Mr. CANNON. Is not it a fact that the world price is governed, not so much by the amount entering into domestic consumption, as by the price of any small surplus thrown on the world market. For instance, the price of cotton is forced down by the surplus, and if any foreign competitor could deliver a bale of cotton at Liverpool at a cheaper price than we could deliver it, the world quotation would be governed by the price of that bale, rather than by the price of any number of bales consumed in the American market, but as long as there is no surplus the price is not affected although we may have produced vastly in excess of any cotton producing country in the world.

Mr. DAVIS. I do not think it would be exactly that way. think that is exactly correct. The price of cotton, of course, is an international price, based on the world's supply and demand condition. If a man can produce a limited quantity at a lower cost, it does not mean that he would offer it for sale at less. It goes into the whole pool of cotton, the price of which is determined by the total supply and the total demand made upon it.

STATEMENT SHOWING WORLD PRODUCTION OF COTTON

Mr. CANNON. I wonder if you could put into the record, at your convenience, a statement showing the total production of cotton in the United States, in Egypt, in India, and in other cotton-producing countries for the last 10 years?

Mr. DAVIS. I will be glad to do that.

(The table referred to is as follows:)

Cotton: World production of lint, 1923-24 to 1933-34

[Source: Bureau of Agricultural Economics. Compiled from official sources and International Institute of Agriculture unless otherwise stated. The crop year is from Aug. 1 to July 31. Bales of 478 pounds net]

AMOUNT PAID TO FARMERS FOR REDUCTIONS IN COTTON ACREAGE

Mr. SANDLIN. What was the total amount paid cotton farmers last year, both under the pool and in rental benefits, for reduction in acreage?

Mr. DAVIS. The acreage reduction payments amounted to $112,175,416, up to January 29, 1934. You see, these cotton options have not all been exercised. Some have been exercised, and the majority has been thrown into this cotton option pool.

And, by the way, anticipating that you would want to inquire about that matter, I have asked Mr. Oscar Johnston to stand by in the office, and if you wish to go into details on that, I can have him here in a few minutes.

Mr. SANDLIN. We can take that up later.

Mr. DAVIS. The total amount paid out to date on exercise of cotton options is $5,579,282.79. I would say that in the neighborhood of $48,000,000 would be the total paid out on the pool, in addition to the $112,000,000, bringing it up to around $160,000,000.

I want to make this clear, Mr. Cannon, following your line of questions: That this amount is an addition to the farmer's income, added to the price that he got for the cotton. It represents 4.2 cents a pound on the domestic consumption of cotton, all of which, minus administrative expenses, goes back to the cotton producer. So he is getting that bonus on top of the world price.

Mr. SANDLIN. Of course there is no way of telling definitely what benefit he received from the increase in the price of cotton due to the fact that this acreage was cut out?

Mr. DAVIS. You cannot measure it exactly, because other factors enter into it. We think it was a considerable factor.

Mr. SANDLIN. Yes; I do, too.

Mr. DAVIS. But the monetary policy which stimulated exports has a great deal to do with it, and I think it is impossible for any man to say dogmatically that so much of the difference is attributable to the control plan and so much to something else.

Mr. CANNON. The increased amount paid to the cotton farmer, both through this gratuity and through the increase in the price for cotton per bale, and which is to be attributed partly to reduction in acreage and partly to monetary adjustments, has been very satisfactory according to your report. The question arises is, is it permanent? How long can it be continued? How many years do you expect to pay this gratuity? How many years before foreign production will take the place of the cotton which you are plowing up on southern plantations, and how long do you expect these monetary readjustments to contribute to higher prices for American cotton?

Mr. DAVIS. I will go back to the statement that I made a moment ago: That if international conditions iron out so that there can be trading among nations again, I think it will be possible to maintain a large export trade in American cotton, in spite of what the other nations want to do, and that it would still be advisable to have some form of check-rein on production as far as the cotton south is concerned.

INCREASE IN COTTON PRODUCTION BY FOREIGN PRODUCERS

Mr. CANNON. You do not expect foreign producers to increase their production?

