sume certain principles and refer to them throughout the argument, since it is upon these that the administrative features are based.

In the matter of a tariff on wheat and its products, the wide extent of the country, the differentiation in the kinds and character of wheat raised, the changing demand in quality and the highly important fact that we are a surplus-producing Nation, introduces so much of theory into the subject that it is difficult to determine whether free entry or protection serves the best interests of all parties.

Since we are a surplus-producing nation, it necessarily follows that the inclusion in a tariff act of a duty on wheat must have as its primary object, encouragement in production of wheat and the manufacture of its products. Increased production follows in the wake of better prices, but the problem of the manufacturer of wheat products is unfortunately not dependent upon such a simple law.

The operation of the present schedule furnishes indisputable proof of wide discrimination and inequalities and that the relationship between the raw material and the finished product must be carefully preserved, otherwise the purpose of the duty would be entirely destroyed and both producer and manufacturer injured (see supplementary note No. 1).

On an equal basis of opportunity, not privilege, with other wheat-producing countries, the American miller can furnish flour to United States trade at a minimum margin as between producer and consumer and can also successfully compete in the open markets of the world. It is essential that he should do both, since the present milling capacity of the United States makes a foreign outlet necessary if the mills are to operate on an efficient and economical basis and to maintain the narrow operating margins which have marked the history of the industry (see supplementary note No. 2).

At the present time Canada (fast becoming a leading factor in the wheat markets of the world), with cheaper lands, cheaper labor, cheaper prices and increasing production, is gradually absorbing a very large proportion of the foreign trade which formerly belonged to this country (see supplementary note No. 3). The fact that the American export flour trade in the year immediately prior to the World War, 1914, was nearly 50 per cent less than 10 years earlier is ample demonstration of the displacement of our trade by Canada, whose exports of flour in the same period had increased over 200 per cent (see supplementary note No. 4).

The Canadian miller has manufactured flour and has always shipped it in bond through the United States without the payment of any customs duty and in full enjoyment of our transportation facilities. Under similar manner and privileges, 60 per cent of the Canadian export movement of wheat has passed through the United States (see supplementary note No. 5).

The replacement of American flour by Canadian brands through lower prices and good quality has increased the percentage of our wheat shipments in the form of wheat instead of flour, decreased the home markets for our wheat, and resulted in our shipping abroad increasing amounts of valuable feeding and fertilizing elements contained in the grain (see supplementary note No. 6).

A duty on wheat may increase the price in the domestic markets, but the surplus will still continue to go abroad at world prices (see supplementary note No. 7). Unless means are provided to maintain continuity of operation in American mills commensurate with their former export output, the home market for that considerable portion of the wheat crop that formerly went abroad as flour will be destroyed and an increasing percentage of wheat will be sold for export, not at the honre price which a duty aims to improve, but at the world's price.

Further, the decreased operation of American mills widens the margin of manufacture and increases the relative cost of flour in the United States.

The corresponding decrease in the production of mill-feeds (already wholly inadequate to the demand) raises the price of these essential commodities and gives added impetus to the importations of dairy products from those countries who have a surplus of feed or who are acquiring same by increased importations of wheat in replacement of former supplies of flour (see supplementary note No. 8).

The large number of failures which have been recently recorded in the industry are indicative of the inequalities of existing conditions, which make operation both costly and hazardous.

If the producer of wheat is to get full benefits arising from a duty on that commodity, the manufacturer of wheat products must also be given equal pro

tection on flour in the home markets and placed on a parity with other manufacturing countries in the world's market.

In recognition of equal protection to both the producer and manufacturer, we conceive as proper a duty on flour commensurate with the duty on wheat (specific or ad valorem in both cases) (see supplementary note No. 9).

NOTE. As to the rate of duty on feed, in view of the fact that the domestic supply is inadequate to the demand, this is left to the wisdom of your committee without recommendation.

