si~iuated, the principal benefit of the farm pr~grams'shotild be reflected to them and denied to the corporate s'upe'rfa~ms. TMt is the end of the quote, , S S In line, with this last reoorpm~ndatio~ in, our Fai~merg Union p~licy statement, a comparable provision appears in our National Farmers Union policy statement fo'r 1968. ~ read this' as follows; in the broad national interest, Cbngress Is called, npon to enact legi~1at'ioh to, amure parity prices, and inecsnc protection Only o~i a fami1y~farm level of pro- duction. In Order to deter'mi~ tho~e far~n~'rs with a family-type operation, the UM.t~.A. `shOuld make a sthdy dh~ee~'d to defini.n~ such farms on a county-by- county basis. ` ` S 5 That is `the end of the quot~. .,,~, S 1u addition, than, to d~si~natin~ of farms as family farms a~ sug ge~ted above, `the ewners o'f farms should be requi~red to register with th~ `coUnty ASCS ~omrnitté~ for the purpose of disclo~ure Of the prin-, ci~al oivnar or 6~vi~ers. O'nc~ a farm' has been registered it ~liould be required that any change in the own~rshi~ `be reported within 30 ciays~ of'su~h a change. `Re~istratioñ would require name and address of the o*Wet~ si~e and ~Iocatiôn, of the fai~m, date of acquisit'io,n, type of owner- ship, wh~thèr indivi'dual7 partn~rship,or corporation. In case of cor- porate ownership, it should re~juire a disclosur~ of persons qw~ing' more than a 5-percent interest'and should alsO disclose whether the cor- pot~a'tion has any b~sine~s, other business, related to agriculture, ç'ither iii farm sup~lie~ or marketing or p'roces~ing. If this ~va~ done, it would place on public iecord valuable informati~on on farm `ownership. Tt'is sometithes said `that a hundred' thonsand farms cçn~ld produce all the food and farm commodities which the Nation needs. This may 95-253-68----14 PAGENO="0210" 206 be theoretically true, because the same amount of land we have now would still be combined in the hundred thousand farms, but it would be also, of course, very undesirable to have this kind of operation. Suppose for a moment that our agricultural industry was made up of a hundred thousand corporate superfarms. There would be about 600 million acres of land in crops, pasture, and rangeland. This would mean that the corporation farms would average 6,000 acres apiece. `This would leave four farms per township, just four farms per town- ship, only four farms where there are now in my State of Minnesota ~and in many parts of Wisconsin as many as 50 to 75 farm families per township. Suppose you are down to four farms per township, what `kind of economic base does this leave for the community? What does this do to the Main Street, to the banks, to the farm supply firms, the handlers of farm products and the farm cooperatives, all of which would be bypassed? What would happen to the community services and the institutions, the schools, the churches, the REA systems and even the tax base? This need not happen because action can still be taken to prevent This happening, but it will take the mobilization of all the people who are a part of the rural community. A final observation we wish to make in regard to absorbing of farm- `land by corporate investors, once the land is permitted to get into corporate hands it is going to be difficult to reverse the process and re- store family ownership. A corporation is a "legal person" which may have a hundred year life or a perpetual. life. In family farming there is a turnover in ownership, once in a lifetime. On the average there is a change of ownership at least onec in each generation, either from the members of a family to a relative or from one private owner to an- other. But, since a corporation never dies, the land tends to remain in the corporate hands even though some of the stockholders may change from time to time. And I think this is a key point because how are the family farmers going to have access to land once that has gotten into corporate hands? Land which is swallowed up by the corporations is likely to be gone for good as far as family-type operators are con- corned. The remedy, therefore, must be to try to prevent by whatever means `possible the transfer of lands from families to corporations. This `might be approached by State laws to prevent corporation farmown- ership or by Federal income and credit programs to enable family farms to continue on the land. Preventive action, to assure the continuance of family farms, is `better and less costly than a crash program at some time in the future to break up the corporation farmland holdings and make it available to farm families who want to live on the land. We appreciate the opportunity of being here, and having the privi- lege of making this statement and, of course, at the conclusion of the statement of our colleague, Ed Smith, we would be most happy to enter into any discussion or questions that you might have. Senator NELSON. Thank you very much for a very fine statement, Mr. Christianson.. (The complete prepared statement submitted by Mr. Christianson follows:) PAGENO="0211" 207 STATEMImP OF EDWIN CHRISTIANSON, VICE PRESIDENT, NATIONAL FARMERS UNION We wish to commend you, Senator Nelson, and the Subcommittee on Monopoly for having scheduled these hearings, and w~ are grateful for the opportunity to submit our views. We regard it particularly appropriate that the hearing is being held by the monopoly subcommittee because we believe that monopoly is and should be the central issue in the whole controversy about the kind of agriculture we should have in this nation. The competitive race between family farms and corporation farms is not a clash of two equally efficient and productive types of agricultural organization, capable of providing the food and fiber needs of the nation with equal assurance of abundance and comparable costs. Rather, it is a question of whether an extremely efficient family farm system of agriculture which has provided ample supplies for American consumers and industries over many years is now to be displaced by another form of agriculture, which provides no assurance that abundance and reasonable costs of food and raw materials are its principal goals for existence. We, in Farmers Union, believe that there is no economic need or justification in terms of the national interest for the take-over of agriculture by corporations. Our nation's family farms have a productive capacity more than capable of meeting all possible needs and demands. We have a productive capacity 10 to 12% in excess of existing demands. We have had to place part of this productive capacity on a stand-by basis for many years, for some time under the soil-bank and currently under voluntary acreage diversion programs associated with the major field crops. Some 50 million acres Were held out of production during the past year under these programs. The productive capacity of our present agricultural system not only meets national needs, but provides vast supplies which move into wrold trade and improve our international balance of trade, plus making a major contribution to the effort to eradicate famine and hunger in the world. We have all of this plus an over-capacity of 10 to 12% and besides tiew tec'h~ nology is increasing this capacity year by year. It hardly appears that vast new corporate farm operations are needed to avoid shortages. Neither is production by the corporation farms needed to provide lower cost food and raw materials for there is no evidence that the corporation farms can produce at a lower unit cost or that they would pass on the benefits of such lower costs if indeed they were possible to achieve. Further, we are not convinced that farm production by corporation farms is peeded to assure dependable supplies of given specifications and uniform quality. Family farms are capable of providing what Is needed, at the time that It is needed and in the grades and quality that are desired. If the family farm system Is truly superior, as we maintain, and if the cor- poration farms are not capable of providing a better economic service to the nation, it might well be asked what the motivations of the corporations might be and why they do pose a threat to the economic we1l~being of rural America. The truth is that despite the marvelous efficiency of family farm agriculture, despite the major gains in productivity which overshadow any other major in- dustry, despite the rapidity with which farms have adapted new advances in technology, the family farm is vulnerable on several points, through conditions which at least up to this time, have been beyond the control of farmers. American farmers, unfortunately for themselves, have never developed a mar- ket power comparable to their productive power. Historically, farmers have been price-takers, rather than price-makers. Farmers have helped themselves to an extent over the years through farm ~marketing and supply co-operatives, through the federal farm programs, through state and federal marketing agreements and orders. But despite the fact that these measures have Improved their situation in a major way over the conditions which would prevail in a free market, agriculture is still short of the ability to .command a return which represents a fair cost of production and living. Farmers, today, are extremely vulnerable on the credit side. Farming today requires vast amounts of capital and the needs for capital .are rapidly growing. Use of borrowed capital has doubled in the past 20 years and it is predicted by credit specialists that it will double again within another five years. The amount of capital needed on most farms has long sinée outrun the amount ~that can be ~enerated on the farm or set aside in a lifetime of farming. PAGENO="0212" 208 The use of credit i~ a necessity and it is expapdjng rapidiy at a time when interest rates are at the highest levels since the Civil War. Iii some areas, farm demands for credit have already outgrown the lending capacity of the country banks and the country banks have had to turn to city banks and compete with other industries for loan funds. This condition is likely to worsen in the future. This is a situation in which corporations which have undistributed capital and reserves available for investment in laud and farming operations can have an important competitive advantage over the family farmer who muSt get his credit at retail. ~ other words, while the corporation farms cannot outrival us in production, they may very well outfinance us. Ahother factor which has made family farm agriculture unable to benefit by its own etficiency and productivity has been the inability of agriculture to obtain mensures which effectively avoid the production of oversupplies for which there is no possible market, Still another drawback for far~ijly farmers is that they have not been able to~ obtain enabling legislation to make farm bargaining truly effective. All of the handicaps. of family farm. agriculture could conceivably be rectified. But, until measures are taken to provide full parity price and income support assurances for family farmers, until there is ~ return to reasonable interest rates and ample mm~ey supplies, until effective sppply management tools are available to farmers, and until workable farm bargajning becomes a reality on the major commo4itie~,. agriculture will continue in a positio~i where corporation farms can hope to Invade agricultural production successfully. The e~rporations, `o'~ course, do not have to show a profit immediateiy----because of the tax-loss gimmick, they can operate at a loss, flood the markets' at a loss. for long enough to drjye family farmers out of pro~uction. Ordinarily, the corporations do not disclose why they are going into' farming. No doubt, they may have .a number of reasons for doing so. ~ome may have felt in the fall of 196d that a new era of presperi1~y and unUmited,nati'onal and for- eign demand was about to ~eg~n as a result of the success of the farm programs of 1961-1906 in finally clearing away the surpluses which bad ~over~ung the~ market. . . It, is possible that tome compa~ies `jumped into the agricul'~ur~l game because of the selling job some fertiliser company, may have done on the brillignt future~ ji1~t around the corner. , . . , , We rather expect, however, that the ,wot~vation of the conglomerate corpora- tions and the, packers and the food chains in movipg into ag~icui'ture is to~ achieve two `things, neither of whi~b is the immediate profit, on the farming operations. We assume that perhaps the two principle goals are, fir~t, to develop sufficient economic concentration in the food industry ~rom the farm to . the consumer so that, an effective monopoly will enable those who dominate the trade to extract. whatever price they wish. The second is t~ ~bt'ain an alternative.source oi~ supply of farm productS so that they can, dra~ on tXIcse sàpplies and for practical pur- pose~ place a ceiling' on the price which they have to pay for farm pro~ucts ii~ the open market. , . , The latter has been amply illustrated by the mnpner in which food ~bains and processors have used feedlots under their ownership and contro~ to bypass the competitive markets and depress prices. The same is true of the egg factories which have sprung up and in some area~ have' been us~d .to ~rive down and hold down egg prices so low'that family farmers bay~ had to givq up in despair Yet, lower acquisition costs for t'he processors and food çhatn~ are rarely if' ever passed on to the consumer to any significant degree. ~a,ther, the experience of the past several years has been that the packers and processors and food chains have used declhles in the farm market prices to w1~en the marketing spread between the farmer `and consumer at the expense of bpth. Earlier, we made a, study in Farmers Union of the prices which farmers would gct if they could Obtain the, same rate of mark-up as the automobile industry uses to price its products. We found that the price at the farm-gate would have to be~ three times what it was at the time that, the study ~as made. We hope that there will never be a monopoly in the `food business that .can get away `with `the kind of markup whic'h has been. found to prevail in some sectors of the drug manufacturing and wholesaling business.. This simply would not be~ PAGENO="0213" 209 tolerable. The degree of co'ncenti'atlon in the food business is already at the danger point. If control of the j~rimary food production is allowed to get into the control of the industry giants, both farmdr~ arid ~consumer5 could well be victimized. The delegates `to the Minnesota Farmers Uni~fl Conventiofl in December, 190T, representing 25,000 farm families in Minnesota, unanimously adofted the follow- ing resolution: "Corporate Super-F~rnis.-~-Non-farm investment and industrial firms have In- dicate'd their intent to operate huge corporate farmz in Minnesota and other `states. The production of the corporate super-farms is not needed and will only create. new, excess capacity in addition to the already excessive capacity on family type farms. "Both legislative and regulatory measures should be taken to prevent further invasion of major industrial and non-farm corporations into agricultural prO- duction. "Whatever administrative or legislative steps may be needed to distinguish family farms in each county from corporate super-farms should be taken. Once the family-type farms have been designated, the principal benefit of the farth programs `should be reflected to them and `denied to' the edrporate super-farms." In line with this last recommendation in our Farmers Uni'on policy statement, a comparable provision appears in our National Farmers Union policy for 1968, as follows: "In the broad national interest, Congress' is called upon to enact legislation to assr~re parity prices and income protection only on a family-farm level of production. In order to determine those farmers with a family type operation, the USDA should make astudy directed to defining such farms on a county-by- county `basis." In addition to designating of farms as family farmS as suggested above, the owners of farms should be required to register with the County ASC'S committee for the `purpose ~f `disclosure of the principal owner or owners. Once a farm has been regi'stered, it should be `required "that any change in ownership `be reporte~d wit'hin 30 days of ~ueh a change. flegistration would require name and address of owner, size, and location of fkrm, date of acqui~itiou, type of ownership, whether individual, partnership or corporation~ In ease of corporate ownerships, it should require disclosure of ~persons owning more than a 5% interest and should also disclo'se~ whether the corporation has any business related to agri- culture, `either in farm supplies or marketing or processing. This would place on public record valuable information on farm ownership. It is ~omet~es said that `100,000 farms could produce all the fo'od and farm commodities which the nation needs. This `may `be theoretically true, because the same amount of land we have now would be combined into ~00,000 farms, but it would also be completely undesirable. Suppose fOr a moment, that' our agricultural industry was made of 100,000 corporate superfarnis. There are about 600 million acres of land in crops, pasture, and range-land. This would mean that the corporation farms would average 6,000 acres apiece. This would leave 4 farms per tQwn'sbip-JUS'P FOUR. Only four farms where' there are now In my state Of Minne~ota' and in many parts of Wisconsin as many `as 50 to 75 farm families per township. Suppose you a~e down to four farms per township-what kind of economic `base `does this leave for the community? What does this d~ to main street, to the bank's, to the farm supply. firms, the handlers of farm products and the farm co-operatives, who would be bypassed?' What would happen to the community services and insti- tutions, the `schools, t'he churches, the REA systems., `and the tax base. This need pot happen because `action can still be taken to prevent this happen- ing, but it will require the mobilization of all people who `are a part of the rural community. A `final observation `we Wish to make is in regard to' the absorbing of farm land by corporate investors-once the land is permitted to get into corporate hands, it is going to `be difficult to reverse th'e.'process and restore family owner'- ship. A corporation is `a "legal person" which may have a 100-year life or a perpetual life. In family farming, there is so'me turnover in ownership-on the average there is' change of ownership at least once in each generation, either from, members of a family to a relative or from one private o'wner to another. But, since a corporation never dies, the land tends to remain in corporate hands, even though some o'f the stockholders may change from time to' time. PAGENO="0214" 210 Therefore, land which Is swallowed up by the corporations Is likely to be gone for good as far as family-type operators are concerned. The remedy, therefore, must be to try to prevent, by whatever means possible, the transfer of lands from' families to corporations. This might be approached by state laws to prevent corporation farm ownership or `by federal income and credit progams to enable family farms to continue on the land. Preventive action, to assure the continuance of family farms, is better and less costly, than a crash program at some time in the future to break up the corporation farm land holdings and `make it available to farm families who want to live on the land. Senator NELSON. We will hear from our next witness, Mr. Edwin Smith, president of the North Dakota Farmers Union, from James- town, N. Dak. Mr. Smith, the committee welcomes you here this morning. STATEM~ENT OF EDWIN W. SMITH, PRESIDENT, NORTH DAKOTA FARMERS UNION, JAMESTOWN, N. flAK. Mr. SMITH. Thank you, Mr. Chairman. I am Ed Smith, chairman of the board of the National Farmers Union, and president of its North Dakota division. The North Dakota Division of the National Farmers Union as an autonomous State union with a present membership of some 88,600 members. The North Dakota Farmers Union is proud of its history of successful opposition to corporation farming. I will not pursue reading my statement here, I only want to sum- marize it to make it shorter and perhaps easier to digest. In 1932 the North Dakota Farmers Union was concerned that cor- porations would bring in big machinery and farm the land with hired labor; to prevent this from happening, Farmers Union members cir- culated petitions and initiated an anticorporation farming law. This law was on the ballot at the primary election in June in 1982 and we passed the anticorporation farming law in North Dakota and this is why I am here today, to give you a bit of history, to show you what has happened. It did, however, give the corporations 10 years to divest themselves of any farmland that they owned at the time the law was passed. It also gave a 10-year period for corporations to get rid of any land that they acquired after passage of the law. So we have had a history in North Dakota of tremendous struggle to keep the corpo- rations from moving in. In response to a move `by the Greater North Dakota Association, which is the Chamber of Commerce `in North Dakota, to repeal the law, we `ha'd a march on the capitol with ~,000 farmers in 1941 when the anticorporation bill came up for repeal, and it was defeated in the House. `On January 2, 1943, `the North Dakota Supreme Court upheld `the oonstitiitionali~y of the Anti-Corporation Farming Act `and ~t'ated there could be no exception for colleges. hospitals, or re- ligious groups. The requirement that corporations divest themselves of agricultural land was `a real break for operating farmers `and we feel that this was a step whereby many farmers in North Dakota had an opportunity `to buy land that was controlled by outside `interest's~ PAGENO="0215" 211 Bills were introduced in legislative sessions successively every 2 years, 1959, 1961, 1963, 1965, and every year the North Dakota Farmers tTnion was able to keep this bill from being enacted. In 1965 they tried to slip one in the back door by using what we call the common law trust that was to be used for farming in North Da- kota and we were able to defeat that. But in 1961 we had a legislature that was overwhelmingly designed to take over and move corporate agriculture into North Dakota, and they passed a bill through both houses., the Governor vetoed it, then they overrode the Governor and consequently with the help of many people in North Dakota we now have it on a referral balk~t for November 5 and this is what the law says. There are only four items in here to repeal the anticorporatiom law that we now have and the law says this: No. 1, shareholders shall not exceed 10 in number. `Senator NELsoN. This was the corporate farm law in your State. Mr. `SMITH. That was passed by the last legislature. Senator NELSON. By the last legislature. Mr. SMITH. Yes. Senator NELSON. Thi's i's the present law then. Mr. SMITH. The one we are asking to be referred in November.. it says the shareholders shall not exceed 10 in number. The cor- poration shall not have as a shareholder a person other than an estate who is not a natural person. The corporation shall no't have more than `one class of shares. And here is the one that they rest all of `their laurels on, the cor- poration's income from rent, royalties, dividends, interest and an- nuities does not exceed 20 percent of the corporation's gross profits. They traveled through the State and say that that mean's that that corporation's income must, 80 percen't must come from agriculture, which is no't true at all `because it lists five `items which are very specifi- cally ones that they must receive more than 20 percent from; that is, rent, royalities, dividends, interest, and annuities. This would only exclude people who deal chiefly in money, in the rental of money and so forth. A corporation that would be a junk dealer `in a town in Nor'th Dakota with profits would be not among those restricted in this law and therefore could farm. And we have some very important things that we think ought to be of concern in a bill such as this because we find this in other States. There is no residence requirement in this one, you can live in Alabama, Delaware, New York, or wherever you might be, form a corporation in Delaware and come into North Dakota and farm; there is no residency required. So we think the law is wide open for investment from outside. Now, I know our proponents of the bill say that this will give farmers more credit, tax advantages, estate planning will be easier and limited lia- bility. And on all of the occasions that I have spoken at meetings throughout North Dakota asked bankers or lenders of money if it would give more credit to a farmer if he incorporated his land and in- variably the banker has said it will give him no credit advantage, in fact, on occasions we would give him less, unless the corporation would sign the papers and then each individual stockholder also guarantee behind it. PAGENO="0216" 212 Tax advantage, there is. no tax advantage to a~ family farmer be- cause in 1958 the Internal Revenue S'ervi'ce put upon the books a law that would give small corporations `an advthltage if they so electe~I, if there were 10 or less stockholders they can elect 1~o pity as individuals and thereby saving on taxes. And the other two, limited liability and estate planning, are some- what vague because limited liability, we find that most farmers if they were to incorporate their farm would pooi all of their assets into this corporation and if they were sued `beyond `their capacity they would have'no more anyway. We'thiñk limited~ likbility is not a factor here. And the one that bothers me a great deal is,' and `Mr. `Christianson mentioned it here, a corporation' lives in perpetuity. Many of Our business people say why cafi't we let'farmers have the same opportunity that a businessman on Main Street has, let me say to you here, there is no parallel between agriculture incorporation and business incor- poration. Let me tell you what I mean. If there is enough cash flow in the community you can have 14 motels incorporated, you can have 14 implement dealers, you can haste any amount of any kind of businesses as long as there is enough cash flow. But once you permit' a farm cor- poration to be formed around a city there is a `possibility that there can only be one farm. And once it is incorporated there can ~e no other farms in there regardless of the amount of cash flow that comes'off it. So we feel there is no parallel here when you permit land to be incorpo- rated because once it is a c'aptive, a corporation, it can n~ver, it will never be released to young farmers to go into agriculture. And I feel th'at many farmers are probably disillusioned by the `fact that if you can incorporate you can keep this family farm in the family. Let me just say here that if a family farm is incorporated and it is not properly `set up that if `a daughter' or a son can sell his or her shares of stock outside the corporation' in that way we will have foreign people inside the family corporation very `readily. S~tQ~k' is easily transferable. Outside ins~estbrs, I feel as Mr. Rohde `said in his statement, have no real investment in a community; all they' are interested i,n is what can we get into our corporate structure, what can our corporation earn for its stockholders and therefore not very cognizant of `community problem's. And I feel that we have, since we made our survey in North Dakota, we sent out letters,to the surround- ing States, sinCe we do not have corporation farming in North Dakota, we had to make a survey in the States surrounding us. And out of the thousand-some letters we sei~it to corporate agricultural operations outside, of N'orth Dakota we sent 15 question's and one `question that I thought was very significant was we asked these cor- porate structures, "Do you buy wholesale Or retail ?~` and surprising to me how many answered the question. We found when they came to a certain level in size that they began buying wholesale and this would destroy Main Street in `most of the towns that we have in North Dakota since basically they are all agricultural and rural. We feel that buying of wholesale will destroy Main Street, and we know that the survey made by the papers in North Dakota, we find that this is a very volatile issue. You would be surprised at this particular survey since it en- PAGENO="0217" 213 compasses much of North Dakota-~--you would find that the `question- naire that was sent out, 82 percent of the people,. whether they were from towrt or counti~y, rural or urba~'i, whatever you want to call urban in North Dakota, 82 perceiit of the people were opposed to the incor- ~poration of agriculture. You would be' surprised also that this went clear across both political parties. ` ` Fifty-seven perce~it of' the `R~publiçans were `opposed and 4~ per- cent of the Democrats.. ` . Senator NELSON. You said 80-some percent of the people in the' State were opposed? ` Mr. SMITH, Eightytwo' percei~it were opposed. to it and .18 were against it, or 82 were against corporation farming and 18 were for it. Senator NELSON. With that kind ot a percentage, 82 `percent Opposed, how do you acOoufit for the fact tha'1~ the legislature .pa~sed this bill? Mr. SMITH. Well, I think `the ]egisl'ature *hen it was elected had a commitment to some people,' outside interests that they were going to pass this `bill and~we found that this wa~ exactly what happened; they were bent on passing `the bill irres~ecth~e what the fOlks really felt at home. . " ` ` This concludes my statement, Mr. Chairman, `and 1 appreciate `being here. I hope I made some contribution' to it since we do not have corporate `agriculture in North Dakota. I hà'~e that other St~at~s arid the nati'oi~al Congress will take some steps to prohibit this from mov- ing in through all of the States in the Nation. (The complete prepared stateme~it and supplemental information siibmitt~d by Mr. Smith follows:) ` `~ STATEMENP OF E. W. SMITu, P1~EsIDENT, Nonrii DAi~oT4 F~R~RS UNION doEPon~riom~ F~nMING isSUE IN NORTH DAKOTA I im Fd Smith, chairman of the board of the National' F~arthers" Union, and president of its ~NOr'tb Dakota Division. The NOrth Dakota Division of the iNationa'l Farmers Union is an ant'o'n'othous~ state union with a present membership of 38,61G dues paying `family members. The North Dakota, `Fai~me,rs ThliOn Is proud of its' history of successful opposition to corporation farming. `In 1932, a~pr'oximately one' fourth of the farms' in North Dakota were owned by corporatiots. In a few cases the corporations had purchased the land and in a few other cases private colleges or' hospitals had accepted gifts of rcorth Dakota farm land from individuals or eatates. ` Iii `r~o'5t' oases, however, the corporations had come to own' their land through foreelosu~e of mortgages. The World War I period was eharacterimd by comparatively high farm prices that generated an optimism on the part of `farmers and led to overexpansion, both in land and machinery. In 191~ the national average price received by farmers for barley was $1.24 a bushel; for flax It was' $4.47; and wheat, North Dakota's principal crop, `bi*ottght a national average price tO farmers of $2.143 a bushel. Naturally, farmers shared the general economic optimism that was felt by the entire national economy. However, during the twenties, as' the non-farm, economy rolled steadily to higher profits and greater' optimism, the farm economy sagged. By 1932 the national average priCe received `by farmers for wheat, during that marketIng year, was 3.71/2q~ per bushel. Understandably, they found it impossible to pay O~ debts that h~d been acquired twelve to fifteen years earlier based on `the repayment ~otentia1 of $2.00 wheat and $4.50 flax. There was just no w'ay to thak'e payments and wholesale `foreclosures resulted. The' North Dakota Farmers Union was concerned that corporations would bring hi big machinery and farm the land With hired labor. To prevent this from happening, Farmers Union members circulated petitions `and initiated PAGENO="0218" 214 an anti.eorp~ration farming law This law was on the ballot at the primary election iii June 1932. The law as passed by the voters prohibited corporations from owning agricul tural real estate or engaging in farming. It did, however, give corporations ten years to divest themselves of any farm land which they ~ owned at the time the law was passed It also gave a ten year period for corporations to get rid of any land that they acquired after passage of the law During the ten year grace period the general practice of corporations owning land was to rent it to operating farmers However they did not like the prospect of selling the land at the end of the grace period. Consequently, a bill to repeal the anti corporation farming law was introduced in the 1941 session of the North Dakota. Legislature. The Greater North Dakota Association, North Dakota s affiliate of the National Ohaniber of Oommerce was the principal supporter of the bill to repeal the Anti Corporation Farming Act The North Dakota Farmers Union was the principal opposition GNDA spokesmen and other supporters of the bill were claiming that Glenn Talbott then president of the North Dakota Farmers Union * ;an'd the organization's legislative representative, Alex~ Lind, did not speak for a majority of Farmers Union members In opposing the bill. In order to set the record straight on this point, the North Dakota Farmers Union organized a march on Bismarek to coincide with the Senate hearing on the bill Approximately 5000 farmers most of them Farmers Union members appeared at the Capitol and. asked to be admitted to the hearing. The assemblage of farmers clearly demonstrated to members of the legislature that the Farmers Union had majority `support for its position and that it was the Greater North Dakota Association that was out of step with the people In response to the march of the 5000 the 1941 bill to repeal the Anti Corporation Farming Act was killed by the legislature on a committee recom mendation This legislative action did not end the efforts to have the Anti Corporation Farming Act removed from the books The next step was a chal lenge of the constitutionality of the law on the grounds that it deprived cor- porations of property without due process of law. On January 2, 1943, the North Dakota Supreme Court upheld the constitutionality of the Anti-Corporation Farming Act and stated that there could be no exceptions for colleges and hos- pitals. It said all corporations must dispose of their lands within the ten year period following enactment of the law or the date that the corporation acquired land if that was later. The requirement that corporations divest themselves of agricultural lands was a real break for operating farmers Elwin B Robinson in his book History of North Dakota writes The sale of corporation and government owned land decreased farm tenancy For a long time in North Dakota the majority of farm ers had owned some land and rented some. Seventeen percent of the farm land in 1940 was farmed by full owners thirty eight percent by tenants and forty four percent by part owners (those who owned some land and rented some). Twenty two percent of the farm land by 1945 was being operated by full owners twenty-two percent by tenants, and fifty-five percent by part owners, an im- portant shift of land ownership to the farmers themselves." The Greater North Dakota Association never gave up on its efforts to weaken or repeal the Anti Corporation Farming Act It was in fact joined over the years by the Farm Bureau and the Cattlemen s Association Bills were intro duced in the legislative sessions of 1959, 1961, 1963 and 1965. In each case, ex- ~cept in 1965 the bill was killed in its house of origin The 1965 bill (SB 345) was an effort to slip in the back door It would have provided legislative an thority for common law trusts in North Dakota Common law trusts created under the bill were to have all of the rights and powers of a corporation When the bill was debated in the Senate it was indicated that some segments of North Dakota industry were much in need or at least could be greatly benefited by this quasi corporate form of organization Farmers Union s legislative repre- sentative became concerned and raised the question of whether common law trusts would be permitted to own land and engage in agriculture The question bad not been answered satisfactorily when the bill passed the Senate However when the House committee held hearings on the bill Farmers Union asked that it be amended to prevent common law trusts from owning agricultural land or engaging in farming. A satisfactory amendment was adopted and at that point the chief supporters of the bill said they had no further interest in it PAGENO="0219" 215 The Fortieth Legislative Assembly, meeting in 1967, passed House Bill 7S~ which provided that "Any corporation may own real estate and carry on farm- ing or ranching operations if such corporation meets the following standards: 1. The shareholders shall not exceed ten in number; 2. The corporation shall not have as a shareholder a person other than an estate who is not a natural person; 3. The corporation shall not have more than one class of shares; and 4. The corporation's income from rent, royalties, dividends, interest, and annuities does not exceed 20% of the corporation's gross receipts." Governor William Guy vetoed House Bill 782 and returned it together with his veto message to the legislature. The legislature promptly passed the bill again over the Governor's veto in spite of a flood of mail that came to individual legislators asking them not to override the veto. In the interval between passage of the bill and the vote to override the Gov- ernor's veto of it, the North Dakota Farmers Union presented a statewide tele- vision documentary on the issue and urged ditizens of North Dakota to contact their legislators asking them not to override the veto'. The majority of the legis- lature appeared to be more closely attuned to the wishes of the Greater North Dakota Association and other supporters of corporatiOn farming than they were to the wishes of the people of the state. Only a handful of legislators who voted for the bill in the first place voted not to override the Governor's veto. After the legislature adjourned, an informal Legislative Advisory Committee of the Democratic Party organized a referral committee and circulated petitions to refer House Bill 782 to the voters in the general election of November 5, 1968. Farmers Union assisted in circulating these petitions and the necessary signatures were obtained. The filing of those petitions with the Secretary of State, of course, prevents House Bill 782 from going into effect until the ques- tion has been voted on at the general election. The No'rth Dakota Farmers Union is taking a very active part in the current campaign to protect family farmers from competition by corporations. To date this activity has included much editorial comment in the North Dakota Unio'n Farmer and In the monthly bulletin that is sent to county and local officers and to managers and directors of cooperatives that are affiliated with Farmer's Union. Farmers Union officers and staff members fill many speaking engagements before farm and nonfarm groups. In the last 15 months since House Bill 782 was passed and the referral action started, it has been a rare occasion when a Farmers Union speaker has not devoted part of his remarks to an effort to co'ntinue the state's legal ban against farming by corporations. During this period the North Dakota Farmers Union has prepared and distributed a number of pamphlets and display material opposing corporation farming and we put togethe'r a sound film covering the history of North Dakota's ban on corporatio'n farming, the reasons why the North Dakota Farmers Union seeks to have th'at ban continued and, of course, urging the voters to turn down House Bill 782 when it is voted on in the general election. This film has been in circulation for about six months and it has been viewed by an audience of several thousand scattered throughout predomi- nantly rural `areas in almost every county in the state. The final o'utcome of the current campaign to protect farmers from competition by corporations will, of course, not be known until the votes are counted after the general election. However, there are a few indicators. Last year nine rural weekly newsp'apers serving different `areas of North Dakota formed a loose association known as the North Dakota PolL In making their surveys, each of the nine newspapers select a random sample of two hundred names from their subscriber lists and sent a questionnaire to those individuals. The questionnaires are mailed by the recipients directly `to the University of North Dakota for analysis on the University's computers. This spring the North Dakota Poll tested public attitude on the question of corporation farming and found that 82% of the returns favored continuing the ban on corporation farming. Only 18% of the returns favored House Bill 782 which would repeal the anti-corporation farming law. (For a detailed analysis of the survey see the attachment at the end of this' state~ mont.) Another indicator of public attitude in rural communi'ties on this' question is the fact that the chief sponsor of House 782, Representative Robert Wells of District 10, did not receive his party's endorsement for another `term in the legis- lature from that district. PAGENO="0220" [From the Harvey Herald, May 2~ 1968] Corporation Farm Law Unpopular D Results of a poll conducted by nine North Dakota weekly newspapers indiratesthat farm and anwiler a ota town residents of this stateoverwhelmtnglyopposealaw whith would allow farm operators to incorporate: The vote showed that 82 percent of those responding to the poll were opposed to the "farm corporation Poh law" while only 18 percent favored it... \~ The law, passed bl the~l987 North Dakota legislature, has been referred to the people and will appear on the ballot this fall. _____________________________________ The results for the Harvey Herald subscribers polled are listed under the code Ha in the following table. The other codes on the table are: La, Langdon; Li, Union; Bot4 Bottineau; El, Sliendale; Cr, The 1967 legislature passed a law permitting Crosby; Nr, New Rockford, Not coded were the results from Garrison and Hiliaboro. certain corporations to fonts. This law has The opestions askedand the results are; been referred to'the people and will be on the ballot next fall. If the election were held today would you vote yes to permit ~ Percent corporations to farm or no. - Yes 115 18 Totals broken downby codes No Ua La Li Boit El Cr Ni' Code 19 8 10 6 20 Zt35 22 81 ~a so 91% 80 79 65 78 58 53 56 56 6 52. 53 61 42. 47 44 44 36 148 ~l7 39 No 528 8Z Total - Do you vote principally; Republican 3614 57 Democrat Total Is your principal occupation farming: Yes 279 143 6143 3714 2~6 630 41 60 75 60 72. 46 5S 59 L3(~ 2S 140 28 514 42. Z~]~ 54 No Total PAGENO="0221" 217 Senator NELSON. As of now, do you have what is normally con- `sidered as corporation farming? Mr. SMITH. We have had since 1932 what we called an anticor- poration farming law, but it permitted them to have a cooperative oorporat:ion. The only thing this `law did `Was `it has all the goodies, if you want to call it this, of incorporating, but it said one' man, one vote. You cannot vote your `dollar stock,' and we have had all of the other advantages of incorporating except that' one feature. Senator NELSON. You mean to `say you had in effe'èt "a `cooperative farm? ` ` Mr. SMITH. Yes; a cooperative corporation. There are only three in North Dakota that I'know'of. Senator' NELSON. Well, `since North Dakota has been a State with~. out corporate farmin~, do you' have any `comparative statistics as `to the productivity,' efficiency of your family-owned farm's in the pro- duction of feed grains, and so forth, versus what the corporationshave been able to do in other States? ` Mr. SMITH. I do not have the `statements here with me; but our State university said, `as you read earlier in your `statement, that there i's a point beyond which a corporation caiinot improve on a family farm. And we find that our family farmers are as efficient as is po's~ sibl'e to `be whether `they are incorporated or a's `a partnership and we think that family farmers are better steward's of the soil, they are closer to their communities and, therefore, are much mOre important to us than `a corporate entity that comes from the outside. `Senator NELSON. Well, I wan't to `thank you very much for your fine testimony. I appreciate you `and Mr. `Christianson `coming here from Minnesota and North. Dakota to `make this contribution to our hear- ings, and I also appreciate your taking the time to come, Mr. Rohde. Thank you very much. if you have any `additional documentation that you `wish to submit for the record, it will remain open. for 2 more weeks.' Our next witness is Mr. Edwin Sommers, m'aster, Wisconsin State Grange, from Clinton, Wis. Mr. Sommers, the committee is very pleased to have you here this morning. Please proceed. STATEMENT OP EDWIN SO.MMEBS, MASTER, WISCONSIN STATE GRA~GE, CI4INTON, WIS. Mr. So~ians. Senator Nelson, members of the subcommittee, I am Edwin Sommers~ master of the Wisconsin `State Grange. I am a farm owner and operator., and live in Rock County, Wis. I am pleased to have the opportunity to~ express the views of the Grange to this committee, First,. I want to express. our appreciation to the members of this committee, for your concern for agriculture and the entire `rural com- munity, as you attempt to seek out the effects of. corporatiOn farming and hopefully conclude from testimony that legislation needs to be enacted to right some of the wrongs that exist today. 1 Material bad not been received at time of going to press. PAGENO="0222" 218 My first consideration is to make it clear what is meant here by corporation farming. We are talking about a large commercial farm unit whose capital is supplied by industry, investment firms., or other than normal farm finance. A unit that has hired management and a hired working force, one that may be involved in retailing as well as producing. On the other. hand, we have the family farm which has provided for this country an abundance of food at a reasonable cost to the consumer. By Grange interpretation the family farm places major reliance upon the farm family for labor and management, operates on capital provided at the risk of the operator, and provides the family with its major source of income? provides full-time productive em- plóyment for the family, and utilizes modern labor-saving devices and other practices which contribute to efficiency and should enable the family. farm operator to earn and receive for his labor, management,. and investment a return which is reasonably comparable to that re- ceived by other segments of the economy. * I would like to quote from the policy statement of the National Grange, 1968. "The continuing trend toward larger and fewer owners may be an economic necessity in order to create a viable agriculture.. However, any acceleration of the trend toward the industrialized cor- poration type farm is viewed with grave concern by the Grange. This trend, if carried to its logical conclusion, will establish a capitalistic~ monopoly and enable a few to exercise almost complete economic con- trol over all of agriculture, thereby weakening our democratic system and creating a threat to the economy of abundance which has blessed our Nation." There are many family farms today that have incorporated, which wifl enable members of a family to share in ownership~ management,.. and profit from this operation. The technical revolution in agriculture has made large farm operations inevitable, and the investment required in land, equipment, and livestock has made this advantageous in many instances. I feel the following are some of the adverse effects of corporation farming: First of all, unfair tax advantages to corporations investing in farming operations has contributed immeasurably to the existence of these operations. Funds from business and industry are funneled int& the agricultural operations so as to qualify for tax deductions. Sta- tistics show that the majority of these operations show a net loss for the year and thus hurts the community and the municipality both in the available tax revenue. It becomes unfair competition when a family farm must operate on profit from agriculture and corporation farms are permitted to operate at a loss as they are not dependent on the profit from the operation. The entrance of corporations into the farm scene has also tended to raise land values to the point where it becomes dif- ficult for the individual farm operator to compete. It is difficult to compete with the vast resources of corporations when an individual is attempting to buy farmland. The effect on local business. It has been said that for every 12 farms that cease to operate we lose one small business. Surely as these cor- poration farms develop they will bypass the local businessman in PAGENO="0223" 219 volume buying of his needs to operate the large unit. Local machinery dealers, supply stores, feed and seed dealers will feel the impact of these corporate structures. Many have direct affiliations with industry,, be it oil company or tire manufacturer; deal direct in many respects. What is the effect on the community? The Grange community- oriented organization is tremendously concerned about the community in corporation farm areas. We feel that the family farm `has contributed much to the development and growth of this Nation. It is a stabilizing force because of the concern for community development in the areas of church, school, `and local government. In the realm of soil conservation: Soil conservation in many instances i's ignored by these operators. As mentioned before in previous testimony, shelter `b~1ts' to prevent wind erosion are removed. Water- ways, contour strips, and terraces to conserve our soil are ignored. Fences are removed to accommodate ever larger machines. I heard one operator say `he wished he could have rows 5 miles long. These decisions are prompted by their attempt to become more efficient. Soil steward- ship is something that the average farmer is dedicated to, but is not held in very high esteem `by corpOration operations. I know of instances in my community where a large operator removed the fences, ignored the waterways, and planted the whole farm `with one crop. A heavy rain struck and took enough topsoil from that field to fill the `road culvert and then `buried the road with so much mud that the road grader got stuck in an `attempt to remove it. These things are serious, they `affect generations to come. Soil conservation is `a voluntary pro- gram, but it is everyone's responsibility. What `about the young men who are `attempting to enter into farming? Corporation farming will have a tremendous impact on the ability of young men to start farming. There will `be a limited number of jobs for farm laborers, skilled `and unskilled. Some full-time em- ployment, some seasonal, will be utilized. The hope of the young aggressive farm boy is to eventually own his own farm. We must in our society `allow opportunity for individual advancement. I would like to quote from our national master, Herschel New'sorn, who said: As we diminish opportunities for individuals to generate their own progress an'd achieve their own `personal' security, we thereby compel them to rely upon the provisions of pensions and retirement program's upon which they can. capitalize by abandoning `their own ideas', no `matter bow good they may `be, `and accepting dictates from those who have `been elected by the corporate `board, for `reasons that may embrace other factors other than competence. Consumer interests will not be protected. `Surely as corporation farms gain control, they will place themselves in a position to dictate prices. The Grange favors a free and open competitive market system. Packer feeding of livestock and other forms of vertical integration tend to seriously affect the operation of competitive markets. In conclusion I would say that given an opportunity to compete on an equal `basis, the family farm can compete `and continue to provide this country with an `abundance of food and fiber and also contribute our share `to the needy and starving peoples of the world. Efficiency of farm production cannot be disputed. We `sincerely hope that from these hearings will come a sense of urgency on the part of our legislators to correct the tax loopholes that make it advantageous for corporations PAGENO="0224" 220 to invest in agriculture. There must be some limitation and control of packer feeding of livestock and other forms of vertical integration. You hear much about land reform these days; one of our national eon.- cerns,is individual ownership of land in. underd~ve1oped coun~tries.'Let us not permit conditionsto develop or exist hera at home that would jeopardize the `family farm system, the backbone of `agriculture. Again I want to thank you for the opportuiiityof appearing at this hearing.. Senator NELSON. Thank you very much, Mr. Sommers. We appre- ciate your very fine statement. ` . Our next witness is Prof. Sydney Staniforth, Department of Agri- cultural Economics, University of Wisconsin.. . . ;` . "Mn Stan'iforth, we :ap~recia~te your coming up here to testify before the committee this morning. Your statement~will be entered. in full in the record,~ as will all statements that are submitted If you wish to extemporize' or elaborate from the statements you may. STATEMENT O~ SYDNEY D. STANII'O:RTR,, PEOPESSOII.,. DEPART- 1VLENT `OP AGRICULTURAL ECONOMICS, UNIVERSITY OP WISCONa SIN, MADISON, WIS. Mr. S?rANTFORTH.. Thank you very ~mich. The economic viability of the ~fa'mily farm is `dependent on its abil-~ ity to achieve the major economies of size' that are available and, in- creasingly, on its: ability to obtain adequate financing. In the present situation the efficient family farm is"very competitive.. Several studies, for' example, from a wide variety of States that I have reviewed, have shown that the commercial family farm with a high level of management can meet two important conditions. It can `achieve; competitive costs of production that is competitive with any other form of organization and, second, it can pay a market rate of return on all the factors of production it employs, particularly including capital and operator labor and management. Admittedly many farmers, many' family farms do not meet these' con.ditions primarily because of lack of adequate size and productivity. As in the past, one of the major threats to the concept of the family farm continuing is the `e~i'stence of the large number' of inadequate- sized ñtmily farms The family farm faces two possible major threats in the near future. The magnitude of `capital requirements is, straining the owner-operator basis of the family farm, and a new dimension of economies in the large' corpOrate organizations may be able to achieve new competitive advantages in the cost of operation Capital requirements for the truly `commercial family `farm `have b~en ii~c'reas~ ing for many years `and now in most types' of farming it is a hundred thousand dollars as a minimum and will probably be a multiple of this in the fairly near future'. To acquire ownership `of a farm as is ~iow the `conventional practice, this simply theans' that `a farmer during, his farming life must save and accumulate, in other words, pay off the debt on a hundred `thousand dollars or, in the near future, two hundred thousand. I think this is more than we can expect for the right to farm. The common practice of financially and physically liquidating the family PAGENO="0225" 221~ farm as it passes from one generation to another has often been `very costly, especially in the efficiency of operation of the second genera'. tion. The beginning farmer characteristically starts with low equity. As a result he is unable to borrow or otherwise acquire sufficient capital to achieve the highest levels of productivity and efficiency. This period of reduced productivity when he is just starting out also coincides with the period of time when the living needs of a young growing family are at a peak. Commonly sufficient capital is only acquired to have a truly efficient operation at middle age when the family demands are much lower. This household farm competition for capital funds not only causes hardship to the farm family, but greatly reduces the productivity and competitive position of the family farm. To meet these problems new methods of transferring commercial farms between generations and financing their capital requirements are badly needed. The basic needs are to achieve continuity in effective operation as farms transfer be- tween generations and to remove the need for the individual farmer to become worth a hundred thousand or two hundred thousand dollars in his lifetime in order to become a successful farmer. Part of this problem may be handled through family partnerships. The, farmer may be in a partnership most of his farming life, the first half with his father and the second half with his son. Financing or credit based on repayment capacity rather than the current standard of equity is an absolute must. Farmers Home Administration have pioneered this kind of low-equity financing but are not yet equipped nor authorized to fully meet our probable future needs. The idea that the commercial family farmer never acquires debt-free ownership of his resources is essential. The need for permanent debt could be met by partially un- amortized loans, and this I think could probably be achieved through existing commercial channels. Incorporation of the family farm as a family corporation can in some cases meet these financing problems and continuity problems, but ultimately only if the family members who own stock are satisfied to leave at least a substantial part of their equity in the farm. These problems of financing the commercial family farm on a suit- able basis seem to be at least as significant to the economic viability of the family farm as any possible competitive economies of size to be achieved by the very large essentially nonfarm corporations. The possible sources of further economy for these large corporations in farming are relieved by achieving the new dimension in size. With very large volumes, they will be able to buy and sell with some advan- tage. They would be adequately financed and on a continuing basis. There may also be some economy in the more intensive use of capital inputs. One recent corporate agricultural venture, for example, is in- vesting in small grain production through the Central States and they are operating in blocks of 8,000 to 10,000 acres and they started the season in Texas and move on up, this is their plan, through the milo, wheat, and corn belt, with specialized equipment and trained people will move along with them and hence they are able to riaake much more intensive use of both the capital and highly trained people. In the context of local farming this means wearing a combine out in 1 year, not paying the heavy depreciation on it. 9~-253-68----15 PAGENO="0226" 222 ~ While great tax benefits are alleged for large organizations, I think it is also significant for us to face up to the fact that many large corpo rate organizations now lookiiig at farming are showing budgeted net return on investment of 12 to 20 percent as their prime incentive The large corporate organizations would have scientific management staffs available and would use them On the other side of the management question they would have a major problem-and I think this one has yet to be answered-they would have a major problem in production control to achieve crucial timing for successful production It would also be difficult for them to get the quality of farm labor that they need on such a specialized operation In many areas of resource conservation profitable practices consistent with conservation practices in the sense that the major aspect of soil conservation are profitable so far as within the farm decisiOns are concerned. Specific enterprises, of course, such as large livestock production, some control of air and water pollution may be necessary to maintain environmental quality Many of the potential gains or economies of the large corporate organizations could theoret ically be achieved by the incorporation of a number of the neighboring family farms or by the use of bargaining associations in buying and selling The mechanics of this activity, however, would be complicated by the fact that several otherwise quite independent units would be involved This form of combined family farm corporation may hold some promise in getting financing, but would not likely itself solve all the problems of financing and continuity. If the large corporate farm organization is able to achieve signi- ficant new economies in production it will still not necessarily drive out the family farm Many existing family farms now own a major por tion of their capital employed When earnings fall on such farms below a market return on all factors the family farm can still survive as long as return to owned capital, labor, and management combined represent a total disposable income sufficient to meet debt payments, and service family living needs. Supplemental income from nonfarm employment can also be used. If the very large corporate farm should be able to achieve sufficient economic advantage to become predominant in the future, it would certainly have a direct impact on the family farm and on the rural community. It would put potentially great economic pressure on the family farm It could relegate many existing family farms to a place to ride it out on social security or to a way of life supported by primarily outside sources in income This could greatly increase the number of people who would be unemployed or grossly underemployed Similarly, a significant increase in the farm size with incorporation would cause major disruption of community services and community life in rural areas. The geographic areas to be served by churches, schools, hospitals, local trading centers would be greatly enlarged. In order to maintain community services of all kinds2 there would need to be a major reorganization of all rural communities that are largely agricultural. These add up to major social costs In viewing this whole problem, however, it is paramount that we recognize that these changes and resulting problems of social and economic reorganization and adjust PAGENO="0227" 223 ment have already appeared. The growth in size of the commercial family farm is already generating all of these changes and conse- quences. In the past 10 years there have been many projections of farm size and organization that indicate that by 1980 or soon thereafter from a quarter to half a million farms will be able to meet our Na- tion's needs for food and fiber and will, in fact, produce a very large percentage of them. This indicates a continuation of the trend we have had in the past. The real issue in this whole area, it seems to me, is not primarily what to do about the possible invasion of essential nonfarm corpora- tions into farming. This is only a secondary or side issue which might accelerate what is already going on, not cause it. The basic concern involves what to do about the undesirable social and economic consequences of the rapid adoption of technology in agriculture, even within the framework of the commercial family farm which will continue. The technological developments in agriculture have increased productivity and released labor faster than it can be effectively absorbed elsewhere. This has resulted in major underem- ployment on farms left behind and migration to urban areas. This urban migration has in no small way contributed to urban poverty and socially unacceptable living conditions in those places. It must be recognized that low-income problems in both rural and urban areas are in significant part the product of our having enjoyed the economic benefits of the technological revolution without having faced up to the many social costs which have resulted. The technologi- cal revolution has dictated, in other words, an economic and social ad- justment at a far more rapid rate than can be achieved. It has dictated a restraining of people and the redirection of their employment faster than could be achieved together with high rate of writeoff of economi- cally obsolete capital which would still be substantia]. In this framework the basic questions turn primarily to how to help the commercial family farm meet its most pressing problems arising largely out of capital and financial requirements, and how to, in the broad total sense, meet the social costs of people and communities left behind by the rapid impact of technology. Most of the rest of it has already been covered. Senator NELsoN. Thank you very much, Professor, for your very fine statement. (The complete prepared statement submitted by Mr. Staniforth follows:) STATEMENT OF SYDNEY D. STANIFORTH, PROFESSOR, DEPARTMENT OF AGRICULTURAL ECONOMICS, UNIVERSITY OF WISCONSIN ECONOMIC CONSIDEBATIONS IN THE PROBABLE FUTURE FORM OF BUSINESS ORGANIZATION IN FARM PRODUCTION The economic viability of the family farm is dependent on its ability to achieve the major economies of size and, increasingly, on ~ts ability to obtain adequate financing. In the present situation the efficient family farm is very competitive. Several Studies, for example, have shown that the commercial family farm with a high level of management can meet two important conditions: it can achieve competi- tive costs of production; and pay market rates of return on all the factors of production it employs (including capital and operator labor and management). PAGENO="0228" 224 Many family farms do not meet these conditions, primarily because of lack of adequate size or productivity. The existence of a significant number of commer- cial family farms which are competitive, however, demonstrates the economic viability of the family farm as a type of `production organization in the present situation. As in the past, one of the big threats to the concept of the family farm is the existence of so many economically inadequate family farms. The commercial family farm faces two possible major threats in the future: the magnitude of capital requirements is straining the owner operated basiS of the family farm, and; a new dimension of economies of size in the large corporate organization may be able to achieve new competitive advantages in the cost of operation. Capital requirements for the truly commercial family farm have been in- creasing rapidly in the past several years. In the immediate future they will exceed $100,000 per farm as an absolute minimum and are likely to exceed this figure considerably in the fairly near future. To acquire ownership of this amount of capital in one generation may well exceed the capacity to pay off debt of even a commercial family farm wh;icb lie able to pay a good return to operator labor and management. The conventional goal of achieving full owner opera- torship in the family farm means saving over $100,000 during the farming life of a farmer. Even though a farm is paying a good laho~ income this requirement of forced savings will become increasingly burdensome. The common practice of financially and physically liquidating the family farm as it passes from one generation to next is also often costly. The beginning farmer commonly experiences such capital scarcity that the efficiency of his operation is significantly impaired. The beginning farmer characteristicallY starts out with low equity. As a result be is unable to borrow or otherwise acquire sufficient capital to achieve highest levels of productivity and efficiency. This period of reduced productivity also coincides with the period of time when the living needs of a young family are relatively high. Commonly, sufficient capital is not accummulated to permit peak productivity in the farm until middle age when the family are grown up and the family needs greatly reduced. This household farm competition for capital funds not only causes hardship to the farm family but greatly reduces the productivity, and conipOtitive position of the family farm. ~To meet these problems new methods of transferring commercial family farms between generations and financing their capital requirements are badly needed. The basic needs are to achieve continuity in effective operation ais farms transfer between generations and to remove the need for the farmer to acquire $100,000 to $200,000 equity in his business in order to be a successful farmer. Part of this problem may be handled through family partnerships. The farmer may be in a partnership most of his farming lif&-the first half with his' father and the second half with his son. Financing (or credit) based on repayment capacity rather than equity is a must. Farmers' Home Administration have pioneered in this kind of low equity financing but are not yet equipped and authorized to fully meet our probable future needs. The idea that the com- mercial family farmer never acquires debt free ownership of all his resources is equally essential. This need for "permanent debt" could be met by partially unamortized loans-and this could be probably achieved through existing com- mercial channels. Incorporation of the family farm can in some caSes meet these financing problems but ultimately only if all family members are satisfied to leave at least a substantial part of their equity in the farm on a long basis. These problems of financing the commercial family farm on a suitable basis seem to be at least as significant to the economic viability of the family farm as any possible competitive economies of size `to be achieved by the very large essentially non farm corporation organization. The possible sources of further economy for the large corporate organiza- tion arise largely from the new dimension of size involved. With very large volume, they could likely bargain more effectively in buying inputs and selling product. They would be adequately financed and on a continuing basis. There may also be some economy In the more intensive use of capital inputs. One recent corporate agricultural venture, for example, is investing in small grain pro- duction through the Central states. Operating in land blocks of 8,000 to 10,000 acres, the season will begin In Texas and move north through the milo, wheat and corn belts. Specialized equipment and trained people will move from one place to another as the season progresses. PAGENO="0229" 225 While great tax benefits are alleged for the `large corporate organization, it is significant that several large corporate organizations now looking at farming are showing budgeted net return on investment of 12-20 percent as their prime incentive. The large corporate organization would have scientific management staffs and procedures available. On the other side of the management question, they would have a major problem of production control to achieve crucial timing for suc- cessful production. It would also be difficult to offer sufficient incentive to achieve high quality of labor task performance in many aspects of farm production. In major areas of resource conservation profitable practice is consistent with conservation practices in the sense that major aspects of soil conservation are profitable within `the farm. In specific specialized enterprises (such as large livestock production for example) some control of air and water pollution may be necessary to maintain environmental quality. Many of the potential gains or economies of the large corporate organization could theoretically be achieved by the `incorporation of several neighboring com- mercial family farms or by the use of bargaining associations in buying and sell- ing. The mechanics of this activity are complicated, however, by the fact that several otherwise independent units would be involved. This form of com- bined family farm corporation may help some in obtaining adequate financing but would not likely, itself, solve all the problems of financing and continuity. If the large corporate farm organization is able to achieve significant new economies in production it will still not necessarily drive out the family farm in the immediate future. Many existing family farms now own a major portion of the capital employed. When earnings fall on such farms below a market return on all factors the family farm can still survive so long as return to owned capital, labor and management combined represent a total disposable income sufficient to meet debt payments, and service family living needs. Supplemental income~ from non-farm employment can also be used. If the very large corporate farm should be able to achieve sufficient economic advantage to become predominant in the future, it would certainly have direct impact on the family farm and on the rural community. It could put potentially great economic pressure on the family farm. It could relegate many existing family farms to "a place to ride it out to social security" or a way of life sup- ported substantially by off farm sources of income. This could greatly increase the numbers of rural people who would be unemployed or grossly underemployed. Similarly, a significant increase in farm size would cause major disruption of community services and community life in rural areas. The geographic area to be served by churches, schools, hospitals, local trading centers, etc. would be greatly enlarged. In order to maintain community services of all kinds, there would need to be a major reorganization of all rural communities that are largely agricultural. These all add up to major social costs. In viewing this whole problem, however, it is paramount that we recognize that these changes, and resulting problems of social and economic reorganization and adjustment have already appeared. The growth in size of the commercial family farm is already generating all these changes and consequences. In the past 10 years there have been many projections of farm size and organization that indicate that by 1980 or soon thereafter only 1,4_1/2 a million farms will be able to meet our nations needs for food and fibre. This indicates continualtion of this dynamic process. The real issue in this whole area of concern, it seems to me, is not primarily what to do about the possible invasion of essentially non farm corporations into farming. This is only a secondary or side issue which might accelerate what is already going on, not cause it. The basic concern, involves what to do about the undesireable social and eco- nomic consequences of the rapid adoption of technology in agriculture-even in a framework of commercial family farms. Technological developments in agricul- ture have increased productivity and released labor faster than it can be effec- tively absorbed elsewhere. This has resulted in major underemployment on farms left behind and migration to urban areas. This urban migration has in no small way contributed to urban poverty and socially unacceptable living condi- tions in some areas. It must be recognized that low income problems in both rural and urban areas are in significant part the product of our having enjoyed the economic benefits of the technological revolution (including agriculture) without having faced up PAGENO="0230" ,~ 226 to many of the resulting sodial costs. A major source of these social costs of the technological revolution is traceable to the fact that it has rendered both human and capital resources economically obsolete in a much shorter period of time than the normal working life span of both In other words the technological revo lution has dictated (in a purely economic sense) economic and social adjust ments at a far more rapid rate than could be achieved. It has dictated the re- training of people and the redirection of their employment faster than could be achieved together with a high rate of write off of economically obsolete ca~itaL In this framework, the basic questions turn primarily to: how to help the corn- mercial family farm meet `its most pressing problems arising largely out of capi- *tal and financial requirements and; how to meet the social costs of people and communities left behind by the rapid impact of technology. One `aspect `of the problems arising from capital requirements and the adequate financing and transfer of commercial family farms has been discussed briefly The income problems of smaller family farms and the social costs experiences by rural communities in rapid reorganization and redevelopment are equally important and probably more complex In the framework of economic adjust meat the first question becomes: Oan the retraining of people, development of non4arm opportunities decentralization of industry etc move rapidly enough to achieve `a smooth and orderly reorganization of the rural sector of the economy? Our past and present indications are that, while this approach is basically sound in many important ways it cannot completely close `the gap on our present problem. While basically attempting to encourage and expedite this continuing `adjustment process, we are still likely `to need significant sup- plemen'tary measures `to meet the social costa-~to lighten the hardship on `those bearing the brunt of our rapid technologcial progress. In this `sense `the possible problem of increased entry of non farm corporations into farming is not a new or different `one, but merely a possible acceleration of our existing and continuing problems. The problem helping our subsidizing `the small family farm is jus't one part of `the `broad problem meeting the social cos'ts of technological progress. `Senator NEr~soN. On page 6 you state, "The real issue in this `whole area of concern, it seems to me, `is not pri'ma:rily what to do `about the possible invasion of essentially nonf arm corporations into farming. This is `only a `secondary or `side `issue which might `accelerate what is already going on. not cause it." Assuniing `the ch'oice between a conglomerate absentee-owned cor- pora'tion controlling `the land and the production and an equally effi- cient family size commercial farm, wouldn't you see benefits `in the latter si tualtion over the former ~ Mr STANIFORTH In a matter of degree, definitely, and from my own personal choice, see quite a bit, and this is why I think I have put emphasis on providing institutions which will finance and transfer the family farm in a much more effective `way than we have in the past. The point I was making in that is that even if we have no preparations all projections are going down to' 100,000 or 200,000 family farms of that type. This itself is something which is causing tremendous social costs that we have not faced up to and we easily lose track of them when we think of the question of whether it is 50,000 or 100,000 as compared to the fact it isn't 3 or 4 million any more Senator NELSON. Thank you very much, Professor. Our next witness is Prof. Douirlas Marshall, Department of Rural Socology, University of Wisconsin Professor, we thank you for taking the time to come here today. Your statement will be printed in full in the record; you may sum- marize or elaborate on it as you wish. PAGENO="0231" 227 STATEMENT OP DOUGLAS G. MARSHALL, PROFESSOR, DEPARTMENT OP RURAL SOCIOLOGY, UNIVERSITY OF WISCONSIN, MADISON, WIS. Mr. MARSHALL. Thank you, Senator Nelson. I am going to highlight some of the points in my speech, then I have one or two comments that are parenthetical and I will indicate those. I am Douglas Marshall, professor of rural sociology, and I am repre- senting a committee of our department who has been looking at this pnthlem of the family and what's been happening to it. Rural sociologists are the poor man's social scientists. We try to get along on a shoestring and we are called in to "put out fires" in many cases, researchwise. One of the problems, Senator Nelson, is that we just do not have answers to the social implications of this contemporary change going on, namely, the movement to corporate farming, par- ticularly here in the Midwest, this is a new phenomenon. Suddenly, as you well know, we became very interested in rural urban movement and particularly the movement to urban ghettoes and the problems there- with. I want to remind you these are related, in other words, the problems of the family farm, are related to the problems of `the urban ghettoes. Many of these people in urban areas originally were rural people, so in many cases we have transferred rural poverty to urban poverty. Many people forget that many of our population who are labeled low-income are still rural, in fact, the majority are, and this is often forgotten. I do not come here to advocate that we continue to transfer the prob- lems of rural low-income to urban low-income. I think these are related. Now, lately, and this is parenthetic because so much has hap- pen'ed, as you well know, in the last few weeks, there have been con- gressional committees looking at the movement to urban areas and now the movement back out. We are trying, very frankly, to get them to move back out into at least small cities and even rural areas. This will have an impact on the family farm. For example, in many areas now we have forgotten that we have a rural nonf arm population that is growing very rapidly. Your next door neighbor is probably a part-time farmer but who still is a family person. Some of our studies have indicated they get along very well in the community. In other words, if we are to have healthy rural com- munities we can't just depend on the farm population, but we also have to look at the rural nonfarm population that is growing very rapidly in many areas, especially within 50 miles of large cities. Coming back to the highlights of my speech, as I indicated, we do not have really many answers. The last really detailed study that I am embarrassed to mention was by Walter Goldsmith of Corporate Farm- ing in California. This has been one of the classics that was published, as you know, in the Congressional Record, and he indicated that when you move to corporate farming you move to' many problems. You lose your schools, you lose your churches, you have high delinquency, all of the ensuing problems that we do not want. Somebody asked me when they heard I was going to testify if I was coming up to save the family farm. Well, very frankly, I am. I think PAGENO="0232" 228 we have a right to save the family farm just as we have a right to save the church, the school, and the family. We have certain values in America that we think are important and social scientists try to some- times ignore them. We have to accept these factors. If you were to take a poll of my colleagues, and my colleagues from North Dakota indicated this, I think you would find a lot of people want us to have families living on land in America. In fact, Senator Nelson, I think we are spending millions of dollars overseas trying to get the land back into the hands of family, yet here we sit idly by and let "Nero fiddle while Rome burns." It is time we took a hard look. I am in favor of doing something to help the family farm, rather than hinder, by putting roadblocks in the way of corporate farming. I think it is better to do something about the family farm to prevent this growth that we have been talking about. We need some research, we need it now, not next year, we need it tomorrow. We don't really know what the social impact is of this change that is going on. We can talk all we want today but I am embarrassed, we have very few answers. I appeared before Senator Harris' committee in Oklahoma on the' impact of rural migration and what it meant. I defined two citations, researchwise, that is all I could define. It is very embarrassing. We do not have the answers. I encourage you to see that we get some answers to some of this. It is a contemporary phenomenon which has taken place almost within the last few years here in the Midwest and cer- tainly in Wisconsin. Well, what can we look forward to, let's do a little conjecturing. Perhaps the most important thing is there would be a partial decen-~ tralization of previously urban industry to rural areas. We anticipate, because it is already happening to some extent, because there has been a discussion in Washington about encouraging this growth. Also, pub- lic distrust of unsettled conditions in the cities may encourage people to avoid or leave urban areas. This is a point I made earlier. Besides these factors, it should be remembered that deliberate policy decisions may change many of the `links in the chain of events we now expect. In other words, it is a doomsday kind of thing. We can control our own destiny. I can say we are going to have a decline of population in Lake County, it is going to go down 20 percent in 10 years. So peo- ple look at my prediction and I am a doomsday prophet, just as I am in this business, and I say, "Well, there aren't going to be any people." Someone in Milwaukee says that is the place to go, Marshall says no- body is going to be there, so let's go to Lake County. It upsets all my predictions. Social scientists are in a real dilemma. We can set certain conditions, you change those conditions `and assumptions and everything goes astray. What are the chain effects, in other words, of some of these things that might happen? In general, we can assume that economic condi- tions in the country and perhaps social conditions in the city will determine the distribution of composition of the farm and nonfarm population. Changes in values and behavior of rural residents will be the outcome of this chain of results. And I still think, very frankly, that the rural people are going to have something to say about these changes, and it will be a sorry state of affairs if we don't. PAGENO="0233" 22~ There is a tendency now to somehow reverse this, somehow to slow it down. One of the ways to slow it down is to make sure people stay in the rural areas, but they are not going to stay there unless they are given something to stay there for. I can't help but feel as I sat in the back and was worrying, as some of you were, about corporate farming. After all, you don't have to sell, if somebody gives you an effective reason for staying you wouldn't sell your land to these companies and that is what we really need, an effective means of having the farmer stay there. If we anticipate the nonfarm population growth, many small towns and cities will increase, not decrease. We will have an increase in the small towns and cities in America, and I look for this really to happen because these large complexes have just gotten too large with their mass problems. The open country will continue to lose population probably to the small town around it; that is, at least if it is a long distance from a city. However, if it is near a city of, say, 25,000 to 50,000, it might even gain population because of the rural nonfarm population coming back in the open country. Incidentally, in Wisconsin about 35 percent of the farm operators work off the farm a hundred days or more. So let's not assume that everyb'ody just stays on the farm and does nothing else. Farmers are the greatest "moonlighters" in the world; they do other things. They don't just farm. Their wives work off the farm, too. The husband works off the farm. He is doing everything; he is a carpenter, working in Oeneral Motors, American Motors, et cetera. We have this trend, we have this trend towards multiple occupational outlets, which are very important. I am not against it. This is one way to see they stay in open country. Give them opportunities. They have had to do it economically and socially. The effects on the farm population will `be felt more strongly on the moderately to the fairly productive farms. I don't look for much change. We will take the two ends *that is the very efficient farmer is going to stay put; he will be able to make it. The other end is a subsistence farmer; he will probably stay because he can't get out. He needs help, however, to give him opportunities economically to get him up the agricultural ladder. What are the `political implications? There is a strong tendency toward local political apathy on the part of the new farm population. For example, if they are not farm owners they don't take an interest in the community. Goldsmith found this out. This is one of the prob'- lems we are faced with. They don't care what hapnens to the church and school and family and so on. They have very little interest in it. They have primarily profit motives. With a small population to contend with, many of them employed by the farm companies, there will be little need to assume fiscal and ot~her responsibilities for local areas. Local politicians might be influenced by this. They will get to the point where they don't care about the family farm or farmer out there. They are more influenced by the large operator. Thus the pros- pects are for a decline in the viability of local democracy. I am sure you remember, Senator Nelson, that .J. H. Kol'b once said when we lose our viability at the local level, then democracy fails and tyranny will ensue. We are not going to have what we call local democracy if we keep disappearing as a group. PAGENO="0234" 230 We can't all live in Chicago, New York, Milwaukee, Minneapolis. Right now 50 percent of the population of Wisconsin lives in 5 per- cent of the land, the seven southeast counties What is it going to be like in 20 years ~ A lot worse Just a large congestion of urban popula- tion. Institutional training. There we are going to find changes. There we are going to find good education will be a real premium. This will be' affected very adversely if we have this trend away from farms. Edu- cation will be influenced `by it. With migration of many previous fam- ily farm people, the extended family characteristic of some rural areas will be further weakened. In other words, the extended family, mean- ing its family with all its relatives, will be weakened. You will have a family that has no ties to the land, that have no relationship to somebody else down the road, and this has been very important in American agriculture The school, as I indicated, will be very critical I look for this to be our most critical thing, that plus the political situation that can happen at a local level Finally, quite apart from the tax question, the rural class tends to become even more sharp. In other words, we are liable to get more of a class system in rural America. This will be sharply differentiated The farmers probably will move down economically and socially, then you will get an elite class coming in and you will get caste and class developing. What are the individual values and behaviors we can expect? We' will treat only a few of these, but most of them are undesirable in terms of values. The cost of a family farm threatens to break up the father and son transfer as the backbone of the agriculture ladder. The' spread of company farms may `actually increase the likelihood that capable farm-reared boys might be able to find a place in farming, not as owners but as managers and so on in agriculture. On the other hand, a decline in public protection services, especially if it also occurs in the towns, will surely bring an increase in crime. Goldsmith found this true in his study. Similarly, the kind and quality of education would have serious consequence. The national labor market continues to have personnel shortages at the top and surpluses at the bottom. All we would continue to do would be to increase the blue collar and uneducated class. And we already put the farm boy and girl at a disadvantage when he moves into the city. What are my conclusions? At this point we would remind you we are presenting what really are educated guesses. Little evidence is available. We hope that the appropriate agencies will make it possi- ble to obtain more solid data. Though we have not discussed the prob- lem, we think the subcommittee may wish to inquire into the possible' consequences of preventing widespread development of farming com- panies. With this it might seem we are trying to block this develop- ment. That is not true. I prefer to think let's strengthen the family farm rather than try to block the corporate farm. Then I am, not con- cerned, as I said, after all, if the family farm is strengthened economi- cally and socially, then they will not sell and they will `not move to the urban areas I don't think legislation is always the answer Let's PAGENO="0235" 231 legislate the family farm into existence. Let us make it clear I have no vested interest. I have none whatever. I have looked at this problem for 25 years. I have no vested interest in a family farm, other than the indication I have a role to play in America, both rural and urban. They are tied together, they are not separated. They go together. What hap- pens in one influences what happens in another. What we have tried to do is present some of the consequences of a large increase in the one at the expense of another. A chain of difficult problems always ensues when a big change occurs. We, no doubt, have the ability as American people to curb this change, prevent it. We don't have to let it happen. Why should we spend millions and mil- lions? Let's do something about it. We sit idly by on our hands. Let's find some answers, some facts, let's get some research and do something about it. I am all for it, Senator Nelson, I think we can do something rather than sit idly by. Thank you very much. Senator NELSON. Thank you very much for a very thoughtful state- ment. (The complete prepared statement si~bmitted by Mr. Marshall fol- lows:) STATEMENT OF DOUGLAS 0. MARSHALL, PROFESSOR, DEPARTMENT OF RURAL SOCIOLOGY, UNIVERSITY OF WISCONSIN Gentlemen, I'm Douglas 0. `Marshall, a Professor of Rural Sociology and Sociology at the University of Wisconsin (Madison). I am here as the spokesman for an ad hoc committee of the Department of Rural Sociology, the other mem- bers of `which are Professors W. K. Warner, Archibald 0. Hailer and `Research Assistants Richard Rodefeld and Kurt Parkum. Our remarks are addressed to the question of social consequences of a major shift of American agriculture away from `the small-scale operations known as the "family farm" to large-scale operations involving thousands of acres, including single ownership and full-time operation of many farm units. THE LACK OF DATA `The rapid emergence of large-scale ("corporate") farming is a new develop- ment in the Midwest. Firm `data on the long-term social consequences of such new economic forms can be obtained only by careful research on relatively contem- porary cases. So far as we can determine there ippear to be very little such data aVailable. The issue may be with u's for some time to come. We recommend that appropriate research begin as soon as possible so that policy decisions may bO made in the light of the facts rather than upon guess'work. THE NEED FOR ANTICIPATING THE FUTURE Nonetheless, we are aware that policy makers may need to act on the basis of incomplete information. Hence, recognizing that our comments are based upon incomplete data, we offer several suggestions as to what may happen if and as Midwestern agriculture is taken over by large-scale organizations. A. The Changing Uontewt Obviously, the consequences of such a development will differ according to the shape of other trends in the society. Perhaps the most important (assuming a gen- erally healthy economy) will be the partial decentralization of previously urban industry to the rural areas. We anticipate this because it is already happening to some extent and because there has been discussion in Washington about en- couraging its growth. Also, public distrust of unsettled conditions in the cities may encourage people to avoid or leave urban areas. Besides these factors, it should be remembered that deliberate policy decisions may change any of the links in the chain of events we expect. Indeed, it may be necessary to pass new state and/or national laws to protect key local institutions. PAGENO="0236" 232 These forces will to some extent counterbalance the possible effects noted below. B. A PossibZc General Chain of Effects In general we assume that economic conditions in the country, and perhaps SO- cial conditions in the cities, will determine the distribution and composition of the farm and rural noiifarm population. In turn, these factors may well influence local politics and taxation. These factors may he reflected in changes Ia rural institutions. Changes in values and behaviors of rural residents would be au out- come of this chain of events. C. Details of the General Cha4n (1) Demographic changcs.