The basic idea behind this cooperative is to be able to give the veterinarian a much more complete service, and with its profits being tax free, means that the veterinarian, with his yearly patronage dividend, will be purchasing his products at cost.

Although we will be buying a serum plant in the first year of operation as a cooperative, and holding back 20 percent of the profits for running capital, it is believed that this organization should still have sufficient profit on serum and virus alone to return in patronage dividends between 15 and 20 percent on your total serum and virus purchases. In other words, even the first year with your returned dividend, you would be purchasing serum for around $0.90 per 100 cubic centimeters. This organization will obtain a bull line of biological, pharmaceutical and vaccine products. The returned dividend on these products are at present unknown, however, believe they would net around a 25 percent refund. Membership stock will be $2,500. This membership stock to be paid back to any member not purchasing merchandise from the cooperative in a 2-year period, or upon being voted out of the cooperative by the board of directors.

Doctor, I do not know how long you intend to stay in practice, however, if you practice for another 10 or 15 years, being a member of this organization could save you enough money to buy one of the best farms in your area, for a temporary investment now of only $2,500.

This organization is going to be limited to 50 members, and unless there is a drastic change of attitude of its members, I doubt if this membership will be expanded in future years.

The temporary board of directors of the Iowa Cooperative Association has appointed Mr. Virgil Nidy to secure new members, and to collect membership money. As the forthcoming vaccinating season is just around the corner, and time is becoming the essence, we are asking all those interested in becoming members of this organization to send their membership check for $2,500 made payable to the Iowa Cooperative Association to either Dr. R. R. Griffel, Eldora, Iowa, who is secretary treasurer of this organization, or to myself. Within the next 10 days Mr. Nidy will call on you to answer any question you have, and to let you read the articles of incorporation.

I think we all agree, that this veterinary cooperative is just what the veterinarians have been needing, so let's do something about it.

With kindest regards.

Yours very truly,

/s/ Dr. H. E. HANNA,

President, Iowa Cooperative Association, Springville, Iowa. We can make big profits because we pay no taxes, support no expensive depots, no advertisements to pay, no big bunch of salesmen to pay salaries and commissions. This co-op group is just too good for you to pass up. We can produce serum for 75 percent per 100 cubic centimeters. We get a 40 percent profit on pharmaceuticals, 25 percent on biologics. We can purchase if and when we want to produce a cholera vaccine, a unit to make the MLV type for $30,000. Let me know right away if you're really interested and you'd be crazy not to be.

Mr. SIMPSON of Illinois. I would like to read a couple of paragraphs from it. [Reading:]

The basic idea behind this cooperative is to be able to give the veterinarian a much more complete service, and with its profits being tax-free, means that the veterinarian with his yearly patronage dividend, will be purchasing his products at cost.

One other paragraph:

Doctor, I do not know how long you intend to stay in practice. However, if you practice for another 10 or 15 years, being a member of this organization could save you enough money to buy one of the best farms in your area for a temporary investment now of $2,500.

This cooperative started in May 1952. That is 6 years, so if they took the advice of this doctor and bought the farm they would have it over half paid for.

Back in 1933 this group of which I am talking about was organized. In 1934 the Agriculture Department of the United States caused

them to go into a marketing agreement in which they would agree to keep a certain stockpile of hog serum as of May 1 of every year. That has created a financial hardship on these cooperatives.

This organized cooperative in 1952 can do the same thing but they take the same advantage on a tax reduction or tax exemption.

I am not an expert on hog serum. I am not an expert before this committee. I simply think that these people are being unjustly treated and I ask your permission to introduce Mr. Williams. The CHAIRMAN. Come forward, Mr. Williams.

Mr. SIMPSON of Illinois. Thank you.

The CHAIRMAN. Mr. Simpson, we want you to know how much we appreciate your coming to the committee and the information you have given the committee.

Mr. SIMPSON of Illinois. Thank you very much.

The CHAIRMAN. Mr. Williams, for the purpose of the record, will you please identify yourself by giving your name, address, and the capacity in which you appear.

STATEMENT OF GUY H. WILLIAMS, IN BEHALF OF THE ASSOCIATED VETERINARY LABORATORIES, INC., KANSAS CITY, MO.

Mr. WILLIAMS. My name is Guy H. Williams. My home is in Omaha, Nebr., where I was president of the Corn States Laboratories for 35 years.

The CHAIRMAN. Could you complete your statement in the 10 minutes allotted to you, sir?

Mr. WILLIAMS. I think I can, sir.

The CHAIRMAN. You are recognized for 10 minutes.

Mr. WILLIAMS. I am speaking here today for the Associated Veterinary Laboratories, a nonprofit corporation, membership in which is limited to representatives of companies engaged in research, production and sale of anti-hog-cholera serums, virus, vaccines, biologicals, pharmaceuticals and similar compounds used for the prevention, treatment or eradication of animal diseases. At present there are some 13 companies holding membership in the organization, principally small corporations. Our members limit sales of their products to licensed veterinarians and do not sell through retail outlets, farm supply stores or otherwise direct to livestock owners. The market of the group I represent is therefore restricted to members of the veterinary profession.

