Mr. CANNON. Do you recall, just offhand, the States in which it is mandatory under the State law?

Mr. KITCHEN. It is mandatory in Colorado for certain products; it is mandatory now in Texas for citrus fruits; and it is mandatory for potatoes in Nebraska, and several other States whenever growers representing 51 percent of the acreage of the previous year's crop request it, and there may be a few others. I do not recall them all

offhand.

Mr. CANNON. Then the number of States in which it is mandatory is negligible?

Mr. KITCHEN. Yes, sir; compared to the total.

SOURCES OF LIVESTOCK PURCHASES

Mr. CANNON. Is it in this connection that you have assembled data on direct shipment of livestock to the packers?

Mr. KITCHEN. No, sir. That would come under our marketing research appropriation entitled "Marketing and Distribution which was discussed here yesterday. We are, as you may know, engaged now upon rather an extensive study of the direct marketing of hogs particularly.

Mr. CANNON. What percentage of the hogs marketed in the country generally are delivered direct to the packer instead of going through the markets?

Mr. KITCHEN. I cannot give you those figures offhand, but I believe in the State of Iowa it was as high as 65 percent in 1932. It may be somewhat higher in 1933.

Mr. CANNON. Thirty-five percent go through the central markets and 65 percent go direct?

Mr. KITCHEN. I understand that to be true. Do you have those figures, Mr. Olsen?

Mr. OLSEN. Approximately 40 percent of the total hog receipts at the Chicago public stockyards in 1933 were direct. I will attach a statement covering information available on this subject.

(The statement referred to is as follows:)

Sources of livestock purchases as reported by slaughterers

[Purchases at public stockyards and purchases from other sources expressed as percent of total purchases]

Mr. CANNON. But Iowa is one of the great corn States, and naturally it is one of the great hog States?

Mr. OLSEN. Yes, sir.

Mr. CANNON. And in that State 75 percent, you think, go direct? Mr. KITCHEN. Yes, sir.

Mr. CANNON. In a case of that sort, would you say that the 65 percent set the price or that the 35 percent set the price?

Mr. OLSEN. That is one of the questions that we are trying to determine in this investigation, Mr. Cannon. We realize that direct buying by packers over the country may have had some influence upon the terminal price. They say, at any rate, that they use the terminal price in buying the hogs out in the country, and I believe it is actually used in that way; but it is important to know to what extent the terminal price has been depressed by reason of the fact that there are smaller supplies in the terminal markets, and also, of course, a reduced demand, because if the packer in the terminal markets buys part of his supplies direct and has them on hand, he is not going to be as eager a competitor for the supplies that come as he otherwise might be.

Mr. SINCLAIR. You have heard this statement, have you not-that the packer buys direct on a basis of the terminal price of the day before?

Mr. OLSEN. Yes, sir.

Mr. SINCLAIR. And that terminal price was determined by the sale of second-grade stock, so to speak; but he is going out in the country and buying direct first-grade stuff on that basis.

Mr. OLSEN. That statement is also made, and it is one of the things that we are trying to determine in our study.

Mr. CANNON. And if the packer is buying 1 hog at the terminal market and 3 hogs at his plant, if the 1 hog on the terminal market is not priced to suit him, he can still run his plant on the 3 hogs that he is getting through direct marketing, and is wholly independent of the terminal market and can control in that way the terminal market price?

Mr. OLSEN. There is a possibility, Mr. Cannon, of that kind of influence being exerted on terminal prices, and we are trying to determine it.

Mr. CANNON. You are also looking to the grade of hogs?

Mr. OLSEN. Yes; that, too, we are investigating to find out to what extent they are buying better grades direct and to what extent the poorer ones come to the market and set relatively lower prices.

Mr. CANNON. And unquestionably, if the terminal market price is set by second-grade hogs, then, according to their published announcement, they are buying first-grade hogs at their packing plant at second-grade prices?

Mr. OLSEN. Well, if that is the fact, that influence would be registtered at the country buying points.

Mr. CANNON. When may the practice of direct buying be said to have begun.

