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HOUSE OF REPRESENTATIVES

EIGHTY-NINTH CONGRESS

SECOND SESSION

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COMMITTEE ON AGRICULTURE

HAROLD D. COOLEY, North Carolina, Chairman

W. R. POAGE, Texas, Vice Chairman

E. C. GATFIINGS, Arkansas

JOHN L. McMILLAN, South Carolina

THOMAS G. ABERNETHY, Mississippi

WATKINS M. ABBITT, Virginia

PAUL C. JONES, Missouri

HARLAN HAGEN, California

FRANK A. STUBBLEFIELD, Kentucky

GRAHAM PURCELL, Texas

JAMES H. MORRISON, Louisiana

ALEC G. OLSON, Minnesota

SPARK M. MATSUNAGA, Hawaii

MASTON O'NEAL, Georgia

THOMAS S. FOLEY, Washington

JOSEPH Y. RESNICK, New York

LYNN E. STALBAUM, Wisconsin

ELIGIO DE LA GARZA, Texas

JOSEPH P. VIGORITO, Pennsylvania

JOHN C. MACKIE, Michigan

HOLLAND REDLIN, North Dakota

BERT BANDSTRA, Iowa

STANLEY L. GREIGG, Iowa

CLAIR A. CALLAN, Nebraska

MIS. CHRISTINE S. GALLAGHER, Clerk

HYDE H. MURRAY, Assistant Clerk

Joing J. HEIMBURGER, General Counsel

FRANCIS M. LEMAY, Staff Consultant

PAUL B. DAGUE, Pennsylvania

PAGE BELCHER, Oklahoma

CHARLES M. TEAGUE, California

ALBERT H. QUIE, Minnesota

MRS. CATHERINE MAY, Washington

RALPH HARVEY, Indiana

PAUL FINDLEY, Illinois

ROBERT DOLE, Kansas

LAURENCE J. BURTON, Utah

PRENTISS WALKER, Mississippi

GEORGE V. HANSEN, Idaho

RESIDENT COMMISSIONER

SANTIAGO POLANCO-ABREU, Puerto Rico

°
CONTENTS

H.R. 15661, a bill to provide assistance to first processors of agricultural

impact 

commodities who have suffered substantial losses because of the economic of commodity programs of the Department of Agriculture, and Page for other purposes 

Statement of— 1

Bell, 

Bass, 

Charles 

Hon. Ross, 

R., 

a U.S. Senator from the State of Tennessee 36

Harvin, C. 

president, National Cotton Ginners' Association_ _ _ _ 3() Alex, Jr., past president and director, National Cotton Ginners' Association 

Heidelberg, 33 Frederic H., executive vice president, North Carolina

Highfill, 

Cotton 

J.V., 

Promotion 

Assistant 

Association and Uplands Cotton Growers, Inc_ _ 13 Administrator, Farmers Home Administration, U.S. Department of Agriculture 

Johnson, Donald 1

A., executive vice president, Plains Cotton Growers, Inc 

Murray, Tom, 36 in behalf of the Alabama-Florida Cotton Ginners'

Price, 

Association 

Joseph 

and the Georgia Cotton Ginners' Association 35 H., director of public relations, Texas Cotton Ginners' Association 

Salter, Wiley, 25

mittee, 

chairman, Alabama Legislative Cotton Study Com- Alabama House of Representatives Smith, Donald 22 G., executive vice president, Texas Independent Gin- ners' Association 

Young, J. 23

Correspondence 

Banks, representing the National Cotton Council 32 submitted to the committee: Collins, Robert E., executive vice president, Mid-South Cotton Gin- ners Council, letter of July 6, 1966 

Gasque, E. 34 E., Jr., president, the Carolinas Ginners Association, letter of July 14, 1966 

McNeill, Charles 37 R., director, Washington office, the American Bankers Association 

Cotton production—Cotton 37 acreage report July 1, 1966 19

EMERGENCY LOANS FOR COTTON GINNERS

TUESDAY, jULY 12, 1966

HOUSE OF REPRESENTATIVES,

COMMITTEE ON AGRICULTURE,

Washington, D.C.

The committee met, pursuant to notice, at 10 a.m., in room 1301,

Longworth House Office Building, Hon. Harold D. Cooley (chairman

of the committee) presiding.

Present: Representatives Cooley, Poage, Gathings, Abernethy,

Jones, Stubblefield, Purcell, Stalbaum, de la Garza, Vigorito,

Greigg, Callan, Dague, Belcher, Teague, May, and Dole.

The CHAIRMAN. The committee will be in order. The first person

we will call is Mr. Jack Frost, Director of the Emergency Loan Division, Farmers Home Administration, U.S. Department of Agriculture.

We are calling up for consideration H.R. 15661.

(The bill, H.R. 15661, introduced by Mr. Cooley, follows:)

[H.R. 15661, 89th Cong., 2d sess.]

A BILL To provide assistance to first processors of agricultural commodities who have suffered substantial

losses because of the economic impact of commodity programs of the Department of Agriculture, and for

other purposes

Be it enacted by the Senate and House of Representatives of the United States of

America in Congress assembled, That subtitle C of the Consolidated Farmers Home

Administration Act of 1961, as amended (17 U.S.C. 1961-1967), be amended by

adding a new section 328, as follows:

"SEc. 328. Economic emergency loans to first processors. Whenever the Secretary determines that the operations of programs of the Department of Agriculture

have had or will have a substantial adverse economic effect on a first processor

of an agricultural commodity or commodities, he may make emergency loans

under this subtitle to such processors to assist them in adjusting their operations

to current commodity production levels."

STATEMENT OF J. V. HIGHFILL, ASSISTANT ADMINISTRATOR,

FARMERS HOME ADMINISTRATION, USDA; ACCOMPANIED BY

JACK FROST, DIRECTOR, EMERGENCY LOAN DIVISION, AND

HOWARD V. CAMPBELL, ASSISTANT GENERAL COUNSEL, USDA

Mr. FROST. Mr. Chairman, Mr. J. V. High% Assistant Administrator, will speak for the Farmers Home Administration.

Mr. HIGHFILL. Mr. Chairman, with me this morning are Jack

Frost, who is Director of our Emergency Loan Division, and Howard

V. Campbell, who has recently been made Assistant General Counsel

for the Department of Agriculture following many years in other

responsible positions on the General Counsel's staff.

First, Mr. Chairman, I would like to read a brief statement on

H.R. 15661, if this is agreeable, and then we shall be glad to discuss

any questions you or members of the committee wish to raise with us.

1
2 EMERGENCY LOANS FOR FIRST PROCESSORS

The proposed legislation would amend subtitle C of the Consoli-

'dated Farmers Home Administration Act of 1961, as amended. This

proposed legislation would add a new section—section 328—to the

present act and authorize the Secretary of Agriculture to make economic emergency loans to first processors of agricultural commodities

to assist them in adjusting their operations to current commodity

•production levels whenever he determines that the operations of the

programs of the Department of Agriculture have had, or will have,

-a substantial adverse effect on such first processors.

Emergency loans are presently made by the Farmers Home Administration pursuant to subtitle C of the Consolidated Farmers Home

Administration Act of 1961, as amended, in areas where damage and

losses resulting from natural disasters have created a need for such

credit among established farmers and ranchers which cannot be met

by other lenders in the area for a temporary period. These loans are

made for normal operating expenses, to replace livestock lost in the

'disaster, to repair or replace damaged machinery, or to meet other

usual agricultural purposes essential for normal operations. The

interest rate is 3 percent and each loan is expected to be repaid as soon

as possible. There must be a sound basis for credit and each loan

must be reasonably well secured. These loans are made out of the

revolving fund established for this purpose.

The Farmers Home Administration has met the emergency credit

needs of more than 427,000 farmers since the emergency credit

revolving fund was established in April 1949. During this 17-year

period more than $900 million has been loaned in areas designated by

the Secretary of Agriculture as a result of natural disasters.

Collections on maturities for the period April 6, 1949, through

December 31, 1965, were 94.8 percent. For the fiscal year 1966 we

made loans to more than 22,000 farmers for more than $100 million.

At the present time there is approximately $24 million in the revolving

fund.

This amount plus collections during the year should provide a

total of about $115 million. We think this amount will be adequate

for the presently authorized emergency loan program. We do not

think it would be adequate to fund the present program and also loans

as would be authorized by the proposed legislation. Also, it must be

remembered that the estimated amount of $115 million would not be

available at any one time during the year. Loans are made and

collections are received almost every day. Generally, collections are

heaviest from September through February and lending is usually

heaviest in the spring and early summer. This results in a buildup

of cash during the fall. However, a heavy demand for loans in the fall

could deplete the fund before collections are received in adequate

amounts to meet the demand.

If the new authorization proposed in H.R. 15661 is enacted and

made effective immediately, the funds available in the emergency

credit revolving fund might be substantially depleted prior to the

peak lending season for the 1967 crop production, thus delaying or

denying assistance to thousands of farmers and ranchers who cannot

get credit elsewhere because of a shortage of agricultural credit resulting

from a natural disaster.

We do not have any basis at this time for estimating the probable

volume of loans and other costs in carrying out the provisions of the

proposed bill.
EMERGENCY LOANS FOR FIRST PROCESSORS 3

Should the proposed legislation be enacted there is a likelihood that

refinancing would be requested by some first processors. The refinancing of secured debts is not prohibited by the present act; however, loans have not been made for this purpose except for a brief

period following the enactment of Public Law 38 in 1949 when the

emergency loan program was inaugurated. Refinancing was discontinued when it became apparent that the revolving fund would need

to be increased by a very substantial amount, estimated at several

hundred million, to do refinancing and also carry out the basic purpose

of the act.

We have followed the policy consistently of not refinancing secured

debts, except for the brief period immediately after the program was

inaugurated, with the full knowledge and concurrence of the appropriation committees of the Congress. We expect to continue this

policy if the present language of the proposed legislation is enacted

unless the Congress directs otherwise and adequate funds are provided

to make loans for refinancing.

The present law requires that emergency loans be made only to

applicants who are unable to obtain needed credit from other established sources in the area at reasonable rates and terms. This

restriction applies to all loans made by the Farmers Home Administration and it is expected that it would apply to any loans made under

the proposed amendment.

Mr. Chairman, that is the statement that I wanted to give the

committee.

The CHAIRMAN. Thank you very much, sir.

In other words, you are now authorized to make loans to relieve

those people who are suffering from a natural disaster.

Mr. HIGHFILL. In designated areas; yes, sir. Farmers in designated areas.

The CHAIRMAN. This bill is a departure from that because it

provides for loans to those who have suffered because of an economic

disaster.

Mr. HIGHFILL. That is correct.

The CHAIRMAN. I was prompted to introduce this bill by a person

who is in this room this morning. I have been familiar with the

operations of her father, but now she is operating the business.

Because we have so drastically restricted the acreage of cotton not

enough cotton is being grown in the area to support the operation.

However, she has had her own financial obligations to meet. When

we get loack to growing cotton again we will need these ginning

facilities. If we do not do something to help them out they will all

probably be liquidated and out of business. I can foresee the possibility of every gin in my county going out of business. I do not mean

to say that all of them will come and ask for a loan under this program.

Do you have any suggestion as to how this proposal can be improved

by amendments, or do you think it is sufficient in the form it is drafted?

Mr. HIGHFILL. Mr. Chairman, I think if the proposed legislation

were enacted as it is now proposed that we could carry it out much

as we carry out the program as it is designed for farmers; yes, sir.

• The CHAIRMAN. You would have some money to start with already.

Mr. HIGHFILL. Yes, sir; $24 million is presently available for

emergency lending.

The CHAIRMAN. I do not have any idea how much might be involved in this sort of program, but I do know that they do need some
4 EMERGENCY LOANS FOR FIRST PROCESSORS

assistance. Of course, my idea is that loans resulting from an economic disaster be made on the same basis as loans to those suffering

from a natural disaster. You mentioned something about refinancing.

I imagine some of these companies or some of these ginners will have

to do refinancing under the present law. You still have a right to

do that, do you not?

Mr. HIGHFILL. Yes, sir.

The CHAIRMAN. In other words, what the applicant will have to

show is that adequate credit is not available from private sources.

Mr. HIGHFILL. Be unable to get credit at reasonable rates and

terms from regular established credit agencies in the area.

The CHAIRMAN. Are there any questions?

Mr. Belcher.

Mr. BELCHER. I have not had an opportunity to study this very

much. It says first processor of an agricultural commodity or commodities. That would cover other items than cotton, would it not?

Mr. HIGHFILL. That is our interpretation; yes, sir.

Mr. BELCHER. In other words, millers or processors of any commodity. Would it be necessary to have the Secretary of Agriculture

determine the certain area that could be affected, or would individuals

affected in any area be eligible?

Mr. HIGHFILL. I will comment on it and then ask Mr. Campbell

to correct me if I am in error. It would be, in our opinion, any

individual who is affected by the programs operated by the Department

of Agriculture—affected adversely, is what I mean to say.

Mr. Campbell, would you comment on that?

Mr. CAMPBELL. As drawn the amendment or proposed amendment

would not require the Secretary to designate specific areas where

this adverse impact took place. It would be a Secretarial determination as to whether or not the Department's programs did have such

an economic impact as to warrant throwing the provisions of this

amendment into gear with respect to a particular commodity program.

Mr. BELCHER. That would depend upon the amount of the impact,

would it not? In other words, every single reduction in acreage that

has been brought about by a Government program has adversely

affected all the processors of that particular commodity. The question

is how much. Isn't that what you determined in this bill?

Mr. CAMPBELL. That is the way I read it, Congressman Belcher.