Mr. Chairman, I would like to digress from the printed statement on file with you to introduce a newspaper clipping from the Des Moines Register Tribune under date of January 12, and to quote excerpts from it.

The CHAIRMAN. Would you like it to be in the record?

Mr. WILLIAMS. Yes, sir.

The CHAIRMAN. Without objection it will appear in the record. (The newspaper clipping follows:)

BACKING OF VETERINARIANS SENDS DES MOINES FIRM TO TOP

Harold L. (Bud) Hansen, 33-year-old manager of Diamond Laboratories, heads an unusual cooperative corporation that has increased its sales more than tenfold in the last 5 years.

The industry is unique in that it is owned by 130 practicing veterinarians, mostly in Iowa.

RESEARCH FACILITIES

The group was established in May 1952, largely through the efforts of Hansen. Sales of veterinary products in the first year of operation were $214,000. Last year they were in excess of $2,500,000.

The firm produces 120 pharmaceutical items used in the treatment of animal and poultry diseases. These include powders, liquids, injectables, antibiotics, ointments and tablets.

It makes more than 50 vaccines, serums, and bacterins for the immunization and treatment of both large and small animals.

Hansen said that the plant has the most up-to-date research facilities in the industry and spends thousands of dollars annually endeavoring to improve existing products and to develop new ones.

The technical staff includes biochemists, bacteriologists, microbiologists, engineers, pharmacists, chemists, veterinarians and laboratory technicians.

NEW PRODUCT

Daily morning conferences are held by Hansen to discuss and solve departmental problems and coordinate production.

Also a 5-man new products committee composed of practicing veterinarians, meets every 8 weeks to discuss the needs of veterinarians in the field.

The committee organized by Hansen, passes on its collective ideas to the laboratory research staff for development and refinement. Research staff meetings also are held periodically.

The most important research development made in the field of killed antigen virus in the last 20 years recently was realized through the joint efforts of Diamond's biological and pharmaceutical research staffs. It is a new concentrate used in vaccines and bacterins.

The product, called Neojel, provides a longer lasting immunity without unfavorable reactions and it can be administered in much smaller doses, Hansen said.

DIAMOND SERUM CO.

Neojel was first tested in an erysipelas bacterin on 8,000 swine by Iowa veterinarians. Its production and sale has been approved by the United States Bureau of Animal Industry and a patent has been applied for on the process. Diamond Laboratories grew from the original plant of the Diamond Serum Co. at 1635 Maury Street of which Hansen became manager in 1948. The company operates that building for production of anti-hog-cholera serum and virus. Its modern new plant is on a 30-acre tract at 2550 SE. 43d Street, across Highway 60 from the Great Lakes Pipe Line Co. tank farm. The plant was opened in 1953.

The company has a production and sales staff of 110 persons here. In addition, 60 salesmen handle Diamond products for 30 wholesale veterinary drug firms in the United States and foreign countries.

Last year the company promoted its products with more than 75 full-page advertisements in veterinary publications. Also, it distributed more than a million folders containing instructions on how and when to use its products for various diseases in animals and poultry.

GERMAN LINE

Diamond recently became exclusive national distributor for two German-made veterinary instruments lines-the Hauptner surgical instruments and Permafil synthetic suturing materials.

The group of veterinarians that owns the company is headed by a five-man board of directors elected by the members.

On the board are Dr. Ed Hanna, Springville, president; Dr. Thomas Dermody, Breda, vice president; Dr. Arthur Ruebel, Spirit Lake, secretary-treasurer; Dr. R. H. Griffel, Ackley; and Dr. Ray L. Wiedemeier, Lytton.

Hansen and his wife, the former Biellie Miller, are 1942 graduates of East High School. They live at 3209 St. John's Road and have 2 children, Brenda, 9, and Bobby, 5. Hansen served 3 years in the Army in World War II and was graduated from the American Institute of Business in 1947.

[Illinois Veterinary Bulletin, August 30, 1957]

RESOLUTION ADOPTED BY ISVMA

The following resolution was passed by the ISVMA executive board at an official meeting held August 8, 1957, at the College of Veterinary Medicine, University of Illinois, Urbana:

Whereas, the purposes of the Illinois State Veterinary Medical Association are to advance the welfare of the animal industry and the veterinary profession, to cooperate in obtaining enactment and enforcement of laws designed to promote animal and public health, and to disseminate information tending to increase the application of scientific veterinary service; and,

