sY~Pos~u~ 1405

or through cooperative pools and are faced with the necessity of having to improve their income from such surplus. This makes them very competitive.

Third, it seems to me that we now are moving to an era of broad, national policies being put into effect through the federal order program. For example, in Philadelphia's early federal order years, the Class I price was based upon a relationshop of butter and powder prices. Some- one then felt we should try a new economic type Class I formula for changing milk prices. This formula didn't end up going very far in other markets but it did serve the purpose at least of reducing our Class I price $.60 per hundred- weight very shortly after its institution which, I presume, was one of its purposes. However, soon the economic formula in Philadelphia was tied to Midwest values for milk. This Midwest tie has been continued with reference to manu-

facturing prices in the Midwest and East. The Philadelphia order used to have an out-of-area pricing provision which was removed and now no order has such pricing provision. Too many of these ideas have come from the top down and are being imposed on all orders from the top down.

Fourth, and last, this is a rather personal ob- servation. At times we do complain about the federal order system. Often you can get the answer to such complaints that inasmuch as farmers have gone to the federal government for relief of their problems that we should be willing to accept what Washington says is a solution to such problems. This I disagree with. I feel the solution to these problems can and should be worked out so that our farmers do have some opportunity for helping to solve these problems. I feel as producers we are citizens and should have, at times, our day in court.

W H A T L I E S A H E A D F O R F E D E R A L M I L K M A R K E T I N G O R D E R S :

O B J E C T I V E S AN D M E A N S

EDWIN G. NOURSE

Only a very brave man--or , rather, a very foolhardy man--would dare to say: "This is what lies ahead for Federal Milk Marketing Orders." Modern science and technology and American business enterprise are dynamic and political tides too erratic to permit a spe- cific prophecy. But admitting all this, any thoughtful student of the origins and evolu- tion of milk marketing orders, so well outlined by Mr. Swantz, should be able to make a few useful generalizations. I hope I can qualify as a thoughtful student of the economic area in which milk marketing orders have their sett ing--from my doctoral dissertation 48 years ago, Market Mechanism As a Factor in Price Determination, down to my part in the report of the Federal Milk Order Study Committee, released on May 1, 1962. On this basis, I shall put forth what seem to me to be the major alternatives that lie ahead for this important and complex marketing institution.

Alternatives will be the key word in my ex- ploratory remarks. What lies ahead for us will not develop as a result of unescapable eco- nomic determinism. I t will be built by our own hands, our own wills, our own value judg- ments. I t will be the product of our traditional system of free but not anarchistic business enterprise, working within a responsive but also at times restrictive democratic system of na- tional government. The future of the fluid milk industry is within our keeping. I hope we shall have the intelligence and the grace to make it a truly good future.

Now, having said all this, I hasten to make

one qualification. There is one thing we can not do in the years that lie ahead. We can not turn the clock back. We can not reverse the tide of technological progress that has moved so powerfully in recent decades. Nor can we liquidate the structures of modern business organization back to the individual free enter- prise and atomistie competition that Adam Smith worshipped as the Invisible Hand of eco- nomic Providence. Nor, quite obviously, would it be possible to dispense with the integrating services of a strong Federal Government and revert to the provincial rivalries that antedated our Constitution and the Civil War. We simply could not run today's business affairs with the simplicity, directness, and parochialism of our old, idyllic town-meeting days. There is no es- caping the fact that we and our children must live our lives in a world of Big Business and Big Government. We had better learn how to do so, efficiently and comfortably.

But it is equally true that neither of these terms has a fixed meaning. Big Business is basically an efficiency mechanism, but it may be distorted into a power device. Big Govern- ment may be shaped as a beneficent promoter of scientific and cultural progress and guardian of the public interest. Or, it may play political football with special interests and impede na- tional growth and economic stability.

These broad propositions apply in different ways in industrial and commercial management, in labor organizations and practices, in our banking and other credit inst i tut ions--and in agriculture. Within agriculture, the milk mar-

1406 J O C a . ~ A L OY DAII~¥ SCIENCE

keting order system has been developed as an ingenious and, in my judgment, a well-con- eei~ed appara tus for dealing with the peculiar needs and possibilities of one part icular branch of farming. The report of the recent study committee called it "a t ruly unique marketing institution, neither quite free nor fully con- trolled, bat heavily 'conditioned' by both private and public mechanisms and policies . . . Fo r a very large and vitally important industry, it puts in the hands of a Cabinet official a power and responsibility for determining the price level and coordinating the national price struc- ture such as no other Cabinet officer exercises.