Mr. BELCHER. I think there is no argument about what any agricultural program that we have now in operation that reduces acreage

certainly has an adverse effect on any processor of that particular

commodity. Now the question is where do we draw the line. How

much of an effect does it have to have before the Farmers Home

Administration can get into the act?

Mr. CAMPBELL. The measure would be on the impact of the program on the ability of the processor to get credit through his normal

sources to carry on his operation.

Mr. BELCHER. In other words, the same criterion would be applied

to this bill that you would to a farmer in distress?

Mr. CAMPBELL. Yes, sir.

Mr. BELCHER. Nobody can get a loan here except some processor

that was in distress and was not able to obtain a regular line of bank

credit, but was adversely affected by the program? In other words,

this is a "bail-out" program.
EMERGENCY LOANS FOR FIRST PROCESSORS 5

Mr. HIGHFILL. I would not go that far, to say it is a "bail-out"

program. I think it would be a program designed, as it is proposed,

to assist those who are adversely affected and cannot get credit

elsewhere.

Mr. BELCHER. You mean regardless of how many assets they have

they can still get help if they have been adversely affected.

Mr. HIGHFILL. No, sir, I would not say that. It would have to

be a repayable loan.

Mr. BELCHER. I understand that. With the same criterion you

use on ordinary farmers.

Mr. HIGHFILL. Yes, sir.

Mr. BELCHER. Most of those loans have been repaid, have they

not? I understood you to say that about 94.8 percent have been

repaid?

Mr. HIGHFILL. Yes, sir.

Mr. BELCHER. SO the credit you have extended has been rather

sound credit?

Mr. HIGHFILL. Yes, sir.

Mr. BELCHER. But it has been extended to people who cannot get

credit from any other source.

Mr. HIGHFILL. Yes, sir.

Mr. BELCHER. Do you intend to follow the same criterion?

Mr. HIGHFILL. We would propose to follow the same criterion

unless there is some change made in the proposal.

Mr. BELCHER. Has anybody made any estimate of how many

processors in the country would qualify for these?

Mr. HIGHFILL. Mr. Belcher, we have not done that because, as you

know, our field of lending is confined strictly to farmers. But we have

done a little projecting as far as ginners are concerned. We know, or

we have been advised, that there are approximately 5,000 gin operators

in the country. For lack of a better way to go about it, we have

estimated that there might be as many as 1,000 of the 5,000 that

would require financial assistance, under this proposed legislation.

Assuming, then, that the average size of that loan might be $50,000

you could get some idea of what it would be for ginners alone. We

would not have, or we could not have, any figures for any other first

processors.

Mr. BELCHER. This bill only applies to processors. Tractor

dealers, tire dealers, gasoline dealers, smalltown merchants of all

kinds and nature have been affected by the reduction in acreage of the

farm program. -

Mr. HIGHFILL. I am sure that is right.

Mr. BELCHER. We are only going to take care of the processors.

The tractor dealers and the rest of them are still going to have to

depend on the regular line of credit.

Mr. HIGHFILL. That is our understanding of the proposed amendment.

Mr. BELCHER. It is not going to be very long before they are going

to be in here, too. Do you have any idea what the attitude of the

Department would be on that?

Mr. HIGHFILL. NO, sir, I would not.

Mr. BELCHER. You can rest assured that they will be in here because tractor dealers have been put out of business just as much as

67-611-66-2
6 EMERGENCY LOANS FOR FIRST PROCESSORS

cotton ginners. Bulk gasoline dealers are in the same situation.

That is all, Mr. Chairman.

The CHAIRMAN. What are the terms of the loans you have been

making in disaster areas?

Mr. HIGHFILL. Three percent is the interest rate, and the loans

normally for operating expenses are to be repaid out of the first year's

income.

The CHAIRMAN. That is a harsh requirement, that the loan be

repaid in 1 year.

Mr. HIGHFILL. I said operating expenses, sir. For capital expenditures for replacement of items, we would extend the terms up to 7

years, when a major piece of equipment had to be replaced, for

example, but for the normal operating expenses like electricity in the

case of a gin or the labor, that would be repaid out of that year's

income. That is the way we have administered the program as far

as farmers are concerned.

The CHAIRMAN. The applicant or the borrower would have some

time to pay the loan back up to a period as high as 7 years?

Mr. HIGHFILL. If capital expenditures are involved, yes, sir, or

major pieces of equipment have to be replaced.

The CHAIRMAN. What collateral would you require?

Mr. HIGHFILL. We would require a mortgage on the real estate

and the chattel equipment.

The CHAIRMAN. Used in connection with the business?

Mr. HIGHFILL. That is right. That is what we do for farmers.

The CHAIRMAN. Mr. Gathings.

Mr. GATHINGS. Would you give us a little information with regard

to the repayment of the present emergency loan through the Farmers

Home Administration for natural disasters?

Mr. HIGHFILL. Since the emergency credit revolving fund was

established on April 6, 1949, of the amount that has matured 94.8

percent as of December 31 had been collected. That does not mean

that the remainder of it will not be collected. We are collecting that

all along. Our losses have been less than 2 percent.

Mr. GATHINGS. From the time that this program first went into

effect?

Mr. HIGHFILL. That is right.

Mr. GATHINGS. I believe you stated that you can handle this type

of legislation here under that same system.

Mr. HIGHFILL. We think so; yes, sir, Mr. Gathings.

Mr. BELCHER. I would like to ask this question of the chairman

or of the Department.

This really in effect amounts to subsidizing loans on small businesses,

does it not?

Mr. HIGHFILL. No, sir; I would not agree it is subsidizing.

Mr. BELCHER. How are you going to pay 5% percent for that money

and loan it for 3? That is a 2Y2-percent spread. Is that a subsidy or

gift or what?

Mr. HIGHFILL. I could not conjecture of what the cost of money

would be. But the law prohibits 

Mr. BELCHER. You can look at the morning paper and figure that

one out, can't you?

Mr. HIGHFILL. The interest is fixed by the Congress, at 3 percent.
EMERGENCY LOANS FOR FIRST PROCESSORS 7

Mr. BELCHER. I am wondering whether this committee is getting into the field of the Small Business Administration. These are all small businesses, are they not?

Mr. HIGHFILL. I would agree that they are.

Mr. BELCHER. It is not agriculture at all.

Mr. HIGHFILL. They are agriculturally oriented.

Mr. BELCHER. They are not agriculture at all except insofar as they

are dealing in agricultural commodities or processing agricultural commodities.

Mr. HIGHFILL. That is right.

Mr. BELCHER. Therefore, they are small businesses. If we are going to provide a program for subsidized loans on small businesses,

I wonder if we are going to get in trouble with the Small Business Administration.

Mr. HIGHFILL. I would not know about that.

The CHAIRMAN. If I may interrupt, I do not think we will, because

here an applicant must make an affirmative showing to the satisfac- tion of the loan committee that the applicant is not able to obtain financial assistance elsewhere.

Mr. BELCHER. That is what he has to do in a small business loan.

The CHAIRMAN. They tell me the Small Business Administration

has been out of money for a long, long time in my district.

Mr. BELCHER. I do not know that they have, but it looks to me like

we are setting up another small business loan. I do not object to it necessarily, but it looks like we got into the foreign aid business and

now we are getting into the Small Business Administration and pretty

soon this Agriculture Committee will be taking on a good-sized chunk.

The CHAIRMAN. We can take it all on. We can run it all right.

Mr. BELCHER. I have no objection to the jurisdiction of this

committee.

Mr. CHAIRMAN. I had one purpose in mind, Mr. Belcher, and that is to help these ginners that have just been put out of business because

of the drastic reduction in cotton growing. They are going to have to

fold up. I do not believe that the FHA will clash with the Small

Business Administration.

Mr. BELCHER. I do not think they will either, with the record they

have had all along. I think this is as good a Department as we have

in the whole U.S. Government.

Mr. FROST. Thank you, sir.

Mr. BELCHER. I think the record of the FHA has been especially

good in view of the fact that you take loans that nobody else takes.

Mr. HIGHFILL. Thank you sir.

The CHAIRMAN. Mr. Purcell.

Mr. PURCELL. Following up on Mr. Belcher's first series of questions, what would be your general interpretation of this law if it is

enacted in regard to a miller of wheat? He may not be affected by

the reduction in acreage but with this certificate that we now have on

wheat, and with the price of wheat going up, I am fearful that we are

going to have an attitude shown by the millers that they are being put

into a bad situation because of the certificate on top of the higher

wheat price that they are now going to be paying. Would these

loans be available for a wheat miller?

Mr. HIGHFILL. I am not too familiar with the wheat processing

but my interpretation would be that the first processor—and I can be
8 EMERGENCY LOANS FOR FIRST PROCESSORS

-wrong about this—the first processor, as far as wheat is concerned,

would be the elevator, especially if drying is concerned. I would like

for Mr. Campbell to comment on that.

The CHAIRMAN. When you process wheat, you grind it up, do you

not? You do not change the commodity by putting it in storage.

Mr. CAMPBELL. I am inclined to agree with the chairman that the

elevator does nothing more than store or clean or dry the wheat and

would probably not be the first processor within the meaning of this

language. That would lead me to the result that the miller would

probably be the first processor.

The CHAIRMAN. I thought you indicated to Mr. Belcher that the

miller would be the first processor.

Mr. POAGE. If the miller is not the first processor then the ginner

is not.

The man who picks or strips that cotton is the first processor if

you place that kind of interpretation on the processor.

The CHAIRMAN. I do not know whether Mr. Poage got an answer

or not.

Mr. POAGE. I did not get an answer, but I think it is right clear that

the whole purpose of this was to go to the man who gins the cotton

or grinds the wheat or runs the feed mill.

Mr. BELCHER. If a miller is not the first processor how could the

ginner be?

Mr. POAGE. That is exactly the same point—they are clearly both

first processors.

Mr. BELCHER. The miller processes flour ready to sell to the consumer. The ginner gets the cotton ready for somebody to sell it.

Mrs. MAY. You have the time, Mr. Purcell.

Mr. PURCELL. If I do, I gladly yield.

Mr. CHAIRMAN. I have the time. I am presiding. I will yield

to you.

Mrs. MAY. I did not want to cut in on Mr. Purcell's time, but I

would like to carry this out. I think it is rather important for the

record, Mr. Chairman. What would be the first processor in tobacco?

Mr. HIGHFILL. I am not prepared to tell you. I am not familiar

enough with the processing of some of these commodities.

Mrs. MAY. Under the wording of the bill what would be the first

processor for tobacco, dairy, rice, peanuts, honey, and sugar beets?

Those are a few of the commodities that would be covered under this

bill. You are not prepared to answer who would be the first processor

under any of those commodities in addition to cotton?

Mr. HIGHFILL. I am afraid I am not prepared to answer.

Mrs. MAY. Does the Small Business Administration have terms

under which they have identified the first processor?

Mr. HIGHFILL. Mr. Frost, can you answer that?

Mr. FROST. I do not believe so, Mrs. May.

Mrs. MAY. If I might, since we cannot get the information from

these gentlemen right now, may I ask this question? How much is

in the emergency loan fund right now?

Mr. HIGHFILL. $24 million.

Mrs. MAY. Is there now enough to meet demand?

Mr. HIGHFILL. No, ma'am. I am assuming you mean if this

amendment is---

Mrs. MAY. No, right now without this amendment.
EMERGENCY LOANS FOR FIRST PROCESSORS 9

Mr. HIGHFILL. There is for the basic purpose for lending to farmers.

With the amount that is being collected, we think we will have $115

million. We loaned this year over $100 million which was the record

year as far as the revolving fund is concerned.

Before going into any great emergency I would think that there is

sufficient money to meet the needs of farmers and ranchers in the

revolving fund, or will be in the revolving fund, because we do not

lend it all at one time and we do not collect it all at one time. It is

exactly what it implies—revolving.

Mrs. MAY. But if this legislation should pass, there would not be

enough in the emergency loan fund to meet the demand of these first

processors.

Mr. HIGHFILL. We do not think so.

Mrs. MAY. Do you have any idea—maybe you have testified to

this before I came in—how much more would be involved?

Mr. HIGHFILL. As I pointed out, Mrs. May, earlier, we have done

only a little bit of projecting as far as ginners are concerned and we

came out with a figure there of $50 million would be required, assuming

that a thousand needed a loan, which would average $50,000.

Mrs. MAY. When you speak of that thousand, you are speaking

only of cotton ginners?

Mr. HIGHFILL. That is correct.

Mrs. MAY. So really $50 million is predicated on the demand from

cotton ginners.

Mr. HIGHFILL. That is correct.

Mrs. MAY. It does not cover these other first processors?

Mr. HIGHFILL. The reason we took cotton to begin with, we

thought—and we may be in error about this—we thought that would

be the first need that would hit the revolving fund, assuming that the

legislation would pass, because ginning is right on us.

Mrs. MAY. Won't this program be a charge against the farmers

and our agricultural budget?

Mr. HIGHFILL. I assume so. It is an agricultural budget. I

assume so.

Mrs. MAY. That is all, Mr. Chairman.

The CHAIRMAN. Mr. Dole.

Mr. DOLE. Is there any limit on the size of the loan that can be

made?

Mr. HIGHFILL. No, "sir, there is DO limit.

Mr. DOLE. You can make 999 for a total of $1 million and one for

$49 million.

Mr. HIGHFILL. There is no monetary restriction whatever and

never has been on the amount of an individual loan under the revolving

fund.

Mr. DOLE. What is the largest loan you have now outstanding?

Mr. FROST. I believe in the neighborhood of about $150,000.

We have made larger loans but an overwhelming majority of these

loans have been made to small farmers and ranchers. Loans made

during the past fiscal year averaged a little more than $4,000.

Mr. DOLE. Would there be any priority of farmers wanting funds

if they wanted a loan or would they stand in line with the other

ginners or first processors?