Whereas a veterinary medical practitioner who associates, by incorporation or otherwise, with other veterinary medical practitioners in the production, sale and distribution of drugs and/or biologics which are sold and distributed to such veterinary medical practitioners by methods, whether utilizing rebates, patronage dividends or other means, which result in such practitioners being producers and suppliers as well as prescribers and which accordingly tend to influence the prescription of specific types and brands of drugs and/or biologics or to inhibit the prescription of other types and brands of drugs and/or biologics, because such practitioners may be prevented from giving unbiased advice and service to animal owners, is not advancing the welfare of the animal industry, the general public good and the veterinary medical profession but, on the contrary, is debasing that profession and its high ethical standards: Therefore, be it

Resolved, That applicants for membership in and members of the Illinois State Veterinary Medical Association engaged in the treatment of livestock, animal pets and poultry who associate, by incorporation or otherwise, with other veterinary medical practitioners in the production, sale and distribution of drugs and/or biologics which are sold and distributed to such veterinary medical prac titioners by methods, whether involving the use of rebates, patronage dividends or other means, which result in such practitioners being producers and suppliers as well as prescribers and which accordingly tend to influence the prescription of specific types and brands of drugs and/or biologics or to inhibit the prescription of other types and brands of drugs and/or biologics shall be considered to be guilty of conduct prejudical to the good of the profession of improperly using their college degrees of doctor of veterinary medicine, and of failing to uphold the honor and dignity of the profession.

Mr. WILLIAMS. The heading of this is "Backing of Veterinarians Sends Des Moines Firm to the Top."

Then there is a picture of an enterprising gentleman, the manager of a concern that is a cooperative, and his name, which is not important, but here are some of the important things.

Many of our competitors market their products through drugstores, farmers' supply stores or others who sell direct to the livestock producer. That is to say, the farmer has easy and ready access to any of the products of our industry, although the members of our association prefer to sell in the professional or ethical channel.

Members of the veterinary profession feel that the administration of these remedies to domestic animals requires professional training, and they prefer not to buy the products of the so-called lay or proprietary companies but have, in the past, dealt only with ethical companies which comprise our members. In recent years through the administration of the Federal income-tax law by the Bureau of Internal Revenue, a very flagrant discrimination against companies holding membership in our organization has arisen which we believe requires action by the Congress.

As I mentioned in this, 130 members of a cooperative organized under the Iowa tax laws and obtained tax exemption on the volume of business as stated in this. In 5 years they have had increased the volume of business from $214,000 to where last year it was $3.5 million. I question why any member of this committee prior to this perhaps has increased that a group of veterinarians or trade people could

avail themselves of the tax laws that are on record so as to form a cooperative and obtain tax exemption.

I presume that it has been furthest from your thought that such would be the case, and yet it is the case. It just raises the question in my mind, and perhaps in yours, if veterinarians can avail themselves of a tax exemption privilege, who among trade people in the country could not do so?

Another thing that puzzles me is the fact that Iowa by action of its legislature may and has created a class of its citizens that obtain tax exemption. Some of my lawyer friends have said over in Illinois. or Indiana, or some other State, they could not do that.

I do not understand why, if we are to have a class of citizens who are tax exempt, it is not our Congress that establishes all the criteria that relate to that special privilege.

I am not a student of this cooperative subject, but I raise that for your consideration. The Legislature of Iowa can establish a class of its citizens who are entitled to a tax exemption. I am told that in some other States they do so, but I would think that if a tax-exemption privilege is granted it should be applicable to all citizens on the same basis. Of course, I am told also that in certain States this same procedure is now being prosecuted, that is to say, cooperatives are being considered in four other States to my knowledge, of this same kind and pertaining to veterinarians.

It is perfectly possible that the entire veterinary profession, having a total buying power perhaps of $30 million to $40 million all told, could eventually become tax exempt.

In this Iowa cooperative we have at least a half-dozen veterinarians in Nebraska who are members of it, and some in Minnesota. Would it not be possible for your Iowa cooperative to expand and take in 8,000 or 10,000 practicing veterinarians all through the United States? I raise those points just for your thought.

In 1952 five Iowa veterinarians formed a cooperative organization under the law of that State to produce and sell veterinary biologicals, drugs, and supplies, identical to those products manufactured and sold by members of Associated Veterinary Laboratories.

This organization, while designated as a "cooperative" and "not for pecuniary profit" limits its membership to graduate licensed veterinarians only, exacts a "membership fee" of $2,500 and transfers all its net earnings into a "revolving fund of patronage dividends," which in the discretion of its directors may be used as working capital or distributed to members as patronage dividends in proportion to their purchases from the cooperative.

Keep in mind, gentlemen, that veterinarians are neither agricultural producers nor are they agricultural consumers. They are middlemen. They are people that are serving the public, as many other classes do.

Immediately after its organization this so-called cooperative purchased a serum plant in Des Moines, Iowa, and has greatly expanded the operations of the former owner. It sells only to licensed veterinarians and has rapidly built up a large surplus because it pays neither Federal nor State income taxes upon that portion of its net earnings resulting from business done with its members.

I wish the privilege, Mr. Chairman, to inject that this organization may sell 50 percent of its volume of business to nonmembers and as such