Mr. OLSEN. Direct buying has been under way for a good many years, but my understanding of the situation is that in the early twenties there was a very substantial increase in direct buying-from 1920 on. It is associated with the use of the truck, and of course it is associated also with the increased decentralization of the packing

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industry, with the small packing plants that have sprung up all over the country. By having this distribution of small plants you have an increased competition out in the country for the hogs. So the big packers have moved out to compete with the small packers for the supply.

Mr. CANNON. It is only in the last few years, then, that direct buying of hogs at the plant has reached any considerable proportions? It is a recent development?

Mr. OLSEN. It is within the last 10 or 15 years that it has sprung up in such a large way.

Mr. CANNON. What has been the trend of the prices paid to the producer for hogs during that period of time?

Mr. OLSEN. Since 1929 there has been a very marked downward movement. In December 1932 hog prices reached the lowest that they have been in the last 20 or 25 years. Now, I think it would not be quite fair

Mr. CANNON (interposing). The statement has been made that they are the lowest in 30 years. Are you speaking generally?

Mr. OLSEN. I am speaking just generally now. I should be glad to correct these statements that I have had to make here offhand. Mr. CANNON. The possibility is that they are the lowest in 30 years?

Mr. OLSEN. Yes; the prices in the past year compare closely with the prices which prevailed in 1896 and 1897.

Mr. CANNON. And this period from 1929 to the present time is the period that has witnessed the great volume of direct buying?

Mr. OLSEN. Yes, sir. But I was going to add, Mr. Cannon, that I do not believe it would be fair to attribute that decline in the price since 1929 to direct buying alone. It may have been a factor, but there is the supply situation on the one hand, and on the other hand an enormous drop in consumer purchasing power and demand that has had a very marked influence upon prices.

Mr. CANNON. But you will agree that direct buying has in no way contributed to holding up the price during this period of depression? Mr. OLSEN. I am not in a very good position to make a definite statement on that until we have completed our investigation.

Mr. CANNON. When do you expect to conclude your investigation? Mr. OLSEN. I have set the stage to have that investigation complete by the end of this fiscal year. I am very anxious to have it completed, because it is one of the most troublesome problem in the whole hog situation, and the Secretary has made a very special request that we expedite it.

Mr. CANNON. Your conclusions will be made available as soon as they are completed?

Mr. OLSEN. Yes.

INSPECTION OF APPLES AND PEARS FOR EXPORT

Mr. SANDLIN. All right, Mr. Kitchen; you may continue with your statement.

Mr. KITCHEN. There is one other development that may be of interest to the committee in connection with the fruit and vegetable inspection service, and that was the passage on June 10, 1933, of what is administratively known as the "Export Apple and Pear Act."

It requires that all export shipments of apples or pears, except less than carlots to certain countries, shall be accompanied by a certificate issued by authority of the Secretary of Agriculture showing the lot to be equal to or better than the minimum grade established by the Secretary for export. That has resulted in the elimination of unclassified shipments of apples to our export markets. The necessary inspection service to administer that act has been carried on by the service conducted under this item without increased expense due to the passage of that act.

Mr. CANNON. And it has materially increased, I suppose, the prestige of our food products in the foreign market?

Mr. KITCHEN. We believe it has had that effect.

Mr. CANNON. When were these grades established?

Mr. KITCHEN. These grades have been established, with some modifications, during the past 10 years.

Mr. CANNON. Just, briefly, what are the grades in apples?

Mr. KITCHEN. We have the U.S. Fancy, which is the highest grade. That consists of apples of one variety which are mature but not overripe, carefully handpicked, clean, fairly well formed; free from decay, internal browning, internal breakdown, scald, freezing injury, unhealed, broken skins, and bruises (except those incident to proper handling and packing), and visible water core. The apples shall also be free from damage caused by russeting, sunburn, spray burn, limb rubs, hail, drought spot, scars, disease, insects, or mechanical or other means. Each apple of this grade shall have the amount of color specified for the variety.

Mr. CANNON. What is meant by "cleaned"? What do you consider to be a cleaned apple?