-If large-scale farming replaces the family farm, there will probably be a decline in the farm population due to replacement of human labor by more efficient economic means and a tendency for the rural non- farm population (not near cities) to decline both because farmin,g companies can buy and sell more cheaply elsewhere and because of the effects on commerce due to the decline in farm population. If. as we anticipate, the nonfarm industrial population growes many small towns and cities may well increase in population more than off-setting the de- cline caused by the fall of local farm-related business. But the open country would continue to lose population beyond cities. The net effect would be to con- centrate the rural population in towns and cities, leaving the open country less populated than it is now, except near cities. If rural industry does not increase, there ~vil1 be a sharp net decrease in farm and rural nonfarm (small town and city) populations. The effects on the farm population will be felt most strongly on moderately to fairly productive farms. Families on large, extremely efficient farms and on sub- sistence farms might well survive. The characteristics of farm population will change. Companies may use centralized personnel offices to hire farm managers and key workers. It is our guess that they will demand better educated and more effective .prsonnel than may be the case for today's average farmer. It is quite possible that ethnic enclaves of farm people will be broken up as farms are purchased and outside personnel are hired. There will be far less use of family labor because all personnel will be paid salaries or wages. (2) Polittcal and taoiation changcs.-There could be strong tendencies toward local political apathy on the part of new farm population. Resident farm owners have a sense of responsibility to hold offices and to participate in financing pub- lic services. The new farm employees may not see that they have much of a stake in local political participation. Moreover they will be few in number and are likely to he pressured by companies that employ them. Local political participation of the farm population may very likely decrease. With only a small population to contend with, many of whom are employed by them, the farming companies will see little need to assume fiscal and other responsibilities for the local areas. This will be especially pronounced if non- farm population does not increase. If it does, the townspeople might succeed in getting the companies to carry their share of the taxes. But even then, local politicians could be influenced by the farming companies. Thus the prospects are for a decline In the viability of local democracy, especially in the open country, and for a decline in the tax support for public services. (3) Institntional changes.-If they occur, declines in the tax bases will make it more difficult to provide good education, police protection and other locally- controlled public services. If the towns industrialize, they may not feel these effects. But the open country residents will be especially vulnerable. With the out migration of many previous family-farm people, the extended family characteristics of some rural areas will be further weakened. If the farming companies choose to replace local people with outside personnel, this will put even greater strains on the local extended families. The local churches, especially those few that remain in small hamlets and in the open country, might close up. There will be fewer farm families to support them. Besides, many of these are tied to ethnic groups and extended families. Out-migrating members of the old ethnic groups of families may well be replaced with personnel with other (or perhaps no) ethnic ties, and who will not be PAGENO="0237" 23~3 members of the local family groups. Churches depending on such groups are more apt to fail. The school situation will be especially critical. As we have seen, the rural tax base may suffer. Without rural industrialization this would impair education in town and country alike. With industrialization, the towns may not be hurt. But `the open country residents are very likely to have trouble obtaining a good education unless ways are found to encourage the farming companies to provide their share of the tax support. Moreover, chances are that the new farm personnel will be better educated than their predecessors and perhaps even more concerned that their children obtain good education. Good educational facilities may be more highly desired yet harder to obtain. Finally, quite apart from the tax questions, rural class lines may tend to be- come sharper. It may be necessary for farming companies to hire non-managerial workers. Clearly, we shall then pass through a stage of unrest until farm unions or related organizations are well established. Indeed, such organizations may be necessary not only to provide direct benefits to employees but also to help en- courage the companies to bear their share of the tax burden. Obviously this would produce a new source of tension. (4) Individual va'ues and behaviors.-We shall treat only a few of these here. Not all possibilities are necessarily undesirable. The cost of family farms threatens to break up the old father-to-son farm trans- fers that were the backbone of the agricultural ladder. The spread of company farms may actually increase the likelihood that capable farm-reared boys might be able to find places in farming-not as owners but as managers. On the other hand, a decline in public protection services, especially if it also occurred in the `towns, would surely bring an increase in crime and delinquency. Similarly, a decline in the quality of education would have serious con- sequences. The national labor market continues to have personnel shortages at the top and surpluses at the bottom. A widespread lowering of the quality of education would add to the ranks of the marginally employable and would tend to aggravate class tensions. CONCLUSION At this point we wish to remind you that we are presenting our best guesses. Little evidence is available. We hope that the appropriate agencies will make it possible to obtain more solid data. Though we h'ave not discussed the problem, we think the Subcommittee may wish to inquire into the possible consequence's of preventing widespread develop- ment `of farming companies. Would this have the same kind of effects as would have occurred if we had blocked the development of the factory system a century or so ago? Let us `make it clear that we do not have any vested interest either In maintain- ing the "family farm" or promoting large farming companies. What we have tried to do is to present some of the consequences of ~ large increase in the one at the expense of the other. A chain of difficult problems always ensues when a big change occurs. But we have no doubt of the ability of the American people either to prevent the change if that is deemed appropriate, or, if change is preferable, to overcome the problems lit brings. Senator NELSON. I think there may be reasons for not only strength- ening the family farm but there may be sound reasons for prohibiting the growth of large conglomerate absentee ownersihip in control of the land. Now, you referred to the growth in rural areas. I don't `think there is any question but what there are going to be tens of millions of people in the next half `century who are going to move into the small towns that are already here. You are going to see a restoration in the growth and development of small towns and you are going to see new cities. You have already mentioned several reasons. Another is the good, sound, economic reason in th'at now for the first time in history you can have an industrial plant in a small town, a rural county where I come from, Polk or St. Croix or on up around Rice Lake, and you can get the PAGENO="0238" .23~4 product to the market by truck, or by air. People can get to the factory from many miles around. If large corporations control a significant portion of the land in rural America and the country's future development occurs here very rapidly in the next 20, 30, or 40 years, then they could well control `the development and growth of America. Mr MARSHALL I am not saying we shouldn't legislate I am saying let's first try my formula. Let's try to help family farm. Incidentally, I should mention the study we did in central Wiscon- sin of a community where an industry, a fairly large industry, is located and they were deciding whether to stay or move to a large city, and we did a study and indicated they had labor available in the area, so they decided to `stay and are going to triple their size. Now, it is interesting that they don't care because markets are no problem to them, transportation no problem, that is no longer a problem. We can build a city anywhere, as you indicated; we don't need the harbor we had to have a hundred years ago. We can put a city anywhere. We have transportation. They are going to stay put. But very interesting is the labor force they now employ in two large factories in that com- munity in central Wisconsin; one-third of them are farmers who com- mute and run their farms. Now, you see, my point is today let's not ignore that. That, to me, is the sense of a family farm. The wife might be running things, or son in law, or somebody, but at least it is a family farm with the operator also working off the farm, and this is the kind of trend we are having. One-third, in other words, of all the people employed in these two factories came from 20 miles around, from rural areas, and this is why the company is going to stay there. They are going to stay there because they have a labor force, and they have a reliable labor force. That is the way they put it-people we can depend on. We just finished the study 6 months ago. Senator NELSON. The other point I wanted to raise is, there are any number of implications, as you indicated in your very fine presenta- tion. But what about the resource itself? I think with only 10 percent of all land in the world arable, and the population doubling from 3 to 6 billion people in a relatively short period of time, you have got to treat the soil as a national resource. The soil is not something that an owner is entitled to destroy, and our farmers under a long pro- gram of education have developed an understanding of how to man- age their soil. They are attached to it. What happens when you get a large conglomerate working the soil? Two years ago I conducted hearings for another committee on the Central California Valley project. As a matter of fact, the National Rural Catholic Life testified at these hearings, Father Braig. There were corporations, railroads in Central Valley, Calif., with holdings of 50,000 and 100,000 acres. They started irrigating and punched down from 50 feet to 300 feet When they hit 300 feet, they hit the Cochrane clay which was 300 feet thick. They punched through the Cochrane clay and are now down to 1,200 feet, where they are now drawing brackish water. They have now come to the Congress and Congress has passed a $500 million reclamation project, part of which is to re- store the water table PAGENO="0239" 235 Why should the taxpayers of the United States be paying $500 million to help restore th~ water table for a great corporation that didn't have the intelligence to manage that water and not reduce it so far? It is a wasteful use of that water resource which doesn't belong to that corporation because that water table is a vast water table for hundreds of miles. So when you get into this kind of `thing, I think you have got to have some regulations on the use of that underground water. It is a national resource, not a resource of one individual power- ful corporation which then can have itself saved `by the taxpayers of America diverting the Sacramento River at a cost of a half billion dollars to help restore the water table. Mr. MARSHALL. My point, as I said, if we would have done some- thing earlier, if we would have done something early, `those people would not have sold this land in many cases to these corporations. We are just about 20 years late but at least let's do something now, let's not wait another 20 years or we will have corporate farming. Let's help them now, the individual farm. Give it all the help we can in order that it can combat the change and will not be enticed to give up, sell and go to the city and so on. This is my point. Let's stop this movement to the large city `at least of our more capable young people. 0. E. Baker, a former Wisconsinite, said the country sends to the city food, fiber, and children, three things, and they send `the best, the best products of all three. This is unfortunate that we educate them and then they leave never to return. I have often said this many `times, when they come back to retire they `already spent all their money in the city and come back to retire in the small community and even on the farm. I am no't saying we shouldn't have legislation necessarily, we need it to protect our resource, there we probably need `legislation. It is already too late in some areas. Senator NELSON. I want to thank you very much, Professor Marshall, for your contribution. Our next witness is Rev. Father Joseph Braig, representing the National `Catholic Rural Life `Conference of Madison, Wis. Father, we appreciate your coming here this morning. Do you have :a prepared statement? Reverend BEAm. I have a very brief prepared statement. Senator NELSON. Please proceed. STATEMENT OF REV. JOSEPH U. BRAIG, NATIONAL CATHOLIC RURAL LIFE CONFERENCE, MADISON, WIS. Reverend BEAm. I would like, in the first place, nationally to thank the Senator for the privilege of appearing here, also to thank my friend Dr. Marshall for his generous offer to accompany him. I must insist, though, however, that if he continues with his work of preach- rng that it is quite `all right, but I will go home and take his place with his wife, Lillian. I am also happy to be here in the courtroom, a courtroom that I can leave with the same number of driving points that I walked in to. And if I don't strike oil very, very briefly I will quit boring. My interest here is based on an interest in human values, human PAGENO="0240" 23~ concerns, and then nationally the concerns of a community, because a community is composed of human beings. This nationally means the concerns of the institutions with the organization of a community, a rural community, its schools, its churches, its business establishments, its service institutions, such as medical institutions and its other less formal organizations, particularly voluntary organizations, those little clubs and associations that do so much to maintain the social economic pattern of our land. Ours is a country of people, not actually of beggars, and so we must be concerned about human values and human concerns, and we must, therefore, take a key interest in preserving human values, human con- cerns, and this means preserving the welfare of families. And so I should like to offer briefly testimony in the form of some observations and projections regarding the geographic mobility of farm families from rural areas to urban areas, particularly such mobility as might be occasioned by the rural family selling out its holdings to large corporate ownership. These observations will be colored with value judgments regarding the badness of such a mobility, not from the standpoint of primarily religion or religious denomination, but from the framework of whether it is beneficial or detrimental for the continued existence of a farm family or of a farm community that its acreage be bought up by some larger conglomerate corporation. We have heard previous testimony and figures are available about the decreasing number of farmsteads and increasing examples of big business farms which an urban age create that very briefly out of the previously 6 to 8 million farm sites in the United States we will be maintaining only a million of these farmsteads. Surely this mobility of people cannot all be attributed to corporate interests purchasing their acreage, yet quite a bit of it is so, and at least if something might be done to retard this corporate farming, this geographic mobility of rural people to urban areas would also be retarded. I should like to make some comments on the philosophy of the family that has so located from a rural area to an urban area. That family usually was rural oriented. It believed in the rural way of life, be- lieved in it almost like one believes in a religion, like one believes in a political party. The rural family contributes this type of philosophy to our Nation that rural life is a good life, not simply because it is not urban, but because in a rural area a family can enjoy an ease and productivity of freedom and an opportunity to expand its powers and its talents that perhaps might not be achieved in an urban area. And, further, even though many rural families may not deserve to be preserved because they do not operate at an optimum efficiency, still they contribute something to the philosophy of sound family living, sound communal living, and this is considered by most autbori. ties as a wholesome philosophy for our land. It is the contention of various social economic theorists as well a4s re- ligious authorities that the smaller communities, their organizations and their institutions play an important part in the solution of the plight of larger urban areas. Why ~ Because many authorities believe that unless the civil, the religious, the educational, the economic and PAGENO="0241" 23'7 political functioning of the rural community is substantially main- tained the resultant pressure and burden on urban centers will present a social economic problem of the greatest magnitude. The current problems of our urban areas, even in general ruralwise, are of a political, economic, educational, sociological depth, and of a severity that is staggering and these problems can only be aggravated by the influx of ever-increasing numbers of rural-oriented migrants. And so the type of person who would be leaving his rural homestead is not the type of person that will readily adapt to urban surroundings and he will very readily need further aid from the urban area; rather than being a productive force for the urban area he will be a detriment to it. And so measures could well be taken in the form of, for example, antitrust action where applicable, by reappraisal of soil bank crop base allotments, by adjusting income and corporation taxes, such measures could be taken to prevent or at least retard in some measure vested in- terests from purchasing large farm acreages. Also, a negative tax could be somehow inaugurated so that by a screening process deserving rural families might receive tax credits, for example, for adopting advanced farming techniques, and also some type of tax action program might be inaugurated that would increase the corporate taxes per acre over, for example, a calculated base, and this would discourage large landholdings often used to write off losses on the part of large corporations, and, as was mentioned, a realistic tax relief, negative tax actio'n could be inaugurated as a reward for adopting more efficient farming measures for `things like conservation practices and for certain qualified family farm operations. And so it is quite important that we consider the human values of the family on the land. It is a question of rural families maintaining a secure identity rather than becoming human flotsam and jctsam. Such floating nonentities are known to be the source of urban problems. So, finally, I would suggest that by adequate, fair, constitutional legislation, using realistically applicable screening processes, qualified farm homesteads might be and perhaps ought to be maintained in a family setting of farm ownership. We have perhaps become acquainted with `the work `of fiction "Brave New World." Is it the future of America that in some not too distant day a big brother, some auto- mated human characterized by mass media, by mass production, by corporate hierarchy will contribute even'tually to the fall of America, or can we take steps even now to preserve the rural communities, the rural institutions, the rural family which have contributed too heartily to the philosophy of `this land of the free and the vigorous. Thank you, Senator. Senator NELSON. Thank you very much, Father, we appreciate your thoughtful statement. We appreciate your taking the time to come here and testify. Our next witness is Prof. Philip M. Raup, department of agricul- tural economics, University of Minnesota, St. Paul. Professor Raup. Your statement will be presented in full in the record and you may present it any way you wish. 95-253-68------16 PAGENO="0242" 238 STATEMENT OP DR. PHILIP M. RAUP, PROPESSO'R~,' DEPARTMENT OP AGRICULTURAL ECONOMICS, UNIVERSITY OP MINNESOTA, ST PAUL, MINN Dr RAUP Thank you Mr Senator I do not propose to read the statement but I do propose to make some comments based on it. May I first report some of the factual information that we have available from Minnesota? I serve in the department of agricultural economics at .the University of Minnesota. We are presently conduct- ing a survey of corporation farms in the State. This is a repetition in 1968 of the study that we made 10 years ago in 1958. Senator NELSON. May I interrupt a moment? What kind of a study is this? Dr. RAUP. An identification of the corporation farms, their location, and as much as we can find out about their corporate structure, their capital structure, and the nature of their business operations. Senator NELSON. Do you also study the effect of corporate farming upon the business community or the towns where they are located, any kind of a study like that? Dr. RAUP. We have not made this the principal focus of the study, but we, of course, yield information from the study that is relevant to the question of the impact of the corporation structure on the rural community. Senator NELSON. Did I understand you to say that another study was made, of this kind was made in Minnesota 10 years ago? Dr. RAUP. Yes, sir; we made a study in 1958 and now we are re- peating it. Senator NELSON. I assume you are comparing some statistics with the study made 10 years ago to the study you are now making? Dr. RAUP. Yes, sir. Senator NELSON. Please proceed. Dr. RArrE. We found in 1958 approximately 90 farm corporations in Minnesota. We find today about 340. There has definitely been an increase and the rate of increase has accelerated in the last 3 or 4 years One fourth of all of these 340 corporations that we now can identify have been formeU or appear on the record since 1965. Senator NELSON. One-fourth of them? Dr. RAUP. `One-fourth in three and a half years, so the rate has accelerated. There has also been a major `change in the operation of the land market in the State. Ten years ago, in 1958, half of all of the farm sales made during that year were to operating farmers, to mdi viduals who bought the farm `for their own individual operation and who owned no other land. At that time one-third, 33 percent, were purchased by farmers who already owned land and who were buying to expand their operations; 17 percent by investors. This past year, 10 years later, we find that the operating farmers who are individuals wanting to buy a single farm for operation as a unit were only 32 percent instead of 50 percent, and that the expansion buyers are 57 percent of all purchases instead of the 33 percent they were 10 years ago. Investor buyers fluctuate between 11 and 17 percent, and this has been a rather stable figure over 10 years. PAGENO="0243" ` 239 In short, most of the land sales in the State today are to expand existing farms The proportion of the sales going to investor buyers is stable and relatively constant at about one in seven sales, or say in the 12 to 14 percent range In short, there is defirntely a trend toward .a concentration of holdings. It is not only mirrored by the incorpora- tion of farms, but by the operation of the land market I think we should not be under any delusions that this trend is inevitable. I have been quite interested, Senator, in some of the testimony this morning, particularly the testimony that purports to report to you the number of farms that will be in existence, say, in 1980 or in the year :2000. I believe there is a confusion between projection and prediction, and statements of policy If I say to you that I think there will be a hundred and twenty thousand farms in Minnesota next year, that is a projection or a prediction, but if I say to you I think there will be only 100,000 farms in the United States in the year 2000, that is a statement of my policy. It is not a prediction, because there is nothing inevitable about that 100,000 figure. It depends on our policies over the next 30 years. I presume that the whole purpose of these hearings is to examine the policy steps that are involved in determining whether or not that statement of prediction, which is in fact a state ment of policy, is based on sound grounds With that in mind, I propose to raise some questions about the nature of the motives that now seem to be apparent in the incorporation of farms. In the first place, it is not at all clear that the farms now being incor- porated are in all cases incorporated for economic reasons that are in the national interest. They are economic reason.s that are sometimes in the interest of individuals, but they may not promote good economic * production measures in agriculture. One reason is that many of these incorporation activities in recent years are quite apparently motivated in part2 and sometimes primarily, because of tax policy Now, taxation is a policy measure and tax policy can be changed So if tax motives underlie this increase in farm incor poration, then we can certainly change tax policy if we decide it is in our interest `to do so I would like to elaborate on this point just a moment We make heavy use in the United States of the progressive income tax. In fact, no other developed nation makes as heavy a use of direct taxation in rais ing public revenue `as we do. And it is applied in agriculture, which is a rather recent phenomenon. In practical terms, though we have had an income tax since 1912, it was not really applied in agriculture until after the Second World War So you can say in rough terms we h'ive about 15, at most 20, years of experience in applying income tax to agri culture Prior to that time farm incomes were too low so that most farmers fell outside the tax system and reporting was very inadequate This has changed With the income rise, reporting has been improved As a consequence, any step that we take to aid agriculture through favored treatment in the income tax contains a built in bonus for big farms It is an automatic advantage to the rich, the wealthy, and the large, because it is a progressive income tax So anything you do to help farmers through the income tax, any favored treatment, any conces sion, is an automatic incentive to large units PAGENO="0244" 240 Now, I maintain that our policy has inadvertently built in an in- centive for large activities in agriculture by reason of an understand- able but misguided desire to do something for the farmers through the income tax. You can see this in several ways. The option to report on a cash or an accrual basis is a concession'al option. The option to choose your economic year in such way you can make it most advantageous from your particular business point of view is an attraction to the nonfarm investor who may choose an economic year for reporting his nonfarm `business and a different economic year, say January 31,. fiscal year, for his `farm business. By postponing the report of his farm income into the next fiscal year, he is achieving, in effect, an interest-free loan for 11 months for his taxes due for last year's ac- tivity. These and other options included in the regulations to help farmers actually `hurt them. They `are only helpful to a small fraction. We also have inadvertently aided large units in agriculture by our capital gains tax treatment. This is not peculiar to agriculture, it ap- plies to all other long-run capital gains, `but it has peculiar value in agriculture `because of the very durable nature of the land resource. You yourself pointed out here this morning how different the nature of the natural resource base in agriculture is from that in `so many other industries. This means that capital gains in agriculture are par- ticularly attractive to investors that seek maximum security, tare afraid of inflation, and would like to reduce their present level of income by' converting annual income into capital gain.. The opportunity to do this in agriculture is substantial. The classic case, of course, is the boef cattle ranch where almost all of your assets are in land and the beef breeding herd, both of which can be taxed tat capital gains tax rates. This is not of much advantage to the ordinary farmer, butt to a man of great wealth this is a very great advantage, because the maxi- mum tax rate on capital gain is 25 percent. For the income-tax payer in the 40- 50- or 60-percent bracket is not interested tin current annual income. We assume that the ordinary farmer would like to manage his farm in order to maximize current income. The very wealthy farmer is, instead, likely to manage his farm to maximize capital gain because that reduces his tax rate from his marginal rate of 50 or 60' percent to a maximum of 25 percent. That advantage, I am convinced, is one of the major attractions to nonfarm capital now investing in agri'culture, s'ome of which is incorpora~ted. In other words', `t'his lies' behind some of the `trend toward farm incorporation today. I believe that it is also fair to state that we have not adequately extended our agricultural education and advisory services to take care of modern technology. I am thinking particularly of agro-chemical technology. This is often unavailable in a practical sense to the smaller' farmer. He does not possess the knowledge or the training to use to- day's complex chemicals to the best advantage. This seems to be an attractive advantage of the large corporation. They can hire skilled managers who know how to use these complex chemicals and other' technologies. But another way to look at that is that it is also a con- demnation of the kind of extension services we have practiced in the' past. I suspect that we have not kept pace in our agricultural extension activity with our ability to create this new technology. I think we have PAGENO="0245" ~41 outrun the support we give to a~ric'ultural extension. It has been left by default to the private industries that supply this technology. In the same way that large private t~tilities were not interested in rural elec- tric consumers until `the REA had developed the market, large, private suppliers of agro-technical chemicals are not interested in small users because service and after service calls are too high. They are auto- matically interested in large bulk users. I think, therefore, that we in the agriculture colleges have to accept IL part of the responsibility for some of this trend toward large size in ~igriculture. I see a big danger arising if some of these trends continue. The one that worries me `the most is that I see evidence of the emer- gence of what I am going to call petty corporatism in parallel with petty landlordism. This has been the curse of our urban slums. I see corporations appearing in agriculture that are not large enough to be socially responsible but are large enough to ignore the wishes of Their communities. And I am afraid that we may emerge from this period of change having gotten the worst of both possible worlds, hav- ing traded effective and efficient small units of production which were not growing rapidly enough to keep pace wi'th technological change for larger corporate units of production which were not large enough and well financed enough to be socially responsible and financially flexible. I believe there is a tendency in this country to regard the introduction of new technology as a peculiar attribute of large businesses. If we think of the large corporate institutions in the United States, some of them are technically quite advanced. But I would like to remind you that this is not necessarily a characteristic of big units. We have lots of other evidence of large units that have retarded technological ad- vance, not necessarily for narrow, selfish reasons of profit, but because they commit large sums of capital to long-range investment at a high risk and they do not want to see the capital become technically obsolete. So I am not at all sure that a population of a few large farms will guarantee technological advance on the scale that we have known. The benefits of this advance go primarily to consumers. I think there is general agreement within the economics profession that the farmer has not been able to retain a very large fraction of the advantages of modern technology. Most of it is passed on to food consumers. One of the threats of a structure of large-scale farms is that we may be building in high-cost future food supplies for our consuming public. This could come about in several ways. One is through what I am calling nonfunctioning investments in advertising. We see this in many fields, in soap flakes, breakfast foods, and others, which have very large advertising budgets that serve very small economic purposes. If we have large, integrated corporate farms, I think we can see already a tendency to try to differentiate agricultural products, when, in fact, there is little difference among them. And this will be inevitable if we have corporations that try to identify their products as being peculiarly better because they come from their farms. In short, I see several ways in which consumers are likely to pay the principal cost of a trend toward corporation farming. I would like to summarize these comments, Mr. Senator, by stressing three or four points. PAGENO="0246" 24~2 ~ First, I believe that we need to adopt some policy that will retard but not necessarily stop the formation of corporation farms. Many of these are family farm corporations and many of them do serve a func- tional purpose, but not all of them. We should be selective in our' policy and not indiscriminate. Senator NELSON. I might say, professor, that these hearings have all been directed at the problem raised by the absentee conglomerate cor- porations, not the incorporated family farm or partnership of two brothers. Dr. RAUP. And I recall that you made that clear at the beginning of the hearing this morning. But I have heard testimony here and else- where that favors prohibitions against corporate farming, or penal- izing them by heavy taxes. I think the record is very clear that neither method is apt to be successful. The prohibition is apt to cost more in many ways than it is worth, and the penalizing heavy tax is almost surely unenforceable. At least this is the history of other countries that have tried it. I think we do need to reexamine our tax policy very carefully. As I have indicated, I think, taxation policy has played a major role in the present trend toward big farms and especially corporate farms in agriculture. I think we need to strengthen our extension services and to examine their functional division of labor as between the medium-size farm and the larger farms. I want to support the claim and the request that has been made' earlier this morning by others for `the disclosure of more information about farm corporation. We are very much in need of disclosure rules that will provide more data. We are virtually starved of data, and this is not necessary at all. I see no reason why we should not extend some of the public disclosure rules, that now govern corporations listed for public trading with the Securities and Exchange Commission, to un- listed private corporations deemed to be endowed with the public in- terest. I take it a farm corporation does contain a large element of public interest, sufficiently large to require and defend the inclusion of those corporations under some of the public disclosure rules that we now restrict only to publicly traded corporations. Finally, I think that we need to remember that it is not farm people that will be the principal beneficiaries of a continuation of our present structure of agriculture. Consumers will be the principal ones to pay the cost if that structure is changed. Thank you. Senator NELSON. You were saying it will be a nonfarm owner who~ will be the principal beneficiary? Dr. RATJP. I want to emphasize that the problem of corporation farm- ing is not primarily a farm problem, it is a problem. for the whole United States. It is nonfarm people, consumers, who have the biggest interest in how that problem is resolved, because `they will be the ones' that will pay the cost if we end up with a system of high-cost, inflexible,, and technologically rigid farms. Thank yOU, Mr. Senator. Senator NELSON. Thank you very much, professor, for your fine state- ment. We appreciate your taking the time to com,e here. PAGENO="0247" 243 Have you included in your prepared statement the statistics and data from your study of corporate farming in Minnesota ~ Dr. RAtIP. Yes, sir. Senator NELSON. Thank you very much. (The complete prepared statement submitted by Dr. Raup follows:) STATEMENT or Dii. PHILIP M. RAUP, PROFESSOR, DEPARTMENT OF AGRICULTURAL ECONOMICS, UNIvERSITY OF MINNESOTA SOME ISSUES RAISED BY THE EXPANSION OF CORPORATION FARMING I. Trends in Farm Corporations in Minnesota A survey conducted by the Department of Agricultural Economics at the University of Minnesota in 195S-59 disclosed a total of 103 farm corporations licensed to do business in the state, of which 90 were then active. Difficulties in obtaining the data led us to believe that there may have been some farming corporations that we failed to uncover. This study is being repeated, ten years later. Our preliminary data show an increase to approximately 340 farm corpora- tions as of July 1, 1908. One-fourth of `these were incorporated in the period from 1895 to 154, one- fourth in 1955-59, one-fourth in 1960-fIt and one.fourth in the three and one-half years since January 1, 1965. The rate of formation of incorporated farms has increased in the last few years. Of the 340 farms, 32 per cent have an authorized capital stock of under $50,000, 19 per cent fall in the $50,00G-$99,000 range, 13 per cent in the $100,000 to $149,- 000 class, and 17 per cent are over $150,000 (of which 13 per cent are over $200,000). No-par value stock accounts for the remaining 19 per cent. Slightly less than one-third of the 340 farm corporations in 1968 are clearly fathily-farm in nature. This is similar to the proportion shown in the 1958 study, which disclosed that in a'bout two-third's of the farm corporations the major stockholder was an `individual who did not engage in farming as his principal occupation. That study also disclosed that the primary reason for incorporating was to limit liability rather than to obtain additional capital. The goal of in- corporation was usually to Separate the assets of the principal stockholder's various enterprise's, rather than to raise capital by persuading others to share as investors in the enterprise with the principal stockholder, although there were instances of the latter. II. Trends in Farm Land sales to Non-Farmers Additional evidence regarding trends in farm size expansion and the impor- tance of investor `buyers is provided by the annual survey of the Minnesota Rural Real Estate Market. Data from these surveys have been assembled in Table 1, showing sales made to investor buyers, expansion buyers, and operating farmers (those who buy single farms and who own only the land they have pur- chased). In the ten years, 1958-67, there has been a marked increase in the proportion of expansion buyers, who are adding the land purchased to existing farms, and a corresponding decline in the proportion of operating farmers who buy single farms, and who own no other land. The trend in the sale of land to investor buyers has fluctuated from 10 to 17 per cent of all sales, and was 11 per cent in 1907. Operating farmers can be expansion buyers, and some expansion buyers may also be investor buyers. To determine the relative importance of the two major classes of buyers, the data for 1967 were reworked in or'der to classify all buyers as either "operating farmers" or "investors." As reported in Table 2, this in- creased the relative importance of investor buyers from 11 per cent to 14 per cent in 1967. Although still a relatively low figure, sales to investor buyers at the rate of 14 per cent of all sales in each year can bring about a major change in the land ownership pattern in the course of a relatively few years, if investors buy land, but do not sell. III. Reasons for Incorporation The relatively small percentage of land sales to investor buyers, and the very small `proportion of corporation farms as `a percentage of all farms, sli Duld PAGENO="0248" 244 not be misinterpreted. The significance of corporation farming is not measured by the relative number of `incorporated farms, but by trends in growth of this form of farm enterprise. There is no doubt that there has been a significant increase in corporation farms in recent years. A principal motive for farm incorporation by farm familiies has `been to facili- tate the transfer of land to the next generation. But there are other motives that arise out of a desire to avoid `taxes on farm income, and on capital gains. In many eases, and particularly for non-farm investors, tax considerations are 4ominant. The land owner with a large annual income generally finds it attrac- tive to convert as much of his land income as possible into business expenses, in order to convert annual income into asset values, which may ultimately be taxed at c'apital gains tax rates. This is an especially attractive opportunity to avoid taxation on current income for individuals whose annual taxable income is in the range from $50,000 to $100,000 and higher. For these individuals, annual in- `come from farming is no't necessary for living expenses, whereas investment of annual income in farm improvements can enhance the value of their assets and offer `the prospect of ultimate taxation at capital gains rates if the property is subsequently sold. Alternatively, the appreciated property can be passed on to heirs through the inheritance process without incurring any tax on c'apital gain. For the very wealthy individual, the purchase of farmland and its incorporation as a farm offers `a tax advantage `that accounts for some of the more recent interest in farm corporations. (This possibility is facilitated by the `opportunity in many farming situations to improve buildings, fencing, and water systems, and to spend heavily on soil conserving `and land improving practices. If these can be trea'ted as business expenses, annual `income can be converted into capital gain. It is not necessary to inc'orp'orate a farm in order to participate in capital gains. But for the man of wealth there are advantages in incorporating if he is interested in the speculative purchase of farm land. The primary advantage lies in the separation of his farming assets from hi's other investments, with a con- sequent opportunity to reduce his exposure to liability as `a result ~f his farming ventures. Incorporation facilitates the transfer of shares in his farming enterprise to heirs, and can be used to attract additional capital to the firm. Preliminary data suggest that a part of `the interest in farm incorporation arises from a desire to buy land as a speculative investment. State-wide, farm land values in Minnesota doubled from 1951 to 1967 (from $99 to $194 per acre). This has undoubtedly attracted `some capital investments in farm land on the part of buyers interested in capital appreciation. The more sophisticated in- vestor buyers (or owners) find incorporation a desira'ble step, for reasons sum- marized `above. PERCENT OF SALES MADE TO 3 TYPES OF BUYERS, MINNESOTA, 1958-67 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 Investor buyer Expansion buyer `Operating farmer 17 33 50 15 32 53 12 41 47 13 37 50 10 41 49 13 44 43 13 45 42 16 55 29 17 54 29 11 57 32 Note: Compiled from the Minnesota Rural Real Estate Market Surveys for 1963, 1966, and 1967. ABE "INVESTOR BUYERS" ALSO "EXPANSION BUYERS"? (Supplemental Data to Table 12, page 17. The Minnesota Rura' Real Estate Mas-ket, 1.967, Department of Agricultural Economics, University of Min- nesota, Fthruary 1968) In the following table the buyer's of land for farming purposes have been grouped into `two classes: "operating farmer", or "investor `buyer". The class of "expansion buyers" from Table 12, p. 17, of The Minnesota Rural Real Estate Market, 1697 has `been distributed `between `these two classes, on the assumption that "expansion buyers" are either operating farmers or investors. The table `also shows the magnitude of a `third class of `buyers of rural farm land, whose purchases are for non-farm purposes. These averaged 5 per cent of all purchases, in 1967, `and wore `significant only in one district, Tl~e East Central, where they accounted `for 15 per cent of the number of `sales. PAGENO="0249" 245 TYPE OF BUYER l-Operatin District Number g farmer ~ Percent Il-Investor ~ Number Percent II I-Nonfarm Number purposes Percent Total number Southeast 339 77 73 17 26 6 435 Southwest West-central 472 233 .85 84 79 34 14 12 5 10 1 4 556 217 East-central 189 70 40 15 42 15 271 Northwest 130 87 17 11 3 2 150 Northeast 43 88 3 6 3 6 49 Total, Minnesota_ 1, 406 81 246 14 89 5 1,741 Investor `buyers were 11 per cent of all buyers in 1967, if we include expansion buyers as a separate class as was done in Table 12, p. 17, of The Minnesota Rural Real Estate Market 1697. If we break down expansion buyers into "operators" and "investors" then the proportion of all sales of farm land made to investor buyers increases from 11 per cent. to 14 per cent. This table shows clearly that the overwhelming majority of buyers who are adding to existing land holdings .are operating farmers. Investor buyers typically own no other farm land at the time of their purchase. IV. Some Policy Issues Involred in Oorporation Farming Debates about the merits or evils of corporation farming are inextricably com- bined with questions about the appropriate size of farming enterprises. The pre- sumed advantage of the large farm has usually been argued in terms of relative efficiency and lower unit costs. Current concern about the accelerating trend toward corporation farming is due in large part to the fact that some of the corporations are larger than is necessary in order to achieve desirable levels of production efficiency in resource use in farming. With the exception of poultry and egg production and beef-cattle feeding in feed-deficit areas, virtually all research studies have shown that Mid-West farms large enough to provide gainful employment for two man-years of labor are large `enough to achieve most of the production economies to be gained from size of farm. In terms of production economics, the argument for larger farms in the Mid-West is not an argument for larger-than-faanily-si~e farms. Why, then, is there concern about corporation farms, `and the implied growth of a structure of super-farms in American agriculture? Primarily, for three reasons: (a) A fear that many of the incentives leading to large corporate farms do not result from greater efficiency or sup'erior management, but are the result of institutional defects, particularly in `the tax system, in the marketing structure, and in agricultural extension programs. (b) A fear that the trend toward corporation farming is an additional example of a trend toward the centralization of economic power and decision-making in a few hands and places, with a resultant loss of flexibility and diversity in our national economic life. (c) A fear that a rural social structure `dominated `by a small number of "company farms" will yield a deadening conformity and a restricted environ- ment in which to develop the full potential of the quality of rural life. There are grounds for these fears. The strongest grounds relate to the tax system. Because we make extensive use of a graduated and progressive income tax, it follows that any concessions or favored tax treatment extended to farmers inevitably results in more favored treatment for those with higher incomes. The option to report on a cash basis or an accrual basis is an example of favored treatment, as is the opportunity te charge off a part of the costs of soil conservation practices as current expense. Any attempt to help agriculture by income tax concessions contains an automatic bonus for bigness. Any leniency in the enforcement of income tax laws has significant value only for high-income farmers, has only marginal value for the typical commercial farmer, and has virtually no value at all for the statis- tical majority of farmers. Completely apart from any question of concessions to farmers, or favored tax treatment, the nature of the farm business creates certain attractions for the PAGENO="0250" 24~6 wealthy investor. To him, the primary advantage of an agricultural Investment lies in the high ratio of durable assets to total assets. Assets that can be treated as capital and taxed under capital gains tax provisions are an invitation to the man of wealth to acquire them and seek ways to convert the largest possible amount of current income into an appreciation in his asset values. The classic illustration Is the beef cattle ranch. With most of the investment in land and a breeding herd, opportunities are maximized for appreciation in capital value, and subsequent taxation at not more than 25% of the gain. This advantage is progressively attractive to anyone with more than, roughly, $25,000 in annual income. These advantages are lower on typical Mid-West farms, but still quite signif- icant. When coupled with a 80-year history of almost continuously rising land values, they explain a major part of the attraction of the corporation farm to non-farmer investors. Institutional weakness that favors the larger farm is also apparent* in the agricultural marketing structure, both for inputs, and products. Farmers them- selves are to blame for some of this weakness. They have often resisted the degree of mar~ket discipline needed to make them competitive with large farms in product quality, uniformity, and stability of supply. There is abundant evidence that small producers can compete with large firms in fields where product quality Is critical. The evidence is also clear that, to do so, the small producer must sur- render some of his sovereignty in farm management and marketing decisions to his suppliers, or to marketing or processing agencies. These may be cooperatives, or private businesses operating under contractual arrangements with the farmer. But in any case they must have power to impose production and marketing standards on their farmer members or contracting partners. If farmers are unwilling to accept this discipline, they are in a weak position to complain if the large corporation farm takes over. A related institutional defect concerns the increasingly complex nature of agricultural technology and the need for a greatly expanded agricultural exten- sion effort if this complex technology is to be made effectively available to all farmers. There has been a tremendous increase in recent years in the potentials for improved plant and animal nutrition, the control of disease, and the elimination or reduction of weeds and pests. Many of the chemicals and techniques of use involved are complex and require skills in application that are beyond the capacity of the typical farmer. Our ability to produce this technology may have outrun our ability to distribute it in a form that is widely usable at the farm level. It is at least arguable that our national investment in the research and development of this agro chemical technology has not been matched by a comparable effort in extension education aimed at the smaller~sized farms. Much of the effort at consumer education in the use of fertilizers feed addi tives, farm dhemic'als and drugs is supported by private industry. It is under- standable that suppliers will prefer to concentrate their sales effort on large- volume users The costs of user education programs or after sales service rise sharply if many small users are involved `There may be a parallel here with the early history of rural electrification. Private `utility companies could not afford (or believed they could not afford,) to extend distribution lines into remote areas to serve a few low-volume consumers. `The development of this market was delayed until public capital was used to extend electric power lines to rural users. There is some evidence that suggests that modern agricultural technology Is not equally available to all sizes and classes of potential farm users This lack of availability is not because of any lack in supply or physical distribution but results from lack `of knowledge on the part of the farmer and the unequal availability of educational and training programs to familiarize him with this new technology For agro chemical technology the agricultural colleges universi ties and extension services have left the consumer education effort largely to private industry This trend is accelerated by the possibility of trade marking patenting or otherwise controlling the distribution of chemicals and drugs In theory, `agro-chemic'al technology lends `itself to `almost infinite subdivision into small `units that can still be effective in application. This is often cited as `an example of a type of technology that need not be applied in large,' "lumpy" units But in practice it may have developed the other way around Agro ~hem.ical technology may be physically capable of subdivision into small doses, PAGENO="0251" 247 but the technleal and managerial skills needed to use these small doses effectively may be beyond the reach of the average farmer. If the advantage in using this technology seems to' lie with the large farm, it may by a measure of our inadequacy in agricultural extension rather than an example of true economies of large-scale production. This may be especially true in animal disease control. One of the determinants of the most effective size of firm in poultry production and beef4eeding is a scale ott! operations large enough to justify the employment of a resident veteri- narian. Until modern disease-control techniques are available in do-it-yourself form, advances in animal medicine seem likely to build in an accelerating im- petus toward fewer and larger farm's. Powerful commercial and professional interests are involved, In this field in particular it is far from clear that a con- certed effort is being made to develop an extension program in animal health commensurate with our present abilities to control disease. The agricultural colleges `and universities are not free from fault in this regard. There is a general fascination with bigness in the American cultural endowment. This is mirrored in the focus given to many activities, including the advancement of agriculture. There are many instances of productive interaction between agri- cultural scientists, experiment station `staffs, ext&nsion workers, and the opera- tors of the larger commercial farms. It is more difficult to find instances of `concerted efforts to perfect agricultural technology in "small packages," suited for use on the Nation's smaller farms. These smaller farms have in many cases been written off as production units, by agricultural specialists and technicians, and their operators classed as a welfare problem, not an agricultural potential. A part of the concern about the rise of corporate farming is a reflection of an inarticulate but deeply-felt fear that the case against the smaller farms has been judged prematurely. Poign- ancy is added to this fear by the fact that this judgment is often voiced most persuasively by agricultural agencies and officials whose professional task is to promote agriculture. The second fear generated by the rise of corporation farming concerns the consequences for the national economy of concentration in agricultural produc- tion. The structure of agriculture we have had to date has facilitated the trans- fer to consumers of the benefits gained from cost-reducing technology in agri- culture. It seems unlikely that this transmission to consumers of the benefits of agricultural modernization will be as direct or as significant if the structure of agriculture is characterized by a small number of large producing firms. The history of large producing firms in other industries has involved the capture of a considerable portion of the rewards of technological advance for the benefit of individual firms. It is not possible at present to judge the performance of large agricultural firms by this test, since we do not have adequate statistics nor a long enough period of time in which to study `their performance record. We do know that large firms in agriculture must commit capital in large quan- tities to slow-maturing production processes. Unless the firm is large enough to control markets and practice a form of internal self-insurance against weather risks, these large capital investments will be high-risk. The understandable de- sire for risk-reduction may propel large agricultural producing firms toward a degree of rigidity that can retard technological progress, when viewed in the long run. At the moment, the rapid adoption of new technology is thought to be a characteristic of the large firm. But this may not be true if only large firms dominate the production field. It is this fear that lies behind some of the concern about the spread of corporation farming. Another concern relates to the structure of marketing and distribution sys- tems that would be associated with a structure of large corporate farms. In the past, at the farm level, agricultural products have largely remained undif- ferentiated. There have been almost no "brand names" that carried back to the producing farms. With large corporations in the farming business, this is almost sure to change. We can already see the development of large-scale expenditure on advertising campaigns designed to create the illusion of differentiated pro- ducts produced from large farms. These products in fact may be little different from the same class of products produced on other farms. Heavy expenditure on advertising to create the illusion of differentiation is a pronounced character- istic in breakfast foods, soap, detergents, and other fields. If the trend toward bigness in agriculture is accompanied by increasingly PAGENO="0252" 248 heavy expenditures on non-functional advertising, it will be the consumer whorn pays. In this sense, it is not only farmers, but also consumers who have a direct interest in the trend toward corporation farming. The emergence of a few large farms or producing firms, highly specialized in a given product, reduces the effectiveness of our present methods of collecting and reporting agricultural statistics, In the past, a population of many small farms has made it reasonable to assume that no one of the reporters on whom we rely for crop and livestock reporting would have an interest in falsifying his report in order to affect the statistical outcome. With large and specialized producing firms, this motivational structure changes. In chicken eggs and broilers, at the moment, we are approaching a point at which conventional methods of collecting and reporting agricultural statistics are becoming inadequate. There is reason to fear the deterioration of statistical data on agriculture with growth in the size of agricultural producing firms. For many people, the least tangible, but most worrisome aspect of a trend toward corporation farming lies in the field of social policy. Absentee ownership has traditionally been associated with a lack of attention to the amenities of life in rural areas and with an inadequate rural social infrastructure. Schools have often been poorer in areas characterized by a high proportion of absentee-owned land. The local tax base is impaired if a significant part of the income earned in the community is spent outside the community. Public recreational facilities ~iuffer, community centers are poorly equipped or lacking, and in other dimensions the quality of rural life has been lower in high-tenancy areas than in rural areas characterized by a predominance of owner-operators. This conventional wisdom has a basis in fact, as can be verified by the past history of share-cropping regions of the U.S. South, and by a comparison between areas of high tenancy and areas of owner-operation in the Mid-West. But it is not clear that a rural structure dominated by corporation farms must inevitably lead to a deterioration in the social quality of the rural environment. If the corporate ownership is absentee, if profits are not reinvested in the com- munity, if management success is judged solely in terms of corporate profits, then the corporation farm does pose a social threat to the rural community. But this is not necessarily a condemnation of all types of corporation farming. If the corporation is predominantly a family affair, and its officers and stock- holders are resident in the community, there is no clear reason why this form of farm business organization should pose a social threat to rural life. The least desirable situation may be one in which farm corporations are larger than family-size and are absentee-owned, but not national in scope or scale of operation. This could lead to a type of "petty-corporatism," comparable with the petty-landlordism that has been the curse of slum-areas in urban centers. The management of a large corporation with a widely diffused number of stock- holders may not be subject to as powerful a pressure to "maximize profits" for the stockholders as can result where there is one principal stockholder or a small group of stockholders. In the evolution of corporate law, there has been a substantial change in the doctrine of corporate waste. Not many years ago contributions to charities by corporate management from corporate funds probably would have given stock- holders a basis for an action against the management, for "corporate waste." It is now accepted practice for the management of large corporations to make charitable contributions, to award scholarships, and to make other non-profit oriented uses of corporate funds without danger of stockholder suits on a cor- porate waste theory. Courts may rationalize these contributions as proper on the basis that the activity promotes good will for the corporation which, in turn, may help it sell its proilucts thus bringing in greater profit. But this line of rea- soning does not seem persuasive. The more persuaSive reasoning is that the cor- porate citizen has an obligation to the community and society in which it func- tions, as well as to its shareholders, and that it cannot be held a violation of cor- porate law when it seeks to fulfill that obligation- The management of small or medium-size corporations, more subject to the shims of profit-minded absentee stockholders, may not seek to fulfill these com- munity obligations. The consequences for the communities involved if Green Giant and Crystal Sugar own and operate their own farms may be less un- desirable than the appearance of ABC Farms, Inc., owned by A from Missouri and B and 0 from New York, but operated by a resident manager. It is quite possible to have farming corporations that are too small as well as to have individually-owned farms that are too small. It will be a tragic error PAGENO="0253" 249 if we exchange a structure of family farms, thought to be too small by economic tests, fOr a structure of corporate farms that prove to be too small by social tests. We can have the worst of both worlds if we emerge from this period of change with a structure of medium-sized corporate farms, financially weak and socially irresponsible. Some of the recent growth in corporate farming points in this direction. V. Policy Implications for the Control of Corporation Farming Those who promote the conservation and preservation of wild life have an exceedingly strong argument in the irreversibility of the steps being taken. Once the Golden Eagle has been rendered extinct, they point out, man cannot recreate it. Man needs to be certain that its extinctior~ is what be wants before he assists that process or does nothing to reverse it. So, too, with reference to the process of farm incorporation. There can be a point of no return. Theoretically, we could dissolve General Motors, Dupont, or Standard Oil, should we want to get rid of the corporate form and attendant bigness in industry. But practically speaking, could it be done? If farm incorporation takes place on too vast a scale before we have thoroughly studied whether or not incorporation will be in the best interests of the nation, we are heading toward an irreversible step. The types of corporation farms that cause the most concern are those that owe their existence in part to the prospect of low taxes on capital gains. Our present tax policy results in a form of graduated and progressive subsidy to wealthy non-farm investors. One of the steps most clearly indicated is to examine the laws and regulations under which we tax assets and income in farming. There is nothing sacred about the 25% ceiling on the tax on long-term capital gains. As it now stands, this relatively low ceiling is an open invitation to speculation in land. It is difficult to avoid the conclusion that much of the recent interest in farm investments by non-farm investors would fall away if the cap- ital gains tax ceiling were raised, say, to 40 or 50 per cent. This 25 per cent limit on capital gains taxes is inconsistent with the principle of the progressive income tax and is distorting capital flows, with no clear benefit to the public interest. To permit farm incorporation to proceed without control appears to be an un- justified gamble, on the basis of our present knowledge. The evidence points to the need for a policy of cautious experimentation that will include explicit provision for retardation of processes of farm incorporation until we have had time to analyze the probable long-run consequences. The evidence also undOrlines the need for more specific requirements regarding the identification and regis- tration of corporate farming enterprises, and for the disclosure of moire data regarding their corporate structure and behavior than is now available from public recorda Articles of indorporation and (where required) annual reports to a Secretary of State are an inadequate basis for the protection of the public interest in this field. The argument is sometimes made that it is unfair to single out farm corpora- tions for special attention or regulation. The answer to this argument is that the nation's land resource base is still one of its most precious endowments'. How it is owned and controlled is less important today, with 5 per cent of our popula.. tion in agriculture than it was when 85 per cent were so employed. But the broad publid interest iii this land base had not diminished with the decline of agricultural employment. The danger today is not that we will overstress the importance of agricultural land policy, but that we will fail to safeguard the public interest in how our private lands are held. The regulation of farming corporations is of principal interest to non-farm people. Senator NELSON. We will have one more witness before noon, then we will recess for 1 hour. The first witness will be a representative of NFO, Mr. Ileeg. Our next witness is Mr. Vernon Struck, the Wisconsin Council of Agricultural Cooperatives, Madison, Wis. Mr. Struck, we are very pleased to have you appear here today. Do you have a prepared statement? Mr. Snrnox. Yes, I do, Senator. Senator NELSON. It will be printed in full in the record. You may present it in any way you desire. PAGENO="0254" 250 STATEMENT OP VERNON C. STRUCK, EXECUTIVE DIRECTOR, WIS- CONSIN COUNCIL OP AGRICULTURAL COOPERATIVES, IVIADISON, WIS Mr. STRUCK. In the interest of saving time I will attempt to sum- marize in part, but I serve as the executive director of the Wisconsin Council of Agricultural Cooperatives The council is a federation of some 60 farmer business cooperatives that are actively engaged in processing, marketing, purchases, or service operations They serve approximately 60,000 farmers by these cooperatives I would like to add my thanks to the committee for reviewing what we feel is a very important subject to not only agriculture, but to con- sumers, and we trust that the findings and recommendation of this committee will lead the way to a thorough reappraisal of our entire agriculturaJ policy Now, of course, we are well aware of the fact that there is con siderable controversy surrounding this complex topic and there is also a considerable difference of opinion as to the threat posed, real or imagined, by corporate farming Of course I contend that this very wide difference in opinion is in part what makes it more difficult to filter out the facts for meaningful appraisal I think we have had a little bit of evidence of that this morning in some of the testimony I would think that the very ex istence of the extremes in thinking on this basic problem would give rise to more penetrating research, and I think this was in evidence this morning also I would like to illustrate what I have in mind here about the range of position with respect to statements by various agricultural orga nizations and some conclusions drawn by recent scholarly studies and reports For one example let's take the Land O'Lakes Creamery, largest dairy farmer market in this country, and they adopted the following resolution at their last annual meeting. The Land O'Lakes, inci- dentally, is a member of the Wisconsin council. Without reading the entire resolution I will quote in part "We op pose the entry of nonfarm interest into farming enterprise We also oppose the use of farms for tax writeoff purposes by absentee farm- owners" This was prefaced, of course, by some background state ments. It gives you the position of a large farmer dairy marketing orga nization. Then let's go a little broader, the International Federation of Agri- cultural Producers held their annual conference in Tunisia this year in May, and they also are concerned and placed stress on the large diversified nonfarm corporations that are moving into fully developed agricultuarl regions. This conference also reported in depth on this particular area of concern, and I will quote in part from their con- ference conclusions. "It appears that such enterprises can find it to their advantage to absorb current heavy losses in their farm operations, writing them off in other business activities" And they go on to spell out many of the things that we have already heard, this morning, so I won't belabor. that point. PAGENO="0255" 251 Let's turn to th~ U S Department of Agriculture, and I would suspect that in part the existence of this committec~ and the reason for its concern stems from some of the utterances of the Department, but I think one of the publications that the Department put out recently, entitled "Agriculture/2000," makes reference to the climate that we have developed in this country that provides for growth and develop- ment of corporation farming, and they state Today that farmer is serously underpaid-and this cannot long continue In a full employment free enterprise economy such as ours capital and know bow will go elsewhere if they are unrewarded in agriculture If this happens- if thQ family farm system is wrecked and monopoly agriculture develops in the United States-the bright promise we predict today for the year 2000 may well be lost This is primary The system of agriculture that we enjoy today with owner ship decision making responsibility and rewards widely dispersed in many hands rather than in just a few is the most efficient most productive in the entire world And they go on to state many other things They conclude by saying "Both consumers and family farmers should be aware of this threat" Next, there was an independent study by the National Commission on Food Marketing, and in June of that year, this rather voluminous report was published in June of 1966, and I think part of the study stated as follows: The bulk of agricultural production still comes from family farms (in the sense that they employ no more hired than family labor) but some types of production, especially fruit and vegetable production have moved to a large extent out of the family farm class Now, here is the key phrase: Probably a selective shift will continue with the types of farming predominat ing in the Midwest, East, and parts of the South being among the last to make the shift. Of course I interpret this statement as looking toward the eventual demise of the family farm Now I would like to move to the controversial area that appears to exist among the representatives of the educational estate I think John Gaibraith's view is appropriate, and he states Economists on the whole think well of what they do themselves and much less of what their professional colleagues do If a scholar probes deeply into a small section of the subject he is fairly certain to mistrust as superficial the man who ranges more widely. The latter, in turn~, will think the specialist lacking in vision or what is called reach By knowing even more about even less, he will seem to risk becoming quite ignorant. Those who are mathematically inclined to see others as in retreat from rigor The others think those who manipu late symbols impractical He concludes It is exceedingly fortunate for the phychic health of the p~rofession that inadequacy lies so uniformly with others Paul Farris from Purdue is concerned He said "Farmers today are much concerned about the future organization of agriculture Their loss of managerial independence is disintegrating the family farm in ways not fully visible from trends in farm numbers and sizes " He goes on to make quite an elaborate report on his observations and on the current trend in agriculture. PAGENO="0256" 2~2 Then let's contrast that Purdue statement with the view from Wis- consin. The University of Wisconsin College of Agriculture and Life Sciences issued a report in August 1967, prepared by a special faculty task force. It was a comprehensive study concerning the kind of agri- culture we are likely to have in 1980. The task force concluded as follows: The family farm in animal agriculture will continue as the basic unit in Wis- consin. Farming in this country is not trending toward the large corporate unit either in numbers or in proportion of the market (p. 1D of report). Family farms will continue as the basic format in Wisconsin. However, each family unit will need to continue to increase considerably in size and efficiency. To operate large units with the same or even less labor, more of the inputs will need to be purchased (p. 71 of report). To this last statement many Wisconsin farmers respond, "How do we share in this increased efficiency ~ Most of it has been passed on to the consumer. We seem to be getting less and less as our efficiency im- proves." I cite this as two examples of contrast. Then I am sure you are familiar, Senator, with the National Ad- visory Committee on Food and Fiber report. In January of 1966 they issued that document, and on page 1~9 they `state: There is no Indication that extremely large-scale corporate farming will take over American farming in the near future. Mainly, it appears that the family farm will continue to get larger, as it has in the past. The traditional family farm is simply getting larger because the family and an equal amount of hired, labor can handle a larger unit efficiently with modern methods and machines and lower their unit costs by doing so. Perhaps we have already belabored this point but we believe that the forces `at work, forces now compared to 1946 when the Arvin- Dinuba study was made, are undoubtedly different. I think even in the short period since the time of the House of Representatives, the 88th Congress, viewed the family farm issue via their Committee on Agri- culture back in 1963, conditions have changed substantially. I think some of this `indication was in Dr. Raup's statistics that he cited earlier. Now, if we can make one point it would be, now is the time to deter- mine what kind of socioeconomic structure we want for our agricul- tural sector of this country. There are now many straws in the wind regarding the potential strong thrust that could be made by huge corporate interests in assuming major control of the agricultural plant. Is this in the public interest ~ Let's not wait until the horse is stolen before we lock the barn. As a point of clarification, I don't want to say that the big corpora- tion is a rampant ogre coldly coveting the agriculture plant of this country. In most instances their control over the decisionmaking proc- ess in other areas of our economy has come without intent and is a result `of the economic and social framework within which they operate. Now, the council `believes we are witnessing the beginning of a trend in a drive toward diversification `and formation of conglomerates has a favorable climate to flourish in agriculture. I think `a lot of these items were mentioned earlier this morning, tax structure, the waning influence in legislative `halls, capital demands, and the cost-price squeeze. Now, even our Government, while on the one hand expressing con- cern, acts to further aggravate the price-income situation. And here, PAGENO="0257" 253 because this is a dairy-State and we have a lot at stake in the dairy business, I would like to cite the import situation as an example of this, and through evasion of our import quotas foreign countries have tended to demoralize the TJ.S. dairyman. Foreign countries are heavily subsidizing butter, nonfat dry milk, `and evaporated and condensed milk. The Netherlands, for example, is exporting butter at 15 cents per pound, compared to a price of 72 cents inside this country. There are other examples like this, and I think this is the type of situation with respect to policy that ha's a direct bearing on the issue that we have been discussing this morning. In summary I would like to say that the Wisconsin Council of Agriculutral Cooperatives is vitally concerned about the real threat of corporate or industrialized