Special Message to the Congress Urging Extension of Curbs on Grain Used in Production of Ethyl Alcohol.

To the Congress of the United States:

Section 6(a) of Public Law 395, Eightieth Congress, first session, provides that whenever the President shall determine that there is or threatens to be a critical shortage of any raw material, commodity, or product which jeopardizes the health or safety of the people of the United States or its national security or welfare and that there is no prospect that such critical shortage may soon be remedied by an increase in the available supply without additional governmental action and that the situation cannot be solved by voluntary agreement under the provisions of that act, the President may prepare proposed measures for conserving such raw material, commodity, or product which he shall submit to the Congress.

Upon the basis of information furnished by the Secretary of Agriculture, I have determined that there is at present a critical shortage of grain which threatens to become even more serious during the next few months; that such shortage jeopardizes the national security and welfare of the United States; that there is no prospect that such critical shortage may soon be remedied by an increase in the available supply without additional governmental action; and that the situation cannot be solved by voluntary agreements under the provisions of Public Law 395. Therefore, pursuant to section 6(a) of that act, I am submitting a proposed measure for the conservation of grain. This proposed measure relates to the use of grain for the production of ethyl alcohol, including but not limited to distilled spirits and neutral spirits.

As a result of the devastation brought about by the war and extremely unfavorable weather conditions, the grain situation of most European countries is extremely grave. Careful studies have indicated that the United States should endeavor to export at least 500,000,000 bushels of wheat from the crop harvested in 1947.

The available grain supplies in the United States in relation to essential domestic and export requirements indicate a real need for conserving as much grain as possible, especially between now and the harvest of the wheat crop this summer and the corn crop this fall. There is attached hereto a table, prepared by the Department of Agriculture, which summarizes the current grain situation. Although the domestic wheat crop in 1947 was 212,000,000 bushels greater than the domestic wheat crop in 1946, the current domestic and foreign demands are so great that the Congress included a provision in the Foreign Aid Act of 1947 requiring a carryover of reserve stocks of wheat as of June 30, 1948, of 150,000,000 bushels. It is now estimated that taking into consideration essential domestic needs and the carry-over required by law, approximately 450, 000,000 bushels of wheat will be available for export. As indicated above, this is considerably below the minimum amount necessary to meet pressing needs in other countries.

In 1947 the crop of corn, which is the chief feed grain in the United States, was only 2,401,000,000 bushels as compared with 3,250,000, 000 bushels in 1946. Production of oats was 282,000,000 bushels less in 1947 than in 1946. Changes in the production of barley, grain sorghum, and rye about offset each other. As a result the supply of feed grains is extremely short.

The grain situation can best be summarized by saying that every bushel of grain which can be saved between now and the harvest of the new crops this summer and fall will exert an immediate and direct influence either on grain supplies available for feed and use in this country or on the amount of wheat which can be exported. The feed situation is so acute that a saving of corn will be in effect the equivalent of a saving of wheat. The amount of wheat which can be secured for export will depend considerably upon whether there are sufficient supplies of other grains available for feed. If other grains are not available for feed, farmers may find it necessary to feed greater quantities of wheat to livestock.

Under these circumstances, definite steps to conserve grain and reduce all nonessential uses of grain in the United States were, and are, required in the national interest. The Citizens Food Committee, which I appointed on September 25, 1947, to bring about voluntary food conservation, developed a number of voluntary grain-conservation agreements with industry, agricultural groups, and others.

In this connection, I am informed that brewers agreed to make a reduction of 25 percent in the quantity of corn used per barrel of beer, to use no wheat, table-grade rice, or feeding barley, and to make other economies for a 90-day period ending January 31, 1948; that the distilling industry agreed to close down for 60 days, beginning at midnight October 25, 1947; that bakers were urged to discontinue consignment selling and to practice other economies; that wet and dry corn millers agreed to conserve by making maximum use of perishable high moisture corn; that the mixed-feed industry was requested to substitute, wherever possible, nonfood grains for wheat; that poultry producers agreed to cull flocks and to reduce the production of baby chicks and turkey poults; that farmers in general cooperated with the Government in grain conservation by feeding hogs to lighter weights, putting less finish on beef cattle, and culling dairy herds; and that restaurants and hotels agreed to make savings in the use of scarce commodities.

