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Senator Walsh of Montana. We are complaining, you know. that there is too much loss by passing these products through the hands of the middle man.
Mr. LINDSAY. Yes.
Senator Walsh of Montana. The consumer is not benefited by the thing at all, because the distributors charge them exorbitant prices; and, on the other hand, they pay an inadequate price to the producer of the milk.
So that the public is interested in cutting out this middle man? Mr. LINDSAY. Absolutely.
Senator Walsh of Montana. And encouraging the Virginia producers to set up their own distributing agency and bring their product in here and distribute it themselves?
Mr. LINDSAY. Yes.
Senator Walsh of Montana. Very good, so far; and so we would like to encourage the Maryland producers to do exactly the same thing. Now, we have the two organizations here competing with each other, so that if one charges an exorbitant price he meets the competition of the other. But how is the public interest subserved by allowing them to combine so that there is a complete monopoly, and the people of the city of Washington are obliged to pay whatever price they exact of them?
Mr. LINDSAY. That argument assumes that the fact of power necessarily implies an unlawful exercise of power, and I think there is some little fallacy in that argument, because to my mind that very condition that you now speak of, under proper regulatory control, is the ideal condition.
Senator Walsh of Montana. Just what kind of control would you have?
Mr. LINDSAY. Here in your bill you provide that control shall be as it now is, in the Department of Agriculture or the Secretary of Agriculture.
Senator Walsh of Montana. Would you have the Department of Agriculture fix prices?
Mr. LINDSAY. That, to my mind, is the solution of the problem, just the same as is done in the case of the control of public utilities in the various States by the different commissions.
Senator WALSH of Montana. Yes.
Mr. Linósay. Unless the Secretary of Agriculture, upon a hearing, may make an appropriate order, it is absolutely
Senator WALSH of Montana. So that your idea would be to create a monopoly and control the monopoly.
Mr. LIDNSAY. Yes.
Senator Walsh of Montana. Would you extend that beyond agricultural products? Mr. LINDSAY. Of course that is another problem. Senator WALSH of Montana. Let us take oil, for instance.
Mr. LINDSAY. Yes; I am not here to advocate in practice, Senator
Senator Walsh of Montana. I wanted to know from you whether your idea of a regulated monopoly is general in its scope; whether you think that is the proper way to take care of the situation, to have prices generally regulated, to allow them to create a monopoly without restriction, and regulate the prices, or whether you find some reason for differentiating in agricultural products.
Mr. LINDSAY. I want to say that I am not in favor of general regulatory control. I am no adherent to any kind of a socialistic doctrine, and I am a believer in competition, so far as that is concerned. If it were not for the evils which exist, and which apparently can not be controlled, I suppose that free and untrammeled competition, under our system of government, would be the ideal plan. But there are certain evils which apparently can not be controlled. There is the evil of which you spoke a moment ago, which results in the producer receiving inadequate returns for his investment, for his labor, and for his energy, the consumer paying as much as if not more than the commodity is worth, and some other people reaping the benefit, getting the profit, at the expense of both the producer and the consumer. If there were a way of controlling those matters, then no argument, to my mind, could be advanced against competition.
Senator Walsh of Montana. But what I want to get at from you is this. You advocate, with respect to agricultural products, the permission of monopolies, and the regulation of the prices charged by those particular monopolies. I want to know from you whether that is a general idea, whether you believe that any kind of
kind of a monopoly ought to be permitted, with a provision in the law for regulating prices, or whether you believe that monopolies ought to be permitted only in the case of agricultural products; and if you believe that monopolies ought to be permitted only in the case of agricultural products, why do you raise any distinction with respect to others ?
Mr. LINDSAY. The distinction is this, that the agriculturists are many; their holdings are small; individually they are week. Only collectively may they have any strength. That is the main, basic reason for the difference.
Senator WALSH of Montana. I agree with you perfectly about that, and so I have not the slightest objection to extending to them the right to combine. But the monopoly feature is something quite different from that. We are going to allow the Virginia producers of
. milk to combine without any risk whatever. But if they then combine afterward with the Maryland producers, their competitors, so as to secure an entire monopoly of the article
Mr. LINDSAY. They can not do that under the Sherman Act.