Mr. HIGHFILL. We have always followed the policy of taking them

in the order in which they applied. I am speaking of farmers.
10 EMERGENCY LOANS FOR FIRST PROCESSORS

Mr. DOLE. When you run out of money, then what?

Mr. HIGHFILL. We did that in early March this year. We ran out

of funds and the Congress appropriated $30 million to replenish the

revolving fund. That money was available on May 20 and we started

processing checks as soon as the appropriation was cleared.

Mr. DOLE. What do you plan to do if this bill is approved and we

have a demand for $50 million for ginners alone? Will you have to

ask for more money to meet your farm loans?

Mr. HIGHFILL. Certainly. We would have to and would be forced

to because that impact would hit us early in the fall before the real

lending to farmers came about.

Mr. DOLE. As I understand it, you are not construing the language

in this bill to apply only to ginners. It would apply to any first

processor of any agricultural commodity.

Mr. HIGHFILL. That is correct.

Mr. DOLE. If the bill is passed it will be construed in that fashion

by the people in FHA.

Mr. HIGHFILL. Yes, sir.

Mr. DOLE. If we determine a miller in Kansas is a first processor

or a sugarbeet factory in Colorado, they would be eligible for 3-percent

loans at 20-year repayment.

Mr. HIGHFILL. I am not certain about sugarbeets. I am not

familiar enough with the processors there.

The CHAIRMAN. Let me interrupt. You know it could not apply

to a sugar factory because they have been increasing quotas all the

time.

Mr. FROST. That is right.

The CHAIRMAN. They have been going up and up and up.

Mr. DOLE. In some areas, yes.

Mrs. MAY. Mr. Chairman, a bill like this could change over the

years. The Government could do something under the Sugar Act.

As I understand the legislation, anytime a farm program has such an

effect on a first processor then they would automatically, as a first

processor become eligible, I do not anticipate any more than you do

that this would be the case in this year or the next year under the

Sugar Act. But if this should become law 

The CHAIRMAN. The same formula we have in the law right now.

The applicant shows he is in distress and cannot obtain credit

elsewhere.

Mr. HIGHFILL. We would treat a first processor just as we treat a

farmer. I would think we would have to make that determination.

We have not gone so far as to determine who is the first processor of

different commodities.

Mr. DOLE. Would that apply to a packinghouse, too?

Mr. HIGHFILL. I would not think so, because there is not any

livestock program as far as I know, as far as controls on livestock.

The CHAIRMAN. There is no control on livestock or dairy products.

Mr. DOLE. Occasionally you have a lot of foreign imports.

Mr. HIGHFILL. That would be under Commerce, as I recall, and

would not be under Agriculture.

Mr. TEAGUE. I do not know whether I am for or against this bill,

but this seems to be pertinent: We have pending a bill which would

establish marketing orders for canning pears. The canners are very

much opposed, feeling it will have an adverse effect on them. It
EMERGENCY LOANS FOR FIRST PROCESSORS 11

seems to me the bill would make it possible to make loans to canners, being the first processors.

The CHAIRMAN. Do you not have a control program on that?

Mr. TEAGUE. We have a bill which has been introduced to provide marketing orders. It is a farm program. The canners are opposed, saying it will have an adverse effect on them. I am not sure it will, but they claim it will.

The CHAIRMAN. We do know cotton is under control and has been for some time.

Mrs. MAY. Mr. Chairman, section 328 says:

Whenever the Secretary determines that the operations of programs of the De- partment of Agriculture have had or will have a substantial adverse economic effect on a first processor—

and so on. How far back will this go? Does this go back 10 years?

Mr. CAMPBELL. I do not think it would have any retroactive effect unless it was so stated in the law.

Mrs. MAY. Why the wording "have had or will have"? Will you explain that?

Mr. CAMPBELL. That language was put in because in some of these

programs the effect may not be known until after the commodity program is put into effect. In others the Secretary may be able to foresee

the adverse economic effect and throw into gear this provision at the

same time he puts his commodity program into effect.

The CHAIRMAN. The language, as I understand it, means what it

says, that the applicant will have to show that he is in distress because

of the operation of a control program. Is that not correct?

Mr. HIGHFILL. That is correct.

Mrs. MAY. I was just asking the question on the language which

says "have had or will have." Can it go back to programs enacted

years ago, which may take 2 or 3 years to show an adverse economic

effect?

The CHAIRMAN. They will make that determination, as I understand

Mr. FROST. Mr. Chairman, I think we would attempt to administer

that on the basis of something which has happened during the past

operating year or, as in the case of cotton, which is in effect during the coming year which will have an adverse effect. Also, we will have to

make a thorough study of all of the crops involved. Thus far we have

taken only a quick look, and the quick look indicated that cotton, corn,

barley, grain sorghum, tobacco, peanuts, rice, and probably wheat—

although I understand there will be no wheat reduction next year—

these crops may be affected. I am not prepared to say that all of these

crops would be affected, but the first survey indicates that these crops

might be involved.

Mr. DOLE. Are farmers now eligible for economic disaster loans?

Mr. HIGHFILL. NO2 sir.

Mr. DOLE. They are eligible only for natural disaster loans?

Mr. HIGHFILL. That is correct.

Mr. DOLE. This bill would create a whole new concept as far as

first processors are concerned. The farmers still would be ineligible

for economic disaster loans, but the first processors would be eligible

on that basis, is that right?

Mr. HIGHFILL. That is my understanding of the amendment; yes,

sir.

it.
12 EMERGENCY LOANS FOR FIRST PROCESSORS

Mr. DOLE. This does not limit first processors to natural disasters?

Mr. HIGHFILL. No, sir.

Mr. CALLAN. Would you require a rejection by the Small Business

Administration before you made your loan?

Mr. HIGHFILL. We might or we might not, depending upon the

financial statements submitted to us by the applicant. If we felt

there was a likelihood that he had not explored the possibilities sufficiently, we would request, or in fact we would ask, Small Business ourselves. We might not ask him to get the letter. We might call them

about it ourselves.

Mr. CALLAN. Would you ask him to go to the Small Business Administration before he went to FHA?

Mr. HIGHFILL. Not necessarily.

Mr. CALLAN. In other words, you might bypass Small Business and

go direct?

Mr. HIGHFILL. If we had explored the matter with Small Business, which we will, of course, in the event this amendment is passed,

we would get their guidelines and criteria so we could tell pretty

well by his financial statement whether it is necessary to run him

around to Small Business or not.

Mr. CALLAN. Do you think you would make a loan that the

SBA would turn down?

Mr. HIGHFILL. We might.

Mr. CALLAN. Thank you.

The CHAIRMAN. Mr. Gathings.

Mr. GATHINGS. I wonder if you would furnish for the record the

cotton production over the past few years. If you would put a

table in the record and give us the production of cotton over the

past 10 or 15 years.

The CHAIRMAN. You mean show how much has been produced?

Mr. GATHINGS. Yes. At the present time there is a cutback

amounting to 25 percent in the 1966 acreage.

Mr. HIGHFILL. Are you talking about acreage or poundage?

Mr. GATHINGS. I am talking about actual bales of cotton produced and ginned.

Mr. HIGHFILL. Yes, sir; we will be glad to do that. How many

years back, Mr. Gathings?

Mr. GATHINGS. Ten or fifteen years.

Mr. HIGHFILL. Yes, sir.

(The information follows:)

Acreages and production of cotton, United States 1

Year

Acreage har- vested (thou- sand acres)

Production (thousand bales) Year

Acreage har- vested (thou- sand acres)

Production (thousand bales)

1965 1964 1963 1962 1961 1960 1959 1958 

13,632 14,060 14,212 15, 569 15,634 15,309 15,117 11,849

15, 159 15, 180 15,334 14,867 14,318 14,272 14,558 11,512

1957 1956 1955 1954 1953 1952 1951 

13,558 15,615 16,928 19, 251 24,341 25,921 26,949

10,964 13, 310. 14,721 13,697 16,465 15, 139 15,148

1 Source: Statistical Bulletin 329 and 1965 Supplement, U.S. Department of Agriculture, Economic

Research Service.
EMERGENCY LOANS FOR FIRST PROCESSORS 13

The CHAIRMAN. We thank you gentlemen very much.

Looking over the list, I see Mr. Jack Lynn is not on here. Do you

want to appear?

Mr. LYNN. NO, sir.

The CHAIRMAN. Thank you, gentlemen.

The next witness is Mr. Heidelberg.

STATEMENT OF FREDERIC H. HEIDELBERG, EXECUTIVE VICE

PRESIDENT, NORTH CAROLINA COTTON PROMOTION ASSOCIATION AND UPLANDS COTTON GROWERS, INC., ACCOMPANIED

BY MRS. EVA LASSITER STOTT, SPRING HOPE, N.C.; J. R. BRADLEY, SEABOARD, N.C.; AND DAVID 0. SPEIR, BETHEL, N.C.

Mr. HEIDELBERG. Mr. Chairman, I have with me from North

Carolina several people who want to sit here: Mrs. Eva Lassiter Stott,

of Spring Hope; J. R. Bradley, of Seaboard; and Mr. David 0. Speir,

of Bethel. I would like them to come up just to support me. They

have no testimony to make, although they would be willing to answer

questions.

The CHAIRMAN. We are delighted to have them with you.

Mr. HEIDELBERG. Mr. Chairman, I appreciate this opportunity to

appear before your distinguished committee. My name is Frederic H.

Heidelberg. I am executive officer for both the North Carolina

Cotton Promotion Association and Uplands Cotton Growers, Inc.

The North Carolina Cotton Promotion Association is a cottongrower

organization in North Carolina supported by all growers through

referendums authorized by a State enabling act for commodity

organizations. Uplands Cotton Growers, Inc., is voluntarily supported by roughly 60 percent of the cottongrowers in the six Southeastern States of Alabama, Florida, Georgia, North Carolina, South

Carolina, and Virginia.

I speak today on behalf of the cottongrowers whom I represent in

strong support of H.R. 15661. This bill is aimed to provide assistance to first processors of agricultural commodities who have suffered

substantial losses due to the economic impact of commodity programs

of the Department of Agriculture. Bona fide cottongrowers in the

Southeastern States realize very clearly that the critical situation

facing many cotton gin operations could result in their disappearance.

Cotton production is not possible without cotton gins to remove the

lint from the seed at the _first processing level as cotton moves from

the field toward the marketplace.

Grower support for passage of H.R. 15661 is predicated on the

plain fact that the operation of the Government program placed in

effect for cotton by the Food and Agriculture Act of 1965 has created

a disaster situation for those with heavy investment in cotton ginning

plants. This is at present a particularly critical situation in the

Southeast. It involves all of North Carolina, Virginia, and a large

part of South Carolina. Portions of Florida, Georgia, and Alabama

are also affected. Other sections of the Cotton Belt are apparently

affected.

Before going further, let me make it very plain to this committee

that almost every segment of the cotton industry is capable of diversification except the cotton ginning industry. Cotton gin machinery

67-671-66-3
14 EMERGENCY LOANS FOR FIRST PROCESSORS

is singularly designed for ginning cotton. There is no other known

use to which it can be put. In recent years in the Southeast, investment has been made in a number of cotton gin plants costing a quarter

of a million dollars. Many other gin plants in the affected area have

been updated. Investments up to the $100,000 level have been made.

It is estimated that in the Southeast alone gins represent a $100

million investment. Bankruptcy is staring many gin owners in the

face right now unless there is an emergency loan program made available to them by the USDA through congressional action. H.R. 15661

is a positive step in the right direction to do so.

A basic question is: "To what extent is the economic plight of

cotton ginners due to the economic impact of commodity programs of

the Department of Agridulture?" I will attempt to answer this

question so as to show that the current cotton program is, in the case

of cotton ginners, a basic reason for their dangerous economic situation. To this must be coupled also one other factor; namely, unprecedented natural disasters in 1966 which served to spotlight

aspects of the new cotton program.

The Food and Agriculture Act of 1965 in its cotton section provides

for uniform distribution of responsibility upon all cotton production

areas in the United States for reducing the large surplus of cotton

now on hand. This uniform method is embodied in a provision for

acreage diversion up to 35 percent of an individual-farm cotton

allotment. On the basis of the 1966 cotton acreage signup for

diversion reduction was reasonably well distributed across the

Cotton Belt, section by section.

However, the Food and Agriculture Act of 1965 provides, in the

case of cotton, that the only requirement for an individual cotton

farmer to qualify for the direct cash price support payment is that he

plant some cotton in a workmanlike manner with intention to harvest.

In 1966, this is 9.42 cents times projected farm cotton yield. In 1967,

it will probably be more. The law does not require that cotton which

is planted be harvested as a payment requirement even though it

may be a perfectly good stand of cotton. Such a requirement is

capable of wide interpretation at county and community level. It

contains the incentive to take out Federal cotton crop insurance,

plant with some evidence of workmanship but in a way which will

insure doubt as to its viability. It is easy to see that the cotton

allotment holder could, if he had calculated shrewdly enough, assure

himself some percentage of cash crop insurance return on his cotton—

assure himself qualification for the direct price support payment—

then in plenty of time plant any crop not under Government controls

to obtain a third profit. Only the last profit would be derived from

the actual practice of agriculture.

This is a dangerously deadly aspect of the cotton commodity

program of the Departmant of Agriculture which is now a matter of

law for the current crop year and the succeeding 3 years through 1969.

A natural disaster on May 10 in the Carolinas has brought this

facet of the cotton program into sharp focus. I will take North

Carolina as a particular example. It has an assigned State allotment

of 460,000 acres. After signup for diversion it was reported that

North Carolina would plant for harvest roughly 285,000 acres in cotton.

