TABLE 2.-Wholesale prices of coconut oil, cottonseed oil, and soybean oil, 1950–52, and by months, January 1952 to date

Source: Bureau of Agricultural Economics, U. S. Department of Agriculture.

TABLE 3.-Imports of copra and coconut oil, by principal countries of origin,

Source: Bureau of the Census, U. S. Department of Commerce.

Mr. HOLMAN. Mr. Chairman, my name is Charles W. Holman. For the purpose of this hearing, the address is 1731 I Street, Washington, D. C. I am secretary of the National Milk Producers Federation, which, as the committee knows, is a very old organization, representing most of the dairy cooperatives of this country that are engaged in the marketing of fluid milk and cream and in manufactured dairy products.

There are about 460,000 dairy farmers in 46 States who own these organizations. The federation as a whole is entirely farmer-owned and farmer-controlled.

I am appearing before this committee in opposition to any reduction in the rate of the first domestic processing tax on coconut oil.

Most of the coconut oil coming into the United States is imported in the form of copra (dried coconut) which contains about 64 percent oil. There has never been any tariff on copra; nor on coconut oil itself imported from the Philippines. On coconut oil from other foreign countries the Tariff Act of both 1922 and 1930 imposed a tariff of 2 cents per pound. This was reduced to 1 cent per pound under the General Agreement Trades and Tariffs on January 1, 1948.

As I recall, that was the Geneva agreement.

In 1934, a first processing tax of 3 cents was applied to both coconut oil and copra coming from the Philippines, and of 5 cents from other foreign countries. This tax is still in effect, and is the tax for consideration of the committee. At the time this tax was enacted, coconut oil, refined, in drums, was selling in New York for less than 5 cents per pound, and was considerably below the prices of domestically produced cottonseed oil and soybean oil.

The National Milk Producers Federation has long taken a keen interest in the prices and imports of coconut oil because of the close competitive position that it has with butterfat and edible domestic vegetable oils. Our interest in this matter began, officially, in 1921, and has continued through to date. Coconut oil has been used extensively in the past in such edible products as oleomargarine, shortening, and confectioneries and coatings for bakery products. More recently it has been popular in imitation ice-cream products. We predict it will be extended into other imitations of dairy products, particularly where they are filled products. By "filled products," we mean where butterfat is extracted in whole or in part, and substituted with various types of vegetable oils. All of these uses are in competition with domestic butterfat, cottonseed oil, and soybean oil.

Prior to World War II, more than half of the coconut oil imported into the United States was used for soap. In more recent years, however, the proportion that has been used in edible products other than margarine and shortening has increased from 19.2 percent in 1935-39 to 22.6 in 1951 and 28.2 percent in 1952 (table 1). This continued expansion is likely to occur as production expands of imitation ice cream and vegetable-oil-filled dairy products, among which is Cheddar cheese, or imitations of Cheddar cheese.

In most edible products the rate of substitution of coconut oil for domestic fats is dependent on price relationships. This is exemplified by the fact that in 1946 and 1947 the price of coconut oil was 4 to 8 cents less per pound than that of soybean or cottonseed. During those years colored oleomargarine carried from 30.8 to 32 6 percent coconut oil. In 1948 the price of coconut oil averaged 2 to 4 cents above soybean oil. In that same year colored margarine contained less than 6 percent coconut oil.

Our studies of the interchangeability of oils and fats and shifts in prices shows that a very small shift in price of any of these oils and fats will cause a commensurate shift in the utilization of the particular .oil.

The CHAIRMAN. Mr. Holman, pardon me, but I want to apologize because I have to leave. I have to go to the House floor because of a bill that is pending in the Senate and which may go to the House. I have to give it attention. I shall have to ask one of my colleagues here to preside.

Mr. HOLMAN. Mr. Chairman, I was aware of that, and I am surprised that you stayed this long. I realize the necessity of being on the floor.

The CHAIRMAN. I shall read your report very carefully. You have had permission to extend your remarks in the record.

Mr. HOLMAN. I thank you for your courtesy.

The CHAIRMAN. I will ask Mr. Simpson to preside at the hearing. Mr. HOLMAN. In 1950, 1951, and 1952, coconut-oil prices averaged from 1 to 5 cents higher than soybean oil. In none of those years has the Department of Commerce reported any coconut oil used in oleomargarine. Table 2 and chart 1 present a comparison of coconut oil, cottonseed oil, and soybean oil prices from 1950 through June 1953. These indicate, during 1951 and 1952 and June of 1953, that coconut-oil prices have exceeded soybean oil prices by less than the 3-cent processing tax imposed on imports from the Philippines. Practically all of our imports of both coconut oil and the raw-product copra are from the Philippines (table 3).

In the past 10 years, the United States has changed from a net importer of fats, oils, and oil materials, to a major net exporter. Since World War II, United States production of domestic materials has represented about one-fourth of world production as compared with only 15 percent in 1935-39. Major increases in the last decade have been in soybean and linseed oils, tallow, and lard. These have more than offset a drop in butter production.

The major edible fats and oils exported by the United States in recent years were lard, soybeans, and soybean oil. Net exports, including oil equivalent of oilseeds, were equal to 14 percent of domestic production in 1949-52.