agriculture. Also the council feels that more than a few legislative changes are needed, but rather a complete reevaluation of agricultural policy to assure an agricultural plant that will best serve our economic needs and properly reward the producer. At this time we endorse the following general courses of action: Increased educational services to farmers. I think one of `the areas that I have in mind `here is what Dr. Raup referred to with respect to technology and the like, some of the services that we could be `expecting. Better sources of financial capital to farmers; new arrangements for farm tenure; new or enhanced forms of farmer cooperatives; a greater use of marketing orders and agreement's; and a revised im- port/export policy as it relates to depressing farm prices, increas- ing farm costs, and the undermining of our efficient agricultural producers. That concludes my remarks, Senator. Senator NELsoN. I want to thank you very much, Mr. Struck, for your fine statement. We appreciate your coming here to speak on behalf of Wisconsin Council of Agricultural Cooperatives. (The complete prepared statement submitted by Mr. Struck follows:) STATEMENT OF VERNON C. STRUCK, ExECuTIvR DIRECTOR, WISCONSIN COUNCIL OF AGRICULTURAL COOPERATIVES Mr. Chairman and members of the committee, my name is Vernon C. Struck, and I serve as Executive Director of the Wisconsin Council of Agricultural Co- operatives. The Council, with offices in Madison, Wisconsin, is a federation of 60 farmer business cooperatives that are actively engaged in processing, marketing pur- chases or service operations. Approximately 60,000 Wisconsin farmers are served by these 60 cooperatives. We thank this Committee for taking the time to examine this very important area of concern to both producers and consumers of food and fiber. We trust the findings and recommendations of this committee will lead the way to a thorough reappraisal of our entire agriculutral policy. DIFFERENCE OF OPINION We know the topic being investigated by this Committee is highly complex and controversial. There also apparently is a considerable difference of opinion as to the threat posed, real or imagined, by "corporate farming." This wide difference in opinion is in part what makes it more difficult to filter `out the facts for meaningful appraisal. I would think the very existence of the 95-253-68---17 PAGENO="0258" 254 extremes in thinking on this basic problem would give rise to more penetrating research. As an illustration of what we mean, let me cite a few examples by way of state~ ments of position and concern by farmer organizations, along with conclusions drawn by recent scholarly studies and reports. LAND O'LAKES Land O'Lakes Creameries, the largest dairy farmer marketing cooperative in this country, adopted the following resolution at their 1968 annual meeting. (Land O'Lakes is a member of the Wisconsin Council of Agricultural Coopera- tives.)' RESOLUTION NO. 23-CORPORATE FARMING "We believe that the efficient, well-managed family farm is still the backbone of American agriculture, as evidenced by the increases in agricultural produc- tivity over the years. "We also note that the family farm concept has survived best producing com- modities which have been under stabilization programs, but that corporate in- terests are now entering and placing more emphasis in production of these commodities. "We oppose the entry of non-farm interests into the farming enterprise. We also oppose the use of farms for tax write-off purposes by absentee farm owners." INTERNATIONAL FEDERATION OF AGRICULTURAL PRODUCERS At the Conference of International Federation of Agricultural Producers, held in Tunisia, in May of this year, stress was placed on the movement by large, diversified non-farm corporations into fully developed agricultural regions. The conference report states: "It appears that such enterprises can find it to their advantage to absorb cur- rent heavy losses in their farm operations, writing them off in other business ac- tivities. In periods of overproduction financial reserves built up from non-farm activities could allow such corporations to farm on very narrow profit margins or at a loss, posing a serious threat to conventional farms. Although structural reform will lessen the extent of such intrusion, farmers themselves should realize that increased effectiveness of their own co-operatives and other commercial organizations could be a better antidote. "Beyond that, national farm organizations should strongly press their govern- ments for effective measures to protect them against any abuse of economic power in corporation farming. The special circumstances of some newer agricultural areas may occasionally make desirable, however, the utilization of appropriate corporate forms of agricultural enterprise." UNITED STATES DEPARTMENT OF AGRICULTURE I suspect that perhaps in part the reason for the existence of this Commit- tee and its charge stems from information and expressions of concern by the United States Department of Agriculture. In a recent publication entitled Agriculture/2000, reference is made to the factors behind the threat of corporation farming. The consequences of the cost- price squeeze on our farmers is in part indicated by the following quote taken from the above-mentioned publication. It focuses attention on the current situa- tion in agriculture which helps provide a climate for the growth and develop- ment of corporation farming. "Today that farmer is seriously underpaid-and this cannot long continue. In a full employment, free enterprise economy such as ours', capital and know- bow will go elsewhere if they are unrewarded in agriculture. If this happens- if the family farm system is wrecked and monopoly agriculture develops' in the United States-the bright promise we predict today for the Year 2000 may well be lost. "This is primary. The system of agriculture that we enjoy today, with owner- ship, decision-making, responsibility and rewards widely dispersed, in many bands, rather than in just a few, is the most efficient, most productive in the entire world. "But today the system that made this record possible is threatened by too-low farm prices. Low farm prices have been prevalent over too many years of this PAGENO="0259" 255 century, but the great difference is that today, in a full-employment economy, with numerous alternative opportunities for eipployment in the nonfarm sector, the farmer can go elsewhere. And wh~it is true ~f manpower is ~ilso true of capital. Today's advanced agricultural teehno1o~y requires massive infusions of capital. If returns are too low in agriculture, capital will find investment elsewhere. "Both consumers and family farmers should be aware of this threat." NATIONAL COMMIS5IQN ON FOOD MARKETING In June of 1966, the National Commission issued a voluminous report on the nation's food industry. This report is still being studied and digested. Apparently the major area of controversy surrounding the report concerned the conclusion drawn from it-not the adequacy or scholarly nature of the study. This report states, "The bulk of agricultural production still comes from family farms (in the sense that they employ no more hired than family labor) but some types of production, especially fruit and vegetable production, have moved, to a large extent, out of the family farm class. Probably a selective shift will eontinue, with the types of farming predominating in the Midwest, East, and parts of the ~onth being among the last to -make the, shift." I interpret this statement as indicative of what some scholars feel is now happening in agriculture relative to corporation farming and, of course, the eventual demise of the family type farm. Continuing in the examination of the divergence of opinion and viewpoint of the family farm versus the corporate farming threat we might consider state- ments by representatives of the Educational Estate. I would preface the conflicting points of scholarly view with John Galbraith's comment, "Economists, on the whole, think well of what they do themselves and much less of what their professional colleagues do. If a scholar probes deeply into a small section of the subject, he is fairly certain to mistrust, as super- ficial, the man who ranges more widely. The latter, in turn, will think the special- ist lacking in vision or what is called reach. By knowing even more about even less, he will seem to risk becoming quite ignorant. Those who are mathematically inclined see others as in retreat from rigor. The others think those who manip- ulate symbols impractical. . . . It is exceedingly fortunate for the psychic health of the profession that inadequacy lies so uniformly with others." THE VIEW FROM PURDUE Economist Paul L~ Farris, speaking at Farm Science Days in January of this year, had this to say: "Farmers today are much concerned about the future organization of agri- culture. Their loss of managerial independence is disintegrating the family farm in ways not fully visible from trends in farm numbers and sizes. Farmers see at stake their freedom and economic status relative to other groups. "Farmers still have some options for retaining and perhaps advancing the entrepreneural independence inherent in family farm agrictilture If they desire to do so. In terms of public policy, the most forceful argument for saving the family farm is to support decentralized decisionmaking and diffused economic power in our society. "How much managerial independence has been lost by farmers varies widely among enterprises and areas of the country. The shift of entrepreneural func- tions off the farm has been greatest for poultry and some specialty crops. Farmers in the Midwest appear to have retained more decision-making latitude than farmers in other areas, but their traditional types of operations are being strongly challenged by integrated production-marketing systems in other sections." THE VIEW FROM WISC0NSfl~ The University of Wisconsin College of Agriculture and Life Sciences Issued a report in August of 1967, prepared by a Special Faculty Task Force. It was a comprehensive study concerning the kind of agriculture we are likely to have in 1980. The task force concluded as follows: "The family farm in animal agriculture will continue as the basic unit In Wisconsin. Farming in this country is not trending toward the large corporate unit either in numbers or in proportion of the market." (Page 19 of report) PAGENO="0260" 2~6 "Family farms will continue as the basic format in Wisconsin. However, each family unit will need to continue to increase considerably in size and efficiency To operate large units with the same or even less labor, more of the inputs will need to be purchased" (Page 71 of report) To this last statement many Wisconsin farmers respond-"But how do we share in this increased efficiency'? Most of it has been passed on to the consumer We seem to be getting less and less as our efficiency improves." NATIONAL ADVISORY COMMITTEE ON FOOD AND VIBER REPORT In January of 1966, the Food and Fiber Committee issued their report and observed on page 159: "There is no indication that extremely large-scale corporate farming will take over American farming in the near future. Mainly, it appears that the family farm will continue to get larger as it has in the past The traditional family farm is simply getting larger because the family and an equal amount of hired labor can handle a larger unit efficiently with modern methods and machines . . . and lower their unit costs by doing so. Family farms (farms using less than 15 man years of hired labor) have not changed significantly as a proportion of all farms Estimates for 1965 indicate family farms accounted for about 96 percent of all farms and for 73 percent of total farm marketings These totals had changed very little from the previous 5 or 10 years." Perhaps we have already overlabored the point of opinion difference and degree of concern within agricultural circles. Forces at work now compared to 1946 when the Arvin-Dinuba study was made are undoubtedly different, if not more ominous for the family farm. In the short period of time since the House of Representatives in the 88th Congress viewed the family farm issue via their committee on agriculture back in 1963 conditions have changed. THE ISSUE If we can make one point before this Committee it would be-now is the time to determine what kind of a socio economic structure we want for our agricul tural sector in this country There are now many straws in the wind regarding the potential strong thrust that could be made by huge corporate interests in assuming major control of the agricultural plant Is this in the public interest? Let's not wait until the horse is stolen before we lock the barn. POINT OF CLARIFICATION I don't want to leave the impression that the "big corporation" is a rampant ogre coldly coveting the agricultural plant of this country In most instances their control over the decisionmaking process in other areas of our economy has come without intent and is a result of the economic and social framework within which they operate Again we draw on Mr Galbraitb to make a point1 He states "The market has only one message for the business firm. That is the promise of more money If the firm has no influence on its prices as the Wisconsin dairy farm has no influence on the price of milk it has no options as to the goals that it pursues. It must try to make money and, as a practical matter, it must try to make as much as possible Others do To fail to conform is to invite loss failure and extrusion Certainly a decision to subordinate interest in earnings to an interest in a more contended life for workers cows or consumers would in the absence of exceptional supplementary income, mean financial disaster." The Council believes we are now witnessing the beginning of a trend. The drive toward corporate diversificatiOn and formation of conglomerates has a favorable climate to flourish in agriculture-i e tax structure-waning farmer influence in legislative halls-tremendous capital demands-cost price squeeze-high de gree of managerial skills required on modern family farm etc Even our government while on the one hand expressing concern acts to further aggravate the price income situation A prime example here would be dairy im ports Through evasion of import quotas foreign countries have tended to demoral lThe New Industrial State, John Kenneth Gaibraith, p. 109. PAGENO="0261" 257 ize the United States dairyman Foreign countries are heavily subsidizing butter nonfat dry milk and evaporated and condensed milk The Netherlands for ex ample, is exporting butter at 15 cents per pound, compared to a price of 72 cents inside this country This is one example-there are others And this situation is in terms of policy directly related to what we are discussing at this hearng IN SUMMABY (1) The Wisconsin Council of Agricultural Cooperatives Is vitally concerned about the real threat of corporate or industrialized agriculture (2) The Council feels that more than a few legislative changes are needed, but rather a complete re-evaluation of agricultural policy to assure an agricul tural plant that will best serve our economic needs and properly reward the producer (3) At this time we endorse the following general courses of action for imme diate consideration-namely, (a) increased educational services to farmers (b) better sources of financial capital to farmers (c) new arrangements for farm tenure (d) new or enhanced forms of farmer cooperatives (e) greater use of marketing orders and agreements (f) a revised import/export policy as it relates to depressing farm prices, increasing farm costs and the undermining of our efficient agricultural producers. Thank you for this opportunity to appear before this distinguished Committee. Senator NELSON. We will now recess and return at a quarter to 1; 45 minutes. (Whereupon, at 12 noon, the hearing was recessed, to reconvene at 12 45p m , the same day) AFTERNOON SESSION Senator NELSON If we can have order, we will resume the hearings Our first witness this afternoon will be Victor Hee~ of Auburndale, Wis He is appearing in behalf of Steve Pavich, president of the Wis consin National Farmers Organization, who could not appear here today. Mr Heeg, we appreciate your coming here today You may present your statement in any way you wish STATEMENT OF VICTOR H HEEG, AUBURNDALE, WIS, ON BEHALF OF STEVE PAVICH, PRESIDENT, WISCONSIN NATIONAL FARMERS ORGANIZATION, MASON, WIS. Mr HEEG Senator Nelson, party members and staff members, I want to thank you for the opportunity to come here on behalf of the NFO national association. I was just notified last night or asked last night real late, so I do not have a prepared Statement to read to you, I just have a few notes I will give these reasons of why I am opposing corporate farming In my past experience as a turkey producer in Wisconsin, dealin with major feed companies and mtegrators, including processors, find that it is practically impossible to compete and stay in business under these present situations My reasons are that large corporate farmers or large integrators and giant corporations use these corpo rations for tax write off purposes They become politically minded, get in positions where they can block competition, are harmful in my PAGENO="0262" 258 opinion to all the small business in the community and create pr?b- lems for the city by sending the people off family farms into the city which is something they themselves do not want. These people are handicapped by leaving the farm to go to the cities and expect to find a job that is satisfactory to them. I remember way back when the youngsters from the city would come out to these family farms dur- ing their summer vacations and weekends. They were off the streets and were learning what the bread and butter was and how it was produced to be put on the table. Today it is just the opposite. The country boys have to go into the city and there they run the street at large with the city youngsters. Think of how much this must mean to our rising rate in crime. We have heard a lot of testimony this forenoon, some on family farms, and some about the moonlighting family farms, but we did not hear actually the answer to it or why this is happening. In my opinion the price they receive at the marketplace is too low. We know that NFO has opposed corporate farming for the past 10 years and they have been fighting hard so the family farmer will receive a sensi- ble and economical price at the marketplace, a price I think they are entitled to. I think that our courts, our legislature, our Government and State officials have not upheld laws that were amended way back to protect against the monopolies, monopolizers and conspirators. In the records you will find there were laws amended especially for this purpose but were not enforced. Instead they keep passing new laws that seem to bypass the original laws, with built-in loopholes, which seems to protect the big money men who can afford to hire the pro- fessional attorneys and lobbyists to get the job done for them. The Capper-Volstead Act in particular was amended for the purpose of protecting the farmer from being swindled and to allow him to receive a reasonable price for his product above the cost of production. In my opinion, I think there are many present buyers, processors, and packers that are violating these laws constantly, and our Govern- ment, I don't think, has taken the right action to stop them, and haven't been for many years. When any one stops or blocks competi- tion and forces a producer to sell at their price, the producer is not getting the price he is entitled to. Therefore, this is a violation of the antitrust laws. It is also a reason for many of our farmers being forced off the farms. I happen to be a victim of what can happen and did happen to me because of a giant corporation, and it took me 51/2 years of fighting and struggling just because of their unjust acts. In late 1960, one of the largest feed companies in the United States, operating in 52 countries, had decided to enter largely into the turkey business with the intention of capturing a large portion of the turkey business in the United States and Canada. Their intention also was to control it from cradle to grave. I was to be a small part of it. This was told to me by some of the top executives in the company, of how and why they were going to do it. They did, however, enter into it with a. lot of unrelated money invested in this operation. It was proved to be a monopoly and conspiracy which caused many producers to suffer depressed prices. What farmer would want to buck up against a big corporation to fight for his rights, with probably $18 in his checking PAGENO="0263" 259 account, against a staff of 25 attorneys, to which money doesn't mean anything. How can a small farmer compete with this situation? For another example, we have a large integrator who probably grows more than 50 percent of the turkeys himself in Wisconsin, so we become more and more obligated to fellows like this. The larger they become the more we become obligated to sell to them and more and more there becomes a lack of competition in our field. They can sell their product back to us at the price they set on it and give us their price for the product we have to offer. Now I ask this question: How did this man get to be as large as he is today, expanding his operation tremendously on depressed markets, when every turkey producer in the entire United States lost money in 1961, and many went broke. I know of several myself who sold out for $1 and $2 to a feed company. One answer to this question is: He is a good businessman. My answer would be a little different. As we all know, a branch of our State laboratory which specializes in the turkey field, was built in his backyard. This was my experience which leads me to believe these kinds of people become politically minded and operate just a little bit different than being just a good businessman. In 1960 I purchased a flock of poults from his hatchery with a hatchery disease. They became sicker and sicker by the day. I took a number of dead and live poults to the laboratory at Barron, Wis., for diagnosis. This is a branch of our State laboratory at Madison. The turkey specialist there, who was Dr. Baker, examined the birds and said nothing was wrong, only that the birds were not eating and ad- vised me to go home and give them sugar water for energy. I was certain in my mind that he was covering up some hatchery disease problem, but I didn't know what to do about it. On my way home, which was 155 miles, I had lots of time to think and was deeply con- cerned about the large loss facing me. Finally, I came to the conclusion I would need to take a different approach to get at the truth, because of the information one has to give on paper at the laboratory before a diagnosis would be made. I decided to take another group of these same birds to the Madison laboratory and give false information on paper, which I did the following morning. The information given was that they were from my own hatchery. The diagnostic laboratory re- port was omphalitis, a hatchery disease caused from filthy incubators and hatchers. The doctor advised me to go home and clean up my hatchery immediately. This came to light a couple of days later. Yes, I had to lie to find out the truth, and I know of others who experienced the same thing. So you see, Mr. Nelson, many growers suffered his losses while he expanded. This is why I think he got to be where he is today~ If this man is considered a good businessman, what would an honest man be considered, a poor businessman? I think that our Government or some action must be taken to protect the family farm and protect or set up some legislation to stop this gigantic monopoly and corporate farming in our Nation. You can preach and they do preach efficiency but there is a limit to this. A 40-cow herd in the dairy business is the maximum to efficiency for one man. Asking a young man to start farming on borrowed money with a 40-year payoff loan, without some guaranteed profit above cost of production, is merely asking him to be a slave in just a different way. PAGENO="0264" 260 So, again, I want to thank you for giving me the time to express my views on corporate farming. Senator NELSON Thank you very much I realize you had a very brief chance to prepare because Mr. Pavich couldn't come. But we appreciate your taking time to come today. Our next witness is Mr. Glenn Anderson, representing the Wis- consin Association of Cooperatives in Madison. Mr. Anderson, we appreciate very much your taking your time to come here today Do you have a prepared statement ~ Mr. ANDERSON. Yes, I do. Senator NELSON. It will be printed in full in the record. You may present it any way you desire STATEMENT OP GLEI~11I M ANDERSON, GENERAL MANAGER, WIS CONSIN ASSOCIATION OP COOPERATIVES, MADISON, WIS Mr. ANDERSON. Senator Nelson, my name is Glenn Anderson and I am general manager of the Wisconsin Association of Cooperatives and it has its headquarters, as you know, in Madison, Wis. The Wisconsin Association is made up of 840 different cooperatives These self help, people oriented companies represent over 225,000 fam flies in the State of Wisconsin. The member cooperatives of WAC are providing a great variety of goods and services to patrons across the whole of Wisconsin. It is out of this wide range of interest and mem- bership that we are here today to present our views on the problem of corporate farming. I would like to do this just with two little stories, if you don't mind. One is a graphic illustration of the results of a large-scale corporation farming situation which came to my attention when I turned off the main road driving from Madison up into the Fox River Valley, and this slight detour just took me one block off the main road into a small rural community in the east central part of the State. A creamery, a landmark of community life for nearly three-quarters of a century, stood there abandoned and the weeds grew up around it. A half block up the main street even the repair garage had closed its doors. The gen- eral store had a sign, "Open at 2 p.m.", and a glance through the win- dows would show you that even this had a limited stock in it, and only half the space was being used. Now, when we returned to the main highway going on to the larger city, about a dozen miles away, I realized the reason that this hamlet had become a virtual ghost town, there were long stretches of highway with no sign's of the conventional nest of farm buildings. The giant farm corporation, owned and operated for the profit of the city owners, had taken over. The community and surrounding countryside had been destroyed with `as great a force as the great depression of the 1930's. Now, there is another illustration of the manner in which corpora- tions `are taking over right in Dane County almost wi'thin the shadow of the capitol of `the State of Wisconsin. A corporation largely con- trolled by `Chicago residents who `accumulated capital selling the farmer-produced milk in the Chicago market had been `acquiring many of the farms in the towns of Rutland `and Dunkirk. The families who formerly operated these farms `and contributed to the welfare of the PAGENO="0265" 26~l surrounding community have moved away :and town officials are con- cerned about the economic future of these areas. Already reassessments of real property have resulted, largely from the changes in `the farm units acquired by the corporations engaged in farming the area. You understand what `they do, they move into the township, buy it up, remove all `the buildings, leaving `those towns with no real assets on which `to base any tax and `therefore leaving the community almost destitute as far as `a real assessment base. A veteran newspaper publisher in Wisconsin in his personal col'unm has been expressing concern for `a number of years over the tendency toward mergers of corporations in the country which has resulted in gre'at conglomerate concentrations of economic power. Time after `time he has called attention to the many acquisitions and mergers a's re- ported each week in `the Wall Street Journal. There has been increasing alarm throughout `the country over `this trend. Only recently there have been indications that the conglomerates are moving into the farming industry. For this reason we `are pleased to note `th'a't you, `Senator Nelson, and your committee, are giving `attention to `these problem's. Anyone who reads the financial journals knows tha't the main ob- jective `of `the conglomerate corporations is to make `the m'aximum profit for `distribution `to the stockholders `in `the form of dividends `and capi~ tal gain's. It `appears inevitable, therefore, that `th'e entry of the giant corpora'tion's `into the farming indu'stry would bring `about increased costs of fo'od for the American consumers. We are very pleased the testimony given this morning by Professor Raup, which largely substantiates the testimony we are making here, in a passing reference in that the tax situation allows corporate invest- ment into agriculture and for this reason we think that inefficiencies are going to creep into our economy rather than efficiencies. Statistics on the strides which the corporations are taking into the farming industry `continue to pile up. A recent article by Gene L. Swwckhamer, agricultural economist for the Federal Reserve Bank of Kansas City in a monthly review published by the bank shows that from 1956 to 1966 `corporate `farm loans increased 288 percent, compared with an increase of 176 percent `for all of the 10th Federal Reserve District. Ju'st think of that. The major purpose of the corporate farm loans in the district was for the purpose of purchasing feeder livestock with 56 million in `corporation farm loans, an astounding `66 percent of this. In other words, it looks like we are going to `see the beef industry go the route of the turkey `and broiler. We want to make it clear that our concern is over the inv'asion of the farming industry by the giant conglomerate farm `corporations as contrasted to the closely held family farm corporations which have a ththnite place in our `farm economy. We believe that the menace of the giant `corporate farms to' the farm economy and rural America merits and will need the attention of both Federal and State Governments. Although it is presently under `fire fro'm large corporate interests, North Dakota has a law on the books controlling the scope of corporate farming for many decades. This law was well drafted and has met all the constitutional attacks by its opponents at both the State and National judicial levels. A fair and workable law of this type, aimed at the takeover of the farm economy PAGENO="0266" 26~ by absentee ownership is needed more than ever today and I would like to say on the side that Mr. Kyle who was to be with me today and could not make it for other reasons is presently drafting a similar piece of legislation for the State of Wisconsin and we think that it can hold constitutionally here as well as it has in North Dakota. A fair and workable law of this kind aimed in the takeover of the farm economy by absentee ownership is needed more than ever today. We believe that the Federal and State Governments should protect the rural economy, here when we say rural economy we are not talking about the interests of the farmer alone, we are talking about the small businessman, the cooperative and all the rest that go up the main street of our hamlets in medium size and major size towns and we think that workable laws can be drafted to protect and put reasonable controls over the intrusion of corporate interests into our farming economy. Senator NELSON. Thank you very much, Mr. Anderson, for your fine statement. We appreciate your coming. (The complete prepared statement submitted by Mr. Anderson follows:) STATEMENT OF GLENN M. ANDERSON, GENERAL MANAGER, WISCONSIN AssoCIATIoN OF COOPERATIVES Members of the Committee, my name is Glenn M. Anderson and I am General Manager of the Wisconsin Association `of Cooperatives, which has its headquar- ters in Madison, Wisconsin. The Wisconsin Association of Cooperatives is an organization made up of 340 different cooperatives and mutual enterprises. These self-help, people-oriented companies represent over 225,000 families in the state of Wisconsin. The member cooperatives of WAG are providing a great variety of goods and services to patrons across the whole of Wisconsin. It is out of this wide range of interest and membership that we are here today to present our views on the problem of Corporate Farming. A graphic illustration of the results of large-scale corporation farming came to my attention recently when a slight turn off a state trunk took me on a one block detour through a small rural community in East-Central Wisconsin. The creamery, a landmark of community life for nearly three quarters of a century, stood on an abandoned, weed-choked lot. T~wo old milk hauling trucks were rusting in the side yard. A half block up the main street, even the repair garage had closed its doors. The general store had a sign, "Open at 2 P.M.", and a glance through the windows indicated that it's stock of goods occupied less than half the space formerly in use. Returning to the main highway, enroute to the larger city about a dozen miles away, I realized the reason why this hamlet had become virtually a ghost town. There were long stretches of highway with no sign of the conventional nest of farm buildings. The giant farm corporation, owned ar~d operated for the profit of city owners, had taken over. The community and surrounding countryside was being destroyed, with as great a force as the Great Depressioii of the 1930's. There is another illustration of the manner in which corporations are taking over right in Dane County, almost within the shadow of the capitol of the state of Wisconsin. A corporation, largely controlled by Chicago residents', who ac- cumulated capital selling the farmer produced milk in the Chicago market, has been acquiring many farms in the Towns of Rutland and Dunkirk. The families who formerly operated these farms and contributed to the welfare of the sur- rounding communities have moved away, and town officials are concerned about the economic future of these ~treas. Already, reassessments of real property have resulted, largely from the changes in the farm units acquired by the corporation engaged in farming the area. A veteran newspaper publisher in Wisconsin in his personal column has been expressing concern for a number of years over the tendency toward mergers' of corporations in the country which has resulted in great conglomerate concentra- PAGENO="0267" 26~ tions of economic power. Time after time, he has called attention to the many acquisitions and mergers as reported each week in the Wall Street Journal. There has been increasing alarm throughout the country over this trend, Only recently there have been indications that the conglomerates are moving into the farming industry. For this reason, we are pleased to note that you, Senator Nelson and your committee, are giving attention to these problems. Anyone who reads the financial journals knows that the main objective of the conglomerate corporations is to make the maximum profit for distribution to their stockholders in the form of dividends and capital gains. It appears inevi- table, therefore, that the entry of the giant corporations into the farming industry would bring about increased costs of food for American consumers. The statistics on the strides which the corporations are taking into the farm- ing industry continue to pile up. A recent article by Gene L. Swackhamer, Agri. cultural Economist for the Federal Reserve Bank of Kansas City, in the Monthly Review published by the bank, shows that from 1956 to 1966, corporate farm loans increased 288 percent, compared with an increase of 176 percent for all of the Tenth Federal Reserve District. The major purpose of corporate farm loans in that district was for purchase of feeder livestock, with $56 million in corpora- tion farm loans, an astounding 66% of the total. We want to make it clear that our concern Is over the invasion of the farming industry by the giant conglomerate farm corporations, as contrasted to the closely held farm family corporations, which have a definite place in the farm economy. We believe that the menace of giant corporate farms to the farm economy and rural America merits and will need the attention of both federal and state govern- ments. Although it is presently under fire from large corporate interests, North Dakota has had a law on the books controlling the scope of corporate farming for many decades. This law was well drafted and has met the constitutional attacks by it's opponents at both the state and national judicial levels. A fair and work- able law of this type, aimed at the take-over of the farm economy by absentee ownership, is needed more than ever today. We believe the federal as well as the state governments should act to protect the rural economy of America by reasonable controls over corporation farming. Senator NELSON. Our next witness is Mr. Arnold Onstad, Minnesota Corporation Farm Task Force, Spring Grove, Minn. Mr. Onstad, the committee is pleased to have you here today and appreciate your taking the time to come over from Minnesota to testify. STATEMENT OF ARNOLD ONSTAD, CHAIRMAN, FARMERS UNION TASK FORCE ON CORPORATION FARMING, SPRING GROVE, MINN. Mr. ONSTAD. Thank you, Senator. My name is Arnold Onstad. I am a farmer in Houston County in the extreme southeastern tip of Minnesota. I am a past president of the Minnesota Association of Soil and l2Vater Conservation Districts and am currently a member of the State board of that organization. I have also served as a Minnesota State councilman for the national association. I am a member of the USDA Public Advisory Committee on Soil and Water Conservation. I am here today as chairman of the Minnesota Task Force on Cor- poration Farming, which is a citizens' group appointed last December by President Christianson of the Minnesota Farmers Union. Our task force has seven members and includes farmers, cooperative officials, rural businessmen, legislators, and a rural clergyman. We have working with us a staff of research consultants, including a legal counsel, a cooperative specialist, a marketing economist, and a noted land economist from the University of Minnesota who you already heard this morning, Dr. Philip M. Raup. PAGENO="0268" 264 Our task force was directed to do more than just sound the alarm about corporation farming We were urged to review corporation farm restrictions in Minnesota and other States, and make a realistic ap praisal of the situation of Minnesota's family farmers and their pos sible vulnerability to displacement by corporation farms; and recom- mend legislative drafts of such bills and outline such administrative actions as might be important in achieving a climate in which family farms can survive and prosper. As our first activity, we have conducted a study of the extent of farmland ownership in Minnesota by corporations. We have made studies of the situation in our own respective counties, we have ob- tained reports from Farmers Union county and local officers We are in the process of cross-checking our information with the results of the surveys made by the U.S. Department of Agriculture, Agricultural Stabilization and Conservation Service and in verifying some of the ownerships by inquiries to the county auditors of the counties involved. It appears to us presently, although the study has not yet been completely tabulated, that there are about 230 corporate owners of farmland in Minnesota and that more than half are family-type cor- porations which have adopted this type of legal organization for the sake of income or inheritance tax considerations Some regard this as an advantage; many other farms feel that they can achieve the same obiectives in a better manner with family partnerships The USDA, ASCS survey, which has not yet beeen published, will apparently show about 173 total farm corporations of which 59 are described as nonfamily type. However, the USDA survey took into consideration only farms which were both owned and operated by corporations and therefore did not enumerate farms which were owned by corporations and operated by someone else. Our report will, therefore, show an appreciably larger number of both family and investor corporations owning farmland. Thus far, the acreage involved in the corporate ownerships is not huge. It appears to be in the neighborhood of about 337,000 acres, which would be only about 1 percent of the total farmland area in the State. However, the important point is that about half of the acquisitions of land by nonfarm investors have taken place in the last 3 years and that these purchases by 41 business corporations since 1965 total almost 100,000 acres. This indicates that the trend is undoubtedly continuing. There is a timelag between the time a land transaction is made and the time it appears officially on the county records. Therefore, it is difficult some- times to obtain immediate documentation of new acquisitions. It also appears that there is some effort by some buyers to conceal the owner- ship by having the purchase made for them by an agent who appears to be at the time a farmer buying land for his own personal use. There appear also to be some instances in which landholdings which seem to be all in one basic ownership are held in several different names The purpose undou~btedly would be to avoid violating State law which bars any corporation from owning more than 5,000 acres of farmland in the State of Minnesota. Senator NELSON. How long has that law been in effect? Mr. ONSTAD. I can't name the year of the legislation, but it is in the PAGENO="0269" 265 early 1900's, if I recall correctly. I would have to go to my notes to ascertain the date positively. It appears at this stage that there are a few corporations which have exceeded the 5,000-acre limit and are in apparent violation of the law. There are other corporations with more than 5,000 acres of land hut a 3-year statute of limitations has expired and they are not apparently subject to legal action. We also have a State law which requires life insurance companies who acquire farmland as a result of foreclosure of a mortgage or satisfaction of a debt to divest themselves of such property within 5 years. While these two State laws contain only a part of what our task force will probably consider essential in an anticorporation farm law, these laws should, nevertheless, be enforced. We regard the existing State laws on ownerships of farmland by corporations and life insurance companies as the framework on which a more positive and effective State law can be considered and developed by the 1969 State legislature. A draft of the suggested legislation will be prepared by the task force and made available for public discussion by legislators, farmers, and interested citizens of our rural communities before the 1969 session. We are also exploring the merits of a new State real estate tax on excess farmland tax holdings and may recommend a legislative draft of a tax levied on a graduated basis in relation to the degree to which the land in question exceeds the average size of farms in a particular county. We are also exploring the development of enabling legislation which would propose to empower county boards of commissioners to establish county boards on farmland resources, which might be given functions including the regulating of farmland transfers, regulation or prohibi- tion of undesirable forms of agricultural enterprise not in character with the existing patterns in the county and which do not represent good land use; the regulation of public nuisances which result from air and water pollution arising from feedlots, egg factories, and con- finement types of dairy or livestock operations; and the licensing and regulation of water use for irrigation farming. Serious water shortages have already arisen in some parts of the country due to the depletion of ground water supplies by excessive pumping for irrigation purposes. Problems are also reported in air and water pollution due to poultry and livestock operations which have tremendous numbers of birds or animals concentrated in a limited area. Scientists calculate that a 10,000-head beef feedlot creates as much waste matter as a city of 160,000 persons, for example, the combined population of Duluth and Superior, yet there are often no adequate provisions for waste disposal at the feedlots. We are convinced that considering the problems elsewhere, Min- nesota ought to be preparing itself with some reasonable regulations administered at the county level. Undoubtedly, these problems of wa- ter-use regulation and air and water pollution may not be long delayed in appearing in this State. We have not finalized these recommendations but expect to do so in the coming weeks. If it is agreeable with the chairman, we would be happy to submit them when they become available. PAGENO="0270" 266 Another activity in which we are engaged is a study of farmland transfers and prices. Studies by the Department of Agriculture and the University of Minnesota show some of these trends as of the year 1~67. Farmland values have increased about 7 percent in the year of 1967. To augment this data, we have solicited the cooperation of rural real estate agencies and dealers in farmland. We have obtained replies from more than 100 such land agents and they indicate that farmland market values are increasing over 1967 by another 6 to 7 percent on the average this year. In addition, some real estate men made estimates of the land value increase in dollars per acre: Four reported prices $5 an acre higher than in 1967; 16 reported $10 an acre higher; six reported $15 an acre higher; eight reported $20 an acre higher; 16 reported $25 an acre higher; one reported $30 an acre higher; eight reported $50 an acre higher; one reported $60 an acre higher; eight reported $100 an acre higher. Our questionnaire also inquired as to whether the land dealers had knowledge of standing offers in their community by outside firms or investors to buy large tracts of farmland. Twenty-seven real estate dealers said they were aware of such standing offers. Eleven real estate dealers reported that a premium of $25 an acre was being offered for land in laro~e tracts. Three reported a premium of ~50 an acre. Five reported a premium of $100 an acre or more being offered for large tracts of farmland. Senator NELSON. You mean these offers of $100 and $50 and $25 an acre were offered above the current market value? Mr. ON5TAD. Apparently over the current market value of that par- ticular acre being reported by this individual. In the absence of time I am going to delete a short portion here and go on to the final conclusion. These are, of course, isolated examples, but certainly, they raise the question of whether farmland is beginning to be overpriced in rela- tion to its earning power and whether farmland may very well be priced out of the market for family farmers through `the bidding up of prices by the investor buyers. The apparent trend to higher prices, combined with excessive costs of borrowing due to high interest rates, can make it very difficult for operator-farmers to acquire farms and expansion acres. In conclusion, if there is any one thing that we have learned in our deliberations so far on the task force, it is that the corporation farm problem has many aspects and that it will require a variety of remedies at the local, State, and Federal levels. There is no single solution to the problem, although it is quite clear `that the corporation farms have made their greatest advances in the commodities in which there are not effective farm programs. Therefore, it seems obvious to us that an improvement in the Federal farm programs to make possible parity returns to family-type farmers would be the surest and quickest meth- od of attempting to keep farmland in the hands of farm families. Thank you, Senator Nelson, for allowing me to make this state- ment. PAGENO="0271" 2~7 Senator NELSON. I want to thank you very much for your statement. When does the task force expect to complete its study? Mr. ONSTAD. We hope to have it completed sometime this fall. Senator NELSON. We would appreciate it if you would submit your full task force study so that we could print it in the hearing record as soon as it is ready.' Thank you very much. (The complete prepared statement submitted by Mr. Onstad fol- lows:) STATEMENT OF ARNOLD ONSTAD, CHAIRMAN, FARMERS Uwiow TASK FORCE ON CORPORATION FARMING My name is Arnold Onstad. I am a farmer in Houston county in the extreme southeastern tip of Minnesota. I am a past president of the Minnesota Association of Soil and Water Conser- vation Districts and am currenty a member of the state board of that organiza- tion. I have also served as a Minnesota State Councilman for the National Association. 1 am a member of the USDA Public Advisory Committee on Soil and Water Conservation. I am here today as chairman of the Minnesota Task Force on Corpora- tion Farming, which is a citizens' group appointed last December by Presi~ dent Christianson of the Minnesota Farmers Union. Our Task Force has seven members and includes farmers, co-operative officials, rural businessmen, legis- lators, and a rural clergyman. We have working with us a staff of research consultants, Including a legal counsel, a co-operative specialist, a marketing economist, and a noted land economist from the University of Minnesota, Dr. Philip M. Raup. Our Task Force was directed to do more than just sound the alarm about cor- poration farming. We were urged to: (1) Review corporation farm restrictions in Minnesota and other states. (2) Make a realistic appraisal of the situation of Minnesota's family farmers and their possible vulnerability to displacement by corporation farms. (3) Recommend legislative drafts of such bills and outline such administrative adtions as might be important in achieving a climate in which family farms can survive and prosper. As our first activity, we have conducted a study of the extent of farm land ownership in Minnesota by corporations. We have made studies of the situation in our own respective ~ounties, we have obtained reports from Farmers Union County and Local officers. We are in the process of cross-checking our informa- tion with the results of the `surveys made by the U.S. Department of Agriculture Agricultural Stabilization and Conservation Service (ASOS) and in verifying some of the ownerships by inquiries to the county auditors of the counties involved. It appears to us presently, although the study has not yet been completely tabulated, that there are about 230 corporate owners of farm land In Minnesota and that more than half are family-type corporations, which have adopted this type of legal organization for the sake of income or inheritance tax considera- tions. Some regard this as an `advantage; many other farms feel that they can achieve the same objectives in a better manner with family partnerships. The USDA ASCS survey, which has not yet been published, will apparently show about 173 total farm corporations of which 59 are described as non-family type. However, the USDA survey took into consideration only farms which were both owned and operated by corporations and therefore did not enumerate farms which were owned by corporations and operated by someone else. Our report will, therefore, show an appreciably larger number of both family and investor corporations owning farm land. Thus far, the acreage involved in the corporate ownerships is not huge. It appears to be in the neighborhood of about 337,000 acres-which would be only about 1% of the total farm land area in the state. ~ This aud other supplemental Information will be Included in an additional volume. PAGENO="0272" 268 However the important point is that about haff of the acquisitions of land by non-farm investors have taken place in the last three years and that these pur- chases by 41 business corporations since 1965 total almost 100 000 acres This indicates that the trend is undoubtedly continuing There is a tame lag between the time i~ land transaction is made and the time it appears officially on the county records Therefore it is difficult sometimes to obtain immediate docu nientation of new acquisitions. It also appears that there is some ef~ort by some buyers to conceal the ownership by having the purchase made for them by an agent who appears to be at the time a farmer buying land for his own personal use. There appear also to be some instances in which land holdings which seem to be all in one basic ownership are held in several different names. The purpose undoubtedly would be to avoid violating state law which bars any corporation from owning more than 5,000 acres of farm land in the state. . It appears at this stage that there are a few corporations which have exceeded the 5,000-acre limit and are in apparent violation of the law. There are other corporations with more than 5,000 acres of land but a three-year statute of limitations has expired and they are not apparently subject to legal action We also have a state law which requires life insurance companies who acquire farm land as a result of foreclosure of a mortgage or satisfaction of a debt to divest themselves of such property within 5 years. While these two state laws contain only a part of what our Task Force will probably consider essential in an anti corporation farm law these laws should nevertheless, be enforced. We regard the existing state laws on ownerships of farm land by corporations and life insurance companies as the framework on which a more positive and effective state law can be considered and developed by the 1969 state legislature. A draft of the suggested legislation will be `prepared by the Task Force and' made available for public discussion by legislators farmers and intereste~i citizens of our rural communities before the 1969 session We are also exploring the merits of a new state real estate tax on excess farm land tax holdings and may recommend a legislative draft of a tax levied on a graduated basis in relation to the degree to which the land in question exceeds the average size of farms in a particular county. We are also exploring the development of enabling legislation which would propose to empower county boards of commissioners to establish county boards on farm land resources, which might be given functions including the regulating of farm land transfers, regulation or prohibition of undesirable forms of agri- cultural enterprise not in character with the existing patterns in the county and which do not represent good land use; the regulation of public nuisances which result from air and water pollution arising from feedlots, egg factories, and confinement types of dairy or livestock operations; and the licensing and' regulation of water use for irrigation farming. Serious water shortages have already arisen in some parts `of the country due to the depletion of ground water supplies by excessive pumping for irrigation purposes. Problems are also reported in air and water pollution due to poultry and livestock operations which have tremendous numbers of birds or animals' concentrated in a limited `area. Scientists calculate that a 10 000 head beef feedlot creates as much waste matter as a city of 160,000 persons, for example `the combined population of' Duluth and Superior, yet there are often no adequate provisions for waste disposal at the feedlots. We are convinced that considering the problems elsewhere, Minnesota ought to' `be preparing itself with some reasonable regulations administered at the' county level. Undoubtedly, these problems of water-use regulation and air and water pollution may not be long delayed in appearing in this state. We have not finalized these recommendations but expect to do so in the comthg' weeks. If it is agreeable with the Chairman, we would be happy to submit them when they become available Another activity in which we are engaged is a study of farm land transfers and prices Studies by the Department of Agriculture and the University of Minnesota show some of these trends as of the year 1967. Farm land values have increased about 7% in the year of 1967 To augment this data, we have solicited the co-operation of rural real estate agencies and dealers in farm land. We have obtained replies from more `than 100~ PAGENO="0273" 269 such land agents and they indicate that farm land market values are increasing over 1967 by another 6 to 7% on the average this year. In addition, some real estate men made estimates of the land value increase in dollars per acre-4 reported prices $5 an acre higher than in 1967; 16 reported $10 an acre higher; 6 reported $15 an acre higher; S reported $20 an acre higher; 16 reported $25 an acre higher; 1 reported $30 an acre higher; 8 reported $50 an acre higher; 1 reported $60 an acre higher; and 8 reported $100 an acre higher. Our questionnaire also inquired as to whether the land dealers had knowledge of standing offers in their community `by outside firms or investors to buy large tracts of farm land. Twenty-seven real estate dealers said they were aware of such standing offers. 1~1leven real estate dealers reported that a premium of $25 an acre was being offered for land in large tracts. Three reported a premium of $50 an acre. Five reported a premium of $100 an acre or more being offered for large tracts of farm land. These reports came from all agricultural areas of the state. Some of the' reports are as follows: North Central Minnesota dairy area-Farm land sales prices per acre about $10 an acre higher than a year ago. There are standing offers of investor buyers to purchase large tracts at a premium of $25 an acre over going market prices. Southern Minnesota corn-hog-dairy area-Premium of $50 an acre is being offered for land in larger tracts. Average price of farm land sales about $15 an acre higher than a year ago. Red River Valley, cash grain area-Several standing offers for farm land in large `tracts with instances of premiums as high as $100 an acre over going market values. Southwestern Minnesota, corn-hog-soybean area-Numerous rumors of cor- poration farm land purchases but none confirmed. Price per acre of farm land about $25 an acre higher than a year ago. Southern Minnesota, corn-hog-soybeans-Average selling price of farm land about $25 an acre over a year ago. `Southern Minnesota, corn-hog-soybeans-Standing offers to buy farm land in larger tracts with premiums up to $50 an acre over going market prices. Sales prices `themselves about $25 to $50 an acre higher than a year ago. Southern Minnesota, corn-hog-dairy-Farm land sales averaging about $25 an acre higher `than a year ago. Southwestern Minnesota, corn-beef area-Farm land sales averaging about $30 an acre higher than a year ago. Central Minnesota, corn-hog-dairy area-Reported farm land sale prices $25 to $50 an acre higher than a year ago and two out of three farm sales have been to investor buyers. This, of course, is juslt `a sampling of the repo'rts from real estate dealers re- flecting their evaluation of conditions in their own communities as of May and June of this year. These are, of course, isolated examples, but certainly, they raise the question of whether farm land is beginning to be over-priced in relation to' its earning power and whether farm land may very well be priced out of the market for family farmers through the bidding up of prices by the investor-buyers. The ap'parent trend to higher prices, combined with excessive costs of borrow~ ing due to high interest rates, can make it very difficult for operator-farmers to acquire farms and expansion acres. In conclusion, if there is any one thing that we have learned in our delibera~ tions so far on `the Task Force, it is tha't the corporation farm problem has many aspects and that it will require a variety of remedies at the local, state, and foci- eral levels. There is no single solution `to the problem, although it is quite clear that `the corporation farms have made their greatest advances in the commodi- ties in which there are not effective farm programs. Therefore, it seems obvi- ous to us that an improvement in `the federal farm programs `to make possible parity returns to family-type farmers would be the surest and quickest method of attempting to keep farm land in the hands of farm families. Senator NELSON. Our next witness is Mr. Norval Ellefson, Farmers Union Central Exchange. We appreciate your taking your time to come here, Mr. Ellefson, to represent the Farmers Union Central Exchange. 05-253-68-18 PAGENO="0274" 270 STATEMENT OP NORVAL ELLEPSON, PRESIDENT, FARMERS UNION CENTRAL EXCHANGE, INC., ST. PAUL, MII~N. Mr. ELLEFSON. Thank you. I am speaking for the Farmers Union Central Exchange, a farm supply cooperative based in St. Paul. We serve about 850 cooperatives. Senator NELSON. How many? Mr. ELLEF5ON. About 850 cooperatives throughout this northwest area. We have our prepared statement that I wish to file with the committee. In addition to this, we just want to make these remarks: that we are very much concerned about the future of agriculture, we are very much concerned about the national resources of this land. Other- wise than this, we have submitted our thoughts in this prepared statement. We want to express our appreciation for the privilege of submitting these views and thank you very much for appearing at this hearing. Senator NELSON. We appreciate your taking the time to come, Mr. Ellefson. Your statement will be printed in full in the record. (The complete prepared statement submitted by Mr. Ellefson follows:) STATEMENT OF NORVAL ELLEFSON, PRESIDENT, FARMERS UNION CENTRAL EXCHANGE, INC. The subject of corporation farming in the United States is being discussed more and more frequently by farmers, farm leaders and those involved in the decision-making processes within the non-farm portions of the agri.businesS complex. There are those, usually farmers themselves, who oppose all corporation farming as being against the tradition of American family-type agriculture and therefore inherently evil. There are those, apparently dominated by non-farm businessmen, who seem to think that any restriction on the free entry into farm- ing by any one, be it person or corporation, is also against the American tradi- tion of free enterprise and is, therefore, inherently evil. In an issue as emotionally charged as this one, history would indicate that the wisest course of action to produce the greatest good for the greatest number of people, also an American tradition, probably lies somewhere between the two extreme views. The question of corporation farming is nOt a new one. The Statutes of at least five states at one time or other placed some restrictions on corporation farm- ing. For example, a Minnesota law limiting corporate ownership of land was passed in 1887-80 years ago. In my judgment these laws reflect an attitude that unlimited corporate control of agriculture would not be in the best public interest. While it has not been documented, to my knowledge, I believe that the same general attitude still exists. I feel certain that the overwhelming majority of family farmers believe this without qualification. Yet there is much confusion about the question, even among farmers. An arbitrary legal prohibition of all types of corporation farming would probably not get the support of operating farmers. There are many advantages to family or closely held farmer or community farming corporations. What farmers are most concerned about is the invasion of great sums of cor- porate capital from out of the community and frequently out of the state, to purchase large tracts of land which are absentee owned and operated. The average farmer knows he cannot possibly compete for additional land to expand his farm against this type of operation. But the question of whether corporation farming is good or bad for the country goes beyond just what farmers, or the leaders of the farming corporations think. It is a question for all segments of our society to consider. Unlimited corporate ownership of farms will have a direct effect on all of rural America and will PAGENO="0275" 27~1 increase the problems of our already too crowded cities. In addition, the possi- bility of monopoly control of American agriculture by giant farming corporations poses a direct threat to all consumers as welL There are many commonly held assumptions about the impact of corporation farming. These are based on facts that document the effects of the current tech- nological revolution in agriculture, as well as the lack of adequate farm income. The report of the National Advisory Commission on Food and Fiber (July 1967) summarizes this dilemma: "Aggregate income from farming tells only part of the story of the broader concept of rural well-being. It omits some of the important aspects of personal and family incOme distribution; it neglects the necessarily close interrelationship between farm and other rural and smalitown persons. . . (p. 197) "About 30 `percent of the U.S. population i's in rural area's-nnd moat of these rural people are at `a disadvantage compared with their urban cousins. The dis- advantage shows up most clearly in lower incomes, but it can `also be readily seen in the other economic indicators: Reduced government services at higher costs per person, fewer job opportunities at lower wages, and shorter and poorer schooling. Even if the rural resident decides to migrate to `a city, he may still find himself at an educational disadvantage, `and being new to urban life, he is less equipped to compete in the urban labor market. He is usually the last hired and the first fired. . . . (p. 197) "One indication of the disadvantage of the rural resident is the continuing out-migration from rural areas. Usually, the emigrants are the young people- who not `only represent the area's best hopes for the future, but also carry with them a considerable investment by `the `rural area in education `and training. (p. 198) Farm residents have `only 79 percent `of the school attainment of rural residents. When quality of education-in terms `of the variety of courses offered, remedial `courses, courses for handicapped children, and the use of modern educa- tional technology-is included this percentage of disadvantage would be un- doubtedly more pronounced. . . . (p. 210) "Lower ru'ral expenditures for community `services d'o not mean th'at rural areas have `adequate government service and public utilities. Specifically he'alth, hospital, medical, `a'nd `sanitati'on facilities a're p'o'orer th'an tho'se in urban areas.... (p. 212) "There `is great `need to upgrade the quality `of local public `service in rural areas. . . ." (p.217) The Commission's findings point out the serious problems already facing rural communities It is commonly believed that because corporation farms frequently employ seasonal, transient labor, they increase local employment problems, `add to the school l'o'ad `and adversely `affect `social institution's, such `as civic `clubs, fraternal organizations `and churches. In addition, their iarge~soale purchases tend to bypass the local businessmen `and `services usually furnished in the com- munity `are obtained from corporate headqu'arters or i'n other `are'as. Thus the conclusion must be that `a corporate farm economy would cause the disappearance `of even `some of the larger more prosperous town's `and trading centers `in `rural Ame'rica. This would further erode the quality `of living in the country by increasing the migration of underemployed and unemployed people to the large `cities where they `are ill equipped to take their place in `s'ociety a's pro- ductive Ame'rican's. There `are some that say artificial `restricti'o'ns `on the entry `of corporations into farming would reduce th'e efficiency of agriculture in the United State's. The im- plication is that corporate-type agriculture i's more efficient than `our family farm system. There `are few fact's t'o document this view. The basic problem is that our agriculture is already too efficient. It can produce far more than the market can absorb `at fair farm. prices. Therefore we don't `need to encourage corpora- tion farming `as a matter of public `pol'icy, in order to produce more food and fiber. A reasonable appraisal of the situation seems to indicate that the `rapid rise in the numbe'r `of corporation farms is already, in fact, the result `of an `artificial situation. The tax regulation's `that allow the writeoff of farm losses `against non- farm corporate `income does `stimulate farm investment with cheap dollars- something the family farmer can't do. In addition, the present `regulations en- courage corporate land speculation, to the detriment of both farmers and `rural communities. PAGENO="0276" 272 The entire question of corporation farming is so large and complex that a na- tion'al study should be undertaken to examine all parts `of the problem. it is not a question of economics alone. Economic efficiency is not a goal in itself. We do not always do things the `most efficient way. We consider the rural and esthetic values `a's well. Rural s'ociol'ogists, church leaders, `and educators need to join with `farmers, economists and farm leaders to thoroughly investigate all `sides of the corporation farming question. The goal of `suc'h a comprehensive `study should be to make recommendations to increase the quality of rural living-both on `and off the farm. Until `such a study is complete `and the people `have had an opportunity to de- cide which course is best for America, we should consider removing the public encouragement of non-farm corporate `entries into farming. The result `of inaction `at this critical time might be the permanent destruction of rural America `a~s we have known it. Senator NELSON. Our next witness is Dr. Arthur Miller of the Pure Milk Products Cooperative, Fond du Lac, Wis. Thank you for appearing in behalf of your Pure Milk Products. Do you have a prepared text? Dr. MILLER. Yes, I do. Senator NELSON. It will be printed in full in the record. STATEMENT OP ARTHUR H. MILLER, PH. D., ECONOMIST, PURE MILK PRODUCTS COOPERATIVE, POND DU LAO, WIS. Dr. MILLER. First, Senator, I would like to thank you for offering Pure Milk Products Cooperative the privilege of appearing here. I shall proceed to read my statement. Senator NELSON. All right. Dr. MILLER. I am Arthur H. Miller of Fond du Lac, Wis. I am economist for Pure Milk Products Cooperative, with offices in that city, and am appearing in behalf of our general manager, William C. Eckles, who is unable to be present. Pure Milk Products Cooperative is a dairy marketing, bargaining and service cooperative, with some 14,000 dairly farmer members whose farms are located throughout Wisconsin, northern Illinois and the Michigan Upper Peninsula. The expansion of corporation farming is of concern to us to the extent that it reflects increased control over agriculture by interests which have a secondary rather than a primary interest in farming. Thus, when we express a fear of corporation farming, we are concerned with the expansion into farming by corporations which are engaged to a large extent in other activities. Our concern with the invasion of farming by nonf arm corporations stems primarily from the fact that the interest of the nonf arm cor- poration may be directly adverse to the interest of the family whose only source of livelihood is the farm which they own and operateS Some of the differences include: One, the farm family is interested in the most efficient operation possible, and favorable farm prices are necessary to the extent that the farm may be a profitable venture solely from its own operation. The corporation may be interested in using its farm subsidiary to drive down prices and improve the income of the parent corporation to the detriment of the family-type farmer who has no other source of income. PAGENO="0277" 273 Two, the farm family is interested in the welfare of its community to the extent that it has a balanced shopping area and appropriate edu- cational, religious and social activities, and facilities. The absentee owner corporation has little or no concern for the local community except possibly to keep taxes at the lowest possible level. Supplies may be bought at wholesale through the parent corporation, and stock- holders are primarily interested in the communities in which they live rather than where the farm may be located. Three, the farm family is interested in a favorable family income for farm management and workers. The corporation may be interested in keeping farm wages at the lowest possible level because farm wages are of concern only as an expense to the stockholders. Four, the farm family is at a disadvantage to the extent that the family-operated farm must support its entire expense and return to the Government the taxes on the income of the operators. The corporation farm, on the other hand, may be a tax write-off on the profits of the parent corporation. Corporation expenses may be far less than for the family farm because much of the corporation operating cost may re- flect a substantial tax saving to the owner. In our area we believe there is more cause for concern as `a result of contract farming than with outright corporate farm ownership. We would say you can have corporation farming without corporate owner- ship of the land. You can contract for the use of the land and cor- porations may gain many of the advantages over the family farm by contract farming without taking from the farmer the risk of ownership. When this approach is taken, the corporation offers a select group of farmers a modest income with reduced risk, but takes away from the farmer his managerial freedom and the possibility of a higher income in a competitive market. The production of those farms under contract to the corporation may be used in turn to force down prices to the re- mainder of agriculture. In Wisconsin we have not had a large expansion of corporate owner- ship in agriculture. However, we have had a long history of contract farming of a number of types. Large corporations have long contracted for certain farmers to grow specific crops for their exclusive use. Varieties have been designated, and growing practices and schedules have been rigidly supervised. This type of operation has been generally characteristic of canning vegetables and poultry. Large scale corporate livestock operations have not been nearly as common as the cash crop contract operations. The small extent of corporate owned operations is in our opinion a reflection of the preponderance of dairying in Wisconsin agriculture. Both milk price levels and the limited degree of mechanization, to- gether with the extensive and confining labor requirements, have been such as to provide relatively unattractive corporate investment oppor- tunities in Wisconsin dairy farming. A 1964 USDA report showed a very small percentage of `both farms and farm production from very large farms in the Great Lakes area. Table 1 illustrates the difference between the Great Lakes area and certain other parts of the Nation. I shall submit the table for the record. (The table follows:) PAGENO="0278" 27~4 TABLE 1.-PERCENTAGE OF FARMS WITH SALES OF $100,000 OR MORE PER YEAR, AND PE FARM SALES FROM SUCH FARMS IN SELECTED AREAS 1959 RCENTAGE OF TOTAL Percentage of corn mercial farms with Percentage of all commercial farm farms State or area yearly sales of $100,000 or more 1 sales with yearly sales of $100 000 or more Wisconsin 0 2 3 1 Minnesota .2 Michigan . 2 Texas 15 3. 8 205 Florida 5. 0 Arizona 14.2 California 8 0 72.7 55 0 6 United States 8 iSource Our 100 000 Biggest Farms Agricultural Economic Rept No 49 USDA Washington D C February 1964 Dr MILLER The cash crop contract operations cirried on by the large corporations have long been the subject of bitter criticism by many farmers in our section of the Nation It is apparent to us that these operations have in many cases reduced farm labor requirements per acre as compared with other types of farming. However, many farmers feel they have also reduced total farm returns by limiting farm income per acre in the long run Farmers have long complained of loss of income because of con venience of the buyer called for either premature or delayed hir vest mg If harvested too soon, income suffered because of low yield If too late, the product w'~ts downgraded and returned a low price More recently the big trend to contract farming has been in the poul try industry Feed manufacturers and poultry processors have con vinced many farmers to make large investments in building and facil ities to grow turkeys for exclusive sale to the company issuing the contracts Birds `md feed have been furnished according to contract terms, and the farmer follows instructions Both cash crops and poultry have been on a mechanized basis, with large increases in production Prices have continued at relatively low levels as a result of the greater output placed on the market The prac tice may have resulted in greater volume and lower costs to processors, or may have assured increased demands for feed manufacturers, but many farmers doubt that farm income has improved This conclusion is drawn from the number of large empty poultry farm establishments in Wisconsin While we have related little in the way of dairy farming operations, this is not to say that we are unconcerned. In fact, we believe the dairy industry of our area is suffering from the large scale corporate opera tions elsewhere The depressed canning and poultry industries have curtailed alternative opportunities for dairy farmers Also the large operations in other areas of the Nation are producing huge amounts of milk in areas favored by U S P A with higher class I prices As an example, I might point out in Wisconsin where we have had average class I prices in 1966 between $450 and $4 75- Senator NELSON What was the average ~ Dr MILLER Between $450 and $475 per hundredweight We have had an average of a little better than a thousand pounds of milk per day per farm sold in these Federal order markets In PAGENO="0279" 275 contrast we have the southeastern Florida market with an average of $6.93 which had better than eight tons per day per farmer average sales in 1966. The differences in class I milk prices and sales per producer between markets in Wisconsin and some other Federal order markets is shown in table 2. I shall submit the table for the record. (The table follows:) TABLE 2.-AVERAGE CLASS I PRICE AND AVERAGE MILK SALES PER FARM PER DAY IN SELECTED FEDERAL ORDER MARKETS, 19661 Market Average class I price Pounds of milk sales per farm per day Northeastern, Wis Milwaukee, Wis Central Arizona Tampa Bay, Florida Southeastern Florida $4.51 `~7~ 6.15 6.85 6.93 1,016 1,064 6,611 5,641 16,580 Source: Federal Milk Order Market Statistics Annual Summary for 1966: USDA ,Statistical Bulletin No. 403, May 1967. Dr. Mu~LEn. More recently we have been informed of a large company making plans to establish a large corporate owned dairy farm rn the Arkansas area. That area has from time to time in the past purchased supplementary milk supplies from Wisconsin which could move there at a transportation cost approximately equal to the difference between minimum Arkansas and Wisconsin milk prices as established under the respective Federal milk orders. Also for a number of years there has been at least one direct shipped milk route picking milk up on southern Wisconsin farms for delivery to a St. Louis handler. We believe the large corporate dairy will likely displace the milk of at least 10 or 12 family farms and probably more. It will certainly increase the milk supply currently being sold either through domestic channels or to Government purchase programs. Such an increase is bound to be felt to at least some extent in market prices. We believe our national needs can best be met by keeping agriculture in the hands of family operators. To do otherwise is in our opinion bound to result over a period of years in substantial damaging changes in American agriculture. If we permit our farms to be combined into a few large corporate operations we can expect either a peasant type of sharecropper help or unionized workers at vastly higher production costs. We believe both our farm programs and the farm tax structure should be geared to favor the continued existence of the American family farm type of agriculture. Such action is important, not oniy to farmers, but also to the communities which supply the needs for the operation of the many family farmers. It is unlikely that large corporate farm operators will depend upon local community merchants and deaJers for farm supplies when their operations are large enough to justify purchases at lower prices by central wholesale purchase divisions which completely bypass the local community. We cannot afford to force more of our farm population into urban slum areas as they are squeezed off farms. Many are trained, skilled, PAGENO="0280" 276 and experienced in agriculture with a lifetime on the farm, but would be qualified in the city oniy for the unskilled jobs at the bottom of the income ladder. Our society cannot afford to displace farmers to city jobs for which they are unsuited and which will only add to the ranks of poverty. We must take all possible measures to preserve a family type of agriculture from the encroachment of the absentee-owned corporate farm operation. Thank you. Senator NELSON. Thank you very much, Dr. Miller, for coming here to appear in behalf of Pure Milk Products Cooperative. The next witness is Mr. William Pickerign, First National Bank, Chippewa Falls, Wis. Welcome here today, Mr. Pickerign. We appreciate your taking the time to come here. Mr. PIOKERIGN. Thank you, Senator. STATEMENT OP WILLIAM PICK~ERIGN, ASSISTANT CASHIER, THE FIRST NATIONAL BANK, CHIPPEWA FALLS, WIS. Mr. PICKERIGN. I am William Pickerign, assistant cashier at the First National Bank of Chipp.ewa Falls. I am one of the two agri- cultural officers there whose duties are primarily concerned with han- dling, determining and distributing agricultural loans. I am about to begin my fifth year or have begun my fifth year in this business. Prior to this I was an agricultural instructor for 4 years and it is in view of these years of experience that I will attempt to deal with these statements. Senator, being witness No. 16 approximately, I believe much has been said already today relative to the problems centered around corporate farming. However, most have been centered around a larger scope than what I probably will be dealing with here, pri- marily because of being a country bank we are dealing a little closer to a specific locality. Also, Senator, I wish to clarify a few statements, even though you made it very explicit this morning as to what we would be covering, `but because we do have a number of farm customers in here today, I want to be sure that I clarify one particular point. The views which I express here are not necessarily those of the bank, but more explicitly of Joseph Lucente and myself. Now, in order that further comments are placed ifl proper perspec- tive, may I make additional clarification relative to the following terms that are used in our particular area that are sometimes miscon- ceived and misused, such as contract farming, company farming, just plain big farming and then, of cours8, family corporation farming. All of these forms of farms which I just mentioned exist in one form or another right here in our local area and all of them are some- what successful and I choose not to misrepresent any of them. These four types of organizations are presently operating in our area and are not to be inclusive in my report today on corporate farms. It is felt that each one of these forms of bigness in agriculture contributes fully to themselves and to their community and it is further felt that they PAGENO="0281" 277 do not pose a threat to our economy nor our communities merely because they are large. It is a change we feel at the bank we must accept with the revolution of both industry and technology. These trends are to be expected and we feel they should be viewed as desirable and a healthy situation, as it is felt their growth and development are in proportion to the growth and development of other industries and businesses. Now, in view of our question at hand, the effects of corporate farm- ing, I see corporate farming present in our area in two forms. First, an operation owned by lOcal corporations within the same community and, secondly, an operation owned by a corporation far removed from our area. Though there are a few corporation arrangements prevail- ing in our area, I would like to inject I do not expect that it will pose the same serious problems or threats in a specialized dairy area such as ours as compared to some of our wheat and cotton plantations. However, we are not immune to corporate arrangements and I think we have to look at them as such and I will continue as if the threat were just as equal or great. I think we have to ask ourselves, as many did already this morning, why are corporations going into farming? I think this has been ex- plained by a number of witnesses. I will skip over this one. I men- tioned we feel one of them probably is the small labor force that is re- quired as compared to their own parent company. To operate a large dairy operation seems significantly small to the corporation as com- pared to their regular operation at home. Second, competitive factors are not as great, they don't appear to be any. Third, they have a readily marketable product, and, fourth, there is no question that corporations recognize the increasing world food needs. I feel most of us are familiar with the problems a corporation farm brings with it when it acquires an operation in our area. First, it disrupts the community social environment for it removes a number of rural families. When it removes these people from their regular environment it throws them into another social environment which is not familiar to them and presents problems. Second, it hurts our communities because they have a tendency to purchase supplies, feed, fertilizer outside the service area of the com- munity. They hurt us in our business of banking particularly in that financing automatically comes from the bank at their head office and, in turn, any excess deposits eventually will drift back into the home office and circulate in that monetary system rather than in the system in which its original origin was. It is difficult to evaluate the amount of money generated by the farm community and it is even more diffi- cult in most cases to determine how it is distributed, but I have seen figures where of about one hundred thousand dollars of farm income but sixty thousand of this original one hundred remained in the area. However, it becomes quite different in a corporate farm. Third, it has a tendency to create unrealistic land prices as local farmers find it quite difficult to compete. Fourth, corporation farms with headquarters far removed have little to offer its community in civic affairs. As these farms come in they remove families that have been involved on the school board, in- PAGENO="0282" 278 volved as town chairman and so forth, which are removed, and the corporation could care less as to the activities of the: area., Fifth, it is questionable with absentee owners what attempts are made in conserving resources, perhaps not so much in our area where land ownership prevails, but in areas where land leasing is quite pre- dominant. So far I have discussed corporation farms as it appears when a farm is taken over as a whole, but I sincerely believe that our greatest threat lies not necessarily in this type of operation, but where a large firm is going just for a piece of the business. This goes unnoticed while the other is really quite eminent. `The cases I now refer to are where large corporations are not actually engaged in the operation of live- stock or crop production hut are in the farm service and supply busi- ness. While they are attempting to assist the individual farmer, he is actually undermining some of the businesses located in the trade community of this particular farmer. Now, these firms have a product or products to sell and in most pro- grams, service is a primary factor. Just as in our bank we advertise full bank services, these firms attempt to offer a full service package to its customers with trained fieldmen to see that its intents and all its purposes are carried out. For instance, the corn seed salesman of today not `only sells the farmer his seed corn needs, but also does the soil testing, he sells the fertilizer and herbicides and insecticides, but after he has met all of the above needs we find that this firm is ready or eager to finance a portion of it. Many of our swine and poultry enterprises are handled very similar where the feed company not only furnishes the feed, equipment and the swine or poultry, but the building and financing as well. This perhaps is more correctly called integration, hut it is still corporate oriented in our estimation, and is a great threat to `many small com- munities as both the inputs and outputs are from the outside or go to the outside of `the community except for a small fraction of the income left in the hands of the owner for his labor. Professor Staniforth mentioned this morning that some of the f arm- ers would have to pay off a hundred thousand dollar debt in a life- time, and I think this has already happened, we see it in our bank, but they have accumulated assets of $200,000 to $300,000, so this i's all, even here in a dairy area. There may be a question also here today as to what are the policies of our bank or what are the policies of other banks relative to restri'cting corporate farms, We have no policy relative to restricting a corporate farm as long as they meet the merits of individual ownership and individual borrowing. We feel it is permissible to, and worthy of extended financing. However, the one policy which we do have is that we do not lend ,to absentee ownership and therefore restricts corporate farms from our large operation. Senator NELsoN. You do not loan to absentee owners? Mr. PICKERIGN. It is a policy of our bank not to loan on an absentee basis. However, on the basis of family corporation and other local corporations we have been involved with this. Senator NELSON. How long ago did you establish that policy? Mr. PIOKERIGN. Since I have been there, Senator, because there was PAGENO="0283" 279 actually no policy prior to this time until problems began to present themselves and we had to have someway of restricting it and we have chosen this manner. Senator NELSON. Was it a policy position of the bank respecting absentee corporation farming or was it purely a banking matter of an absentee owner? Mr. PICKERIGN. I think, Senator, you can look at it from the stand- point it is probably a banking matter because in this particular area where we are dealing with dairying, it is felt by the bank and agri- cultural officer there we did not want to rely on absentee ownership because of the consequences which are quite eminent if the hired labor hand decides he is mad overnight and disappears the next day. These type of problems you are attempting to avoid. One other statement I might make and just a projection what we expect to see in our own bank. We expect to see that our farm file will have a tendency to become smaller while the loans of course will be- come greater in size. This completes my comments. (The complete prepared statement submitted by Mr. Pickerign follows:) STATEMENT OF WILLIAM PICKERIGN, ASSISTANT CASHIER, THE FIRST NATIONAL BANK OF CHIPPEWA FALLS I am William Pickerign, an assistant cashier, at The First National Bank of Chippewa Falls, Wisconsin. I am one of the two agricultural officers there whose duties are primarily handling and distributing agricultural loans. I am about to begin my fifth year in this business. Prior to this, 1 was an agricultural in- structor for four years. It is in view of these years of experience in dealing with agriculture that I make the following statements. First, I wish to clarify that any statements made by me today at this hearing are not necessarily the views of the bank but the views of its two agricultural of- ficers, more explicitly Joseph Lucente and myself. In order that further com- ments are placed in proper perspective, may I make additional clarification rela- tive to the following terms in that they are not one and the same despite the fact that they are misused and misconceived in our area by people in the so called agri- business fields. The terms I wish to briefly describe are contract farming, com- pany farming, family corporation farming, corporate farming and big farming. The reason I wish to clarify or describe each is that all of them exist in one form or another and all are somewhat successful in our area, and I choose not to mis- represent any of them. Contract fa'rming.