Thank you very much, Mr. Chairman.

Senator STEVENSON. Thank you, Senator Hughes.

We will continue to give the American Farm Bureau and also any corporations involved in farming, and in the processing of food, opportunities to appear before this subcommittee.

The American Farm Bureau has sent a statement for the record which I will, without objection, enter into the record.

(The prepared statement of the American Farm Bureau Federation follows:)

We appreciate the opportunity to comment on the questions which are being
explored by the Subcommittee on Migratory Labor of the Senate Committee on
Labor and Public Welfare. It is our understanding, based on your statement
at the Subcommittee hearing on July 21, 1971, as published in the Congressional
Record for September 23, 1971, that you plan to look into some of the under-
lying trends that have been taking place in agriculture. In our opinion this
type of inquiry is potentially much more fruitful than the usual investigation
of migratory labor problems.

In recent decades there have been profound and far-reaching changes in agri-
culture. Trends during such decades are continuing at a rapid pace.

A major feature of agriculture economic development has involved the substi-
tution of mechanical power, purchased inputs, and scientific know-how for.
muscle power, home-produced inputs, and traditional methods. The inevitable
result has been an increase in labor productivity which has vastly expanded
output per man, and stimulated a trend toward fewer and larger farms at the
cost of greatly increased capital requirements per farm and per farm worker;
and reduced the need for farm labor.

There has also been a tendency for farmers to obtain an increasing share of
their total income from non farm sources, particularly in the cases where indivi-
dual operators have not been in a position to expand their farming operation.

These trends are illustrated by the following USDA statistics:

TABLE I NUMBER OF FARMS BY VALUE OF SALES CLASSES, 1960-70

Source:

12.5

14.6

17.5

16.7

15.6

46.6

100.0

15.0

12.9

44.1

100.0

12.7

8.9

40.5

100.0

"Farm Income Situation," FIS 218, Economic Research Service,
U. S. Department of Agriculture, July 1971.

TABLE 2 INCOME PER FARM OPERATOR FAMILY BY MAJOR SOURCE AND BY VALUE OF SALES CLASSES, 1960-70

SOURCE:

"Farm Income Situation," FIS-218, Economic Research Service, U. S. Department of Agriculture, July 1971.

Although we hear a great deal about corporations in agriculture, there is no clear evidence that large corporations controlled by nonfarm interests are taking over agriculture.

There has been a trend toward more incorporation of individual and family enterprises.

The corporate form of organization has a number of advantages for certain types of farming operations including the following:

(1)

In the absence of contrary arrangements corporate stockholders are
not individually liable for a coporation's liabilities. This is
often an attractive feature when two or more individuals wish to enter
into a joint venture in farming. In some cases, however, the limited
liability of stockholders is more apparent than real, since lenders
may insist that major stockholders assume individual liability for
loans to a farming corporation.

(2) Incorporation permits a business to continue uninterrupted in the
event of the death or disability of the major owner or operator.
This facilitates the intergeneration transfer of farming operations.
Under certain circumstances, incorporation can create opportunities
for substantial tax savings.

(3)

(4)

For example, the corporation. tax rate is 22 percent on income up to
$25,000, whereas, the personal income tax rate hits 22 percent at
$8,000 of taxable income for married taxpayers filing joint returns.
Incorporation also may make it possible for a taxpayer to reduce
estate taxes by taking advantage of the federal gift tax examptions,
since he can make gifts in the form of stock in his corporation
without reducing his available capital.

In combination, the advantages listed above often mean that the
ability of a farming operation to obtain needed capital can be in-
creased through incorporation.

The major disadvantage to the standard form of corporate organization is that income distributed as dividends is subject to double taxation--first in the hands of the corporation and then in the hands of the shareholders.

This disadvantage was removed for certain small business corporations--including farming corporations.-by a 1958 amendment to the Internal Revenue Code known as Subchapter S. Under this legislation, certain small business corporations including farms can elect to pass the tax liability on their earnings to their shareholders. Earnings of such corporations are taxable in the hands of the individual shareholders, whether distributed or not, but the corporation does not pay income taxes. This procedure enables the shareholders to obtain most of the advantages of incorporation--including limited liability for shareholders-without being required to pay corporate income taxes.

The result has been a substantial increase in the number of farm businesses that are incorporated.

A U. S. Department of Agriculture study ("Corporations With Farming Operations", Agricultural Economic Report No. 209) conducted in 1968 showed that 13,300 farming corporations, representing 1 percent of all commercial farms, operated 7 percent of U. S. farmland. In 1967 these corporate farms accounted for an estimated $3.3 billion in farm product sales, or about 8 percent of total farm sales.

Nearly two-thirds of the farming corporations covered by this study were family corporations; 14 percent were owned and controlled by individuals; and only about 20 percent were subject to other types of ownership and control.

The USDA also found that 63 percent of all corporations with farming operations in the 48 contiguous states were engaged solely in farming; 15 percent were engaged in farming plus agribusiness activities; 18 percent were engaged in farming plus nonagribusiness activities and 4 percent were of the combination or conglomerate type.

Farming was the major activity of 72 percent of these corporations (63 percent engaged solely in farming plus 9 percent with other activities), the second ranking activity of 25 percent and the third or lower ranking activity of only 3 percent.

Thus USDA figures indicate that most corporations with farming operations are owned by families or individuals and that the great majority of the corporations engaged in agriculture are basically agriculturally oriented.

A large part of the benefits of economic development in agriculture has been passed on to consumers in the form of a decline in the percentage of the consumer's income that is spent for food products. According to USDA statistics the percentage of disposable consumer income spent for food dropped from 22.2 percent in 1950, to 20.0 percent in 1960 and 16.6 percent in 1970.

The fact that a large part of the benefits of agriculture development is passed on to consumers indicates that agriculture is a highly competitive industry. Despite rising productivity the average farm operator has been suffering from a price-cost squeeze during most of the post-war period as the prices of farm supplies have been rising faster than the prices of farm products. In September 1971 farm prices averaged only 68 percent of parity in comparison with 80 percent in September 1961 and 103 percent in September 1951.

Farming is not a high profit business and it clearly has not been enjoying the high margins that would make it vulnerable to a take-over by outside interests. Farmers clearly need greater bargaining power. That is why Farm Bureau supports the proposed National Agricultural Bargaining Act of 1971, introduced as S. 1775 by Senators Tunney, Curtis and others.

The farm labor problem is one of the most misunderstood aspects of modern agriculture.