Mr. DAVIS. They had been doing it before we started this, in the face of enormously increasing world stocks. They have been doing it right along as a nationalistic policy.

Mr. CANNON. And it is reasonable to suppose that they will continue to do it, and that that increase will be accelerated by the decrease in American production?

Mr. DAVIS. If the price rises so as to make it attractive in comparison with their costs, and if they have land available that can produce cotton in competition with American cotton at that price; yes. It all goes back to the question as to whether this extremely nationalistic trend that is abroad in the world today is going to be maintained. We are not making the cotton supply short. We still have this big cushion of stocks on hand. It was just an insane thing to consider going ahead and adding more and more to those stocks of cotton that there were no buyers for, no matter whether it comes from here or from some other country.

Mr. SINCLAIR. Are there limitations in acreage in the United States that could be put into an increased growth of cotton? In other words, we will say they are raising 17,000,000 bales this year. they put that up to 20,000,000 with available acreage in the United States?

Could

Mr. DAVIS. It would take a high price, an extremely high price, to bring out that much cotton production on an average.

Mr. SINCLAIR. Then there is additional acreage that could be profitably put into cotton?

Mr. DAVIS. Oh, yes; at a price.

Mr. SINCLAIR. Well, of course, the only thing to do is to continue your adjustment plan?

Mr. DAVIS. Yes. I think it ought to be made perfectly clear that what the consumer is paying on cotton is the fair exchange price, and that the difference between the going market price, which is the world price, and that fair exchange price on what is consumed in this country is going back to the cotton farmer as a payment which goes to him under conditions that remove the incentive for him to increase his production, and, on the contrary, tie him up definitely to hold a certain check on his production.

Mr. SINCLAIR. The point Mr. Cannon raised was, are there available acreages in foreign countries that will take advantage of our decreased acreage in this country?

Mr. DAVIS. I say that that is a question of where the world price goes. If it goes high enough, and if the nationalistic policy of encouraging the growth within a country of every thing they consume continues, then you can expect an increase in the production of cotton abroad. But I want to say again that I think the acreage that compares with our own Cotton South in its productive quality is limited in the world.

Mr. SANDLIN. I do not think there is any question about that.

REDUCTION IN 1933 COTTON CROP

Mr. CANNON. By what percentage have you reduced the cotton crop this year?

Mr. DAVIS. In 1933 we reduced it-I am taking the Crop and Livestock Estimates figures-from an estimated 17,000,000-bale crop down to a 13,000,000-bale crop.

Mr. CANNON. And how many acres do you estimate have been taken out of production?

Mr. DAVIS. A little over 10,000,000 acres.

Mr. CANNON. Now, in the coming year how do you expect to utilize that 10,000,000 acres?

Mr. DAVIS. Our cotton contracts in 1933 permitted the use of the contracted or rented acres for the production of feed and food for home consumption and for erosion-preventing and soil-building crops, but definitely limited their use for the production of crops for sale or for feed for livestock for sale, so that by this rental plan we would not be shifting production over into competition with other nationally grown crops, but on the contrary would be encouraging the South to a higher standard of living on its farms by producing more of the food and feed at home and actually having a wider diet than they have at the present time.

Mr. SANDLIN. What is the contract for 1934? Does it carry the same provisions?

Mr. DAVIS. It is a little bit more specific, but the same general idea. I have not referred to the 1934 campaign, but in the 1934 contract, which is now being signed, we provide that they shall not increase the production of any other basic commodity for which contracts are offered; that they may increase for home consumption, just as we provided before, feed or food crops or feed for livestock for home consumption, and that they can increase the use of land for building up the soil.

Mr. CANNON. In recent years cotton in the South has been largely a one-crop industry, I believe.

Mr. DAVIS. In some sections that is true.

Mr. CANNON. On most of those plantations cotton is the exclusive crop?

Mr. DAVIS. It is the cash crop in lots of areas.

