able through the Department of Justice and the Federal Trade Commission are inadequate for this distinctively different form of business enterprise. At present the laws make no provision for a consideration of such important factors as the overall effects on competition and the best interests of agriculture. The precise form of the administration's recommendations for legislation to meet these problems is still under discussion within the executive branch.

FUTURES TRADING

7. Futures trading.—Trading in futures contracts on commodity exchanges is an old and valuable method of providing essential pricing service to farmers, processors, and handlers. When adequately policed and protected, it is an essential means of shielding producers from the hazards of major price fluctuations. Yet it is clear that the present authority of the Secretary of Agriculture, which covers trading of an annual value of nearly $50 billion, is inadequate for effective supervision of the futures markets. Accordingly, I shall shortly transmit to the Congress legislation to remedy the defects of the present law without impairing the basic operations of commodity exchanges.

(The Department's comments follow:)

Experience in supervising commodity futures trading on commodity exchanges has indicated a need for more authority to enable the Department of Agriculture to more effectively carry out the purpose of the Commodity Exchange Act and protect the public interest. The Department believes it should have, and has previously sought, the authority to prescribe under certain conditions the minimum margins which commodity exchanges should require of traders in the commodity markets. Responsibility and authority for the control of margins now rests with the commodity exchanges, and no Federal agency presently has authority to prescribe such margins. However, the Federal Reserve Board prescribes minimum margins in trading in stocks.

The Department also believes it should have the authority to seek court injunctions against persons who appear to be manipulating or cornering the market, or otherwise violating the act or preparing to do so. Such authority could be used to stop a situation threatening to destroy the economic function and value of commodity markets before such damage is done. There is urgent need for such authority in the Department of Agriculture with regard to commodity trading comparable to that given other Federal regulatory agencies, including the Securities and Exchange Commission.

Other provisions aimed at further strengthening the act and facilitating its administration will also be proposed.

Proposed legislation aimed at strengthening the Commodity Exchange Act in areas discussed above, has been drafted and is under final consideration in the executive branch and will be transmitted to Congress shortly.

CROPLAND CONVERSION

8. Shifting cropland to less intensive uses.-One of the major problems facing American agriculture today involves the balance between land devoted to various crops and land used for other purposes. Cropland should be sufficient to produce all of the food and fiber we can expect to consume at home and export abroad; and all land not needed for this purpose should be shifted to other

uses.

Rental contracts on 7.4 million acres of cropland that were placed in the conservation reserve between 1956 and 1960 expired December 31, 1963. That program was expensive, for it was designed, not to encourage long-term shifts of land to more desirable uses, but as a short-term measure. In its place, I recommend a program which encourages the permanent transfer of excess cropland into trees, grass, wildlife habitat, outdoor recreation, and other uses for which there is a growing public demand.

The Agricultural Act of 1962 authorized a pilot program of this kind under which $10 million is the maximum available. This limitation should be increased to $50 million.

(The Department's comments follow :)

The cropland conversion program is a far superior way to meet the need for shifting, to other uses, some of the cropland which now is being used to produce crops in oversupply. The cropland conversion program helps people stay on the farm and earn income from farming. It helps the farmer find a better use for his land and, therefore, the changes he makes in the use of his land are more likely to be permanent changes. Since farmers will be getting some income from use of the land, the cropland conversion program will be a much less expensive way of achieving desirable land-use adjustments. We feel that the present $10 million limitation in the Food and Agriculture Act of 1962 should be increased to $50 million. The land which would be converted from crops to other uses under a $50 million program likely would not exceed 1,100,000 acres. This amount when shifted to a combination of trees, grass, wildlife habitat, and recreation use is not large enough to have an adverse economic impact on any segment of agriculture. While much of the land would be converted to grass, most of this grassland would not be available for grazing use in 1964 and some of it likely would not be heavily grazed in any future year. In any further expansion, the cropland conversion program could be limited to a size that would keep the amount of cropland converted to other uses in pace with growing needs for the products resulting from these other uses. This would avoid any substantial adverse economic effect on any segment of agriculture and without as great a cost to the Government for the land involved as has occurred under the conservation reserve program.