Equal opportunity in the world's market to the United States miller with other exporting nations, if not secured through free access to the great supply of Canadian wheat without duty, rests in the administrative features, based upon a tariff that is alike in its protection to the producer and manufacturer. These administrative features should permit facilities for grinding Canadian wheat for the export trade, which may be accomplished through:

(a) Bonding (note 11B) and drawback (note 10) provisions which will cancel the charge against the bond or satisfy the drawback upon exportation of that portion of the principal or by-product which is subject to duty.

(b) Bonding provisions which will permit withdrawal of the principal product or by-product from bond upon payment of duties equal to that imposed upon similar articles of import; and

(c) Bonding (note 12A) and drawback (note 12B) privileges allowing charge against the bond to be canceled or satisfying the drawback upon exportation of like weight of the principal product.

This latter provision, in effect, would permit the American miller to export 100 pounds of flour in full liquidation of 100 pounds of imported wheat, even though he had produced from the 100 pounds of wheat so imported approximately 70 pounds of flour and 30 pounds of feed. The 30 pounds of feed under this simple plan, would be retained in the United States where it is much needed, and 30 pounds of American flour made from American wheat bought at American prices and which would otherwise be sold at the export price, would find its way into the export markets of the world with the flour product of every 100 pounds of Canadian wheat so imported (see supplementary note No. 13).

These are the brief conditions which we, in our long experience, offer to you as an essential to the successful operation and full benefits to be secured for the farmer from a duty on wheat and also for the preservation of a great industry with its accompanying rewards in price, transportation, and labor. These are the principal features necessary to preserve our fast failing export trade, which is recognized as necessary in the establishment of a general economic equilibrium.

These are the provisions which are necessary to provide that continuity of operation in industry which has been held by Federal investigators to be so desirable.

These are the means which are necessary to retain for the benefit of our railroads and other transportation facilities, the large tonnage represented in the movement of Canadian wheat through the United States (see supplementary note No. 14). The Canadian Government, with preferred rates and all the great resources at its command, are urgently seeking to divert this tonnage to Canadian rails and Canadian ports. Without the magnet of commercial milling demand, it is clear from the experiences of this current year that this diverson will be effected (see supplementary note No. 15).

These are the means which will provide for the dairy industry and increasing supply of wheat mill feeds and effectively end the growing competition from imported dairy products.

A tariff in itself is negative; it prevents, but it creates nothing. The administrative features, however, may make it constructive, and in so doing assure not only the full benefits for which a tariff was designed but make it a positive force for further betterment.

It is manifest that full benefits which the tariff on wheat aims to secure for the farmer can not be obtained without the inclusion of such features as we have suggested, and it is equally clear that the benefits to the milling trade arising from the proposed plan would be equally felt by those most directly connected our transportation lines, our labor, and the consuming public.

The principle involved in this proposal is not new. For many years it has been recognized in the tariffs of our own and other countries, but with this difference, that whereas in our case the provisions of the tariff act have proven cumbersome and precluded the possibilities of successful operation, other

nations have provided measures to facilitate the use of imported wheat and its reexportation as flour.

Germany in 1914 had a protective tariff on wheat and products, but encouraged German mills to import wheat and to export flour by permitting its manufacture with loss of identity, the retention of the offals or feeds, and the refund of the duty on the amount of wheat required to manufacture the unit of flour exported. For example, the miller upon the exportation of 100 kilos of flour was refunded as much as an equivalent of the import duty on 160 kilos of wheat, and this regardless of the fact that the miller had or had not imported any wheat. (S. Doc. No. 149, pp. 85-86, 61st Cong., 1st sess., Department of Commerce Tariff Series No. 38, p. 13.)

Since we have already recognized in present and former tariffs the principle of like exportation of product for an importation of raw material as to weight or quantity, is it not proper that it should be made operative, particularly when it possesses such apparent advantages to so many elements?

SUPPLEMENTARY EXPLANATORY NOTES AND FIGURES.

Supplementary note No. 1.-Bulk prices are used in order to eliminate the complications of comparing sack costs. Manufacturing points chosen are those taking the same basis of freight to a common point of delivery. Canadian money is reduced by 8 per cent (prevailing rate of exchange) to equal American dollars. The conversion to American funds is made immediately in order to avoid confusion in comparison.