-Is contracting for production and disposition of the end product through a single outlet firm. It alleviates the free market found often in field peas, green beans, poultry, et cetera. Company J'arnving.-The joining of several single operations housing all live- stock and milking arrangements on one farm and distributing machinery cost over greater number of acres, all sharing in accordance with their contribution. Big farniimg~-Large family farm operations privately owned and operated. Family corporat~ion farming.-A farm operation composed of family mem- bers only and operating as a corporation. These four types of organizations are presently operating in our area and are not to be inclusive in my report of corporate farms. It is felt that each of the above are a form of bigness in agriculture and contributes fully to themselves and their community. It is further felt that they do not pose a threat to our economy nor our communities merely because they are large. It is a change we must ac- cept with the revolution of both industry and technology. These trends are to be expected and should be viewed as a desirable and healthy situation, as it is felt their growth and development are in proportion to the growth and develop- ment of other industries and business. PAGENO="0284" 280 In view of our question at hand, "The effects of corporate farming", I see corporate farming * present in our area in two forms. First, on operation owned by local corporations within the same community or secondly an operation owned by a corporation far removed from the area. I believe the latter to be the most seriou~s threat but will refer to them as one in the same. Though there are a few corporate arrangements prevailing in our area, may I inject that I do not expect that it will pose the same serious problems or threats in a' specialized dairy area such as ours as compared to a large wheat or cotton plantation; however we are not immune to corporate arrangements and I will continue as if the threat were equal or as great. We have to ask ourselves why corporations go into farming. First, it appears to me that with all our mechanization and automation, a small labor force is required. Second, competitive factors are not as great as in industrial or the commercial world. Third, they have a readily marketable product. Fourth, they recognize the increasing world food needs. I feel most of us are familiar with the problems a corporation farm brings with it when it acquires an operation `in our area. First, it disrupts the community social environment for it removes a number of rural families depending on its magnitude from its present environment into a social environment quite unfamiliar to them, which presents problems in itself. Second, it hurts our community in that they have a tendency to purchase sup- plies, feed, fertilizer, equipment, et cetera, outside the service area of its com- munity. They hurt us in our business of banking particularly in that any financ- ing automatically comes from' the bank of their head office and in turn, any excess deposits eventually drift back to the home office and circulates in its monetary system and not in the area of its origin. It is difficult to evaluate the amount of money generated by the farmer in any community, but it is known that in most cases of corporate farms, it is greatly reduced, affecting every downtown businessman. Third, it has a tendency to create unrealistic land prices as local farmers find it difficult to compete with corporate capital. Fourth, a corporation farm, with its headquarters far removed, has little to offer a community in its civic affairs as compared with the number of families it displaced. Fifth, it is questionable with absentee owners as in a corporate farm operation, just what attempts are made in conserving of resources, perhaps not so much in our area where land ownership prevails but in areas where land leasing is predominant. So far I have discussed corporation farms as it appears when a farm is taken over as a whole, but I sincerely believe our greatest threat here lies not in this type of operation, but where a large firm is just going for a piece of the business. This goes unnoticed, while the other is quite eminent. `The cases I now refer to are where large corporations are not actually en- gaged in the operation of livestock or crop production but are in the farm service and supply business. While they are attempting to assist the individual farmer, he is actually undermining the business located in the `trade community `of this particular farmer. These firms `have a product or products to sell. In `most sales programs, service is a primary factor Just as in our bank we advertise Full Bank Services' these firms offer a Full Service Package' to its customers with trained field men to see that its intents and purposes are carried out For instance the corn seed salesman of today not only sells the farmer `hi's seed corn needs but also does hi's soil testing, sell's the fertilizer, the herbicides and Insecticides. After he has met all of the above needs, his firm is then ready or eager to finance a portion or `all of it. `Many of our swine and poultry enterprises ai~e handled very similar where the feed company not only furnishes the feed, equipment and the swine or poultry, but `the building and financing as well. This i's perhaps more correctly called in- tegration, but It i's `still corporate oriented and to my own observation is our greatest threat to our many small communities as both inputs and outputs are from or go outside of the community except the small fraction of income left in the hands of the owner for his labor. `Statistics s'how that approximately ninety five percent of the nation's farms are family `type operations. `However, the move toward corporate operations exist's and most of us are lost a's to how it should `be restricted or curtailed. PAGENO="0285" 281 Senator NELSON How difficult is it for a young farmer who wants to go into dairying at an economic commercial size to obtain a loan ~ I understand that it costs from $90,000 to $100,000 to be in dairying today. Mr PICKERIGN This is correct, it does present a problem and about the only way in which we have been as a bank able to work with them at all would be from a standpoint of financing, cosigning through the parent to get the young fellow established. It is just about impossible with today's capital requirements to attempt to go about it any other way. We are restricted on the basis of how much we can loan to an in- dividual without a certain element of his own capital and about the only way is with a cosigner, and the other is through the Farmers Home Administration which we work very closely with Senator NELSON. Well, what if a young farmer was going to buy a farm with a $100,000 price tag, what does he have to have in assets in order to get the balance of the loan from a commercial bank? Mr PIOKERIGN First of all, we are regulated nationally on the basis of 20 percent on any real property. The other one, of course, we are following a trend of approximately 65 percent on personal-type prop- erty, in other words, we will finance approximately 65 percent. Senator NELSON. You can finance under the law 80 percent of the real estate? Mr PICKERIGN Right Senator NELSON But machinery, the animals, all personal type, a maximum of 65 percent? Mr PICKERIGN This is just an unwritten law in our particular bank and we feel that this particular fellow should have this much invested himself and about the only way he can mvest it himself is by mortgag ing his father's property. Senator NELSON. Well then, for all practical purposes, a young farmer who doesn't have the backing, doesn't have a parent who can back him, just can't go into farming because there isn't any such thing as some $20,000 that he can get his hands on to make the down- payment, is that it ~ Mr PIOKERIGN That's right, Senator Going on 5 years that I have been in the bank I think we would have our first loan to make to a young man coming from the outside without having some connection or start or a boost from the parent Senator NELSON. Do you have any suggestions what modifications in the law might be made to make it possible for a young farmer to obtain the capital he needs? I introduced a bill which would make the farmer a 40-year loan with a balloon payment due at the end of the 40 years and the right to refinance the other half again The loan would be granted through FHA I am gust wondering if there are any ideas that you might have on what changes in the law Now for all practical purposes the young fellow, no matter how good he is, can't go into farming unless per chance his parents can help. Mr PICKERIGN I think the FHA, Senator, takes the same ap proach primarily in that the person first of all is engaged in farming or has to have the ability to farm~ it is expected that he's cut out for PAGENO="0286" 282 this type before they would become involved in the financing area as well. Now, as to your answer to what we can do to bring in this other young fellow that has no parents on the farm or doesn't have the opportunity to use this equity which his parents have built up, I really don't have an answer other than on the basis of today's discussion relative to corporate farms as, I mentioned, certainly there is a tenden- cy to bring our prices up, land values to a nonrealistic price. Corporate farms come into our area buying at a higher price than what the original appraisal would be. Senator NELSON. Thank you very much for your fine testimony. We appreciate your coming. The next witness is Mr. Robert Tyler, Wisconsin Turkey Federa- tion, Madison, Wis. Mr. rltyler, we appreciate your coming here today to represent the Wisconsin Turkey Federation. Your statement will be printed in full in the record. You may present it any way you desire. STATEMENT OP ROBERT TYLER, VIC:E PRESIDENT, WISCONSIN TURKEY FEDERATION, MADISON, WIS. Mr. TYLER. Thank you. First of all, the Wisconsin Turkey Federation wishes to thank you for hearing our views on corporate farming. The Wisconsin Turkey Federation feels that the information sought by this committee could benefit the agriculture of America. Farming has traditionally benefited from and been a victim of economic cycles. Recent years have not been favorable to agriculture. The few good years have not offset the bad ones. As a result, many good family farmers have sought employment elsewhere. The turkey industry has seen this, just as other agricultural industries have. In my statement I list the number of turkey farms and for brevity I will just state that in 1930 there were eight and a half thousand turkey farms in Wisconsin and the last census record in 1964, there were only 480. Senator NELSON. How does the total production of turkeys com- pare? Mr. TYL~. It is like all other farm commodities, there has been a tremendous increase in the production per farm. Senator NELSON. You don't have the figures on the total number of birds produced in 1930 with 8,500 producers versus- Mr. TYLER. I don't have those figures with me, sir. Senator NELSON. Do you have any figures on the past trend, the past 5 years or so? Mr. TYLER. Yes, they are available. I don't have them here with me, however, I can get them for you.' Senator NELSON. But the production in total numbers continues to rise. Mr. TYLER. Yes. 1 Material had not been supplied at time of going to press. PAGENO="0287" 283 Steadily decreasing profits on each unit of production have forced the producer to get larger, or quit. This trend of larger farms is not all bad, but we need direction as to where agriculture should be headed in the future. Modern technology enables one m~tn to produce more with his labor. Therefore, some increase in the size of operations is war- ranted. However, his labor should net him a reasonable return. We feel that the economic situation faced by farmers has forced them to expand operations in order to try to earn additional income to keep pace with the economy. This, coupled with the entry of nonagricultural interests into farming operations, has given us overproduction. Since supply and demand influences farming receipts, this overproduction has resulted in severe losses during some years; 1961 and 1967 are notable examples in the turkey industry. When a nonagricultural interest goes into farming, profit should be the motive. However, we have seen such companies enter into or ex~ pand turkey operations during years where there was little or no profit potential. This leads one to feel that profit, for a specific year at least, is not the only motive. They may not wish to reduce production levels due to the need to make full and economical use of labor and facilities, `but this still does not explain why production would be increased or started when profits are not forecast. There is a feeling that some companies hope to push the small opera- tor out of business and gain a large share of the industry in the future. By so doing, they could gain some control of supplies, and prices as well. The Wisconsin Turkey Federation feels that an individual producer can produce turkeys just as economically as any large company. Each can make a profit when prices are reasonable. However, the widely diversified company can withstand losses by transferring portions of them to other, highly profitable operations. They have an additional advantage with our present tax laws, which allows the deduction of losses from farming operations from the profits of other operations under the same corporate structure, to reduce the tax load. The Wis- consin Turkey Federation has been concerned about this practice for some time. In March, the group asked that a resolution be drawn up; as follows: Wisconsin Turkey Federation Resolution 1968-C. Whereas current tax laws permit diversified companies to deduct losses of one operation from profits of unrelated or distantly related operations under the same business structure to' reduce their tax load; Whereas losses on farm production operations have often been treated in this manner; Whereas this practice has encouraged diversified companies to enter or expand their farm production operations in the face of no potential for profit; Whereas the small, independent producer does not have this tax advantage opportunity; The Wisconsin Turkey Federation believes that the elimination of such practices would afford protection to the individual farmer, by removing the incentive to expand except when prices and markets indicate such expansion to be potentially profitable. PAGENO="0288" 284 Therefore, be it resolved that the Wisconsin Turkey Federation recommends the study of and the implementation of laws that would prohibit the use of farm production losses as deductions from nonf arm production operations in tax calculations. It is our feeling that we cannot prevent any individual or company from entering or expanding agricultural enterprises. However, we feel that the farming operations should stand on their own merits. In- ability to use farming losses as tax deductions from profits of other business operations may not prevent overexpansion, but it will make diversified corporations take a closer look at their farming activities, since any losses would be actual losses, not tax hedges As stated in the resolution, we feel that such revision of the tax laws would afford some protection to the individual farmer by removing the incentive to ex- pand except when prices and markets indicate such expansion would result in a profit. This, we feel, would be a step in the right direction. Senator Metcalf of Montana introduced a bill, I believe you men- tioned it this morning in your comments, the Senate bill 2613. I believe you said this has come out of the committee now. Senator NELSON. I joined with Senator Metcalf in introducing that bill. It has not come out of the committee, but the U.S. Treasury De- partment has endorsed the bill and so has the Department of Agricul- ture This gives us good support I don't know that we can get it out this year in view of the approaching recess or adjournment, but with that kind of support we may have a fair chance of getting it passed next year. Mr. TYLER. The Wisconsin Turkey Federation urges its considera- tion by Congress. Delayed pricing on intracompany transfers, leading to nonuniform pricing pohcies when comparing the intracompany transfers with their retail sales, and consolidation of net worth to gain credit advantages are other advantages of large business org'tnizations We feel that an equal ization of opportunities would permit all producers, regardless of size, to compete on a fair basis We realize that there are many individual situations and overlap ping of operations which will complicate the writing of legislation to accomplish our goals. Rather than try to specify how it could be accomplished, we asked that trained personnel study the matter and make recommendations. Thank you for hearing us Senator NELSON. Thank you very much, we appreciate your coming here today and giving your testimony (The complete prepared statement submitted by Mr Tyler follows ) STATEMENT OF ROBERT TYLEB, VICE PRESIDENT, WISCONSIN TURKEY FEDERATION The Wisconsin Turkey Federation feels that the information sought by this committee could benefit the agriculture of America. Farming has traditionally benefited from and been a victim of economic cycles. Recent years have not been favorable to agriculture. The few good years have not offset the bad ones. As a result, many. good family farmers have sought employment elsewhere. The turkey industry has seen this just as other agricultural industries have The trends in the past are illustrated by the following data from the U S Oensus, listing the number of turkey farm.s in the U.S. and in Wisconsin. PAGENO="0289" 285 NUMBER OF TURKEY FARMS United States Wisconsin Year: 1929-30 1934-35 1939-40 1944-45 1949-50 1954 1959 1964 637,843 676,114 389,352 193,540 162,244 169,807 88,399 41,862 (1) 8,584 3,991 1,859 1,795 1,594 724 480 1 Not available. Figures for 1968, if available, would show on additional reduction in numbers of turkey farms. Steadily decreasing profits on each unit of production have forced the producer to get larger-or quit. This trend of larger farms is not all bad; but we need direction as to where agriculture should be headed in the future. Modern technology enables one man to produce more with his labor. Therefore, some increase in the size of operations is warranted. However, his labor should net him a reasonable return. We feel that the economic situation faced by farmers has forced them to expand operations in order to try to earn additional income to keep pace with the economy. This, coupled with the entry of non-agricultural interests into farming operations, has given us overproduction. Since supply and demand influences farming receipts, this overproduction has resulted in severe losses during some years; 1961 and 1967 are notable examples in the turkey industry. When a non-agricultural interest goes into farming, profit should be the motive. However we have seen such companies enter into or expand turkey operations during years where there was little or no profit potential. This leads one to feel that profit, for a specific year at least, is not the only motive. They may not wish to reduce production levels due to the need to make full and economical use of labor and facilities, but this still does not explain why production would be increased when profits are not forecast. There is a feeling that some companies hope to push the small operator out of business and gain a large share of the industry in the future. By so doing, they could gain some control of supplies and prices as well. The Wisconsin Turkey Federation feels that an individual producer can produce turkeys just as economically as any large company. Each can make a profit when prices are reasonable. However, the widely diversified company can withstand losses by transferring portions of `them to other, highly-profitable operations. They have an additional advantage with our present tax laws, which allows the deduction of losses from farming operations from the profits of other operation8 under the same corporate structure, to reduce the `tax load. The Wisconsin Turkey Federation has been concerned about this practice for some time. In March, the group asked that a resolution be drawn up, as follows: WISCONSIN TURKEY FEDERATION RE5OLUTION 1968-C Whereas current tax laws permit diversified companies to deduct losses of one operation from profits of unrelated or distantly-related operations under the same business structure to reduce their tax load; Whereas losses on farm production operations have often been treated in this manner; Whereas this practice has encouraged diversified companies to enter or expand their farm production operations in the face of no potential for profit; Whereas the small, independent producer does not have this tax-advantage opportunity; The Wisconsin Turkey Federation believes that the elimination of such practices would afford protection to the individual farmer by removing the incentive to expand except when prices and markets indicate such expansion to be potentially profitable: Therefore be it 95-253-6&-----19 PAGENO="0290" Resolved, That the Wisconsin Turkey Federation recommends the study of and the implementation of laws that would prohibit the use of farm production losses as deductions from non-farm production operations in tax calculations. Approved by the Wisconsin Turkey Federation Board of Directors. WILLIAM BAKER, President. It is our feeling that we cannot prevent any individual or company from enter- ing or expanding agricultural enterprises. However, we feel that the farming operatitons should stand on their own merits. Inability to use farming losses as tax deductions from profits or other business operations may not prevent over- expansion, but it will make diversified corporations take a closer look at their farming activities, since ~tny losses would be actual losses-not tax hedges. As stated in the resolution, we feel that such revision of the tax laws would afford some protection to the individual farmer by removing the incentive to expand except when prices and markets indicate such expansion would result in a profit. This, we feel, would be a step in the right direction. Delayed pricing on intra~company transfers creates non-uniform pricing poli- cies when comparing the intra~company transfers with their retail sales and consolidation of net worth to gain credit advantages are other advantages of large business organizations. We feel that an equalization of opportunities would permit all producers, regardless of size, to compete on a fair basis. We realize that there are many individual situations and overlapping of opera- tions whiCh will complicate the writing of legislation to accomplish our goals. Rather than try to specify how it could be accomplished, we ask that trained personnel study the matter and make recommendations. Note: Senator Metcalf of Montana has reportedly introduced a bill relating to our resolution. A copy bias been requested, and if it applies, reference to it will be added to this testimony. Senator NELSON. Our next witness is Mr. Warren Pennington, Wis- consin Egg Producers Association. ST'ATELMENT OP WARREN PENNINGTON, PRESID~LNT, WISCONSIN EGG PRODUCERS ASSOCIATION, MADISON, WIS. Mr. PENNINGTON. Senator Nelson, my name is Warren Penning-ton, president of the Wisconsin State Egg Producers Association, and I `will not repeat what so many people ahead of me have said, but I heartily endorse most of what I have heard. I will, however, since our statement is so brief, read it. The Wisconsin Egg Producers Association is composed of independ- ent producers. We have a concern for the future of the American family farm because most of us fit into this category. In 1930 there were 181,767 farms in Wisconsin. The 1964 census reported only 118,816, and the present count is estimated at 116,000. Science and technology have reduced farm numbers by increasin!g productivity. The remaining farmers, however, are easily able to feed the Nation without `the help of corporation farms `which only add surpluses and offset the resulting losses `with gains in other areas of reverse enterprise. I believe from my own experience that the family farms using mod- ern m~thods and equipment can produce at costs lower than the cor- poration farm. We cannot, however, at this poii~t of low profit margins compete with the corporation with actually operating its farm enter- prise at a loss. Conceivably then the corporation farmer with his credit and taxes can eliminate the independent farmer from competition, and with the competition gone the corporation farm would then put its product on cost-plus basis. PAGENO="0291" 28~ The consumer is now using a smaller portion of budget for farm produce than ever before. Squeezing the independent farmer out of competition will surely increase prices. Finally, we would encourage our Senators `to support the Metcalf Senate bill S. 2613 which would prevent persons who are not qualified farmers to offset nonf arm income with farm losses. Thank you, Senator. I will answer questions if you have any. Senator NELSON. How many independent egg producers are there now compared with 10 years ago in the State? Mr. PENNINGTON. I have some statistics here, sir. I will give you two or three figures. In 1930 there were 165,554 farms with chickens; in 1940 it dropped to 153,173; in 1950, 119,030; 1959, 69,047; in 1964, 41,611; and today, as of June, not today, but last month, 1968, we esti- mated 29,000 producers, that is farms with chickens. Senator NELSON. How does the total egg production in the State compare now with those previous years? Mr. PENNINOTON. Egg production, let's say hen numbers in 1940, 11,469,000; 1967, 6,818,000. No~ I should be able to give you egg pro- duction, it doesn~t run parallel because there has been an increase in hen productivity, but the egg production is lower today than it was in 1940. Senator NELSON. Do you have average egg prices for that same period? Mr. PENNINGTON. I have, sir, In 1940 in the United States the national egg price was 18 cents per dozen. In Wisconsin, 17 cents per dozen. I will skip to 1950. The U.S. egg price was 36.3; in Wisconsin, 34.1. Dropping to 1960, 36 cents nationally, 31.8 in Wisconsin. In 1967, nationally 31 cents, in Wiscon- sin 26.8. Senator Ni~soN. Thank you very much for coming. Mr. PENNINGTON. You are entirely welcome, sir. Senator NELSON. Mr. Erhardt Schultz wishes to make a statement. Mr. Schultz is from Baraboo, Wis., and is Federal Land Bank Di- rector, president of the Farmers Union Local, vice president of Sauk County National Farmers Organization. STATEMENT OP ERHARDIT SCHULTZ, VICE PRESIDENT, SAUK COUNTY NATIONAL FARMERS ORGANIZATION, RARABOO, WIS. Mr. SCHULTz. The subject today is financing in relation to family farms. The present financing today doesn't fit the modern farming picture. Too much emphasis is on net worth instead of ability to man- age or the individual's ability to produce. This includes the education, training, and willingness to do the job. The unavailability of funds for expansion causes dropout of farmers and people from farming which brings about sale of small or smaller farms, even larger farms are brought about by mortgaging payments being too large or being paid off too fast. This causes a reduction in operating cash and income for living. Also, there is nothing left for expansion. We need more long-term financing. For example, expansion should be on a long-term basis like 25 to 40 years or even longer. Production expenses can be short, PAGENO="0292" 288 1 or 2 years. The present trend is to too much capital expansion on a short-term basis. We need a change of Federal rules and regulations to allow this to come about. With the short-term financing of today and the low prices received by farmers for all their products there comes a time when the net owed gets too great and in the process of hquida- tion the farm family leaves the farm and the land becomes either part of another farm or the buildings become living quarters for another urban worker. If this becomes a trend in any one community this makes large tracts of land available for outside investors. Sometimes large corporations or investors are the only ones that can get enough capital to take over the land. This is partly due, if not all, to regulations on banks, insurance companies, Federal land banks, P.C.A.'s, and finance companies. There is a great need today for the family farmer to get more long-term financing for ex~pansion, a better price for the product and some type of help or reduction on real estate taxes. I thank you, Senator. Senator NELSON. Well, what kind of long-term financing? If it takes $80,000, $90,000 to a hundred thousand dollars to go into a viable com- mercial dairy operation in Wisconsin, you are talking about $5,000, $6,000 worth of interest. If you are milking 50 cows and with the present prices, even if you are getting 15,000 pounds you would prob- ably end up with about $30,000 gross on 50 cows. Then you take out of that $5,000 interest, then you take out of that the real estate and prop- erty taxes and machinery and equipment and I don't know how any young fellow can make out in that kind of an operation. Mr. SCHULTZ. You are actually right. The debt load on livestock production, dairy cows would be the most, would be more or less a perpetual debt. It would be the same as paying interest, the same as renting the land to do your business. If you have a small business in town you rent the store, which would be the same situation. Interest would be the same as rent which would also help in the case of estate transfers, too. Senator NELSON. How long term a loan do you think is needed? Mr. SCHULTZ. Well, I imagine 25 to 40 years, possibly 50 years would be more desirable. Senator NELSON. Possibly what? Mr. SCHULTZ. Fifty years. Senator NELSON. Thank you very much, Mr. Schultz. We appreci- ate your coming. Was there anyone else who desires to make an appearance? I see Assemblyman Duehoim is here. Assemblyman Duehoim, we are pleased to have you before the committee. You have been farming all your life. What observation do you have to make about the issue that is before us today? STATEMENT OP HON. HARVEY DUEHOLM, ASStE;MBLYMAN Mr. DTJEH0LM. Thank you, Senator. Thank you very much for bringing this hearing to the people. And, as a politician, thanks too to the people that have been so good at turning out to this meeting and giving us their views and giving us their help. PAGENO="0293" 28~9 As you know, Senator, I am a farmer by profession, and a politician by accident. One of the things, and I say this with all sincerity, be- cause very few places in the world, I suppose, can a farmer close to 50 years of age have the good fortune as we can in this country to be elected to be a member of the assembly. My county has been very good to me, Senator, as it has to you. I am very surprised as far as that goes, the things that I heard that happened around Clear Lake, we always thought you would wind up in a Government institution, but we never knew that it was going to be in the U.S. Senate. However, in a serious vein, my father was a Danish immigrant and came to this country in 1890 and his folks were very, very poor. They worked on a farm in Denmark and he remembered going to bed hungry. He remembered his mother dividing the bread up between the family, and he came to this country and as you know, Senator, he was a friend of your dad, they used to try their darndest to keep this country as good as they could see it back 40 years ago when they were traveling together. He never went to bed hungry in this country, and at that time in Denmark, the time he came over here they had the landlords and they had the people that were very poor. They, however, went ahead in the next years and had not a revolution, a social revolution, they done a good job of changing that. But he came to' this country and he worked hard, very hard, had a small income as far as that goes but he never, and none of his family ever were hungry. This was all done with a very small family-size farm. One of the things that just as a farmer hurts me so much in traveling around in Burnett and Polk Counties is going around and going down the roads and seeing these farms and kno'wing exactly how much muscle and how much sweat and how much brain went into developing these farms that are empty today. That is one of the things that bothers me. I think I have a fair farm as farms go in northern Polk County, but the fact remains I have four sons. I could send them all through a 4-year college education and do it cheaper by far than I could set one of them up in farming and it so happens that I guess none of them perhaps will farm. I appreciated listening to this banker from Chippewa Falls. He explained it very well just what the corporation farm does to a com- munity, it really leaves nothing in the community, it takes out a main street, it takes out the bank, they have nothing to do with the bank, they have nothing to do with schools, churches and when we get-you will have to excuse me, like I said once before, Senator, the reason I stammer quite a little when I talk, I have to think of what I am saying and I guess in Congress they can talk without thinking. If you will give me a little time and a little patience. For a man that has worked with the soil and knows what the soil means, I know what it is, a few years ago I sold my dairy herd and there was two generations of raising Guernsey cattle from 1906 till I 965, I believe it was, and something, I know, I see other older people in here, and I kno'w what it did to' them when they had to disperse with the herd. We would have liked to have seen perhaps some o'f our family take over, however, I think everyone thinks their family should do whatever they feel is best for them and I think it is a shame that like the banker just explained so well, that it is just about im- PAGENO="0294" 290 possible for anyone not either being born into a farm or marrying into a farm, it is just about impossible for young people to get started and in order for them to keep, so thit they can at all, even these that are born under these farms, in order to keep it good for them we have to prevent the corporation farming When you think of Curtiss Candy and some of those, they don't buy cattle by the carload, they buy them by the trainload and it don't make any difference to them, they can raise this and they can do it at a loss, I know even in a small way the fact of the matter is since I got in the legislature I pay less income tax now than I did when I was farming with my whole income. So what is the answer, I am even using the farm for a writeoff, I think. I don't want to go into that because it's been gone over by people much more able than I am and you have been working on that quite a little and I want to thank you, Senator. I want to thank the people of my county for raising you and for giving your folks, for letting you go on to Madison. He was down there as a Senator, he did a good job for us, he was Governor and he made a few mistakes, I was assemblyman at the time, I was in the hospital part of the time so I wasn't around to advise him all the time. He's gone :~fl to the Senate and I think all of us will agree that in spite, even if I wasn't able to advise him, he's done a remarka- ble job. I want to thank you for this opportunity, Senator, and I want to thank these good people for coming out and it makes it a whole lot easier for legislators to know what the people are thinking and to know that they are interested. Senator NELSON. Well, I want to thank Assemblyman Dueholm for coming here today My father was a friend of your father's for 50 years and I think it is pretty obvious to everybody the 1 eason I left Polk County was there wasn't room for tw!o of us there. I understand Mr ,James Heike of Mondovi has arrived Do you have a statement ~ Mr. Heike, the committee welcomes your appearance here today. STATEMENT OP NAMES HEIKE~ AUCTIONEER. AND REAL ESTATE BROKER, MONDOVI, WIS Mr. HEIKE. Thank you. I don't believe I have any more copies of my statement available, but I will give you this one when I am finished I am James Heike, Mondovi, Wis Senator NELSON How do you spell your name Mr. HEIKE. H-e-i-k-e. Mondovi is 20 miles south of here. I live on a farm and I am an auctioneer and real estate broker The family farm is a classic example of the American small busi- ness enterprise, an institution which has been held in esteem by all of you Americans here In my judgment the time is now when we must decide whether or not it will be forced to vanish from the American scene * This realization has been brought about by the changes that have occurred in recent years in the area in which I have been a part of during my entire life. PAGENO="0295" 291 Although giant farm monopolies do not pose an immediate threat to our area, there is movement in that direction and a very definite trend toward bigness, partly because farmers are led to believe this is the ultimate answer to agriculture's problems. It is also partly due to fear in order to protect themselves for the years ahead. There is no doubt in my mind that the traditional family farm has grown in size from the 80-acre unit to approximately 250 acres or more, and rightly so. Mechanization and technological advances have brought this about. This increased size of the family unit has already posed a serious problem for small business in farming communities, a point I'm sure we all are well aware of. The threat that lies ahead, however, is far greater. As farm units become even larger, fewer and fewer individual farm families will be financially able to purchase these units and will be forced to leave the community. Buffalo County, for example, has fewer people today than 20 years ago. As an auctioneer, I have "sold out" many of these farm families. Last year alone we conducted nearly 100 farm auctions. Nearly 50 percent of the farms on which sales were held will never again operate as self- sustainin'~ units. You might ask, "Are you complaining about good business?" The truth of the matter is that to a certain degree, we are selling ourselves out of business. These people who are leaving the community will prob- ably never do any business with me or any other businessman in the community again, and they are not being replaced. In view of the serious problem facing small business and rural America today, I propose to the committee that, one, more liberal financing must be made available in order to keep the family farm pur- chaser on the farm. This is what is going to keep the big corporations out. Very few loan- ing institutions, including banks, insurance companies, or the Federal Land Bank will loan more than 50 to 60 percent of their appraised value of the farm real estate. Only a minimum of farm operators can acquire a farm loan under these conditions. How many city homes could be sold if the buyer could borrow only 50 to 60 percent of its value? The only liberal financing available is through FHA for buyers who qualify, and I understand that their funds for farm loans has, been drastically reduced. Two, large conglomerate corporations and other nonfarm interests who purchase land used for agricultural purposes should be required to reside in the area in which the purchase was made. This would dis- courage large-scale buying and buying for speculative purposes. Three, agricultural advisers must stop putting all emphasis on effi~~ ciency and concentrate on methods of marketing farm products at a price that will allow `the producer to compete with industry in the labor market. Four, more emphasis must be put on self-employment by colleges and universities training our young men. It is reported, and I believe I read this in Reader's Digest not too long ago, that less than 10 per- cent of the young men graduating plan to be self-employed. Prac- tically all are interested in employment with a large corporation. PAGENO="0296" 2~2 Five, give the family farmer at least an even tax break. One ex- ample I would like to cite would be to discontinue personal property tax on livestock. This method of taxation has been outdated for 50 years; it was workable when all farmers were basically livestock men. With today's large corporation "cash croppers," with thousands of dollars invested in machinery and equipment on which there is no tax, and the broiler operators and feeder pig raisers who never own any livestock over 4 months old, this tax must go. Six, the danger of integrated -farming must also be recognized. Thank you. Senator NELSON. I want to thank you very much, Mr. Heike. Now, is there anyone else who wishes to make an appearance? We have time for a few more brief appearances. Please give your name to the reporter. STATEMENT OP BERNARD KINNEY Mr. KINNEY. My name is Bernard Kinney. Senator Nelson, most of the things that I would like to have said have already been said. The man before me, I believe, said it probably as good as anybody could say it, but one of the things that bothered me here today, family farm, corporate farm, are emotional words. They are mentioned and people stand up and cheer or they boo or whatever. I talked to friends of mine in town, the signs read "corporate farm- ing." Right away they assume you are coming here to testify, you are talking against corporations, something that has made America, but right away an image comes into mind, you are a Socialist or Commu- nist or something else; we are not. I think there should be another word used, absentee farming, or something else. It gives an image of something that we are not trying to remedy, we are not trying to ruin corporations, we are for them, that is what made America. It is absenteeism of these conglomerailts that are hurting us and I think you have your problems, like you said, you couldn't get them out of the committee, you can't get this bill out, you can't get that bill, and part of it is this same problem, I do believe, and we have to try to explain our position to people in town and I think the word "corpo- rate" makes it harder for us for one thing. They are emotional words and I think we ought to try to get back and use words that have a meaning that won't disturb people and make it harder for you to pass legislation that will help us. There are a lot of people that spoke here this morning, the professor, they are the people I believe that if we could get research grants for them like the one man was begging for, the corporations have this money, they have advertising in the paper; you see full-page ads that influence other people and these people influence' their Congressmen which our urban people will not let U's do these things, get these laws that we need `and I think the main emphasis should be in Congress, to get the `Government agencies to enforce the law's we have o'n the books. I firmly believe there are tax laws right now that could eliminate a lot of the evil developing in this agriculture situation. One of the PAGENO="0297" 29~ prime examples to' me because I have, among other things, have sheep, was an article in Newsweek magazine. Here Art Linkletter has ranches in Australia, over a million acres, he has one ranch with 35,000 sheep on it, that is more sheep than are left in this 17-county area. Quite frankly, he said he was there for tax purposes. It really doesn't hurt me as a sheep man, there is a law passed way back when Benson was Secretary of Agriculture, I am going to get 62 or 63 cents for my wool no matter what it sell's for, but the reason I am getting it, I believe, because the tax laws are not enforced. Nobody can convince me that if the Justice Department, Department of Agriculture, and our State agencies would try to enforce these that we couldn't eliminate a lot of the evils that are happening right now. And we have been talking about all these other things, but I think when it comes right now, if these are all enforced and the U.S. Congress gives the farmer the Mondale bargaining bill so he can go out `and get a price, these people will stay on the farm and maybe our sons will stay there. Thank you. Senator NELSON. Thank you, Mr. Kinney. Was there someone else who wished to appear? There a~re some cards outside in the hall which will give the com- mittee your name and address and any viewpoint you might have. Yes. S'TAT~MENT OP JOHN KRZYKOWSKI Mr. KRZYKOWSKI. Thank you, Senator Nelson. I have heard many statements made here today as to what is wrong with farming. Some of the solutions were borrowing money, being able to borrow money. Now, I am in this position, and I borrowed money until it hurt and I still don't see any solution because all you really achieve is more debt plus a higher interest rate. Now, if some- body here could give me an answer point blank to how borrowing money is going to solve the problem, I would like to know. Another thing that we hear about is legislation. It is true probably that legislation can help us and is helping u's. But one fact we have to face, the farm population is so low and getting smaller that it is only a matter of time that we will have no more power in our Government. I believe that we have to price, as farmers, we have to price our prod- uct on the farm before it goes to any processor or packer, and this is the only way that we are ever going to win this battle. Thank you. Senator NELSON. Thank you very much. Is there anyone else who wants to appear? If not, that will conclude these hearings. The next hearings which have not been scheduled yet will be in Oregon, New York, and Wash- ington, D.C. The meeting is adjourned. (Whereupon, at 3 p.m., the subcommittee adjourned.) 95-258 O-68-----20 PAGENO="0298" PAGENO="0299" APPENDIXES APPENDIX I 79thcon~ress} SENATE COMMITTEE PRINT NO. 13 SMALL BUSINESS AND THE COMMUNITY A STUDY IN CENTRAL VALLEY OF CALIFORNIA ON EFFECTS OF SCALE OF FARM OPERATIONS REPORT OF THE SPECIAL COMMITTEE TO STUDY PROBLEMS OF AMERICAN SMALL BUSINESS UNITEI~ STATES SENATE SEVENTYNINTH CONGRESS SECOND SESSION PVRSUANT TO S. Res. 28 (Extending S. Res. 298-76th Congress) A RESOLUTION TO APPOINT A SPECIAL COMMITTEE TO STUDY AND SURVEY PROBLEMS OF AMERICAN SMALL BUSINESS ENTERPRISES DECEMBER 23, 1946 w Printed for the use of the Special Committee to Study Problems of American Small Business UNITED STATES GOVERNMENT PRINTING OFFICE 93753 WASHINGTON: 1946 (295) PAGENO="0300" 296 UNITED STATES SENATE SPECIAL COMMITTEE TO STUDY PROBLEMS OF AMERICAN SMALL BUSINESS JAMES E. MURRAY: Montana, Chairman ALLEN I. ELLENDER, Louisiana ARTHUR CAPPER, Kansas JAMES M. MEAD, New York GEORGE A. WILSON, Iowa TOM STEWART, Tennessee KENNETH S. WHERRY, Nebraska CLAUDE PEPPER, Florida C. DOUGLASS BUCK, Delaware BRIEN McMAHON, Connecticut HOMER E. CAPEHART, Indiana GLEN H. TAYLOR, Idaho Dint Awniasow, Executive &cretary - U - PAGENO="0301" 297 CONTENTS Chapter Foreword VII Introduction -- & Summary of Sndings Methods of research `7' I. Nature of investigation g Putpose 9 Choice of communities 9 Methodology 13 II. Historical background of Arvin and Dinuba 14 Arvin 14 Setting 14 History 14 Dinuba 17 Setting 17 History 18 Comparative notes IlL Agriculture in Arvin and Dinuba 23 Introduction - 23 Volume of production and major crops 24 Types and size of farms 26 Farm tenure 33 Farm labor requirements .33 Summary 36 IV. The people of Arvin and Dinuba 37 Number of persons 37' Size of families 38 Age distribution 39 Social background 40 Occupational structure 43 Income Living conditions Pattern of settlement 49 Summary 53 V. Social aspects of community life 54 Government Schools 57 Social institutions 60 Other social participation 64 The problems of youth 69 The social role of the church 71 Social evaluations The social structure in Arvin and Dinuba 78 VI. Retail business in Arvin and Dinuba 82 Introduction 82 Number of enterprises and gross volume of business - 82 Size and type of business enterprises 88 Summary 89 VII. The causes for the social differentiation 91 The hypothesis 91 Essential cultural similarities 91 Recapitulation of social differences -~ - _~_ 92 Possible causative differentials. 93 Environmental factors - 94 Cultural nnd demographic factors 95 Historic factors 98 In PAGENO="0302" 298 IV CONTENTS Chapter - VII. The causes for social differentiation-Continued Page Agricultural production fi~ctors 105 Farm organization factors 106 An explanatory hypothesis 108 Concltf~ions 112 Appendix A. ~otirces of data, methodology, and sampling technique 115 B. Agricultural data, sources and methods 121 C. Analysis of monthly labor requirements 129 D. Method of obtaining population figures 133 E. Method of determining level-of-living index 134 F. Association between social phenomena 136 0. Business enterprise data: Sources and methods 138 INDEX OF FIGURES Pigure No. Page 1. Upper San Joaquin Valley, Calif., showing Arvin and Dinuba and selected communities 11 2. Gross farm income by principal sources 25 3. Comparisons in size of farming operations 29 4. Size distribution of farms and of cropiand acreage in farms 30 5. Distribution of farms by size in acre-equivalent units 31 6. Monthly labor requirements and source of supply 35 7. Age distribution of Arvin and Dinuba population, compared to San Joaquin Valley 41 8. Occupational structure (Arvin and Dinuba) 45 9. Distribution of families according to le~ ci of living 48 10. Scattergram showing.relationship between level of living and income.... 50 11. Distribution of index of home conditions 51 12. Participation in social activities by occupation groups 65 13. Occupational structure of selected Arvin and Dinuba congregations.. - 75 14. Number of business enterprises and gross volume of retail sales 83 15. Dollar volume of sales reported in major classes of business enterprise.. - 85 16. Distribution of retail sales among various classes of enterprise 86 17. DIvergence in the distribution of capital investment and gross volume of business in Arvin, compared to Dinuba 90 18. Growth of annual average daily attendance showing date of selected civic improvements 19. Growth of average daily attendance in Arvin compared to Wasco, Calif 102 20. Comparison of carlot shipments of fruits and vegetables (1921-42) be.. tween A.rvin and selected Kern County communities - ~ 103 INDEX OF TABLES TabisNo.. Page 1. Comparison of population and farming in the small communities in Madera, Tulare, and Kern Counties 12 2. Shipment of fruits and vegetables from Arvin, 1921-43 - 16 3. Quality of soil in Arvin and Dinuha 21 4. Comparative irrigation costs: Arvin and Dinuba - 21 5. Comparison of number of farm operators as re~ported in Agricultural Adjustment Agency records and as indicated ~by schedules 23 6. Major crop classes in Arvin and Dinuba, 1940 26 7. Estimated gross farm income by principal sources: Arvin and Dinuba. - 26 8. Number of farms and acreages, classified by type: Arvin and Dinuba, 1940 27 9. Distribution of farms and productive land by size of farms: Arvin and Dinuba 27 10. Number of ownership units and acreage by size of holdings: Arvin and Dinuba, 1940 - 28 11. Tenure of farm operators: Arvin and Dinuba, 1940 32 12. Variation in tenancy by size of farms: Arvin and Dinuba, 1940 32 13. Residence of landowners: Arvin and Dinuba, 1940 33 PAGENO="0303" 299 CONTENTS V Table No. Page 14. Monthly labor requirements: Arvin and Dinuba - 33 15. Number of workers required for farm operations during month of peak labor demand: Arvin and Dinuba~ -- - 16. Populations of Arvin and Dinuba, 1944 37 17. Average size of household by major occupation groups: Arvin and Dinuba 3S 18. Distribution of families by size of households: Arvin and Dinuba 39 19. Birthplaóe of family heads: Arvin and Dinuba 40 20. Year of arrival in community of family heads: Arvin and Dinuba~ - 42 21. Levels of education of family heads: Arvin and Dinuba -- 43 22. Distribution of families by employment of chief breadwinner: Arvin and Dinuba 23. Income distribution in Arvin and Dinuba 46 24. Estimated median income of major occupational groups: Arvin and Dinuba 25. Incidence of individual items on the level-of-living scale: Axvin. and Dinuba -- 47 26. Occupation of members in selected Arvin and Dinuba clubs 67 27. Families reporting participation in various classes of social organiza- tions: Arvin and Dinuba - 67 28. Families reporting participation in social organizations, classified by occupation of family head: Arvin and Dinuba 67 29. Club memberships of persons 12 years old and over, classified by occupation of family head: Arvin and Dinuba - 68 30. Families participating in social activities other than clubs and churches: Arvin and Dinuba 68 31. Individuals participating in social activities other than clubs and churches: Arvin and Dinuba 68 32. Families reporting participation in social events other than clubs or churches, classified by occupation of head: Arvin and Dinuba 69 33. Motion pictures as a source of recreation for different occupation groups: Arvin and Dinuba - - -- 69 34. Individual church participation among persons 12 years old and over, classified by occupation groups: Arvin and Dinuba 72 35. Proportion of persons from independently employed families and from labor families participating in churches of different social status: Arvin and Dinuba - 74 36. Occupation of members of selected churches in Arvin and Dinuba~~~ - 74 37. Persons who consider the local community as "home town" in Arvin and Dinuba - 77 38. Summary of important social differentiations: Arvin and Dinuba~ -- 78 39. Comparison of business enterprises and volume of business: Arvin and Dinuba -- 84 40. Number of businesses and volume of business by major category: Ar~in and Dinuba, 1943 41. Size of business enterprises by volume of retail sales: Arvin and Dinuba 42. Size of business enterprises by estimated pecuniary strength: Arvin and Dinuba 89 43. Date of civic developments in Arvin and Dinuba 100 44. Intensive land use in Arvin (1931, 1932, and 1940) compared with land use in neighboring communities 104 45. Diagrammatic presentation of causative forces responsible for the character of Arvin as contrasted with Diuuba 111 46. Gross income per acre and total gross income for crops: Arvin and Dinuba 124 * 47. Estimated head of livestock and gross income from stock: Arvin and Dinuba 125 48. Feed requirements for~ livestock 125 49. Dollar value of commodities produced in Arvin and Dinuba 125 50. Itemized comparative costs of irrigation in Arvin and Dinuba by size * of farm 128 51. Calculations of labor requIrements by months and by crop classes: Arvin 130 52. Calculations of labor requirements by months and by crop classes: ~1 Dinuba 131 PAGENO="0304" 300 Vt CONTENTS Table No. - Page 53. Estimated monthly labor requirements and theoretical source of labor supply: Arvin 132 54. Estimated monthly labor requirements and theoretical source of labor supply: Dinuha 132 55. Calculations in the computation of Arvin and Dinuba population from scheduled data 133 56. Frequency distributions of items on the material Jevel-of-living scale and value of items 135 ,57. Association of social phenomena with occupation and income: Arvin and Dinuba 137 PAGENO="0305" 301 FOREWORD The Senate Small Business Committee recently published a report, Small Business and Civic Welfare, which was a study of the contrasts and similarities of two groups of cities, those in which independent small businesses predominated and those whose economy was char- acterized by large-scale business activities. This pioneer study re- vealed numerous facts on the social-economic and cultural practices of different types of American communities. With no important exception, the cities characterized by locally owned and operated independent businesses were found to be much better off than com- parable cities whose business institutions were large scale and fre-. quently absentee-owned. In submitting this report to the Congress, I, as chairman of the SenateSmall Business Committee, made it clear that this was one relatively small glimpse of the American busines8 scene. Only through further studies of this kind, covering other sections of the country and different conditions of life, would we eventually obtain documentary proof of the relative value of big or small business in providing that kind of social life which best expresses our desires as free people living under a democratic political and economic system. This report, Small Business and the Community, is another of these regional studies. A preliminary report, based on the study of two communities having essentially similar agricultural production but differing in the size of landholdings in the surrounding area, was presented to the committee during its field hearings. This testimony had a decided impression on the members, and the request followed that the completed report be submitt~d for publication in this series of studies covering the problems of small business, made under reso- lution of the Senate. This report is the work of Dr. Walter R. Goldschmidt, assistant professor in the Department of Anthropology and Sociology, at the University of California at Los Angeles. He had the advantage of advice and assistance of professional associates of national reputations in the field of agricultural economics and social studies. Prof. Leonard Bloom, sociologist at the University of California at Los Angeles, writes: I wish to express the opinion that this is a research of some importance which was carried out according to the most rigorous and objective scientific procedures. Shortly after it was completed, Dr. Goldschmidt submitted it to me for a critical appraisal, and I was completely satisfied with the competence of the work. I~ seems to me that this kind of work should commend itself to the attention of all persons interested in such questions because of its objectivity, impartiality, and scholarly soundness, and I feel that it merits publication. Dr. Paul S. Taylor, professor of economics, University of California, at Berkeley, eminent authority in agricultural economics, writes: `I have been in touch with the comparative study of Arvin and Dinuba in the Central Valley of California since its inception. Its author, Dr. Walter R. Goldsclimicjt, is a competent scholar, well equipped by training and experience `U PAGENO="0306" 302 VIII FOREWORD to make such a study. The study of the two towns was made with care. The treatment is tempcr~te and scholarly. The conclusions are based upon data which were selected well and handled with critical ability. I have no hesitancy in recommending that your committee publish the study as a scholarly contribu- tion to an understanding of an important problem. It cannot be stressed too strongly that this report deals with a comparison of only two communities. It is not intended to be con- sidered representative of other communities in the United States~ However, it is not thereby rendered valueless. On the contrary, here is a detailed analysis, following the approved techniques of social and economic research, of two "case studies." Such careful, unbiased, and impartial S( ientific collections of facts permit of conclusions having considerable validity and reliability. They are quite likely to be true descriptions of the cases being examined, and raise pertinent questions concerning their probable application for other communities exhibiting similar, if not identical, conditions. The data suggest many questions concerning the relative desirability of different types of farm organ- ization as their size and the character of their operations influence the cities which are their trading and cultural centers. It would be unwise to summarize the findings of this study, apart from the descriptive material which forms the setting, and the tech- niques employed which determine the adequacy of treatment. With the major difference between the two areas being that of the size of the farm holdings, in one predominantly large-sized ranches, in the other numerous smaller-sized farms, the communities were subjected to many measures. The people living in each city were examined as to their number, size of families, age distribution, social background, occupations, incomes, and living conditions. The social aspects of the two cities were examined as to government, schools, social insti-. tutions, problems of youth, the social role of the church, and the social structure. The business structure was examined in detail. Out of this mass of facts came certain observations concerning the causes of the differences found. The conclusion drawn, and which impresses itself on any unbiased readers as in reality emerging from these numerous facts, is that the size and character of the farm hold- ings and operations is responsible in no small degree for the conditions* in these cities. On the one hand, in the community surrounded by big farms the social, cultural, and economic attributes of life are developed to a lesser degree than in the other community which is in the midst of an area made up primarily of smaller farms independ~ ently operated where the community welfare is of a higher order and more wholesome in every particular. The bearing on the American way of life, which is all-important to all of us who seek to see the virility of this Nation go on unimpaired, is at once apparent. I submit this study to the Senate Small Business Committee, to the United States Senate, and the citizens of this country, feeling that it further indicates the importance of independent small-scale business as the cornerstone of our American economic system of free enterprise. Sincerely yours, JAMES E. MURRAY, Clu2irman. PAGENO="0307" 303 SMALL BUSINESS AND THE COMMUNITY A STUDY IN CENTRAL VALLEY OF CALIFORNIA ON EFFECTS OF SCALE OF FARM OPERATIONS BY DR. WALTER R. GOLDSCHMIDT ASSISTANT PROFESSOR OF ANTHROPOLOGY AND SOCIOLOGY UNIVERSITY OF CALIFORNIA AT LOS ANGELES 1 PAGENO="0308" PAGENO="0309" 305 INTRODUCTION The family farm is the classic example of the American small- business enterprise. For generations this institution and the com- munity it supports have held the esteem of all who have known and understood the American heritage. Statesmen, historians, econo~ mists, and sociolooists have generally agreed that the spread of the family farm over t~e land has laid the economic base for the libertie& and the democratic institutions which this Nation counts as its greatest asset. The great declaration by Daniel Webster still stands as perhaps the clearest and most authentic expression of America's deep-rooted belief in the intimate and causal relation between the family farm and the distinctively popular character of our Government. Our New England ancestors- he said- brought thither no great capitals from Europe; and if they had, there was nothing productive in which they could have been invested. They left behind them the whole feudal policy of the other continent. * * * They came to a new country. There were as yet no lands yielding rent, and no tenants rendering service. The whole soil was unreclaimed from barbarism. They were themselves either from their original condition, or from the necessity of their common interest, nearly on a level in respect to property. Their situation demanded a parceling out and division of the land, and it may fairly be said that this necessary act fixed the future frame and form of their government. [Webster's italics.] The character of their political institutions was determined by the fundamental laws respecting property. * * * The consequence of all these causes has been a great subdivision of the soil and a great equality of condition; the true basis, most certainly, of popular government. * * * -. The advances in te~hnoloo'y during the past century have greatly benefited farmers who, wit~t their families, work the land. The industrial revolution has eased the burden.of the farmer and rendered his labors more productive. Yet these technolo~icai advances have, at the same time, braught a threat to the very institution to whose personnel they have brought so much aid. The threat is this: That with increased mechanization will come increased industrialization of the farm enterprise; that with industrialization will come an increasing concentration of economic power in the hands of fewer and fewer men at the head of great organizations, and an end to that broad diffusion of social and economic benefits that has long been character.. istic of American rural communities. There is foundation for the belief that industrialization is on the increase. The United States Census of Agriculture has been recording the gradual increase in average farm size in America. This is not a result of the disappearance of undersized farms; family farmers on the better lands appear to be particularly vulnerable. Census statism ics are supported by other information. In those areas particularly suitable to high-value specialty crops, the concentration of land and production into large units has been reported by various agencies and 8 PAGENO="0310" 306 4 INTR0D~CTI0N students of American agriculture. A committee of the United States Senate has pointed out that within the decade of the thirties the per- centage of all farms in California ~~liich produce just over one-half the total agricultural production of that State fell from 10 to 6.8 percent, marking a growth in concentration of nearly one-third. It is not without significance as evidence of this trend that at least one group of specialty crop producers has so far changed its character away from that of family farmers and in the direction of becoming industrialists that it has found itself indicted for violation of the antitrust laws of the Nation. The development of laro~e-scale farming has been foremost in Cali- fornia. The influence of ~panish land policy, the monopolization of large areas by early corners after American statehood, the soil and climate favorable to the production of specialty crops, and congeries of other historic and economic circumstances have made California particularly amenable to industrialized agricultural production. But development of this pattern of agriculture, often operated like industry from urban centers and worked by wage labor, is not peculiar to any one part of the Nation. It has been reported in some degree from all sections. Whether industrialization of farming is a threat not only to the family farm, but also to the rural society founded upon the family farm, is the specific subject of the present report. The purpose of this study is to test by contemporary field research the historc hypoth- esis that the institution of small independent farmers is indeed the agent which creates the homogeneous community, both socially and economically democratic. The present inquiry consists of a detailed analysis and comparison of two communities, one where agricultural operations are on a modest scale, the other where large factory-like techniques are practiced. Both communities lie in the fertile southern San Joaquin Valley in the Great Central Valley of California, where hi~ghly developed and richly productive agriculture is characteristic. Limitations of time and resources dictated that no more than two communities be studied. Numerous other pairs might have been chosen which doubtless would have yielded comparable results. The two communities studied here naturally vary in some degree with respect to proportions of surrounding lands devoted to this or that crop, with respect to age, to depth of water lift for irrigation, etc., as well as with respect to the scale of the farm-enterprises which surround them. Controls as perfect as are possible in the chemist's laboratory are not found in social organizations. Yet the approxi.- ination to complete control achieved by selection of the communities of Arvin and Dinuba is surprisingly high. Other factors, besides the difference in scale of farming, which might have produced or cOn- tributed to the striking contrasts of Arvin and Dinuba have been carefully examined. On this basis the couclusion has been reached that the primary, and by all odds the factor of greatest weight in producing the essential differences in these two communities, was the characteristic difference in the scale of farming-large or small-upon which each was founded. There is every reason to believe that the results obtained by this study are generally applicable wherever like economic conditions prevail. PAGENO="0311" 307 INThODU~ION 5 SUMMARY OF FINDINGS Certain conclusions are particularly signIficant to.the small business~ man, and to an understanding of the importance of his place in a community. Not only does the small farm itself constitute small business, but it supports flourishing small commercial business. Analysis of the business conditions in the communities of Arvin and Dinuba shows that- (1) The small farm community supported 62 separate business es- tablishments, to but 35 in the large-farm community; a ratio in favor of the small-farm community of nearly 2 :1. (2) The volume of retail tsade in the small-farm community dur- ing the 12-month period analyzed was S4,3S3,000 as agahist only $2,535,000 in the large-farm community. Retail trade in the small- farm community was greater by 61 percent. (See figure and table, pp. 83 and 84.) (3) The expenditure for household supplies and building equip- ment was over three times as great in the small-farm community as it was in the large-farm community. The investigation disclosed other vast differenc~s in the economic and social life of the two. communities, and affords strong support for the belief that small farms provide the basis for a richer community life and a greater sum of those values for which America stands, than do industralized farms of the usual type. It was found that- (4) The small farm supports in the local community a larger num~ ber of people per dollar volume of agricultural production than an area devoted to larger-scale enterprises, a difference in its favor of about 20 percent. (5) Notwithstanding their greater numbers, people in the small- farm community have a better average standard of living than those living in the community of large-scale farms. (6) Over one-half the breadwinners in the small-farm community are independently employed businessmen, persons in white-collar em- ployment, or farmers; in the large-farm community the proportion is less than one-fifth. (7) Less ~than one-third of the breadwinners in the ~mal1-farm community are agricultural wage laborers (characteristically landless, and with low and insecure income) while the proportion of persons in this position reaches the astonishing figure of nearly two-thirds of all persons gainfully employed in the large-farm community. (8) Physical facilities for community living-paved streets, side- walks, garbage disposal, sewage disposal, and other public services- are far greater in the small-farm community; indeed, in the industrial- farm community some of these facilities are entirely wanting. (9) Schools are more plentiful and offer broader services in the small-farm community, which is provided with four elementary schools and one high school; the large-farm community has but. a single elementary school. (10) The small-farm community is provided with three parks for recreation; the large-farm community has a single playground, loaned by a corporation. PAGENO="0312" 308 6 INTRODUCTION (1.1) The small-farm town has more than twice the number of organizations for civic improvement an4 social recreation than its large-farm counterpart. (12) Provision for public recreation centers, Boy Scout troops, and similar facilities for enriching the lives of the inhabitants is propor- tioned in tbe two communities in the same general way, favoring the small-farm community. (13) The small-farm community supports two newspapers, each with many times the news space carried in the single paper of the industrialized-farm community. (14) Churches bear the ratio of 2: 1 between the communities, with the greater number of churches and churchgoers in the small-farm community. - (15) Facilities for making decisions on community welfare through local popular elections are available to people in the small-farm community; in the large-farm community such decisions are in the hands of officials of the county. These differen~es are sufficiently great in number and degree to sffirm the thesis that small farms bear a very important relation to the character of American rural society. It must be realized that the two communities of Arvin and ~inuba were carefully selected to reflect the difference in size of enterprise, and not extraneous factors. The agri- cultural productThn in the two communities was virtually the same in volume-~2% million dollars per annu~i in each-so that the resourceS base was strictly comparable. Both communities produce specialized crops of high value and high cost of production, utilizing irrigation and large bodies of special harvest labor. The two communities are in the same climate zone, about equidistant from small cities and major urban centers, similarly served by highways and railroads, and without any significant advantages from nonagricultural resources or from manufacturing or processing. The reported differences in the communities may properly be assigned confidently and over- whelmingly to the scale-of-farming factor. S The reasons seem clear. The small-farm community is a population of middle-class persons with a high degree of stability in income and tenure, and a strong economic and social interest in their community. Differences in wealth among them are not great, and the people generally associate together in those organizations which serve the community. Where farms~are large, on the other hand the popula- tion consists of relatively few persons with economic stability, and of large numbers whose only tie to the community is their uncertain and relatively low-income iob. Differences in wealth are great among members of this community, and social contacts between them are * rare. Indeed, even the operators of large-scale farms frequently are absentçes; and if they do live in Arvin, they as often seek their recrea- tion in the nearby city. Their interest in the social life of the com- munity is hardly greater, than that of the laborer whose tenure is transitory. Even the businessmen of the large-farm community frequently express their own feelings of impermanence; and their Ilnancial investment in the community, kept usually at a minimum, reflects the same view. `Attitudes such as these are not conducive to stability and the rich kind of rural community life which is properly `associated with the traditional family farm. PAGENO="0313" 309 ENTRODUCTION 7 METHODS OF RESEARCH~ A variety of techniques were used to gather the data upon which this study is based. Fundamental were the schedules which afford data on population composition, `ocial participation, and level of living. They were obtained by two field enumerations over a period of 4 weeks in each community (spring, 1944) based upon a 1~-perccnt sample of the houses in the town and surrounding country. The information from this source was enriched by interviews with com- munity leaders taken by the author. The area surrounding each community was determined by a well-established technique of com- munity delineation long used by rural sociologists and executed by a person trained in its application. Statistical data were obtained from several sources other than the schedule. Certain data were available from county and community files. Special mention should be made of two sources. Data on size of farms, acreage devoted to various crops, and yields were obtained from the records of the Agricultural Adjustment Adminis.- tration, analyzed by competent agricultural economists. The data on number and volume of business enterprises were extracted from the records of the Sales Tax Division of the California State Board of Equalization. These data were made applicable to the community as delineated, including the agricultural areas. The author makes grateful acknowledgment~ to those numerous persons who by their counsel and as participants in the study have made its execution possible. Members of the communities of Arvin and Dinuba were generous in their cooperation. 95-253 0 - 68 - 21 PAGENO="0314" PAGENO="0315" 311 CHAPTER I NATURE OF INVESTIGATION PURPOSE This study of two rural communities is an endeavor to analyze social causation. In it an attempt has been made to demonstrate the kind of society that results when large-scale fa.~m operations dominate the economy of a community as contrasted witti society under moderate-size farm operations. `to this end a detailed analysis., of two towns lying in the industrialized specialty-crop farming area of California's Central Valley, one surrounded by large farms and the -` other by enterprises of moderate size, was made. The present report sets forth in detail the social and pertinent agricultural and other ` economic facts about each community, and concludes with an analysis of these differences which indicates the extent to which they may properly be attributable to the scale of farm operations. It should be made clear at the outset that this report is a study of the social and business effects of large-scale farming operations as they apply to the local agricultural community. Investigation of the effects upon major urban centers or the character of social and economic conditions of the Central Valley or of the State as a whole are not a subject of the present analysis, except insofar as they are affected by the welfare of the local community. Research methods are commonly affected by the costs of various procedures. The desirability of analyzing a series of communities, or of establishing indexes which might make possible simpler studies of additional communities, was recognized and at one time specifically planned. Shortage of time, manpower, and funds made such a proS. gram impossible. It has, therefore, been necessary to develop con- clusions by internal analysis of the data: Arvin and Di.nuba the communities studied, are not a sample of all communities of àalifornia or of the Central Valley. They are - cases, a method which has gained acceptance in the social sciences generally and particularly in the study of the community. It has been the method used by Lynd for Middietown, by Warner for Yankee City, and by every student of the rural community. The case study depends not upon adequacy of sample but upon the soundness of the selection of the cases as representative of the phe~. nomona subjected to analysis. CHOICE OF COMMUNITIES The importance of proper selection was recognized at the outset, and extreme care was used to get a fair and representative selection. The fundamental criteria were that the two communities (1) be sufficiently similar in size so that they could be expected to support similar institutions; (2) have similar and, if possible, reasonably diverse agriculture; (3) have existed for enough years to allow time for the development of social institutions; (4) not be confused with PAGENO="0316" 312 10 SMALL BUSINESS AND THE C0~IMUNITY extraneous advantages, such as large mineral deposits; and, of course, (5) that the farm size l)e significantly divergent. The two communities chosen for this investigation were Arvin (Kern County), as a large-scale farming community, and Dinuba (Tulare County), for the community surrounded by farms of moderate ~ size.1 Certain vital statistical information was being collected for other purposes for the agricultural areas of ~v1adera, Kern, and Tulare Counties, and therefore it was desirable to select a community from within that area. Furthermore, this includes most of the "project area" of the Central Valley project, and it seemed desirable to remain within the geographic region in which this development was to take place. It was important to have communities of sufficient size ibo support social and economic institutions yet not so large that the totality of these could not be grasped in the limited time available for field study. In practice this meant a community of not under 2,500 and not over 10,000 population. It was also desirable to have com- munities which farmer and laborer both utilized; where institutions served both these segments of the population, since both groups are an essential part of farm production in the area. Finally, the towns should be of sufficient age so that they have had the opportunity for the development of social and economic institutions. Table 1 shows the communities of Madera, Kern, and Tulare Counties from which a choice was made. The figures are based U~Ofl * estimated boundaries around each community, but indicate the re- lationship in population, land use, and size of farms. (Boundaries were more accurately drawn for the two communities studied, and * agricultural and population figures do not conform exactly to these rougher approximations which were used at the time of selection.) The towns are in order of average acre-equivalent farm size.2 Com- munities near the opposite poles were selected though extremes were -not sought. - In practice, the strictures were not easy to apply, especially the stricture ~that the communities be similar. In the first place, as everyone acquainted with California agriculture knows, there is a wide diversity of crops, soils, and water conditions, and it is impossible to find conununities identical in these respects. Yet it was possible to get general similarity with respect to quality of soil, major agri- culture production, and the influence of nonagricultural resources. * Details of the agriculture are presented in a later section, where a thorough analysis of the characteristics of farmino' and types of pro.. duction is made. A few significant comparisons w~ll show the validity and limitations of the selection. In both communities a variety of crops, and very similar crops. were grown. The Dinuba area, how- ever, is far more highly specialized than the Arvin one, with over two- thirds of the total value of production in fruit and grapes, chiefly the l.atter. Cotton and vegetables are more plentiful in Arvin than in `flinuba though they are grown in both communities. Forage crops and livestock were very nearly the same in the two areas. The total lit Is more economic to use the expression "large farm community" and "small farm community." and these will be used in the discussions that follow. A clear picture of the actual situation with regard to size Is pres"nted in a subsequent section and the terms will thus be recognize1 as having comparative rather than absolute value. The term "small (arm" as used here may better be considered a family-sized corn- merdal farm, ani must not be confused either with part-time or subsistence farms. `ThIS adaptation of the standard acre has been worked out on the basis of data available. (See Meth * odology In appeodix B.) PAGENO="0317" 313 SMALL BcSINESS AND THE COMMVNtTY 4 ii KINGS cc.:_i~~ KERN CO. ~Wasco 11 ® VISALIA UPPER SAN JOAQUIN VALLEY * CALIFORNIA Showing Arvin and Dinuba and selected commvnitieS 0 5 0 20 SCALE N MILES TUL~L. ~Q_ KERN CO. LD Sboft.ro L~1 I IN FIGURE ~o. 1 PAGENO="0318" 314 12 SMA1~L BUSINESS AND THE COMMUNITY estimated value of production in the two communities was nearly identical. In summary, the agricultural production in the two corn- munities has about the same dollar value and includes most of the same products, but Dinuba is more specialized to fruit and has rela- tively small amounts of cotton and vegetables, while Arvin has greater diversity, with emphasis on cotton and vegetables. TABLn 1.