More than 2,800 farmers in 128 counties of 37 States have agreed to convert over 129,000 acres of cropland to other income-producing uses under the special pilot cropland conversion program.

The agreements with farmers, made the first year of operation of USDA's cropland conversion program, cover conversion of more than 114,000 acres of cropland to grass, 8,300 acres to development of recreational facilities, 5,900 acres to trees, and 256 acres to wildlife habitat.

Recreational developments approved under the program include facilities for fishing, hunting, boating, swimming, hiking, camping, skiing, and similar outdoor activities. Cost-sharing assistance was available to farmers for soil and water conservation measures, such as earthmoving and the establishment of protective cover of grass or trees. However, all of the cost of installing facilities such as boat docks, bathhouses, fireplaces, picnic tables, and similar items necessary for the development of recreation enterprises is borne by the farmer.

Agreements with farmers are for periods of either 5 or 10 years, depending upon the type of land being converted and the type of project to which conversion is being made. Project agreements aimed at converting cropland to longtime enterprises such as forests or recreation, usually for periods of 10 years, apply to more than 29,000 acres. Conversions to grass and wildlife habitat, for 5

years, cover almost 100,000 acres.

Adjustment and cost-share payments made to farmers are not income payments, but rather are designed to provide limited assistance in shifting cropland to alternate income-producing uses. The farmer is expected to earn his income from the land by using it for purposes other than crop production. The amount of assistance to farmers is based on such factors as land productivity, type of conversion, use to which the land is being converted, changes in operating costs, and the conservation measures needed by the land in its new use.

The cropland conversion program, authorized under the Food and Agriculture Act of 1962, is administered by the Agricultural Stabilization and Conservation (ASC) Service through its State and county ASC committees and with technical service assistance from Soil Conservation Service and Forest Service.

MARKETING

9. Market power.-There is one more pressing need if American agriculture is to be strengthened. The recent changes in the marketing structure for distribution of food are as revolutionary as those in production. There are some 200,000 retail grocery stores, but we know that $1 out of every $2 spent for groceries goes to fewer than 100 corporate, voluntary, or cooperative chains. Our information about how this greatly increased concentration of power is affecting farmers, handlers, and consumers is inadequate. The implications of other changes that take place such as vertical integration and contract farming

have not been fully explored. I urge that the Congress establish a bipartisan commission to study and appraise these changes so that farmers and business people may make appropriate adjustments and our Government may properly discharge its responsibility to consumers.

(The Department's comments follow:)

The major changes that have taken place during the past 20 years in the processing and distribution of farm and food products are of a magnitude greater than the combined changes of all the earlier commercial history of these products. These changes include: changes in the nature of the food products themselves; great concentration in the distributive segments of the industries involved; integration of retailer and wholesaler; the increasing importance of advertising and promotion; drastic changes in methods of procurement; the development of captive processing in some elements of the food business; and the growth of formal integration and contract farming. In many fields the terms of sale of a product, from the farm level up through the retail level, have shifted and changed. Yet the scope and nature of associated changes at the farm level are for the most part unrecognized.

The Department of Agriculture has a deep interest in these changes, because of the effects they have had, and will have in the years ahead, on American agriculture, on farm prices and incomes, and on the nature and accomplishments of farm programs. A bipartisan, impartial, competent study and apraisal of these changes would be of great value to both the Department and to the Congress in their attempts to develop policies and programs in the interest of farmers, business, and all Americans.

BASIS OF PARITY FORMULA

Mr. WHITTEN. There is one other question I would like to ask. I had a letter from you on this matter, but I notice in the paper that someone has raised the question of juggling parities. Some years ago I thought that your predecessor and his folks in his Department were changing the formula by weighting the relative value of different component parts of the parity formula. I won't go into your letter to me because you are here personally and I would like for you to put into the record the formula for determining parity that is in the law, a statement as to what factors enter into the determination and then tell us what all the hullabaloo is about and whether there is any accuracy in the charge that you have started including farm payments as a part. of the price level?