· Comparison of cost of 95 per cent flour delivered in bulk at New York City Nov. 10, 1921, manufactured at various points as shown.

1 Yield: The difference between yield of 4 bushels and 30 pounds for United States wheats and 4 bushels and 20 pounds for Canadian wheats is due to the heavier weight of the Canadian wheats. These figures are adduced from actual experience.

2 No. 1 dark northern spring wheat at 7 cents over the Minneapolis December.

Manitoba No. 1 northern at $1.09 Fort William, Canadian value equals $1.0028 in United States funds. Price at Buffalo in bond is Fort William price plus freight.

The Canadian dollar will cover manufacturing costs in Canada, so it is entirely justifiable to use the American valuation in this item.

These are the actual returns received from the sale of 9.8 pounds of second clear and 64.2 pounds of feed. These are the actual returns received from the sale of 9.8 pounds of second clear and 54.2 pounds of feed.

7 These are the net returns received from the sale of 54.2 pounds of feed and 9.8 pounds of second clear after payment of duty. The duty in this case is the retaliatory duty of 10 per cent and is based on the assessed value of a similar amount of imported material.

8 From 4 bushels and 30 pounds of wheat used only 186.2 pounds of 95 per cent flour is produced. This is 95 per cent of a barrel (196 pounds).

Showing the full value of a barrel based upon cost of $6.13 for 95 per cent of a barrel.

10 Freight prepaid.

11 20 per cent ad valorem.

12 This conceives that the principal product uld be withdrawn from bond upon payment of duty equal to the duty which would be assessed upon a similar product imported from a foreign country. The duty, therefore, would be assessed on the valuation of the goods if manufactured at Fort William, which is the origin of the wheat used in the comparison. (This is not permitted under the existing law.)

18 The comparison between Minneapolis and Fort William is one more of price difference than of duty. The actual discrimination of duty, however, is 58 cents a barrel.

Operating under the present wheat schedule (35 cents on wheat, 20 per cent ad valorem on flour) on November 10, 1921, a unit of Canadian wheat sufficient to make a barrel of 95 per cent flour, if manufactured in Canada on the basis of cost, could be sold in the United States at 58 cents less than the identical unit of Canadian wheat if it had been milled in United States mills with a payment of duties.

Proof of this will be found in the column marked "Fort William," the difference here being the duty which the Canadian miller would pay on flour ($1.02) and the duty which the United States miller would pay on a sufficient amount of wheat to make a barrel of flour of the same grade (4 bushels 20 pounds) at 35 cents a bushel ($1.52) for 95 per cent of a barrel or $1.60 duty for sufficient wheat to make a full barrel of flour. The difference between the duty paid by the American miller on the wheat ($1.60), and that paid by the Canadian miller on a like quantity of flour ($1.02) equals 58 cents. The Canadian miller and Canadian labor are therefore given preference over the United States miller and United States labor by the operation of our own tariff.

Each sale of Canadian flour made in the United States not only means a loss of a corresponding amount of operation in United States mills but also a loss to the United States farmer of a sale in the United States of an equivalent number of bushels at the better price which the tariff aims to obtain, and the subsequent sale by him of this same number of bushels for export at the world's price.

The United States miller, in theory if not in fact, can import Canadian wheat, manufacture it in bond, sell the flour to a Canadian buyer acting for him; the latter can accept the goods, hold them in bond, and export them to the United States subject to a rate of 20 per cent ad valorem, whereas while the goods were in the United States the miller was refused the privilege of withdrawing them from bond upon the payment of a like duty, and could only do so upon the payment of the higher duty on wheat.

Supplementary note No. 2.-United States flour industry, capacity, output, operating conditions.

Flour milling to-day ranks fourth among the manufacturing industries of the United States, and the production of milling feeds is one of the basic factors in the dairy industry. The flour mills of the United States have a potential daily capacity of more than 1,000,000 barrels, sufficient to supply home requirements in a little over 100 days, or to grind the entire crop in six months. The output, even in unusual war years, has never exceeded 120,000,000 barrels per annum.