-comparison of population and farming in tlte small communities in Madera, Tulare, and Kern Counties . Community' * Population Number Size of farms Town' ~j~; Total of ~`~` Acres ,~ Rlchgrove (T) Buttonwillow (K) Arvin (K). - - -- Earlimart (T) Lemoncove (T) ?ixley(T) Tipton(T) Alpaugh (T) Lamont(K) Deiano(K). ~ Woodville (`I') Woodlake('r). Oosben(T) Chowcbilla(M) McFarland (K) Exeter (T) Sbafter(K) Wasco(.r) Lindsay(T) Berenda-Fairmead (M) Dinuba (T) Strathmore (T) Terra BelIa(T) Orosi-Cutier (T) Ivanhoe (T) 685 4,042 1,174 1,625 638 4,573 1,146 1,957 2,120 3, 883 1,258 4,916 4,397 333 3,790 917 814 1,755 631 1.936 1,530 1,086 1,535 2,934 2,190 1.894 3,554 3,067 5,338 3,521 1,763 3,877 2,778 780 32.5 2,440 4,673 3,110 930 3,155 1,937 1,724 1,230 6,193 1,130 4,080 1,436 4,147 4,014 6,437 6,325 10,254 7,918 2,116 7~ 667 1,680 1,580 3,695 1,594 18 98 137 150 44 180 ~ 133 85 341 112 215 104 430 115 364 300 190 577 238 635 214 141 451 159 642 432 297 247 104 232 ~ 490 156 177 156 110 160 215 188 68 102 128 77 ?16 45 43 131 * 69 41 - 304 291 247 234 223 192 ~ 167 165 159 155 152 148 139 138 124 108 101 101 94 84 81 76 76 73 `In order of averaze A.E size of farm (right-band column), Letter in parentheses Indicates county In which community fails. `Base.i upon 1940 census of population. - $ Based upon population of 193.5 as indicated on dot map prepared by the Bureau ofAgriculturalEconomics (Berkeley), increased proportiormaily to increases in rural areas for each minor clvii division according to 1940 census. Coqimunity boundaries are approximate. 4 Based upon AAA data. Since community boundaries were approximated, too literal reading of this figure is not appropriate. `Aa acre-equivalent (A-E) acre is that area of land in any crop which has the normal income potential of an acre of alfalfa. For fuller explanation see appendix B. N. B.-The data referring to Arvin and Dinuba do not exactly correspond to data presented elsewhere. since the area included with the community boundary is a less accurate approximation. These data are jess exact, but appropriate for the comparative purposes of this table. - In selecting the coramunities it was desirable that they be located similarly with respect to highways, railroads, and cities. This was achieved with a considerable degree of success. Both com.munlties lie off major motor highways, though both are served by paved roads. Both communities are served by the railroads for freight only, though at one time Dinuba also had passenger service. Both communities lie sufficiently distant from major cities so that they can reasonably be expected to provide more than emergency services to the local population. Arvin is 22 miles from Bakersfield, Dinuba is 20 miles `from Visalia and 30 from Fresno. Neither community serves a~ tQUriSt population, though Arvin has in the past taken advantage of it~ location for holding glider meets and thereby gained publicity if - not actual economic-advantage. PAGENO="0319" 315 SMALL' BUSINESS AND THE COMMtNITY 13 Arvin lies just south of fairly extensive oil fields, and there is suffi- cient likelihood of finding underlying strata of oil to induce oil corn- panics to maintain leases on mineral rights of Arvin lands. Most landowners in the community have lease contracts which pay $5 per acre per year. Dinuha has no comparable source of revenue. Oil - production does not materially affect the character of the community, however, since very few persons secure their livelihood from this resource, either as laborers in the oil fields or as a result of oil pumping. There are but two or three small productive wells within the com- munity boundary. The greatest differential between the two communities, other than the size of farming operations, is their history. Dinuba is 20 to 25 years older than Arvin. This difference was not avoidable, however, because of the history of land settlement within the State. During the early period of irrigation development there was a general ten~ dency to break up holdings and sell them to settlers. After the turn of the century, and especially since `World War I, larger landowners have tended to keep their holdings after acquiring irrigation water. Therefore the large farm communities tend to be younger than the small farm communities. In a later section the influence of the age of the community will, be dealt with at greater length. Finally, the ethnic composition was a matter of importance. For obvious reasons it was preferable to have a community made up of native white Americans. While there are foreign groups in each community, foreigners are not an important element in either town. There are a few Mexican families in each, a number of Negroes in Arvin, and some Koreans in Dinuba. There were formerly Japanese in Dinuba and Filipinos in Arvin, but the Japanese have all been evacuated and the Filipinos have left. A contingent of German Mennonites in Dinuba has had some influence upon the community but not an extensive one, The effect of alien cultures on the character of the two communities is negligible. I METHODOLOGY A variety of methods, procedures, and techniques were used in de- veloping the information in this study. Included are community delineation, interviews, schedules, analysis of club and church mem- bership lists, and compilation of statistical data from a variety of sources. A group of three spent a month in each community to take the interviews and schedules. In addition, one person spent a few days to delineate the community boundaries. Details of precedure, together with a copy of the schedule used, are given in appendix A. PAGENO="0320" 316 CHAPTER II HISTORICAL BACKGROUND OF ARVIN AND DINUBA Before the analysis and comparison of the social picture of the two communities can be meaningful, it is necessary to have a clear picture of their resources, physical setting, and historical development. ARVIN Arvin lies south and east of Bakersfield, about 10 miles from the highway running eastward to Arizona and about the same distance from the highway south to Los Angeles. The climate is that of a desert, with less than 10 inches average annual rainfall. The soil has been built into alluvial fans by streams out of the mountains to the east and is of excellent quality. The farming area is quite fiat, with a very gentle slope to the north and west. A few miles east of Arvin are the foothills of the Tehachapi Range, bare of trees but covered with good range grass. Most of the land in these foothills belongs to the great El Tejon ranch. To the south of Arvin lies undeveloped land, though more and more of this is now being culti- vated by the use of deep wells and heavy-duty pumps. There is still considerable land available for development in this area, but unless the water supply is augmented it is doubtful if sufficient water is availablo for the continued irrigation of lands now using ground waters. The land to the north and west has for a long while been held in~very large holdings, and most of it is now owned and operated by the DiGiorgio Fruit Corp. The community is bounded on the north by a small draw which is often rendered'impassi~ble by floods. Westward from the town there is a large area of moderately large farms, ~nd this extends unbroken into the neighboring communities of Weedpatch and Lamont. Weedpatch derives its name ,from the fact that after the spring floods weeds in this area grow over the head of a man on ~iorseback. It was the earliest community in the area, but at present is merely a crossroads center. Lamont, north of Weedpatch, has come to be a large center for laborers. Neither of these communities is as active commercially as Arvin, however, and neither of them presents a great threat with respect to trade potentials. For instance, the county has decided to place the proposed high school ~;at Arvin rather than near the other two communities. - HI8TOR~ Arvin lies in the shadow of one of the oldest large ranches in the State-the El Tejon. But this ranch apparently has had little or no direct effect upon the community. Much of the flat land around Airvin was homesteaded at about the turn of the century. In 1910 a colony 14 PAGENO="0321" 317 SMALL BUSINESS AND THE COMMUNITY 15 was started in Arvin dependent upon community irrigation wells. At this time many of the homesteaders sold their holdings to these settlers for about $10 an acre. This was the beginning of the development of intensive farming in the community, and many of the small farms today have come down from this early period. During these early days the settlers suffered the hardships of the pioneer. The route to the nearest railroad was the dust-covered buggy tracks running across the desert. In 1912, according to one woman who is still in the com- munity, she was the only farm wife in the area, and while there was electricity for pumping irrigation water, there was none for household use. During the second decade of the century more land was de- veloped. It was during this period that the largest single holdin~ was developed, as well as many other units now in operation. Land values rose from the $10 per acre which the original homesteaders re- ceived from their sales to about $100 an acre, which is said to have been the average price during the First World War. Cattle were the first agricultural commodity produced in the area, but diversified farming came in with the development of small ranches in the period 1910-15. Walnuts and hops were produced quite early. It is generally claimed that it took three "generations" of farmers to make a farm; that is, that the investments of two failures were required before a man could make money by farming. Two classes of crops have in the course of time proved themselves profitable under the relatively high water cost-field crops and fruit produced to meet the early-season market. The land and climate is ideally suited to the cultivation of cotton under irrigation, and the early growing season makes it possible for fruits to mature for the earliest market and thereby bring premium prices. Grapes are harvested as early as July and plums frequently in May. According to one pioneer farmer it was cotton that saved the Arvin area. Cotton was first cultivated in the 1920's and is still an important crop. The earliest data available on cotton in the community indicate that there were 7,756 acres in the Arvin-Weedpatch-Lamont area in 1931 and 9,306 in 1932.~ The Agricultural Adjustment Agency data for 1940 indicate 6,533 acres in cotton in the* Arvin community alone (15 percent of all cropland reported). While the total acreage in cotton has remained fairly constant since the early 1930's, it is now far less important propor- tionately than formerly. The average farm in Arvin is quite large, though, as already indi- cated, not the largest in the San Joaquin Valley. The reasons for this lie both in history and environment and are compounded of the following factors: Nature and cost of water development, the historical~ tim~ng of the development around Arvin, the fact of DiGiorgio develop- ing land within that cominuthty, and the type of crops grown in the area. As stated above, Arvin lies in a desert which, though océasionally flooded by melting snows and spring rains, has no stable surface-water supply. The underground water table was such that it could not be developed until a certain level of pump efficiency was reached. Thus it was that though the area had been homesteaded, and one of Cali- fornia's oldest and largest cattle ranches was developed in the neighbor- hood, the region was unsettled at the beginning of the twentieth. `Data complied by Eern County Agricultural Commissioner obtained from the filee of the farm advinor. Kern County. See also later discussions. - - - PAGENO="0322" Total - cars cars Cars Car: Cars 31 35 1922 47 25 205 277 1951 78 134 / 104 406 1024 705 191 896 1925 1734 1,505 47 1,56914 1926 24 1,2223/i 160 1.4003~ 1927 4234 1, 174 213 12854 1,558 1928 95 1,213 42 12234 1.47234 1929 1,65354 - 14334 1,797 1930 12854 1,500 275 1,6104 1931 1565~ 1,26034 112 156 1,694 1932 219 1,595 210 162 2, 186 1933-.___. 191 1,49234 17 113 1,81234 1934 251 1,61954 123 19134 - 2,185 1935.~. 160 1,904 37 44 2,145 20254 2, 52054 149 2,1812 1937 33834 3, 67554 4634 9054 4, 150 - 1938 361 3, 03534 410 131 3,937 1939 393 2.49154 592 245 4,313 1940 38954 3,2405~ 564 4,294 1941 325 2,36554 1, 171 3,114234 1942 32634 2,369 1,577 368 4,84034 - 1943 328 2,89834 2,872 719 8,131734 - Nors.-Carlot shipments are a measure of volume the value of which varies with the class of commodity. They furnish only an approximation of the value or acreage. Neither cotton nor alfalfa is reported. These elasses of commodity accounted for 47.5 percent of the irrigated acreage in 1040 and 61 to 63 percent in 1911-32. Soarce: Based upon the records in the otflce of the Kern County Agricultural Commissioner. Truck shipments converted to carlot basis. The most recent developments have almost universally been in large tracts and on a highly speculative basis, with large investments in pumps and land leveling. The need for deep wells and powe:rful pumps has inhibited the growth of small operators. To utilize these deep wells fully, joint use must be made of them either by incorpora- tion, partnerships, or cooperative arrangements. There are several such arrangements; some of 20 years' standing are now operating -successfully. Such practices are readily feasible, but the need for group action and large capital outlay inhibits their development. Year * ` Cars shipped Tree fruit Grapes Vegetables Unspecified 318 16 SMALL BUSINESS AND THE COMMUNITY century. In 1910 the first concerted effort at land settlement was made. This colony formed the basis of the present community and has left its mark on the present land pattern. The tenure pattern just after 1910 included a number of small units in a colony, a number of homesteaded tracts, a considerable acreage in large holdings, and, apparently, Some moderately large holdings. In- tensive farming was rare, with permanent planting first being attempted. Arvin's development during the 1920's and early 1930's was not rapid, but from about 1935 to the present time there has been a great increase in tile acreage of land under cultivation. This development has mostly been in field crops and alfalfa, with cotton and potatoes the principal crops grown. There has been a continuous development of vines and tree fruits also. Table 2 shows the shipments of fruit and vegetables from 1921 to 1943. While tree fruit increased by about 50 percent and grapes doubled during the last 10 years, the shipment of vegetables (mostly potatoes) increased tenfold. TABLE 2.-Shipment of fruits and vegetables from Arvin, 1921-43 PAGENO="0323" 319 SMALL BUSLNESS AND THE COMM~NITT 17 The growth of speculative development of farming operations, the tendency to concentrate on annual crops, and the development of large tracts are all part of' the dominant pattern of Arvin's agriculture, and set it off from the Dinuha pattern and from family farming in general. It is a development which appears elsewhere in the State; the Imperial Valley, the Salinas Valley, the Sacramento-Sari Joaquin Delta, the west side of Fresno County. an(l in parts of Kern County, especially lands along Highway 99 which have recently been releised from stock raising uses for intensive agriculture. In Arvin it overlies older patterns of large operations as well as a pattern of small opera- tions as exemplified by the present descendents of the 1910 coloniza- tion. DINUBA / - SETTING Dinuba lies about 10 miles east of Highway 99, about 32 miles southeast of Fresno and about 20 miles north of Visalia, in the north- western corner of Tulare County. It is in the southern end of the grape-producing area which centers in Fresno County, and is supplied with water* by the Kings River, supplemented with water pumped from a shallow underground basin. Unlike Arvin, Dinuba is sur- rounded by neighboring communities which rival it in importance and size. The nearest of these, about 7 miles away, is Reedley, a grape-producing community. Next is Kingsburg, a thriving corn-. munity of comparable size~, lying on Highway 99. Smaller in size, though fairly independent of Dinuba, is the town of Orosi, directly to the east. Selma, Parlier, and Sanger are towns of comparable size within a radius of 12 miles. There are numerous subcommunities or neighborhoods near Dinuba, some within the Dinuba boundaries and some outside them. Sultana and North Dinuba are in the former category, while Cutler, Yettem, and Orange Cove are important small centers just outside the boundaries of Dinuba, as delineated. The soils around Dinuba are generally of good quality. About 6 miles south of Dinuba are some poor salt grasslands which are used almost exclusively for grazing stock. In this area there are few houses. In all other directions from Dinuba, intensive agriculture extends unbroken until the orbit of a neighboring community is. reached. Dinuba, like Arvin, lies on the flat plain of the San Joaquin Valley. It, too, is close to the foothills, being but 3 miles from the nearest promontory. The soils are especially suited for the development of grapes, but appear to be excellent as well for numerous field crops including cotton. The growing season is long and the same general climate as in Arvin prevails except that there is a slightly greater rainfall and shorter growing season. Since crops are irrigated, pre- cipitation is not a direct advantage, while the later spring means that Din uba growers cannot bring their produce to market as early as Arvin growers can. Early markets are not important to raisin pro- duction, and Dinuba is in an area favorable to field-drying grapes because of the dry and warm (but not too hot) season after the grapes are ripe. PAGENO="0324" 320 18 SMALL BUSINESS AND THE COMMUNITY HISTORY The Dinuba area produced grain during the seventies and eighties. At that time the dominant community was Traver, which served as the shipping point for the grain and the residence for laborers. Dinuba did not exist at that time. Early descriptions of Traver indicate that it was typically "wild west," and that it was apparently destined to be one of the major cities of the San Joaquin Valley. The irrigation development which was to be the basis of Traver's further development proved its undoing and created Dinuba. During the seventies there was a large cattle and grain ranch in southern Fresno County which used the brand "76." In 1882 a ~oup of men, including the owners of the "76" ranch, started an irrigation development called the 76 Ranch & Water Co. Accord- ing to Frank Adams, this company was successful from the start.4 It sold both land and water rights, the latter being made appurtenant to the land, each 40-acre right calling for 40 i!lches of water. An initial charge of $200 was made for each 40-acre right and an annual assessment of $20 covered operation and maintenance. The indi- vidual owner had to build adequate laterals when these were necessary to bring the water to his land. The Alta Irrigation District was formed in 1888, and is one of three original Wright Act irrigation districts that have been continuously active since their formation. In 1890 the district purchased the system built by the "76" company for $410,000. The district has been involved in much litigation, and disputes over ~vater rights have in the past resulted in violence. Adams describes some of its problems: From the early days Alta Irrigation District was involved in litigation re- specting its water rights. There was also litigation regarding the legality of certain acts of the board of directors, the first bond.issue, out of which the system was purchased, being declared void by the superior court on August 18, 1898, when bonds of this issue in the amount of $543,000 were outstanding. These were the dark days of the district. For several years most of the district assess~ meats remained unpaid and development was halted, although the canal system was continued in operation and the district organization remained more or less active. In 1901 a compromise with the bondholders was reached. Under * his compromise 5-percent refunding bonds in the amount of $500,000 were issued on February 4, 1902, $492,000 of these being used to redeem all of the outstanding bonds and the defaulted interest coupons for the years 1898, 1899, and 1900. The basis for exchange was $0.75 on the dollar. Since this refunding, the dist riot has been in sound financial condition, meeting all interest and principal payments as due, and even retiring bonds in the amount of $53,500 in advance of maturity out of accumulated surplus.5 In 1888 the towns of Reedley and Dinuba were formed. Irrigation of the higher lands around Dinuba flushed alkali to the surface of the soil aroud Traver, and this, in conjunction with a number of fires, caused the earlier town to be abandoned. Several houses and build- ings were moved from Traver to Dinuba, and quite a few of the people of Traver established residence in the new community. With this start, the town grew steadily. - * There had been rural schools within the community boundary ~as delineated) as early as 1879, but the first Dinuba school was started in 1889. This school grew s.teadily through the ninetiies. `Frank Adams, Irrigation Districts in California, Bull. 21, 1929, State of California, Departme~it of Public Works, Sacramento, 1930, p. 214. $ Prank Adams ibid. PAGENO="0325" 321 SMALL BUSXNESS AND THE COMMUNITY 19 In 1899 a high school was established. During these early years additional land was constantly being brought under irrigation, and the creation of small farming units continued. By 1900 there were three general stores, a furniture store and funeral parlor, a newspaper, one or two doctors, a hotel, two smithies, two livery stables, and a packing shed, A basis for social participation was also established, with at least three churches, a community hail in which groups could meet and amateur theatricals were performed, and a public park in which regular band concerts were given. The reverse of this bright coin of the gay nineties was a "Chinatown," with its saloon and red.. light district. Dinuba was incorporated in 1906, and since that time has had its own local government. A second newspaper was started in 1903,. a water system was developed the same year; the year before that .a bank was set up by local capital, and in 1910 a second bank was organized. In 1~15 the first general large public~works development was undertaken. During the First World War prices were good and prosperity was general, and after the war there was a great boom. The population grew to an all-time peak in 1922. The average daily attendance in the several elementary schools shot from 700 to 1,250 during the 4 years 1918-22. It was during this postwar period, when the price of raisins was good, that the townspeople thought that their com- munity would develop into a major urban center. The farmers overexpand ed on the basis of these prices, the city made elaborate improvements which eventually created burdensome assessments on real estate but which had the immediate effect during the construc- tion period of furthering the inflationary economy. At this time the town had a professional baseball team and a well.. paid full-time chamber of commerce secretary. The community had enjoyed high prices and exuberant prosperity, and the people acted as if it were a permanent expectation. In 1922 the situation changed; many small fortunes and many smail savings were lost. The farmers who had mortgaged their home farms for an extra piece of land often lost both; people who had built homes in town had to pay high construction costs and higher tax assessments for paving, lighting, and the civic improvements, The population declined rapidly, so that the average daily attend- ance at the schools was reduced from the 1922 peak of 1,250 back to 1,000 in 1926, and it remained under 1,100 for the next 10 years. During this period both banks closed and were taken over by chain systems, and the financial position of the community was very low. Dinuba was then "the best-lighted cemetery ever seen," according to drummers. In 1937 the town reorganized its finances, and economic conditions are much improved. At present, the high prices have brought on another boom period, but the chastened community, like the chastened farmer, has carefully avoided overexpansion, but is preparing for post- war improvements on a modest scale. Though it was not without individual heartaches and losses, the community has come through the war and depression in good order and now has many civic advan- ta°'es and practically no debt. ~fhe land of Dinuba was owned in large tracts prior to irrigation development, but the owners, over a period of years, sold off their PAGENO="0326" 322 20 SMIcLL BUSINESS AND THE COMMUNITY holdin°s in small units. In this way the community was built upon small farm operations, though a few big operators have always existed in the area. Thouoh it is impossible to determine all the reasons for the development oF small holdings, sonic of the important ones can be indicated. The Alta irrigation system was developed in t.l~e early period of California fruit production and, though large-scale field operations were prevalent in California, large-scale fruit operations were not then frequently attempted. It seems that the landowners considered their best opportunity to be in the profits from direct sales at the enhanced land values, rather than the more speculative opera- tion in the new industry. Land costs were high at the very beginning of the development. A significant item in the predominance of small- scale operations is the fact that the land-was developed by irrigation under the Wright Act, an act which was purposely drawn to assist the development of small farming. Some large growers have always farmed in the area, though none on the scale of the largest Arvin operations. No adequate picture of the size of farms throughout Dinuba history is available, but in recent years some large-scale operations have dc- veloped. These have been created by the consolidation of holdings by packers and shippers, motivated by a desire to integrate their activities sufficiently to enable them to be assured of an adequate pack. During the last 15 years successful packers have gradually increased their holdings. One of these operators was quoted as saying that by having holdings and a packing shed in combination he could make money when the small farmer could not. This could be accomplished by means of three advantages: (1) Growing a premium quality which brought 10 cents more per pack, (2) saving 5 cents per pack on com- mission, and (3) avoiding the direct packing charges. He considered* he made $250 per car more than the farmers did, and is assured of 200 cars per season through his own production. The development of these integrated operations is viewed with some alarm by the small growers, who recognize that in times of unfavor~ able prices the packers can refuse to handle the independent operator's produce. Large-scale operations may become important in Dinuba but are not now, nor have they been a dominant factor in the com- munity since the development of irrigation. COMPARATIVE NOTES The ge~graphic bases of Arvin and Dinuba are quite similar.. Both are surrounded by flat lands with good to moderately good soils capable of growing fruits and vegetables with good yields and quality, when supplied with adequate irrigation water (table 3). Arvin, how- ever, has more good soil within the area, and is much less hemmed in by rival communities. Neither town has any ~reat advantage with respect to climate. Arvin's is slightly favorable m that it can produce for an earlier market while Dinuba has a climate peculiarly advan- tageous to raisin production. Neither has any great advantage with respect to location. Dinuba is somewhat more central to the traffic within the State, and is slightly better supplied with railroad facilities; but Arvin is better located with respect to urban and eastern markets. Potential and actual oil deposits give an economic advantage to. PAGENO="0327" 323 SMALL BTJSINESS AND THE COMMt'NITY 21 Arvin over Dinuba, but this is not of sufficient importance to account for any great divergence between the two towns. ,TABLE 3.-Quality of soil in Arvin and Dinuba . Soil class Arvln -- --- Acres Percent Dinuba --- Acres Percent I and 2 4 Sand6 Total 33, 348 52. 5 23, 186 54.8 ~s, ~ 4,704 0 63,520 40.0 7.5 0 100.0 7, 827 .,,`)50 6,347 43,310 18.5 11.7 15.0 100.0 Source: Data obtained by planimeter readings from 9011 map of eacl~ community as delineated. Soil map prepared by Bureau of Agricultural Economics, based upon soil-classiOcation map by Walter W. Weir and R. Earl Stone, Dic-ision of Soil Technology, University of California. The greatest differences between the two communities, other than the differential in size of farm operations, are the nature and cost of water supply and the history and age of the communities. Arvin is c~mplete1y dependent upon ground waters for irrigation, while Dinuba secures the major portion of its supply as surface irrigation by a diversion from the Kings River, and uses ground water only as a supplement. A careful analysis of cost of water under average con~ ditions in the two communities shows that water costs more in Arvin than Dinuba (table 4). The cost analysis, made for farms of the average size in each community, shows that the averacre per acre cost of water in Arvin is $6.92 (2 feet 11 inches duty) an~ Dinuba is $4 (2 feet 6 inches duty). While this difference is not great, corn-. pared with the total annual cost of land, the difference would be very great between Arvin and Dinuba for farms of similar size. Arvin units of 57 acres would pay over $14 per acre for water. Such excessive water costs can be and regularly are avoided by cooperative use of wells and pumps, either between two or three neighbors or among a large group. - T&ntz 4.-Comparative irrigation costs: Arvin and Dinuba - . Item of coat -. -. ` ... Arvia 497-acre 57-acre farm basis' farm basis' Dinuba, Si-acre farm basis Total investment $13,500.00 1,401.00 120.00 1,915.00 3,439,00 27.00 6.92 2.37 $3, 700.00 385.00 40.00 384.00 $1. 200.00 159.00 8.00 61.00 Annual costs: Fixedcosts~ Repair and emergency k.lectniceuergy Total annual costs Investn,~nt per acre Annualcostperacre Annual cost per acre-foot 809.00 66.00 14.19 4.87 228.00 21.00 4.00 1.59 * Average farm size in Arvin. *57 acres Is tbo Dinuba average farm size. Includes interest and depreciation at 5 percent each, tax of 4 mIlls, and for Dinuba a charge for gravity water delivered at 60 cents per acre. For more detailed analysis of water costs, and for sources and necessary assum~t1onz, ese appendix B. PAGENO="0328" 324 22 SMhLL BtJSINESS AND THE COMMUNITY There is a general attitude in Arvin that water cannot be (leveloped by the small operator because of the very large capital outlay. 1low- ever, three items should be borne in mind. First, the water table was around 50 feet when the land was first brought into productiun, a lift that is not out of line with water lifts in other areas. Second, there are small units in the area which have been farmed continuously for a quarter of a century. These usually obtain water under some form of cooperative arrangement that enables several units to share the investment and pumping charges. Finally, the cost of water is an item which is refiectd in the value of land, since land values are based upon the capitalized potential net income. High water costs do not render small farming impossible, yet it must be recognized that the great expense and the resulting high risk in the development of Arvin lands, together with the cultural inertia in forming cooperative arrangements, serve to inhibit the growth of small farming. There- fore, while small farming is feasible and profitable, with proper price relationships, the ecOnomics of the Arvin situation under present conditions militate against the development of the family farm and in favor of corporation agriculture. The historical differences between the two communities may be examined under two phases: the age of' the communities, and the era of the communities. Dinuba is approximately 20 years older than Arvin, and reached its population maturity during the early 1920's. Arvin cannot yet be called a mature community, since there is a great deal of land being developed. The relative age of the two towns is shown by the growth of the annual average daily attendance of the el~ementary schools in the area. The first Dinuba area school started in 1879, while the first school in the Arvin area began in 1902. The growth curve in the two areas shows a remarkable parallel develop- inent, with slow growth during the. first 15 years, rapid, growth for the next 20, followed by a 4~essation of growth in later years. The. g~owth'period in Arvm shows a somewhat sharper ascent (fIg. 21). The period in which a community comes into being affects its charac- ter. Arvin grew up after World War I and Dinuba before it. This has bad certain direct effects; for instance, a small town which came into being during the 1920's would rarely have two banks, because~ chain banking became prominent in California during that period and these are in a position to avoid such a situation. On the other hand, the increased use of automobile traffic, and the assistance furnished by the Federal Government through WPA would suggest that streets would be paved and sidewalks laid relatively earlier in the newer town than the older. A detailed analysis of the effect of the historical differences between Arvin and Dinuba will be pre- sentéd in a later section. PAGENO="0329" 325 CHAPTER III AGRICULTURE IN ARVIN AND DINUBA INTRODUCTION California agricultural production is industrialized. Its major characteristics are high degree of specialization on the farm; general use of power equipment; high value and intensive use of land; large capital requirements; and heavy dependence upon hired labor. Both Arviu and Dinuba fit this pattern. Furthermore, most of the same commodities are produced, but they are produced in different propor- tions. Finally, the scale of operations differs, for while both com- munities have a wide range of farm size, the farms at Arvin are gen- erally larger while those in Dinuba are mostly of very moderate size. In oider to understand the nature of the economic and social .condi-. tions, it will be necessary to examine the agriculture of each community in detail. From the standpoint of community comparisons, the most significant fact is that the same total dollar volume of agricultural production- 2~ million dollars-was brought to the market in Arvin and in Dinuba. Special data have been available on the agriculture of the two communities. Statistical data on size and type of farm, on tenure, and on acreage in various major crops have been obtained from the worksheet records of the Agricultural Adjustment Agency. These data have been developed by the Bureau of Agricultural Economics for use in other studies relative to the economic effects of scale of farm operation, and the data cover three counties in the upper San Joaquin Valley. While only worksheet farms of the Agricultural Adjustment Agency were included, this is very nearly all farms in the area. Actually more units were included than were included by the United States Census of Agriculture. Furthermore, some indication of the accuracy of these sources is sho~~n by the agreement between the Agricultural Adjustment Agency data and the schedule data from each community (table 5). The Arvin agreement is nearly perfect, while in Dinuba the questionnaire includea 90 percent of the number enumerated by the Agricultural Adjustment Agency records. TABLE ~.-Comparison of number of farm operators as reported in Aqricultural Adjustment Agency records and as indicated by schedules Community . Number of ~ Adjustittent Y0~ urn r 0 * ~PtratrS qu~sti~aire Arvin Dinuba 133 752 110 650 * For the detailed analysis and a discussion of the m3thods of collecting this Information, see Edwin E. Wilson and Marion Claweon, Agricultural Land Ownership and Operation in the Southera Sin Jo~iquin Valley. Bureau of Agricultural Economics. Berkeley, 1945 (nilmeographedl. Th~e data alco eutrtd Into the analysis of the scal" of farm operations. (Ste J. Karl Lee. Relative F.tlieiency of Farms of Varying Size In the Southern San Joaquin Valley. California, Bureau of Agricultural Ecououiles, 1945.) 23 95-253 0 - 68 - 22 PAGENO="0330" ` Arvin Dinuba PeTcent Percent 36 65 Row crops...-~ 41 11 Forage crops.. 17 19 Other Intensive us~ . . 6 5 Total. This emphasizes the major difference between the two communities; namely, the heavy dependence of Dinuba upon one category (and in fact, upon grapes alone), in contrast to the balance in Arvin between fruit and row crops. An estimate has been made of the gross farm income, based upon local yields and acreages. The total income in 1940 was apprcxi- mately 2% million dollars in each of tile two communities. Table 7 shows the distributions of this income by major commodity classes, and the same information is presented graphically in figure 2. This demonstrates again the great value of fruit in Dinuba while tile row crops make up but a small total value. These latter have become more important in both communities during the last 3 years, but they are still but a small proportion of the total value of the Dinuba production. 326 24 SMALL BUSINESS AND THE COMMUNITY The Agricultural Adjustment Agency crop and type of farm data relate to 1940. The use of 1940 rather than a later year was dictated by considerations outside the scope of this study, but its effects rnu~t be recognized. The differences between 1940 and 1944 agriculture are not significant in Dinuba, where most land has been in intensive production for a long time and much of it is in permanent plantings. A slight shift from grapes into commercial vegetables has occurred. Expansion is no longer possible, since all good lands have long been intensively farmed. In Arvin the agriculture has changed measurably. In about 1937 a development started which brought about 11,000 acres into production by 1940 and which has continued at approxi- mately the same rate since then. Much of this.new land was shifted from dry-farmed grain to irrigated potato and other row-crop produc- tion, while some shifted directly from desert to intensive uses. Prob- ably about 6,000 acres of land were brought into intensive use for the first time during the 3 years 1941-43 inclusive. It must be noted that population and other social data refer to 1944, business data to 1943, while agricultural production data refer to 1940. This means that the production base supporting Arvin's population and business at the time for which data in these categories apply are underesti- mated. The 3- to 4-year offset is more than enough to account for any expected lag in volume of business or in population growth. Arvin's population, as indicated by school enrollment, shows no gain since 1940. VOLUME OF PRODUCTION AND MAJOR CROPS The acreage distribution in the two communities and the proportion .of total acreage by major crop classes are given in table 6. There were 46,126 acres in farms in Arvin as against 34,202 in Dinuba (1940). I.f Fain and idle or unused lands are excluded, there are 22,000 acres in Arvin compared to 24,000 acres in Dinuba. The following are the major intensive land uses in Arvin and Dinuba: Intensive land ..-~ a - Orchard and vineyard. PAGENO="0331" 327 SMALL BUSINESS AND THE COMMUNITY 25 GROSS FARM INCOME BY PRINCIPAL SOURCES ARVIN DINUBA (THOUSANDS) (THOUSANDS) $ 2,438 $ 2,540 ___________ - LIVESTOCK ~IQ7 AND LIVESTOCK PRCOUCTS $163 $152 VEGETA9LES , $516 ~-~" $185 $24 ~0' `- / -. , / / ~222 /COTTON,' / / $493~ / - / * $1,752 FRUIT AND GRAPES $847 SOURCE: AGRICULTURAL ADJUSTMENT AGENCY RECQR~ AS ANALYZED BY BUREAU OF AGRICULTURAL ECONOMICS DATA REFERS TO 940 CROP YEAR FOR ARVIN AND DINUBA AS DELINEATED FOR COMPARATIVE COMMUNITY STUDY DOLLAR ~LUME OF PRODUCTS ESTABLISHED BY USING 1940 PRICE LEVELS AND AVERAGE YIELDS FIGVU No.2 PAGENO="0332" 26 328 SMALL BUSINESS AND THE COMMUNITY TABLE 6.-Major crop classes in Arvin and Dinuba, 1940 . Crop class - Arvin -- - Acres Percent Dinuba -- Acres Percent Orchard and vineyard Cotton Sucar beets 7,875 17.0 16, 205 47.7 ~,fl4 32 2,G17 627 2,358 0 ~ 278 - - 7.7 Potatoes Commercial vegetables Total row Wheat Barley Total grain ~. Alfalfa Bay and sorghum - - Total forago Otbercrops 8,980 19.4 2,646 12,004 3,990 .-- 76 ~ 15,994 St 6 1,020 113 3,060 7~ 952 - ~ 1,317 8.4 2.9 4,749 1,268 8 3.7 Range land. - Nonerop pasture Summer fallow and idle 170 1,078 3,472 4,720 10.2 ~, ~ 2,308 6,550 19. 1 Total noncrop..-- Lanes and buildings. Total land in farm 3,464 7.5 1,674 tO 46,124 100.0 34,202 100.0 Source: Agricultural Adjustment Agency data for communities as delineated. TABLE 7.-Estimated gross farm income by principal sources: Arvin and Dinuba1 , Cropelass . - ,* Arvln --~ $1,000 Percent Dinuba $1,000 Percent Cotton (lint and seed) Grain Potatoes, vegetables, and sugar beets.~.. Livestock and livestock products1 Total gross Income. 847 493 ~ 516 . 163 197 35 20 ~ 21 7 8 1,752 185 ~ 27 152 400 89 7 I 1 6 16 100 2,438 100 2,540 I Gross value of each commodity. Value of commodities fed to livestock, both that grown locally and the necessary purchase from outside ($51,000 worth in Dinuba, none in Arvin), deducted from gross Income from livestock and livestock products. For method of calculation see appendix B. - Source: Agricultural Adjustment Agency data for cominunities as delineated. TYPES AND SIZE OF FAR~MS The analysis of the Agricultural Adjustment Agency data segregated all farms into 10 major classes. Table 8 shows the number of farms and the acreage in each class. Detailed description of these classes appears in appendix B. The summer-field-crop farms, and to a lesser extent the summer~and-winter-field-cr0P farms, produce most of the cotton, potatoes, and vegetables. Fruit ranches are broken into two categories on the basis of degree of specialization. PAGENO="0333" 329 SMALL BUSINESS AND THE COMMUNITY 27 TABLE 8.-Number of farms and acreages, classified by type: Arvin and Dinuba, 1940 Farm class 1 irvin - - - Dinuba - - - Nuns- Per- Per- ber cent ~ cent Nuns- bet Per- cent A cres Per- cent Forage livestock . Specialized fruit Major fruit Winter field crops Winter and summer field Summer field crops Small ranches, idle and part-time farm&~ Total 0 20 17 25 13 41 7 0 22.6 12.8 18.8 9.8 30.7 5.3 0 1,229 9.05.5 16, 763 6, 118 11,871 1,090 0 2.7 19.6 36.3 13. 3 25. 7 24 8 397 152 5 16 104 40 1. 1 5.5.0 21.1 .7 2. 2 14. 4 5.5 611 14.918 8,012 329 1,905 6. 473 1,866 1.8 43.6 21.4 1.0 5.8 18.9 5.5 100.0 133 100.0 46,126 100.0 722 100.0 34, 202 Definitions of farm classes are given in appendIx B. Source: Agricultural Adjustment Agency data for communities as delineated. Averao'~ farm size in the two communities varies significantly, though ~oth communities have very small and very large units. Three measures of farm size are indicated in figure 3. The upper squares represent the average area of farms in each community. Arvin farms average 497 acres as compared with 57 acres in Dinuba, or about 9 times as large. The distribution of farms and of productive land according to size is shown in table 9. From this tabulation, it can readily be seen that there are numerous operations of modest size in Arvin, bitt that 7 farms operate 42 percent of the cropland and orchard and 22 farms operate two-thirds of all such land in the community. The heavy preponderance of small farms in Dinuba is equally evident, with 94 percent of the farms under 160 acres and very few units in tile upper brackets. Figure 4 shows both the distribution of farms by size and the acreage~ of all cropland, orchard, and vineyard by size. While number of units decreases as size increases in both areas, the total crop acreage in farms in Arvin increases as the size increases. TABLE 9.-Distribution of farms and productive land by size of farms: Arvin and Dinuba . * Size category ~ Arvin Dinuba NO Acres Percent of acre- `~ Acres Percent of acre- TJnder8O 80to160 160to320.... 320to640.~ S4Otol,280 Over 1,280. Total 53 22 18 18 15 7 133 1,600 2,142 3,898 6,067 10,681 17,983 3.8 5.1 9.3 14.5 24.1 43.2 100.0 624 55 33 5 4 1 16.261 4,781* 4.754 1.337 963 *8 57.7 17.1 17.1 4.7 3.4 `0.0 100.0 41,771 722 28,153 * Size category based upon acreage of cropland and orchard only. Acreage In large unit which only partially lies in community. Amounts to less than 0.5 percent. Source: Agricultural Adjustment Agency records. PAGENO="0334" 330 28 SMALL BUSINESS AND THE COMMUNITY Summer-field-crop farms tend to be larger than the average of all farms in the community, but the difference is not very great. In Dinuba about 70 percent are under 80 acres in size, as against 87 percent for all farms. In Arvin about 20 percent are in this small category and 35 percent are under 160 acres while 40 percent of all farms are under 80 and 55 percent under 160. Summer field crops are a somewhat less intensive operation than fruit, so that somewhat larger units would be expected. Acreage in farms, and even cropiand acreage as used above, is not an entirely satisfac tory measure of farm size. An acre of wheat and an acre of grapes differ extremely in the amount of labor required, amount of capital invested, and potential income. In order to discuss farm size on a more comparable basis, a unit of measurement has been devised which expresses the potential income from an area of land. This unit has here been called an acre-equivalent (abbreviated A-E), and may be defined as that area of any cropland which under normal conditions has the potential capacity to return income equivalent to that of an acre of irrigated alfalfa. (See appendix B for method of calculation and factors used.) In terms of this measurement, the average farm unit in Arvin is 285 acre-equivalent units against 89 in Dinuba (fig. 3). Figure 5 shows the distribution of farms by size * categories measured in acreage-equivalents. The heavy concentra- tion of Dinuba units in the bra ckets between 50 and 200 units is clearly evident. In Arvin nearly half the farms are under 100 such units in size, though most of the acreage is controlled under farms of the larger categories. * The accompanying figures Nos. 3, 4, and 5 apply to farms as oper- ating units. Since tenancy is prevalent, the same picture need not apply to farm ownership. Analysis has been made of ownership units, which may or may not be operated as one farm but which include all the lands within the community owned by one individual. There are 214 such units in Arvin with an average size of 176 acres, and 753 units in Dinuba with an average size of 45 acres. TABLB 10.-Number of ownership units and acreage by size of holdings: Arvin and Dinuba, 1940 Sizeclass ~ . Arvin - Num- Per- Per- ber cent Acres cent Dinuba Num- Per- ber cent Acres Oto8O . 80.1 to 160 160.1to640 640.1 andup ~. Total 100 49 52 13 46.8 22.8 24.3 6.1 3,483 7,466 11.696 15,083 9.2 19.8 31.0 40.0 688 42 38 5 88.7 5.6 5.0 .7 19.088 4,678 7,063 3,049 214 100.0 37,728 100.0 753 100. 0 33,878 100.0 No~*.-Wbere part o(unit Is held withIn community boundaries and part outside acreage within bound- aries only was included, but placed in size category based upon total holdings. ~uch situation reported for Arvin only. Source: Agriculturrl Adjustment Agency data for communities as delineated. Table 10 shows that nearly half the holdings in Arvin are under 80 acres but have only 9 percent of the land, whereas 30 percent of tile farm holdings over 160 acres have 71 percent of the land. In Dinuba nearly 90 percent of all ownership units are less than 80 acres, and operate 56 percent of the land, while the small percent of the owners who have over 160 acres (5.7 percent) operate 30 percent of the land. Per- cent 563 13.8 20.9 9.0 PAGENO="0335" 331 SMALL BUSINESS AND THE COMMUNITY 29 COMPARISONS IN SiZE OF FARMING OPERATIONS AVERAGE SIZE IN GROSS ACRES 497 ARVIN DINUBA AVERAGE SIZE IN ACRE EQUIVALENTS L285i __ ARVIN DINUBA AVERAGE SIZE IN DOLLAR VOLUME OF FARM PRODUCTION $I8,096 ______ $3,384 ARVIN DINUBA FIGURE No. 3 PAGENO="0336" 332 30 SM4LL. BUSINESS AND THE COMMUNITY SIZE DISTRIBUTION OF FARMS AND OF CROPLAND ACREAGE IN FARMS Perc ent of forms NUMBER OF FARMS ARVIN LI 280 80- 160 60-320 320-640 CROPLAND ACREAGE IN FARMS Under 80 80-160 160-320 320-640 640-1280 Over 1280 .Less than .05% Sources Agricultural Adjustment Agency data FIouiu No. 4 PAGENO="0337" DISTRIBUTION OF FARMS BY SiZE IN ACRE-EQUIVALENT UNITS Percent of forms 50 - -. DARVIN 40 0 OINUBA tn CA~ I-i 20 tn 0 10~ * ~ tn~ flfl ~ _____ n 0- 10 II -25 26 -50 St - too OL -200 201-500 501-1000 Over 1000 SIZE CATEGORY (IN ACRE-EQUIVALENT UNITS) FIOURE No. 5 PAGENO="0338" 334 32 SMhLL BUSTh ESS AND THE COMMUNITY FARM TENURE More than three-fourths of Dinuha farmers own all the land they operate, while only 35 percent of the Arvin farmers are full owners. The proportion of full owners, part owners, and tenants is shown in table 11 In Dutuba, tenancy b not diicctly associatcd with siíe, but in Ar% in thi smaller farms ai e rarely tenant-opei atcd ~s hule the larger categories are tenant-operated slightly over half the tune The relationship bet~s cen sue of operating units and tenure is shown in table 12 TABLE 11.-Tenure of/arm operators: Arvin and Dinuba, 1940 , Arvin Dimtba Number Percent Number Percent 43 36.0 562 17.8 28 22.7 59 8.2 Tenants 52 42.3 101 14.0 Total 123 100.0 722 100.0 Source: Agricultural Adjustment Agency data for communities as delineated. TABLE 12.-Variation in tenancy by size of/arms: Arvin and Dinuba, 1940 Dinuba - 8I7M~ class Owners Owners * and part Tenants and part Tenants owners owners Number Number Percent Number Number Percent Oto8O 36 14 28 640 84 13 80.1to16O.~ 7 10 69 44 11 20 i60.1to64&_ 18 16 47 33 5 13 OverS4O ~. 10 12 65 4 1 20 Total 71 52 42 621 101 14 Source: Agricultural Adjustment Agency for communities as delineated. The place of residence of landowners in the two areas presents the same contrast (table 13). Less than a third of tile owners give Arvin as their residence, and only two-thirds live in Kern County. Seventy percent of Dinuba owners reside in the community, and 84 percent live in Tulare County. Arvin landowners are often distant from the town, with 31 percent residing outside the San Joaquin Valley as compared with only 5 percent of tile Dinuha owners. - Arvin and Dinuba are in fairly strong contrast with respect to tenure characteristics. Arvin has a high proportion of tenancy, especially among the larger units, and the owners frequently live not only away from Arvin but at a considerable distance. Dinuba has a very high proportion of owner-operated farms and most of the land- owners live in the community or in the San Joaquin Valley. PAGENO="0339" 335 SMALL BUSINESS AND THE COMMUNITY 33 TABLE 13.-Residence of iandowners: Arvin and Diiiuba, 1940 * Residence of owner Arvin Diuba ~~ir [~umber Percent With community address 60 32. 1 529 70. 7 Elsewhere in county 59 31.6 101 13.5 Elsewhere in San Joaquin Valley 10 5.3 81 10.8 Elsewhere in California 53 28. 3 34 4.5 Outside California 5 2.7 4 0.5 Total I - 187 100.0 749~ 100.0 I Owner's residence not recorded: Arvln 27; Dlnuba 4. Source: Agricultural Adjustment Agency data for community as delineated. PARM LABOR REQUIREMENTS In a farming system where at least half of the total labor performed in the production of goods is paid for in the form of direct wages, the situation and condition of labor requires a great deal of attention. There are interesting similarities and differences between the labor pattern in Arvin and Dinuba. An estimate has been made of the total requirement for manual labor on Arvin and Dinuba farms in terms of man-hours of work. These estimates are based largely on the records of farmers in the area, combined with the 1940 crop data from the Agricultural Adjustment Agoncy~cards, butcomplernented within formation on some crops from other sources (see Appendix C for details). On the basis~of this in- formation, the total labor requirements and the monthly distribution were calculated for the two communities (table 14). Arvin. has ,a total requirement Of 2.9 million man-hours of work per year and Dinuba 3.5 million man-hours. The 20 percent additional labor re- quirement on Dinuba farms means that a greater portion of the total value of production must go to labor (including farmers' own labor), assuming equal wages.7 TABLE 14.-Monthly Mbor re~uire1nents: Arv'n and Dinuba Montb : ~ ` Arvin ~ Dinuba ~ Man- hours Percentage of average Man. Percentage hours of average . JAnuary February March April May JAne 7uly August September October November December Thousand. 149 138 132 218 248 ~ 525 151 372 294 137 189 3,886 241 Percent 62 58 55 91 102 ~ 218 65 155 122 57 78 Thousands Percent 189 65 243 84 ~ 265 92 234 81 393 136 299 104 669 281 392 135 124 43 175 II 3,460 - 289 100 Total Average 100 Por methods of computation, source of data, and detailed analysis see appendix 0. 7The analysis of farm efflclency made by Karl Lee (op. cit.) shows that a greater amount of labor Is re. quired per acre and per unit of production on small farms than on large. Smaller unUs, according to this same study, are more intensively operated. PAGENO="0340" 336 34 SMALL BUSINESS AND THE COMMUNITY The seasonal fluctuation in labor requirement is great in both com- munities. Arvin demand varies from 132,000 hours in March to 525,000 hours in July (or four times the minimum). Dinuba demand for labor varies from 124,000 hours in November to 609,000 in Septem- ber (over five times the minimum). Seasonality of employment opportunity is a serious problem in both tOwns, but is worse in Dinuba than Arvin. These figures represent labor requirements on all farms, or the (le- mand for f.tbor. On the supply side, several classes of labor may be segregated: The farm operator, the resident full-time farm laborer, the resident part-time worker, and the outside transient worker. It may be assumed that, in general, the labor is performed by the operator when he can do it, by resident labor when there is too much for the operator, and by part-time and migratory workers only after the resident labor is fully employed. In actual practice, there will be many exceptions, but as a general rule this relationship will apply. In this way, the itinerant worker will receive the residual employ- ment. It must be remembered that the resident laborer of Arvin and Dinuba may also be an itinerant laborer in any other community, while the itinerant laborer is the resident of some other town. Figure 6 shows graphically the monthly fluctuation in labor de- mand for the two towns, and the proportion of this demand which must be filled by hired labor and by migrant workers living outside the community. Hatchures show the source of such labor. The lower portion represents the labor performed by the farm operators, on the assumption that each operator works full time (250 hours per month) when there is work to be done. Since many operators, especially on larger units, are occupied with management, this may overstate somewhat the actual hours of labor they can accomplish. It is assumed that this managerial function results in at least equivalent labor savings. Unpaid family labor has not been included as it does not play an important role in the economy of industrialized farming. The next section of the bar shows the work done by full-time hired labor resident in the community. The supply is predicated upon the data from schedules. The third seàtion shows other family members who perform farm labor for wages on a part-time basis, the supply of which was determined by the schedules. Full-time labor is assumed to work 200 hours per month when work is available and part-time labor 100 hours per month when work is available. In Dinuba, no hired labor is required in November or December, but in Arvin there is always work for some hired hands. The resident labor in each community is sufficient to cover most of the demand. In both communities outside workers are necessary during the three peak months. No doubt outside workers are normally in each community at other times, competing with local labor, but they are not absolutely needed. The upper portion of the bar represents that portion of the availaible work which must be done by these itinerant workers. Table 15 shows the break-down of workers for the two communities for the month of peak employment, based upon the assumption given. During other months, the number of itinerant workers is fewer, and during most months, even the resident labor is not fully employed. In Dit1uba there are seasons when the.operators are themselves not fully employed. PAGENO="0341" 337 SMALL BUSINESS AND THE COMMUNITY 35 MONTHLY LABOR REQUIREMENTS AND SOURCE OF SUPPLY TOTAL REQUIREMENT ~]Migrofory labor ~ Seasonally employed t'N resident labor Thousands of mon-hours ~ Resident labor 600 Farm operator ARVIN 500 400 300 200 ~ _ _ Jon Feb Mar Apr May June July Aug Sept Oct Nov Dec 600 - 500 DINUBA 400 Jon Feb Nor Apr Moy June JuLy * Aug Sept Oct Nov Dcc For assumptions and explanations see Appendix B PIOTJaI No. 6 PAGENO="0342" 338 36. SMALL BUSINESS AND THE COMMUNITY Arvia requires approximately 1,200 workers, Dinuba 1,400 in the peak months. Dinuha can furnish this class of workers about 20 percent more total emp~oyrnent. TABLE 15.-Number of workers required for farm operations during month of peak labor demand: Arvin and Dinuba . Classof labor Arvin (Yuly) --~ Dinuba (September) -`--`-- - Man-hours Persons Man-hours Persons Yarm operator (250 hours each) Resident labor (200 hours each) Pact-time resident labor (100 hours each) Itinerant labor (200 hours each) Total Thousands 33 188 69 235 - Number 133 940 690 1,176 Thousands 180 110 60 819 Number 722 550 600 1,595 525 2,938 669 8,467 Source: Total labor requirements based upon data developed by the stat! of the Bureau of Agricultural Economics (Berkeley); number of operators based upon Agricultural Adjustment Agency records; and amount of resident labor based upon schedule data. For more details, see appendix C, tables 63 and 54. The significant facts which emerge from this analysis are: (1) Both the small-farm and large-farm communities have high labor demands, which fluctuate seasonally. (2) More labor is required on Dinuba than on Arvin farms. (3) A far larger proportion of labor on Dinuba farms is performed by the operators, while resident hired labor makes up a smaller pro- portion than in Arvin. Nearly the same absolute amount of resident hired labor is available in both communities. (4) Dinuba requires more outside labor at the peak month than Arvin, but the itinerant worker gets less total employment than in Arvin. Most of these facts relate to the degree of specialization rather than the size of operations. In Arvin the relative diversity makes for a longer working season. - SUMMARY - Agriculture in Arvin and Dinuba is intensive and specialized; the basic products are of the highly speculative type which are marketed outside the State. High capital requirements, high production costs, and intensive seasonal use of labor are characteristic of each. In these conditions the two communities reflect the pattern throughout the Central Valley of California, and may be considered generally repre- sentative of the California type of agricultural production. They differ in the crops errown; Arvin having more field crops and'. Dinuba more fruit, but eac~t having acreages of both. Dinuba farming is far more specialized, as one crop heavily predominates, and this results in higher seasonal labor requirements, though not, in significantly - different requirements for outside labor. PAGENO="0343" CHAPTER IV THE PEOPLE OF ARVIN AND DINUBA The population of the Arvin community is 6,200; of the Dinuba community, 7,400. The people in each community are directly or indirectly dependent upon agriculture for their livelihood. In this chapter an effort will be made to show who these people are, their background, their education, their social and economic condi- tions. Not only does this involve comparisons between the two towns but an understanding of the internal variation of each. NUMBER OF PERSONS The population of Arvin and Dinuba was determined by the ciues- tionnaires, and may be accepted as reasonably accurate. The houses in each community were numbered in sequence and questionnaires were taken at each tenth house, on the basis of which the total popu- lation was estimated. The method of estimating the population is discussed in appendix D. The fact that small farms support more population than large farms is in itself significant. There are 3.01 persons supported for each $1,000 of agricultural production in Dinuba as against 2.45 persons in Arvin. Both communities require a seasonal labor supply and conversely furnish inadequate employment to resident labor, both in about the same degree. Both communities have approximately half their total population within the congested area and half living in the open country (table 16). In Dinuba the congested area was defined by the city limits. In Arvin an arbitrary line of demarcation was established so as to include all more or less contiguous congested areas. (See figure 12, following p. 52). TABLE 16.-Population of Arvin and Thnuba) 1944 Source: Schedule data. Both communities are predominantly of the white race. The schedules show 85 percent of the family heads are native-born whites in Arvin, 6 percent are Mexicans, 3 percent Negroes, and 2 percent European-born. In Dinuba, SI percent were native-born white, 7 percent Mexican, and the, remainder were persons from different 37 . Arvin Dinuba Town residents Open country residents Total population-..-. 6,236 100.0 7,404 100.0 Number Percent 3,139 3,097 50.3 49.7 3, 750 3.6.54 339 Number Percent 50.6 49.4 PAGENO="0344" 340 38 SMALL BUSINESS AND THE COMMUNITY parts of Europe, including Italy, Portugal, Poland, Germany, Yugo- slavia, and Russia. The largest single group of foreign-born whites were Armenians with eight families recorded (4 percent of the schedules). One Negro, one Korean, and one Chinese were found in the sample. A group belonging to the Mennonite Church, while not a separate racial or nationality group, have such cultural homogeneity that they should be segre~atcd from the rest. The 17 families classified in this category, mostry American-born, represent 8 percent of the total Dinuba population. The racial characteristics of the two communities are similar, with very' nearly identical proportion of native whites, Mexicans as the major group of nonwhites, and a variety of individual representatives of Europeans. A group of Filipino workers formerly lived in Arvin but are now gone; a number of Japanese families have been evacuated from Dinuba. Most of the Mexicans in both communities, and all of the Arvin Negroes are agricultural laborers. SIZE OF FAMILIES A striking difference between Arvin and Dinuba is the large differ- ence in the size of families. In Arvin the average household contains 4.2 persons while in Dinuba it has only 3.4 persons.8 Two important facts are responsible for this: in Dinuba there are many more elderly and retired couples and families from which grown children have separated, and in Arvin there are more farm laborers from the south- west with characteristically large families. Table 17 shows the size of families by major occupational groupings. Each category in Arvin is larger than the comparable occupation category in Dinuba, but in no case is the difference so great as the difference in the total. Farm laborers in both communities have the largest families, and the preponderance of this category in Arvin, to a very large extent, accounts for the difference between the family size in the two towns. The distributions of families by size categories shows the high proportion of one- and two-person families in Dinuba and the pro- portionately fewer large families (table 18). TABLE 17.-Average size of household by major occupation groups: Arvin and Dinuba - - ~ Occupation category , Number of persons in household Arvin Dinuba Farm operator Business, professional and white collar worker. . Farm labor Other labor Nonemployed 3.57 3.50 4.75 3.90 - 2.62 4.23 3 ~ 3.31 4.22 3. 45 2.17 3.43 Allgroups. Source: Schedule data. IThe family (or purposes of this study Includes all members of the household at the time of interview, whether related or not. There were very few roomers, boarders, or hired men. Separate establishments (such as labor homes or multiple apartments) were counted Individually. It is interesting to note that in the town of Dinuba theaverage family was 3.33. which corresponds closely to the Ogure 3.27 given for Dlnuba In the 1940 census. This is the only figure group for which comparable data are available. PAGENO="0345" 341 SMALL BUSINESS AND THE COMMUNITY 39 TABLE 18.-Dislribia ion of families by size of households: Arvin and Dinuba Size category Arvin Dinuba iperson Percent 4 15 58 18~ 100 Percent g 30 48 13 100 2 persons 3to5persons~. 8 persons or over Total Source: Schedule data. Population statistics in wartime are subject to error because of the numbers in the armed forces. Twenty percent of the Dinuba families had sons, daughters, or husbands in the services against but 10 percent in Arvin. Dinuba families have contributed about 590 persons to the armed services as compared with but 280 persons from Arvin, or about 1 person per 5 families in Arvin against nearly 1 in 3 in Dinuba. Farmers in both conununities have contributed heavily to the services, 29 percent of them in Arvin having members in the service as against 25 percent in Dinuba. Only 9 percent of Arvin labor families have boys or girls in the services, and only 10 percent of the Arvin white-collar families are represented there. In Dinuba 15 percent of the laborers have family members in the Army or Navy, while all other groups run between 20 and 25 percent. Any immediate family member (son, daughter, or spouse) regard- less of age or marital status, who was outside the household was enumerated, but not included in the population estimates. In Arvin 16 percent of the families (about 25 percent of all labor families) had persons living away from home. In Dinuba this proportion is greater, with 36 percent of the families reporting members outside the household. Dinuba families had sons, daughters, or husbands away from home, either in the services or living outside the home in 41 percent of the cases. In Arvin these were only reported in 24 percent of all families. These absent family members somewhat cor- rect the impression made by the small size of Dinuba families and account for much of the difference in family size between the two. The data on family size In these two communities have some inter- esting general connotations. I~ is generally the case nationally that the farm families are large and town families small. This is not the case in either of these two communities, where the farm families are smaller than the comimmity average and comparable to the business, professional, and white-collar workers. It is the farm laborers who have the large families. This close similarity in size of family between the farm operators and the business groups end the (livergence in size of family between these groups and the laboring class offers a pattern which is displayed repeatedly and presents an indc~ to the urbanization of the farm population. AGE DISTRIBUTION The median age of Arvin residents is 20 years; of Dinuba is 27 years. Figure 7 shows an a~e-distribut ion pyramid of all members m the households intervieweJ undifferentiated by sex for Arvin and 95-253 0 - 68 - 23 PAGENO="0346" 342 40 SMALL BUSINESS AND THE COMMUNITY Dinuba, and for the total population of the eight counties of the Sai Joaquin Valley in 1940. The greater number of old people in the Dinuba pnpulation and the relatively few in their early productive years shos~ clearly in this chart In both communities the draft and urban-work opportunities have reduced the number of people betv~een a~,es of 15 and 30 Both pyramids show the effects of m creased bu th rate of the p'ist few yearn Arvin has a strikingly liii ~o number of adults in the thu ties, and thus has many more childi en under 15 than Dinuba Dinuba's population in all rispects shcw~ closer similar ty to the total San Joaqum age distribution It may be desciibed as normal, mature, or stable in compaiison with Arviri's Each community has just half of its total population in the productive ages 20 to 64. These differences are largely attributable to the age of the two communities, for Arvin displays the age distribution of a new town with a large number of young adults and their children and veiy few persons in the old-age categories Place of birth - , Family heads Arvin * Dinuba Percent ~umber P&cant All American born California Oklahoma Testis Arkansas ivlissourl Kansas. - -- Kentucky All others All foreign-born 15 12 40 19 Mexico-.~~~~ Canada 3 3 8 4 Armenia 0 0 7 3 Russia 0 0 6 3 Allothers 3 3 12 6 Total 132 100 206 100 Source: Schedule data. SOCIAL BACKGROUND Only a small proportion of the people are native Californians. In Arvin about 4 percent of family heads and in Dinuba about 19 percent were born in California. The Arvin population originated predomi- nantly in the States of Oklahoma, Texas, and Arkansas, for 63 percent of the family heads were born in these States. Twelve percent of the family heads were foreign born, most of these in Mexico. Though the California-born family heads were far more numerous in Dinuba, they are still a minority. Oklahoma, Texas, Missouri, and Kansas were the birthplacds of just one-third of the total, while another 19 percent were born outside the United States. These data, based upon the schedules, are presented in table 19. TABLE 19.- Birthplac'e of family heads: Arvin and D-inuba 117 88 166 5 -41 22 21 4 4 2 18 4 32 16 15 3 3 2 13 39 23 16 6 16 14 V 4~ V 81 19 11 8 3 8 7 3 22 PAGENO="0347" 343 SMALL BUSINESS AND THE COMMUNITY 41 AGE DISTRIBUTION OF ARVIN & DINUBA POPULATION COMPARED TO SAN JOAQUIN VALLEY 70-74 65-69 60-64 55-59 50-54 45-49 40-44 35-39 30-34 25-29 20-24 $5- $9 5- 9 0- 4 SAN JOAQUIN VALLEY $940 A~e ARVIN-1944 :..., DNUBA-1944 5 $0 PERCENT OF TOTAL POPULATION Source: Schedule dote, U. S. Census) 1940 Fxovsu~ No. 7 15 PAGENO="0348" 344 42 SMALL BUSINESS AND THE COMMUNITY Both communities have a relatively large number of newcoin~trs, but this group is far more numerous in Arvin than in Dinuba. Over half the Arvin residents came there in 1940 or later, while only about a - fourth came to Dinuba during the same period. The longest residents in the Arvia sample came to the community in 1919, while a few Dinu- bans had been resident since before the turti of the century. The year of arrival of family heads, by 5-year intervals, is shown in table 20. Data are presented for the total population and for the laboring group alone. TABLE 20.-Year of arrival in community of family heads: Arvin and Dinuba Dateofanival Arvin Dinuba All family heads Labor family reporting heads reporeing All family heads reporting Labor family heads reporting Before 1910 - - 1910-14 1915-19 1920-24 1925-29. 1930-34 1935-39. 1940-44 ` Total~ Number 0 0 3 9 8 11 32 69 Percent 0 0 2 7 6 8 24 .53 Number 0 0 1 7 4 7 24 57 Percent 0 0 1 7 4 7 24 57 Number 31 21 22 27 10 14 33 48 Percent 15 10 11 13 5 7 16 23 Na rnber 3 6 4 13 5 8 18 33 Percent 3 7 4 14 ~6 9 20 37 132 100 100 100 206 100 90 100 I Includes first quarter of 1944. Source: Schedule data. The differences in length ~f residence between Arvin and Dinuba have three basic causes-(1) the relative age of the two communities; (2) the proportion of the population made up of the low-security; low-stability laboring group; and (3) the relative social integration of the two communities. Obviously, since Dinuba is the older com- munity it has older residents. This does not account for all the difference. School data show that Arvin's population has not grown since 1940, yet over half the present population arrived in 1940 or later. This indicates a large rate of population turn-over. Labor shows shorter residence than the population as a whole (the differ- ence is especially great in Dinuba), and the proportion of farm labor which arrived in 1940 or later is 61 percent in Arvin and 45 percent in Dinuba. Most of the people in each community have grammar-school educa- tion. Eight years is both modal and median for educational attain- ment of family heads. Though the proportion of persons with high- school diplomas and college training is twice as great in Dinuba as in Arvin, Dinuba family heads have only 0.8 year additional educa- tion on the average. The educational attainment of family heads is presented in table 21. -. PAGENO="0349" 345 SMALL BUSINESS AND THE COMMUNITY 43 TABLE 21.-Levels of education of family heads: Arvin and Dinuba Educational attainment ~ Arvin Dinuba PhadS Number Percent Number Percent No education 1 to4 years 5 to 7 years 8ycars 9 to 11 years 12 years 13 or more years Total Average number of years 3 15 38 40 14 8 8 2 12 31 32 11 6 6 8 19 40 5.3 ~ 31 19 4 10 20 26 15 15 10 126 100 7~6 200 100 8.4 Source: Schedule data. OCCUPATIONAL STRUCTURE From the standpoint of understanding the inherent social structure of the two communities and their fundamental social and economic problems, the occupation structure is the most significent fact about their population. In Arvin 80 percent of the families secure their livelihood from wage labor, while only 20 percent are independent farm operators, entrepreneurs, or white-collar employees. In Dinuba each of these categories accounts for hail of the gainfully employed. This difference heavily affects the character of the community under the prevailing system of hired labor in California agriculture. The most signiflcaat difference in the population of the two towns is in the proportion of hired farm laborers in each. Occupation is the basis of social class in rural California, as will be shown later.9 TABLE 22.-Distr~ibution of families by employment of chief breadwinner, Arvin and Dinubat Occupation category ~* Arvtn -- -~-- Number Percent Dinuba - Number Percent Farm operator Farm foreman. Other farm labor ~ Merchants, professionals Other white collar Skilled labor Semiskilled labor Service labor Unskilled labor Not gainfully employed' 14 4 76 8 2 7 8 . 5 0 8 10.6 3.0 57.6 6. 1 1.5 5.3 6.1 3. 7 0.0 6.01 65 3 52 26 6 15 10 6 6 24 30.6 1.4 21.4 12.2 2.8 7.0 4.7 2,8 2.8 11.3 Total 132 100.0 213 100.0 I head of family, if fully employed; or If he has greatest amount of employment; otherwise, most important breadwinner in family. `Not gainfully employed, includes all persons unemployed except seasonally unemployed persons, all retired persons, and families whose chief support conies from a person in the armed services. Source: Schedule data. See also Social Structure of a California Rural Community, by Walter R. Ooldscbmldt, Ph. D. thesis, taiversity of California. Berkeley, 1912. PAGENO="0350" 346 44 S1~tALL BUSINESS AND THE COMMUNITY The occupations according to 10 major groups are shown in table 22. While this gives a clear picture of the major occupational categories, the individual cells are too small to permit of further statistical ~alysis. For that reason the following groupings have been made: (Farm operator: Percent 1. -- operator I ~:::::::::::::::: ~ Farmer am! white collar: Percent Arvm 19.4 2. M.rchant and professional ite C? ar wor er. Dinuba 51. 3 3. `erwhitecollar 1 ~i~:::::::::::::::: `~ ~: ~ 16 1 Dinuba 19 6 Laborers 6 8. iarm foremen ~Farx labor. Diuuba 48 7 9. Farm labor. I ~i~::::::::::::::: ~ 10. Noaeniployed. Despite the great difference shown in these figures between the occupational structure of Arvin and Dinuba, these figures actually understate the proportion of farm laborers. Neither residents in the Government camp just outside the Arvin community boundary nor the residents on the DiGiorgio holdings were included. All of the former (about 200 families) and nearI~r all of the latter (about 150 families) are farm laborers. Though the Government camp is outside the community, many of the residents work within the Arvirt area. The DiGiorgio camps are within the community boundaries. Nevertheless, accepting these figures at face value, we find a striking difference between the two communities. INCOME Estimates of the distribution of income in the two communities can be had by means of data obtained from the schedule. Each person interviewed indicated the income bracket in which he fell during the calendar year of 1943. The information was probably fairly accurate since it was obtained shortly after respondents had ified income tax returns. Because the upper bracket was open, it is impossible to determine average income, so median figures must suffice. Wartime farm prices and farm wage rates have undoubtedly bad a great effect both on the absolute values and on the distribution of incomes so that they cannot be considered normal. This is an error which must be recognized, though there is no adequate means of correcting it. Table 23 shows the income distribution by brackets for both com- munities. Groupings are made which divide the sample into four approximately equal parts. It will be seen that Dinuba has a larger group in the lowest quartile, but that Arvin has more incomes falling below the median. PAGENO="0351" 20 347 SMALL BUSINESS AND THE COMMUNITY OCCUPATIONAL STRUCTURE ARVIN DINUBA 45 3 48.7 PE RCE NT ~ r 80 40 60' SOURCE: COMPARATIVE COMMUNITY STUDY SCHEDULES Fzounz No. 8 PAGENO="0352" 348 46 SMALL BUSINESS AND THE COMMUNITY TABLn 23.-Income distribution in Arvin and Dinuba ~ .::. ~*.... ~--------- ~ -- --- ~-- ._. ..____ ~ --- --- ~ ~- * Income bracket . Arvin -- Number Percent - 10 8 22 17 15 12 28 22 25 20 6 5 9 7 1 1 4 ~ Dinuba --~ Number Percent ~ 28 14 27 13 18 9 33 16 27 13 19 10 19 10 7 4 13 6 ~ Total -- -- Number Percent - Under$?5(Y..5-. $7Slto$1,250 $1,251 to $1,750 $2,751to$0,250 $2,251to$Z710 $3,751 to$3,250 $3,251to$4,250 $4,251to$5,250. $s,2sltosIl.ooo Over$tl,000 Total Notrecorded Total 33 49 33 61 52 25 28 8 18 14 326 12 16 10 18 16 *8 9 2 6 4 ~ p~ 5 - 200 13 100 18 344 131 213 Source: Schedule data. The estimated. median income of the four major occupational groupings in Arvin and Dinuba is shown in table 24. Dinuba has a slightly higher median income than .Arvin, a difference that results from the large size of the low-income labor group in Arvin as com- pared to Dinuba. The figures on the income of farm labor are the same for both communities but the proportion of farm laborers is so much lower in Arvin that the average is reduced. A comparison of income per person, rather than per family, would show a greater divergence between the two communities, since Arvin, with smaller median incomes, has larger families. TABLE 24.-Estimated median income of major occupational groups: Arvin and Dinuba Occupational group' Arvin $3, 000 Dinuba $3, 6.50 Will to-collar worker Farm operator... -- Farm iabor......~....- Other labor 1,600 2.100 2~ 850 ~ 2,000 2,3.50 Aflgainfullyemployed Source: Schedule data. Some occupational differences in income are particularly of interest. In Arvin 70 percent of the farmers and white-collar workers and :36 percent of the laborers were above the median income. In Dinuba the proportions are 65 ~rnd 40 respectively.10 The difference in the position of the farm operator in the two communities is also significant. In Arvin the farmer has a higher median income than the white-collar worker while in Dinuba the reverse is true. This difference is clearly reflected in the social posiLiori of these two groups, as will be shown later. 1. The association between social phenomena analyzed and the differences between the two communities were computed by a variety of techniques. Computations of chi square and T were considered most no curate and a table of results Is presented in Appendix F. Chi square shows the probability of any dilTerenee belngthe result of chance, and Tis a mea.sure of degree of association roughly correspondine to the correlatlou coeSlcient. The variation In Income was determined to be significant and the degree ofrelatloflshlpbctwecfl occupation and Income In the two communities is about the same magnitude. PAGENO="0353" 349 SMALL BUSINESS AND THE COMMUNITY 47 LIVING CONDITIONS Two measurements were obtained which indicate that the people of Dinuba live under material conditions that are measureably better than those enjoyed by the Arvin residents. The first of these is a level-of-living index based upon the possession of a series of items, while the second was an evaluation of the condition of the home based upon the observ~ations of the enumerators. The frequency of occurrence of seven of the eight items s~hich make up the level-of-living scale is shown in table 25. Several items, which for purposes of making the level-of-living index were broken into series, have been simplified for purposes of this tabulation. Thus the degree of crowding is here indicated by a break between those with less than one person per room and those with more, while three categories were used for purposes of calculating the index. TABLIS 25.-Incidence of seleded individual items on the level-of-living scate: Arvin and Dinuba ; Item Arvin Number report- Percent Lug Dinuba Number report- Percent Lug 1. Less thin I person per room 2. Water in home 3. Electric lighting In home. 4. Mechanical refrigeration... 5. Radio 36 99 128 75 113 17 109 28 76 97 57 86 13 83 149 185 203 154 190 80 170 72 90 98 75 92 39 82 " i eicpuoue._ -. Automobile Source: Schedule data. - With a single exception (possession of automobiles) Dinuba people are better off than people in Arvin. The possession of electricity m the home is very nearly universal in both communities, but the differ- ence in the possession of the other five items between Arvin and Dinuba is quite great. It should be pointed out that the lack of crowding in Dinuba is in part a reflection of the fact that more people are away from their homes, either in the armed service, or making homes of their own. The difference in this item is therefore somewhat ex- aggerated. - On the basis of these seven items and one other (type of home con- struction) a level of living scale was constructed with a range from o to 44~11 Figure 9 shows the frequency distribution of level-of-living scores in Arvin and Dinuba, and the median and mean scores of each. It will be seen that Dinubans have an appreciably higher level. Level of living as measured by this index is clearly associated with occupation. Only 21~percent of Arvin laborers have an index above the median point of the combined sample, while 70 percent of the independently employed farmers and white-collar workers are in this category. In Dinuba 43 percent of the laborers are above the median, and nearly 90 percent of the independently employed fall in the upper brackets. (The median point was calculated for the combined sam- pie.) That a statistically significant association between occupation and living conditions exists was indicated by the Clii Square Test.12 1'The method of calculating this index Is presented In appendix E. i~ See appendix P. 7- PAGENO="0354" DISTRiBUTION OF FAM ILl ES ACCORDING TO LEVEL OF LIVING Percent of total 350 48 SMALL BUSINESS AND THE COMMUNITY ARVIN 20- 10- F~ i 0-4 5-8 9-12 13-16 17-20 21-24 25-28 29-32 33-36 37-40 41-44 LEVEL OF LIVING INDEX * - .DINUBA 20- - * -*. 10- I P 0 --I ~ F 0-4 5-8 9-12 13-16 17-20 ~ 3 25-28 29-32 33-36 37-40 41-44 LEVEL OF LIVING INDEX FIGURE No. 9 PAGENO="0355" 351 SMALL BUSINESS AND THE COMMUNITY 49 There is a similar association between level of living and income. The relation between these two factors is shown in the accompanying scattergmm (fig. 10). It is readily seen that the upper income brackets regularly have a hi~li level of living, but the lower brackets frequently have a high level oFliving, too. This is the result of two things; first, the fact that the income in any single year is not the determining factor for the attainment of a relatively high level of living, and second, that the items in the index were too basic and too nearly universal, and were too few in number to form a sufficiently sensitive reflection of liv- ing conditions or social position. A second measure of living conditions was a more subjective evalua- tion of the premises and of the interior and exterior of the home made by the enumerator. This is a rough measure of the personal standards of cleanliness and orderliness within the financial ability of the indi- vidual family. No doubt the standards were affected by cash outlay, but a faniily placing a high premium on these values, and who corre- spondingly maintained a neat and orderly home and garden would be rated good even though the income was quite limited. A scoring system from 0 to 9 was developed, by giving the best and poorest values for each of the three enumerated items the value of 3 and 0, respectively, and intermediate items values between. Figure 11 shows the cumulative percents at each score for Arvin and Dinuba, first for each community and second for the fundamental occupational dichotomy within each. Dinuba's score is superior, and the condition of laborers' homes is somewhat better there than in Arvin, yet basically the difference lies between the laborer on one hand and the farmer and white-collar worker on the other. The occupational differences in the condition of the home which were found are statistically significant, according .to the Chi Square Test.'3 In Arvin, 32 percent of the laborers and 67 percent of the farm- ers and white-collar workers fall above the median point with respect to this evaluation of the home. Corresponding proportions in Dinuba were 40 percent and 65 percent. The table in appendix F indicates that the association appears to be somewhat less close in Dinuba than in Arvin. Furthermore, home conditions being less dependent on economic status, they show a lower de~ree of association with occupa- tion than does the index of level of living as measured by material possessions. The association between living conditions and income is slightly closer than between living conditions and occupation in Arvin; is somewhat less close in Dinuba. These calculations show several things: (1) that Arvin conditions are consistently poorer than Dinuba ones, (2) that there is a significant association between occupation and conditions of living, (3) that these conditions as measured by income, level of living, and conditions of the home are all closely interrelated, and (4) that the poorer conditions in Arvin are therefore a direct function of the great preponderance of the farm labor group in that community. PATTERN OF SETTLEMENT Some appreciation of the nature of the two communities can be had by the examination of maps showing the location of business districts, residences, churches, and public buildings. Such maps are reproduced "See appendix F. PAGENO="0356" 352 50 SMALL BUSINESS AND THE COMMUNITY SCATTERGRAM SHOWING RELATIONSHIP BETWEEN LEVEL OF LIVING AND INCOME Income bracket 04 5-8 9-12 13-16 17-20 21-24 25-28 29-32 3336 37-40 41-44 LEVEL OF LIVING INDEX Source; Schedule data *0 1 .