This is a sharp decline within itself. On May 10, a "never before

heard of" heavy frost swept into the Carolinas breaking all previous
EMERGENCY LOANS FOR FIRST PROCESSORS 15

final-frost date records. Heavy damage in many cotton counties

was done to the sensitive early stands of cotton. Immediately the

payment cushion provided for cotton farmer income in the cotton

section of the act became apparent. Thousands of acres of damaged

cotton had to be plowed up too late to replant cotton.

However, the sad fact is that once the factor of the cash cushion

by which a cotton allotment holder could obtain the cotton price

support payment for planted cotton which had failed was realized,

many more thousands of acres of perfectly good stands of cotton all

the way into central South Carolina are reported to have been plowed

up deliberately. This was done in order to obtain the payment for

cotton, with additional profit to be obtained from planting the cotton

allotment acreage to a crop not under Government controls. However, it seems to me that producers of the uncontrolled crops being

utilized under this "gimmick" would be resentful. It divides some

crops into two classifications of growers, the subsidized and the nonsubsidized.

In North Carolina, of 285,000 acres which were planted after diversion sianup about mid-April, it is estimated that no more than

135,000' to 150,000 acres of cotton have been left growing. This is

an unprecedented disaster for cotton ginners in North Carolina. The

same situation exists in a broad area of the Pee Dee and coastal plain

section of South Carolina.

In other sections of the belt where frost did not reach on May 10,

there have been heavy rains precluding cotton planting at all. I

understand this to be true in certain sections of the Mississippi Valley area, and in the coastal bend area of Texas. I do not know to

what extent good stands of cotton were plowed under outside the

Carolinas. The incentive is there. In 1967 this trend could certainly

develop to compound the danger to ginner operations.

It is very apparent that many cotton gin plants will face economic

disaster unless payments can be met. How can they meet them when

there is no cotton to gin and, therefore, no profit to be made in 1966?

This is particularly true of recently constructed or renovated plants.

I believe it is very plain that, among the first processors of agricultural commodities which H.R. 15661 would help, the cotton ginner

is especially in need of emergency loans which would be provided by

this very constructive bill introduced by the distinguished chairman

of this committee. I cannot overemphasize the extreme importance

• of its passage as a fair and equitable measure on the part of the Congress to this nondiversifiable industry. Its preservation is essential

as a necessary processing plant in the production of cotton, not only

in the area which I represent, but all across the Cotton Belt.

It needs to be added here that cotton fiber becomes a critical raw

material in times of national peril. The cotton textile requirements

in Vietnam are at present demonstrating this fact. It would be tragic

for cotton fiber production to be liquidated in the Southeast where at

least 80 percent of active textile spindles are located. Instead, it

should be stabilized in that area at a reasonable level in the interest

of national security, with the potential of rapid expansion when national peril requires it to do so. A key industry in such stabilization

is cotton ginning. Passage of H.R. 15661 would be a step in that

direction. More must be done, however, by the Congress. Steps to

assure stabilization of efficient production through movement of un-
16 EMERGENCY LOANS FOR FIRST PROCESSORS

wanted cotton acreage allotments into the farming programs of bona'

fide cottongrowers must be accomplished. This can be done by

methods which are acceptable and effective. The provision for sale

or lease of cotton allotments was vociferated in 1965 as a big step

toward bringing cotton acreage and cottongrowers together. This,

has been nullified by other mechanisms of the 1965 act which have

been outlined. Cotton ginners are caught in the economic impact of

the current cotton commodity program. Some are already victims

of it. Many others are likely to become so as long as the current

program remains in effect. They need and deserve assistance.

Therefore, Mr. Chairman, I urge upon you, and the members of

this committee, passage of this reasonable and desperately needed bill

into law be accomplished with all possible speed.

I thank you for this opportunity to present this statement.

Mr. POAGE. Thank you for your statement, Mr. Heidelberg. You

have raised a question which I think ought to be discussed for a

moment. I am thoroughly in sympathy with this bill. I think it is

a proper approach to a serious problem. But does it solve the problem when it does not provide for refinancing? You emphasize, I

notice, and I think correctly, that the problem will be particularly

burdensome on gins which recently have been constructed or where

there has been recent renovation of the plant. I think you are right

about that. Those people will need refinancing, will they not? They

will not need money to build a new plant. Very few ginners will need

money—the fact of the business is nobody will need money to build a

new plant.

Mr. HEIDELBERG. I cannot imagine anybody wanting to build a

cotton gin now, Mr. Poage.

Mr. POAGE. That is right. How is this really to get to the man

who needs the help?

MT. HEIDELBERG. HOW Will you get to the man who needs the

help?

Mr. POAGE. Yes; if this assistance is needed, is not 90 percent of

it to be refinancing?

Mr. HEIDELBERG. It will have to be.

Mr. POAGE. Were we not just told by the Department that they

would not refinance?

Mr. HEIDELBERG. Did they say that?

Mr. POAGE. It was my understanding of the testimony of the

Department that they would not refinance.

Mr. GATHINGS. The witness did testify they have the authority,

but that they would not exercise it.

Mr. POAGE. That is what I understood him to say. He said they

have exercised that authority but for a short period after the passage of

the act in 1949, and that if this bill were passed they would not

refinance any outstanding obligations. That is the way I understood

the testimony of the Department.

Mr. HEIDELBERG. Then if that is the Department viewpoint, the

bill as written would be ineffective, and maybe the bill should be

amended.

Mr. POAGE. That is exactly the point I am raising. I do not think

it will achieve anything unless it has refinancing in it.

Mr. HEIDELBERG. I would agree with the distinguished Congressman from Texas.
EMERGENCY LOANS FOR FIRST PROCESSORS 17

Mr. POAGE. I just wanted to raise that question, because I think at

least 90 percent of the effectiveness of this bill goes out the window by

virtue of the testimony of the Department this morning.

Mr. HEIDELBERG. I hope the bill will be so amended as to take

care of that point, Mr. Poage.

Mr. POAGE. I think it must be to make it effective.

Mr. DOLE. Would you have any objection to another amendment

that would make producers eligible for economic disaster loans on the

same basis?

Mr. HEIDELBERG. Would I have objection to it?

Mr. DOLE. Yes, sir.

Mr. HEIDELBERG. NO, sir, I would have no objection.

Mr. JONES. Mr. Heidelberg, you have emphasized so much throughout here the fact that cotton has been plowed up that might have gone

on and produced a crop. I have had the same complaints from cotton

ginners. What I cannot understand is that it seems, when you bring

that up and emphasize it so much, you are indicating that the Department of Agriculture is being negligent in the administration of the law,

because, as I understand the law, I think that was not only not coiftemplated, but I think it would be a violation of the law if a producer

were deliberately to plow up cotton which would have produced a fair

return just in order to collect the payments, and then to plant soybeans. You do not think the law contemplated or intended that that

practice would prevail, do you?

Mr. HEIDELBERG. Mr. Jones, I would not say what the law was

intended to do. I am telling you what the law permits to be done.

I checked this very carefully all the way to 14th Street and Jefferson

Drive in Washington. While I find people within the ASCS at the top

level are not particularly in agreement with what has to be done, there

is nothing else they can do. The law is so written that it simply says

that the cotton only has to be planted in a workmanlike manner.

I have tried carefully to get a clear understanding of this. The

Department has no latitude. If a man wants to plow up his cotton

acreage on the outskirts of your town in Missouri after it has come up

and it is proven that he planted it in a workmanlike manner and he

plows it up, he has qualified for the direct payment. If he puts it in

some uncontrolled crop, that is no business of the Department.

Mr. JONES. If that practice has been as widespread as you indicate

here, do you not think, if the Department feels it does not have authority to do it, they should certainly be asking Congress to clarify the

law, if necessary by an amendment, because I do not think anybody

had any intention—I know I did not—of just permitting cotton that

could be produced to be deliberately plowed up. I know in some areas

they say it has been done, but when I check I find it is not quite as

widespread as rumored.

I know most of the ASCS offices have made a check, trying to prevent any misuse of this law; and if the loophole is there, I think Congress certainly should do something to correct it. We cannot do

anything to correct it this year, I understand.

Mr. HEIDELBERG. The law is not being abused. This is the way

the law is. I would like to say, Mr. Jones, I would be delighted to

support a bill of this kind if you would introduce it. It would be good

to be able to do that.
18 EMERGENCY LOANS FOR FIRST PROCESSORS

Mr. JONES. You say they do not violate the law, but I think they

certainly are violating the intention. I do not think the Congress

ever intended that we get out and play Santa Claus on this.

Mr. HEIDLEBERG. What did the Congress intend? I believe you

were quite close to the formation of the Agricultural Act of 1965. I

would be delighted to know what the Congress intended.

Mr. JONES. I think the workmanship manner of planting cotton

would carry through, that they should observe the same good practices

all the way through. This seems to be another instance of where—

I do not know whose fault it was, and I will take my part of the

blame—maybe we did not write into the law more specifically how

this was to apply.

Of course, what we were trying to do—I know my intention was

to try to protect the fellow who had been hurt and who had made

every effort. The same thing with the bill we passed this year

giving the same treatment to those who were unable to plant. I

know in my area they did go out and see if that fellow really could

plant cotton, to encourage him to plant it if it could be done.

Mr. HEIDELBERG. I have defined for you an unusual natural disaster.

in our State which brought a spotlight on this thing, this unprecedented

May 10 frost, but I hope I have made it clear in so saying that the

same type of thing could happen in Missouri next year. The incentive

is there to go this route. I am not critical of ASCS at all. Their

hands are tied in this thing. The law that was passed by the Congress

required, to qualify for the direct price support payment, only that

the cotton be planted, not harvested; planted in a workmanlike

manner. Beyond that, the farmer could follow his own discretion.

As I understand it, the USDA has no latitude to tell him he has to

go on and raise and harvest it to qualify for the 9.42 cents. Next

year that 9.42 cents very probably will be larger, and the incentive

will be greater, because parity is going up, and I do not see how it can

be otherwise.

Mr. JONES. I think I am right that Congress had no intention of

making it possible to do what you indicate has been done. I have

had some complaints. Of course, we have plenty of ginners in my

section who are going broke this year. I talked to one fellow the

other day who said he doubted if he would gin 350 bales of cotton

this year. I said, "You might just as well not open." He said, "No,

I have to open it because, if I ever close that gin, I know it will never

be reopened, so I have to keep a crew on there." He said the year

before, last year, he had ginned over 2,000 bales of cotton.

Of course, down our way when you do not get at least 1,500 bales,

you are operating at a loss with that gin. We know that.

I still say that there was no intention to permit this practice to

prevail. As a result of what we see this year, I think Congress has

an obligation to put something in the law to prevent that happening

next year.

Mr. HEIDELBERG. I am glad to hear you say that. I cannot resist

the temptation to say this: If this committee and the Congress want

to do something that will help the ginner in the way the ginner wants

to be helped, it is to close up this loophole in the law so he will have

cotton ginned. He does not want to have to borrow money from the

Government to survive. He wants to survive as a bona fide, active,

aggressive businessman in agriculture. But the ginner cannot do it

if there is no cotton to gin.
EMERGENCY LOANS FOR FIRST PROCESSORS 19

Mr. JONES. Of course, my intention is to see cotton continue to be

the profitable crop it has been in the past, but neither do I want to

see a condition arise which would bring discredit and suspicion to the

cotton producers and processors and cause other segments of our economy to feel that these cotton people are being given preferential

treatment. I want to maintain their reputation because I think it

has had a good reputation in the past, and I want it to continue in

the future.

Mr. HEIDELBERG. I am not critical of the farmers who are taking

advantage of this loophole in the law. I rather suspect I might do

it myself if I had a cotton allotment. I feel that many of them are

doing it and do not agree with it. You have given them a box of

candy which is mighty sweet, and hard to resist.

Mr. JONES. Thank you, Mr. Chairman.

Mr. GATHINGS. On page 3 of your statement you brought out a

point which is most interesting to me because we have had a similar

situation in Arkansas. You said on May 10 in the Carolinas you

suffered an unprecedentedly heavy frost, and that the plants were

small and were damaged greatly. Over what area in the Carolinas

was that frost?

Mr. HEIDELBERG. This extended all over North Carolina, Mr.

Gathings, and on down into central South Carolina.

Mr. GATHINGS. You estimate that in North Carolina there was a

cutback in allotment from 460,000 to 285,000 acres.

Mr. HEIDELBERG. No. What I said was, before the frost that was

estimated to be what we would plant.

Mr. GATHINGS. 285,000 is a 42- or 43-percent cutback right there.

Mr. HEIDELBERG. I understand.

Mr. GATHINGS. YOU anticipate 

Mr. HEIDELBERG. There is no way for US to know yet how many

acres are plowed up and will be available for harvest. The August 1

crop reports will indicate that. You can imagine how intensely I am

interested personally in that. I have called and visited all around the

State. If North Carolina harvests 140,000.acres of cotton this year,

it will be in line with what we believe is left in the ground. You will

notice I said that, Mr. Gathings, in the first paragraph on page 4.

Mr. GATHINGS. Yes.

Mr. HEIDELBERG. The report which came out last Friday says

250,000 acres were planted in North Carolina, but this does not reflect

the damage that has resulted from the May 10 frost. So, it is misleading. We are-trying to get a story in our papers down home to

correct this, because some people may misinterpret this and make

some bad business judgments.

Mr. POAGE. May I ask unanimous consent to insert at this point

the cotton acreage report that you are speaking of?

The CHAIRMAN. Without objection, this will be put in the record

at this point.

(The cotton acreage report referred to above, published by the U.S.