Mr. CANNON. And they have bought their feed in the market. Now, when they begin to grow their own feed, naturally they will not be in the market, and farmers who have produced corn, for example, will find a lessened demand for their product?

Mr. DAVIS. A somewhat lessened demand.

Mr. CANNON. That would tend to increase the surplus of corn and other feed crops in proportion.

Mr. DAVIS. I think it is sound farm management, though, for those areas that can do so to grow their feed for their mules at home rather than ship it in from the Corn Belt.

Mr. CANNON. But we have been shipping large quantities of corn to the cotton-producing areas.

Mr. SANDLIN. As a matter of fact, Mr. Cannon, if the farmers get 5 cents a pound for cotton, they could not purchase any of the corn from the corn-growing States; but if cotton can be sold for 12 or 15 cents a pound, they will be able to buy the products from the other sections of the country, and probably will figure that they can buy them cheaper than they could raise them themselves. That will cut their acreage down there.

Mr. CANNON. I trust that is the case. The fact remains, however, that we have been shipping large quantities of corn from the Corn Belt into the Cotton Belt.

Mr. DAVIS. You are going to continue to do so, Congressman.

Mr. CANNON. And when they begin to grow their own forage down there, they are certainly not going to pay the Corn Belt farmer to produce it and pay the railroads to transport it.

Mr. DAVIS. I think you will find some increase in the production of feed for work stock, all right; but, as Judge Sandlin has pointed

out, you will still find it more profitable to bring in a large portion of the feed from the Corn Belt and devote more of these acres to a better family living than they have enjoyed in the past; I mean, actually increase the consumption of food and feed. The diet of the tenant farmer of the South has not been a varied one nor an extensive one; that is correct, is it not?

Mr. SANDLIN. That is true.

Mr. DAVIS. I think, if you do have Oscar Johnston before you on these points that you are discussing now, he would be a more competent and expert witness than I am on cotton. That is his life, and he knows the cotton picture better than I do.

COTTON-REDUCTION PROGRAM FOR 1934

Mr. SANDLIN. What is the plan now for 1934? What is the program? How many acres will you take out of cultivation?

Mr. DAVIS. The program for 1934 aims at a reduction of approximately 40 percent for this 1 year, to make a real attack at this large carry-over. That would call for a reduction to around 25 million acres in the planted acreage; and we are paying for that on the basis of land rental at 31⁄2 cents per pound of the estimated average production for a 5-year period on the particular tract of land rented. That means that the rent will range from around $3 up to as high as $18 an acre, depending on the productivity.

Mr. SANDLIN. What is the average cost of that program?

Mr. DAVIS. The estimated total of rental payments to producers in the 1934 campaign is $98,146,230, and the guaranteed parity payment to producers on the domestic production of their crop is $28,042,780; a total of $126,188,000.

You see, we make the returns in two forms. This land rental is 31⁄2 cents a pound, and there is in addition a benefit payment on the domestic portion of the crop which is guaranteed to be not less than 1 cent a pound, but may be larger if the income from processing taxes permits us to pay it.

Mr. SANDLIN. I do not exactly understand that 1 cent. I wish you would go into that in more detail, please. Mr. DAVIS. Yes; I will be glad to do so. In addition to the straight rent of the land taken out of production, the contract provides that there shall be paid to the producer or the tenant, as their interest in the crop appears, a benefit payment or an adjustment payment of not less than one cent a pound on the domestic proportion of whatever he produces that year. If a man's domestic share is ten bales of cotton, he would then get a benefit payment of a cent a pound, or $50, in addition to his rental, and if he divides that half and half with the tenant on a particular piece of land, each would get half, if their crop division is on that basis. Now, if the processing tax income justifies it, more than the 1 cent a pound will be paid, but that is the guaranteed minimum that we are going to pay.

Mr. SANDLIN. That is the percentage of the crop that is consumed domestically?

Mr. DAVIS. Yes, sir; let us say 40 or 45 percent.

I would say that the reception that has been given the new contract down South indicates a very heavy sign-up.