* 0 I.. S... .0I* **e~S SI. . Over $10,000 $5.25!- $10,000 $4,251 $5,250 $3,251- $4,250 $2,751 $3,250 $2,251- $2,750 $2,250 $1,251- $1,750 $751- $1,250 Under $750 *.. .. ** *. *.*. S * S *S~S * S S *~ * ft S.. *o S. * *5 10 * S S... *~ *5. * S.. IS * `S. .5 . *S .. I *~ . 55 *SS S5 * ~ S * * ~55 SOS 551 ~*. 555 5. 5 55 555 S. .~ . *S .5 ** * S `I *ee *5S5 55. *s*~ .~. SS* .5 5 *~ 5.5 55 !.~.`* S S 5 S S 55 5 55 S. 51 S ~ S *~S *e~ *s ~ *S S~ *. S S . 51 ~*... S * ~S S S* *5*~. ..* ** 555 *`*~~ SI 5*S S5 . 5 5 555 .*~ 5* .5 S* SSS *S *I*~ 555 *5* S. ** 5. 55 S S. 555 5.5 SS* S. .5 S S. *5 .1 S S. FIGURE No. 10 PAGENO="0357" 353 SMALL BUSINESS AND THE COMMUNITY 51 DISTRIBUTION OF iNDEX OF HOME CONDITIONS showing occupational differences ARVIN & DINUBA Percent of persons reporting (cumulative) Source: Schedu'e data Evaluation of home surroundinQs PIGURE No. 11~ PAGENO="0358" 354 52 SkALL BtTSINESS AND THE COMMUNITY on figures 12 and 13, which are on the same scale to allow for ready comparison. The rectangles representing individual residences a re of such a size that they represent the minimum adequate floor space considered necessary for a family of four or five persons. The relative crowding of the houses is immediately apparent. Few areas in Arvin have 50-foot lots and most of them do not have full depth. Throughout certain districts it has been the practice to ph~ce two units on a single lot, one facing the alley and the other the street. Dinuba has some relatively poor areas with a fair degree of crowding, but these are far less crowded and involve a much smaller proportion of the total number of households. The characteristic lot in Dinuba is 50 or more feet wide, running full way to the alley, with but a single family unit. Not only are there differences in the houses, but we find a much larger business district. Both communities have an "industrial" dis- trict, which contains packing sheds, storage for gasoline and similar types of enterprises. * Maps of the rural area would show a great difference in the pattern of settlement. In Arvin there is usually a large distance between each farm house, but near the farm house there is generally also a labor camp with 4 to 20 or more separate dweffing units. In Dinuba the homes are scattered fairly evenly over the area, with few units at any great distance from any neighbor, while the crowded aspect of the labor camp is rarely found. StMMART This section has been devoted to the presentation of a statistical analysis of the population of the two communities, based upon the 10 percent sample of households enumerated. These statistics show that the community of Dinuba has a somewhat larger population than Arvin. The average size of household is much larger in Arvin, partly because Arvin has a younger a°'e composition, partly because it has a smaller contingent in the armed'forces, and very largely because of the greater proportion of wage-worker families in Arvin, families which are consistently larger than families in the other occupation groups. The racial composition and ethnic backgrounds of the two groups are quite similar. The only important exception is that Arvin resi- dents have a much shorter tenure in the community, and they~ come largely from the States of Oklahoma, Texas, and Arkansas. J~ amily heads in Dinuba are more frequently native Californians, more of them are foreign-born, while those from elsewhere in the United States rep- resent a wider array of origins. More important than origin appears to be the length of residence, for over half the population came to Arvin in 1940 or later as against but 23 percent in Dinuba with such brief tenure. Almost every family head in each community had some education, and most had completed elementary school. Dinubans more fre- quently had college training, but there was less than a year's differ- ence in avera~e number of years of school completed between the family heads m Arvin and those of Dinuba. The most significant population differential between the two com- munities is the occupation of the family heads. Eighty percent of the Arvin population works for wages, while in Dinuba this group PAGENO="0359" 355 SMALL BUSINESS AND THE COMMUNITY 53 represents just half of all the families. There are far more farmers, more business people, and more skilled workers in Dinuba than in Arvin. This is important because of the high association between occupation and social status. The median income in Arvin is somewhat smaller than in Dinuba. The differential here is undoubtedly affected by both the high wage rates and high farm prices at the time the study was made. In Arvin the farm operators are better off than the merchants, while in Dinuba the reverse situation exists. Average level of living and the evalua- tion of living conditions both indicate that the Arvin families live in less desirable surroundings than those of Dinuba. These items, in- come, level of living, and conditions of the house are all clearly asso- ciated with occupation. PAGENO="0360" 356 CHAPTER V SOCIAL ASPECTS OF COMMUNITY LIFE The differences between Arvin and Dinuba strike the casual ob- server immediately, for their appearance is demonstrative of divergent social characteristics. Driving into Dinuba from any direction one approaches the business section of the town by going through t:ree- lined streets flanked by rows of substantial dwellings. The business section of town is made up of brick buildings, many two stories high, and gives the appearance of stability and prosperity. The streets are wide and well paved, both in the business and residential sec- tions. Approaching Arvin from either direction, one moves from the open country immediately into the small business section. The main street is lined with low stucco buildings and service stations for a distance of about two blocks. The side streets are entirely unpaved; there are no sidewalks, and the houses are crowded so close together that in some sections of town half of them front on the alleys. One single street for a distance of about two blocks is lined with houses where lawns have beexi planted (see figs. 12 and 13). GOVERNMENT Dinuba is an incorporated community and has a local government; Arvin is governed by the county. Incorporation is a matter of local action, and affects the life of the community in many ways. Incor- poration and the quality of community government are important to this analysis not only because they affect the lives of the citizens, but because they are indicative of the spirit and motivation of the community. The fact that Arvin has never constitute4 itself a civic body un- doubtedly finds its root cause in the lack of any real civic unity. This lack of unity, which in essence makes two communities out of Arvin (one of farmers and one of laborers) will be analyzed later. Some A.rvin residents find the reason for failure to incorporate in this fact alone, such as a minister who said that property owners do not want incorporation because they fear that the laborers would then "run the town." This is certainly not the only cause. It should be pointed out that many California towns remain unin- corporated, and this is particularly true of the towns in Kern County. Kerzf is a wealthy county and it has a strong and effective county g~overnment capable of furnishing services to the local communities. Each town has a fire department with adequate and modern equip- ment; each of the towliships has a deputy sheriff, who is also ade- quately equipped. The county has a planning board which is at the service of local groups in unincorporated communities. For instance, Arvin has been furnished with modern stucco buildings (an attractive type of architecture admirably adapted to the desert climate) for its 54 PAGENO="0361" 357 SMALL BUSINESS AND THE COMMUNITY 55 fire department, for local offices of the sheriff, the welfare department, the health department, and the agricultural representative, and a community hail and kitchen. Such county-furnished facilities are as elaborate as the local electorate could furnish for itself, and reduce the incentive to incorporate. Incorporation has advantages and disadvantages. It is argued that the large corporations and absentee landholders do not favor it because their taxes are increased while they receive little or no direct benefit, that local merchants and professional people usually are in favor of having city government because they get needed services-such as a local police force-which save them money. It also is said to "promote" the community, thereby increasing the value of their business. Other citizens probably weigh these benefits against the cost with varying results. Social considerations favor incorporation, provided the city government does not become corrupt. This is because an incorporated city can perform needed services to local people over which they have direct control, and because it encourages a spirit of community solidarity which will otherwise have no means of developing. These generalizations are substantiated by the situa- tion in Arvin and Dinuba. Though the county has furnished some things to Arvin, it has not provided it with others. Notuntil 1940 was there a sewage-disposal plant. Water and garbage service is provided by private enterprisers, with no direct popular control over their activities. Certain congested areas in Arvin are only now getting an adequate water supply from a central system. Street paving, the building of sidewalks, street light- ing, parks, and such matters arc supplied by the county. Decisions as to the expenditure of money for such civic improve- ments and the general welfare are remote from the people who are to be affected by them. One important county official addressed the. Booster. Club of Arvin somewhat as follows: "You will have to let me know about your community problems, for you know more about the needs of your town than I do. I don't know what you need. You have to let me know how you want the law administered, because I don't want t run your labor off to some other town." This club is composed largely of farm operators. This is not an isolated case. When the community wants a park, a school, or lights, it must form a committee to wait on the county officials, or the county commissioners ask the leading clubs what their pleasure is with respect to certain decisions. In thus arriving at decisions, only a small seg- ment of the community is formally consulted. However just and equitable the decisions are, they are participated in by only a small section of the community. Without a civic entity, and with limited participation in community decisions, there is a serious lack of spirit and solidarity. Lack of unity even among the merchants along the main street was so great that one of them described it as follows: Prior to 2 years ago, when some Bakersfield men organized a chapter of the Lions Club, the merchants didn't even know each other. At the first meettng we had a sort of contest to see who could. call each other by their first name, and found that none of us knew many of them. We worked here during the day and went home at night and never gave a thought about the other sian on the Street. * * * I am rarely on the other side of the street, and still know only one of the mer- chants over there. 95253 0 - 68 - 24 PAGENO="0362" 358 56 5MALL BUSINESS AND THE COMMUNITY Dinuba's incorporation dates from 1906, and city government is a very real part of Dinuba life A council of five is elected for a 4-year term, three at one time and two at another A heated biennial election had been held just prior to the time of field investigations for the present study, and the issues were still fresh in the minds of civic leaders, issues involving local problems whidi the local cli - torate decided at the polls In the course of its history, the city has paved many miles of streets and laid many miles of sidewalks It has established a ~s ater s~ sLem, a se~ erage system, and a garbage-disposal system, it has placed electric lights along its streets throughout town, has created two parks and is creating a third one and maintains police and fire departm~ uts The council selects a chairman ~ ho is the mayor, and each council- man is in charge of one of five departments These are (1) police and fire, (2) streets, sewers, and water, (3) parks and waste disposal, (4) city properties, and (5) finance. The operation of the city govern- ment is therefore close to the people. In final analysis, the worth of this must be measured in accomplish- ment The police force of four maintains order in the community Court actions are confined largely to "driving while intoxicated" charges Houses of prostitution in the community were readily eliminated at the specific request of the War Department The fire department is efficient Its rapid response to a fire and its consideration of property owners, as well as its interest in flue prevention, was observed The department is jointly operated ~ ith the county There are four paid firemen who operate the county engines outside the city limit and both county and city engines within the city In addition, there is a volunteer group which S rves both town and county These men serve at nominal pay, and have after a pattern fuequently found in rural Cakforma, made a social orgamzation out of the department The present mayor claims responsibility for estabhsh.mg the city garbage system Four years ago garbage collection was a prLvate franchise It was expensive and few people availed themselves of the service It is now a city service, paid for out of an addition of 50 cents to the monthly water charge After many years of inade- quate service, the alleys had become very dirty and the mayor hired a crew to clean them up Adequate garbage service has made it possible to keep the alleys clean The mayor was particularly proud that no WPA help was required on this project, and that the service is done at so small a charge without resorting to feeding garbage to hogs. He avoided this because of the nuisance to householders of segregating garbage, and because lie anticipates Uuat this practice will eventually be outlawed Most of the streets are paved and lighted with electroliers They are kept unusually clean, and together with the planting of trees make the Dmuba residential arcas attractive The paving and lighting, along csith the sewage system, was established in the posL war boom period at excessive costs At that time Dinuba ~ as confidently expected to expand into a community of much larger size, and this expectation and high raisin prices conspired to create a spirit of overoptimism. The result was overexpansion, with the inevitable collapse that caused heartaches in the community. As- sessments ran high, the town was o~ erbuilt, houses and other property PAGENO="0363" 359 SMALL BT~SINESS AND THE COMMUNITY 57 were lost, and the community came to the verge of bankruptcy. Prevalent local opinion does not blame this on corruption within the commutity, but rather on a combination of overoptimism and sharp sales practices during the inflation period after the last war. A process of refinancing has been carried on during the past 7 years. The result is that the towii is virtually debt-free. The largest block of bondholders agreed to accept 60 cents on the dollar for outstanding debts, which are now fully paid. Other bonds are still outstanding, but the city is trying tO buy them up as fast as possible. The city took over property for taxes, and has sold most of it, so that it has money to buy bonds, but the holders are now unwilling to part with them, as there is a good rate of interest on these investments. The two parks are exceptionally well kept. One is near the center of town, the other larger one at the outskirts. It has playground and picnic facilities. The schools furnish additional playgrounds and playing fields. The city has planted trees in a third park, but will not plant shrubs and lawn until the trees are sufficiently mature. A chamber of commerce sponsored dinner on postwar planning, which took place the first evening of field study in the community, demonstrated the type of civic cooperation, the quality of leadership, the nature of local friction and rivalry, and the spirit of loyalty among community leaders. It was held at one of the churches; the ladies' aid prepared and served the dinner as a means of increasing their funds. The dinner was sponsored by two business organizations coopera- tively, and about 150 persor~s participated in the event. More than a dozen civic leaders Spoke on topics ranging from industrial activities and city finances to the development of a youth center and the plan t- ing of victory gardens. The ulitmate purpose was to develop interest in postwar planning for the community. The dinner followed close upon the heated city elections, and the traces of ill-feeling remained, though officially denied. This privately sponsored meeting was not attended by representa- tives of farm laborers or other laboring groups. Since it was an open meeting, they could have participated if they were sufficiently moti- Tated, though with the same psychological and social barriers that would keep them out of such a meetino~ in Arvin. The absence of laborers is not felt so keenly since they ?orm a ~maller portion of the population than in Arvin. However, the principle remains. SCHOOLS The first school in the Dinuba area started in 1879 with 13 pupils, the second in 1884 with 20. In 1889 an elementary school was opened in Dinuba proper with an average daily attendance of 43. In 1944, the Dinuba Elementary School, housed in four separate units scat- icred through town, has an average daily attendance of 605, but at one time had as many as 940. In the rural area there are four schools, ~and a portion of another from which the children come to the Dinuba High School. These rural schools have an average daily attendance of 350, but at one time had 450. The highest combined average daily attendance was in 1922-23, when the figure was 1,251. The boundaries of these school districts fit `very closely the boundary of the community as delineated. PAGENO="0364" 360 58 s~w~'~ BUSINESS AND THE COMMUNITY In the Arvin area two schools were opened in 1902-3,. with a total average daily attendance of 29. A school was opened at Arvin in 1914-15. These three schools reached a combined average daily attendance of 1,242, and the Arvin school reached a peak of 683 in 1940-41 and is still close to that level. District boundaries conform poorly to the community boundary as delineated, with one of the three schools serving neighboring Weedpatch as well as many homes in the Arvin area. Strictly speaking, therefore, the school attendance never reached as high a figure in Arvin as it did in Dinuba. This is to be expected, for Arvin is presently smaller than Dinuba, and the Dinuba population is considerably less than its post-.World War I peak. The close parallel in the growth of the two communities is shown m figure 20, which gives the growth curve of the elementary- school attendance for both towns on the same scale, but with Arvin dates set back 20 years. The similarity.in growth pattern is striking. If attention is given to the elementary school in the towns, rather than to all schools in the area, the same similarity in growth pattern is found. Again the growth curves are closely parallel, but Arvin is about 24 years later than Dinuba, rather than 20. Since this does not represent town residence, but merely the pupils from that geo- graphic area which the town school serves, the comparison is of less value than the more inclusive one, and is indicated merely further to substantiate the general similarity in growth and the relative age of each community. Both Arvin and Dinuba have modern school plants. The Arvin buildings are newer than the Dinuba ones, but are somewhat more crowded. Both conditions would be expected in view of the history gf the two communities. Arvin has somewhat greater average daily attendance per teacher-30 as compared with 26. A very significant difference, however, lies in the nature of the planning. Dinuba has adopted an unusual plan of separating its school into four parts. Two units each serve the first four grades and the other two units serve, grades 5 and 6 and grades 7 and 8. There are several advantages to this system. First, by placing the lowest grades at the opposite corners of town, the small children have relatively short distances) to walk, second, the school playgrounds are scattered through town, and third, the age groups are separated. Undoubtedly the original cost as well as the upkeep rs somewhat greater, with some disadvantages in the administration. For many reasons, this plan would not have the same advantageous effect in Arvin, where the district is large and the students are more widely scattered. Arvin has a system of bus trans- portation to bring the children the lonc. distances to school. The turn-over in teachers is an inä~ex to the school situation. In Dinuba 3 out of 22 teachers did not return for the 1943-44 session. In Arvin 14 of the 22 did not return. These figures apply only to the schools in the towns, but the other schools in the Arvin area had high turn-over rates-5 out of 8 and 4 out of 13. In the three schools com- bined, fewer than half the teachers had been there the preceding year. Such a high rate of turn-over indicates that the schools are viewed by teachers as a poor alternative and they tend to move away at their earliest opportunity. It means that the school cannot hold the best grade of teachers, and has fewer experienced ones. Rapid turn-over also means that the teacher does not become acquainted with. the peculiar problems of the community and that the staff cannot develop the teamwork that is necessary. PAGENO="0365" 361 SMALL BUSINESS AND THE COMMtNITY 59 From the community viewpoint, long teacher tenure means that the teacher plays an important role in the affairs of the community outside of the classroom. He serves not only as the vital leader of youth but. in civic affairs in general. Dinuba has been particularly fortunate. The superintendent is recognized in all social gatherings as a leader; his advice is sought and his counsel followed. But he is not the only teacher who serves this vital function. For instance, one of the younger men on his staff-less than 10 years' tenure-already can boast of having been instrumental in starting a civic organization, and the youth service it performs, and has instigated other community im-~ provements. The lack of this type of leadership is constantly made evident in Arvin. School and community functions suffer from an inadequate number of public-minded and trained citizens to supervise such affairs. The problem is aggravated by the fact that many of the teachers do not live in the com~nunity but commute from Bakersfield~ These teachers naturally have less interest in the community, audi most of them give no service to the community as a whole. This is particularly serious in a town which has few other sources of leadership. The absence of a high school in Arvin is one of its most fundamental problems. It is recognized as such by Arvin people who have long sought a high school. In 1940-41 a study of the need was made," and in October of 1941 a site was purchased just west of Arvin. Con.. struction is planned for the postwar period. Whether it will be a full 4-year high school still remains in doubt. Arvin businessmen and resident farm operators are anxious to have the school built and pre~ sented a detailed statement of the advantages of an Arvin location over one in the Lamont-Weedpatch area. The report on site se1ectior~ shows the average daily attendance for the four school districts which would be served by the proposed new high school and the high-school pupils resident in each. There were in January of 1941, when the data were assembled, 155 pupils in the Arvin school district and 271 in the 3; school districts which most nearly conform to Arvin boundaries~ The plan includes a fourth district, which brings the high-school. age popu.- lation up to 390. These figures indicate a ratio of hio'h-school pupila to elementary average daily attendance of 24 to 100. tTsing this ratio,. the area would have had over 100 potential high-school pupils as early as 1925. This area centers at a distance of over 20 miles from the high school to which the pupils must ride. The location of a high school is generally a matter of decision which~ goes beyond the, local community, yet very properly the local popula- tion can influence a decision. The fact that Arvin does not have'its~ own high-school facilities, though for nearly 20 yeats it has had an. estimated high-school population of over 100, is evidence that insuffi.- cient influence and motivation could be mustered in the Arvin area. The lack of high-school facilities is, in turn, a heavy detriment to the youth of the community. They must be on the bus as much as 2 hours a day, which gives them a very long school day and deprives them of hours when they could play, do chores, or earn spendui~ money after school. According to local mothers, the rush, noise, and. bustle of the bus ride is enervating. In the city school,. the childrclL find themselves among a large group of strangers. The requtrernent~ of catching the bus deprives them of time for extracurricular activitie~ which would break down the barriers and otherwise give them satis.- `~School Bite Report, Arvin Lainont Area, manuscript report prepared by the site selection committee of' the }~ern County High School. By Norman Pollasby, `F. L. McCain, anti Thomas L NeLson. PAGENO="0366" 362 60 SMALL BUSINESS AND TEE COMMUNITY faction These facts were set forth by an Arvm mother, who went on to say The worst harships of all are the discrimination that is made against local 8tudents (bus students) and their inability to participate fully in extracurricular activities because they have to go home by bus immediately after school is o~er The school authorities try to put all the rural students into agriculture because they feel that they arc all going to be farmers or laborers. They tried to put my cons into agriculture and I ssent dov~n not once but tvuce to hase the schedule changed, because I ~ant them to have a college preparatory course The 1 ibor parents are not in a position to protest if the~ do have the interest they are 11 ked by the fine surroundings and their own shyness. The absence of a high school is a deprivation i~iot only to the students but to the entire community. The high séhool in Dinuba is a rallying place for community action, a center of cultural activities such as lectures and musicals, and a source of leadership. In addi- tion, it furnishes the town a playground, gymnasium, and auditorium. Arvin, lacking a high school, is also lacking in these SOCIAL INSTITUTIONS - Both communities have institutions which have grown up in response to local needs and the natural desire of persons to have social contacts In Arvin there is relative poverty of such mstitu- iions, their functions are more limited, and fewer people have acuess to them In Dmuba the more numerous organizations are active, and many people participate In Arvin there are the following formal organizations: The Booster Club, the Lions Club, the Farm Bureau center and Farm Home ~enter, a chapter of the State Guard, and the Parent-Teacher's Association. In nearby Weedpatch, but with only a few Arvin participants, there is a Grange This is a complete list of the formal- ized organizations by means of which Arvin residents get together for social functions or for any other kind of seculai associated activities - The Boosters is a local civic service club for men which meets once a month in the evenings It was organized in 1921 as a civic improve- ment group and since that time has performed many useful community functions, largely as a group which induced the county to provide services. Among its first projects were obtaining a county road to the community and getting the area resurveyed. Its activities were largely responsible for getting a community hail, those street lights that are in Arvin, and the WPA-built sewage system. It has he~[ped in two regular community events: The flower festival and the glider meet The flower !estival is a chamber of commerce activity which has publicized the famous Kern County wild flowers In the spring the unplowed semidesert fields are transformed ivto a purple and gold carpet by the lupin and California poppies, and they attract thousands from Los Angeles and elsewhere Some of the best fields are around Arvin, and the Boosters sponsored concessions and aided in the county- wide festival The slopes east of Arvm have air currents favorab]e to gliding, and the Boosters aid a glider society in Los Angeles in staging a meeting once a year. These events have been curtailed by the war. Recently the group has directed its attention to alleviating local problems, such as petitioning Federal agencies for more wholesale gasoline Aside from regular monthly dinner meetings, the club has occasional social functions PAGENO="0367" 363 SMALL BUSINESS AND THE COM\IUNITT 61 Forty of the eighty-four members are farmers and thirty~nrne are business, professional, or white-collar workers.1S There are two farm foremen and one mechanic who belong Other farm labor and the unskilled and semiskilled ~ laboring groups are unrepresented in the organization. Many of the members live outside Arvin and belong because they have Arvin property or other interests m the community These are included in the above tabulation. The Lions ,Club has been organized but a few years. Prior to its oiganization there was no association of merchants in the community With a much shorter history than the Booster Club, it cannot point to as many successful projects, though it performs very much the same kind of function Its major service to date has been the bringing together of the merchants According to several members of the Lions Club, the Boosters are predominantly interested in matters pertaining to farmer welfare, and for that reason the need for a separate civic organization was acute. Some anxiety over farmer control of the Lions Club was expressed. Of the 42 members of the Lions, 29 are merchants or professional people and 11 are farm operators (table 26). The remaining two are in the service trades. There are 27 persons (nearly two-thirds of total Lions membership) who have membership in both organizations The Arvm Farm Center has 70 members, of which 7 are nonfarmer "sustaining" members The remaining 63 are farmers, and 34 of these operate less than 80 acres and 38 under 160 acres The chairman of the center made the observation that "the small farmers attend center meetings more regularly than do the large farmers but the laiger farmers seem to take more active part in the working of the organiza- tion" The Farm Center is a local orgaiization of the county farm bureau and carries out the excellent educational work of that organiza- tion There is a purely social aspect to the Farm Center meeting, for 5the men and women frequently have suppers and other social events. The Parent-Teacher Association is the only social group which endeavors to bring together all classes in the community Its service is to promote the welfare of the school and develop parent interest in school activities The primary problem of the PTA is to maintain interest and develop adequate leadership This problem is acute in Arvin, and it is difficult to get anyone to serve as chairman and to get many mothers to participate The chairman at the time of the field studies was particularly anxious to develop the inherent value in the organization She made two attempts to develop recreational facilities for the children On Halloween the PTA put on a carnival, which was formeily a re~ular event but ~luch had not been held for several years The various organizations and groups bad conces- sions, and in this ~ ay the PTA made quite a bit of money It was ~ success from the recreational standpoint, as the children came in great numbers and talked of it for weeks later Hoss ver, there ~ ore some people who objected to it because the children trampled the grounds aiound the community hail and did other minor damage The other activity was a "fun nio~ht." For 2 hours each Friday night schooltooms were made avaif~tble for children to play games It was difficult to get sufficient chaperones; and, according to the chairman, the very persons who complained about the lack of facilities for then cluldi en consistently refused to help in these events Some 1~ Occupational break downs o( all club members analyzed are given in LabIa 26. PAGENO="0368" 364 62 S~1iT~ BUSINESS AND THE COMMUNITY objected to the children dancing, others insisted that it close at 9 p. m., which didn't give the children a satisfactory and full evening. The chairman went on to say: "Some women felt this was for the riffraff and the poor people and they would not let their nice girls go to the fun night, and this was wrong and in direct opposition to the very purpose of the fun nights." After seven evenings the program was abandoned because of lack of interest and insufficient parent participa- tion. Other persons had spoken of the rowdyism and vandalism at these community events, but neither the chairman nor the sheriff considered this a serious problem. "What," she said, "if they do a little damage? Why have these facilities unless you use them?" Ths chairman felt that the participation of labor parents was very desirable and endeavored to get it, claiming that nobody tried to bring laborers into the meetings before. Her efforts have not been very successful. At one meeting it was possible for the principal to point out the single "Okie" present. The PTA is the only nonreligious organization in which this group participates. Of the ~6 members classified, 8 are farm laborers and 9 are other classes of workers. About 30 percent of the members are from the laboring group (table 26, p. 67). White..collar people account for half of the membership and farmers for a fifth. These organizations (and the State guard, which probably performs some recreational and social purposes in addition to its protective function) are all the organized social groups in the community. The `Weedpatch Grange is an active group of small farmers, but practically ~ione of the members live within the Arvin boundary, and the meeting place is outside it, too. There are no veterans' organizations, no lodges, no women's clubs, no sport clubs, or any other social group. -Those who can afford it participate in Bakersfield "society." A complete cataloging of the Dinuba social activities is more diffi- ~cult because of the greater amount and variety of social life. An appreciation of the complexity can be obtained by a list of the major ~organizations. Dinuba merchants have two associations, the cham- ber of commerce and the business men's association, to serve their interest. In addition to this, there are two "service clubs," the Rotary, the Y's Men's Club, and the semisocial and purely local `Young Business Men's Club. The volunteer firemen form a club which has a social function as well as its service to the community. The American Legion has a strong post, with a large and active mem- bership, and a Legion auxiliary. There is a Masonic order with ~chapters of the Eastern Star, the Rainbow Girls, and the DeMolay. ~.Women may belong to any of several clubs, the Dinuba Women's Club, the Garden Club, the Dinuba Women's Music Club, or to the Palace Club, a study group made up of old residents. Dinuba has an ~active chapter of the American Red Cross, which has its own meeting ball. There is one Parent-Teacher Association for the elementary `school. Two farmer organizations, the Farm Center (with a home center) and the Grange, are active. The PTA in Dinuba appears to be quite weak, with but few members and little activity. They formerly sponsored a "penny carnival" each year, but this was discontinued during the war. They had previously sponsored a Cub Scout pack, and this has been resumed though was not active at the time the field work was being done. PAGENO="0369" 365 SMALL BUSINESS AND TBE COMMUNITY 63 There is no association for the high school, and the elementary schools are consolidated into one Parent-Teacher Association. Elsewhere in this report are presented some of the outstanding activities of different clubs and their contribution to the community. A few general remarks will suffice here. These groups bring the following facilities for social gathezings to Dinuha: A hail for the meeting of the lodges, a large hail and park belonging to the American Legion, the clubhouse of the Women's Club, the recreation center and meeting place of the Y's Men's Club, and the Red Cross club- house. (See fig. 13.) These facilities do not merely serve the mem- bers but are available to the whole community. The Legion park has been used for picnics and carnivals, the Women's Club clubhouse is used for weekly dances of the high-school set, and the Y's Men's Club room is a recreation hall 6 nights a week. Like Arvin clubs, the Dinuba associations tend to serve only certain elements in the population. While farm labor constitutes a third of the Dinuba population, it rarely belongs to social organizations in the community. Membership lists for the Rotary and women's clubs show no representatives of this group and only 8 percent of the Ameri- can Legion membership are laborers. Dinuba citizens have a complement of organizations which serve the community, and the number of persons who participate in them is greater. In Dinuba 45 percent of the families have a member who participates in some social activity, as against 32 percent in Arvin. Table 27 shows that each major category of club, except the PTA and youth organization, has a larger participation in Arvin than in Dinuba. * Both the analysis of memberships and the schedule data show that in both communities the laborer rarely participates in any social organization. Table 28 shows the number and percent of the families in each occupation group havino~ membership in any organization. * This tabulation shows that the w~iite-collar worker participates most fully, the farmer nearly as much, the town laborer much less, and `the: farm laborer hardly at all. In Arvin the farmer and the whits- collar worker participate equally, and the Arvin grower participates more frequently than the Di~iuba farmer. There is somewhat more social participation among the Dinuba townspeople and farm laborers than among `those groups in Arvin, but these differences are not great. `Atest of the statisticalsignificance of these data shows that participa.. tion in clubs is highly associated with occupation status (appendix F). The individual participation in organizations, as shown by the schedule data, is summarized in table 29. The number of member- ships held by all members of the family 12 years old or over were recorded. No distinction is made between types of orc~anization, membership in or outside of the community, or frequency o? meetings. Basing these memberships on the number of persons 12 or over within' the occupation groups and eliminating those who failed to answer this question, the number of memberships per 100 persons was calculated. This analysis further demonstrates the social segrega- tion between farmer and white-collar worker on one hand and laborer on the ether. This wide gulf exists in both communities, though there is somewhat more labor participation in Dinuba. It should be noted that in Arvin the farmers participate far more heavily in clubs PAGENO="0370" 366 64 8~ALL BUSINESS AND THE COMMUNITY than in Dinuba, where farmer memberships are but a third as great as memberships of white-collar workers. Total participation is less in Arvin than in Dinuba, a difference which again is accounted for by the preponderance of laborers, who rarely participate in club activities because of the strong social barrier in both communities. These relationships are shown graphically in figure 14, along with other forms of participation. OTHER SOCIAL PARTICIPATION Organized club life is only one means of social participation. En order to obtain some appreciation of the nature of social life in the two communities, questions were included on the schedules designed to determine how many persons participated in other types of social activities. Six categories were included and an indication of the family member participating and the frequency of such participation. The six categories are: School events, other community events, dances, card parties or games, picnics, and movies. The last of these cannot be strictly considered. a social event, since it does not require any active group participation and will be discussed separately. Table 30 shows the number and percent of the families having members who participate in each of the five types of social activitiies (movies excluded) and the number reporting participation in some one of the five. Of these forms of recreation, picnics are the most frequent in both communities and about equally popular in each. The difference between Arvin and Dinuba is shown immediately in ~that only 58 percent of all families participate in social events in Arvin, while 71 percent do so in Dinuba. If those persons whose only form of recreation was picnics (which are usually family affairs) are eliminated, the Arvin participants would be reduced to 45 percent of the families, while the Dinuba participating families would not be reduced at all. Participation in community events and school affairs is relatively more popular in Dinuba than in Arvin. The failure of the community to provide opportunity must be considered a major cause of this lack of participation. Table 31 shows similar data, based upon individual participation rather than families. It repre- sents more accurately the participation of individuals, demonstraibes the degree to which total families participate in picnics and in gene:ral community events, but only a few members participate in the other activities. Participants in general community events more nearly represent a Table 32 shows the participants by major occupational groupings, and relatively little difference is found. The Chi Square Test indicates that the probability of these occupational differences being significant is relatively small, and the value of T for these communities is very close to zero (appendix F). That laborers participate in open social events very nearly as much as other groups shows that social part~ici- pation is not foreign to the laborers' mode of life and that their failure to belong to clubs in both Arvin and Dinuba reflects the social barrier rather than any inherent reluctance to participate in social events. Striking, too, is the difference in the degree of social participation among farm labor families in Dinuba as compared with Arvin. It is clear that the greater opportunity for social activity coupled with a somewhat lessened social barrier has enabled time worker to find a PAGENO="0371" * MOVING `PICTURES Percent WHtTE COLLAR WORKER FARMER FARM LA8OR - - - COMMUNITY AVERAGE 367 SMALL BUSINESS AND THE COMMUNITY 65 PARTICIPATION IN SOCIAL ACTIVITIES BY OCCUPATION GROUPS Percent SCHOOL EVENTS PICNtCS P.rcer~ 75 *. 75 i~ ~ ARVIN DINUBA ARVIP4 DINUBA CLUB MEMBERSHIPS ARVIN ` DINUBA OTHER COMMUNITY EVENTS Percent ARVIN *~ DINUBA NUSA FIGURE No. 14 PAGENO="0372" 368 66 8)~LALL BUSINESS AND THE COMMUNITY richer social life. Social participation of the farm-operator group in the two communities is about the same. Motion pictures have become the most important form of recreation to nearly all ~roups. Table 33 shows many more families attend movies in Arvm than all other forms of recreation combined, while in Dinuba as many attend movies as all other forms of recreation. This applies to families in practically all occupation groups to a like degree, though the nonemployed and the farmers find somewhat less use for this form of recreation. Movies are the sole reported form of recreation for over 30 percent of the Arvin families and for nearly 20 percent of the Dinuba families. The farm labor families are particularly dependent upon movies for their recreation, as this tabulation demonstrates. The social participation in Arvin and Dinuba has been summarized in graphic form in figure 14. This figure shows the difference in participation among farmers, whi~i-coHar workers, and laborers, and makes comparisons between the two communities and between five types of activities. School events and other community affairs are more frequently enjoyed in Dinuba than in Arvin, and in general are more fully the province of the farmer and white-collar worker. Picnics and movies are more frequently family or individual affairs, and the occupational difference in participation is far less. There is less difference between the two communities in these categories of activity. Movies form the only category where Arvin participation is greater than Dinuba, and this is the least social of all forms of recreation. Club participation remains the most striking differential between social classes. Among the white-collar workers in Arvin and Dinuba and the farmers in Arvin there is more than one membership for every person of 12 or over. Participation was not recorded among the younger group, and they were eliminated from all calculations. The ratio among laborers is only 1 membership for every 10 persons. The differential between Arvin and Dinuba is slight. Dinuba farmers participate far less than Arvm farmers do; Dinuba white-collar workers more. These data show: (1) that Dinuba has a richer social life and more nearly full participation, (2) that~ laborers do not participate in the interpersonal types of social activity as frequently as other categories, but participate equally in the more individual forms of recreation, (3) laborers have hardly any participation in club activities where closed groups are involved and where social barriers are effective, and (4) this social differentiation is nearly equal in both communities. PAGENO="0373" 369 SMALL BUSINESS ANI) THE COMMUNITY 67 TABLE 26.-Occupation of members in selected Arvi* and Dinuba dubs Arwin clubs Occupation group 1 Dinuba clubs Num- Per- bet cent aster L1ons~PTA ~ry ~ Am~can White-collar ~ Farmers Farm labor Other labor. Nonemployed Total...~ Employment unknown~. 39 40 2 3 0 46 48 2 4 0 P~r- Num- Per- b~r her cent 29, 27 48 111 11 21) 0' l~ 8 14 2 5~ 9 16 01 03 1 2 Yarn- ber 36 6 0 Per- cent 84 14 0 2 0 Num- Per- bet cent 87 57 34 34 0 0 3 3 6 6 84 100 2 Per- ber cent 58 .53 28 25 9 8 14 13 1 1 42 i~X) 56 100 43 0~_ 12 0 100 100 100 110 1 57 1 OccupatIon classification according to (am, ad. Source: Club records. TABLE 27.-Families reporting partic patio'n in carlo us classes of social organiza~- Lions: Arvin and Dinuba 100 Type of organization -` Arvin Dinuba Number of families reporting Percentage of all families Number of families reporting Percentage of all - families Service clubs I Women's clubs Fraternal orders3 Parent-Teacher Association-- - Farm organizations 4 Youth organizations Church organizations. Unlons.~.. Others Inside community Others outside community No participation 13 9 14 9 6 4 2 4 4 91 10 7 11 7 5 3 2 3 3 69 42 19 32 14 24 10 10 10 11 10 113 20 9 15 7 12 5 5 5 5 6 83 * This category Includes In Arvin: Lions, Boosters, State gnard; in Dinuba: Rotary, Y's Men's Club, merchants association, chamber of commerce, and American Legion. 2No women's club in Arvin. a None meet In Arvln, though Arvin people belong in flinuba includes: Masons, Eastern Star, Rainbow Girls, De Molay, Independent Order of Odd Feilows. Modern Woodmen of America. *Farm Center, Home Department, Associated Farmers, and (in Dinuba only) Grange. Source: Schedule data. TABLE 28.-Familie-s reporting participation in social organizations, classified by occupation of family head: Arvin and Dl'nuba . Occupation group Arvin Dinuba Total Number ~ tion Percentage Total Number ~ tion Percentage White-collar workers. Farmers Parmlabor Otherlahor Nonemployed 10 44 80 20 8 7 10 14 8 2 70 71 17 40 25 32 65 56 37 24 27 43 11 16 3 84 66 20 43 13 47 Total 132 41 311 12131 100 I Information on 7 families lacking. Source: Schedule data. PAGENO="0374" 370 68 SMALL BUSINESS AND THE COMMUNITY `lARLE 29.-Club memberships of person-a 1.? years old and over, classified by occu- pation of family head: Arc-in and Dinuba Occupation groups __________________ ________________ irvin Dinuba and over Total Per 100 persons and over Total Per 100 persona White-collar workez~..~ * 26 24 92 79 125 156 Farmer 37 46 124 156 89 57 Farm labor 240 17 7 156 20 13 Otherlabor 54 19 35 92 20 22 !`ionemployed 15 3 20 32 5 16 Total 372 109 29 615 259 42 Source: Schedule data. Numbers refer to behavior of individuals in sample, not whole community. TABLE 30.-Families participating in sociqi ac~icrities other than clubs and churches: Arvin and Dinuba Class of social activity - irvin - Number report tag particip~ Percenta~ Number report ing participa. Percentage Schoolevents 34 12 19 10 ~ 26 9 14 8 ~ 70 86 49 29 91 33 40 23 14 ~ Other community events Dances Card parties Picnics Allsocia1events~ 76 58 145 71 `ach family reported only once, no matter how many members participate, or bow frequently or in bow many types of events. - `Not the sum of column; represez~ts all families participating In any one or more of above categories of ocIal activity Source Schedule data. TABLE 31 -Individuals participating iii aocial activities other than clubs and ch9rches Arc-zn and Dznuba Class of social activity ~ - irvin Dinuba Number re- porting par- ticipation - - Percentage Number re- porting par. ticipation Percentage Schoolevents Other community events Dances. Cardparties Picnics . 88 51 38 iS B)9 16 9 7 3 38 203 231 98 55 288 28 52 13 8 89 Source Schedule data PAGENO="0375" 371 SMALL BUSINESS AND THE COMNItNITY 69 TABLE 32 -Families reporting participation in social events other than clubs or churche claisified by occupation of head dry-in and Dinuba Arvin Dinuba Occupatzon group Number re Number re- porting par- Percentage porting par- Percentage ticipation ticipation White-collar workers 8 80 Farm operator g Farm labor 43 54 37 74 Other labor 12 60 28 66 Nonemployed 4 ________ - ________ Total 76 58 146 Ti Source: Schedule data. TABLE 33-Motion pictures as a source of recreation for different occupation groups~ Arviri and Dinuba Arvin Dthuba Occupation group Families re- porting movie attendance' Farnilie~re- porting movies as only recre- ation' Families re- porting movies as only recre- ation' Num- Fer- ber cent 19' All families reporting some member who attends motion pictures. I families who attend motion pictures in which no member participates in any other social activity. Souscs: Schedule data. THE PROBLEMS OF YOUTH The conditions under which the young people are brought to adult-. hood is one criterion of the quality of a community. ~ince it is a sphere of activity in which the local population has a great deal of influence, the youth progiams reflect community spirit. Juvenile delinquency is a universal problem varying only in degree; it has been a particularly great problem during war years, and people in both Arvin and Dinuba were concerned with it. No statistical dat~ were available on delinquency rates, but verbal testimony is indicative.. This testimony was obtained from various school officials, county officers, and local leaders, and represents informal local opinion. Such testimony brought out that the problem exists in both cornS- munities, but is far more severe in Arvin than Dinuba. In both~ communities cases involving sexual promiscuity had recently been. reported, and were mentioned by the citizens of the two towns. The Dmuba incident was a single affait and was played up in local papers~ while the Arvin case involved a number of students over a period of time. Theft and pilfering were reported from both communities, but. White-collar workcrs. Farm operator Farm labor Other labor Nonemployed Total - 110 9 10 69 17 5 cc 77 86 85 63 I 3 29 6 2 10 13 36 30 26 84 41 31 Families re- porting movie attendance' 28 39 45 26 03 64 82 74 30 146 71 2 8 16 a 3 38 F 13. ~ 2~ 13. Num- ber Per- cent Num. tar Per- cent Sum- bet Per- cent PAGENO="0376" 372 70 s~tI4I4 BUSTh~SS AND THE COMMUNITY gambling apparently was a severe problem in Arvin only. In Dinuba, the justice of the peace considered the problem noteworthy, while the school principals, the mayor, and the PTA president stated that a few cases came up from time to time but the problem was not severe. The justice pointed out that it was associated with broken homes and poor economic conditions, and all agreed that the incidence of misbe- havior was highest among the labor families. In Arvin the school principal, one merchant, and two of the ministers found the problem great and emphasized sexual promiscuity and gambling. The justice of the peace, one county sheriff, and one minister admitted to a real pcoblem but did not emphasize it, while another sheriff and the PTA president did not consider it severe. While these accounts were at. variance, they suggest that. if the Dinuba situation is described as normal, the social conditions of Arvin youth must be considered bad. .The association of juvenile delinquency with the laboring class, par.. ticularly children of white field hands, was generally agreed upon. For purposes of the present study, community efforts to prevent luvenile. dehinq~uency are far more significant measures than the -uieidence of delinquency itself. For the latter may have many causes, while the efforts to prevent delinquency by means of social programs are direct testimonial to the degree of community solidarity and its social quality. ~In Arvn~t~ the tim&of field study, the only active pi ogram was a series of baseball games for the older boys. This had been in progress .4or several weeks, and had the support of the sheriff's office and unofficial aid from the Lions Club. In addition there was a small *~Boy Scout troop and a Camp Fire Girl organization. One Arvin merchant who took an active interest in community welfare became alarmed by the juvenile problem and determined to find why no county funds had been spent on playground facilities in Arvin. He discovered that no request had been made, and as a result of his action, Arvin secured lighting and equipment for the empty lot that had been loaned for use as a playing field by a private company. The lack of leadership was constantly cited as the cause for the dearth of facilities. The school superintendent contended that the Boy Scouts should be led by persons other than teachers but that nobody else would take the ~ob and that it was often difficult to get the board of review out for a review meeting. The school itself sponsors a program of athletics for the children, and the school has a safety club and a youth council. These activities do not extend beyond school hours, and do not reach any of the young people beyond elementary-school age. In Dinuba there are two Boy Scout troops, each with its own club- house.. These are sponsored by the Rotary and the American Legion. A third troop is being planned and a Cub Scout pack has i~e~ent1y been organized. There is also a Girl Scout group sponsored by two teachers. 71'he Masonic Lodge has a Rainbow Girls and a DeMolay group; there are weekly dances held by the high-school students at the women's club, and the Y's Men's club maintains a recreatithi hail. * This ball was created out of an old store building. A paid super~. * yisor is on duty each night, and facilities for billiards, table tennis shuffleboard and for reading and the cultivation of hobbies~ are all available there. The place accommodates from 30 to 80 boys each PAGENO="0377" 373 SMALL BUSINESS AND THE COMMIYNTTY 71 night in the week without any cost to them. As a public service, the establishment of this recreation hail deserves special merit because it was made available to the Dinuba youth at a real sacrifice in time and money by a group of citizens. It contrasts with the endeavor of a few public-spirited personalities who attempted to create a weekly "fun night" at the Arvin school and failed because of the lack of interest among community leaders and their unwillingness to make the necessary sacrifices. These activities in Dinuba are over and above those made possible by the schools and the ge~neral park facilities available to the boys and girls. The difference between the two communities can be summarized as follows: An Arvin high-school youth can participate in ball games once or twice a week and can go to Scout meetings. Othecwise his only recreation is at the movies, a commercial skating rink open during the summer, or the pool halls. A Dinuba youth can go to a dance, play ejther on the school grounds under supervision or at a park, ;participate in high-school activities, can go to Scout meeting or to the DeMolay (or Rainbow) meeting, can spend his evenings in the recreation center, or can participate with others under supervision in one or more hobbies. There are three moving-picture theaters and .a comme~cia1 dance hall, if he wishes to pay for his recreation. County libraries are available in both communities. Obviously the oppor- tunities for social contacts and personal development are greater for the Dinuba youth than for those of Arvin. It should be added that the Dinuba facilities are not locally con- sidered adequate. Neither community has a swimming pooi, and this lack is very keenly felt. There is insufficient playground equipment in the park, and there is no counterpart to the recreation center for The use of girls. At one time there was a WPA-sponsored recreation program which, according to the justice of the peace, lessened juvenile misbehavior. High-school students presented a symposium to the Dinuba Rotarians on juvenile delinquency and concluded that more facilities were needed. THg SOCIAL ROLE OF THE CUIJBCfl Arvin has the following èhurches: Catholic, Union Congregational, Church of the Nazarene, Assembly of God Church, Missioiiary Baptist, Church of Christ, and Pentecostal. At some times there is a secoud Pentecostal church serving the Mexicans, and there is a group .`of adherents to Jehovah's Witnesses. In Dinuba there are: Presbyterian, Christian Church, Methodist, Baptist, Seventh-Day Adventist (two groups), Zion Mennonite, Men- nonite Brethren, Church of the Nazarene, Church of God, Assembly *oUGod, Church of Christ, Four Square Church, Korean Presbyterian, and an Armenian Church. Prior to evacuation there was a Japanese Buddhist o~oup and there has also been a Mexican Methodist congre- :gation, w~iile Mormons, Catholics, and Lutherans have meetings periodically in Dinuba, though no regular church. Both in the number of congregations and in the total amount of church facilities available, the Dinuba community is richer. Despite the large number of churches in both communities, only about two-thirds of the population are either members or attend 95-253 0 - 88 - 25 PAGENO="0378" 374 72 ~u4 BUSINESS AND THE COMMUNITY church regularly iS Table 34 shows that only 59 percent of Arvin persons 12 or over are church participants, against 72 percent in Dmuba. Each occupational group in Dinuba shows this greater participation. In both communities farmers have the highest record of memberships (leaving out nonemployed), farm labor next, while white-collar workers and other labor participate least. TABLE 34-Individual church par~icmpation among persons 1~ years old and over clusssfied by occupation groups Arvin and Llsnuba ~ -- ... ~.*_~*_ Arvin * - O~upat1on soup ~ Number Partici- in group pants ercen Dinuba ~ Number Fartici- in group pants ercen White-collar worker Farm operator Farm labor Otherlabor ---. Nonemployed~~.~~. Total 26 37 24O ~ 15 12 25 152 ~ 7 46 68 64 ~ 47 79 156 156 92 34 48 123 109 56 34 370 61 79 70 61 100 72 372 221 59 517 N. B.-Chureh participants are all persons over 12 who either aremembers of a church in good standing, or who attend church at least 12 times per year. Number in group includes only persons 12 years old or over. Source: Schedule data. While club membership is a function of income and occupation, and nonorganized social activities show slight differentials between occu- pation groups, no such generalization can be made for participation Jn religious institutions. The percent variation between occupational categories in Arvin ran from 46 to 68 of the several major occupational groups; for Dinuba from 61 to 100 percent. The differential did not meet the Chi Square test of significance in. either community. (See appendix F.) - - Interestingly, there is a tendency for low-income groups in Arvin to belong to churches more frequently than high-income groups, the direct opposite to the tendency in other forms of social participation. This is shown by a negative association between high occupation status and church membership-an association which fully meets the Chi Square test of significance. This partly explains why only one ,church is supported by the Arvin elite. . Since social criteria have been reflected in church participation elsewhere in California,'7 it is appropriat.e to examine the manner in which different elements of the population are segregated in existing religious institutions. In order to make such an analysis it is necessary to evaluate the social position of the different congregations in each commu~itY.18 Eliminating memberships in groups without a formal organization in either town, a fourfold classification is suggeste& Most congregations can be rated, on a pecuniary standard of values, into degrees of social standing, but some cannot. In the latter sAil p.srsons who belong to a church, whether or not they attend, and all persons who attend 12 or more times per year. ev-n though not a member, are included in this count. Only persons 12 years 01(1 or older were ln~lud'-d in this analysis. 11 The role of the church In the California town has been described in Walter R. Ooldschmidt's Class Denominaticr.alLtm In the California Rural Churches, Journal of American Sociology, vol. XLIX, January 19~ lilt must be made clear that this analysis of church standing does not in any way re6ect an evaluation * either of the religious doctrines or of the quality of the membership of the separate ~ngregat10flS, but has reference orly to the social status of the group within the community, with reference to community values, as the sociologists use that concept. PAGENO="0379" 375 SMALL BUSINESS AND THE COMMUNITY 73 category, are the Catholic churches and those congregations which have a fairly recent history of persecution and wandering or for other reasons maintain strong in-group loyalties. Mennonite and Seventh- Day Adventist churches are included here. Congregations such as the Korean Presbyterian and Armenian churches, which serve only special racial or ethnic groups, are also placed in this category. These examples make up the Dinuban category of strong in-group churches, while in Arvin only the Catholic church was so classed. The remaining three categories represent the social standing of the church in terms of dominant pecuniary standards. The upper group includes the earlier denominations of Protestantism; in Arvin the Union Congregational and in Dinuba the Presbyterian, Christian, Methodist, and Baptist. They universally have substantial buildings and are the first recognized by the elite in the population. The second group is comprised of those newer denominations of Protestant- ism which have firmly established themselves in the local community. In both towns the Nazarene and Assembly of God churches are so classed. These congregations have good structures, professional pastors, and are recognized by the community as good substantial congregations. The third category consists of those churches which have poor facilities-usually unpainted frame structures without any elegance. Generally they are served by lay ministers. The elite hardly recognize their existence. In Arvin this group includes the Missionary Baptist, Pentecostal Church, Church of Christ, and Jehovah's Witnesses; in Dinuba the Church of God, the Four Square Church, and the Church of Christ. Using this classification, we find that there are four churches of high and more or less equal status in Dinuba, but only one in Arvin, and that they account for 37 percent of the membership in Dinuba and 14 percent of Arvin churchgoers (table 35). Churches of lesser social standing are predominant in Arvin but unimportant in Dinuba. A large number of Dinubans go to other communities because of their desire to participate in particular denominations, and because there are a number of other churches within a few miles of the community. Sixty percent of Arvin laborers go to churches of the newer sects with less social status in the community, against but 36 percent of the independently employed. A similar differential between the two occu- pation groups is found in Dinuba. While all groups go to church to very nearly the same extent, they do not go to the same churches but are segregated along occupational lines. The degree of association is shown in the table of appendix F. Approaching the data from a different source, the pattern of mem- bership in certain churches can be shown. Table 36 shows the occu- pational break-down of the three leading Protestant churches in Arvin, and five of the churches in Dinuba. Figure 15 summarizes this tabulation and shows the marked divergence between these con- gregations with respect to the means of livelihood of their members. Verbal testimony indicated that laborers only belonged to the re- maining Arvin Protestant Congregations. The churches of high social status in Dinuba as in Arvin, have few farm workers among their members, but there are more churches which serve a mixed congre- gation and more persons who participate in church affairs together with persons from other walks of life. PAGENO="0380" 74 376 ~MALIJ BUSINESS AND THE COMMUNITY TABUI 35.-Proportion of persons from independently employed families and from labor families participating in churches of different social status: Arvin and Dinuba Church category * ~ Arvin Dinuba Farmers and wbltej~ollar All labor Total Farmers and white.kcollar All labor Total £ Num- bar Per- cent Nuin- ber Per- cent Num- bar Per- cent Num- ber Per- cent Num- `ber Per- cent Num- ber Per- cent L High stats ~ IL Intermediate status. * III. Low status IV. In-group cburches_~ V.Other VI. Outside community-- Total 15 5 5 9 0 0 40 22 14 24 0 0 15 38 69 40 10 5 8 21 39 .23 6 3 81 46 80 49 10 5 . 14 21 36 22 ~ 2 87 4 14 33 9 24 51 2 8 20 5 14 42 7 24 41 12 39 25 4 15 25 7 24 136 12 51 82 25 64 37 3 14 22 .7 17 37 ioo in ioo 221 100 171 100 16.5 100 370 100 `Includes 7 nonemployed in Arvin, 34 in Dinuba- $ource: S~~,hedWe data.. it `~.E'ABL~ 36.-~Occupation of members of selected churches in Artdn and Dinuba ARVIN . . - Congregational Nazarene Assembly of aod Occupationgroup * . ` - Number - Percent -~ Number - Percent - Number -- Percent J~rm l~bor Other labor.~~~~ Total - 28 72 10 19 19 58 `8 15 16 5 16 17 10 29 32 10 0 81 14 124 100 ~ 54 100 . 105 . ,. 4 .7 10 0 77 13 100 `I `)~-.` ) , . ,. - , c,,. .,. *, . ,, DINUBA , `: - *.. . ) ` , , - 1 1~ " ~ ~* ` ~ . t `.~ ~" Occupation group k. ** ., -. First Pres- byterlan ` .~ o)hrnstut~", Zion Men- , nonites . . Church of Nazarene - Assembly of Ood -, Num- bar Per- cent Num- bar Per- Nuxn- cent her Per- cent Num- bar Per- cent Num- her cent White-collar Farmoperator Farmlabor Otherlabor . Total Nonemployed , 10~ 94 6 15 47 43 3 7 54 . 66. 4 16 ` 38 16 48 141 3 `22 11 16 8 72 12 8 17 35 22 20 18 37 24 21 20 33 23 14 22 37 25 16 217 34 101) 142 38 100 195 28 101) 94 17 100 90 23 100 1 Includes some unspecified labor. 8ource: Schedule data. In A.rvin there were clear expressions of opinion as to the social standing of the churches. Local citizens can and regularly did rate them. There is a similar social hierarchy in Dinuba, but it is not so clearly marked, and there are far more churches serving small social groups isolated because of a common background rather than because of their social or economic status in the community. PAGENO="0381" 377 SMALL BUSINESS AND THE COMMUNITY OCCUPATIONAL STRUCTURE OF SELECTED ARVLN AND DINUBA CONGREGATIONS ARVIN CHURCHES I00~ 75, 75 Percen? 100 75~ 50 I~1F0rm Iabc Othcr obcr Farrncrs ~ Wh~e collar ______ workers 25 25 rson Zion Mennonite Assembly FZGTJRZ No; 15 PAGENO="0382" 378 76 SMALL BUSINESS AND THE COMMUNiTY SOCIAL EVALUATIONS Thus far the description of the social life in Arvin and Dinuba ha~ largely rested upon factual data, with a minimum of descriptive ma- terial and subjective evaluation. In order to develop a rounded picture the evaluation of community life made -by the residents themseives must be recorded and the evidence of the spirit of the communities presented. Arvin residents generally recognize the limitations of their coni- munity; some do not care, others are concerned but do not take action, while a few make an effort to improve the community. It is this last group which participates in Booster Club and Lions Club activities, and which endeavors to get a park, high school, and other facilities for Arvin. But there are too few, who can and will devote their time and energy to the endless, and often thankless, task of community improve- ment. At a Booster Club meeting, when this study was being discussed, one community leader said: We think we have a pretty good town and that we have done a lot for Arvin but we have to admit that we don't stack up very well against Dinuba. They have a high school, paved streets, good buildings, and so forth. A small farmer blamed the poor quality of the Arvin community on the fact of absentee farm ownership and farm operation, and the fact that nobody made Arvin his permanent home. "I venture to say that 80 percent of the people here have no roots in the community," he said. He admitted many were buying their homes, but said that this was only because it was necessary to buy in order to have a place to live. Concerning this impermanence one woman who had come to Arvin as an agricultural worker said, "The trouble is mostly that people don't feel permanent here. Now we came here 9 years ago and we never expected to be permanent here. Peoph~ feel transient." This woman felt Arvin was a poor place to raise children because there were no facilities for them and all they had to do was "lounge around the pool halls." The impermanence of the situation affects business people as well as laborers. One merchant said that "the trouble is that no one here plans for the future. People who start stores do not build them * for permanent investments but build them cheaply with the idea of making as much money as quickly as possible while times are good. This does not lead to the kind of community where a man can plan for the future and set up a business that will go to his children." A minister said of Arvin: The big farmers are not interested in the town; they go to Bakersfield or Los Angeles for all their wants and don't care whether the town is here or not. There is practically no one who is interested in the welfare of the community. The church should take care of that, but it can't because its congregation is made up of transient people who do not have a stake in the community. Another minister said: Frankly, this is the worst town I have ever seen. I don't think there is another like it. He pointed to theabsence of sidewalks, and blamed the lack on the fact that there were not enough citizens interested in working for the community welfare. He went on to enumerate other failings, such as the failure to incorporate and the lack of parks. PAGENO="0383" 379 SMALL BUSINESS AND THE COMMUNITY 77 This harsh judgment of the community is coupled with a feeling that the community has the potentialities of growth and improvement For 25 years a nucleus of small farmers and merchants has existed upon which the town could build. The Booster Club has been in existence for nearly this length of time, and it and the Lions Club are filled with people ~ho consider Ar'~ in their home and want and expect it to become a better place Yet they are evidently too small a group to make a thriving community comparable to Dinuba Criticisms m Dinuba were made of the operation of one or another civic function or of the activities of some club, they never reached the level of community condemnation There was antagonism between parents who want their children to have an opportunity to dance and those who consider dancmg morally reprehensible Conflict of such kind, stemming from differing moral values, is to be found in every Lommunty. On the other hand, one merchaot picked Dinuba as a place to start his business after he had spent several years traveling through the area, because he felt that it ~ as the best town in which to raise a family One measure of community solidarity is the degree to which the people feel an allegiance to the commumty As a measure of such sentiment, the schedule mcluded the question "What do you consider your home town?" This question was always asked in this naive form and the primary response recorded Table 37 sho~ s the re- sponses, first by occupation and second by years residence Sixty- ti~o percent of the Arvin residents considered Ar~in their home town, 87 percent of the Dmubans considered that community their home town. The remainder indicated a former residence as their home town In Dinuba four persons referred to a neighboring community as their home town as a result of the imperfect community boundaries that are inevitable These were excluded from the analysis, along with those who did not respond to the question The results of this question can be considered a rough measure of the degree of com- munity solidarity and feeling of permanence TABLE 37 -Persons who consider the local commvnt&y as "home town in Art'an and Dir~i~ba 1 Axvln Dinuba ~h~asbome Percent ashomo Percent By occupation ) armer and white milar worker 34 20 83 89 81 91 Farmiabor 77 42 55 55 43 78 Allother 28 18 64 58 61 88 Total __ 80 20° 175 87 By y~ear of arrival: BetorelOiO 0 0 0 29 29 100 1911-29 25 21 84 80 80 100 1930-39 40 34 85 45 313 84 1940-42 38 19 53 23 15 86 394~~44 . 28 6 21 25 13 52 134 80 621 2(11 175 87 lAnal)sis of responses to the question ~S hat Is your home town See schedule appendix A 3Persons indicating neighboring town or falling to respond were eliminated from the analysis Source Schedule data PAGENO="0384" 380 78 ~MALL BUSINESS AND THE COMMUNITY `Laborers in both communities display the least intere~t in the community, as would be expected. Similarly, the length of residence plays an important part in the expression of this attitude. In every occupation category and in every length-of-residence category except one, a smaller proportion considers Arvin its home town than coti- siders Dinuba its home town. Even among residents of 15 or more years in Arvin there is an appreciable group which does not consider that community as its home. TEE SOCIAL STRUCTURE IN ARVIN AND DINtTBA The analysis of the association between occupation, income, and the many aspects of social participation and social conditions demon- strates that these characteristics are closely interrelated. Social cleavages separate different segments of the population, and these groups or social classes form a status hierarchy. In some significant respects the social structure of Arvin and Dinuba is alike; in other respects it is different. While the analysis in the preceding sections has not differentiated social status beyond occupational status, such a differentiation can be made. Table 38 summarizes the more important data on social participation for Arvin and Dinuba. It includes only information on occupation, income, level of living, condition of the home, club participation, and class of church, since these are the items which most clearly reflect social status. TABLE 38.-Summary of important sodal differentiations: Arvin and Dinuba It~ ` ~, A~ta Dinuba tanners, merchants, and professionals as percent of total poula' Percent of population receiving over $3,250 annual income' . Percent of population in upper fourth in level of living index 3.-... Percent of population in upper fourth in condition of home index4 Percent of top ranking club memberships in farmer and white-collar gro'..... Percent of top ranking church memberships in farmer and white-collar group `... Percent 17 18 18 12 98 76 Percent ~ 43 21 38 36 94 88 `From table 22. $ From table 23. $ From figure 9. Includes all with index of 37 and over, or 24 percent of combined sample. 4 Prom figure 11. Includes all with index of 9 (perfect score) or 27 percent of combined sample. `Prom table 26. Includes Booster and Lions In Arvin and Rotary and Women's Club in LMnuba. * From table 36. Includes Congregational Church in .&rvin and First Presbyterian and Christian In Dinuba. It will be seen that the upper bracket in Arvin represents from 12 to 18 percent of the families for each of the first four items indicated, while similar break-downs include from 21 to 43 percent in Dinuba. This leads immediately to the general conëlusion that the upper class in Dmuba mcludes not only a greater number of people, but actually a much larger proportion. The next two items on the table give us an indication of the degree to which this small group dominates social activities in the two communities. It is readily seen that the small group generally includes a dominant proportion of those social activ- ities which bear status in the community. If we examine more closely the individual cases, we can obtain more evidence of social differentiation. In Arvin there are 10 families in the sample of 132 who `were in the top fourth of income, of level-of- PAGENO="0385" 381 SMALL BUSINESS AND THE COMMUNITY 79 living index, and of the condition of the home index. Nine of these were either merchants or farm operators. These nine families either belonged to the top-ranking church or to none at all. The 23 persons 12 years old or over in this group held a total of 53 memberships, including all reported memberships in the Lions Club and all but one in the Boosters. Another group of eight farmer and white-collar families having good incomes and living conditions (i. e., above median in both categories) can be separated. This group has some members in churches other than that with highest social standing, 1 of its group is a Booster, and among them hold 15 club memberships. The remaming seven families in the farmer-white-collar group do not par- ticipate in the older congregation, and among them hold only two club memberships. On the basis of what we know about social status in the community, we may therefore say that this last group has a status commensurate with the laborers. These facts indicate that the upper class in Arvin comprises be~ tween 10 and 15 percent of the total resident population. Their ranks are not significantly augmented from among the labor group. Selecting those among the laborers who are in the upper half (not. quartile) of income, level-of-living index, and index of home condi- tions, we find a group of 11 families. Only one of these belongs to the upper-class church while there are only nine club memberships among them. One skilled laborer in the group might qualify, since be participates in social activities rather frequently. After eliminating the occupational group which meets the general criteria of upper class, there remain 115 families in the sample, repre- sentmg 87 percent of the population. Of this group, only 21 hold memberships in local organizations, while 71 families belong to some local church. In all, about 75 families participate in some local activity, though these ties are frequently tenuous and often only with a handful of other persons with equally tenuous ties. If we eliminated those who only participated in the newer religious sects with but slight ties to the whole community, the number would be reduced from 75 to 50, or from two-thirds to less than half of the total population in this status group. Those who participate in organized social events. also more frequently participate in group recreation than those who belong only to the church or to no organization at all. Twent~~-seven families reported no membership in any community organization and no form of social participatioa other than movies or picnics (which are usually individual family affairs). This is a fifth of the total population and a fourth of the lower group. The independent class of Arvin includes between 10 and 15 percent of the families, and is made up of farm operators and merchants, though such occupation status does not insure membership. They are split evenly between two groups-an elite whose status is estab- lished and a middle group whose status is less clear. A few families (about ~ in the sample) participate more fully in the society of Bakers- field than they do in local events. The elite are universally in the highest income brackets and have material possessions and housing conditions which place them at the top of these categories as well. It is comprised mostly of farmers with a few from the merchant-professional cateo'ory. As a group they hold nearly as many club memberships as all the remainder of the population combined. They frequently participate in the social PAGENO="0386" 382 80 SMALL BUSINESS AND THE COMMUNITY events in Bakersfield and occasionally in Los Angeles, and are highly mobile, both in the geographic and social sense of that term. If they belong to any church, it is the upper status church. The middle group has a lower income, poorer living conditions, and generally displays less evidence of social status in the community than the elite. It is made up of the remaining merchants and faun- ers, with perhaps a few skilled workers among them. They more rarely participate in city activities. This group has some members in churches of intermediate status. The largely dependent class is made up almost entirely of farm laborers, though a small group of merchants and farm operators, on the basis of evidence of their social participation and living conditions, must be included. On the whole, this group participates very little in any activity other than the church, and rarely in the older church. They never enter the leadino' clubs. As a group they comprise about 85 percent of the total popuTation, yet they remain outside the sphere of most community activities. A few of the skilled laborers with per- manent jobs occasionally breach the line between this group and the upper class, but this is rare. * The church is the most frequent sphere for social contact among members of this class. Nearly two-thirds participate in this form of activity, while less than 20 percent are club members. In this group there are 34 persons (30 percent) whose only social activity is the church, 23 who only participate in community events and other non- organized activity, and 27 who do not participate at all. Most of these latter groups have no ties whatsoever to Arvin, and the depend- ent class may be differentiated between those with local ties and those withoul~ any social ties whatsoever. Nearly half of the laborers did not consider Arvin their home town. Those who display little or no social participation rarely have an income or level of living index above the median point. L&:J The social structure of t~inuba cannot be reduced to a linear scale with the same degree of accuracy. The greater wealth of institutions.. and the larger and more diversified stable population combine to create a far more complex situation. The dominant community pattern must be viewed as similar to Arvin, with a group of well-off persons in the upper ranges of level of living on one end of the scale and a group of impecunious laborers with poor living conditions and little or no social participation on the other. - There are 25 farmer and merchant families in the sample who fall in the upper-income brackets and in each of the measurement of living conditions (one laborer family also fell into this group). This 12 percent of the population forms an upper class, but its members must be augmented by another 20 to 25 percent who fall lower in the scale on these measurements, but who participate freely in the same churches and clubs While there are gradations of prestige within this group, it would be difficult to make a segregation of the sort that was possible in Arvin. Of the remaining two-thirds~ there are quite a few whose social life revolves about their church. These groups are usually centered about the Mennonite, Lutheran, and Seventh-Day Adventist congrega- tions, which develop a strong in-group loyalty and are capable of satis- fying completely the social outlets of a large proportion of their con- gregations. Included among these are many of the stabler small PAGENO="0387" 383 SMALL BUSINESS AND THE COMMUNITY 81 farmers, most of whom own their own land. Such people are usually bypassed by the dominant community pattern of pecuniary values, having their own special interests and spheres of activity. They are not outsiders to community activity in the same sense that farm la- borers are. The differences lie in that they have a stable tenure and a community of interests with a segment of the population, and that they can move into the social sphere of the larger community at will, but remain outside by choice. The laborer, on the other hand, does not have this stability, this participation in a small in-group, and can only with great difficulty become a part of the larger community. Many of the more stable farm laborers-often farmers' sons-associate with these special groups, and mobility from laborer to farmer status is apparently more common while less social connotations are involved in this occupation differential. Only a small segment of the population is without any ties what- soever. Only 16 in our sample of 206 (8 percent) failed completely to participate in community affairs, compared to about 20 percent in Arvin. Only 13 percent rejected Dinuba as their home town. Some others have only the most tenuous ties with the community, but this group is much smaller, proportionately and absolutely, than the comrn parable Arvm group. The fundamental similarity between Arvin and Dinuba is that there are upper and lower classes with little or no common interest or social intercourse; the one made up of independently employed persons and the other made up of wage laborers. The fundamental differences are, first, that in Arvin the u~pper group is extremely small while the lower group is quite harge, whereas in Dinuba the upper group com- prises about a third of the population. Second, in Arvin there is a sharp break between the upper group and the remainder, while in Dinuba there are even grada1~ions from one to the other. Further- more, there appears to be more opportunity for social in ~ercourse, if not between the top and bottom, at least between successive groups so that social contact and mobility are possible without a change of occupation status. PAGENO="0388" 384 * CHAPTER VI RETAIL BUSINESS IN AItVIN AND DINUBA INTRODUCTION Retail business data for enterprises in the two communities were secured from the records of the California State Board of Equaliza- tion.'9 The board, along with other duties, keeps the records and accounts of the California sales and use tax, which covers virtually all retail sales with the exception of retail foods. Records are kept, not only on taxable sales but on total retail sales of all.enterprises selling taxable it~ems. The Research and Statistics Department of the Board, in cooperation with the Bureau of Agricultural Economics, analyzed the retail sales data for all rural communities in Madera, Kern, and Tulare Counties. They were made in early 1944 and refer ~to the 12-month period beginning October 1942 and ending September 1943. The use of this time period was dictated by the nature of the data available. Additional material is available on business enter- prises from the Dun & Bradstreet Reference Book (January 1942). NUMBER OF ENTERPRISES AND GlOSS VOLUME OF BUSINESS There is a marked difference in the volume of business and the num- ber of business enterprises between the community of small farms and that of large farms. On virtually identical resource bases, as meas- ured by dollar volume of production of agricultural commodities, the Dinuba merchants do approximately 4~ million dollars'. worth of retail trade as against about 2~ million dollars' worth among Arvin merchants. On a population basis the dollar volume is somewhat less, but is nevertheless different to a significant degree. The number of business establishments in Dinuba is more than twice the number in Arvin, showing that the small farm population supports small business to a far greater extent. According to the records of the board of equalization, there were 62 enterprises in Arvin holding a franchise to sell taxable items in the fall of 1943 and 141 in Dinuba, or a ratio of 4 to 9. Dun & Bradstreet listings for January 1942 show even greater divergence with 60 as against 155, or a ratio of less than 4 to 10. Retail trade reported to Arvin for the 12-month period studied was $2,535,000; for Dinuba during the same period it was $4,383,000 `4fig.