Department of Agriculture Statistical Reporting Service, follows:)

COTTON PRODUCTION—COTTON ACREAGE REPORT JULY 1, 1966

The acreage of cotton planted this year is down to 10,567,000 acres, the smallest

in nearly 100 years. The estimated acreage is 25 percent less than the 14,153,000

acres planted last year and about one-third less than the 1960-64 average of
20 EMERGENCY LOANS FOR FIRST PROCESSORS

15,728,000 acres. This sharp decline results from heavy grower participation in

the 35 percent diversion option of the Government's 1966 Upland Cotton Program.

Growers in the eastern and central cotton States except Missouri generally

were able to plant their intended acreage. However, continued cold, wet weather

delayed planting, limited germination and growth resulting in the need for replanting in many areas. Replanting to soybeans was exceptionally heavy in the Carolinas and Missouri, moderate in Georgia, North Alabama, and Northeast Arkansas

and generally light in other areas. TheFefore, the acreage planted to cotton and

later abandoned will be heavier than usual. The first estimate of the acreage for

harvest this year will be released in the August 8 Cotton Production report.

Although somewhat late, cotton in Mississippi, Louisiana, and South Alabama

has made fairly good progress. In other eastern and central States, the crop is

late, stands are spotted but conditions are generally rated as fair. Warmer weather

during June brought some improvement in prospects, but dry soils in some eastern

and Delta areas were retarding growth by the end of the month.

Growers in Oklahoma completed planting following mid-June rains; replanting

was light but soil moisture is again short. In Texas, maturity of the crop in the

Lower Valley has been delayed by heavy rains. Excessive rains in the Coastal

Bend and Upper Coastal areas have stunted the crop and hampered weed and insect control. The season has been very favorable in the Blackland and East

Texas areas. Most of the acreage in Northwest Texas was planted by mid-June

but hail damage caused some replanting.

In Arizona and California, cotton is off to an excellent start and prospects are

very favorable. Allotments for American-Egyptian cotton are up 5 percent from

last year and growers planted about 81,000 acres compared with 77,000 acres in

1965.

The Crop Reporting Board of the Statistical Reporting Service makes the

following estimate of cotton acreage from data furnished by crop correspondents,

field statisticians, the Agricultural Stabilization and Conservation Service, and

cooperating State agencies:

North

South

Georg

Tenn

Alab

Misso

Missi

Arka

Louis

Okla

Texas

New

Arizo

Calif

0 t he

Other

V

Ii

Amer

;Pr A

State

1960-64

average

percent not

harvested I

Planted acres

1960-64

average

1965 1966 1966 as percent of 1965

Percent 1,000 acres 1,000 acres 1,000 acres Percent

i Carolina 4.2 406 387 250 64.6

Carolina 2. 5 571 501 360 71.9

;fat 2. 7 680 593 440 74. 2

?ssee 2. 5 532 507 395 77. 9

ma 2. 3 886 830 595 71. 7

ari 2. 6 384 341 250 73. 3

sippi 3. 5 1, 573 1,471 1,030 70. 0

1SaS 3. 3 1,344 1, 250 925 74. 0

iana 4. 3 554 516 375 72. 7

loma 6. 6 654 585 465 79. 5

. 7. 0 6,650 5,850 4,400 75. 2

Mexico 5. 8 207 183 146 79. 8

na 1.9 405 345 258 74.8

Irnia 2. 2 827 744 643 86. 4

' States 3 5. 4 53 50 35 70.8

United States 4. 9 15, 728 14, 153 10, 567 74. 7

States:

irginia 4.8 15. 2 15. 0 11. 0 73. 3

lorida 5. 1 24. 5 23. 1 16. 0 69. 3

linois 9. 1 2.2 2.5 1.5 60.0

entucky 6. 6 7.2 6. 4 4. 6 71.9

evada 

ican-Egyptian: 3

exas 

5. 0 3. 6 3. 0 2. 3 76. 7

5. 0 33. 9 27. 6 29. 0 105. 1

ew Mexico 2. 6 19. 3 15. 7 16. 5 105. 1

rizona 2. 1 41. 2 33. 5 35. 0 104. 5

alifornia 7. 7 . 6 . 5 . 6 115. 4

Total, American-Egyptian 3.3 95.0 77.3 81. 1 104.9

From all causes, including removed for compliance.

2 Sums for "other States" rounded for inclusion in 'U.S. totals.

3 Included in State and T.J.S. totals.
EMERGENCY LOANS FOR FIRST, PROCESSORS 21

Mr. GATHINGS. I am hoping that there will be a representative

from the Midsouth territory to testify and bring us the picture for

that area, which has suffered from constant rainfall for a period of 30

days during the time they ordinarily plant cotton.

Mr. HEIDELBERG. May I also interpolate at this point something

which occurs to me, although we do not oppose it down home—the law

recently passed which allows a man to get the payments even though

he does not even plant the cotton. What are you going to do next

year? What is ASCS going to do next year if a man deliberately

slows up in his planting and watches every shower and watches the

temperature and soil, and then gets on up to a point and then goes to

the ASC office and says, "Here is what happened, and I just have not

been able to plant my cotton."

The CHAIRMAN. We are getting away from the subject under

consideration. We have several more witnesses to be heard.

Mr. TEAGUE. I have an additional question. There has been a

lot of talk, Mr. Heidelberg, and I know it is very justified and serious,

about too much rainfall and frost, but I see nothing in the bill about

natural disasters. It is not your notion, is it, that assistance be

limited to those areas where natural disasters have occurred?

Mr. HEIDELBERG. The point I was trying to make, sir, was that

the natural disaster we had on May 10 in North Carolina focused the

spotlight on the economic impact of the commodity program for cotton.

Mr. TEAGUE. I understand that, but there are a lot of areas that

did not have natural disasters where production was reduced, also.

Mr. HEIDELBERG. I would not want to limit it just to natural

disasters, because it was the mechanism of the law coupled with the

natural disaster.

Mr. TEAGUE. SO, this resulted in reduced cotton production and,

therefore, there was less cotton to go to the gins just as well as in

areas where there was not a natural disaster.

Mr. HEIDELBERG. I should think so; yes, sir.

Mr. TEAGUE. Thank you very much, sir.

The CHAIRMAN. Mrs. Stott, do you wish to add anything to what

Mr. Heidelberg has said?

Mrs. STOTT. Only to say this: I have been in the ginning business

since I was 13 years old, assisting my father, and we have been

trying to hold on all these years. I am not a young woman. We

have of necessity been put out of the ginning business. I am in the

throes of bankruptcy from this. We did not at all anticipate the

cutback in the ginning program, your control program, this coming

year. Last year we did not anticipate a disaster. Therefore, we are

in what you might call an economic depression in our cotton industry

where I live in Nash County.

The CHAIRMAN. You are in a situation now where you will need

some refinancing.

Mrs. STOTT. I will have to be refinanced to stay in the business.

The CHAIRMAN. Mr. Bradley, do you gentlemen want to add

anything to what Mr. Heidelberg has said?

Mr. BRADLEY. Mr. Chairman, I would like to bring to your attention a personal gin of ours. In 1964 our State agriculture department

and our county agriculture department advised us to build a new

gin at Seaboard, N.C. There were three gins in Seaboard, Bradley,

and Lowell, which had two, which I was a part of, and Seaboard
22 EMERGENCY LOANS FOR FIRST PROCESSORS

Ginning Co. We merged and built one new gin at a cost of $300,000.

We have now made our payments down to $104,000 that we now owe.

I would like to bring this to your attention, Mr. Gathings, since

you asked about the nationwide bales-of-cotton production over the

years. I can give you acreage harvested in Northampton County,

which I am interested in, from 1953 through. 1966, which is very.

interesting. In 1953, there were 34,000 acres harvested in Northampton County. In 1954, there were 24,000 acres harvested in Northampton County. In 1955, there were 22,000 acres harvested. In

1956, 20,000 acres. Then we drop down to the soil bank years.

This, from the general viewpoint, is almost the situation that we are

in now under the cotton program. In 1958, it dropped down to 14,000

acres in Northampton County. I will skip over these years.

It increased on up to 1963. In 1963, it went back up to 35,000

acres harvested in our county. In 1964, there were 33,894 acres

harvested. In 1965, it dropped down to 29,719 acres.

I talked to our ASC manager. He has just about completed the

measurement of the cotton crop in Northampton County. He gave

me this figure. It dropped from 29,719 acres harvested in 1965 to

an estimated 9,500 this year.

Mr. Chairman, we as ginners are in trouble, and we need some

assistance and we would appreciate any assistance you could give us.

The CHAIRMAN. Thank you very much. That is a deplorable

situation, and I am glad to have those figures in the record. I appreciate your coming here and giving us the benefit of your views.

STATEMENT OF WILEY SALTER, CHAIRMAN, ALABAMA LEGISLATIVE COTTON STUDY COMMITTEE, ALABAMA HOUSE OF

REPRESENTATIVES, CONECUH COUNTY, EVERGREEN, ALA.;

ACCOMPANIED BY WALSTON HESTER, ALABAMA HOUSE OF

REPRESENTATIVES, RUSSELLVILLE, FRANKLIN COUNTY, ALA.;

JOHN CASEY, ALABAMA HOUSE OF REPRESENTATIVES, HEFLIN,

CLEBURNE COUNTY, ALA.; HARRY PENNINGTON, ALABAMA

HOUSE OF REPRESENTATIVES, HUNTSVILLE, MADISON COUNTY,

ALA.; CARL HALE, GINNER, PINE APPLE, ALA.; AND BILL

NICHOLS, ALABAMA SENATE, SYLACAUGA, ALA.

The CHAIRMAN. We have a group of people from Alabama. Do

any of your gentlemen want to file a statement or make a statement?

Mr. SALTER. I would like to make a statement, Mr. Chairman.

The CHAIRMAN. Do all the people with you agree with your views

on this?

Mr. SALTER. Yes, Mr. Chairman. Mr. Murray is with the

Alabama & Georgia Ginners Association. The rest of us are with

the Alabama Legislative Cotton Study Committee, except for Mr.

Hale, who represents the small ginners in our area. He has two gins,

something like 2,000 bales each per gin. Mr. Nichols, who is vice

chairman of our committee, incidentally is the Democratic nominee

from the Fourth Congressional District in Alabama.

The CHAIRMAN. We are glad to have all of you here.

Mr. SALTER. I am Wiley Salter, chairman of the Alabama Legislative Cotton Study Committee.
EMERGENCY LOANS FOR FIRST PROCESSORS 23

We think your committee did a good job in alleviating many of

the problems of cotton farmers in our State, but at the same time

this one drug for the cotton farmers had bad side effects ontour

cotton ginners. Gins have had to modernize in the last few years

and some new gins have been built in an effort to cope with the

mechanization by the farmers in our areas. These gins were built

and modernized in anticipation of a set projected yield, and this

year alone we were curtailed by some 30 percent in acreage.

There was an additional reduction by the same frost that Mr.

Heidelberg mentioned in May, which hit Alabama, especially north

Alabama and the Tennessee Valley. We think we can safely assume

that there will be a 35- to 40-percent reduction in the cotton production

in Alabama this year.

We have an enormous investment in cotton gins operating for one

purpose only for a short period of time. They are dust collectors

from the end of one ginning season to the next short ginning season.

Cotton gins in Alabama usually represent an investment from $100,-

000 to $200,000.

In short, through no fault of his own and certainly through no

fault of this committee, the cotton ginners have found themselves in a

dilemma that could be disastrous. If we understand the bill correctly,

it is not asking for an outright grant for the cotton ginners but for a

loan, and the record shows, I believe, it was said a while ago, less than

1-percent loss on the previous loans. So, we are not asking that you

give something to the cotton ginner, but just to lend him something

to get him through the problem he is in now.

The ginners are a very necessary part of our economy in Alabama.

We thank you for the opportunity to appear here today, Mr.

Chairman and members of the committee. You have heard us a

number of times, and you have been kind to us.

The CHAIRMAN. We thank you very much for coming here and

giving us the benefit of your views.

MT. SALTER. Thank you, sir.

The CHAIRMAN. Mr. Donald G. Smith.

STATEMENT OF DONALD G. SMITH, EXECUTIVE VICE PRESIDENT,

TEXAS INDEPENDENT GINNERS ASSOCIATION

Mr. SMITH. Mr. Chairman and members of the committee, I am

Donald G. Smith, executive vice president of the Texas Independent

Ginners Association, 2321 50th Street, Lubbock, Tex.

The Texas Independent Ginners Association is a young, rapidly

growing organization Of 345 independent cotton ginners operating

privately owned cotton gins within the State of Texas. TIGA was

organized in the fall of 1962 to represent the independ.nt ginner and

serve the needs of the independent ginning industry of Texas. In a

period of less than 4 years since its founding, TIGA has obtained

recognition for its vigorous dedication and its willingness to speak

out for the Texas independent ginner, who has traditionally played

a vital and pioneering role in the American cotton industry.

One of the basic objectives of our association is to present the views

and thinking of our membership to the Congress of the United States

on proposed Federal legislation which directly concerns our industry.

It is for this very reason that I appear before this House Agriculture
24 EMERGENCY LOANS FOR FIRST PROCESSORS

Committee today. In behalf of the entire membership of our association, I wish at this time to state our sincere• appreciation for being

afforded this opportunity to express our support for H.R. 15661.

