Letter to Senator O'Mahoney Transmitting a Proposed Wool Price Support Program.

[ Released March 12, 1946. Dated March 11, 1946 ]

Dear Senator O'Mahoney:

On January fifth you sent me a memorandum on wool in accordance with a suggestion I had made to you at a conference on the subject. In your memorandum you suggested that I request the interested Agencies of the Government to confer and to prepare a wool program. Such a program has now been prepared and is attached. It represents the considered views of the Administration on the best methods for solving a serious and difficult problem.

Your Committee will, of course, be able to call on the interested Agencies for any desired assistance in your further studies of the wool situation or in drafting appropriate legislation.

I trust that the Congress will find that this proposed wool program constitutes a sound and adequate basis for constructive legislation.

In closing I wish to express my agreement with you that cooperation between the Executive and the Congress is essential to the establishment of an effective wool program.

Sincerely yours,

HARRY S. TRUMAN

[Honorable Joseph C. O'Mahoney, United States Senate, Washington, D.C.]

THE WOOL PROGRAM

At the present time there is a serious world-wide wool situation. The United States Government must develop and carry out a wool program that will adequately safeguard the interests of growers, merchants, and consumers. Such a program must also be consistent with our general foreign economic policy.

Abroad the war stopped trade between the principal wool producing countries of the Southern Hemisphere and the principal wool consuming countries on the Continent of Europe and in Asia. This has resulted in the accumulation of large stocks of raw wool in foreign countries. The distribution of these accumulated stocks and of future clips will be retarded until transportation, coal mining, manufacturing, and international trade can be rehabilitated, despite the great consumer need for wool textiles and clothing. In view of these facts, the Governments of Great Britain, Australia, New Zealand, and South Africa have formed an agency called the Inter-Governmental Joint Wool Organization for the two-fold purpose of protecting prices to producers in Empire countries and of disposing of the accumulated surplus of Empire wool. It is said that this agency will be prepared to operate for a period of ten years, or longer if necessary, to complete the liquidation of these stocks. While the Joint Wool Organization is in operation it is understood that wool produced in these countries will be sold to the established trade in the normal manner as long as prices equal or exceed the stabilization levels established by the Organization. When the wool cannot be sold to the trade at such prices it will be purchased by the Organization at the stabilization prices. It is to the advantage of wool growers in the United States to have wool prices stabilized in the major producing countries abroad. Our growers are somewhat apprehensive, however, lest the desire of the Joint Wool Organization to speed liquidation might result in undue pressure to sell in the United States.

Domestically, sheep numbers have been reduced 25 percent in the past four years. This reduction has resulted from higher production costs, difficulties in obtaining labor, and the fact that many sheep raisers have found prices of some other farm products to be at more remunerative levels. To alleviate the situation confronting growers, the CCC has been purchasing domestic wool at ceiling prices since April 1943. However, foreign wool is being sold duty-paid in the United States at prices materially below those at which the Corporation is buying from domestic producers. Accordingly, our mills have turned largely to imported wool, and although our consumption in recent years has been the largest in history, the Commodity Credit Corporation has accumulated stocks in excess of one year's domestic production. Since November the Corporation has been selling wool at a loss as a means of moving it into consumption in competition with imported wool.

There is general agreement that this Government must protect the incomes of wool growers on a level comparable with that afforded producers of other agricultural products. The Senate Special Committee to Investigate Production, Transportation, and Marketing of Wool, during its comprehensive hearings, received several alternative proposals for dealing with the wool problem. Basically, the major proposals fall into two groups--those under which the prices of foreign wool in the United States may be raised, either through higher tariffs, import fees or import quotas, and those under which the selling prices of domestic wool would be lowered sufficiently to make domestic wool competitive with duty-paid imported wool. Some plans were also suggested which would have the effect of spreading the premium paid for domestic wool over the cost of all wool used in the United States so as to make the cost of all wool to domestic mills approximate an average between the support price paid growers for domestic wool and the duty-paid price of imported wool.