-~16): This means that Arvin enjoyed $103 of retail trade for every $100 value of agri- cultural products, -while Dinuba had $171 for every $100 value of agricultural product. Relating retail trade to resident population, *:we find $407 sperat per person in Arvin and $592 per person in Dinuba.'° ~Tbese facts are summarized in table 39. t$ For a full discussion of the methods of developing these data, see appendix 0. ~ ~aaIysIs of the retailpotentials in communities with differing size of farm units, based upon actual farm pras~tlces in California's Central Valley, is presented by I. Karl Lee in his study, Economics of Scale of Farm- ing in the Southern San Joaquin Valley, Calif.. The relative intensity of operation, the greater use of labor on small farms, and most particularly the difference in distribution of farm income all make for greater economic prosperity among merchants and townspeople in the rural community serving small farms. 82 PAGENO="0389" 385 8~!ALL BUSINESS AND THE COMMUNITY 83 NUMBER OF BUSINESS GROSS VOLUME OF ENTERPRISES AND RETAIL SALES * NUMBER OF BUSINESS ENTERPRISES ARVIN OINUBA. 141 GROSS VOLUME OF RETAIL SALES ARVIN DINUBA (thousands of dollars) $4,383 SOURCE RECORDS OF THE STATE BOARDOFEQUALIZATION FIGuRE No. 16 * r * I PAGENO="0390" 386 84 SMALL BUSINESS AND THE COMMUNITY TAB1~1l 39.-Comparison of business enterprises and volume of busines8: Arvin and Dinuba Number of retail business enterprises Volume of retail trade Volume of trade per $100 agricultural production Volume of trade per person Arvin 62 $2, 535,000 $103 $407 Dinuba 141 $4,353, 000 $171 $532 Source: Board of Equalization data. The tetail sales were reported by classes, and these have been brought together under nine headings in table 40. This summary was made in part to obscure data which might reveal the nature of any single enterprise and in part to simplify the materials. In each of these classes, with a single exception, the volume of retail trade is greater in Dinuba than in Arvin. The volume of trade per person is greater in 7 of the 9 categories (figs. 17 and 18). Examination of table 40 shows that expenditure for food, for drugs and sundries, for liquor, and for gasoline and automotive supplies is not very different between the two communities. The last of them is the largest single item of expenditure, and on a per capita basis is greater in Arvin than in Dinuba. Those items with much higher retail volume in Dinuba are restaurant-bought food, clothing, and luxury goods, house furnishings and building supplies, and agricultural supplies. The single item in which Arvin has the greater volume of trade is public utilities, professional supplies, and industrial equip- ment. This category in Arvin is made-up almost entirely of the last of these, and a large proportion is expenditures for agricultural equip- ment and cement pipe. Since the data refer to a period of intensive increase in irrigated area, the volume of business is undoubtedly inflated. On the other hand, the. gr1èat divergence in the sale of fertilizers and farm supplies indicates the local Arvin practice of purchasing in carload lots directly from the distributor. While it demonstrates the difference in local trade, it is not as revealing as some of the other items. - . T4t.BLE 40.-Number of businesses and volume of business by major category: Arm and Dinuba, 1943 . Category o( business - . `Arvin . Enter- Amount prises o urns per person Dinuba Enter. Amount prlses ~ per person - Food retailers Eatln?places clotbingandIuiurygoods~.~. Home furnishing and house- hold construction Gasoline, autos, and auto sup- plies Drug stores and sundries Liquor license establishments. Agricultural supplies Miscellaneous1 Total Number 11 4 3 3 19 5 9 2 6 . One thou- sand 4ollars 592 41 110 . . 239 ais 113 2132 7 286 J)oflars 95 7 18 . 38 147 18 37 1 46 Number 17 8 12 25 34 , 8 . 9 19 9 One thou- sand dollars 712 117 493 662 982 139 287 887 104 Dollars 98 18 67 89 . 132 "~`~` 19 ~t ~ 39 YJ~ 121) 14 63 2,535 407 141 4,383 592 `Includes public utilities, professional supplies, and industrial equipment. Source: Board o( Equalization data. PAGENO="0391" 387 SMAT L BUSI~ ESS AND THE COMMUN ITT 85 [S S i11", 0 LU OO Wct F-LU Oz LU w LU < -J. 0 0 z 0 ~ M ~ c&~ ~ ~ I~ S - ____ 3.. .5 1 PAGENO="0392" 388 86 s~w-~r~ BUSINESS AND THE COMMUNITY DISTRIBUTION OF RETAIL SALES AMONG VARiOUS CLASSES OF ENTERPRISE PERCENT ARVIN DINUBA 100 4.4 MISCELLANEOUS 5.0 PACKAGE 8 ON-SALE 9.3 LIQUOR. 6.5 AUTOMOBILES AND 225 AUTOMOTIVE SUPPLIES 36.4 60 11.2 CLOTNIN$ ~JEWELRY 4.4 AGRICULTURAL 20.8 SUPPLIES AND EQUIPMENT #~&~&SVLD SUPPLIES AND -, .; ... 8UIt..OING EQUiPMENT 15.1 20 __________ FOODS -. 24.0 SOURCE: GROSS VOLUME OF SALES REPORTED TO CALIFORNIA STATE BOARD OF EQUALIZATION FLOURE No. 18 PAGENO="0393" 389 SMALL BUSINESS AND THE COMMUNITY 87 Arvin merchants sell fewer clothing and household goods than Dinuba merch~nth; a difference of nearly 1 to 4 in the former and over 1 to 2 in the latter category. These are the items that are purchased by stable people who are improving their personal condition and their si~rroundings: they are items in the standard of living, and are the economic or business reflection of the difference in the standard of living as previously shown. - There is little difference in the actual dollar-volume sale of liquor vendors. However, liquor sales make up a far greater proportion of total retail trade in Arvin than they do in Dinuba (over 9 percent against less than 6 percent). Fuller knowledge of the situation suggests even greater divergence. State law in California provides for two classes of liq~ior license, a permit for "off sale" only, and a permit for "on sale." The former category sells package liquor only, while the latter provides for sale of drinks for consumption on the premises. The law further provides that all stores with the second type permit be prepared to sell food, and therefore the sales at such places include some restaurant sales. Field observation strongly suggests that the proportion of food sales is far greater in Dinuba than in Arvin. There are no off-sale enterprises in Dinuba, but one in Arvin. To be sure, this is not a budget of expenditures for the families, but of the local trade-a measure of the opportunity for local com- munity enterprise. A rough measure of the degree to which pur- chases were made in the nearby city and in the local community was obtained by means of the field schedule. Respondents were asked to indicate where they made purchases for certain categories of goods and services. Groceries and gasoline were predominantly purchased in the local community. Ninety-five percent of the responses from Arvin people referred to local purchases of groceries and 91 percent to local purchases of gasoline. In Dinuba, comparable figures were 96 and 92 percent. Clothing (men's and women's combined) showed a greatly divergent pattern, with Arvin people indicating in 31 percent of their responses that they bought their clothes in Arvin, and Dinubans indicating that they bought their clothes in Dinuba 68 per-. cent of the time. If we can use the proportion of responses as a rough measure of the proportion of actual expenditures, the total Arvin expenditure for clothing and related goods would still be but half that in Dinuba This suggests-although the data cannot prove it-that the actual volume of purchases by Arvin residents of those items which reflect standards and conditions of living are far less than in Dinuba. This is indicated despite the fact that a large number of families in Dinuba are in the older ~tge groups where their needs are not so great and their wants more nearly fulfilled. This conclusion is in harmony with other facts about the level of living of the people in the two towns. From the standpoint of opportunity created, and of the local com- munity as a social environment, the difference is striking. The total volume of business, partly because of the difference in numbers sup- ported and partly because of the difference in living conditions, is clearly greater in Dinuba than in Arvin. If we eliminate those items which are largely concerned with production itself, namely, agricul- tural supplies, industrial and transportation supplies, and automotive equipment (heavily influenced by sale of gasoline for power equip- ment), and leaving out liquor sales which are of a doubtful social value, we have a ratio of nearly 2 to 1 in the purchase of commodities. 95-2530-68-26 PAGENO="0394" 390 88 SMALL BUSINESS AND THE C0~fMUNITY SIZE AND TYPE OF BUSINESS ENTERPRISES With far fewer stores, Arvm merchants have a larger avu agi volume of busmess-$40,000 ~ 01th of business in Arvm against $31,000 business in Dinuba Table 41 shows the distribution of rctail ente,~ prises by size categories of total sales The distiibutions do not ~ ary greatly, although the propol tion of units undei $10,000 total saks is greater in Dinuba, but above that figure is gi eatcr in Arvin If, however, we anal~ ze entei prises by estimated pecuniary strength, according to the Dun & Bradstreet ratings, we find a revcrsal of this situation Seventy percent of the Aivin units have a rating of less than $2,000, against 45 percent in Dinuba (table 42) Though thcre are certain differences in the selection of entei pi ises in the two sources of data, ovu 90 percent of the cases refer to the same enterprises This relationship is shown in figurc 19 The bar charts show the high proportion of business enterprises in Arvin which have high gross ca~h sales and the low proportion which ha~ e high capital investments In Dmuba, on the other hand, the coirespond~nce between sales and capital investments is quite close One mfeience from this chart is that the retui n to tht, entrepreneur on the basis of investment in the enterprise is higher in Arvin than in Dmuba From the social point of view, however, an even more important fact emerges from this rela- tionship The Aivm merchant has a low financial investment in the community, winch results in a generally low interest m the affairs and the welfare of the community This is the statistical coiroboration of the statement made by one Arvin merchant who said that the business~ man in Aivin does not invest in his entcipnse for permanence, but endeavors to make a "killing" and get out It is also iefiected in the generally poorer quality of structures in the business district Another key to the nature of the business enterprise is derived from the kinds that are found, and their relative numbers These data are presented in table 40, and can be summarized here Enter- prises selling food and automobile supplies are the two major kinds in Arvin and together comprise about half of all retail stores These categories are important in Dmuba, but home-furnishing stores are second to automotive enterprises, and agricultural suppliers third Only five units are engaged in selling c1othin~, household goods, and building materials (9 percent) in Arvin, against 35 such units (25 percent) in Dmuba On the other hand, the number of liquor sellerc is the same in both communities, but percentwise make up a much greater proportion in Arvm than in Dinuba As already indicated, the liquor sales places apparently do a larger totol proportion of their business in the sale of liquor and alcoholic drinks, and less in the sale of food than these stores do in Dmuba PAGENO="0395" 391 SMALL BUSINESS AND THE C0MMUNJTT 89 TABLE 41.-Size of business enterprises by volume of retail sales: Arsrin and Direuba Size class by volume of annual retail sales ~ Arvin - - Dtnuba ~ Number Percent Nufliber Percent Under $1,000 1 $1,000 to $l0,OCO $10,000 to $50,000 $50,000 to $i00,000~ sioo,000 to $200,000 Over $200,000 Total 5 15 30 5 5 1 10 24 48 8 - 8 2 21 43 54 11 9 3 15 31) 39 8 6 2 62 100 141 100 `Includes 2 Arvin and 6 Dinuba units without any sales but with records with the Board of Equalization. Source: Board of Equalization data. TABLE 42.-Size of business enterprises by estimated pecuniary strength: Arvn& and Dinuba . Size class by estimated pecuniary strength ~ Arvin - Dinuba - Number Percent Number Percent Under$500 $SOOto$2,000 $2,000to$5,000. $5,000to$20,000~~ $20,000 to $125,000 Over$125,000 Total1 16 16 ~ 5 3 ~ 35 35 11 12 7 0 - 17 . 35 ~ 20 12 ~5 15 30 ~ 17 10 4 46 100 117 100 I Ratings not made for 14 Arvin and 38 Dlnuba enterprIses. 5. Source: Dun & Bradstreet Reference Book, California, lanuary 1942. Estimates of pecuniary strength are a form of credit evaluation which reflects total Investment. The data bear the reservations and quali- fications regularly made by the company Issuing them. SUMMARY S - The business-enterprise data from the Board of Equalization show the difference in the kind of establishment locally supported and the volume and kind of expenditures made by the local people of each community. Dinuba has more enterprises, and they do a far greater total volume of business and a far greater per capita volume of business. They have a higher financial investment in the community (and a better credit-rating record) though on the average they do a smaller volume of business. Such a greater investment means a firmer interest on the part of the entrepreneur in the local community, and such interest is clearly evident in the analysis of other aspects of community life. The kinds of enterprises supported include many more of those which serve to improve family living. The total volume of expenditure and the volume per person 15 appreciably smaller in Arvin than in Dinuba. The difference is partly made up by more purchases in the nearby urban centers, however. The evidence indicates that the A,rvin purchases are to a far greater extent for such items of doubtful social value as liquor, and less for those items which make for better home living, such as household furnishings. Tile business enterprise data thus corroborate the evi- dence obtained from the schedule on level of living. It appears that Arvin purchasing power, buying habits, and tastes are not such as would support many business establishments serving the more basic needs for modern home living. PAGENO="0396" 90 392 8MALL BUSINESS AND THE COMMUNITY * HIGH - r $ 5,000) LOver $5,000) ~DIVERGENCE IN THE DISTRIBUTION OF CAPITAL ~INVESTMENT5 AND GROSS VOLUME OF BUSINESS IN ARVIN COMPARED TO DINUBA VOLUME OF BUSiNESS LOW (Under $10,000) HIGH (Over $10,000) -~ Percent of Businesses 6 40 20 0 DIN UBA CAPITAL INVESTMENT* DINUB Percent of Businesses 6O~ 4G 20 _ LL ~ D1NUBA DINUBA *Th. measure of copilot investment is th* Dun and Bradstreet (Reference Book, 1942) rating of pecuniary strength ` and is subject to the limitations of thIs dato. FIGURE No. 19 PAGENO="0397" 393 CHAPTER VII THE CAUSES FOR THE SOCIAL DIFFERENTIATION TEE HYPOTHESIS The comparative analysis of Arvin and Dinuba, communities of large and small farms, was predicated under the following hypothesis: Within the framework of American tradition, what effect does scale of farm operations have upon the character of the rural community? Essentially the technique has been to establish the area of similarity and difference between the two towns, assuming that the qualitative differences in social life rest upon fundamental causes in the economy of the communities. Had there been no other differences in the economy, history, or cultural origin of the people of the two towns, * then we could simply assert that social differences were a function of scale of operations. Since, however, other possible explanatory causes for the social differentiation between Arvin and Dinuba exist, it is necessary to examine alternative possibilities with care to deter~ mine the area of influence that each exerts over the community. Recognition that other factors may be ~contributory causes does not relieve us from the need to evaluate importance of the various causa~ tive forces. This can be done first by determining the degree to which other factors are differentiated between Arvin and Dinuba, second by calling forth other relevant data from neighboring comrn munities, and finally by setting up an explanatory hypothesis which will account for all known difference without either calling upon mystic and undefined causes or doing violence to accepted under~ standing of human social behavior. - ESSEN'lIAL CULTIJRAL SIMILARITIES The differences between Arvin and Dinuba are differences within a broader framework of similarities. The necessary emphasis upon divergent social characteristics should not obscure this fundamental fact. Both communities belong to a common cultural heritage, so that, strictly speaking, the conclusions can have validity only in terms of that common tradition. They are, as a matter. of fact, not so much differences' in culture as they are differences in quality. The social conditions which have particularly attracted our attention are between good living conditions and bad, relative degrees of social equality, relative amounts of social homogeneity and participation, relative amounts of social services and of economic opportunity. These are differences on a scale of values, and acceptance of their significance implicitly recognizes that physical comfort, material pos~ sessions, social democracy, and economic opportunities are all desirablo qualities in a community. Nobody imbued with American culture can cavil with such a scale of values. *9I PAGENO="0398" 394 92 SMALL BUSINESS AND THE COMMUNITY The important thing here is that the two communities, therefore, do not have divergent value systems and social customs, but; rather that they meet their own values with different degrees of success. If we may be allowed an analogy, the differences between Arvin and Dinuba are like those between two individuals with different degrees of health and vitality rather than like the differences between two individuals of divergent racial characteristics. Essentially, Arvin and Dinuba are part of a common system of agricultural production, best understood as industrialized. Both also partake of a single culture pattern which, in turn, can best be described as urbanized. By industrialized farming is meant the system of producing crops mtensively, solely for the cash market, with a high degree of farm specialization, utilizing great quantities of capita! and requiring a large input of labor hired on an impersonal basis. Large-scale opera- tions tend to intensify these qualities, but the pattern is not dependent upon large units. It seems probable, however, that the existence of large-scale-particularly of corporate-operations within the broader area and with which the small farmer must compete is an essential element in developing the industrial pattern. The urbanized culture pattern that results clearly reflects the social behavior of the cities and follows from the industrial nature of farm production. Its primary characteristic is the general acceptance of pecuniary standards of value and a social status system based upon money wealth. Such a set of values inevitably leads to a more or less closed class system based upon economic status, and expressed to the individual largrly in terms of occupation. These features are corn mon to Arvin and Dinuba, though the decrree of social segregation and the social distance between occupational classes are markedly different. Urbanized culture has further effects. As a result of class stratifica- tion, and because of the complexity of society, there is a tendency toward developi!lg social action in terms of special interests rather than on a community-wide basis. For that reason associations of like-minded persons tend to play a very important part in the func- tioning of the community. While specific differences have been noted, here again we get a common fundamental pattern. This aspect of urban culture is reflected in the specialization of the activities and interests of the individual-the tendency to be concerned with a single and very partial role in the total functioning of the economy. The farmer has traditiohally held out against t~is aspect of the industrialization of the world. The farmer as jack-of-all-trades is the accepted American picture. Yet in the economy of agricultural production in the irrigated areas of California, the farm operator, like his city-dwelling cousin, has become specialized in his operations. The 40-acre farmer as well as the operator of 4,000 acres will show such specialization, though obviously there will remain considerable differ- ence in degree. it is against a background of such common cultural characteristics that the divergence between Arvin and Dinuba must be examined. RECAPITULATION OF SOCIAL DIFFERENCES Within the framework of cultural similarity, the differences between Arvin and Dinuba take a clearer meaning. The picture in Arvin may be contrasted with the Dinuba situation in the following way: PAGENO="0399" 395 SMALL BUSLNESS AND THE COMMUNITY 93 1 The greater number of persons dependent upon wages rather than upon entrepreneureal profit. 2. The lower general living conditions as measured by a level-of.. living scale and the subjective evaluation of households 3. The lower degree of stability of population. 4 The poorer physical appearance and condition of houses, streets, and public buildings 5 Tue relative poverty of social services performed by the com- munity 6 The poorer schools, parks, and facilities offered youth 7 The relative dearth of social organizations serving the indi~ iduals in the cornmun.ity and the community as a whole 8. The fewer religious institutions. 9. The lesser degree of community loyalty expressed. 10 The apparently fewer decisions on community affairs made by the local community and the apparently smaller proportion of the population parhcipating in such decisions 11 The apparently greater degree of social segregation and greater social distance between the several groups in the community (This and the preceding items have been labeled apparent because neither is amenable to statistical evaluation, though considerable evidence is at hand to indicate their existence.) 12. The lesser amount of retail trade, the fewer business establish- ments, and the low volume of trade in those classes of merchandise most generally accorded a high place in social values This constitutes a rather imposing list of social and economic factors, reflecting the quality of the society in the tsso communities, in which the one fulfills rather well our normal e~pectattons of social life and the other consistently fulfills them less satisfactorily The number of items and the consistency in their implications can hardly rest on purely fortuitous grounds POSSIBLE CAUSATIVE DIFFERENTIALS However, as already indicated, other differences between Arvin and Dmnuba than the scale of farm operations might be invoked as the cause for the qualitati~e differential between Arvin and Dinuba While many of these differences are functionally interrelated, a listing of them under major headings will serve to clarify their importance. Obviously they are not all of like importance-some clearly are secondary reflections of more fundamental factors while others v~ ould appear to throw the advantage in the wrong direction Differences in phy sical en'~ ironment, cultural and demographic features, com- munity history, agricultural production, and farm organization are listed Arvin Dtnuba I Environmeital factors 1. Lan4~ (a) Area served (b~ I and In farms (e) intensive uses ~ Land of soil classes ito 3 2. Water (a) Source (b) Ccet 64,000 acres 43.000 acres. 4'~,000 acres... 34,000 acres, 22,000 acre&........... 24,000 acres. 59,000 acres 31.000 acres. Pumped Surface supple usented with pumpe. $6.92 per acre ~ per acre. PAGENO="0400" L Environmental factors-Continued 3. Other resources: (a) Minerals - (b) Recreation II. Cultural and demographic factors: I. Population of community 2. Cultural origins: (a) Native American... (b) Native Californian (c) Dust Bowl migrants (d) Median length of residence. 3. Educational attainment (average for family heads). 4. EconomIc status: (a) Median Income bracket (b) Wage labor as proportion of family beads.. UI. Historic factors: 1. Age of community (as of 1944) 2. Decade of major growth IV. Agricultural production factors: 1. Value of production (1940) 2. Type of farming: (a) Proportion Irrigated land in orchard and vineyard. (b) Proportion In row crops (c) Proportion In cotton (d) Proportion of farms In fruit (e) Proportion of farms In Sold crops V. Farm organization factors: 1. Tenure: (a) Tenancy (b) Absentee ownership. 2. Labor requirements: (a) Man-hours of labor required (b) Requirement for hired labor (c) Minimum labor requirement as percent of maximum. (d) Maximum outside seasonal workers re. quired. 3. SIze of farm operations: (a) Number of farms over 160 acres (b) Acreage in farms over 160 acres_ (c) Average farm size (d) Average value of production ENVIRONMENTAL FACTORS Factors in the environment are more impressive for their similarities than their divergences. The relationship of the community to neigh- boring towns and cities and to their markets, the availability of minerals, and the potential productivity of the land are all closely similar but somewhat favorable to Arvin. The only factor of the environment which is markedly divergent is the water resources. The question of environment, therefore, devolves upon the influence of this factor upon community life. This in turn must be separated into the influence of water resources on the size of farms on one hand and directly upon community organization on the other. The discussion on relative cost of water showed that in Arvin the investment per farm was extremely high and because of depth of pumping, reasonably large acreages could be handled by single wells. 396 .94 SMALL BUSINESS AND TIlE COMMtFNITY Arvin D'lnuba Oil leases. general~.. Little or none 6,000 - 88 percent - 4 percent 63 percent Less than 5 years 7.6 years $1,751 to $2,250 81 percent 31 years 1930-40 - None. Little or none. 7,400. 81 percent. 19 percent. 22 percent. 15 to 20 years. 8.4 years. $1,751 to $2,250. 49 percent. 56 years. 1910-20. $2,438 000 $2,540,000. 36 percent 65 percent. 41 percent. - 29 percent 35 percent 40 percent 11 percent.. 7 percent. 79 percent. 17 percent. 42 percent... 14 percent. 36 percent 16 percent. 2.9 millIon 8.5 million. 2.3 million 1.4 mIllion. 25 percent 20 percent. 1,175 1,595. 44 percent 91 percent. - 497 acres $18,000 6 percent. 25 percent. 57 acres. $3,400. Under these five headings are included 14 separate items, some with great differences, such as farm size and age of community; some with large differences, such as tenancy and major crops; some with prac- tically no difference, such as intensive land use and value of produc- tion; and a few where the advantage would appear to lie with Arvin, such as available good land, other resources, and seasonality of em- ployment. We shall discuss them seriatim. PAGENO="0401" 397 SMALL BUSINESS AND THE COMMUNITY 95 In Dinuba, on the other hand, original cost was lower and during initial development no pump was required, though for full use of the land, investment had eventually to be made in pumps. On the other band, given the size of farms as they exist in each community, the actual per-acre cost of water is not greatly different. As a matter of fact, the excess of cost of water in Arvin is less than the amount re- ceived by landowners for oil leases, so that any economic hardship directly resulting from water costs would be offset by gains from po- tential oil resources. Furthermore, both the costs an~ the gains are generally reflected in land values, and it is therefore doubtful if either has a long-run effect upon the returns to the farm operator. The situation with respect to water has, however, had an effect upon size of farms in the Arvin area. The requirement for deep and expensive wells with large water flow has made it necessary to irri- gate fairly large tracts with each pump-about 200 acres for efficient operation. Many farms in the Arvin area get water from wells owned either cooperatively or corporately, so that it is possible, even with this water situation, to operate small units efficiently; furthermore, most of the land is in units which are 1ar~er than the water require- rnents of single wells, and therefore farm size is not clearly dependent upon the need for deep wells. Nevertheless, this high initial invest-. ment has inhibited the development of small units and contrariwise been influential in the creation of larger ones. Furthermore, the depth to groundwater held up the intensive use of Arvin lands till efficient pumping plants were developed by engineers, so that the water situation was responsible for the late growth of Arvin. Sum-. marizing, the water supply has had little or no effect upon the eco- nomic welfare of operating farmers that could create social poverty, but it has had some influence upon the size of farm units and upon the period of development of Arvin lands. The availability of surface water in the Dinuba thstrict and the reiatively simple engineering and low investment in water resources made it possible to develop that area early. Establishment of an irrigation district under the original Wri'ht Act made it advantageous to subdivide and sell the land. Thus t~Iie Dinuba water supply was a responsible agent in establishing farm size in that community. CULTURAL AND DEMOOR~PRIC FACTORS Several factors in the social background of the people who dwell in Arvin and Dinuba require careful examination: size of population, nativity of population, educational attainments, and economic status. Dinuba is roughly 20 percent larger in population than Arvin. Since the resource base is comparable, this divergence must be attri- buted.in part to intensity of land use and in part to size of farm opera- tions and degree of mechanization. Since approximately identical amounts of outside labor are brought into the community, migration of workers can hardly be held responsible. It would be difficult to explain differences in average level of living by the existence of fewer families, when these fewer families enjoy the same amount of natural resources. Since, however, the number of people are partially re- sponsible for the existence of social agencies, such differences might be attributable to community size. While the population differences between the two communities may be contributing causes to the social PAGENO="0402" 398 96 SMALL BUSINESS AND THE COMMUNITY differences, the towns are too nearly the same to account entirely for the difference of 2 to 1 or more in business establishments, clubs, churches, and community facilities The cultural background differs as follows: More Ariin residents are native American, but far less er are nati% e Californian , most Ai ~ in residents come from the Dust Bowl states while the people of Dinuba represent a wide and even scatter of state origins; and finally the duration of residence of Arvm and Dmuba persons is greatly at ~ an- ance. The differences are most difficult to assess It would be hazaidous to suggest th'it the people fiom any one area have greater cultural or physical capability for creating a soci'd en~ ironment more in keeping with American tradition than people from some other section of the Nation Local opmion is frequently derogatory of people from the Dust Bowl states, using the epithet "Okie" in referring to them and according them poor social standing But upon closer questioning and examination, these references and social evaluations appear to be not actually directed at their place of origin but at their eco- nomic status and level of living Cultural differences are recognized, of course Religious behavior and beliefs stand out among such differences, but also manner of dress, colloquial expressions, and conceptions of morality show regional differentiation in America But the differences bet~ een Arvin and Dinuba were not differences m culture but differences in the successful fuffiliment of a common cultural tradition Three fundamental reasons therefore appear ~ hich make it impossible to accoi d direct causatr'~ e force to place of oi igin (keeping in mmd am ays that we are not dealing with economic cir- ~cumstances) First, the difficulty of assessing cultural differences to separate states or regions in the United States It would be impossible to assert that the people in the Texas-Arkansas-Oklahoma area either have social values which are universally poorer than those of the re- mainder of the United States or that they are socially or physically incapable of achieving such values Second, the behavior patterns that are differentiable between people from that region-either differ- ences in culture or in economic status-are rapidly sloughed and efforts are made to conform to dominant patterns Older residents generally recognize that the faults found among "Okies" in their personal habits were changed "as soon as they learned better" The religious beliefs brought by immigrants from the Dust Bowl is predominantly fundamentalist, and is a cultural characteristic which sets them off from older California residents Yet a study made of this aspect of migrant workers' behavior shows that they readily take on the religious expressions of the older residents when resettling in California communities 21 There is evidence that the changes both in personal habits and religion follow from changes in economic con- ditions as much as or more than from cultural assimilation and education Third, while Arvm has a higher proportion of Dust Bowl migrants than Dinuba (66 percent as against 30), this is merely a reflection of the different occupation structures in the two towns This can be shown, for laborers are predominantly from that area (80 percent in Arvin and 60 percent in Dinuba) whereas they make up relatively unimportant proportions of the independently employed category (40 ~Wsiter R. Ooldschrnldt, Class Denonilnationalism ln.California Rural Churches, op. cit. PAGENO="0403" 399 SMALL BUSINESS ANDTBE coM~IuNI'rr 97 and 24 percent from Arvin and Dinuba, respectively). Thus the preponderance of persons from the Dust Bowl states in Arvin results from the fact of large farms and the labor requirements. Further- more, the group who are in a position of leadership in the community and who therefore can set the standards of its activities are not from this region. Dinuba family heads have had nearly 1 year of schooling more than those of Arvin. This difference again is largely a result of the fact that farm labor has lower educational attainments than the remainder of the population. We find, for instance, that the average education of farm laborers in Arvin is 6.5 and of Dinuba 6.8 years, while that of farmers and white-collar workers is 9.5 and 9.8 years for Arvin and Dinub°, respectively. It can therefore be said that the difference in level of education of eight-tenths of a year is mostly the result of the difference in economic composition of the population. The differ- ence in level attained, among that group which offers leadership in community affairs is three-tenths of a year. Modal education for all groups is 8 years with a second and lower peak at 12 years. That educational attainment (as an index of personal capacity) could affect the quality of community life is an acceptable hypothesis, but the significance of this feature is diminished by the low observed differences not directly associated with economic status. Arvin residents had but a short time in the community at the time of study, as compared with Dinuba residents. This in part is a function of the age of the two towns. However, a heavy turn-over in population is indicated by the fact that fewer than half of Arvin's residents had lived there in 1940 though by that time the community had achieved its present size. That this turn-over is largely but not entirely a function of economic status can be shown by the device used for educational attainment and state of origin. If the farm labor group is singled out, 31 percent of the Arvin group and 27 percent of the Dinuba group came during the years 1943 and 1944 (prior to field work). The proportions are 61 percent and 47 percent fpr Arvin and Dinuba, respectively, when we consider all those who came in 1940 or later. Among farmers and white-collar workers, 37 percent and 15 percent, respectively, came in 1940 or later. There is no doubt that community loyalty, positions of leadership, and the creation of social institutions are affected by length of resi- dence, and that the recency of Arvin's development (which will be* discussed below) and the turn-over in population have had an effect upon the social character of the communities. It is important to realize, however, that such turn-over is in part a function of economic and social conditions. Repeated statements by persons in all walks of life that they did not plan to remain in Arvin because of the inade- quate facilities offer the best substantiation of this effect. Thus a vicious cycle is created which finds its origin in the fact that but a small portion of the conimunity has a vested interest in it sufficient to create a sense of stability. The foregoing has shown that each of the demographic differences is largely, but not wholly, a function of the occupational structure of the two communities. When residence, origin, and education are analyzed by occupition groups, half or more of the differential dis-' appears. Furthermore, the influence of the economic conditions upon PAGENO="0404" 400 98 SMALL BUSINESS AND THE COMMUNITY these ftctors goes beyond the simple change in percentage in some of these effects. These differences, whatever their origin, are certainly causes contributory to the relative social conditions in the two towns. In Arvin 8 out of 10 families depend upon wages for their livelihood. In Dinuba 5 out of 10 are wage earners. These workers, especially those who are agricultural workers, have little economic or social investment in the community. Furthermore, they do not supply the leadership for social activities, which almost without exception comes from farmers and white-collar workers. The fact, therefore, that in one community there are approximately 1,000 families which make up the category from which such leadership normally arises, while in the other oniy about 250 families are in that position, is extremely important. It influences other demographic factors as well as the development of social institutions. This differential is, in turn, very largely a direct result of farm size-a simple arithmetical certainty. For the number of farmers that can be supported by a given resource base is a direct function of the amount of resources each one controls. The influence of size of farm on size of the merchant and other white- - collar categories is less direct, but there is good reason to believe that such influence exists, as will be developed below. HISTORIC FACTOIt5 There are two pertinent facts about the history of the two com- munities which have an influence upon the character of their social institutions. These are: (a) The relative age of the two towns, and (b) the diflerent epochs or periods in which they came into being. ~.,~Each deserves careful analysis. It is difficult to say what point in time represents the beginning of a community. In Dinuba the year 1888 is generally accepted. It was in this year that the Alta Irrigation District was formed, that the post office was created, and the town officially inaugurated. Irriga- tion development had been coming in under a private corporation for * 0 years. The following year a school was established at Dinuba, though schools had existed in the area nearly 10 years previously. A comparable date in Arvin is also hard to establish. Schools existed within the area in 1902, but none was created in Arvin proper till 1914. The earliest continuous settlement in this area based upon irrigation took place in 1910. The date should, therefore, be set between 1910 and 1914. Nineteen hundred thirteen, the year prior to the establishment of the Arvin school, is most comparable to that of 1888 for Dinuba and places the two towns just 25 years apart in point of origin. The rate of growth in the two towns was nearly identical, though somewhat faster in Arvin than Dinuba, and the absolute figures are nearly the same. The Arvin figures are somewhat inflated, since one school was included which gets half or more of its pupils from outside the area of the community as delineated, while school lines and com- munity lines in Dinuba are in close agreement. This accounts for the fact that the 1942 Arvin school attendance figure appears to be * . greater than Dinuba's on this graph (fig. 20), while schedule data showed Dinuba's population to be about 20 percent greater in 1944. This inflation is probably about 20 percent, but the effect of this on the rate and timing of the growth of these towns is not significant. PAGENO="0405" GROWTH OF ANNUAL AVERAGE DAILY ATTENDANCE IN ELEMENTARY SCHOOLS OF ARVIN AND DINUBA Showing dote of selected civic improvements Improvements: Dinubo -plaIn ~yin - underscored DINUBA DATES ARVIN DATES A.D.A. SOURCE. RECORDS IN THE OFFICE OF THE COUNTY SUPERINTENDENT OF SCHOOLS OF KERN AND TULARE COUNTIES FIGURE No. 20 PAGENO="0406" 402 100 SMALL BUSINESS AND THE COMMUNITY Furthermore, the community in which these outside students fall offers fewer economic and social services than Arvin Growth curves of the averacre daily attendance of the schools located in the towns of Arvin an3 Dinuba (leaving out schools in rural areas) show the same pattern as the curves presented here~ TABLE 43.-Date of civic developments in Arvin and Dinuba Development Approximate date of Initiation . Ago of commu- nity at Initia- tion 1 Arvin Dinuba `Age differ- ence' Arvln Dinuba Community ball About 1938 Before 19O0......~ 25 i2 13. First newspaper do 1896 25 10 15. Cltypark... I944~ 1898 31 iO 21. High school 1944 ` 1S99 31 11 20. Second newspaper 1902 14 Over 17. Water system as public utility 1938 1902 25 14 11. First bank 1944~ 1902 31 14 17. Incorporation 1906 18 Over 13. Second bank 1910 22 Over 9. First paving 1915 27 Over4. First sewer 1940 1915 27 27 0. I Based uponorigin of Arvin in 1913 and Dinuha in 1888. - `Number of years Arvtn was older than.Dinuba at time of development In each community.. $ These were not accomplished facts in 1944 but had been initiated. County published notices for pur- chase of 10-acre park site in 1944; acquired school lands in 1941 but had not started building in 1944. Bank franchise issued in 1944 to Bank of America. The effect of age of community per se-as distinct from the effect of the epoch of growth-can be eliminated if we examine the time at -. which facilities were developed with respect to the growth of the town. In table 43 are the approximate dates of these basic developments in Dinuba, the dates of comparable developments in Arvin, and the calculation of the age of the community at the time of each develop- inent. Five of the items cited for Dinuba have not been developed in Arvin at all, though all took place in Dinuba prior to 1920. Three others-park, bank, and high school-had not actually been brought to fruition at the time of field study though action had been initiated in each. Had these all been developed during 1944, they still would not have had a growth record comparable to that of Dinuba. In most of those items which Arvin has acquired, there were 10 or more years' difference in age, and only in a single instance did Arvin acquire im- provements as soon as Dinuba, and in no instance sooner. Figure 20 shows the time at which specific developments took place in relation to population growth, as shown by school attendance, and thereby gives graphic representation of the data discussed above. This tabulation and graph shows that according to the growth of Dinuba there has been ample time for the development of funda- mental physical improvements and social services which have not come about and that virtually every feature which Arvin has was obtained at a later stage in growth than comparable ones in Dinuba. The second aspect of this historical difference is the differing epochs or periods during which the community came into being as a corn- munity. This can be rephrased as follows: What difference in the character of the years preceding the First World War might create a community of a kind which could not come into being before the Second World War? On theor~tica1 grounds it would be assumed that PAGENO="0407" 403 SMALL BUSINESS AND THE COMMUNITY 101 the years of the 1920's and 1930's would be years in which physical development would take place more rapidly than they had earlier, while the social institutions would develop less rapidly. Advanced technology would lead us to expect the former, while the uuive~al use of the automobile and the resulting greater mobility of rural people would make us expect the latter. Arvin, however, is behind on both counts. It would appear to be the case that communities developing in the 1920's and 1930's would be less likely to incorporate and would be less likely to have two comp~ting banks and newspapers. They would be about equally likely to develop fine schools and good physical sur- roundings and a fairly rich social life. In order to determine the in- fluence of this factor upon the condition of the community, it is neces- sary to examine briefly other towns in the area which are more nearly contemporaneous with Arvin. The towns of Delano, `W asco, and Shafter lie about as far from Bakersfield as Arvin but in the opposite direction. Wasco was colo- nized in 1907 and Shafter a few years later, while Delano is somewhat older. These three towns have grown during the same period and at, about the same rate that Arvin has; and yet, as social environments, they more nearly approach Dinuba than Arvin. In figure 21 the growth in average daily attendance in Wasco schools is plotted against that of Arvin but in this case without a time differential. It is seen that the two communities have grown at virtually the same speed and within 5 years of one another. Comparable figures for Shafter are not at hand, but its beginnings are later than Wasco, so the coinci- dence with Arvin would be still sharper. Data for the early 1920's with respect to agricultural production show that these three towns had a similar agricultural base during the early years of their existence. The following chart (fig. 22) shows the estimated carlot shipments of fruit, grapes, and vegetables from each of the major small communi- ties in Kern County, based upon the records of the Agricultural Com- missioner. This chart shows a remarkably parallel growth in fruit and vegetable shipments in the four communities. The exceptionally high shipments in Arvin in the last 2 years recorded, and of Shafter in the late 1930's, are partly the result of heavy potato shipments, which bulk large relative to value as compared with fruits and other vegetables. Since this tabulation does not include any data on either cotton or livestock feed or livestock products, the relative importance of these must be assayed. Table 44 presents information which gives us a clue. The acreage and proportion of land in intensive uses is given by four major classes for each of the four communities for the year 1940 based upon the AaTicultural Adjustment Agency data. Com- munity boundaries are less precise for Delano, Shafter, and Wasco than for Arvin, but are substantially correct. Records made con- temporaneously by the agricultural commissioners for the Arvin- Weedpatch-Lamont area in 1931 and 1932 are also presented. The total area covered is about twice as large as the Arvin area used for the 1940 data. The volume of shipment shown in figure 22 reflects the acreage in the first two categories presented in table 44. It is seen that these categories combined form very nearly the same proportion of total intensive acreage in each community, varying from 43.6 percent in PAGENO="0408" 404 102 SMAi4L BUSINESS AND THE COMMUNITY GROWTH OF AVERAGE DAILY ATTENDANCE IN ARVIN COMPARED TO WASCO, CALIFORNIA (ELEMENTARY SCHOOLS) &D.A. 1906 $910 1914 1918 FIGURE No. 21 PAGENO="0409" 405 SMALL BUSINESS AND THE COMMUNITY 103 COMPARISON OF CARLOT SHIPMENTS OF FRUITS AND VEGETABLES (I92i~-I942) BETWEEN ARVIN AND SELECTED KERN COUNTY ~COMMUNITIES 0 1921 `23 `25 `27 `29 `31 `33 `35 `37 `39 `41 YEAR Sourc.~ Records of the Kern County Agricultural Commissioner ]Not~ No. 22 95-253 0 - 68 - 27 PAGENO="0410" T&BLE 44-Intensive land use an Arvin (1931 1932 and 1940) compared with land use in neighboring communities Acreages: Orchards and vineyards Vegetables, melons, and beets Alfalfa Cotton TotaL - Percentages: Orchar'ls and vineyards - Vegetables, melons, and ~ Alfalfa Cotton TotaL 21, 115 23,035 20, 140 25,039 `23, 540 12,711 & Data obtained from records in the cern County office of the Extension Service, based upon a Crop survey compiled by the Agricultural Commissioner in 1931 and 1932. The area includes a wider region than the Arvin community, but this region had no community as large as Arvin at that time, and the whole area has a comparable planting pattern. Absolute figures cannot be compared to present Arvin, but pro- portions are significant. $ Based upon Agricultural Adjustment Agency records. - Delano, Shafter, and Wasco have had high schools for many years (Wasco since 1918), all have had a bank for many years, Shafter and Delano are incorporated, and these communities show physical im- provements that go far beyond anything in Arvin, though in general not so far as Dinuba. Delano, Shafter, and Wasco are intermediate in social position to Arvin and Dinuba, and each has an average farm size that is also intermediate between the two communities studied here. In view of this relative development of Aivin with her sister corn- muthties in Kern County, the similarity of growth on one hand and the difference in social conditions on the other, it is hardly possible to assign to the time of growth a major share of the differences be- tween Arvin and Dinuba. -. `. - The most probable effects of the historic recency of Arvin as com- pared to Dinuba are these: The relative newness is contributory to the fact that a large portion of the population is relatively young, while the old-age brackets are underrepresented. Since Arvin grew 406 104 SMALL BUSINESS AND THE COMMUNITY Shafter to 58.4 percent in Delano, with Arvin in between. In Arvin, in 1931 and 1932, these classes represented still less of the Arvin- W eedpatch-Lamont intensive acreage Therefore, the growth of the total Arvin production is not nearly so sharp as figure 22 indicates. Earlier figures are not available for the other communities, but general knowledge about them suggests that the shift of production from cotton and alfalfa to fruits and vege- tables has not been any greater than that indicated in Arvin There- fore,4he growth curs e may be taken as sho~s mg the general relative position ~ ithin broad limits of the several communities since 1921 On the whole, Arvin history from the standpoint of commodity pro- duction is reasonably like that of sister communities in Kern County, so that historical development can account for little of the difference found between them. Land use Arvin-Weedpatch- Arvin' Delano' Shafter' Lamont & 1931 1932 1940 Wasco' 1940 1940 7,251 1,094 5,014 7,756 1940 7,576 1, 139 5,014 9, lOts 7,875 2,707 3, 284 6,274 13, 581 1,033 2,684 7,741 3,146 9,464 2, 258 8,672 407 5, 569 1,899 4,836 34.3 5.2 23.7 36.8 32.9 4.9 21.8 40.4 39.1 13.4 16.3 31.2 54.3 4.1 10.7 30.9 100.0 13.4 40. 2 9.6 36.8 3.2 43.8. 14.9 381 100.0 100.0 100.0 100.0 100.0 PAGENO="0411" 407 $MALL BUSINESS AND THE COMMUNITY 105 during a period of migration of destitute persons from the Dust Bowl, the period of growth accounts in part for the preponderance of persons from that area. It seems likely that, despite the fact that other communities of like age have developed them, the influence of the automobile inhibited the growth of local social and economic services. At least it has made it possible for a community to function despite their absence. AGRICULTURAL PRODUCTION FACTORS The specific difference between Arvin and Dinuba with respect to farm production is that Dinuba is overwhelmingly a fruit-specifi- cally grape-producing area, while Arvin is dominated by row crops, mostly cotton. Several measures of this difference have been pre- sented. In terms of intensive land use Dinuba has nearly twice the proportion of orchard and vineyard (65 percent as against 36 percent) and only a fourth the proportion of row crops (11 percent as against 41 percent). In terms of value of production, Dinuba fruit is again twice as great as Arviri (69 percent compared to 36 percent), cotton is a third as great (7 percent compared to 20 percent), and all row crops a fifth (8 percent compared to 41 percent). Forage crops and livestock are, roughly, comparable in extent, while grain production is far more important in Arvin than in Dinuba. The financial im- portance of this class is minor, but the area of land use is greatest of any single class in Arvin. Social poverty is frequently associated in American agriculture with cotton. The relation of the two in the South under the techniques and institutiohs which exist there is well established. It is, therefore, reasonable to assume a comparable relationship in California. Closer examination of the total. production pattern sh9ws great differences between cotton cultivation in the South and in the irrigated areas of the West. In the South it is associated with the sharecropper pattern of relationships, with the existence of a separate racial caste, with high degree both of farm specialization and area specialization, with long- term soil depletion, and with relatively low intensity of operations and comparably low yields. Institutionally, cotton production in the South is, therefore, quite different from cotton production in the West, so that it is improper to inter similar social conditions in the two areas from a single economic similarity. Since,, however, impoverished social and economic conditions appear also to be associated with cotton in the West, it is necessary to examine the possibility further. The extent of such association is limited. Many of the communities offering the poorest facilities for social life are in cotton-producing areas. Tipton, Pixley, Buttouwillow, Firebaugh, and Mendota are all examples of cotton éommunities having relatively few business establishments an& social facilities. They are also all associated with large-scale operations, and most of them, like Arvin, have had a relatively short existence. On the other hand, towns like Madera, Wasco, and Shafter offer far greater facilities than Arvin and are Jike.~ wise associated with cotton culture to about the same extent. The question therefore arises: Is the association between inipover~. `ished social milieu and cultivation of cotton a direct one, or does it result from the further association between cotton, on one hand, and, on the other, the existence of an economically destitute and socially PAGENO="0412" 408 106 SMALL BUSINESS AND THE COMMUNITY impoverished labor class and/or the speculative cash production of the enterprise? Formulated this way, the question permits of but one answer-the latter. Yet this raises a real problem, if cotton per se is to be explanatory. The detailed analysis of farm production shows that both communities engage in production for the cash market and, furthermore, that the amount of labor required is higher in the grape-producing area of Dinuba than in the more diversified Arvin community. Requirements for labor are, therefore, not the differ- entiating factor and cannot explain the divergence between Arvin and Dinuba. One other possibility presents itself, namely, that labor attracted to the cotton fields is measurably different from labor working in fruit- producing areas. We have seen that the laborers in Arvin are some- what below those of Dinuba in educational attainments and tF at more of them come from the poorer states. It does not seem improbable that Arvin laborers are, on the average, persons with fewer cultural attainments and fewer advantages of background, though only within a very limited range. It is noteworthy that laboring groups in both communities receive median incomes in the same bracket but that the specific median (estimated) would be slightly lower in Arvin than in Dinuba. The effect of such differences would necessarily be slight. First, because the observable differences are very small. These dif- ferences could be accounted for by the fact that the social environ- ment, as distinct from the character of economic opportunity, repels the workers whose capabilities are higher. Second, because labor in both categories is generally interchangeable; i. e., that farm laborers move from fruit to cotton to potatoes seasonally as a regular thing. Third, because the social milieu of the California community quite clearly is created by the nonf arm labor population-the farmers and white-collar workers. It would, therefore, be impossible to claim that measurable differences in social and economic facilities are the result of fundamental differences in the characteristics of that element of the population which in neither community offers the leadership in creating such facilities. Cultivation of cotton and other "row" crops, especially potatoes, may be partially responsible for the large operations in Arvin. In- sofar as this is the case, the type of production is responsible for the proportions of farmers and farm laborers. flowever, the proportion of row-crop farms in the lower size categories is almost as great as the proportion of fruit operations, and some of the largest units are de- ~voted chiefly to fruit production. Like the water situation, the kind of crops grown is therefore partially responsible for the size of farm pattern in Arvin. FARM ORGANIZATION FACTORS Three aspects of farm organization attract our attention as possible causative factors in determining the differences that exist between Arvin and Dinuba: tenure pattern, labor requirements, and size of farm. operations. Arvin has a high proportion of tenants whereas Dinuba has far fewer. Likewise, the proportion of absentee owners in Arvin-here defined as owners reported living outside the county-is over twice that in Dinuba. In general, it is expected that owner-operators and resident-owners are more concerned with community welfare and PAGENO="0413" 409 SMALL. BUSINESS AND THE COMMUNITY 107 social services than are tenants and absentee owners. While nothing in the present study either corroborates or refutes this, it may generally be accepted as a working hypothesis. It is therefore accepted that in some measure the relative social poverty rests upon tenure pattern. Tuis difference in tenure pattern is partially the result of historic timing and outside social forces. It is also in considerable measure a function of scale of farm operations and social poverty. Table 12 (oh. III) shows that tenancy is more frequent on large farms, over 160 acres, than on small farms. It has also been shown that the general social conditions in Arvin ~have caused some owner-operators and other natural leaders to leave the community. How influential these forces are in creating the tenure pattern of Arvm cannot be assessed, but certainly they are not wholly negligible. The second aspect of farm organization is the labor requirements of operation. This has been touched upon in the discussion of occupa- tion structure. At that point, we saw that occupation structure is a `very important aspect of the difierence between tne two communities. The question therefore arises as to whether differences in labor requirements on farms in the two communities create that differential in occupation structure. The answer is an unqualified no. For the production of commodities in Arvin requires just under 3 million man-hours of labor while the Dinuba production, reaching the same gross value, requires 3~ million man-hours of work. That the labor structure is a function of scale of operations becomes clear when we examine item (b) under this heading in the list appearino' earlier in this chapter. Only a small fraction of Arvin labor is a~sorbed by farm operators while in Dinuba three-fifths of the work can be per.. formed by farm operators. It is generally accepted that seasonality of employment creates poor social conditions. Both Arvin and Dinuba have such an uneven demand for labor that severe hardships can be expected in normal times. Dinuba employment opportunities, because of the intensive devotion to grape production, fluctuate more than those of Arvin. An examination of figure 6 shows that Arvin regular workers can be fully employed locally for 6 months in the year, whereas Dinuba regukr workers can be so employed only 4 months. The labor picture appears to be better in Arvin than in Dinuba. It might be assumed, however, that Dinuba labor tends to he performed by outsiders to a greater extent than Arvin labor does. Under such an assumption the poverty and poor social conditions which surround wage workers would not appear in Dinuba but would merely show up in other towns where these workers are resident. Such a factor would not affect the availability of social institutions and facilities, but merely the level of living, existence of slum conditions, etc. The sharp peak in the labor demand does, in fact, necessitate over a third more outside workers during a single month than ar~ required in Arvin during its busiest month. This is a function of the sharply peaked demand, and therefore nullifies the effect of Dinuba's disadvantage in this respect. Though Dinuba requires more imported manpower during the single peak month of employment, the total amount of imported work required is very nearly the same. (See appendix C.) The proportion of imported labor requirements to the total is less. . PAGENO="0414" 410 108 ~MALL BUSINESS AND THE COMMUNITY Size of farm operations is the third characteristic of farm organiza- tion, and the one that the present study was designed to test. We find that the differences between average size of farm are great-in the neighborhood of 9 to 1 when taken on an acreage basis, 5 to 1 in value of products, and 3 to 1 if adjusted for intensity of operations. Nine- tenths of all farm land is operated in units of 160 acres or more in Arvin as at'ainst one-fourth in Dinuba. Repeated allusions have been made to this factor. We have seen that water resources, historic timing, and type of farming were each to some measure responsible for the large farms in Arvin and the small ones in Dinuba. We have also seen that scale of farming operations bad an effect upon the demography of the population, farm tenancy, and, above all, on the requirements for hired labor iii each area and the occupation structure of the two communities. It is also true that throughout the intensively cultivated areas of the State, those corn- .munities with large-scale farming generally offer fewer economic and social services than those with moderate-sized farms. There remains no question that size of operations is therefore an important factor in establishing the kind of social environments found in Arvin and Dinuba. The place of this factor in the causal forces will be presented in detail in the succeeding section of this chapter. -. AN EXPLANATORY HYPOTHESIS It is now possible to~ formulate a hypothesis of the chain of causa- tive forces which were responsible for the divergence of social con- ditions between the two communities whose fundamental cultural heritage and economic circumstances are similar. In formulating such an hypothesis all the pertinent known facts should be explained and their forces understood in terms of recognizable social process. Naturally such a formulation cannot be complete and final but can approach that only insofar as social processes are presently recognized and understood. * The physical landscape and the geographic position of Arvin and Dinuba are sufficiently similar to produce an agricultural base to ~upport communities equivalent in facilities offered, except that the water supply in Arvin created special circumstances. The necessary depth of the water level and the attendant need for larger capital investments delayed the intensive development of Arvin soils until *adequate pumps were produced, and inhibited somewhat the growth of small farms. The delay in development made the land available to big operators at a time when industrialized fruit production in California was at its inception. Therefore, the water situation was doubly responsible for the fact that Arvin was a large farming com- munity. It should be noted, however, that the water supply did not prevent small farms, and a few such units came into the com- munity early and have been farmed continuously ever since. It is doubtful if the water supply had any other direct effects, though its cost may have created specific hardships in an earlier era. It is probable that other causes were contributory to the development of large-scale operations and the belated development of the area, but such causes are not readily apparent and were not the subject of £pecific analysis. High investment for farm development because of the water situation may also have been a contributory ëause to the PAGENO="0415" 411 s~rALr, BUSINESS AND THE COMMUNITY 109 high tenancy in Arvin, since owners could rent to operators who irrigated several pieces of land from a single well. The scale of operations that developed in Arvin inevitably had one clear and direct effect upon the community: It skewed the occupation structure so that the majority of the population could only subsist by working as wage labor for others. It probably had some effect upon the development of row crops. The relatively late development of Arvin placed it in a period of growing d~mand for vegetables and other row crops as contrasted with fruit. These two forces combined to give Arvm a large proportion of row crops, though fruits were also developed to a considerable extent. The large need for labor, and the period of major growth resulted in the aggregation of a large proportion of destitute white migrant labor with poor social and economic back- ground. There is evidence that the quality of persons attracted by the kinds and conditions of work opportunities is somewhat poorer than was attracted to the situation in Dinuba. The occupation structure of the community, with a great majority of wage workers and very few persons independently employed and the latter generally persons of considerable means, has had a series of direct effects upon the social conditions in the community. These effects are applicable only given the total cultural situation that exists in America and particularly in California agriculture. The large labor population means inevitably large groups with poor economic circumstances, for the conditions of wage work in agriculture have permitted of nothing else. This in turn means poor ho using, low level of living, existence of slum conditions and little money for community improvement. It means that a large portion of the population has little vested interest-economic or social-in the community itself. Such lack of ties, together with the seasonal nature of wage work in agriculture, results in a high turn-over of population (or instability of residence). The laboring population does not take leadership in general civic action and rarely supports organizations that exist, out of a usually well substantiated feeling of ostracism that results from the large differences in economic status. Thus general social facilities do not come into being for lack of leadership and support. This tendency is furthered by their own lack of funds and by their instability as residents in the community. The occupation structure `leaves few who are iii an economic and psychological position of leadership. These few consist largely of people who can afford to engage in the social activities of urban cen- ters and who regularly do so. This mobility tends to drain their social interests away from local activities and renders them a less valuable asset to local community welfare then are less well-to-do farmers, though their value to the broader area of activity may be equally great. This social mobility engendered by their well-being was made pos- sible by the fact that the automobile gave them physical mobility as well, That this mobility was available to theni from the outset made it unnecessary to develop local satisfactions, whereas if they had once been developed they would likely have continued. Thus the period of development of Arvin was a contributory cause to its social poverty. The fact that the large farming community is of necessity made up of large groups of laborers with low incomes on one hand, and a small poup of well-to-do persons on the other tends to impoverish its social institutions of the leadership they require. It also impoverishes PAGENO="0416" 412 110 SMALL BUSINZSS AND T~E COMMUNITY retail trade. For the farm laborer is generally unable to make a `normal complement of purchases for family living because of his poverty, while the farm operator tends to make his purchases, as he does his social contacts, in the city. Thus the merchant group does not grow proportionate to the population, but lags behind it. This again reduces the proportion of independently employed. The lack of economic and social facilities in the community has a continuative effect. The poor conditions tend to repel those very people who are most needed to enrich it. It was pointed out by farrn-~ ers, merchants, and laborers alike that persons did not plan to make Arvin their home because of this vei~y lack of facilities. It is very, probably one cause for the high tenancy ratio in Arvin, since land- owners will often prefer to live elsewhere and live off their rentals. It is possibly a cause for the fact that the average educational attain- ments of farm workers are below those in the same occupations in Dinuba. The occupational structure has some influence upon political life in the community. The failure to develop real local interest in com- munity affairs is a prime factor in this causal relationship. The mutual exclusiveness of the two major strata of society alsoinhibits the development of the community solidarity that would be expected in a more homogeneous group and thus prevents the development of a civic organization. The fact that the group from which natural leadership arises represents but a small minority, while those whose position is relatively insecure forms an overwhelming majority is a further reason for the failure of Arvin to incorporate. The existence of a strong and rich county govermnent contributes to the fact that such political institutions were not developed. The high rate of tenancy and absentee ownership may reduce further the proportion of persons who are willing to assume leadership. No information on participation by tenure, other than the operator- laborer dichotomy, was obtained. ~hile such effect of tenure pattern upon the social organization is not supported by empirical evidence, the reverse effect, that the social environment increases tenancy, does receive some support. The accompanying diagrammatic table presents a visual summary of the preceding discussion. The overconcreteness implied with lines and boxes is unavoidable and the chart should be read in terms of the text and other specific strictures. Foremost of these strictures is the fact that the whole chain of causation and intercausation is valid only within the frame of reference of the culture common to the two communities and the area of industrialized farming. Thus the scale of farm operations only creates the occupational structure found under the assumption that land is individually owned and requires hired labor. Cooperative farming would have a different effect. Again, the effect of occupation structure upon social institutions, retail trade, level of living, and demographic character of the population is ap- plicable only m terms of accepted class patterns of behavior and wage scales general in the area. To be complete, therefore, these cultural forces would have to be recoonized. Intermediate steps and causal mechanisms have frequently %een left out. The second stricture is that all terms indicating qualitative or quantitative comparisons (I ow, few, poverty, etc.) have direct reference to the comparison of Arvin to Dinuba. Specifically, the causal forces relate to the explana~ tion of the differences between those two communities. PAGENO="0417" T4tnr~ 45.-Iflagrammatic presentation of causative forces responsibie for the character of Arvin as contrasted with Thnuba' High tenancy rate t4 ci cc LTI (ft cc til `I 0 I L~w education level of lab~] ~ ci I Yew retail outlets Low education level and large population from backward artus `~YorjneaztIng of this table, and strlctur onjta uaefulneu, se4tezt, pp. 110 and,112. 111gb population turn-over and low community loyalty PAGENO="0418" 414 112 SMALL BUSINESS AND THE COMMUNITY Third, the importance of causal differences varies greatly. Two levels of impox tance are indicated on the chart. Those with sign ui- cance which seems beyond question have been indicated with a solid line. Those which appear likely, but for which no specific evidence exists, and those where the presumed causative.force or the observed phenomenon showed very small differen~es, have been indicated with a broken line. These differences are admittedly evaluative, and rest upon the content of preceding discussions. At the same time not all possible causal nexuses have been slio~n. Finally, the causative analysis of why farms are large in Arvin and reasons for the belated development there were not subjected to specific analysis. Such analysis as was made shoccs that the character of the Arvin watei supply was an important cause for both. It also indicated that other causative forces were ~artial1y responsible for each. Since the analysis of such forces was not made, they were simply lumped together as "other causative factors." -~ -: : CONCLUSIONS . What, then, is the effect of scale of farm operations upon the character of the rural community? This is the question toward which this study of two California communities has been directed. In the course of the analysis it has been shown that the two towns, selected for their divergence in scale of farm operations, were similar in most fundamental economk~ and geographic factors, partirularly richness of potential resources, agricultural production, relationship to other communities, rind the more general techniques and institu- tional patterns of production. At the same time they were found to differ in certain other, presumably fundamental charactetistics, especially the kind of commodities to which the land was devoted, *the age of communities, and the era of major growth. A number of -less important differentials were also found to exist, of which origin of the population and tenancy rates were the most significant. - In the realm of social conditions, the two towns showed great divergence. In a series of measures of community character one com- munity was found to meet the standards normally accepted for comrn * munity life in America far better than the other. The differences were considerable in degree and consistent in direction, so that a causal explanation is immediately invoked. The fact that the community surrounded by large-scale farm opera- tions offered the poorer social environment according to every test made, could not suffice to show that scale of operations was, in fact the crucial causative force. The relative importance of this fact and - other known differences between the two towns had to be evaluated. As a result of such analysis a detailed hypothesis of the causative - forces creating social differences was developed. - Large-scale farm operation is immediately seen to take an important * part in the creation of the con~litions found in Arvin. Its direct -. causative effect is to create a community made up of a few persons of high economic position and a mass of individuals whose economic * status and whose security and stability are low, and who are econ- - omically dependent directly on the few. In the framework of Amer- - jean culture, more particularly that of industriali7ed farming, this - creates immediately a situation where community participation and PAGENO="0419" . 415 SMALL BtJSINESS AND THE COM\IUNITY 113 leadership, economic ~dU-being, and business activities are relatively impo cerished 1 The central position of scale of operations and the resulting occupa- tion structure of the community do not deny other contributory causes The importance of such other forces is difficult to flsse~ That the period of community giowth and the high ttnancy rates have an impoverishing eflect may be accepted Other factois such as the types of commodities produced and the state of o igin of re~i~ dents appear to have some significance Such force that these other causes may have in determining corn- munity conditions does not vitiate the central hypothesis that large- scaic farming does create poorer social conditions in the rural corn- muruty such farming supports It is the po~ition ~ the pre~ent writer, after detailed sifting of the evidence presented in this stud%, that urge- scale farming does, in fact, bear the maior respon~ibtlity for the social differences between Arvin and Dinuba. Several reasons may be summarized as to why sueh a position seems most tenable First of all, the causal mechanism by which large scale farming creates social conditions is clear and understandable in terms of known social relationships and patterns of behavior These were dcc eloped in eat her ~ections of this chapter and need no further discussion here Second, if we carry large scale operatiors to their extreme, w e reach the company town Whatever physical assets may be developed in a company town, there inevitably remains something contrary to normal accepted standards of social life in such a community, with its social hierarchy and dependency ratio ~Vhere company policy does not grant good physical conditions, then the company tow n i~ a miserable community indeed The position of tne large scale farming community lies interniediate between the norm for America and such aberrations on commun ty life It must be remembered that, though Arvin is dominated by the large operation, a small nudeus of w orkmg farmers exists In the light of the statement made about the function of the ~mall farmer at the Farm Bureau Center, it seems highly probable that had this nucleus not e~usted, and the land all held in large farms, some of the existing Arvin institutions would not have de~eloped ~`Phird, similar conclusions were reached by scholars and obser'vei'a of the California scene a generation ago. A "before and after" picture of the city of Modesto, showing the effects upon community life of small scale farming was presented in a pamphlet written in 1920 by Prof R L Adams and W W Bedford for the Anglo and London Paris Bank of San Francisco ~` These authors describe the difference betw een the pie- and post-irrigation development, and while their emphasis is upon the effect of utigatton as such, it is quite clear that size of holdings plays a~ prominent part in the differences they describe In the preirrigation period, the area around Modesto was described, in the Adams-Bedford book, as- an extensive strip of country des oted solely to grain growing and presents a rather monotonous succession of treeless and s ineless fields Isolated groups of farm buildings (are found which) are not especially ins sting or homelike I he holdings of necessity are large and social intercour~.e is some- ~ R L Adamq and W W Bedford The Marvel of Trrieation k Record of a Quarter Century in the Turiock and Motitito irrigation Di,trlcta-Caiitornia Conip led by the Bond Department of the An,lo and London Paris Bank Sutter and Sansosne Streets San Francisco Second edition i9~ 1 PAGENO="0420" 416 114 SMALL BUSINESS AND THE COMMUNITY what restricted. The family keep rather much to themselves-extra help when It is needed, being recruited from a class of labor which is best; satisfied if left to itself. Its (Modesto'sl general appearance reflected the declining prosperity of the country upon which a strictly agricultural town must rely for its existence-rough, unpaved streets-muddy ID winter and dusty in summer, its stores a collection of mostly one-story unpainted, rickety frame buildings, its water supply from private wells, its sewerage nil, its lighting system coal oil lamps, its population but a few hundred people. * * * (Pp. 15-~17.) In contrast is the postirrigation picture in which small units make for close association and the development of homes. The authors say: Farming it is said, is a "mode of life." If this is so, then the real test of a section is to be found in the home building of its people. Applying this test, as a preliminary to the Modesto district one soon finds full justification for all the time, thougiit, energy, and money spent; in water development. For the outstanding feature which first strikes the investigator is that the district is essentially a home district. Pretty bungalows and tidy dwellings, lawns, vine covered porches, roses and old-fashioned flowers, shade trees and well-kept grounds are all strong testimonials that a home-loving people are settling in the community * * *. The small size of the holdings brings the houses rather close together, and a drive. in any direction in the most fully settled sections unfolds a succession of pretty homes and a general spirit; of contentment. * Today it would be hard to find a more prosperous, bustling town than Morn- desto * * ". [It] is essentially a "home" town. Civic pride is reflected in Its flowers, its streets, its parks, its school system * * *. (Pp. 17-20.) Finally, cursory examination of other communities in California's intensively cultivated agricultural areas substantiates this point of * `view. In general, the following are associated: new communities, the cultivation of row crops, and large-scale operations. Where they are so found, communities in the Arvm pattern are found. But where the former two are found with small-scale operations~ these com- munities acquire most of the characteristics of Dinuba. On the other hand, none of the towns whose agriculture is made up predominantly of large-scale operations has these amenities. The study of Arviu and Dinuba shows, therefore, that quality of social conditions is associated with scale of operations; that farm size is in fact an important causal factor in the creation of such differences, and that it is reasonable to believe that farm size is ttie most important cause of these differen9es. PAGENO="0421" 417 APPENDIX A SOURCES OF DATA, METHODOLOGY, AND SAMPLING TECHNIQUE The nature of the study required the use of several methods and sources of data: community delineation, interviews, schedules, and statistical data on farming and business enterprises and data on membership in clubs and churches. The methods and sources are briefly described. (1) community delineation.'-The community, for purposes of this study, includes the farm area around the town, within which the people normally go to the town for their goods and services. The boundary of the community so defined was established by recognized techniques. First, the civic leaders were asked to indicate these boundaries on a map. Second, the margins were affirmed by interviewino' persons living in doubtful areas as to their own community a~1liations. In Arvin the boundaries were quite clear and there were no subcom- munities or neighborhoods. In Dinuba there was considerable fluidity at the edges, especially toward the towns of Reediley and Kingsburg, and occasionally a "neighborhood" or a subcommunity based upon common religious tenets was found. (2) Interviews.-~About 30 persons in each community were inter- viewed. Such interviews were had with leaders in civic affairs in general, and leaders or representatives of different social, religious, and economic organizations. The interview was informal and designed to elicit information on the general character of the social and economic institutions of the community `with particular reference to that phase of community life with which the person being interviewed had some direct connection. Data on the history of the communities were also obtained by means of interviews. Old records were sought, and pro- vided valuable evidence on the development of the commumty~ General statements concerning the effect of large farm enterprLses on the community were obtained, as well as opinion of the present recla- mation law. Especially important in this regard were the statements made by farm leaders. The interviews were not, however, in the nature of an opinion poll, but were designed to determine factually the social character of the community. (3) S'chedules.-Schedules were taken from a 10-percent sample of homes in each community by two trained investigators over a period of a month each in the two communities. The schedule falls into four sections: (A) Family composition, occupation, and history; (B) social participation in clubs, churches, and informal social events; (C) pur- chasing habits; and (D) level of living. A copy, edited to conform to actual practice after field alterations, is reproduced at the end of this appendix statement. (Begins on p. 118.) A few notes are necessary to clarify the meaning. Lettered items in boxes were used for coding; IThe ~ ~( community delineation wea done by Walter C. MeKain, sr., regional leaders Dithion ot Parm Population and Rural Welfare, Bureau of Agricultural Economics. 115 PAGENO="0422" 418 116 SMALL BUSINESS AND THE COMMUNITY items in parentheses were to be supplied by schedule editor. Num- bers for family members in question A-3 were used for reference in question B-i, 5, and 6. (4) Sampling techniques.