Since the close of World War II the entire American cotton industry has been experiencing dramatic and revolutionary changes in

production, marketing, and processing methods. Tremendous technological gains have been achieved in cultural practices, improved

varieties, and streamlined mechanical harvesting operations. Within

the cotton ginning industry the tempo of change has been breathtaking. Cotton mechanization demanded, as a matter of "survival

necessity" for both farmer and ginner, that the cotton ginner increase

his ginning capacity to alltime record highs. Increased volumes of

rough harvested cotton over shorter periods of time by use of highspeed mechanical pickers and strippers presented a new "traffic

problem" of mechanization that required immediate action. The ginning season was compressed from months to weeks—even days in

some cases. In addition, mechanically harvested cotton created

problems of increased foreign matter, proper moisture content,

maintenance of fiber quality and adequate preginning storage. The

cotton ginner has met all these major problems head on. He has

purchased modern and very expensive gin equipment such as automatic controls, high-speed stands, new seed cotton and lint cleaning

and drying systems, and moisture restoration systems. He has added

more available horsepower to run this high-capacity gin. He has

increased his storage facilities by use of trailers, baskets, and bulk

storage containers. He has increased his traditional services to the

customers in such ways as providing hauling assistance, furnishing

housing for farm labor, extending credit for seed and supplies, and

acting in an advisory capacity for agronomic techniques.

During this same period that the cotton ginner has been obligated

to purchase expensive equipment and perform essential services for

his farm customers, the cost of operating a gin has been increasing at

all levels, including repairs, insurance, taxes, labor, power, bagging

and ties, and so forth. In many cases the ginner has been forced by

vigorous competition to absorb these increases himself rather than

pass them on to his customers. In addition, as an integral part of

the American cotton industry, the cotton ginner has been confronted

with the serious loss of traditional American cotton markets at home

and abroad to the synthetic industry and foreign production.

The problems of our industry have now been increased to an extremely dangerous point with passage of the new cotton program which

will in all probability reduce cotton ginnings 25 percent or more. This

is a most drastic and severe loss of business volume for any industry

to be called upon to suffer—particularly when the industry has been

forced to borrow and expend vast sums of money for long-range

modernization programs. Traditional and normal sources of credit

in the past for permitting the cotton ginner to meet these long-range

requirements thrust upon him were from within the industry itself.

However, the impact of the new cotton program has had the effect of

severely curtailing these credit sources.

• The cotton ginning industry is a most vital and essential part of

the American economy—and serious thought must be given to its

survival. My association is most encouraged that the distinguished

chairman of this committee has introduced a bill which will materially
EMERGENCY LOANS FOR FIRST PROCESSORS 25

aid our industry in time of crisis as it gathers all the available resources

at its command to weather a severe period of transition. The cotton

ginning industry has historically performed an indispensable role in

the spectacular growth of American agriculture—and it has complete

faith that it will continue to do so in the future. Passage of H.R.

15661 will demonstrate that the Congress also shares this same faith.

In the best interest of the cotton ginning industry and the general

welfare of the Nation we urge you to report H.R. 15661 favorably.

I again thank you for the opportunity and the privilege of appearing

before this committee.

The CHAIRMAN. We thank you very much, Mr. Smith.

Mr. POAGE. Mr. Smith, it won't do much good to pass this bill

unless there is some refinancing, will it?

Mr. SMITH. Yes, sir, it will help in some amount. Refinancing

is the major problem. The bill is not going to help us when volume

is our loss and our main problem, but I think it would permit the

average gin to operate on an annual basis. For example, the breakeven point for a cotton gin in Texas is approximately 2,100 bales.

The average ginning last year was 3,200 bales, approximately. With

a 25-percent reduction, I compute this at about 800 bales less than

3,200, which will still put us at 2,400 bales, which is above the breakeven point, but we have got to have this additional financing.

The CHAIRMAN. Thank you very much, Mr. Smith.

I will now call Joseph H. Price of the Texas Cotton Ginners' Association.

STATEMENT OF JOSEPH H. PRICE, DIRECTOR OF PUBLIC RELATIONS, TEXAS COTTON GINNERS' ASSOCIATION, DALLAS,

TEX.

Mr. PRICE. Mr. Chairman and members of the committee, my

name is Joseph H. Price. I am director of public relations for the

Texas Cotton Ginners' Association, which makes its headquarters in

Dallas, Tex. I am here in support of H.R. 15661 which is now under

consideration by this committee. The Texas Cotton Ginners' Association is a voluntary membership organization representing 72.8

percent of all gins in the State. Our members include independent

operators, gins owned by corporations, line and oil-mill-operated

establishments and cooperatives. The Texas Cotton Ginners' Association concerns itself primarily with those business problems which

directly affect the entire ginning industry and work on these with a

view toward improving the business atmosphere for our industry.

H.R. 15661, therefore, falls into our scope of interest. It should not

require extnsive testimony to indicate why ginners need loans as

would be authorized by this bill. In fact, the need should be obvious

to most people familiar with the cotton situation at this time. Let

me first explain that our association supported the enactment of the

present cotton program. The ginner and the farmer are so closely

tied together in their operations that it is difficult to separate the

interest of one from the other; therefore,we to,k great interest in

getting a workable agricultural act which would improve the lot of

the cotton farmer.

One of the provisions of this act, however, we vigorously opposed.

We opposed that portion dealing with the amount of acreage reduction,
26 EMERGENCY LOANS FOR FIRST PROCESSORS

for we realized farmers had to have adequate acreage in order to

justify the necessary investments in machinery, land, and other

production items in order to keep on a sound economic basis. We also

realized that drastic cuts in acreage meant fewer bales of gin. This

was a selfish viewpoint but one which concerns the ginning industry

vitally, for ginning is a volume business. Our industry's efficiency

and profits are determined in the main by volume considerations.

Thus, any reduction in volume meant higher per-bale costs, lower

efficiency and reduced profits. Increased costs cannot be passed, of

course, to the consumer, but must, of necessity, be charged to the

farmer-customer. Ginners are reluctant to increase charges at a

time when farmers' income from cotton production is declining.

Let me review for you what has happened in the ginning industry

over the past few years. Every gin must process a certain amount

of cotton before any profit can be realized. This is commonly referred to in the ginning industry as the break-even point. Twenty

years ago investments in a modern gin plant were about $80,000 to

$100,000, depending on the area in which the gin was located, while

today investments in a gin plant to do the same job often reach

$350,000 and in some instances even more. The ginning season of

20 years ago lasted 5 to 6 months, while today the period of operations

has shrunk to 6 to 10 weeks. The break-even point of 20 years ago

was around 1,000 bales and today it is between 3,200 and 3,500 bales

on a modern high-capacity plant. In Texas, the average gin processed

3,318 bales in 1963; 3,118 bales in 1964; and 3,482 bales in 1965.

Although averages do not tell the complete story, they indicate that

most gins in Texas over the past 3 years have operated at or close to

the break-even point. This means, of course, that very few gins in

our State have realized any profit.

One of the reasons why huge additional investments have been

necessary and shorter seasons occurred is that farmers have mechanized almost completely in our State. Last season the U.S. Department of Agriculture reported that 94 percent of the Texas crop

was mechanically harvested. Mechanical harvesting was necessary

for the farmer to improve efficiency and lower costs. It also brought

tremendous amounts of added foreign matter to the gin in the form

of burrs, sticks, stems, leaves, dirt, and other trash. This material

had to be separated and cleaned from the cotton. Gin machinery

manufacturers, aided by research at our various USDA laboratories,

have developed equipment to do this job. Ginners have invested in

this equipment and thus the tremendous increase in investment has

come about.

Mechanical harvesting is a much more rapid process now than that

formerly experienced when harvesting was done by band. One machine can harvest often as much as 50 or 60 individuals did when

harvesting by hand. Reports indicate that today in Texas there are

approximately 6,000 cotton-picking machines and nearly 50,000

cotton-stripper machines in use in the State. This has revolutionized our industry, and ginners made this possible by investing in

improved ginning equipment. All of these investments were predicated on the assumption that normal trends in cotton production

would continue. No one in our industry envisioned a one-third reduction in volume, at least not in any one year and certainly not from

any program resulting from Federal controls. But this is what is

happening.
EMERGENCY LOANS FOR FIRST PROCESSORS 27

This year in Texas planted acreage will be reduced some 25 percent from last year and this, of course, does not take into account

the losses from excessive rain, unusual drought conditions, hail, windstorms, and other weather hazards, all of which the ginner has absolutely no control over. We must also realize that, when formulating

this cotton program, one of the prime considerations of the Congress

was to adequately protect the farmers' income. But what about the

processor, who depends entirely upon volume for his livelihood? There

has been a natural decline in the number of gin plants over the years

due to the necessity for larger, more efficient, high-capacity plants,

but even this trend did not anticpate the drastic reductions in volume

which will occur this year.

The ginner, too, along with the necessity for increased investments

to meet the changing needs of farmers, has been put in a cost-price

squeeze. USDA reports indicate that over the past 10 years ginners

in Texas have increased their charges to the farmer by 26.93 percent.

This includes charges for bagging and ties. Yet, over the same 10

years, the cost to provide the ginning service has risen 36.63 percent

and this on gins processing a volume from 5,000 to 6,000 bales, which

is well above the break-even point. Statistics are not available to

indicate the cost of ginning at below the break-even level. I hope

by these simple comparisons to have adequately shown that ginners

have made large recent investments in equipment and it should be

apparent that these investments have not been paid off.

It should be pointed out here also that the plight of the cotton

ginner is largely unique. Cotton farmers, if necessity requires,

can change to other crops. Cottonseed oil mills can crush other oilseeds such as peanuts, sesame, safflower, and soybeans. Cotton

warehouses can store other goods. Cotton merchants can sell other

products. Cotton mills can process other fibers. But a cotton gin

can do only one thing and that is process seed cotton. This means

separating the seed from the lint, cleaning the lint, and packaging it

into a bale. This is the sole function of a cotton gin. It can be used

for no other purpose. A great many of the members of our industry

have their entire lifetime wealth tied up in their gin plants. They

see no hope for profits or even survival in the future.

Mr. Chairman, this is not the whole of the story. Ginners have

other problems which are adding to their burden. The public is

becoming more aware and concerned with air pollution. With the

coming of mechanical harvesting, ginners now must handle tremendous

tonnages of additional dirt and trash which is removed from the seed

cotton they process. The methods used to dispose of this material

have been of great concern to our industry. The need to control dust

from cleaning processes and smoke from the incineration of trash has

been of prime concern to our industry. Recent air pollution control

laws, both Federal and State, have indicated that additional equipment

is necessary to control these air pollution effluents. This equipment

costs money and in some instances quite a lot of money. These are

expenditures which will be necessary if we are to operate in our

communities as good citizens. These expenditures do not enable us

to improve the quality of our ginning and service to our farmers.

They are strictly for the public good. The pressure is mounting from

the general public in this area. With drastically reduced profits and

in many cases no profit but a loss in view, a real emergency exists.
28 EMERGENCY LOANS FOR FIRST PROCESSORS

This is but one example of many which I could present to you today

which would in our judgment completely justify emergency loans to

cotton ginners.

It should be pointed out here that such loans should be made

available on a long-term basis, preferably 20 years or longer, and at

disaster rates of interest to enable girtners to adjust over a long period

to the ups and downs of cotton production and to adjust their operations to current and future production levels.

Mr. Chairman, we congratulate this committee for considering this

bill which will, in our view, assist in maintaining a vital segment of the

cotton industry in a healthy condition.

Ginners from time immemorial have neither solicited nor sought

direct support from the Federal Government. There should be an

opportunity to repay aid and stand on our own feet as sound businessmen. We believe this bill does just that. It provides aid where aid

is needed and it offers an opportunity for us to repay that aid. We

would merely ask that the legislative history indicate that these loans

be made over a long-term period and at interest rates low enough to

allow repayment in adverse times. We urge favorable committee

action on this bill and urge speedy passage through the Congress.

Thank you for the opportunity of presenting our views here today.

The CHAIRMAN. Thank you very much, sir.

Mr Price, what is the lifetime of a cotton gin, properly operated?

Mr. PRICE. When you say "properly operated," you open Pandora's

box. I know of some that probably shouldn't be operated, but they

are being operated, that are 15 or 20 years old.

On the plains where we handle more dust and foreign matter, and

in stripper areas where the gin doesn't tend to last as long as where

the cotton is a little bit cleaner, all these are factors.

Mr. GATHINGS. I wanted to ask you about the cost of a gin plant.

You brought out in your testimony that the outlay had increased

from some $60,000 to $100,000 and has gone up to some $350,000.

Now,that increase is not due to the change in the value of the dollar

itself?

Mr. PRICE. No, sir. It is just like everything else, Mr. Gathings;

that has had maybe some little to do with it, but basically the large

increase in cost has come from additional machinery that has been

acquired.

Mr. GATHiNGS. You have to put that machinery in to get the

business?

Mr. PRICE. We find they cannot sell the cotton if we don't have

this machinery to process it. They find it difficult to find a market

for it.

Mr. GATHINGS. You brought out another point I would like to

commend you for and that is the need to control dust in the cleaning

process. That is something new.

Mr. PRICE. We are in it up to our necks. Under the Clean Air

Act, we are facing some emission standards in the near future and we

are trying to get ready for it.

Mr. GATHINGS. What is the going rate of interest?

Mr. PRICE. It would be 6.5 up to 10 percent. Some may want to

correct that figure, but I would say in that range, and it is from 1 to 2

years. That is the reason we emphasize the longer period, because we

are really on a cash-and-carry basis as far as credit goes.
EMERGENCY LOANS FOR FIRST PROCESSORS 29

Oil mills do financing for cotton gins, but on a year-to-year basis,

and not over a period of time. At the present time we asked a few

ginners about it before I came up here and we could find no one who

knew of a loan lasting over 3 years. At this time I am sure there are

some that are maybe longer, but under present policy, 1, 2, and 3

years is about all we can get. That is the reason we are asking for this

longer period of time for repaying.

Mr. CALLAN. Has your organization looked into the possibility

of loans from the Small Business Administration?

Mr. PRICE. When you get into the Small Business Administration—I regret to say we are becoming a bit more familiar with that,

but we have found it is a participating-type loan which returns us to

the same people we owe money to. It returns us to the banks and at

a rate of interest of 6.5 percent or the going rate.