After the voluntary shut-down of the distilling industry became effective on October 25, 1947, it became apparent that a program for a continuing reduction in the use of grain by the distilling industry would be necessary to meet the critical emergency with respect to the supply of grain for authorized foreign-aid programs and essential domestic uses. Consequently, exhaustive efforts were made to effectuate a voluntary agreement with the distilling industry for the conservation of grain.

During the period of the voluntary shutdown of the industry, meetings of the Distillers Coordinating Committee, the membership being composed of representatives of the industry, labor and the Department of Agriculture, were held in an endeavor to work out a voluntary program which could be made effective after December 24, the termination date of the voluntary shut-down. The last of these meetings was held on December 9, 1947. At this meeting it became apparent that it was impossible to reach an agreement on any effective program which would result in the saving of grain.

Therefore, the Department of Agriculture prepared a program, proposing the allocation of 2 1/2 million bushels of grain for the period to January 31, 1948, and monthly thereafter, based upon a formula giving weight both to historical use and capacity. A public meeting to consider this program was held on December 17. Notice of this meeting and the proposal to be considered was given through the press and by individual telegrams to every distilling plant. This meeting was presided over by the Secretary of Agriculture, and all members of the distilling industry were afforded an opportunity to express their views as to the desirability of a voluntary program, the form that such program should take, if initiated, and the feasibility or practicability of the program suggested by the Government. The industry representatives present, after considering a variety of proposals including that suggested by the Government, were unable to reach agreement on any effective proposal for the conservation of grain by the industry, although they were informed by the Secretary of Agriculture that, in the absence of some voluntary agreement, he would feel called upon to recommend to the Congress the granting of authority for mandatory control.

Upon being informed by the Secretary of Agriculture of the impossibility of effecting a voluntary agreement to conserve grain by the distilling industry, I instructed him to recommend to the Congress the granting of authority to exercise mandatory control over the use of grain by distillers for beverage purposes. Thereafter, authority for the allocation of grain for the production of distilled or neutral spirits for beverage purposes was granted by section 4(b) of Public Law 395. This authority was delegated to the Secretary of Agriculture by Executive Order No. 9915, and the Secretary of Agriculture issued under such authority on December 30, 1947, an order, a copy of which is attached hereto, allocating grain to distillers for the period ending January 31, 1948.

Throughout all negotiations with the distilling industry, various factions of the industry have advocated different methods of allocation and there is apparently no possibility of reconciling their views and solving the situation by voluntary agreement. Therefore, further action will be required by the Congress to conserve grain and to reduce its nonessential use.

The attached order is self-explanatory. It sets forth a formula, by means of which the quota of each distilling plant is determined, together with the specific quota for each plant, and it also indicates the detailed procedure for administration. It is contemplated that if the present power to allocate grain is continued beyond January 31, 1948, substantially the same procedure as that provided for in the present order will be used, with such modifications as may be required should the Congress enlarge the grant of authority to include the control of additional uses as recommended in this proposal.

If the allocation powers with reference to grain are continued through October 31, 1948, the Department of Agriculture estimates that the sum of $52,000 will be required for administrative expenses, including the salaries of additional personnel. Of this amount $26,000 will be required for the fiscal year ending June 30, 1948, and $26,000 will be required for the following fiscal year.

The present order allocating grain to distillers contemplates the use of approximately 2,500,000 bushels of grain by the distilling industry for beverage purposes during the period ending January 31, 1948. If the allocation controls are extended by the Congress, it is now contemplated that the use permitted will be at the rate of 2,500,000 bushels of grain per month. However, the total amount to be allocated monthly will depend upon the amount determined to be available after considering all demand and supply factors.