-Each community was divided into two categories: town and rural. The town samplO included the area of the town itself-in Dinuba bounded by the incorporated limits, in Arvin by the area of contIguous congestion. Every house in each sample was plotted on a map and the houses numbered consecutively, circling each block clockwise. (Figs. 12 and 13 in the text' repro- duce the maps of the town and show the houses sampled.) Every tenth number was selected as the sample, and the enumerators in- structed to take only the house enumerated, making recalls where necessary. The number of actual houses covered by the survey was 1,304 in Arvin and 2,161 in Dinuba. Due to errors in numbering, two houses too many were included in Arvin, three too few in Dinuba, or a total sample of 132 in Arvin and 213 in Dinuba. No residents refused cooperation in Arvin, but seven refused to answer these ques- tions in Dinuba. The occupation and number of persons in the house- hold were obtained for each of these. Occasionally individual items were omitted because of reluctance on the part of the interviewee or for some other unavoidable reason. This technique was applied with all reasonable care, and can be assumed to represent an adequate ran- dom sample of the universe included. * This universe included all households within the area delineated as belonging to each of the respective communities. The only exception to this statement was the houses on the DiGiorgio property, where permission to enter was not granted the field workers. The approxi- ~tnate number of houses was obtained from the management, and these were ncluded in the population estimates (assuming the average per- sons per fami y consistent with farm laborers in Arsrn). They were not included for any other statistical analyses, not even the distribu- tion of families by occupation of family heads. `Most of the residents are farm laborers. - - The universe, by definition, includes ocly residents at the time of field work. Field interviews were made in each community at a time (March-April in Arvin, April-May in Dinuba) when the local employ- ment opportunities in agriculture were insufficient to employ fully the local labor supply (see fig. 6 of text, p. 35). Thus, itinerant workers with residence outside these communities were excluded from the analysis of schedule data. (5) Statistical information.-Statistical data of various kinds, other than those developed from the schedule, form a crucial part of the evi- dence. Information on crop production was obtained from the aom cultural commissioners of the respective counties and from other sources. School attendance and enrollment records were obtained from the superintendents of schools. Two specialsources ~f statistical data were available. Data on farms, classified by size and type, and on acreage in the various major crops in each community have been obtained from Agricultural Adjustment Agency records. These data were collected on a three .countv area for use in other studies, but special tabulations and analyses were made for Arvin and Dinuba.2 Information 00 the volume and character of retail trade $ Edwin E. Wilson and Marion Clawson Asrricultural Land Ownership and Operation in the Southern Øanloaquln Valley, Calif. Bureau of Agricultural Economics, Berkeley, Calif. (Mimeographed.) 1945. PAGENO="0423" 419 SMALL BUSINESS AND THE CO~IMtNITY 117 and the size of business establishments has b'~en obtained through a careful analysis of the records of the California State Board of Equali~ zation A description of the nature of thcse data and the methods of analysis are given in appendixes B and G (6) Ch'arch and club membership data -Beciuse of the t~rtdenci for rehgious and social bodies to draw distinctions in member~hip is hich reflect the degree of social cleavage in the rural commurut~ ~ of membership showing occupation is ere obtained from several reprt.~~ sentative churches and clubs in each community. PAGENO="0424" 420 118 SMALL BUSINESS AND TBE COMMUNITY tINITED STATES DEPARTMENT OF AGRICULTURE BUREAU OF AGRICULTURAL ECONOMICS Budget Bureau No. 40-4414 Approval expires June 30, 1944 Date~. Sched. No. Interviewer - Community---~------ COMMUNITY ORGANIZATION LA~I1 A, General data: 1. Name ______________ 2. Residence-------------------~ L 8. Household composition: _________________ Given name ~ Sex R~t~ riage Age e status Scbool~ ing id ~ Major source of cash earnings and percent of total earnings - -~ Occu- Per- pation cent E I ~ °~ business j~ (1) Bead (2) . (3) , (4) . ~(6) (6) - - - -.--- , - - - F L~ ~. IF- I__ (7) - ` - - - - (8) 4. Birthplace of head 5. Wife 6. Birthplace of father of head 7. Ethnic group 8. Year of arrival in community (of head) . (No. of yrs~~) C-. 9. Last previous residence 10. Number of California towns you have lived in since ~ 1935 I I- 11. Number of towns outside California you have lived ~ in since 1035 12. Give acreage for 3 major crops: (1) a (2) a. (3) a. Total acreage (A.-E. size -) Tenure (Type of farm ) * L~1H I 13. How many separate jobs have you held since 1935? 14. What do you consider your home town? 15. Does this neighborhood go by a special name? What? PAGENO="0425" 421 SMALL BUSINESS AND THE COMMUNITY 119 Name of church Place Status Earlier atllhia- (a) School tune- (b) Card parties. (c) P"~'~ (d) ~ - - (a) ~ (1) Community * `I~,.M1 -.------ --* -, * (1943: Total families visited . Total visits paid .3 (1940: Total families visited . Total visits paid ~ 12. Do you do more or less visiting now than in 1940? - *. .. - Why? a Questions 11 and 12 were on schedule but were not n.ead- 3 4 5 6 7 8 * - 7.- Do you have a small group of close friends? . Number in * group? * 8.- Where do they live? - - 9. What do they do? - 10. Do they all belong to one church or club? - - - What one? 11.-List families with whom you visited regularly in 1943 and in 1940 (if different) and whom you consider your more intimate friends3 * Number v Laits In- , * Name Occupa- tion or tenure Related . mc group - - Their home Your home ResIdence * Year - I B. Memberships: 1. Church and/or Sunday School membership: (Total members ; total attenders ; percent church- goers.~~) 2. Did any member of your family change denominations upon coming to this town, or since you have been here? 3. If so, what was. former affiliation (indicate in last column of ques- tion 1)? 4. Do you attend church more or less frequently now than before the change? 5. Club memberships (check through list of clubs and ask for any addi- tional ones): - (Total memberships . Memberships per person ) -* 6. What informal activities did members of your family participate in? Type of activity 2 Number of participations per year for each family member 1 (Total mem- ben) (Total events) 95-253 0 - 68 - 28 PAGENO="0426" 422 120 ~MALL BUSINESS AND THE CO~ttMUNITY [Econ. Part. Index: C. Economic participation 1. Where did you regularly purchase or obtain the following before gasoline rationing was instituted: service . . (Firm) (Corn- munity) Men's clothes Women's clothes _. Gas and oil Farm machinery Feedandseed.. . Banking Doctor . Movies - Newspapers..--- - ` (Total local ; Total resp. ; total In corn. ; total reap. 2 Where do you go to hire labor 2a. Where do you go to find work 3. Did you have vegetable garden in 1943 ; in 1941 4 Did you keep chickens in 1943 in 1941_ - - - - - 5 Did you have a cow in 1943 - - , in 1941 6 Appro~umately what was your family income in 1943 (check one) Under $750 $2 751-$3 2~0 - -- - - -- $751-$l 250 $3 251-$4 2)0 - - $1 2o1-$1 750 - $4 2o1-$o 2)0 $l,751-$2,250 ~. $5,251-$1l,000 $2,251-$2,750 Over $11,000 ~Code value D Soc'&o-economzc status (enter or encircle proper answer) 1 Construction brick stucco, painted frame unpainted frame, other 2 Number of rooms (rooms per person ) 3 Water piped in house yes no 4 Lighting electric gas pressure other 5 Refrigeration mechanical ice other or none 6. Radio: yes, no - 7. Telephone: yes, no 8. Automobile: yes, no; Make Year 9. Characterize premises of home by one of following: (a) Well kept with decorative planting (b) Some decorativ~ planting has been done (c) No planting but neat and clean (d) Littered and dirty premises 10. Characterize exterior of house by one of following: (a) Neat and well painted (b) Old dirty or scaling paint (c) No paint or stain 11 Characterizt~ interior of house by one of following (a) Decorated with carpets and curtains, all in good order (5) Poorly decorated but neat and clean (c) Untidy interior (d) Extremely dirty Church membership of head Church membership of wife Education of head Education of wife Total (L/L Index) PAGENO="0427" 423 APPENDIX B AGRICULTURAL DATA, SOURCES, AND METHODS1 1. So~urce.-Data on the volume of agricultural production, number and types of farms, characteristics of ownership and tenure were obtained from records of the Agricultural Adjustment Agency. These records were obtained and analyzed for studies of the size of farm- operating and farm-ownership units and their use here was incidental to the major purpose for ~ihich they ~ ere obtained Record data apply to the year 194D The base for these data was the "farm unit" The farm unit i~, a contiguous piece of land, all of which is operated by one single farmer and owned by one single owner who may or may not be the operator One owner may have several such units, each with a different operator, and one operator may be farming several such units, each with a different owner On the basis of these farm units, the operat- ing units (a combination of farm units having the same operator) and ownership units (combinations of farm units owned by the same person or corporation) can be brought together The former of these are called farms for purposes of this study, the latter are called ownership units The Agricultural Adjustment Agency data for each farm unit were recorded on cards and included the following Location of umt, operator and owner, cross references to other farm units both owned and operated by the same man, total acres in the unit, and acreage by land-use classes, and yield of cotton, potatoes and wheat Laud- use classes were Range land, noncrop pasture, lanes and buildings, commercial orchard (including grapes), cotton, wheat for grain, rice, sugar beets, potatoes, commercial vegetables, barley for grain, wheat hay, other gram hay, gram sorghums, summer fallow, idle cropland, alfalfa, ladmo, cropland pasture, and spaces for other soil depleting and other nondepleting crops 2 Farm types -Farms were classified into 10 types on the basis of these data by specialists in faim management These types and brief definitions of them in terms of types of land use are as follows (1) Stock ranches -Units engaged in the production of livestock by means of range. Included units over 320 acres with 90 percent or more of the land in range, pasture, or hay, but not over 30 percent in hay (2) Forage-consuming livestock -Mostly dairies and a few other producers of animal products Included units with 30 percent or more of the cropland in hay and pasture combined and at least 10 percent in each of these, but with less than 50 percent of their land in field crops (Classification had to be made without diiict kno~kdge of the number or even the presence of livestock on the unit) `The collection of the data from the Acricultural Adjustment Agency records was suprvLi~ by 7 Earl Lee and the anal3ses by Edwin E V. iLon both of th Bureau of &gricuiturai Feonomics Btrkeiey Credit for this material Is due them though responsibility for it~ use rists a ith the author 121 PAGENO="0428" 424 122 SMALL BUSINESS AND THE COMMUNITY (3) Specialized fruit ranches.-Units with 80 percent or more of the cropland iii commercial orchards, and at least 2 acres of fruit. (4) Majorfruitfarms.-Fruit_producing units which are less highly spe~ilized include4hose with from 25 to 80 percent of all cropland in fruit, provided that at least 2 acres are in fruit. (5) Winter field crops.-lJnits where 80 percent or more of the crop- land is devoted to winter field crops, which includes wheat, barley, oats, flax, small grain hay, or grain pasture. (6) Winter and summer field crops.-Units with land in both winter and summer field crops, but with less than 80 percent of the cropland in either. (7) Summer field crops.-Units with 80 percent of the cropland in summer field crops, which includes cotton, sugar beets, potatoes, commercial vegetables, truck crops, grain sorghums, grain hay, alfalfa, or hay. (8) Idle.-Uoits where' 90 percent of the cropland is not in pro- duction. (9) Part-time.-All units except fruit farms having less than 5 acres of cropland. - (10) Small ranches.-Units of under 320 acres with 90 percent of the total in pasture. 3. Farm size.-The size of units in acres is given in the Agricultural Adjustment Ag~ncy records. However, acreage is a poor measure of size as acres in various crops are not comparable in capital require- ments, labor requirements, or income potentiaL For that reason, size in standard acres was calculated for the farms in Arvin and Dinuba. These standard acres were called acre-equivalent acres, frequently abbreviated A-E acres. A standard acre is a unit of land in any crop which under normal conditions for that crop in the Central Valley of California has the gross-income-producing potential of an acre of irrigated alfalfa in the same area. The size of each operating unit was calculated by multiplying the actual acreage in each crop by the conversion factor wbich expresses the ratio of income-producing potentiality of that crop to the income-producing potentiality of an acre of alfalfa. The factors used were developed by Arthur Shultis, of the Giannini Foundation of Agricultural Economics, `University of California, and apply directly to Madera County. There is no reasonable question of the validity of extrapolation to the, neighboring counties. The following is the table of factors used: `, :, Alfajfa 1.00 Garden 1.00 Beans . 60 Grain . 15 Commercial orchard 2. 00 Grain hay . 05 Commercial vegetables.., 1. 80 Grain sorghum~ . 30 Corn . 50 Idle cropland and miscellaneous.. - . 02 Cotton 1. 40 Lanes, buildings, etc . 02 Cropland pasture, dry . 05 Ladino 60 Cropland pasture, irrigated . 40 Melons 1. 00 Flax . 70 Noncrop pasture . 02 Nursery a 00 Sugar beets 1. 80 Oat and vetch hay . 20 Summer fallow ` - . 01 Potatoes 1. 80 Tomatoes ~ 5() Rangeland - . 01 Young and noncommercial or- Sudan grass . 2~) chard 1. 00 PAGENO="0429" 425 SMALL BUSINESS AND THE COMMUNITY 123 A slightly different method, involving the same assumptions but based upon th~ type of farm as classified above, was used for calcu- lating A-E size in the communities listed in table 1. While this method is less direct, the comparability is great as shown by the fact that in Arvin the A-E size by th~ special method was 265 A-E acres as against 247 A-E acres by the method used for all communities. In Dinuba the respective figures were 89 and 84. 4. Gross farm income.-Gross farm income from all the farms in each community was calculated, using known 1940 acreages, 1937-41 yields, and 1935-39 prices for the San Joaquin Valley. Estimation of income is fairly direct and highly reliable. tsing yields and prices, returns per acre were calculated and these returns multiplied by acres in the various crops. Certain assumptions and manipulations were necessary, since crop data were not always broken down with sufficient exactitude. The following major assumptions were made: (1) All commercial orchard was assumed to be vineyard. This is very nearly correct for Dinuha, less so for Arvin. Since returns per acre vary in both directions but not very greatly in either, the error of such an assumption is slight. Income was based upon Shultis' calculations. (2) Commercial vegetables were given the average value of all commercial vegetables, developed by Shultis in his calculations of standard acres. Acreages in commercial vegetables were not broken down by type, so this average figure was necessary. Again, no great error can enter here. (3) No income from crops was attributed directly to either milo- maize or any of the pasture uses of land. It was assumed that income from these classes was realized through the sale of livestock and livestock products. (4) Yields were based upon 1937-41 averages (irric'ated land) for the San Joaquin Valley. Actual yields were used ~or cotton and potatoes. Wheat, barley, oats, and rye yields were based upon weighted average of irrigated and nonirrigated yields. (5) Prices were based upon estimates of prices received by Cali. fornia farmers for the years 1935-39, made by the California Crop Reporting Service. (6) All unspecified non-soil-depleting crops were assumed to be pasture and all unspecified soil-depleting crops were assumed to be oats. A tabulation (table 46), based on these assumptrotis, shows gross income per acre and total gross income for crops. These estimates can be considered reasonably exact. It is doubtful if there is any appreciable bias which would affect the relative gross returns between two communities, the most important aspect of this table. Calculations of returns from livestock enterprises were more difficult to arrive at. Estimates of the number of livestock of each kind were made by assuming a proportionate distribution of the total livestock within the minor civil division, as reported by the census of 1040, on an areal basis. That is, the area in farms in each community was calculated as a proportion of the total area in farms in the township, and stock apportioned according to this ratio. PAGENO="0430" 426 124 SMALL BUSINESS AND THE COMMUNITY Table 47 shows the number of stock by major class( s, the annual income per head, and the annual retuins to the communth These two tabulations show the total gross income (except income from pasture lands and m'lo) to all farmers, first for ciops, and S for inestock and li~estoci'~ products Howe%er, it would not br' ap- propriate merely to add these two figures. To do so would include considerable duplication, as no allowance has been made for crops grown which are fed to stock rather than sold. For that reason calculations of the feed requirements of the livestock in the two communities have been made (table 48) On the b~isis of these feed requirements and estimated li'~ estock numbers, it is possible to estimate the value of livestock feed For pui poses of bookkeeping, we can assume feeding of local products and purchase of similar feeds to make up the deficit, when such exists In feedmg grams, oats, barley, and wheat ~ ere fed in that order, ard the remainder was sold after livestock requirements were met Cottonseed ~ as used as con- centrates The same purchase price as sale price was used Grain purchased was barley. l.sing these assumptions, we get the following value of grams, concentrates, and hay fed Arvin Dinuba GraIns -- f $36,000 $64 000 Concentrates _~_____ I 22,000 40,000 Bay 67000 104000 Total... ... .. 125 000 208,000 For bookkeeping purposes it is appropriate to deduct the feed requirements either from gross value of livestock or from crop produc- tion. The latter procedure leaves certain crops deficit. Table 49 shows both allocations, while the text (see table 7, p. 26) -shows the value of crops produced and the net value of livestock products. TABLE 46.-Gross income per acre and total gross income for crops: Arvin and Dinuba 1 Income Arvln Income Dinuba income Crop Price per - - - - Unit ~Amount ~ Acres Income Acres Income 1,000 1,000 Dollars Dollars dollars dollars 107.50 7,875.0 847 16,294.9 1,752 78.64 6,274.3 493 2,357.7 iSS Lint Pounds 629.0 . 105 66.04 Seed Hundredweight. 9.2 1.37 12.60 Potatoes Bushels 315.0 .71 223.6.5 2,047.3 458 iO. 4 2 Sugarbeets Tons i3.0 5.60 72.80 32.3 2 Commercial vegetables 90.00 627. i 56 278.1 25 Milo...... Bushels........____ 39.0 112.8 - 951.6 Wheat do 16. 2 .81 13. 12 12,004.3 157 75.6 1 Barley do 27.1 .50 13.5.5 3,900.2 54 944.3 13 Oats do 27.4 .41 12.35 864.4 ii 831.0 10 Alfalfa Tons - l 4.9 10 16 49 78 3,283 163 3 (ItO 1 152 Rangeland 100 77 Noncroppasture 10783 42346 Summer fallow and 3, 4~2. 4 2,30 7 Idle Pasture Ladino and crop pea 3773 7372 ture Other noudepletlng 452.6 437 5 2,241 2,140 I For assumptions and explanations ass text. PAGENO="0431" 427 SMALL BUSINESS AND THE COMMUNITY 125 TABLE 47 -Estzmat~d head of livestock and gross income from stock Arvin and Dinuba ~ Dinuba Class of stock Unit ~roduc Price5 ~nconu. - - tiofl per Nurn- Gross Nurn- Gross her3 income her' Incuino 2.000 1,000 Dollars Dollars dollars dclS.zrs Horses and mules over 3 421 749 - months.' Milk cows and heifers Pounds butterfat.. `325 0.466 151.40 1,331 201 1, 971 299 over 2 years. Beefcattloover3months. Pounds of meaL... 600 .0728 44.16 825 56 1.924 86 Sows and gelts to farrow do 7 1,920 . 08~t 172.55 187 3.2 lSl 32 Sheep an.l lambs over 6 do 56 0790 4 ..8 1 months Pounds wool `10 24 2.40 1 Chickens over 4 months_ Dozen eggs 14 24 3.36 14 150 47 47 900 162 Chickens sold Pounds meat `2 ` 2.5 50 8, 545) 4 if., 300 12 Turkeys raised do 18 ` 25 4.50 180 1 3,43.5 16 Total . .--.-. 322 608 `Fluharty, In Line Prices. Report to State Agricultural War Board. State Crop Reporting Service, Prices Received by California Farmers. 1935-39. $ Estimated on the basis of 1910 Census of Agriculture, using 31 percent of total for fifteenth township, Kern County of which Arvin is a part 4 Estimated on the basis of 1940 Census of Agriculture, using 56 percent of total for Dinubs Township, Tulare County. - `No direct Income figure used to calculate feeding requirements 54 percent butterfat ?Based upon pork produced per sow Assumed only ewes recorded In census 80 percent lamb crop and aeflmg lambs at 72 pounds gives en average of 58 pounds per sheep and Iamb C production and prices TABLE 48-Feed requirements for livestock 1 Commer Kind of livestock Grains cial by- Hay product POunds Pounds Pounds Horses and mules, Including colts ~o.0 4,900 Mllkcowsover2yearsold 900.0 830.0 8,000 Dairy helfers under 2 years old -~ 50.0 * 0 1,200 Beet cattle over 3 months old 50.0 ., a `00 Bows and gelts to farrow 3_S. 0 25 0 "o Sheep and lambs over 6 months old (hundredweight) 8.0 80 160 Chickens o%et4 months old 66.0 Cbickenssold _ 6.7 3.9 Turkeysralsed 80.0 1~0 iPasture excluded Source: 1943 MaxImum Wartime Production Capacity Study for California, p. 36, AppendIx, Bureau of Agricultural Economics, TABLE 49-Dollar value of commodities produced in Arvira and Dinuba tIn thousands of dollars) - .&rvin Dinubs * ~ ~ Commodity ~ ~ Pro. duced Amount fed Net value Pro. duced Amount fed Net valUe Fruit .~........ 84? ~ 847 1,752 ~. 1,732 Cotton Lint 414 414 156 156 Seed 79 22 57 38 40 -.18 Grain . 222 38 188 34 64 40 Vegetables 516 516 27 2? -- 163 67 96 152 104 48 Total crop value Value of Uvestock 1 Total value of productiozt....._ 2,241 197 125 125 2,118 322 3,140 400 208 208 2,438 2,438 * For value of livestock the net value (above feed) appears first, and the gross value appears In th. third column. This reversal Is appropriate since the livestock consume the feed. 1,932 .608 2,315 PAGENO="0432" 428 126 SMALL BUSINESS AND THE COMMUNITY 5. cost of production and net profit.-The calculations presented in the preceding section of this appendix indicate gross returns (deducting only cost of livestock feed). No calculations have been made either of the net returns to farm operator orof the unit cost of production. It has been assumed that net income and total cost of production per acre are the same for both communities. This assuniptlon is reasonably accurate, though not exactly so. Cost of water (and perhaps other production factors) is somewhat higher in Arvin than in Dinuba, but labor costs in Dinuba appear to be greater. Since Arvin producers reach an extreniely early market they probably receive higher prices. This *is particularly true of fruits, potatoes, and commercial vegetables. Yields OR the relatively new soils of Arvin are also advantageous. The major cost of production disadvantage in the Arvin area is the cost of water. Because it seemed possible that the cost of water might be sufficient cause to account for the different economic con- ditions in the two communities, a careful analysis has been made of water costs in the two communities. It should be pointed out that, in the long run at least, water costs should be absorbed by land value, since the land values are very low without water and the two com- bined are an economic asset far exceeding the sum of each separately. Jgnorance.. of irrigation, requirements and costs may make this con- sideration inoperative on a short-run basis. Water costs were calculated on units of average size for each com- munity, and the cost of Water in Arvin was also calculated on the basis of average size of units in Dinuba, in order to make more direct comparisons possible. These sizes are: Dinuba, 57 acres; Arvin, 497 acres and 57 acres. The following assumptiOns were made: (1) Duty of water: 2 feet 3. inches in Dinuba (average for San. Joaquin Valley) and 2 feet 11 inches for Arvin (adjusted to allow for differences in precipitation). On this basis total~annual water require- ments per farm are: Dinuba, 143 acre-feet; Arvin 1,451 and 168 acre-feet.. . . Irrigation season of 7 months with wells .operated half the time during these months, and peak demands were assumed to be taken care of by full-time use of wells during those periods. Well require- tñ~nts on this basis are: Dinuba, 309 gallons per minute; Arvin, 3,135 ançl 359 gallons. per minute. Single wells would be sufficient for 57-acre farms, but three wells would be required for the 497-acre ~ar'n.. - .. -. .. .. L.... (3) Average water-level conditions in each community were used. Lr~port of the Alta irrigation district, based upon 65 wells and made in 1931, indicated an average depth of 43.5 feet. A report to the Kern County Water Development Conunission entitled "Cost. per Acre-Foot of Pumped Irrigation Water in Kern County," by C. H. MOnett, based upon eight Arvin wells and made in 1933 was used for Arvin. This report indicated a depth of 114 feet, but this was in- creased to 151 feet on the basis of information as to the recession of the ground water level since that date. These two reports indicated average draw-down of 8 feet in Dinuba and 26 feet in Arvin, and these figures were used. A pumping head of 54 feet and of 182 feet was used for Dinuba and Arvin, respectively, a1lowin~ for discharge of w~t~ at ~ point ft few feet above the ground, as mdicated in these PAGENO="0433" 429 SMALL BUSINESS AND THE COMMUNITY 127 ~4) Pumping efficiency was reported in these two sources and was calculated at 42 percent and 64 percent for Dinuha and Arvin. These figures are iii keeping with observations made since that time, with considerably more efficiency on the larger pumps. The lower pump efficiency was used for the small farm in Aivin, in keeping with this observation. (5) It was assumed that all pumping was done by electricity, since but few pumps are driven by gas or butane. On the basis of flow and pump efficiencies, the kilowatt-hours required per acre-foot of water were calculated on the basis of the following standard formula: K ~ _43.560X62.4X746Xhead -1 O~4 head W* 33,000 X6OX 1,000 X efficiency efficiency This resulted in a kilowatt-hour requirement of 132 for Diriuba and 291 for the large Arvin farm and 444 for the small Arvin farm (higher because of assumed lower efficiency). The total kilowatt-hours for each of these sizes, based upon water reqiurements are: Dinuba 18,S60; Arvin, 422,241 on the larger unit, and 73,704 on the smaller. (6) The size of motor was calculated on the basis of the above data according to the following standard formula: H ~ G. P. M.X62.4Xtotal head in feet 4SOXSSOXefflciency in percent On the basis of this calculation, a 10-horsepower motor was required in Dinuba; three 75-horsepower motors on the large Arvin. unit and one 45-horsepower motor on the smaller unit. (7) The demand and energy charges for power were developed on the basis of rates used by the Pacific Gas & Electric Co., which serves these areas. It has three agricultural power rates, known respectively as schedule P-3-S, schedule P-12--S, and schedule P-13-S. The, first two schedules embody demand charges which are based upon the connected horsepower load and energy charges which are based * upon the number of kilowatt-hours consumed. The third schedule' has only a chargé for energy, but in using this schedule the operator must guarantee a minimum charge per horsepower of connected load. Schedule P-12-S can only be used where the connected horsepower. load amounts to 200 horsepower or more. Power bills were calculated on the basis of all applicable schedules and the lowest cost used, in keeping with actual procedure. It developed that schedule P-13-S resulted in the lowest total power bill for each unit. The cost of pumps and motors was developed from information collected in the field observations made in the San Joaquin Valley in. the winter of 1944, when records on size of motors and original cost were obtained. On the basis of these observations, costs weret assigned. These costs are below present costs of such motors but in line with the cost of motors of these sizes over the past 20 years. The following costs resulted from these calculations: $800 for the pump and motors on the Dinuba farm, $2,500 each for the three pumps and motors on the large Arvin farm, and $1,700 for the pump and motor on the small Arvin farm. . (8) Records from the report for Kern County referred to in the forego'ui~ indicate that the average depth~ of the well in the Arvin community is approximately 500 feet. This depth was used for all wells in that area. Comparable records were not immediately avail-' able for Dinuba. However, on the basis of .ti4e total rninminc' ~ PAGENO="0434" 430 128 SMALL BUSINESS AND THE COMMUNITY and depth of wells required in other areas having a comparable head? 100 feet was assumed for Dinuba. Current field reports indicate that it cost from $3 to $5 per foot to drill a well and put in the casing in these areas. An average of $4 p~ r foot..~ as assumed foi wells in both communities regai dli ss of requited S17C of casing or depth of well On the basis of this mfoi ma- tion tlic a~ ci age investment in wells on firms of the size mdic'ited ~as $1,200 fot Dmuba $3,700 for the small faim in Arvin, and $13 500 for the three wells on the large faim in Arvin These costs would be higher under wartime prices (9) Because a large proportion of the water in the Dinuba area is surface water, brought by diversion from the Kings River, certain special adjustments must be made. It has been assumed that the facilities for a full water supply were maintained, but power, renair, and service costs were adjusted to actual requirements. During the past 12 years the amount of water delivered by the district varied from about 2 mches to nearly 2 feet per acre so that an assumed supply requires a well that will furnish virtually full water require- ments - Over 12 years, from 1930 to 1941, inclusive, the Alta irrigation dis.- trict delivered an average of 118 acre-feet of gravity water to all land ~wjthm the district It was, therefore, assumed that 1 32 acre-feet per acre of water would be pumped per year. This reduces the kilowatt- hours required from 18,876 to 9,931. Repair and service charges were arbitrarily reduced from $12 per year to $8 in light of this adjustment These sa'~ ings were partially offset by cost of surface water, as follows ~The 1941 annual report of the Alta irrigation district indicates that the average assessment was 59 cents per acre This resulted in a~ total bill for gravity water of $33 63 for the 57-acre farm (10) The tax rate used was based upon the Kern County report Actually for tax purposes the pumping plants are velued considerably less than the figures used here while the tax rate is higher. The final result is very nearly accurate. On the basis of these assumptions, the. following table of water costs on the three hypothetical units is presented TABLE 50 -Itemazed comparatwe cost8 of trrigatzon sn Aryan and Dinuba by sue of' farm _____________ ______ Arvin I ____ ~.DInuba- Item 57-acre / 497-acre 57-acre unit unit unit Total Investment in pumping plants $13 50000 $3 700 00 $1 200 (8) lixed costs: Interest at 5 percent .,~. 675.00 185.00 60.01) Depreciation at 5 percent 675.00 185.00 60.01) Taxes at 4 mills 54.00 1500 5.01) Gravity water ,~. 34.01) Total 140400 38500 15900 Variable costs:~ Repair and service ~ 120.00 40.00 & 01) Energy 1,915.00 384.00 61.00 Total 2,03500 42400 6901) Total costs 3,43900 80900 2"800 Cost: -. . Peracre - 6.92 1419 401) P~ acre-*ot of water pumped t 37 4.87 1 5, PAGENO="0435" 431 APPE\DIX C ANALYSIS OF MO?~TFL1 L&BOR REQLIREMENTS The data on monthly labor requirements ~ ere ba3ed upon the *creage in various commoditi ~ aad the r~quirer~ic~its for cli labor as established by detailed farri man~einent rt~cords for most of those crops, supplemented by addrtion~l information for specific crop~ ~s hen not covered b~ these farm management records Tablis 51 and 32 (pp 130 ai~d 131) sho~s the crops and acreages, the monthlv per-~ acre labor requirement, and the total labor requirement in each com~ munity for Arvin and Dinuba, respectively. Crop acreages were obtained from the Agricultural Adjustment Agency data Alfalfa, cotton, grain, sorghum~, pastures, and pot.itoes ~ere given directly for the ~ ear 1940 Minor crop acreages were eliminated Giapes were segregated from deciduous fruits in Arvin on the basis of average tonnage shipped during the 3 years 1941-43 Eleven percent of the total acreage ~s as allocated to deciduous fruit and 89 percent to grapes About 90 percent of all deciduous fruits were plums, and the seasonal labor reqt irements for plums ~i as used for the total quantity The error ~s ould amount to far less than 10 percent here, because all deciduous fruits compete hea~ ily for labor In Dmuba fruits ~s ere segregated into four classes, based upon propor-. tions of each as indicated in the data obtained from the local farm labor office. Monthly requirements for all labor were obtained from a series of records taken by the staff of the Bureau of A~ricu1tural Economics from farm operators in the upper San Joaqum 1 alley The follo~s mg tabulation indicates the number of records used for each major crop, or the alternate source of data Crop Type units Include Alfalfa Cotton Orain Sorghum Pasture Potatoes Raisin grapes Other grapes Deciluous fruit (Arvin) Deciduous fruit (Dinuba) ~ Citrus fruit (Dinuba) 011 alfalfa, allsizes kl1 9 27 4 1 ~ 7 ~ 8 -. sizes Barley Milo (medium size) ~ ~ All sizes Thompson seedF~ss Thompson seedless (leaving out turning anJ rolling of trays). Data on plums from R L &~amsi Data on mi edlarteous fruits from Farm Labor Advisory Committe.' - Data on citrus fruits from Farm Labor 4dvi.~ory Corn miltee.' . I ~ L. Adams, Agricultural Labor Requirements and Supply. Kern County. Mimeographed Repoit No. 70. Olanninl Foundation of Aeriultural Economic's. June 1~40. Berkeley. Table 9. p. 16. `Tabulation entitled 1914 Estimate of Number of People Needed in A~ri~ulture in Tulare County." summary of survey by Agricultural Extension Service in cooperation with Tulare County Farm Labor Advisory Office. The data from farm records include all labor, while those from pub-. lished sources refer to hired labot only. No correction ~as made for this difference, since the total amount of labor involved and the pro. portion of work peiformed by the operator is small. 129 PAGENO="0436" 432 130 SMALL BUSINESS AND THE COMMUNITY Probably the major- source of error in these calculations derives from using selected crops. The total requirement is little affected by this, but for both communities it results in a slight tendency to accentuate the peaking of labor demand. An estimate was macic on the proportion of labor peiformed by the operator and by local labor. These are really estimates of potential labor rather than actual labor performed by these groups. Farm opera toi s were assumed to work a maximum of 250 hours per month. The number of farm operators indicated in the Agricultural Adjust- ment Agency data is 133 for Arvin, 722 in Dinuba. Obviously all farm operators do not work at labor full time, so that the actual labor so furnished was less, and proportionately less, on the big operations in Arvin than on the small operations in Dinuba. However, availability of operator for management should compensate in increased efficiency at least to the extent of his own labor. On the basis of these clacula- tions Arvin farmers hare a potential supply of 33,000 man-hours of labor per month and Dinuba operators 180,000 per month. The potential local labor supply was determined by the number of resident laborers (farm labor and farm foremen) recorded in the sched- ules. Assuming the recorded laborers represent 10 percent of the total, and adding the 140 laborers resident on the DiGiorgio farms, the available labor in Arvin was 940 and in Dinuba 550. It is assumed that this group normally worked 200 hours a month when work was available and can furnish a maximum supply of 188,000 man-hours of work in Arvin and 110,000 in Dinuba. Beside these, there are a number of workers available during the peak season. In Arvin 6~ such part-time agricultural workers were recorded, while in Dinuba there were 60. Assuming these represent 10 percent of the total (the sample proportion) and that they worked 100 hours per month when work was available, they could supply an additional sixty-nine and sixty thousand man-hours during peak months. Altogether, there are available, on the basis of these assumptions, 287,000 man-hours of labor per month in Arvin and 350,000 in Dinuba. Packino'-shed labor was not included in any of these calculations. The folI'owing tables show the monthly break-down of this labor supply against calculated demand: . TABLE 51.-Calculations tf labor requirements, by months and by c~rop classes: - - Arvin. - A. FACTOR USED IN CALCULATING LABOR REQUIREMENTS' . -I- . Alfalfa Cotton Grain . Pasture Potatoes Grapes Other ~ frute Total Month: January February March April~._.. May.... June. July August - September. Octoher....___.. November...... December - 0.1 0 2.2 12.0 11.9 13.0 12.2 11.7 12.1 3.4 0 0 5.0 3.4 3.0 2.9 8.7 6.6 8.0 6.0 13.5 20.7 16.6 13.0. 0.4 0 0 0 0 1.0 .2 .4 1.4 .7 .6 1.6 0 0 1.9 0 .7 .4 4.6 1.9 0 0 1,6 0 0.9 1.0 53 12.4 12.2 12.1 14.0 18.6 14.9 10.7 6.9 4.9 8.2 6.9 3.9 11.6 47.6 36.8 .8 0 0 .7 .4 2.6 9.6 14.5 12.8 9.9 6.1 8.0 15.1 7.2 29.9 18.4 2.1 6.4 29.9 .3 2.2 62.8 1.3 104.2 358.0 1.1 0 0 0 29.9 - - - - - I Estimates of man-hours of labor required per acre during month. See text for fuller explanation. PAGENO="0437" 433 SMALL BUSINESS AND THE COMMUNITY 131 TABLE 51.-C'alcutations of labor requirements, by months and by crop classes: Arvin-Continued - B. ESTIMATED ACREAGE IN EACII CROP CLASS' _____ Alfalfa Cotton Grain Pasture Potatoes Grapes Other ~ fruit Total Acreage 3, 284 6,274 15, 906 113 1, 078 2,047 7,009 386 C. ESTIMA TED LABOR R EQUIRF.MENTS3 Month: January February March. April May. June. July August September Octoher November December.~..... Total 328 0 7,22.5 39, 408 39,080 42. 692 40,083 36.423 39,73(1 11,166 0 0 31,370 21,332 18,822 18, 195 54,584 41,468 50, 192 37. 644 84,691) 129,872 104. 148 81.562 6,398 0 0 0 0 15,995 3, 199 6.398 22,393 11. 197 9,597 25, 592 0 0 235 0 79 48. 509 215 (1 0 181 0 970 1,078 5,713 13,367 13,152 13,044 15,002 10, 709 16,062 11,535 7.438 5,282 16,78.5 14,124 7,983 23, 715 07,437 73,283 1,638 0 0 1,433 819 5,322 67,286 101,631 89.715 69.389 42,753 86,072 105,536 50. 465 200,569 128,966 14, 719 44,858 2.5,803 28') 1.905 51,385 1,128 90,237 308,206 933 0 0 0 25,893 119,630 118.425 131,578 218.439 21.~. 233 332. 776 524,827 150.607 372.4:9 294.169 156,902 18.5,569 258,123 673,828 100,769 1,244 119,442 242, 569 981,281 506,948 2,886,184 `Acreage In crops for commuuity area, as delineated. $ Calculation factor times acreage in crop. TABLE 52.-Calculations of labor requirements, by months and by crop classes: Dinuba A. FACTORS USED IN CALCULATING LABOR REQUIREMENTS I Alfalfa Cotton Grain g~ te Total Month: January, February March April May June July August September October November December. 0.1 0 2.2 12.0 11.9 13.0 12.2 11.7 12.1 3.4 0 0 5.0 3.4 3.0 2.9 8.7 6.6 8.0 6.0 13.5 20.7 16.6 13.0 0.4 0 0 0 0 1.0 .2 .4 1.4 .7 .6 1.6 0 0 1.9 0 .7 .4 4.5 1.9 0 0 1.6 0 0.9 1.0 5.3 12.4 12.2 12.1 14.0 15.5 14.9 10.7 6.9 4.9 8.2 6.9 3.9 11.6 47.6 3.5.8 .8 0 0 .7 .4 2.6 9.6 14.5 12.8 9.9 6.1 8.0 17.1 9.3 37.0 10.4 2.1 0.4 9.6 14.5 12.8 9.9~........ 6.1 8.0 15.1 7.2. - 29.9 18.4' 2.1~ 6.4i 15.4 - 14.5 6.1 14.1 14.5 11.1 19.2 25.9 21.7 10.7 5.4 ~----~ * Acreage. -~ B. ESTIMATED ACREAGE IN 3.034 2,358 1,020 9.52 4,235 EAC 10 H CROP CLASS' 11,5201 1,9701 ~`~1 &io1~........ - C . ESTIMATED LABOR REQUIREMENTS4 Month: January February March April May June... July August......... September October. Nuvernber December Total 304 11,790 0 8.017 6,679 7,074 36,432 6,838 36,126 20,515 39,468 15, 563 37.039 18,864 35,521 14. 148 36,738 31.833 10,322 48,811 0 39.143 0 30.654 408 0 0 0 0 1.020 204 408 1,428 714 612 1,632 0 3.812 82 110,592 18,912 9, 488 33.341 1S~ 729 0 4,235 69 167. 0401 28.566 3. 0'21) 31,393 243,231) 1,809 22, 446 39 147, 436 25. 216 3.421, 13.2071 2.5'. ~ 0 52, 514 116 114.0401 19,503 5,236 30.3271 28.8.2.54 666 51,667 476 70.272 12,017 l1,240j 31.393~ 238.572 381 51,244 3.58 92. 160 15.7'S') 10.040~ 94.0321 2i0. 0218 4,284 59. 290 8 196,902 29,747 4. 760~ 41, 668~ 393,736 1.809 65,643 0 107, 130 14, 184 4,200 56,0741 229. 123 Oi 63, 102 0 426. 240. 58, 90& 3,744 46.911 668,587 0 45,315 7 223,488 36,248 3,444, 23.116 391,515 1,523 29.222 4 224,192' 4,137 13.392 11.691 120.9118 0 20,732 261 73, 7281 12.608 16~072119. 2t$~ 174. 741 238,627~253,25O 6,426 10,472469, 242'l, 185~1, 953,284275,800362. ~. 5803,436,9618 1 Estimates of man-hours of labor required per acre durIng month. See text Ibr tuBer explanation.. Data f~r citrus fruits based upon local estImates of requirements. $ Acreace in crops fur community area, as delineated. 4 Calculation factor times acreage In crop. PAGENO="0438" Is Mont * Estimated man-hours required Estimates of bbor furnished by- - - ~ Farm oper- ~ Resident snisonal Imported workers 4 January. Februiry March. April May June July -- August September October November - Estimates of labor furnished by- Month Estimated manhours Farm oper Resident Imported January 189 180 9 February 243 180 63 March . 227 180 47 April 265 180 85 May June 250 180 70 393 180 110 60 43 299 180 110 9 Seotember -. 669 180 110 60 319 - . - 392 180 110 60 42 November 121 121 December _~. 175 175 3.457 2~09b 768 189 404 IWork performed by 722 farm operators, reported In Agricultural Adjustment Agency records, assuming each operator works 250 hours per month, fir a maximum of 180,010 hours In any I month. Work perf~rmed by 551) tamily heads who are laborers, assuming each works 200 hours per month when work Is available for a maximum of 110,000 hours in any 1 month. a Work perfrmed by 601) family members other than head, assuming that each works 100 hours per month during months when work is available, fr a maximum of 60,000 hours In any 1 month. `Residual employment opportunity for itlnerants, following from above assumptions. A comparison of these tabulations reveals a number of significant facts: The total labor requirement in Dinuba is greater than in Arvin, but because of the larger number of operators, over half the work can be done by the operators and the number of hired laborers required is Feater in Arvin than Dinuba. While the number of workers resident in Arvin is greater, and they can have a longer season for working, both communities require imported labor for short seasons. The amount of such labor is approximately the same. If a thousand hours of work per month requires four laborers, then Arvin requires nearly 1,000 migrant workers'in June, and Dinuba, 1,500 in September. 434 132 SMALL BUSINESS AND THE COMMUNITY TAuz~ 53 -Estimated monthly labor requirirnerds and theoretical source of labor supply Arvtn [1 000 man-hours! 149 33 156 138 33 105 132 33 99 218 33 185 248 33 188 27 335 33 188 69 43 525 33 188 69 235 151 33 118 372 33 188 69 82 294 33 183 69 4 137 33 104 189 33 156 2,886 306 1.823 303 364 I Work performed by 333 farm operators reported in Agricultural Adjustment Agency records, assuming each ooeratcr works 250 hours per month f~r a maximum of 33,000 hours in any 1 month. `Work net-formed by 940 family heads who are laborers, assuming chat each works 200 hours per month when work is available f r a maximum of 160 100 hours in any 1 month `Work perf~rmed by 690 family members other than heal, assuming each works 100 hours per month during all months when work is available, for a maximum of 69000 hours in any I month. `Residual employment opportunity for itinerants. following from above assumptions. TAn1~1l 54.-Estimated monthly labor requirements and theoretical source of labor supply: Dinuba [1,000 man-hours] - - PAGENO="0439" 435 APPENDIX D METhOD OF OBTAINING POPULATION FIGLRES Population data on the toss n proper and the rural area wi.hin the boundary of the community as delineated h'ive been developed from the schedules They are based upon the total number of houses and the average persons per fami1~ inters iess ed In Arvm the number of housing units on the DiGiorgio farms were included and the popula-. tion determined on the assumption that the number of persons per household was the same as the average number among Arvm farm labor families generally The number of houses was established by a map of the community in which each house was spotted. These maps were made for each rural area and each town proper, and may be considered as substan~ tinily accurate. The size of family was taken from the schedule and included all per. sons living in the home at the time of interview. The following tabu' lation shows the basic.data and calculations for the population of the two communities: T~LE 55 -Calculahons an the corn putahon of Arznn and Dinuba population from schedule data Arvin flmuba Number of houses In town 7~) I l~ Average family size In town . 4.13 3.33 Town population - - 3,139 3.710 Number of houses in open country . 564 1.035 Average family size in open country. . 435 3.33 Country population - .~ 2~463 3,654 Reported number of DiGiorglo houses.. - . 155 Average family size of Arvui laborers 4.61 DiOiorgio population..... -. -.-.--.--* Total population 6,236 7 404 133 PAGENO="0440" 436 APPENDIX E METHOD OF DETERMINING LEVEL-OF-LIVING INDEX The level-of-living index is a figure which summarizes the quality of living conditions or material possessions of any group within the total sample from the two communities. It expresses differences within the sample, and should not be used to compare this sample with others in other parts of the country. The index is based upon eight items, each weighted according to the square root of the inverse of the frequency of its occurrence, rounded to the nearest whole number. This may be expressed: where W is the weight of each item and r is the percent of the total population possessing that item. Table 56 shows the method of computing the value of each item. The level-of-living index for any family is the sum of the values for each item, a range from 0 to 44. Because of the few items on the scale and the high degree of association between items, the resulting curve is not as smooth as would be desired. The evaluation of the condition of the home was determined by assigning differential values to each of the categories within the three questions calling for such evaluation, and taking the sum of these values. The values were: 3 for best conditions, 2 for second best condition, 1 for third best condition, and 0 for poorest condition. In one question only three categories were supplied, and these were given the value of 3, 2, and 0, respectively. No special weighting was given since the data are not amenable to further refinements in quantitative evaluation. 134 PAGENO="0441" Item Frequency Percent Number Inverse percent SMALL BUSINESS AND THE COMMUNITY 135 TABLE 56.-Frequency distributions of item.~ on the material level-of-living scale and value of items Index calculation Value I 2.56 77 23 5 75 23 0 100 30 70 8 126 37 33 6 112 33 283 84 16 4 64 16 0 330 98 2 1 7 2 I) 235 67 33 6 112 33 0 302 89 11 3 3.5 11 0 96 29 11 9 240 71 0 111 33 67 S 165 49 18 4 67 18 0 437 1. House construction: A. Brick, stucco, or paint B. Unpainted or other 2. Rooms per person: A. 2and over B. 1-1.9 C. Under 1 3. Water piped in house: A. Yes. B. No 4. LIghting: A. Electric B. Other 5. Refrigeration: A. Mechanical B. Ice, other, or none 0. Radio: A. Yes. B. No 7. Telephone: A.Yes. B. No 8. Automobile: A. 1938 or later B. 1937 or earlier ti M.. ~ I Square root of the Inverse percent rounded to nearest whole digit. 95-253 0 - 68 - 29 PAGENO="0442" 438 APPENDIX F ASSOCIATION BETWEEN SOCIAL PHENOMENA The assumption that a whole series of social phenomena, from level of living to type of social activities, were associated with occupation and income ~ as subjected to statistical tests The Chi Square test of significance and the use of T as a measure of relative association were found most useful The following tabulation shows the value of T for those associations subjected to the test, and the annotations indicate the level of significance by the Chi Square test The value of T expresses the degree to which independent employment and higher income are respectively associated with (1) each other, (2) above median level of hvmg as determined by the level-of-lwmg index, (3) memberslup of mdividuals 12 years old and over in clubs, (4) reported social activities other than those sponsored by club or church, (5) above median in the index of condition of the home as established by subjective evaluation, (6) membership of persons 12 years old and over in any church, and (7) membership of persons 12 years old and over in churches of highest standing, in contrast with membership in the intermediate and lower status churches. The procedure was to reduce all sets into dichotomous classifications, using for all seriated data the break nearest the median and for other data mutually exclusive attributes. The fundamental occupatioLal dichotomy between laborers and independently employed persons was used. The remaining dichotomies are self-explanatory. The formulas used were: (1) when f=observed data f0= expected distribution if unrelated, ~` (2) when N=number of observations Because Q is frequently used as a measure of degree of association, calculations of its value were made for a number of the associations here analyzed. Since Q is 1 when one cell is 0, since this is not ac- tually a measure of perfect association, and since in some instances the number of cases in one cell is small, this measurement was rejected Q values of items which meet the X2 test of significance at the .001 level ran between 60 and 85 136 PAGENO="0443" 439 SMALL BUSINESS AND THE COMMUNITY 137 TABLE 57.-Association of social phenomena wit/i occupation and income: Arv'in and Dinuba Item associated Value of `F in the association of itexnj With occupation Arvin Dinuba With income Arvin Dinuba 1. Income 2. level of iivir.g 3. Club membership 4. Nonorganizatiori social activity 5. Condition of borne.. 6. Church membership 7. Class of church 0. 23x .40 .43 . l3xxx .28x -.Olxx.u .40 0. 26 .48 .45 . lflx.zx .23x .01xxx .28 0. 43 .26 .33 -.39 .1611 0.34 .27 .flx . .27 The Chi Square test of the significance of associations was applied, and found to be greater than Q.0OL in most cases. Those where the test was less significant have been marked as follows: x. F- .01 xx,P-.l xxx, P-.2 zxxx,P-.9 PAGENO="0444" 440 * APPENDIX G BUSINESS ENTERPRISE DATA: SOURCES AND METHODS Information on type of enterprise and volume of retail trade was obtained from the records of the California State Board of Equaliza- tion assembled by staff members of the research and statistics section of the board in cooperation with the Bureau of Agricultural Economics. California has a retqil sales tax on all consumer commodities except foods purchased for off-premises consumption, and a few items covered by special taxes such as gasoline and cigarettes. In addition, it has a use tax which is paid by the consumer for items purchased from out- side the State. The tax is always paid by the consumer to the mer- chant, who pays it over to the Board of Equalization, usually on a quarterly basis, occasionally on a monthly or annual basis. Each retail merchant selling taxable items, therefore, has an account with the board, and regularly reports the total sales tax, the total dollar volume of taxable merchandise sold, and the total dollar volume of business (including nontaxable sales). Services are not taxed, and certain types of enterprises, motion picture houses, banks, cleaning and pressing establishments, for example, are not covered unless they also sell taxable goods. Since these taxes are an important source of revenue, the data on tax and taxable sales, and on enterprises selling such items, are closely watched and the data themselves are highly accurate. Since non- taxable items are not a factor in tax payments, records of sales of such merchandise are somewhqt less reliable, and may be underenumerated. * No estimates are available on such error, but it is assumed not to be large. There is virtually universal coverage of all retail sales establish- ments, because no category of enterprise sells nontaxable goods exclusively. WI hue groceries are not covered, soaps, j~aper towels, - and so forth, are covered and therefore all grocers with a normal complement of goods must handle sales-tax moneys. The most important stricture on the data is that the sales are fe- * corded by class of business enterprise and not by type of merchandise sold. The board has worked out a classification of establishments which breaks them into 47 different groups, from general merchandise to industrial equipment. This classification, along with subcategories in each, has been published under the title "Business Classification Code of Permittees Licensed Under the California Retail Sues Tax Act" (California State Board of Equalization Saks and Use Tax Division, March 7, 1941, mimeographed). This publication indicates the general rules for classification, of which the following are significant to the present study: The classification should be made on the basis of the seller's principal line of business, whether taxable or not, but if he has two principal lines of equal importance, it should be made on the basis of the taxable one, or if the principal line of business is other 138 PAGENO="0445" 441 SMALL BUSINESS AND THE COMMUNITY 139 than selling tangible property, it should be coded. according to the principal retail trade sideline. General knowledge of retail trade practices helps us to interpret data on tbe basis of the type of enterprise in which it was sold. W bile a vendor of packaged liquor in California frequently sells soft drinks and limes, it is known that his sales are usually so overwheIningly in liquor that little doubt can be exercised. lv\ hue grocers often sell wines and beers and nonedible merchandise, the great bulk of sales are of food, and the housewife usually classes under groceries all those things she gets at a grocery store, Some classes are less satisfactory- a general merchandise store may sell almost anything the local people require, from baby bottles to caskets. Within the broad categories used in the present study, this source of error is not very significant. The fundamental procedure for extracting the data is simple. The account folders of all permittees with active accounts were withdrawn from the files, for each community, by class of enterprise. In this way the total number of enterprises subjected to analysis included all those with active accounts as of fourth quarter, 1943. The record of reported sales for the year (October 1942-September 1943) was recorded under the proper heading and the annual value indicated. At this point the name of the enterprise was dropped, and since this work was done by employees o~ the board, no information on individual accounts went outside the office. Special assumptions and interpolation had to be made in some specific cases. Some enterprises had not been operating the full year. In these cases it was assumed that these businesses replaced others (every transfer of operator requires a new account) and that the missing months would have the average sale recorded for the months on record. Where heavy seasonal fluctuations were known to exist, appropriate adjustments were made. The second class of special cases was the chain stores. These stores are not required to report their sales by individual outlet, but report their total sales for the entire State and their taxable sales for the entire county. Total county sales were estimated by assuming that the ratio of taxable to total sales in any one county was the same as the ratio for the total enterprise. Allocation to individual outlets within the county had to be made by simply dividing evenly the county sales between the outlets in the county, the number of which is always reported. Such calculations are likely to overstate the total sales for the outlets in smaller communities (such as Arvin and Dinuba), but intimate knowledge of the region suggests that the error introduced in this way is not great. In Arvin, estimates were required for 10 outlets, 7 of which were only reported for only partof the year and 3 of which were chain stores. In Dinuba there were three partial accounts and four chain operations. Since the tendency of both types of estimate is to inflate total sales slightly, it is probable that the total difference between Arvin and Dinuba is slightly understated, though not to a very great extent. The large number of partial accounts in part reflects the growth in Arvin, in part the instability of its enterprises. State law requires that no data be published which divulge the sales of any one enterprise. Therefore, conibinations of different categories were made so that all published categories contain two or more enterprises. PAGENO="0446" PAGENO="0447" APPENDIX II STATEMENT OF GEORGE D LEVIN HEREFORD S DAK AND ACCOMPAN~rING ARTICLI~, "BEEF PROFITS-SAFEWAY HIKES PRICE $188 ON EACH CARCASS," BY DOUGLAS BRADLEY, FROM CERVI'S ROCKY MOUNTAIN JOURNAL When I learned that a Senate investigation in regard to corporation farming was to take place, I decided at once to prepare a sitatement for the Committee giving some of my observations and ideas on the subject, and some of my ideas on how the growth of corporate agriculture can be checked. From what I know about my own ranching and farming operations and my neighbors first hand and from what I can learn about ranching and farming all over the country I would say that unless the ranchers receive much better prices for their livestock than they have been getting for the past eight or ten years and the grain farmers receive much better prices for their products that the days of corporate agriculture are not far around the corner Farmers and ranchers either go broke or retire because they see no future in their operations due to the low price situation Their land will eventually go into the hands of corporations having outside interests that enable them to deduct their losses in agriculture from their gains in other kinds of produc- tion. And because no rancher or farmer can now operate at anything like a fair profit, while hundreds of thousands operate at a continual deficit, there is no place to sell a ranch or farm except to a large corporation or to an individual who is attempting to outrun the cost price squeeze by enlarging his operations and is going further into debt And in this case the individual certainly has to have considerable credit or be able to get money from some rich uncle of which there are very few nowadays Therefore it is only a question of time before corporate agriculture becomes the dominate way in which the food for the people of this nation is produced And once the big corporations get hold of a certain percent of the land of this country there will be no turning back What this percent might be I cannot now tell but I am sure that it would be less than seventy five (75%) percent So the time could easily come in the area where I live that the cattle would no longer be branded because all cattle would belong to one big company. I am sure that statements are available to this committee as to what happens to the rural towns and the people that are a part of such towns if the small operators on the farms are pushed over the cliff I have in mind a case not far from where I live A small town merchant got news that some eighteen (18) small ranch farm operations were selling out to a big cattle company-just coming into the area He was elated he said because he knew the eornpan~ had the money to pay grocery bills Some of his customers were slow at times But he learned after the small operators left and company came in that the company bought nothing from him whatsoever but had all the supplies trucked in from Chicago wholesale In our state we have been losing about 1 000 agricultural units per year for some time and with each six farms or ranches that quit one Main Street bum ness goes out also But for the record with less units to draw from South Dakota lost 1 500 in 1967 leaving us only 48 500 at present Both the number and the rate of attrition is greater I wish to comment now on some of the reasons that the family farmers and rancher has been leaving the land It is my opinion based on documentary evidence that ever since the great depression in the 1930 s certain large coinmerci~l and financial interest have been planning for the time when only a few will have control of agriculture And these planners have been in a position to get the idea to the public that the family farmer was living in luxury driving expensive cars all at the ex pense of the taxpayer In other words there has been a war or a campaign to keep farm prices down to the lowest minimum so that food ~ ill be low priced to the public and competitive on the world market while at the same (443) PAGENO="0448" 444 time the family producer will gradually disappear from the scene and his place eventually taken over by highly merchandized, and perhaps highly subsidized, corporate units. This campaign has been carried on simultaneously with another campaign that would lead people `to believe that the need for food would outrun the ability of the country to produce it; so that if farmers would just grin and bear low prices long enough that the golden age would finally come when the very scarcity of food would drive farm prices sky-high. As I remember it, by 1970 the U.S., so the story went, would be approaching a near-famine situation with the farmers enjoying a position of a man on the top of the economic heap. I might mention here, one whose book, "Road to Survival," was a best seller, William Vogt. In 19~S0 Vogt declared that, "the lower standard of living is here-and it is certain to go lower". Basing themselves on Vogt's theories and other such works on population and land, those with large amounts of money to invest for future gains, took `the grim warning seriously. And so a great deal of what one might call "big money" was invested in crop-producing land in the form of loans, as well as outright purchases. From what I learn, founda- tions and insurance companies, much of it hidden, hold large land loans which can be liquidated when the mortgage holders think the time has come to turn their holdings into great profits. Mr. Vogt, who incidently is still with us, and who spoke out recently against having a president in the White House with a large family because it set a bad example, was wrong, because among other things he didn't consider the almost universal birth control methods. But those who accepted the Vogt theories helped boost land prices `to their high levels, thus forcing farmers and ranchers into cut-throat competition for land, which in turn increased land taxes all over the country and increased all agricultural operating costs and put them greatly out of proportion to the values of the crops and livestock produced on the land. I think the committee should look into the question of who hold the mortgages on the crop bearing land in this country and `the connections the mortgage holders have with big corporations. If the problem of prices can be solved per- haps those holding large tracts of land could be induced to sell some of the tracts to family operators. But family operators could never pay for the land unless they receive enough for their products to make payments possible. I wish to point out that the contradiction between the prices received by farmers for agricultural commodities and the price for which all agricultural land now sells, compounded the so-called farm problem and speeded up the days when large-scale agriculture would rule the rural areas both economically and politically. In the process by which corporate agriculture grows and becomes dominant I think it is necessary to point out that the process is not gradual, nor the rate of speed constant. It is somewhat like a military campaign in which the strate- gists probe for commanding positions where they can plant big guns or b'ottk up sea traffic. The range lands where life begins in the beef, wool and lamb industry are such a key position. When corporate agriculture gets control of a certain percent of the range lands the rest of the range lands will fall into the corporate camp easily. And also the rest of agriculture will come under corporate control or direct ownership. Since about 1962 the livestock people have been suffering a downward spiral in net income and have, like agriculture in other places, borrowed on inflated land values to keep in the game. This downward sipiral has occurred when there was an upward spiral in the economic power of the food chain stores who handle about 85% of the dressed meat, which incidently is bought through less than half-a-dozen purchasing agencies; while the rest of the chain stores follow the leader in "lock-step" paying prices quoted on the "yellow sheet", `the trade publication. Elvidence of this chain store monopoly was brought out in 1965 through the hearings of the National Commission on Food Marketing. It is my contention that the chain store monopoly is the key factor today in the rapid rate in which ranchers are sliding toward bankruptcy while the areas are being taken over by corporate interests. This should be a case for the D& partment of Justice. A small group of ranchers have filed a civil action against three of the nation's largest food chains charging conspiracy to violate' the anti-monopoly laws. The evidence produced by the ranchers in this suit should be examined by a congressional committee such as this and placed in the hands of the proper authorities so that the Department of Justice can prosecute, and PAGENO="0449" 445 so that the corrective legislation can be drafted and passed. In fact, the whole chain of connections between supermarkets, packing houses and large feed lots should be examined by this committee and the combinations that restrain com- petitive trading of livestock should be brought to light again so that the anti- monopoly laws will not be violated. And so that ranchers' markets will be free and competitive. There are many ranchers who would prefer that the federal government put this chain store house in order before any program of direct payments from the government to the ranchers, or feeder be attempted, pay- ments which would make up the difference between the price the rancher re- ceived and what was required for satisfactory operations of the livestock industry. A quick way in which any committee or any interested group can find out how much profit supermarkets receive on meat is by using the trade's per- centage cutting sheet which gives the percent of each cut of beef or other meat in every carcass-and the percent of waste. A group familiar with cuts of beef. for example, and, which the percentage cutting sheet can check retail beef prices in stores over a certain period, and then compare them with the whole- sale prices over the same periods. Beef is in the stores only two days, sometimes only one day, and the stores have no capital invested because the bills for the meat come in after the house- wife pays the store as she checks out her cart of groceries. There is a two-day turnover on beef carcasses in the big cities like Denver. After finding the mark- up per carcass it is easy to find how much the net profit would be on beef during the yearly turnover of a carcass sold each two-day period of the year. Cervi's Rocky Mountain Journal in Denver did just that, something that can be checked any place in the country by those willing to investigate. Cervi's team of meat experts found that the markup on a 600 pound carcass costing $228.00 wholesale was, on an average for the three main chain stores about $188.00. The team estimated that the area chain stores grossed about Forty-five percent (45%) profit and Twenty-five (25%) net profit on the $228.00 carcasses. Thus, our prob- lent now is: Twenty-five percent (25%) of $228.00 times 180 (the number of two- day periods the stores are open in a year), which is $10,260.00. This is the net profit the chains averaged if they sold a 600 pound carcass every two days during a year. The above story appeared in Cervi's Journal, January 11th, 1967. If this rate of profit was applied to the cow-calf man on the range, without even counting cost of operations, but only a Twenty-five (25%) percent net on the cost of a cow for each two-day period of the year, the calf would have to bring the rancher about $9,000.00. Cervi's Rocky Mountain Journal published a similar article, November 10th, 1963, using information from the "Western Livestock Journal" of November 20th. 1963. The "Western Livestock Journal" stated: "It would appear that retailers. if they sell most of the beef at `regular' prices, are grossing w-ell above Fifty per cent (50%) profit on carcass costs at present market prices." It was during 1963 that agitation in regard to the chain store profit margins on meat rose to a high pitch in the livestock country, and by March 23. 1964, the Senate Committee on Commerce began hearings on Senate Joint Resolution 71. The hearings were held for several days, and among those who testified was the late Jack Poole, president of the Montana Cattlemens Association. Mr. Toole charged that, "There is more cattle rustling going on behind the meat counters of this country's chain stores than ever went on the rangelands of the West." I agree with Mr. Toole's statement. And I wish to include in the record a copy of the Article I mentioned and taken from Cervi's Rocky Mountain Journal of Jan- uary 11th, 1967, which includes a percentage cutting sheet used by Cervi's team of meat experts. I wish to point out to this committee that the nature of the Commerce Com- mittee's hearings were changed upon the recommendation of the President, who suggested a "National Commission on Food Marketing", to study the food in- dustry from farm to the consumer". Evidently the National Commission on Food Marketing had no mandate to correct the situation which existed then in the livestock industry, so by 1967, according to Cervi's Journal, the chain store cattle rustling was still going on as strong as ever. It was then, in the summer of 1967, that groups of individual livestock men. some of them representing organizations such as the Independent Stockgrowers of America, the N.F.O., the California Western Beef Producers Association, the Colorado Agricultural Producers, the Independent Bankers Association, and PAGENO="0450" 446 others, began to meet in Denver to see if something might be done in regard to the evident chain store monopoly. ~ I took part In several of these meetings. The ranchers there decided that they would raise some money for the necessary investigative purposes and hire an anti- trust law firm to file a pilot suit against several food chains for a redress of losses. And in this manner have a legal basis for corrective legislation in the Congress. I am sure that since this law suit has been filed and had made head- lines that the food chains have loosened up a little bit with higher prices to live- stock producers. But this is really a case for the Department of Justice and for the Congress, because ranchers do not have the time or the money to spend the rest of their lives in court I cannot see why Congress can't pass laws that will regulate the handlers of food and livestock so that, in the first place, the persons producing the livestock, either on the ranges or in the feed lots will get a price sufficient to pay operating costs interest on capital invested and a profit comparable to any other business I say this because the United States is not a poor country like India, but the most productive agricultural country in the ~s orld The public utilities are regulated so are the railroads the airlines insurance companies and the like Why not supermarkets, so they will not be in the business of "cattle rustling", legally or illegally, where the producer on the land is forced to underwrite the bingo games, the horse races, the large advertisements and the low-profit assortment of gimcracks pills powders paints and gadgets that clutter the shelves `~ In this way a brake can be put on corporation agriculture by making it possible for family agriculture to maintain itself I am sure that it is well within the province of this committee to deal with this question when they deal with the inroads and the dangers of corporate agriculture Lastly let me say that the United States needs an over all new land policy that orients on family agriculture as the means by which our food is produced Congress should using such a policy enact the necessary legislation whatever it takes to implement this policy There isn t much time left in which to do this Much time has already been frittered away debating dimes and nickles or band aid remedies But I don t think it is too late to reverse the onrush of corporate agriculture, provided action is taken soon. The only alternative, as I see it, to family agriculture is a sort of feudal system and all~ that goes with a feudal system of agriculture. I wish to thank Senator Nelson and the rest of the committee for holding these hearings I hope my report will help the committee in its deliberations and recommendations BEEF PROFITS SAFEWAY HIKES Piuau $188 ON EACH CARCASS (By Douglas Bradley) Copyrighted 1967, Cervi's Rocky Mountain Journal The chain supermarkets are making a gross profit of up to 45.49 percent on their sales of beef In the Denver Metropolitan area. That means they are almost doubling their wholesale price when they sell the beef at retail to the Denver area housewife. That is the astounding fact developed from a detailed study of cut out and sold beef carcasses conducted by an independent panel that brought the results to this newspaper asking not to be identified for fear of retaliation from the supermarkets. On an average 600 pound steer carcass the chains are making and have been making a little seen, little understood and seldom disclosed profit of up to $100.26 per carcass. The supermarkets bought dressed carcasses in the last week of December and the first week of January, the period of the survey, for 37-38 cents a pound. That amounted to $228 per carcass delivered to the supermarket's butchering block. That carcass and all similar, in turn, were sold to the public for $418.26, based on retail prices that prevailed over the recent two weeks period in the three major supermarkets in the Denver area. PAGENO="0451" 447 In short, the supermarkets sold for $418 beef that cost them $228. That isn't all. They sold the beef and collected the money before they ever paid their suppliers. A detailed cut-out chart of carcass cuts and prices charged at retail by the three major chains accompanies this article. The startling figures are brought to the attention of the public as a result of an extensive survey conducted by a team of men representing more than 22~ years of combined experience in production, finishing, processing, distribution and mnarketimig of beef. The carcasses on which supermarkets were making a gross profit of up to $190 a piece are the same cattle on which producers and feeders lost up to $40 a piece. The independent and informal beef panel made the study as a result of con- fusion and conflicting statements heard among Colorado cattlemen since this newspaper started its unique and exclusive coverage of Colorado beef marketing seven years ago. The Panel members, acting on their ow-n initiative and requesting only that they not be idlemitifled, collected retail prices in the three major supermarkets themselves. The survey team (none of theni w-as paid for his w-ork) rebuts the chains' long contention of low profits, as "a sham perpetrated upon an unsuspect.hig Public" The panel calls the profit revelation "an unheard of and imicredil)le margin." The panel charges that the real victims of the chains' mystery-shrouded pricing techniques., are the othei- segments of the beef industry, and particularly the small cattlemen producer. This new-spaper publishes on page 14 the panel's breakdown of commercial cuts from a carcass of beef. Listed are the percentages of cuts, the selling price per pound and the return received by the chain supermarkets. The price paidi by the chains for their beef w-as takemi from the Chicago Yellow Sheet, price "bible" of the beef industry. By deducting the "cost" from the "return," a. gross profit figure is arrived at, The retail prices of three chains: Safeway, Miller and King Soopers, are listed in the published chart. The Prices used are weekend prices-the lowest during the marketing week. The panel deliberately favored the chains where there is an imbalance. Thus, although the Yellow Sheet for the period lists beef niarket prices at 37-38 cemits, the latter figure w-as taken as a guideline to the chains' purchasing cost. On operational costs, the chains remain tight-lipped. Said one of the survey investigators: "Let's give them the greatest latitude amid put their operating or overhead costs at 20 percent.. This still leaves them more than 25 percent NET profit. So a $228 investment is returning them an unheard of profit. The national average in the other segments of the meat industry is a net profit of around one percent. "Because the chains are making these fantastic profits, everyone else in the meat business is going broke." The survey found that at this time cow-calf operators have to receive at least 30-31 cents per pound for calves in the Colorado~Nebraska amen to break even. Producers, to i)reak even, have to receive at least 27-28 cents per pound for yearling steers wh~icli six monftlis hence or slightly less will be the fat animirals ready for slaughter. L. H. Simerl, agricultural eco'mio'mnist ait the Un'iversity of Illimiois, said last w-eek in reference to Midwest conditions: "Fa.t cattle prices realized by feeders in November were generally $24 to $24.50 per hundredweight down 15 percent from last March. "With corn at $1.20 a bushel, the return mìeeded to cover all costs would have beemi $26 to $28. Thus, typical losses seem to have been $20 to $40 per steer." Sinierl added that the Midiwest conditions mirrored those of the West where mamiy feeders have had to reckon losses from $15 to $50 per head. A packer (slaughter) viewpoint was expressed this way: "When we start w-ith a carcass of beef (using the 600-pounds average) we figure we have $240 in it. At our end, w'e want to break the carcass down and try to get $250 back by selling all the pieces. If we make $10 a head, we are in fine shape." Does the packer make a profit or break even? "No", said the executive. "The trend has been against us. We have long been losing about one percent. PAGENO="0452" 448 He, like others in the meat business who can be said to be "hanging on", is hopeful that conditions will somehow miraculously change and "we might make money again." When questioned about hii's firm's operating cesit's, he said they were greater than the chain stores, percentagew'ise, "because they involve more services." He Said anal~si's of the book-keeping showed operational costs to be app'r'oxi- m~at;ely 18 percent. Analysis of the survey results show an astonishing similarity of supermarket prices charged the public for cuts of beef, considering the incontrovertible profit margins enjoyed by the chains. S~aid a survey investigator: "This in what's ~a'lled in governmen't circles `the lock-step pHc'ing system'. The chain Stores march in unison. One sets the price and all follow suit". He was referring to the prices paid by chains for beef, however, more than prices charged to the public in the supermarkets. Paradoxically, from time to time, the chains unwittingly reveal their intrinsic profit margins in the meat m?arket by the "bargains" they offer the pt~bllc. Thus, the panel's table shows a 10-cents-a-pound price spread between S~afew~ay and King S'oo'pers on rub standing roast, and a 30-cen'ts~a-pound price spread be- tween Safeway and Miller on rump roast cut. If the enormous price advantage enjoyed by the chains in the beef market did not exist, the panel claims, such price bargains could not be offered to the public. The bargains to the public are few and far between, the survey reveals. The chains jealously retain their profits coined at the expense of producer, feeder and packer. "The profits are distributed in corporate dividends or dis~ipated in the con- struction of more and more supermarket palaces", said a member of the panel. "That is why at the retail level beef prices remain high-either by tacit or negotiated agreement. "With the prices Which the chains pay for beef, the supermarkets could afford to charge much les's." The identity of this man, like other members of the panel, as to remain un- disclosed because of fear of re1laiiiation from supermarket chain store purchasing agents who dominate the cattle sales market. The panel members, however, are not averse to testifying or disclosing the results of their investigations in any subsequent federal probe which carries appropriate safeguards. Over many years, this newspaper has en'd~avored (unsuccessfully) to get the chains "to explain" their lock-step pricing tochniques~ both at the buying and selling end. The chains h~ive steadfastly refused to d'iisculss this and have taken refuge in the stand that anything touching on their profit-margin structure Is private corporate business and of no concern to the public. Efforts to discern chain profits on beef (and other meats) have been balked in the past by the confusing terminology employed by the chains in describing their products. The panel survey disclosed no less than 63 terms used by Denver supermarkets to describe beef products. The beef glossary contains some two dozen titles for steak. The attitude of the chain spokesmen is: "You can't say we are making so much on a porterhouse steak and so much on a Pikes Peak roast, because you can't break down the profit on individual cuts." The panel experts disagreed. They decided that no matter what the chains call individual cuts of beef, all t'he products belonged under one of 18 headings. The informative butchers of a generation ago have been replaced by automa- tion which mysteriously cuts, grinds and packages in often baffling method to the uninitiated. But a carcass still consists of two hind quarters and two froat qularters. Every animal has two rounds and two shanks and primal cuts ~an be pin- pointed. Each animal yield's an average 12 steaks o'f one particular cut what- ever the descriptive term employed. To correlate the supermarket itame's with a standard terminology was no problem for the panel. Armed with their own chart on division's of commercial cuts and retail cuts of beef, the panel members appro'ached the supermarkets and asked them for "`average retail prices." PAGENO="0453" 449 The panel members also checked the prices on display and com~ared these With the inform~tion tendered by chain officIals. There Was little difference between the two sOts of information, but where there was a variance, an average was computed by a computer. The computer was also used to reach averages under the 18 headings of beef products. "This was the only way we could reduce the ct~ts sold to a comm'on den~omi- nator", one of the experts explained. "Not every supermiarket sells porterhouse steak but they all sell sirloin". Under the 18 headings, retail beef prices were found to average from one cent a pound for bones, up to $1.27 a pound for sirloin tip, roast or steak. The panel's table reveals the following results of trading for a specific period: Safeway's return on 100 pounds of beef-$69.47; Miller's return-$69.71; and King Soopers return-$67.82. From these figures must be deducted the Yellow Sheet cost of purchasing the beef-$38 per 100 pounds, leaving gross profits as follows: Safeway $31.47; Miller $31.71; and King Soopers $29.82. An average carcass of beef is 600 pounds. Multiplication indica,teis the chain profits per carcass to be: `SafeWay $188.80; Miller $190.26; and King Soopers $178.92. The panel concludes its report with the pledge that it will be a continuing study group with the goal of bringing alleviation to the plight of cattlemen and other segments of the beef itidustry. The panel, each member of which has borne his own expenses, was formed at the inVltation of Eugene Cervi, publisther of this newspaper, Cervi, like the other members, has a self-interest in the industry through his long-standing commit- ment with pioneer Clolorajdo cow-calf operations in Weld and Logan counties Cervi's ranching connections are with the 88 year-old Reagan Ranch, 21 miles north of Stoneham, Colorado. Mrs. Eugene Cervi is the granddaughter of John Reagan, who, with his sons Daniel and William, founded the ranch. Cervi's son, Michael, is now actively operating the ranch. SUPERMARKET MEAT PRICES-PERCENTAGES Items King Safeway Safeway Miller Miller Soopers King Cut out selling return selling return selling Soopers by per- price per per price per per price per return centages pound pound pound pound pound, per Dec. 30, Jan. 3, Jan. 3, pound 1966 1967 1967 Potroast, round bone, and blade bone-_ Neck bone meat on 18.00 $0.62 $01116 $0.63 $01134 $0.59 $01062 2.60 . 35 . 0091 . 35 .0091 . 35 . 0091 Navel (whole bone in) 6-rib standing roast, oven ready Bone in sirloin steak 8. 64 . 20 . 0173 . 20 . 0173 . 20 . 0173 7. 50 1. 09 . 0818 . 98 . 0735 .99 . 0743 8. 10 1. 09 . 0883 1. 12 . 0907 1. 09 . 0883 T.bonesand shortcuts 7.24 1.33 .0963 1.37 .0992 1.35 .0977 Flank steaks .50 1.21 .0061 .99 .0050 .98 .0049 Round steak 9. 10 . 99 . 0901 . 99 . 0901 . 99 . 0901 Pikes Peak roast 3. 24 . 95 . 0308 . 95 . 0308 . 89 . 0288 Bone in rump roast Ground beef lean trimmings Sirloin tip roast or steak Short ribs Hindshankmeaton 4.50 .69 .0311 .99 .0446 .89 .0401 7. 88 . 69 . 0544 . 55 . 0433 . 55 . 0433 3. 41 1. 27 . 0433 1. 25 . 0426 1. 19 . 0406 3.04 .39 .0119 .49 .0149 .49 .0149 3.80 .49 .0186 .49 .0186 .49 .0186 Edible fat 5.07 .07 .0035 .07 .0035 .07 .0035 Waste Bones 1.00 4.50 .01 .0005 .01 .0005 .01 .0005 Cuttingloss 1.88 Whole beef 100 .6947 .6971 .6782 Do (1) `.3800 1.3800 .3800 Gross profit (per pound) . 3147 .3171.2982 iCost based on current market value of 37-38 cents for fresh choice beef dressed. Note: 1 whole beef approximately 600 pounds at 31.47 cents equals $188.80 "per beef" Safeway 45.30 percent gross profit; 1 whole beef approximately 600 pounds at 31.71 cents equals $190.26 "per beef," Millers 45.49 percent gross profit; 1 whole beef approximately 600 pounds at 29.82 cents equals $178.92 "per beef," King 43.94 percent gross profit. 0 PAGENO="0454"