"The Secretary of Agriculture under this unique institution for the rational adjustment of an agricultural s u b - i n d u s t r ~ w h a t Profes- sor Black called 'assisted laissez faire'--is the moderator of an intellectual process dedicated to promote the public interest . . . . He is Cabinet minister of the Nation's agriculture, pledged to bring it, in the national interest, to the soundest economic adjustment, private and public, that can be worked out." His profes- sional staff should work diligently in the lab- oratory of nmrketing practice and farm man- agement, with the best available analytical tools, to develop a worthy contribution to dairy science in its economic aspect.

I t would be hard to imagine a more timely moment than this for raising the question, What lies shead for the milk marketing order system ? We have been making history at quite a pace. I t is now time to ponder the meaning of these developments.

In October, 1960, the United States Supreme Court handed down a decision in the Maryland and Virginia Milk Producers' case, clarifying for the first time the issue of whether coopera- tive associations are or are not immune from the anti trust laws applicable to other business cor- porations. The answer was No.

"The general philosophy of both [the Clayton Act and the Capper-Volstead Act] was simply that individual farmers should be given, through agricultural cooperatives acting as entities, the same unified com- petitive advantages--and responsibi l i ty-- available to businessmen acting through corporations as entities."

In both 1961 and 1962, Administration farm bills made recommendations for production lim- itations or marketing quotas, but these recom- mendations failed of acceptance by the Con- gress. Then on March 16, 1962, the study committee set up by Secretary Freenmn to evaluate the orders system and make recom- mendations for its future transmitted to him its repor t in a length of nearly 200 pages. Now, on the fourth of this very month of June, the Supreme Court has spoken again. In Le- high Valley Cooperative Farmers et al. vs. United States et al., it denied the right of the

Secretary of Agriculture to set up "Any kind of trade barrier related to milk or its prod- uets." His action in providing for or per- mitting compensatory payments on outside milk "exceeded the powers entrusted to him by Congress."

The basic nature of. the alternative objectives lying ahead for the milk marketing order sys- tem were stated briefly and adequately in both the major i ty and the minority opinion in the Lehigh Valley case. Said Justice Black in his dissent: "The philosophy of this Marketing Agreement Act of 1937 was not competition as in the Sherman Act, but governmental price fixing as in the original Agricultural Adjust- ment Act . . . designed to raise the income and purchasing power of farmers." In other words, the objective that Justice Black would espouse for the milk marketing order system would be that of monopolistic devices of price enhance- meat in the sveral markets, each according to its local situation, with the Secretary of Agri- culture supporting those restrictive devices.

On the other hand, Justice Harlan, speaking for the rest of the Court, while explicitly rec- ognizing the duty of the Secretary of Agricul- ture to protect organized milk producers in order markets from such entry of outside milk as would disrupt orderly marketing, stood on the principle of fa i r competition within and between order markets. Such a competitive ob- jective, as stated in the law, requires that "no marketing agreement or order applicable to milk in any marketing area shall prohibit or in any manner limit, in the case of the products of milk, the marketing in that area of any milk or products thereof produced in any pro- duction area in the United States."

In the light of this decision, I would suppose that what now lies ahead is a searching re-ex- amination, by the Secretary and his aides, of the real objectives aimed at in the order system and of all methods by which they are being pursued in the various markets. One par t icular arrangement, namely, comnensatory payments, has been remanded to the lower courts for retrial. But any arrangement implying restric- tionism is, by this decision, put on the defen- sive, and this, by the law of association, includes negotiated marketwide premiums.

If , af ter a vigorous at tempt to weed out any use of restrictive or exclusionarv devices for antieompetitive price enhancement rather than orderly marketing for the whole fluid milk in- dust.ry, has been exhausted, it appears that the provlsmns of the present law are improper or inadequate, then the Secretary can come back to Congress with proposals to amend the statute.