Mr. KITCHEN. Clean apples are those which are free from excessive dirt, dust, spray residue, or other foreign material.

Mr. CANNON. It includes spray residue.

Mr. KITCHEN. So far as it is noticeable; yes.

Mr. CANNON. Does that mean necessarily that it must have been washed in a hydrochloric acid solution?

Mr. KITCHEN. Not necessarily. There may be some spray residue there that is not visible.

Mr. CANNON. And still it would be considered a cleaned apple? Mr. KITCHEN. Yes, sir.

Mr. CANNON. In other words, you do not require that they shall have been washed; they may be cleaned without having been washed? Mr. KITCHEN. That is true.

Mr. HART. As I understood the grade, he did not say "cleaned"; he said a "clean" apple. Is that right?

Mr. KITCHEN. That is right.

Mr. CANNON. "Clean" instead of "cleaned"?

Mr. HART. Yes.

Mr. KITCHEN. Yes, sir.

Mr. CANNON. That is your fancy apple?

Mr. KITCHEN. Yes.

The next grade is U.S. No. 1.

Mr. CANNON. And in contracting for apples, in speaking of No. 1 apples, you always mean U.S. No. 1-the United States grade No. 1or do you refer to an apple of a specified size-as 21⁄2 for example.

Mr. KITCHEN. So far as the Federal grades are concerned; yes. The use of these Federal grades is not mandatory, however.

Mr. CANNON. But in the market generally, in speaking of No. 1 apples, you mean the United States grade No. 1 apples, do you? Mr. HART. I do not think so.

Mr. CANNON. That is what I am asking.

Mr. KITCHEN. I think, so far as barreled apples are concerned, Mr. Hart, that is now true. They are widely used.

Mr. HART. They are not used in boxed apples, are they?

Mr. KITCHEN. În boxed apples, particularly in the Pacific Northwest, the grades are Extra Fancy, Fancy, and Fancy C-State grades! Mr. HART. That is what I have handled.

Mr. CANNON. What is the third grade?

Mr. KITCHEN. The C grade, or Choice.

Mr. CANNON. The C grade apples, then, are not necessarily inferior apples; they are still choice apples? For instances, in the market generally we use the term "seconds", which includes apples of in.erior grade. Would the C grade mean an apple of inferior grade, or do you have any grades for inferior apples?

Mr. KITCHEN. In the Pacific Northwest, for boxed apples, they have a third grade-Extra Fancy, Fancy, and C, and the C grade is the third grade.

Mr. CANNON. What comes below the C grade, if anything?

Mr. KITCHEN. Out there they do not permit shipping other than to by-product plants anything below the C grade.

Mr. CANNON. All other apples are culls?

Mr. KITCHEN. Yes, sir; and even under the marketing agreement, that they have now, they were not permitted to pack and ship most varieties of C grade this year.

Mr. CANNON. That is an excellent agreement. The sale of inferior apples is to the disadvantage of both producer and consumer. It curtails the produce market for the better grades and it charges the consumer first-grade prices for culls. The middleman takes the profit. I interrupted you. You were about to describe the U.S. No. 1. Mr. KITCHEN. The U.S. No. 1 is the second grade, and that differs from the Fancy Grade chiefly in the percentage of color.

Then we have U.S. Commercial, which is the same as the U.S. Fancy and U.S. No. 1 except that no color is required.

Then we have the U.S. Utility, which is the fourth grade.

Mr. CANNON. And the last grade?

Mr. KITCHEN. No; we have U.S. No. 1 Early and U.S. Utility Early grades.

Now, there are also apples shipped unclassified, which means that no grade has been assigned to them.

Mr. CANNON. Those are culls?

Mr. KITCHEN. Those are usually inferior grade apples, and unfortunately considerable quantities of them were being exported and appearing on the European markets to the detriment of the better qualities. The better shippers insisted that those inferior apples be kept off of the export markets, and that is what brought about the passage of this act to which I have referred.

Mr. CANNON. But the only difference in your first three grades is in the color?