From a careful review of the entire problem it appears that it will be more desirable from a national point of view and more dependable for growers to have the Government absorb losses on sales of domestic wool rather than to raise additional trade barriers against imports. This would involve a program essentially similar to that now being carried out by the Commodity Credit Corporation, but on a more permanent basis and with adequate guides to determine the amount of protection to be given growers. When the post-war wool situation becomes better clarified, it may become desirable to change the method of operation from a purchase program so as to remove the Government, insofar as possible, from participation in the wool business. In developing such program it should be kept in mind that the domestic sheep-raising industry has been experiencing a major decline in sheep numbers and therefore care should be exercised not to take action which would place additional handicaps on the industry so long as this decline continues. It would also be advisable to provide for more adequate research and developmental work on wool marketing and utilization and to make it possible for the industry to utilize marketing agreements and orders if that should become necessary in dealing with the wool situation in the future.

Specifically, in view of the large-scale decline of sheep numbers in the U.S. during recent years, the large wool surpluses now hanging over foreign and domestic markets, and the present and prospective marketing problems confronting wool growers, it would seem desirable for Congress to enact special wool legislation. Such legislation should provide that:

1. The parity price of wool be revised or established at the so-called "comparable" level so that wool parity prices will be on a level equivalent to parity prices for other farm products.

2. The Commodity Credit Corporation support incomes to wool producers through purchases, loans, or payments, at the same minimum percentage of the revised parity prices as it is directed to support prices to producers of basic agricultural commodities. This level will be not less than 90 percent of the revised parity prices until the expiration of the two-year period beginning with the first day of January immediately following the date upon which the President by proclamation, or the Congress by concurrent resolution, declares that hostilities in the present war have terminated.

Because of the continuing decline in sheep numbers, it should be provided: (a) that no reduction shall be made in the general level of support prices from the level at which the Commodity Credit Corporation has agreed to purchase 1946 wool until the year in which the number of sheep kept for breeding purposes on January 1 first stops the decline which has been in effect continuously since 1942, except (1) that specific reductions can be made to equalize the support given on various types and qualities of wool, and (2) that additional discounts could be established to reflect market values of off-quality, inferior, and poorly prepared wool and to discourage unsound marketing practices; and (b) that the reduction for any one year shall not exceed eight percent of the average support price for the previous year.

The legislation should authorize the Commodity Credit Corporation to elect to make payments to producers in lieu of making purchases or loans. In the event of such election, such payments should equal the amount, if any, by which the United States average farm price falls below the estimated average price per pound at which the Corporation would have supported prices under a purchase or loan program.

3. The Commodity Credit Corporation be authorized to continue to sell wool at prices competitive with imported foreign wool, irrespective of other provisions of law, since existing legislation would prohibit any sales at prices below parity.

4. Funds from the gross receipts from duties collected under the customs laws during the period January 1 to December 31, both inclusive, of each calendar year be appropriated and made available to the Commodity Credit Corporation as of each following June 30, in sufficient amount to equal the losses incurred by the Corporation under purchase or loan operations, or the amount of payments made to wool producers in lieu of such purchase or loan operations, for the fiscal year ending on the respective June 30.

5. Marketing agreement and order programs under the Marketing Agreement Act of 1937, as amended, be made applicable to wool on the basis of the comparable, or vised parity, price.

6. A research and developmental program be provided for the purpose of improving the quality of domestic wool and wool marketing practices, and the processing and utilization of wool.

In addition to such legislative program, it would seem desirable to have the Executive agencies undertake the development of an international wool agreement in collaboration with the various interested foreign governments, to provide for coordinated action and more unified supervision of world wool marketing and price policies from the standpoints of producers, consumers, and international trade. I am asking the Executive agencies to determine the willingness of foreign governments to participate in such undertaking. In the meantime, it is hoped that consultations can be held with foreign wool agencies which will provide for a mutual understanding of objectives and activities in selling policies.

The above program will, in my opinion, afford domestic wool growers the protection and assistance to which they are properly entitled under this country's general trade and agricultural policies. The program will tend to encourage wool consumption in the United States, and will be consistent with our general foreign economic policy. In accordance with the views you have so frequently expressed, this country also should cooperate with foreign producing and consuming countries in efforts to encourage wool consumption abroad.