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EXHIBIT H.-Farmers Union Grain Terminal Association, comparative balance sheets, 1989-56, inclusive-Continued

May 31, 1949 May 31, 1950 May 31, 1951 May 31, 1952 May 31, 1953 May 31, 1954 May 31, 1955 May 31, 1956

$2, 173, 407 5,000,000 16, 295, 015

5,644, 640
29, 113,062
2, 120, 293
17, 300, 291
48, 533, 646

Description

ASSETS
Current assets:

Cash
Government bonds.
Receivables and accruals (net).
Inventories

Total, current
Noncurrent assets: Stock in other co-ops, margins, noncurrent

receivables, etc....
Fixed assets: Land, buildings, etc. (net)...

$3,374, 525
5, 130, 224
11, 162, 620

1, 611, 162
21, 278, 531
2, 141, 813
6,987, 474
30, 407, 818

$3, 213, 744

5, 123, 179 11,836, 715

1, 999, 954
22, 173, 592

2, 256, 337
10, 283, 381
34, 713, 310

$3, 576, 045
5,000,000
15, 694, 024

9, 177, 147
33, 447, 216

2, 633, 675
14, 597, 558
50, 678, 449

$4,835, 420
5,000,000
15, 497, 799

8, 143, 752
33, 476, 971

1, 930, 186
14, 973, 921
50, 381, 078

$3,013, 711
5,000,000
14,053, 582

4,631, 832
26,699, 125
1, 504, 762
14, 742, 559
42, 946, 446

$5, 991, 825
5,000,000
12, 071, 617

3,049, 197
26, 112, 639
1,648, 195
15, 337, 276
43,098, 110

$3,615, 088
5,000,000
12, 924, 490

4, 413, 516
25, 953, 094
1, 351, 931
16,598, 021
43, 903, 046

Total assets.

11, 344, 137

184, 926

14, 422, 335

282, 802

11, 529, 063

14, 705, 137

LIABILITIES
Current liabilities.
Noncurrent liabilities.
Long-term debt..

Total liabilities.
Members' net worth:

Common stock, voting.
Preferred stock and credits.
Capital reserve, allocated.
Savings for year.

Total liabilities and net worth.
Net worths, auxiliary organizations:

Great Plains Supply.
Farmers Union Marketing Association.
Farmers Union Grain & Supply.
Minot Builders Supply-
The Terminal Agency.
Grain Terminal Foundation.

18, 302, 187

469, 441
10,000,000
28, 771, 628

6,199
19, 521, 673
2, 378, 949

17, 841, 673

323, 492
8,750,000
26, 915, 165

6, 372
20,845, 973
2,613, 568

9, 865, 462

255, 554
8,000,000
18, 161, 016

6,655
21, 938, 302
2,840, 473

9, 541, 102

231, 448
7,000,000
16,772, 550

6,882
23, 221, 713
3,096, 965

8, 700, 201

222, 145
6,000,000
14, 922, 346

6, 928
25, 480, 457
3,488, 315

11, 849, 454

153, 053
5,500,000
17, 502, 507

7,094
27, 215, 693
3,808, 352

5, 592
16, 891, 030
1, 982, 123

6,012
17,854, 814
2, 147, 347

30, 407, 818

34, 713, 310

50, 678, 449

50, 381, 078

42, 946, 446 2,994, 634

43, 098, 110 2, 976, 271

43, 903, 406
2, 944, 230

109, 396
900, 178
507, 508
105, 824
194, 085

48, 533, 646
2,978, 972

157, 812
957, 121
577, 278
116, 468
230, 822

362, 327

59, 668 205, 209

413, 802

93, 906 198, 481

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The CHAIRMAN. Our next witness is Mr. Austin W. Carpenter. Mr. Carpenter, please come forward and identify yourself for the record by giving your name, address, and the capacity in which you appear.

STATEMENT OF AUSTIN W. CARPENTER, EXECUTIVE DIRECTOR,

EASTERN FEDERATION OF FEED MERCHANTS, INC., SHERBURNE, N. Y.

Mr. CARPENTER. I am Austin W. Carpenter, Sherburne, N. Y., the executive director of the Eastern Federation of Feed Merchants.

The CHAIRMAN. Mr. Carpenter, if you would prefer to be seated you may do so. I recognize you for 5 minutes to proceed in your own way.

Mr. CARPENTER. Thank you.

