6,7 FOOD RETAILING AND PROCESSING PRACTICES HEARING BEFORE THE SUBCOMMITTEE ON CONSUMER ECONOMICS OF THE JOINT ECONOMIC COMMITTEE CONGRESS OF THE UNITED STATES NINETY-THIRD CONGRESS SECOND SESSION MAY 21, 1974 Printed for the use of the Joint Economic Committee 0 U.S. GOVERNMENT PRINTING OFFICE 41-662 WASHINGTON : 1974 For sale by the Superintendent of Documents, U.S. Government Printing Office Washington, D.C. 20402 -Price $2.75 I I JOINT ECONOMIC COMMTUITTEE Cong.) (Created pursuant to see. 5(a) of Public Law 304, 79th WRIGHT PATMAN, Texas, Chairman WILLIAM PROXMIRE, Wisconsin, Vice Chairman HOUSE OF REPRESENTATIVES SENATE Alabama RICHARD BOLLING, Missouri JOHN SPARKMAN, Arkansas HENRY S. REUSS, Wisconsin J. W. FULBRIGHT, RIBICOFF, Connecticut MARTHA W. GRIFFITHS, Michigan ABRAHAM H. HUMPHREY, Minnesota WILLIAM S. MOORHEAD, Pennsylvania HUBERT BENTSEN, JR., Texas HUGH L. CAREY, New York LLOYD M. JAVITS, New York WILLIAM B. WIDNALL, New Jersey JACOB K. H. PERCY, Illinois BARBER B. CONABLE, JR., New York CHARLES PEARSON, Kansas CLARENCE J. BROWN, Ohio JAMES B. SCHWEIKER, Pennsylvania BEN B. BLACKBURN, Georgia RICHARD S. JOHN R. STARK, Executive Director LOUGHLIN F. MCHUGH, Senior Economist RICHARD F. KAUFMAN, General Counsel ECONOMISTS SARAH JACKSON WILLIAM A. Cox LuCY A. FALCONE JOHN R. KARLIK L. DOUGLAS LEE JERRY J. JASINOWSKI YUSPEH COURTENAY M. SLATER LARRY MINORITY (Counsel) WALTER B. LAESSIG (Counsel) LESLIE J. BANDER GEORGE D. KRUMBHAAR, Jr. SUBCOMMITTEE ON CONSUMER ECONOMICS HUBERT H. HUMPHREY, Minnesota, Chairman SENATE HOUSE OF REPRESENTATIVES S. MOORHEAD, Pennsylvania WILLIAM PROXMIRE, Wisconsin WILLIAM GRIFFITHS, Michigan ABRAHAM RIBICOFF, Connecticut MARTHA W. S. REUSS, Wisconsin JACOB K. JAVITS, New York HENRY L. CAREY, New York CHARLES H. PERCY, Illinois HUGH WILLIAM B. WIDNALL, New Jersey CLARENCE J. BROWN, Ohio (r) CONTENTS WITNESSES AND STATEMENTS TUESDAY, MAY 21, 1974 Humphrey, Hon. Hubert H., chairman of the Subcommittee on Con- pFg sumer Economics: Opening statement - Paarlberg, lion. Don, Director, Agricultural Economics, Department of Agriculture ------------------------------------- 4 Parker, Hon. Russell C., Assistant to the Director, Bureau of LEconomics, Federal Trade Commission - --------------------------------- 3:7 Hightower, Jim, codirector, Agribusiness Accountability Project, ac- companied by Susan DeMarco, codirector -511 SUBMISSIONS FOR THE RECORD TUESDAY, MAY~ 21, 1974 Hightower, Jim, et al.: Articles: "1973 Profits: A Year To Remember," from Business Week, March 9, 1974- 56 "Executive Compensation: Getting Richer in '73," from Business Week, May 4, 1973 -95 "Profits: Better Than Expected," from Business Week, a\Iyv11, 1974---------- -------------------------------------- 115 Paarlberg, lion. Don: Prepared statement -22 Parker, Hon. Russell C.: Prepared statement -43 Reports: "The Federal Trade Commission Line of Business Reporting Program"- 153 "Economic Report on Line-of-Business Reporting and Other Proposals for Improving the Financial Statistics Program of the Federal Trade Commission"-168 "Annual Line of Business Report," Bureau of Economics, Federal Trade Commission -180 "Discount Food Pricing in Washington, D.C.," Bureau of Economics, Federal Trade Commission- 219 "Economic Report on the Influence of Market Structure on the Profit Performance of Food Manufacturing Companies," Bureau of Economics, Federal Trade Conmmission -_- __- _ 244 (m) FOOD RETAILING AND PROCESSING PRACTICES TUESDAY, MAY 21, 1974 CONGRESS or TM UNITED STATES, SUBCOMMITTEE ON CONSUMER ECONOMICS OF THE JOINT ECONOMIC COMMrITEE, Washkington, D.C. The subcommittee met, pursuant to notice, at 10:15 a.m., in room 6202, Dirksen Senate Office Building, Hon. Hubert H. Humphrey (chairman of the subcommittee) presiding. Present: Senator Humphrey. Also present: Loughlin F. McHugh, senior economist; Lucy A. Falcone, Jerry Jasinowski, and Courtenay M. Slater, professional staff members; Michael J. Runde, administrative assistant; and George D. Krumbhaar, Jr., minority counsel. OPENING STATEMENT OF CHAIRMAN HUMPiHRY Chairman HUMPHREY. Mr. Paarlberg, we surely welcome you here this morning. I have a brief opening statement. Mlight I say to the witnesses as we begin, it may very well be an inconvenient session for all of us. There happen to be three executive committee meetings this morning, of which I am a member, and I have got to be there somehow or another. Also we have three pieces of legislation up that I am supposed to be working on in the Senate, all of which nobody knows when we schedule these hearings. So such is the way of the supreme organization of the congressional body. I think we are not even sure it will not be winter before we finish the day. In the past year the Subcommittee on Consumer Economics has held a number