Despite the lack of concentration and the intensive competition in such a widespread industry, which has resulted in the lack of sufficient volume at any one point to secure the greatest economy in production, nevertheless the margin as between producer and consumer has been lower than in any other country. With an output approaching its capacity, these margins could be further reduced.

While there is no reliable data available on the world's movement of flour, from the compilations made by L. M. Estabrook, chief of the Department of Crop Estimates, Department of Agriculture, we show this to average about 28,000,000 barrels annually. Assuming this to be constant, the United States in 1903 commanded 68 per cent of the total, thus showing its ability under proper conditions to compete successfully in the open markets of the world.

The successful operation of flour mills and the low cost of production has in a great measure been due to the percentage of export flour shipments. If these margins are to be preserved, we must maintain an export trade commensurate with former years.

The fact that by 1914 the United States percentage of the world's total export flour trade had shrunk to less than 40 per cent is responsible in a large sense for the increase, both in the cost of production and in the relative high cost of the better grades demanded in the United States.

Supplementary note No. 3.-Canada's growing dominance in the world's wheat and flour markets.

"Wheat is Canada's principal asset and her chief means of equalizing exchange rates. Her climate, distance from markets, and sparse population limit the choice of agricultural production almost exclusively to wheat.” The following table shows the increasing trend of production, and there are still great areas available for future settlement and cultivation.

1908.

1909.

1910.

1911.

1912.

1913.

1914 3

1915 3

1916 3

1917 3

1918 3

1919 3.

1920.

1921.

Acreage, production, and exports of wheat in Canada.

1 Acreage and production are for crop years. Net exports are for fiscal years ending Mar. 31 following. 2 Including flour in terms of wheat (4.5 bushels to the barrel).

3 War years.

Source: Acreage and production for 1908 to 1919 from United States Tariff Commission Report on Agricultural Staples and the Tariff, page 44; for 1920 and 1921 from Monthly Bulletin of Agricultural Statistics (Canadian) November, 1921, page 434; net exports from Report on Grain Trade of Canada, 1919 and 1920, pages 100 and 96, respectively; and Monthly Bulletin of Agricultural Statistics May, 1921, pages 194 and 195, and Monthly Trade Report (Canadian) March, 1921, pages 15, 17, and 280.

It is very difficut to secure accurate data on Canada's exportable surplus, but it is generally conceded that this is fast approaching, if it has not already passed, 200,000,000 bushels annually.

When you take into consideration that the world's production is around three and three-fourths billion bushels of wheat and that approximately only 650,000,000, or less than one-fifth, enters into international trade, the large volume of this Canadian export shows its growing dominance in the world's markets and the influence that this movement of wheat and flour must have upon prices and trade in general.

This position was formerly occupied by the United States.

Supplementary note No. 4.-Comparisons of United States and Canadian flour

exports.

For

For years American brands of patent flour led the world in reputation. eigners strove in vain to equal them but never succeeded. Foreign buyers (to a certain, though unfortunately, diminishing extent) are still willing to pay more for United States brands of flours. Other nations have done their best to overcome this lead; they have encouraged their own millers and the millers of some other countries by preferential rates, subsidies, and similar inducements. Quoting from Liverpool Milling of January 21, 1921:

'British millers, however, are now out to produce from hard Manitoba wheat, from No. 1 northern spring, and even from No. 1 hard winter, a flour which will hold its own before exports against the best that comes from west of Lake Erie and Buffalo."

The efforts of these other countries are beginning to show results. That we are playing a losing game in the face of conditions which now surround us is undeniably shown in the records of our flour exports between the years 1903 and 1914.

The data pertaining to our export flour trade during war years and the period immediately succeeding are in no way indicative of this position and should be disregarded in any consideration.

Beginning with the Federal fiscal year of 1920-21, which is practically coincident with the wheat-crop year of the country, there are unmistakable evidences of an alarming decline in our export flour trade. This decline is merely a continuation of a decided downward trend of flour exports during the period preceding the war.

The accompanying table shows flour exports in the normal period, 1903 to 1914, and evidences a decline of 43 per cent from the peak, whereas Canada's exports during this same period show an increase of 275 per cent.