Mr. CALLAN. They can make 5 percent loans over 10 years direct

if they want to?

Mr. PRICE. Yes, sir.

Mr. CALLAN. You haven't checked into that closely?

Mr. PRICE. Yes, we have some people who have participated in it,

but again for some reason or another our people have never been able

to get too deeply into Small Business Administration loans.

Mr. CALLAN. In other words, the Small Business Administration

hasn't been willing to loan you money, is that right?

Mr. PRICE. I wouldn't say we have been turned down, but there is

an area of qualification that would probably need investigating, but

again this is not the type of loan that we are talking about. We are

talking about an emergency type of loan with what we refer to as a

4zlisaster rate of interest.

Mr. DOLE. Do you have an objection to including producers, making producers eligible for economic disaster loans?

Mr. PRICE. Sir, I would personally have no objection. We have

to help the producers to stay in business so we would be sympathetic

with anything that would aid the producer of cotton.

Mr. DOLE. Would you have an objection to paying the rate of

interest it costs the Government to obtain this money or do you want

a subsidy?

Mr. PRICE. We are just asking for participation in whatever loan

comes up in this bill at whatever rate of interest is established.

Mr. DOLE. Would you object to a higher rate of 4.5 percent or

5 percent?

Mr. PRICE. If we had an option between 3 and 5 percent, we would

want the 3 percent.

Mr. DOLE. Under the present bill the only 3-percent money is

available for natural disasters. You are asking for a whole new thing;

you are asking for loans based on economic disasters. You are not

asking for anything that is in the bill at the present time.

Mr. PRICE. In the bill that Mr. Cooley 

Mr. DOLE. In the amendments to the act that is now before us.

I wondered if you had an objection to paying a little higher rate of

interest?

The CHAIRMAN. This has to be an economic disaster.

Mr. DOLE. Farmers aren't, and producers aren't, entitled to economic disaster loans. Only natural disasters.

The CHAIRMAN. That is right. They have made disaster loans.
30 EMERGENCY LOANS FOR FIRST PROCESSORS

Mr. DOLE. They are based on a natural disaster, a flood or something of that kind.

I have no objection to what we hope to do if we can make certain

that producers are treated the same as the processors.

The CHAIRMAN. Do you mean where they have economic disaster?

Well, we have done that time and again here. I know Mr. Gathings

has sponsored legislation to take care of cotton farmers. Mr. Jones

has a bill to take care of cotton farmers in Missouri, is that right?

Mr. JONES. Well, all over, but, of course, our bill did say natural

disasters as Mr. Dole brings out. As far as that is concerned, of

course, the economic loan follows a natural disaster. It is just a

question of determining that it was caused by that. I think perhaps

the law could be stretched.

Mr. DOLE. For example, in Kansas we have had over a 25-percent

reduction in our wheat crop, not because of any program but because

of the same drought and the same problem we have talked about in

the South more or less.

The CHAIRMAN. You would still be eligible for an FHA loan if

there is the necessary showing.

Mr. DOLE. They can get a natural disaster loan.

Mr. JONES. The natural disaster is the thing that causes your

economic disaster, is it not?

Mr. DOLE. The farmer causes the economic disaster for the ginner,

I suppose. That is the normal sequence. He wouldn't benefit from

a natural disaster loan. You are not going to lose your gin in a flood

normally.

The CHAIRMAN. What we have tried to do is to take care of a.

situation where a ginner has lost his business on account of cotton

reduction.

Mr. DOLE. I am sympathetic with what you are trying to do.

I wanted to make certain the producers understand it.

The CHAIRMAN. Thank you very much for your statement.

We will call Mr. Charles R. Bell from Phoenix, Ariz.

STATEMENT OF CHARLES R. BELL, PRESIDENT, NATIONAL

COTTON GINNERS' ASSOCIATION

Mr. BELL. My name is Charles R. Bell. I work for a ginning

company in Phoenix, Ariz., and I am the president of the National

Cotton Ginners' Association. The National Cotton Ginners' Association has been in existence for 34 years and is made up of State ginners'

associations in 14 cotton-producing States which include all of the

major cotton-producing States in the United Sto,tes with the exception

of California, which does not have a State ginners' association.

I am here to support H.R. 15661, and we are pleased that the chairman of this committee has recognized the need for hearing a group

who have been adversely affected by the Food and Agriculture Act

of 1965.

We recognize and readily admit that because of a surplus problem

the cotton industry as a whole needs the legislation under which we

are operating, but large numbers of processors have had their operating

volume cut as much as 35 percent and have found it difficult, or in

some cases almost impossible, to adjust their operations to this lower

volume.
EMERGENCY LOANS FOR FIRST PROCESSORS 31

We do not ask for handouts. We only ask for emergency relief in

the form of loans which will provide the opportunity for the ginning

industry to survive the 3 or 4 years of reduced volume operations we

anticipate.

Cotton ginning is a business made up of service to farmers. The

American cotton ginner is wholly dependent upon the American cotton

producer and the cotton farmer in turn is dependent upon the cotton

ginner because all cotton produced in the United States must be

cleaned, ginned, and baled before it is marketable. Farmers all over

our country look to the cotton ginner for guidance and direction.

The ginning industry has accepted the responsibility of meeting the

advanced agricultural technology of our times. Ginners have improved and expanded equipment to meet the needs of a mechanized

harvest. This mechanized harvest has resulted in a shorter harvesting season and, as a result, the modern cotton gin has evolved into a

complex, high-speed, high-capacity plant designed for high-volume.

operation.

Twenty-five years ago a cotton gin would have cost approximately

$75,000. Today a fully equipped gin would cost upward from

$250,000 and we have heard of single gin plants which cost $500,000.

On the average across the Cotton Belt, a gin is operated for about

3 months out of the year. Thus this expensive plant is shut down

three-fourths of the time. This results in a very high fixed cost even

in a year with a normal crop. When volume is reduced by one-fourth,

as would be indicated by the July acreage report, the increase in

fixed cost is terrific.

Unfortunately, there is no other use for a cotton gin other than

ginning cotton. Packers may pack many products, crushers may

crush other seeds, elevators may store other feeds, and feeders may

mix other rations, but ginners cannot gin anything other than cotton.

We are entirely dependent upon the production of cotton for our existence. There is no other single group who are as directly affected by

the Food and Agriculture Act of 1965 as the American cotton ginner.

We would also like to point out that size of operation has no bearing

on the position in which the ginner finds himself. The man who

operates 4 or 10 gins anticipates the same reduction in volume as the

man who operates 1 gin. Both need help.

We heartily endorse the recent Cotton Research and Promotion

Act passed by Congress as a giant step toward making cotton selfsufficient. We know_ we must promote our product and we must

sell our product at a competitive price. The only way we as ginners

can assist our farmer customers is by properly maintaining our equipment and by adding new equipment as advances in technology

demand. We in the ginning industry must do this job to help the

farmer hold the price-quality line.

Even with the reduced volume we anticipate over the next 3 to 4

years, we are hopeful that we will be able to meet our direct and indirect costs if substantial amounts of money are made available to us

in the form of loans over a long period of time and at a reasonable rate

of interest. We need 3-percent loans for periods of time up to 20

years so that we can maintain the highly technical advances so necessary to the survival of all agriculture.

We ask that you consider the merit of H.R. 15661 as a means

toward achieving these ends. We urge its approval by this committee.
32 EMERGENCY LOANS FOR FIRST PROCESSORS

Thank you very much.

Mr. DOLE. Specifically what would you do if this bill passes and

you obtain a loan?

Mr. BELL. Sir, I would say that the ginner would mostly need this

money for refinancing of existing indebtedness.

Mr. DOLE. That is not provided in this amendment.

Mr. BELL. I so understand and I would be hopeful that it could

be included.

Mr. DOLE. As I understand it, if you have less cotton you need

fewer gins, is that right?

Mr. BELL. That is absolutely right.

Mr. DOLE. This will be not for expanding capital equipment 

Mr. BELL. It wouldn't be for expanding equipment at the present

time. However, there are gins within the United States which could

use new equipment right now just to keep up with the mechanized

harvest that is spreading throughout the country. So, some ginners

are really behind in equipment right now.

Mr. DOLE. How many people in your association do you think

might want 3-percent money?

Mr. BELL. I have no way to answer that question, sir. I really

wouldn't know. I would say a substantial number would be

interested.

Mr. DOLE. I believe an earlier witness said perhaps 20 percent of

the 5,000. Is this in accord with your thinking?

Mr. BELL. I would say at least 20 percent and possibly higher

than that.

Mr. DOLE. Aren't you producing more cotton in some areas of

Arizona under the bill than you were prior to the act?

Mr. BELL. No, sir; not in Arizona. According to the last acreage

report we have had a 25-percent reduction in Arizona. Some areas

of Arizona have over 30-percent reduction.

Mr. DOLE. In the Midwest you indicate elevators can store something else. If you have anything in mind, I would appreciate your

visiting with me about it because most of our elevators are about

empty. Elevators represent quite a sizable investment all over the

Midwest and not just in the State of Kansas, by a great number of

people who have the same interest you have—they want to compete

and survive. I do not suggest we have a pile of surpluses to make a

profit for anyone.

Mr. BELL. I was trying to make the point that the cotton gin is

related to but one product.

The CHAIRMAN. Thank you very much, Mr. Bell.

The next witness will be J. Banks Young, speaking for the National

Cotton Council.

STATEMENT OF J. BANKS YOUNG, REPRESENTING THE NATIONAL

COTTON COUNCIL

Mr. YOUNG. Mr. Chairman, my name is J. Banks Young. I am

Washington representative of the National Cotton Council, the

central organization of the American raw cotton industry. The

council's principal purpose is to increase the consumption of American

cotton and its products in the United States and abroad.
EMERGENCY LOANS FOR FIRST PROCESSORS 33

The council is a delegate body of cotton producers, ginners, warehousemen, merchants, cooperatives, spinners, and cottonseed crushers

in the 19 cotton-producing States from Virginia to California.

Mr. Chairman, we have no specific resolution or policy position

with reference to H.R. 15661 because we have not had a meeting of

our delegates or our board of directors since it was introduced in•

mid-June. However, the legislation is generally in accord with the

objectives and overall philosophy of our organization and we therefore

are supporting it.

On Friday, July 8, the Department of Agriculture issued its estimate

of acreage planted to cotton for this year. For the United States,

the estimate is that plantings this year will be 25 percent less than in

1965. In individual States, the reduction varies from a high of 35.4

percent in North Carolina to a low of 13.6 percent in California.

These reductions stem directly from the Government's new cotton

program which has as one of its main objectives the reduction of our

large cotton surplus. This is a worthy and necessary objective, but

without any question unit costs will be greatly increased by such a

reduction in volume. This is particularly true in any industry which

has high fixed costs such as cotton ginning.

A modern cotton gin costs from a quarter to a half million dollars,

depending on the amount of cleaning and drying equipment it contains. On the average it will be operated only about one-fourth of a

year while cotton is being harvested in the fall. Its only purpose and

the only thing a gin can do is to separate cotton lint from the seed,

clean and dry the lint when necessary, and bale it. This process must

be performed before the farmer can market his cotton. The farmer

pays the entire cost of the service.

The reduced revenues and increased costs that are in prospect for

all ginners for the next few years are going to place most of them in

financial difficulties. In fairness to them and in the interest of cotton

farmers who depend upon the ginners' services, steps should be taken

to alleviate as much of the ginners' financial difficulties as possible.

Therefore, it seams appropriate and fitting that emergency credit

on reasonable terms be offered to ginners to enable them to continue

their operations during the period of surplus reduction.

In concluding, we would like to congratulate the chairman for

originating this idea and thank him for this plan to help relieve the

critical situation which the cotton ginning industry faces.

Mr. Chairman, the -entire cotton industry is concerned with this

problem and we are indebted to you for introducing H.R. 15661.

We urge that the committee approve it and seek its prompt enactment.

The CHAIRMAN. Thank you, Mr. Young. We will now hear from

Mr. C. Alex Harvin, Jr., National Cotton Ginners Association.

STATEMENT OF C. ALEX HARVIN, JR., PAST PRESIDENT AND

DIRECTOR OF NATIONAL COTTON GINNERS' ASSOCIATION

Mr. HARVIN. My name is C. Alex Harvin, Jr., from Summerton,

S.C. I have operated cotton gins in South Carolina for the past 33

years. This is a family-type operation that my late father started

more than 50 years ago. I am a past president of the National Cotton

Ginners Association and now serving as a director.
34 EMERGENCY LOANS FOR FIRST PROCESSORS

COMMITTEE ON AGRICULTURE,

House of Representatives,

Washington, D.C.

GENTLEMEN: As representative of the Mid-South Ginners Council, I speak for

1,800 ginners of the Mid-South area.

These ginners urge the approval and passage into law of H. R. 15661 which will

provide federal emergency loans to first processors of agricultural commodities

in areas where the Secretary of Agriculture finds an economic emergency as a

result of a government program.

An average cotton gin, in the Mid-South area, must gin 2,000 bales a season to

meet expenses and more than that number to show a profit.

This year cotton production has been reduced by nearly one-third through the

government program. This reduction has already influenced a number of gins

to go out of business and has shaken the faith of cotton's future in many other

I am here to support H.R. 15661. I am from a neighboring State

•of the committee chairman. He is familiar with the serious plight

of the small family-operated cotton gin which serves, usually, about

100 to 150 customers in the community in which it is located, and is

dependent on this volume to take care of the investment in his gin

plant.

The ginner has many fixed costs such as insurance, taxes, interest,

et cetera, which he cannot control. He finds himself with a loss of

about a third of his volume for the next 4 years and nowhere to go for

conventional loans with which to tide him over this period. Even if

bank loans were available, they are usually short term and high interest.