Senator WALSH of Montana. That is just the question before us. Shall we permit them now, notwithstanding the Sherman Act?
The CHAIRMAN. And does this bill permit them?
Mr. HOLMAN. With Mr. Lindsay's consent, I would interrupt to say that when the National Milk Producers' Association presents its testimony we will undertake to give a categorical answer to the Senator's question, and we will also undertake to show certain reasons why large organizations of agriculturists may be formed without interfering with the public interest.
Mr. LINDSAY. Of course, I think that is right, Senator. I hold no brief for these associations, and it is not right that they should be in any way at all bound by my voice. I am here because, particularly, the California Associated Raisin Co. has been attacked.
I want to give you briefly, now, some few general thoughts with reference to that company and its plan of organization. In the first place, it is not a monopoly and never can be. The raisins produced in America are produced within a certain, what you might call circumscribed, area, or two or three of such areas. More than 90 per cent, I suppose 95 per cent, of the raisins produced in America are produced in the San Joaquin Valley in the State of California, and Fresno is the center of the raisin district.
There are some raisin districts elsewhere in California, as far north as the Sacramento Valley, and south of Tehachipi; but nearly all of them are produced in the San Joaquin Valley. Climatic conditions are not perfect by any means, but still they are more favorable to the production of raisins than anywhere else. This year we expected that we would have a production of raisins—that is, this present crop year we expected there would be a production of raisins-amounting to probably 200,000 to 220,000 tons in California. But, unfortunately, in the month of April there came along a very severe frost, extending over several nights, which resulted in a great loss; or at least it may be, according to the opinion of people who claim to know, a loss of one-third of the crop.
The raisins produced in California-I may say, by way of parenthesis, that there are also some raisins, a few in quantity, produced in other States, but they are so limited as to be negligible—the raisins produced in California do not amount to more than 30 per cent of the raisin production of the world. There are vast quantities of raisins produced in Spain and in the Mediterranean countries generally; raisins proper, and also what we call Zante currants, which are small raisins, but of good quality.
There always has been and there always will be, I suppose, competition in the raisin industry, because of foreign exports. In the last 12 months the raisin imports have amounted to many millions of pounds. I have not those figures here, but I am glad to say that I have them in the city. I just did not think of bringing them along this morning
We do not export many raisins although, of course, we send some to China and Japan.
Before the year 1912 the raisin producers of California were absolutely at the mercy of the packers. The raisin crop is not like the orange crop or the apple crop or the cherry crop. The raisin, as it is picked from the vine in the form of green grapes, is dried in the sun on trays which are spread between the rows of vines in the vineyards; and after they are dried the raisins are then dumped into what we call sweat boxes. The name implies what is done. They are not only places where the raisins may be temporarily put, but also there the sweating process takes place. After the sweating operation the raisins are hauled to the packing houses, where they are processed. There is quite a processing plan carried out. The raisins are seeded, some of them. Some raisins grow without seeds, the Thomson seedless and the Sultanas. Others, like the Muscats, have seeds, and they are seeded at the manufactories. Thus it is easy to see that the vineyardists none of them can individually, unless, indeed, one of them should have a tremendous vineyard, have his own processing plant and his own packing house. That must be done by somebody else, the manufacturing part.
Before 1912, or before 1913, really, the growers were compelled to carry their raisins to these various packers, who had them absolutely at their mercy, and they having power which they did not hesitate to exercise in many ways-I am not going to take up your time now with those many ways, but Mr. Giffen will talk to you about
that if you want to hear him—it simply meant bankruptcy to the raisin producers. They were not getting the cost of production. So there were several efforts made to organize, in order to escape the intolerable conditions that were prevailing.