of hearings on farm prices and supplies. Today we turn to the processing, wholesaling, and retailing sectors to determine how practices in these industries increase or add to the price of food, or affect the quality of that product to the consumer. The consumer's food bill has become the subject of increasing controversy. In 1973, for example, food price increases accounted for half of the rise in the Consumer Price Index, and as prices rose most consumers had to allocate a larger share of their family budgets to food purchases. Let me digress from this comment to say that I consider even what I have said to be less than factual. The truth is that for people of moderate income, food and clothing and rent are the big items. All of these general figures that we come out with in Washington here actually have little application to anything but pets and canaries. They really do not have much to do with people because the average (1) 2 person of income of $6.000 to $8.000 to $10,000 or $12,000 a year is not victimized bv 10 and 11 percent inflation. He is victimized by 30 or 40 percent inflation because the things that that family needs or that individual needs as the head of the family are the items that have gonei ip very rapidly. He does not buy some of the durable goods that we talk about that are in the total index figure. So I want to clear again that for the person of fixed income, the old age recipient of social security and pension, the workinig family with incomes of under $1_.000 a y\ear, which comprises a vast major- itv of the American families, that those people are not being victim- ized by inflation of 10 percent. but rather inflation of 20, 30, and 40 percent. depending on what their income is. And that is what is wVrong with Governmelnt figures. and that is why people think we are a bunch of liars. Wihen I go out into the country and talk to anynbody and tell them that the inflation rate is 10½/2 percent, they look at me like I have some wvheels missing, and then a mother walks up and says, did vou ever buy a pair of shoes, have von ever been in the supermarket. or do thev deliver vour goods at home and give you a Government order for it? Have vou ever rented a home? Did you ever try to build a garage? Or did von ever try to buv storm windows? And by the time thev get. throuah listing out the things that really affect peoples' lives instead of all this garbage that we put in here to make up the total index figure. you begin to realize that you are talkina in one world and they are living in another. I know, NMr. Paarlberg. that You understand this because vou have to deal with food prices. But I want to repeat that I think there is something wrong with Government figures because they deceive the people, and I guess this is as good a time as an\ to register my protest. I do not know what. we are aoing to do about it. but I think you have got to have a different set of inflation figures for different income groups. I think the inflation figures we are talking about relate to corpora- tions, relate to people of hihll income or moderately high income, not to people of low income. I had 1.200 senior citizens on my back Saturday in Minneapolis, 1.200 of them, and when I got up and told them that the rate of inflation was about 10 percent, they hooted. To them it was about 100 percent as far as they were concerned. It was unbelievable. Then their start reciting what the facts are. And their problem is that we really do not try to differentiate between income groups in the society. *Well, now, as a result of the well-publicized increases in farm prices. farmers have been blamed almost exclusively for the rise in retail food prices. Yet in the last 6 months-you check me on these figures nowl-prices received by farmers have fallen bv about 13 percent. Retail prices have been slow to follow, as in the common: practice, they rarely fall by the same amount as farm prices. Almost every major category of farn products, grains. cattle, hogs, poultry, and eggs has declined in the last 2 months. It is only in the past few wveeks that even a modest decline has occurred in the grocery store. One of the questions that we will explore with our witnesses this morning is why the farm-retail price spread is so slow to re- 3 spond to declines in farm prices, but so quick to move up when farm prices rise. Aside from the farm-retail spread, there are a number of other factors which indirectly increase consumer food prices. The level of concentration in some food processing industries reaches 80 or 90 percent. In cereals, canned soups, canned fruits and vegetables, three or four large firms dominate the industry. I was told last evening by a prominent economist that the canning industry is having a very difficult time getting certain products.