This more drastic approach has already been .proposed in reference to another practice found m a number of order markets, viz., base-and- surplus plans. Like other pool devices, they are neither clearly black nor clearly white. They may be used in a sincere purpose of equalizing

s:~MPoslu~ 1407

supply rates. But the same device can be par- layed into restrictions on total supply as the means to attain premium prices. One group within the Milk Marketing Order Study Com- mittee urged extended use of producer bases in order markets as a logical extension of mod- ern pooling methods. To this, another group replied that such a description would be true "only if 'modern' pooling is, in intent and effect, a restrietionary device, which is now to be made standard practice under Secretary's orders."

More sweepingly designed to effect authori- tarian prices for fluid milk, rather than prices derived from the play of market forces, is the still pending proposal for marketing allotments or quotas. Such an approach, favored by the Administration, has enough support among pro- ducer associations in order markets to make sure that battles over this objective and method lie ahead on the road of the marketing order system.

In an early paragraph of this paper I said that the future of the Milk Marketing Order system would be what we want it to be. There is considerable leeway within the Supreme Court's interpretat ion of the present law for the Secretary of Agriculture and the Milk Marketing Order Division of Agricultural Mar- keting Service to clarify objectives stated in the present law and interpreted by the Supreme Court, and to define and enforce means of at- taining these ends. I f the fluid milk industry finds the objectives and the methods found in existing Orders, as promulgated by the Secre- tary and administered in future by the Market- ing Order Division, distasteful or intolerable, they axe not left without recourse. They can bring the whole matter back to the Congress to state different objectives and prescribe suit- able means for reaching these new goals. The remainder of my paper will be addressed to the question whether we have (in the current clichg) guidelines as to the course we should choose for the future---how we should engineer the road that lies ahead for the Marketing Or- der system.

Any of you who know me even fair ly well will not be surprised that I find perhaps the most important guideline in the Employment Act of 1946. This epoch-marking statute de- clares "a continuing policy and responsibility of the Federal Government" to integTate its "plans, functions, and resources" in an active role in the economy. Secondly, it provides that these services of a democratic government to its citizens shall be carried out "in a manner calculated to foster and promote free competi- tive enterprise and the general welfare." That seems to me both a clear and (if I may use the word) a noble guideline for the Order sys- tem today and in the future.

As a second guideline, I am ready to accept the criterion repeatedly referred to by Presi-

dent Kennedy as "the public interest." Ad- mittedly, the term public interest is not capable of precise and eternal definition. But I believe i t has a meaningful content, relevant to actual and changing circumstances, that must be a major guideline to public and private action in the current situation and in the years that lie ahead. The New Front ier of economic e pluribus unum would for t i fy the market place with bastions of group self-discipline that would forestall resort to authoritarian means toward a national objective of maximum employment, maximum production, and maximum consumer real purchasing power.

In his first State of the Union Message, President Kennedy said, "It is one of the ironies of our times that the technique of a harsh and repressive system should be able to instill dis- cipline and ardor in its servants while the blessings of l iberty have too often stood for privilege, materialism, and a life of ease." The application of this thought should not be limited to the steel industry or the Teamsters' Union. I t should be carefully pondered by every milk producer group tempted to use a Milk Marketing Order as a means of local ad- vantage or market power.

Fo r myself, I see the Milk Marketing Order system as a prime opportuni ty for demonstrat- ing the economic superiori ty of voluntary group action coordinated through the good offices Of a Cabinet officer, equipped with a professional staff. We should recognize and be proud of the fact that the Milk Order system has already pioneered a kind of institutional development in price sophistication which has as yet been barely begun in the industrial and labor areas. I hope we shall continue to perfect what we have so well begun and perhaps contribute some lessons to industrial management and col- lective bargaining, out of our past experience--- and, still more~ from our future progress.

I find nothing more depressing than to hear representatives of milk producers say: "Every- body else is getting prices that are boosted by group power and/or Government help. Why shouldn't we get ours? Are we to be second- class citizens?" Those who Iook to the govern- ment to establish fa i r prices are appealing to emotional or moral criteria; those who see the goal of private and public policy as stabiliz- ing prices invoke a scientific criterion which can be implemented by scientific methods of measurement and analysis. Jus t as I find eco- nomic merit in open (though organized) com- petition as the most scientific way of arriving at prices and using them as the guide to pro- duction, I find price-fixing by private or pubhc power the most unscientific approach and one inimieal to economic efficiency.