Mr. Chairman and members of the Ways and Means Committee, I represent a trade association of 720 livestock feed manufacturers and retailers doing business in New York, Pennsylvania, New Jersey, Delaware, Maine, Maryland, New Hampshire, Vermont, Massachusetts, Connecticut, and Rhode Island.

Most of the members of our association are independent operators who manufacture and retail livestock and poultry feeds at country points throughout the Northeast. The territory in which they operate is identical to that of two large cooperatives, the Cooperative Grange League Federation Exchange and the Eastern States Farmers Exchange. The combined feed and grain sales of these 2 cooperative corporations in 1955 amounted to more than $150 million. Their total sales were $227 million, so you can readily see that their sales efforts are heavily concentrated in direct competition with the members of pur association.

Now these are two very unusual cooperatives whose operations differ greatly from those of many other cooperatives. Nevertheless, the chief competitive advantage that they have over the members of my association is their ability to determine how much Federal income tax they are willing to pay. Now mind you, most of us have to cast up our accounts at the end of the year to determine how much income we have made and the United States Treasury says, “That is fine that you have had a profit. We need about 30 to 50 percent of that in taxes if you are a corporation or maybe more if you operate as an individual or partnership.” This is not so for the cooperatives. They can say, “How much profit do we want to pay taxes on?" Or better still, “How much income tax do we want to pay?” Paying their income tax is never difficult for them because, as you members of the committee know, they can allocate profits as patronage dividends payable at some future date at the discretion of their board of directors and keep the cash income in their capital structure for expansion, free of any income-tax payment. Of course, most cooperatives elect to pay very little or no Federal income tax.

Now in the case of the Cooperative Grange League Federation Exchange we have a very unusual situation--this conservative and well-operated business has found it expedient to pay a substantial amount of Federal income tax. For years it operated as a completely exempt cooperative; that is, it qualified to escape all payment of Federal income tax. But the conditions of this tax escape interfered with its business operations. As a wholesale organization, it

supposedly distributed its merchandise through local retail farmer cooperatives, but with its move into manufacturing-it owns 4 feed mills, 13 fertilizer and insecticide plants, and has partial investments in such things as petroleum refineries, operation of an airline, seed plants, and a procurer and manufacturer of various farm supplies it has wandered far afield from farm operations.

To increase volume, it distributed part of its products through taxpaying independent merchants who were required to keep extensive records on the purchase of GLF merchandise so that patronage payments could be made to individual farmers. Naturally, these records entailed voluminous bookkeeping on the part of GLF and raised questions concerning whether or not this business was done with farmers, a prime requirement for tax escape. As a result, it gave up its tax exemption at the close of 1947 and for years has paid substantially the Federal income tax that a regular business would pay.

Why are the independent feed merchants complaining? The answer is simple. They compete with more than 200 local cooperatives that GLF has succeeded in organizing and still controls. These local cooperative retailers are able to avoid the payment of Federal income taxes which takes a sizable portion of the feed merchant's income. They can expand on their tax savings and still give what would be normal profits after taxes to their members to encourage them to do business the cooperative way.

Now Eastern States Farmers Exchange has one of the largest feed mills in the world located at Buffalo, N. Y. It still retains its complete exemption from the payment of Federal income taxes. Unlike most other big cooperatives, Eastern States Farmers Exchange sells directly to farmers through more than 400 farmer representatives. Its earnings in 1956 amounted to $3,484,594. Of this amount, $1,105,000 was retained for expansion and $2,379,594 was distributed as & cash refund. Now a regular corporation with similar earnings would have paid $1,806,000 to Uncle Sam in Federal income taxes. This cooperative was not required to pay anything.

Income-tax freedom enjoyed by the cooperative constitutes, a distinct competitive advantage, which becomes more pronounced when the income-tax dollars of independent businesses are used by Government agencies, such as the Farmers Cooperative Service and the Agricultural Extension Service, to help sell the cooperative philosophy.

Our members also resent bitterly the fact that when these taxfree cooperatives have arrived at maturity they are able to make appropriations for advertising on a basis which is inconceivable to the small-business men who comprise our association. I have here, and I desire to enter it into the record, if you please, an advertisement of the big Grain League Federation which appeared in the New York Times exhorting homeowners to obtain their lawn and garden supplies from local cooperative stores. This is not farmer business and I understand that the big GLF does millions of dollars of nonfarmer business. This we think is not fair. This type of unfair competition is killing the initiative of small-business men throughout our rural areas.