Cotton ginning is, I feel, as closely allied to agriculture as is combining grain, bailing hay, or any other custom work performed for

farmers except that we are not mobile and are fixed to a given community or area and to one crop.

Ginners have never asked for or received a subsidy, but facing

the severe loss of gross income, with virtually no chance of cutting

expenses, makes it absolutely necessary that they receive financial

assistance if they are to survive. Although the ginners have an

excellent reputation for taking care of their obligations, I can see

no way that they can get by without some special financial assistance.

The long-term, low-interest rates which this bill provides for seem

to be a reasonable answer during the period of acreage reduction.

This money could be used to make payments on machinery that

has been purchased, refinance loans, and other general obligations

of the ginner.

Mr. Chairman, we urge that the committee approve this bill and

try to obtain congressional approval as quickly as possible.

Thank you, Mr. Chairman, for your interest in this matter and

giving us an opportunity to testify.

The CHAIRMAN. Thank you, Mr. Harvin.

Without objection, the following statements will appear in the

record as submitted by witnesses who were here to testify this morning.

A letter from Robert E. Coffins, executive vice president, MidSouth Cotton Ginners Council; and

A statement by Mr. Tom Murray on behalf of the Alabama-Florida

Cotton Ginners Association, as well as the Georgia Cotton Ginners

Association.

(The statements referred to follow:)

MID-SOUTH COTTON GINNERS COUNCIL,

West Memphis, Ark., July 6, 1966.
EMERGENCY LOANS FOR FIRST PROCESSORS 35

ginners. This is not surprising when you consider that the average gin processes slightly more than 3,000 bales per season.

In addition to the cutback caused by the government program, sections in this area have been greatly harmed by weather conditions.

Let me give you an example: I recently visited 10 gins in the Missouri Bootheel. Last season the smallest gin ginned 1,500 bales and the largest gin ginned 3,000 bales. This season not one of these gins will process 500 bales.

A cotton gin can only gin cotton. There is no other use for it; the ginner can not put it to any other use as a farmer can his land, nor does the ginner receive any payment for not ginning cotton as the farmer does for not growing cotton. Any reduction in cotton production is felt greatest at the gin point. The ginner with an investment of $250,000 in his plant is left in an untenable economic position.

Passage of H.R. 15661 will provide some relief for the survival of the gin until the government program has accomplished its aim of putting the United States back into the world cotton market and a return to a normal production. The Congress recently passed legislation affording the producer relief when weather created an economic emergency. We feel that H.R. 15661 should be amended to provide the emergency loan power to the Secretary of Agriculture for the first processor under these conditions as well as conditions caused by govern- ment programs.

Respectfully submitted,

ROBERT E. COLLINS,

Executive Vice President.

STATEMENT OF Tom MURRAY IN BEHALF OF THE ALABAMA-FLORIDA COTTON GINNERS ASSOCIATION AND THE GEORGIA COTTON GINNERS ASSOCIATION

Mr. Chairman and Gentlemen:

My name is Tom Murray. My address is 2779 C Clairmont Road, N.E., P.O. Box 29306, Atlanta, Georgia, 30329. I am Executive Vice President of the Alabama-Florida Cotton Ginners Association and also the Georgia Cotton Ginners Association. Both associations are trade associations whose members

are the owners and operators of cotton gins located throughout the cotton growing states of Alabama, Florida and Georgia. A great majority of the ginners

are also cotton growers.

Let us look at agriculture production. When a farmer plants his crop, can he regulate his production, production cost and his selling price. We feel sure this committee will agree that he has no control if any, over these factors. First, consider his production. The farmer tills his soil and plants his crop, providing the weather will permit him to do so. In many years we have cold and wet spells that prevents him from planting at a time of year when he or- dinarily would plant. The late planting in most cases does not give the yield ordinarily harvested if planted at the proper time. Even after planting, his production depends on the sun to provide its heat and the rains to provide mois- ture at the proper time to develop his cotton. Man to this date has not been able to control these elements—the weather, sun and the rain—furnished by God, so therefore, cannot control the production of cotton or do I believe it can be con- trolled by legislation.

Let us look at ginning of _cotton. Ginning cotton is the first service of a seasonal product. The producers take their cotton the gins to have the lint separated from the seed to increase the value of their cotton and also their seeds. After the lint is separated from the seed the cotton goes forward to other segments of the cotton industry as also do the seed. The gin machinery used to separate the lint from the seed is used for that purpose only and to this date no other use for gin machinery has been found.

For years the ginning industry has not been profitable. It is best shown by information secured from the United States Department of Commerce, Bureau of Census. This information shows that there has been a steady decline in operating gins in the United States in the past few years.

The ginning of cotton in the Southeast usually starts around August 1. When the first bale of cotton arrives at the gin, the ginner has his crew ready to start ginning and his payroll begins. For the first three to four weeks the total capacity

of the gin is unused but the gin crew remains on the payroll when only ten to

twenty percent of gin capacity is used. This is also true at the end of the ginning

season.
36 EMERGENCY LOANS FOR FIRST PROCESSORS

The ginner has very little control, if any, to assure the success of his business.

There is no way for him to know how much cotton he will gin from one season to.

the next. He may know how many acres the Department of Agriculture will

allow to be planted in his territory by legislation, but even this has been changed

from season to season. The only ginning he can do is cotton brought to the gin.

The amount of cotton brought to his gin depends on production. When producers plant cotton, be it fifty acres or five hundred acres, there is no assurance.

that he will produce one hundred or five hundred pounds per acre.

If the ginners are to share in the general prosperity of the rest of the country,

pay his bills, send his children to school, maintain his home and enjoy reasonablestandard of living, it is essential that all services performed by the ginner be

incorporated in the Consolidated Farmers Home Administration Act of 1961 as

amended.

The ginners have the right to expect from the Federal Government, protection

equivalent to that received by labor. Many ginners have a large part of their

life savings invested in their cotton gin. By legislation the production of cotton

has been greatly reduced. The farmers are being paid not to produce cotton.

It is the responsibility of the Congress to provide relief for the ginners as many

gins will be forced out of business by legislation already passed. I again call to

your attention the only use for gin machinery is to separate the lint from the seed.

We earnestly solicit your support of bill H.R. 15661.

Thank you gentlemen for giving your time and attention to this testimony.

(The following statements and letters were also submitted to the

committee:)

STATEMENT OF HON. ROSS BASS, A UNITED STATES SENATOR FROM THE

STATE OF TENNESSEE

Mr. Chairman, members of the committee, this statement is in support of H.R.

15661, which would amend the Consolidated Home Administration Act of 1961

to allow the Secretary of Agriculture to make emergency loans to first processors

of agricultural commodities who suffer economic hardship resulting from programs

of the Department of Agriculture.

There is indeed a critical need for this worthwhile legislation. Cotton ginners

in my own state of Tennessee and in many other states stand on the brink of

econ,omic crisis—largely the consequence of laudable efforts to reduce the mushrooming cotton surplus. The Department of Agriculture has succeeded in

reducing cotton acreage from 16 million to 11 million acres. But this drastic

reduction in acreage will have a drastic effect on the ginner. And I did not support legislation to eliminate the cotton-surplus headache just to see it create a

backache equally as disturbing to our economic system. Hostile weather conditions—rain, floods and drought—will further decrease the cotton output and worsen

the plight of the ginner. As a result, he faces an emergency and deserves

immediate assistance. But the problem is only temporary. If the Department

of Agriculture provides low-cost loans to the distressed ginners to keep them in

operation, then they will find their way to high ground as the demand for cotton

revives in response to increased domestic consumption and exports.

Therefor, I urge the committee to act favorably on H.R. 15661. It is my

intention to lend my full support to this bill when it comes before the Senate.

STATEMENT OF DONALD A. JOHNSON, EXECUTIVE VICE PRESIDENT, PLAINSCOTTON GROWERS, INC.

My name is Donald A. Johnson. I am executive vice president of Plains Cotton

Growers, Inc., a cotton producer organization representing almost 25,000 members

in 23 counties surrounding Lubbock, Texas, and producing about one-seventh

of the nation's cotton each year. Membership includes cotton producers, ginners

and other cotton related businessmen.

By unanimous vote of our Board of Directors at a called meeting June 30, we

strongly favor passage of H.R. 15661.

To earn a profit, or even to stay in business, a gin must have a reasonable volume

of cotton. A study by the Cotton Economic Research Committee, University

of Texas, sets the break-even point for High Plains gins at about 3,000 bales per

year and reports the average bales ginned per gin for the last four years at about

5,000.
EMERGENCY LOANS FOR FIRST PROCESSORS 37

With drastically reduced acreage under the current cotton program we may

well see 700,000 bales cut from the two million plus production of recent years.

That's about 1,750 bales less per gin—which will bring the average dangerously

close to the break-even point.

Even so, the "average" might manage to survive. But there are over 40

per cent of our gins whose volume has normally been below the average. And

these are the gins and the ginners who will be put out of business by the Agriculture Act of 1965 unless they receive help.

Making low interest F.H.A. loans available to them will not solve the problem.

It is a poor substitute for volume. But it will help some of them to survive until

1969 or 1970 when we fully expect their ginning capacity will again be sorely

needed by our producers.

Therefore, we commend your distinguished chairman, Congressman Cooley,

on his foresight in introducing the bill, and we urge your favorable consideration.

HOD. HAROLD D. COOLEY,

Chairman, Agricultural Committee,

U.S. House of Representatives, Washington, D.C.

DEAR SIR: I am E. E. Gasque, Jr., from Elloree, S.C. I am President of the

Carolinas Ginners Association, an association composed of the ginners from the

states of Virginia, North Carolina and South Carolina. I am naturally a cotton

ginner myself, having been one for some fifteen years.

I am offering this testimony in support of H.R. 15661 currently before this

committee.

As you are aware the ginning industry is a vital industry in the overall American

economy. The average gin set up or installation today is a rather sizable investment made to serve the cotton producer and also as a business to make a profit.

In the past few years the ginners have had to increase their investment in order to

handle the volume of cotton that moves today in a short period of time. The

transition to highly mechanized farms, that is to mechanically picked cotton, in

the past five or six years has caused this tremendous increase in gin investment.

Today with the more rigid Federal controls restricting the acreage of cotton

planted, it has put the ginner in a squeeze as far as making a reasonable profit and

consequently meeting his financial obligations relative to a loan against his gin.

In view of the above facts I feel that this legislation is a necessity and urgently

needed to prevent some ginners from going into bankruptcy.

I would like to ask this committee to act favorably on this proposed legislation

and to include in this bill an amendment to provide refinancing of cotton gins.

Respectfully submitted,

Hon. HAROLD D. COOLEY,

House of Representatives, Washington, D.C.

DEAR MR. COOLEY: The American Bankers Association wishes to express its

opposition to H.R. 15661 which would make Farmers Home Administration 3

percent emergency loans available to processors of agricultural commodities if

they suffer losses because of the economic impact of commodity programs of the

Department of Agriculture.

The Farmers Home Administration was established and is designed to insure

and make loans to farmers and ranchers and its activities should not be extended

to make loans to businesses. Such authority to make loans to businesses would

duplicate the responsibilities of another agency, the Small Business Administration. The SBA makes loans to businessmen either directly or in participation

with banks but at a more realistic rate (currently 5% percent for SBA's portion of

loan). If the Farmers Home Administration is given responsibility for making 3

percent loans to commercial enterprises when it is not equipped for this type of

service, the services it normally extends to farmers may suffer. This is particularly true if the Appropriations Committee does not increase the funds available

to the Farmers Home Administration.

ELLOREE, S.C., July 14, 1966.

E. E. GASQUE, Jr.,

President, The Carolinas Ginners Association.

THE AMERICAN BANKERS ASSOCIATION,

Washington, D.C., July 18, 1966.
38 EMERGENCY LOANS FOR FIRST PROCESSORS

Although the SBA has authority to make 3, percent emergency loans, the SBA's.

authority, like the Farmer's Home authority to make emergency loans to farmers,

is limited to situations in which there is a natural disaster.

We believe that it is wrong for the Government to bail out processors with

subsidized loans underwritten by the taxpayers. If the Government makes this

type of credit available because of Government action to "first processors" of

agricultural commodities , which we understand includes cotton ginners, millers,

or for that nidttei, prbeesSof8 of any coMrnodity, there is no reason why other

businessmen who are injured economically by Government action should not claina

similar subsidies. This might include dealers in farm equipment, trucks, insecticides, fertilizer, seed, etc.

The guidelines established by this bill would seem to be very vague. , No limit

is placed on the size of loans that may be made to these businesses. While the

Assistant General Counsel for the Department of Agriculture indicated that this

program was limited to persons who cannot secure credit on reasonable terms from

other sources, there appears to be no limitation on the amount of assets a borrower

may own.

It is our understanding that this legislation is, for the most part, intended to,

assist the cotton ginners but would apply to "first processors" for tobacco, rice,

peanuts, etc., who are damaged by Government action. If aid is needed by the

cotton ginner beyond that being presently furnished by the SBA and private

industry, it would be preferable for the Congress to consider some further governmental insurance or support of credit extende,d by private industry rather than

a direct 3 percent Government loan. A program of this type should be handled

through Government agencies created to deal with business rather than a farm:-

oriented department such as the Farmers Home Administration.

If a program assisting processors is adopted, whether consisting of direct loans

or insured loans, the interest charged borrowers should be at least equal to the

cost of money to the Treasury as provided by section 7(b) (4) of the Small Business

Act and the borrower should have to certify that the money is not available from

other sources.

Sincerely yours,

CHARLES R. MCNEILL,

Director, Washington Office.

The CHAIRMAN. The committee stands adjourned.

(Whereupon, at 12:10 p.m., the committee was adjourned, to reconvene at the call of the Chair.)
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