Secretary FREEMAN. The true situation is that nothing has changed in terms of the parity ratio, the reporting of the parity ratio, or the calculation of the parity ratio. That all continues constant. However, in addition, a piece of information has been prepared which is called an adjusted parity ratio to express more accurately the situation in connection with the farm income. Farm income is not necessarily

(The information requested follows:)

THE COMPUTATION OF PARITY PRICES

Parity prices are computed under the provisions of title III, subtitle A, section 301 (a) of the Agricultural Adjustment Act of 1938 as amended by the Agricultural Acts of 1948, 1949, 1954, and 1956.

The major provisions of the amended act relating to the calculation of parity prices are as follows:

"(1) (A) The 'parity price' for any agricultural commodity, as of any date, shall be determined by multiplying the adjusted base price of such commodity as of such date by the parity index as of such date.

"(B) The adjusted base price' of any agricultural commodity, as of any date, shall be (i) the average of the prices received by farmers for such commodity,

at such time as the Secretary may select during each year of the ten-year period ending on the 31st of December last before such date, or during each marketing season beginning in such period if the Secretary determines use of a calendar year basis to be impracticable, divided by (ii) the ratio of the general level of prices received by farmers for agricultural commodities during such period to the general level of prices received by farmers for agricultural commodities during the period January 1910 to December 1914, inclusive. As used in this subparagraph, the term 'prices' shall include wartime subsidy payments made to producers under programs designed to maintain maximum prices established under the Emergency Price Control Act of 1942.

"(C) The 'parity index,' as of any date, shall be the ratio of (i) the general level of prices for articles and services that farmers buy, wages paid hired farm labor, interest on farm indebtedness secured by farm real estate, and taxes on farm real estate, for the calendar month ending last before such date to (ii) the general level of such prices, wages, rates, and taxes during the period January 1910 to December 1914, inclusive.

"(D) The prices and indices provided for herein, and the data used in computing them, shall be determined by the Secretary, whose determination shall be final.

"(E) Notwithstanding the provisions of subparagraph (A), the transitional parity prices for any agricultural commodity, computed as provided in this subparagraph, shall be used as the parity price for such commodity until such date after January 1, 1950, as such transitional parity price may be lower than the parity price, computed as provided in subparagraph (A), for such commodity. The transitional parity price for any agricultural commodity as of any date shall be

“(i) its parity price determined in the manner used prior to the effective date of the Agricultural Act of 1948 [January 1, 1950], less

"(ii) 5 per centum of the parity price so determined multiplied by the number of full calendar years (not counting 1956 in the case of basic agricultural commodities) which, as of such date, have elapsed after January 1, 1949, in the case of nonbasic agricultural commodities, and after January 1, 1955, in the case of basic agricultural commodities."

Section 301 (a) (1) (F) outlines authority for the Secretary of Agriculture to make special adjustments in the method of computing parity prices for particular commodities if the method outlined in the act results in parity prices seriously out of line with those of other commodities.

For commodities not on the modernized basis parity prices are computed by both the "old" and the "new" formulas. The effective parity price that is, the official parity price to be used for making determinations needed for price support or other programs-is then the higher of the following:

(1) The party price computed under the "new" formula outlined in the amended act, or

(2) The transitional parity price (as described in paragraph "(E)"). During 1964 the transitional parity price for nonbasic commodities is 25 percent of the "old" formula parity. Basic commodities completed transition to the modernized basis in January 1960 at which time corn and Puerto Rican tobacco shifted to modernized parity.