There is only one solution, as we see it. That is tax equality and it must be real tax equality-not a compromise which still leaves a substantial advantage in the hands of these competitors.

Give small-business men tax equality so that competitively they can take care of themselves.

The CHAIRMAN. Without objection the advertisement will appear in the record in connection with your remarks.

(The advertisement referred to follows:)

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HIS SPRING, when you're read; lo seed your lawn, and talk with your G.L.F. Lawn and Garden Center,

The folks at G.L.F. are specialists in this lawn and garden business. They know what slants need to grow well... the fertilizers to use ... the tools to select .. and the right sprays or dusts to kep away weeds and bugs. And most important – they tan give you plenty of helpful advice on lawn and gardet care.

This specialized knowledge was nitt picked up just over night. G.L.F. personnel have acqured their know-how and experienced from years of workng with professional farmers - and supplying their needs. Also important, this practical knowledge is kept up-to-date with the latest research from puitic and private services.

What is G.L.F.?
G.L.F. is an organization that farmers started 37 years
ago, so they could obtain high quality farm supplies at
reasonable prices. Fully named Cooperative Grange
League Federation Exchange, Inc.,' it took its name
from three sponsoring farm organizations - the Grange.
Dairymen's League and Farm Bureau Federation.

The nearby G.L.F. Lawn and Garden Center is one of
650 retail points in G.L.F.'s three state area. Therefore,
with this combined large volume buying your Lawn and
Garden Center can provide - high quality, reliable
supplies at very reasonable prices. Every commodity
added to the G.L.F. line is thoroughly tested to be sure
it is practical and useful ... but no item is considered
more important at G.L.F. than reliable, helpful service.

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For Reliable Advice ... Reliable Supplies ...
See Your Nearest G.L.F. Lawn and Garden Center

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The CHAIRMAN. Are there any questions of Mr. Carpenter?

If not, we thank you, Mr. Carpenter, for your appearance and the information given the committee.

Mr. CARPENTER. Thank you for the opportunity.

The CHAIRMAN. Our next witness is Mr. A. S. Moake. Mr. Moake, will you please identify yourself for the record by giving your name, address, and the capacity in which you appear?

STATEMENT OF A. S. MOAKE, REPRESENTING SOUTHWESTERN

PEANUT SHELLERS ASSOCIATION

Mr. MOAKE. Mr. Chairman, my name is A. S. Moake. I am president of the Bain Peanut Co., of San Antonio, Tex., and am immediate past president of the Southwestern Peanut Shellers Association. I represent the Southwestern Peanut Shellers Association, consisting of 18 shellers of peanuts in the States of Oklahoma and Texas.

The CHAIRMAN. Can you complete your statement in 5 minutes ?
Mr. MOAKE. Yes, sir.
The CHAIRMAN. All right, sir. You are recognized for 5 minutes.

Mr. MOAKE. With two exceptions all of our members are smallbusiness men.

Our association recommends the elimination of the income-tax advantages now enjoyed by cooperative corporations. Cooperative corporations should be required to pay income taxes on all their net earnings just like any other business, and individuals receiving cash payments, patronage dividends or certificates of interest, should pay income tax on same just like the receivers of dividends from any other corporations.

At the present time private business enterprise is in a most unfair position when competing with cooperatives. Private business enterprise pays the income taxes, while the cooperatives largely escape them. This permits the accumulation of funds by cooperatives through the retention of earnings for expansion through internal growth and through purchases of noncooperatives. They are now expanding very rapidly and not only dealing for and with their own members, but buying, processing, and selling on the open market in direct competition with the small-business man that has to pay the taxes.

To illustrate the practical significance of this tax advantage to cooperatives, I want to discuss with you briefly one giant cooperative corporation--the Cotton Producers Association.

The Cotton Producers Association, with headquarters in Atlanta, Ga., today is the largest sheller of peanuts in the United States. Thirteen months ago it was not in the peanut shelling business. The CPA was formed in 1937 and is engaged in cotton storage and marketing, feed and fertilizer manufacturing, oil milling, pecan and peanut shelling, and such unrelated activities as insurance.

In early 1957 the CPA purchased the Georgia Peanut Co. and its 11 affiliated companies. This group of companies represent by far the largest peanut-shelling capacity under the control of any group in the United States. The CPA is operating in both the southeastern peanut-producing area (Georgia, Florida, and Alabama) and in the southwestern peanut-producing area (Oklahoma and Texas), yet

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