You may say what I have outlined as my hope, rather than my prophecy, of what may lie ahead for the Milk Marketing Order system is idealistic. I plead guilty, but, in defense, I

] 4 0 8 JOURNAl, OF DAIRY SCIENCE

remind you that idealism is of the essence of the scientific way of life, seeking to discover and attain the highest goals by identifying and measuring the forces of Nature---and then work- ing with these innate forces. Whether you

grant that economies is a science or not, what- ever lasting achievements it makes will be by the use of scientific methods of identifying and measuring the forces of the market and putt ing itself in line with those forces.

D I S C U S S I O N

H. L. FOREST

Milk Marketing Orders Division, ASCS, U. S. Department of Agriculture Washington, D. C.

I certainly agree with Dr. Nourse that it is difficult to prophesy accurately what lies ahead for Federal milk orders. However, as he says, we should be able to make a few useful generali- zations on what has already taken place and what is likely to take place.

I t appears to me that future trends in Fed- eral milk orders will be and should be deter- mined by industry trends. We have always considered it more desirable for Federal milk orders to reflect and accommodate the dynamic, evolving character of the dairy industry rather than to serve as an arbi t rary determinant of industry changes. A good case in point is the farm tank and the role milk orders p l ayed- -o r rather did not p l ay - - in its development. Some years ago when the large-scale shift from can to farm tanks had barely begun, proposals were made to incorporate fa rm tank premiums into the orders under the theory that the new assembly method presented progress and the inclusion of farm tank premiums in orders would serve to hasten the pace of progress. We felt at that time the orders should not ac- celerate the pace of the transition to bulk tanks at the expense of producers who, for a variety of reasons, were not prepared or able to purchase farm tanks and such proposals did not become effective. This exemplifies, in our judgment, the most appropr ia te position for the order program to take and it is in accord with Dr. Nourse's statement that the Govern- ment, in administering programs such as the order program, should carry out such func- tions "in a manner calculated to foster and promote free competitive enterprise."

I agree with Dr. Nourse that the ultimate goal of the milk order program should be to fur ther the public interest. The Act which authorizes the issuance of milk orders requires that order prices should be set at levels which are in the public interest. But what is the public interest? A part icular price may be considered to be in the public interest by one industry segment, but a completely different reaction may come h'om another group. The problem is the difficulty of defining public in- terest. I t appears that some guidance is needed from the Congress in defining the term public

interest i f we in the Executive Branch are to implement adequately the legislative intent of Congress.

Dr. Nourse indicates there is a need for a "vigorous at tempt to weed out . . . restrictive or exclusionary devices for anti-competitive price enhancement . . ." I personally doubt that any milk order provisions are in a true sense restrictive or exclusionary and I call assure you that no order provision has been incorporated with that purpose in mind. The majori ty Supreme Court decision expressed a judgment that at least one type of compen- satory payment is guilty on this count. How- ever, effective implementation of classified pric- ing, a procedure which was accepted by Con- gress, makes necessary some method for pricing outside milk. This point was also made in the recent Court decision.

I believe that Dr. Nourse has unintentionally placed too great an emphasis on the effect that the Supreme Court decision in the Lehigh case might have on price levels in Federal milk orders. In the first place, i t must be noted that compensatory payment provisions apply to less than one-half of 1% of the total milk under regulation. Consequently, it is hard to conceive that any long-run basic philosophy of pricing in Federal milk orders rested on such a slim reed. Secondly, and more important, the Department never considered that the prices which it established in the Federal milk orders were other than those which reflected supply- and-demand conditions. Consequently, the De- partment never included compensatory payment provisions in orders for the purpose of shoring up arbi trar i ly high prices. The declaring' of the compensatory payment provisions under the New York-New Jersey order illegal did not change the basic elements of the pricing stand- ards of the Federal milk orders. I t changed only the extent to which the Government may attempt to insure uniformity of the payment of these prices among handlers and producers. This is ~_ot to say that the Government is never in error in determining the level of prices which would reflect supply and demand conditions, but such decisions are based on factors other than the kind of compensatory payment pro-