During the 1947 fiscal year approximately 59,000,000 bushels of grain were used for beverage purposes by the distilling industry. However, a considerable portion of this amount was utilized by the industry to build up depleted stocks. The distilling industry was under control, as to the total amount of grain to be used, during the war and until November 30, 1946. As a result of this, stocks of whisky on hand were necessarily depleted below the average yearly stocks of 475,000,000 gallons which prevailed in the 5 years preceding the war. The total stocks reached a low point on June 30, 1945, of 307,000,000 gallons. These stocks were increased during the 1946 fiscal year by 67,000,000 gallons so that on June 30, 1946, the stocks were 374,000,000 gallons. During the fiscal year 1947 the stocks were further increased by 90,000,000 gallons to 464,000,000 gallons as of June 30, 1947. This increase took place at a time when the sales of bottled whisky were the highest in the history of the industry. The production of distilled spirits and neutral spirits during that year was the highest in the last 10 years.

The average stocks of whisky of 475,000,000 gallons which prevailed during the years preceding the war constituted a 4-year supply. The stocks of whisky on hand now are approximately equal in quantity to the stocks which were normally on hand prior to the war, but due to the greatly increased sale of blended whisky at the present time the stocks represent a 6-year supply even at the present high rate of consumption. No additional build-up in stocks, therefore, is justified, and the industry can withstand a substantial depletion of its present stocks without undue hardship.

In determining the amount of grain used in the normal production of distilled spirits and neutral spirits for beverage purposes during the fiscal year 1947, the amount of grain used in producing the 90,000,000 gallons of whisky which were added to the stocks on hand should be deducted from the total use of grain. Upon this basis, allowing for the full replacement of the gallonage depleted by the extremely high sales, the average monthly use during 1947 fiscal year would have been 3,250,000 bushels. Thus, the reduction in the average normal monthly grain consumption by the distilling industry as a whole brought about by this order, for all practical purposes, amounts to only 23 percent on a replacement basis. However, it should be recognized that, if there are no controls, it would be quite possible that the distilling industry would use an amount of grain equal to or even in excess of the amount used in the 1947 fiscal year.

The formula used in determining quotas for each distiller is set forth in paragraph (c) of the order. This formula is based two thirds upon the use of grain by distilling plants during a base period and one-third upon the capacity of the plants, with a specific minimum provided for each distilling plant.

Various formulas have been suggested as a basis for allocating grain to distillers. Some have advocated distribution based entirely on use during a base period, others have advocated distribution entirely on a capacity basis, others have advocated a formula giving weight to both of these factors, and still others have advocated distribution based upon sales of bottled goods during a base period. In all past programs the formula for distribution has been based either upon the usage of grain by distilling plants during some past period or the capacity of the distilling plants for the use of grain based upon past operations, or a combination of both. The sale of bottled goods has never been used as a standard of allocation. In view of the diversified character of the industry, it has been considered that the use of bottle sales as a basis for allocation would result in an unworkable, unfair, and inequitable method of allocation.

The formula contained in the order of December 30, 1947, was arrived at after thorough consideration of all proposals and of the experience gained under previous allocation orders. It was considered to be the most equitable formula which could be used under the circumstances. It is contemplated that if the Congress continues the allocation authority beyond January 31, 1948, a formula substantially in conformity with that contained in the present order will be used.

Public Law 395 revives and reenacts title III of the Second War Powers Act, 1942, with respect "to the use of grain for the production of distilled spirits or neutral spirits for beverage purposes." If the allocation authority is continued beyond January 31, 1948, it would be desirable for the legislation to grant such authority with respect to the production of ethyl alcohol from grain rather than use the language of the present act.

The same manufacturing process is required in connection with the production of distilled spirits or neutral spirits for beverage purposes and some kinds of industrial alcohol. Because of the nature of the industry it would be desirable to have an integrated control over the production of ethyl alcohol from grain regardless of the use to which the product is to be put.

In view of the fact that the authority granted by Public Law 395 was for a period of only 1 month, and that the practice of the industry is to make purchases of grain weeks ahead, it was impracticable to provide for inventory controls. However, if the allocation controls are continued beyond January 31, 1948, provision should be made for inventory controls.

Upon the basis of the foregoing information, I recommend that the Congress provide for the exercise, at least until October 31, 1948, of the powers, authority, and discretion conferred upon the President by title III of the Second War Powers Act, 1942, with respect to allocation and inventory control of grain for the production of ethyl alcohol regardless of the use to which the product is to be put.

HARRY S. TRUMAN