All of these efforts were futile because of the fact that in the peculiar raisin industry it is absolutely necessary that there should be a certain amount of capital employed. The packing houses have to be built, and property acquired, and seeding plants and seeding machinery and other machinery would have to be purchased and put up; and so finally, to make this part of the story short, the California Associated Raisin Co. was organized under practically the present plan—a capital stock corporation. This stock was sold—not all of it-to growers. Some of it was purchased by other people interested in the district, bankers and merchants and others; and while they are not raisin producers, in a sense they are almost as much interested in a proper solution of this problem as the raisin producers themselves. Since their success depends upon the prosperity of the raisin producers of that district, I may say that never, from the beginning to this good day, has there ever been any idea on the part of the stockholders of the California Associated Raisin Co. that they were going, as stockholders, to reap, profits from the fact that they were stockholders. This money which they paid for their stock, after all, amounts to nothing more than a loan. It never was intended as a profit corporation at all, and the 8 per cent now which is paid by way of dividend to the stockholers is, after all, nothing more than what you might call interest for money loaned.
Even in the old days, before we paid 8 per cent and where we retained a quarter of a cent a pound, that one-quarter of a cent a pound did not all go to the stockholders. A large part of it was used for overhead and other expenses. It never was intended as a profitmaking organization. It is, we think, the most nearly perfect cooperative organization in the world to-day, and it has been the most successful in a purely cooperative way, and I challenge anybody to refute that statement truly.
We have been under investigation by the Federal Trade Commission. Of course, you can easily understand that the great success of the California Associated Raisin Co.; which brought to it nearly all of the raisin producers in California, interfered very seriously with the business of outside packers, and they have never ceased to protest as vigorously as possible and wherever possible. There was an investigation before the Federal Trade Commission, and the Federal Trade Commission made a report, which I have no doubt you are familiar with. It made certain recommendations. It found certain particulars in which the plan of operation of the raisin company was, in the opinion of the commission, not in harmony with existing law. I am not going to go over all of it. I do not think you want to hear all of that; but, for instance, the company had been pursuing a policy of selling raisins to a firm at open prices. That is to say, they would make a certain price at a certain time in the year to jobbers throughout the country and would guarantee that price against decline. That was held by the Federal Trade Commission to be wrong. There were certain other features of the plan of operation which were also criticized.
Every one of the recommendations made by the Federal Trade Commission was at once agreed to by the company and at once complied with absolutely.
Mr. PRESTON. Of course, I do not want to interrupt you about that, but you know you did not change your price, and you know that on the question of monopoly they said it was open to question, and it was not their province to consider it. They turned it over to the Department of Justice.
Mr. LINDSAY. I said that every one of the recommendations of the Federal Trade Commission was complied with. That is absolutely true.
Mr. PRESTON. No; it is not.
Mr. LINDSAY. There is no question about it at all. They made no recommendation as to monopoly.
Mr. PRESTON. No.
Mr. LINDSAY. How, then, could they comply with a recommendation that was not made ?
They also said, with reference to the price, that the price paid to the producer in 1919-to wit, 10 cents a pound—was excessive.
Mr. PRESTON. And you did not change it?
Mr. LINDSAY. Did they make any recommendation as to that matter?
Mr. PRESTON. No; because they said that involved a decision of the Supreme Court of the United States, and that was a matter beyond their control and beyond their province; so they made no recommendation, and my statement in that regard that we did comply with all the recommendations made is, of course, true. If it were not, I would not make it.
Senator Walsh of Montana. You say that they found that the price you exacted was unreasonable?
Mr. LINDSAY. Yes; they did.
Senator WALSH of Montana. And then you proceeded to exact a higher price?
Mr. LINDSAY. Yes; that is true.
Mr. PRESTON. And not only that, but while you are in that connection, I will say they put a higher price on the raw product than on the manufactured product, and they are maintaining it to-day.
Senator Walsh of Montana. Is that true?
Mr. PRESTON. That is, on the loose raisin to-day they are exacting 231 cents a pound, and on the seedless raising 21 cents. Mr. LINDSAY. Yes; and they went
Mr. PRESTON. Just a moment. And with the packing cost and shrinkage, when that is considered it amounts to 44 cents a pound difference. And, while I have the floor, I will say they are at present selling their goods at what amounts to 10 per cent cheaper in Canada than in the United States.
Mr. LINDSAY. Well, of course, these assertions of Mr. Preston are not-they are not correct; that is to say, there are certain elements involved which he does not mention, and of which, I presume, he knows nothing, which if told would have the effect of putting an entirely different aspect on the situation than he leaves it. But I want to leave that matter to Mr. Giffen to explain to you. I do