The effective parity prices published monthly are based on the provisions of the amended act. Briefly, the actual method of computation under the "new" formula is as follows:

(a) The average of prices received by farmers for individual commodities for the 10 preceding years is calculated (for 1964 this is the 1954-63 average). An allowance for unredeemed loans and other supplemental payments resulting from price support operations is included for those commodities for which applicable.

(b) This 10-year average is divided by the average of the index of prices received by farmers for the same 10 preceding calendar years, adjusted to include an allowance for unredeemed loans and other supplemental price support operations, to give an "adjusted base price."

(c) Parity prices are computed by multiplying the "adjusted base prices" by the current parity index (the index of prices paid by farmers, including interest, taxes, and farm wage rates, with 1910-14 equaling 100).

Only two commodities, avocados and dates, remain on the transitional parity-all others are on the "modernized parity" described above.

30-080-64-pt. 1-8

The indexes used in the computation of parity prices are published currently in Agricultural Prices.

The index of prices received by farmers is the statistical measure described in lines 2-10 of paragraph 1(B) above.

The parity index is the statistical measure described in paragraph 1(C) above.

Both of these indexes are published monthly in the Department's publication entitled "Agricultural Prices." The formulas used in their computation are the same as they have been since the last major revision, announced in the January 1959 issue of Agricultural Prices. The computation of parity prices of individual commodities is carried out precisely according to the law, as heretofore.

The parity ratio, which is the figure involved in the recent discussion, is not prescribed by law. It is not even mentioned in the law. It is not used in the computation of the parity price for any commodity, nor for establishing support levels, nor in the administration of any marketing orders.

The parity ratio has been computed and published by the Department simply as a convenient summary statistic of the overall relation between prices received by farmers and prices paid by farmers relative to 1910-14. Specifically, the parity ratio is the quotient obtained by dividing the index of prices received by the parity index (index of prices paid by farmers, including interest, taxes, and farm wage rates), and multiplying by 100 to put it in the form of a percentage. For example, in January 1964 the index of prices received was 243, the parity index was 313, and the parity ratio was 243 divided by 313 equals (.78) and multipled by 100 to give 78. This was computed exactly as has been done routinely for many years.

If the parity ratio is 100, it means that a unit of commodities farmers sell has the same average purchasing power in terms of things farmers buy as in 1910-14. If the ratio is below 100, it means that a unit of commodities farmers sell has less purchasing power on the average than in 1910-14, and if the ratio is over 100, it means that a unit of commodities farmers sell has more purchasing power on the average than in 1910-14.

The adjusted parity ratio does not replace any existing measure. It is not used in computing the parity price of any commodity. It is not used in determining any support level. It is not used as a specific factor in administering any law.

The adjusted parity ratio is simply and solely a new statistical series for use in addition to the conventional ones for gaging the agricultural economy. It was developed in recognition of the fact that farmer's welfare involves more than price relations alone, that income is more important, and that the parity ratio, which involves only price relations, provides only a partial measure.

It should be noted that the adjusted parity ratio also is only a partial measure of farmers' welfare, but it is in some respects more completely descriptive than the parity ratio alone.

In presenting the adjusted parity ratio the Department described exactly how the adjusted parity ratio was computed, explained the reasons for its development, and gave the annual figures all the way back to 1933, the first year such payments were made. The Department stated explicitly that the parity ratio would be continued each month as heretofore.

The farm economy has many facets. No single index can completely measure it. The Department has simply added an additional measure which includes Government program payments not reflected in price relationships.

Mr. WHITTEN. We used to fuss at Mr. Benson some about this, too. He would jump from one to the other, a little bit fast in his figures. If you read it, it was technically correct, but it was mighty easy for one to be used instead of the other by the average reader. Now, you are not shifting from one to the other too fast, are you, Mr. Secretary, for the reader to keep up with you?

Secretary FREEMAN. I will move just as slowly as the chairman thinks is both dignified and honest.

Mr. WHITTEN. What use, may I say then, do you make of this parity? Is that limited to income and not used at all in the matter of determining parity? Is that based on the old parity formula as provided by law?