If the present 3 cent first processing tax were removed, it appears that the price of coconut oil would be reduced below soybean oil and substantially below the support price for cottonseed oil. At present, Commodity Credit Corporation owns approximately 1 billion pounds of cottonseed oil which it has stated it will not sell for less than about 2 cents over the current commercial market.

Certainly removing the 3-cent processing tax on coconut oil would not assist in bringing the market price of cottonseed up to where CCC could dispose of its holdings or reduce the rate of its purchases under a support program. Similarly, the reduction of coconut oil prices would be reflected in depressed soybean oil and butterfat prices. Manufacturers of oleomargarine, imitation ice cream, and filled cheese would all tend to use more and more coconut oil and less and less butterfat, soybean oil and cottonseed oil. Prices of these products would be depressed, support purchases increased, and the problem of disposing of support purchases magnified. For these reasons the National Milk Producers Federation urges that the present processing tax on coconut oil, or any substance containing a substantial quantity of coconut oil, shall not be reduced.

37746-53-pt. 4- -13

Mr. Chairman, that finishes my direct statement.

Mr. SIMPSON (presiding). The committee thanks you, Mr. Holman, and appreciates your appearance before the committee.

Are there any questions?

I believe that is all, Mr. Holman.

Mr. HOLMAN. Might I thank the committee.

Mr. SIMPSON. Thank you, sir.

The next witness is Mr. John B. Gordon, Bureau of Raw Materials for American vegetable oils and fats industries. Mr. Gordon?

STATEMENT OF JOHN B. GORDON, SECRETARY, BUREAU OF RAW MATERIALS FOR AMERICAN VEGETABLE OILS AND FATS INDUSTRIES, WASHINGTON, D. C.

Mr. GORDON. Mr. Chairman and gentlemen of the committee, my name is John B. Gordon, and I am secretary of the Bureau of Raw Materials for American Vegetable Oils and Fat Industries.

Mr. SIMPSON. Mr. Gordon, I have in front of me your statement, I believe. About how much time will you require?

Mr. GORDON. I will say I will try to hold myself to 15 minutes.

Mr. MASON. I wonder, Mr. Chairman, if Mr. Gordon could brief this in 2 or 3 minutes and have it included in the record.

Mr. SIMPSON. I am not disposed to unduly hasten him, though I think we might ask-you will want unanimous consent to insert parts of it into the record, will you not?

Mr. EBERHARTER. Mr. Chairman, we have not requested any other witness this evening to curtail his statement. I think we ought to allow Mr. Gordon the same amount of time we allowed the other witnesses. Mr. SIMPSON. I am now referring to these statements he wants to put into the record.

Mr. EBERHARTER. That is perfectly all right with me.

Mr. SIMPSON. Without objection, the entire statement, including the statements at the end, will be put into the record. Now you may proceed.

Mr. GORDON. My address is 1243 National Press Building. Mr. Chairman and members of the Ways and Means Committee, I appear on behalf of the Bureau of Raw Materials for American Vegetable Oils and Fats Industries, which is a trade association containing in its membership a good cross section of the various industries producing and consuming vegetable oils in the United States. It has in its membership the crushers of copra and the processors of the larger portion of the coconut oil consumed in the United States. This group includes soapmakers, who require coconut oil in the making of soap. It includes refiners of coconut oil who refine the oil for sale to trades such as confectioners, cracker, and biscuit makers. It includes distillers of fatty acids who break down the coconut oil into glycerin and fatty acids. The fatty acids are sold to manufacturers of synthetic rubber, plastics, resins, insecticides, germicides, sulfonated higher alcohols, and certain war materials, and to other industrial users.

I appear to petition for the removal of the 3-cent excise tax on coconut oil as proposed in H. R. 5 and H. R. 2915 and wish to set forth five situations which existed in May 1934 when the processing tax was levied on coconut oil and which do not exist today.

I now wish to have you turn to page 7, in view of the witness before me speaking from the standpoint of coconut oil being used in oleomargarine.

Coconut oil was used in oleomargarine in 1934. However, it is not used in the manufacture of margarine at the present time. Displacement of coconut oil as an oleomargarine ingredient, by cotton seed and soybean oil occurred during World War II years, when the use of coconut oil for edible purposes was necessarily forbidden by the War Food Board and the War Food Administration in order to conserve the limited supply for defense needs.

When the 3-cent processing tax was levied on coconut oil, the butter producers were in the forefront of those requesting that action. But coconut oil is no longer used in oleomargarine manufacture.

The records of the Bureau of the Census of the Department of Commerce show that none was so used in the calendar years of 1950, 1951, 1952. Oleomargarine manufacturers found during their enforced abstinence from the use of coconut oil that they could make a margarine with better spreading properties from hydrogenated cottonseed and soybean oils. Coconut oil, unlike most fats, in its natural or hydrogenated state does not exhibit a gradual softening with increasing temperature but is inclined to pass rather abruptly from a brittle solid to a liquid within a temperature range of a relatively few degrees. This narrow plastic range of coconut oil and the inability of the oleomargarine manufacturers or other processors to modify the properties of the oil by hydrogenation as can be done with cottonseed, peanut, or soybean oils greatly restricts the use of coconut oil in edible products. A further objection to coconut oil held by margarine manufacturers arises from the fact that much margarine is used for cooking purposes. Here the housewife found that margarine or other cooking fat containing coconut oil would foam and sputter to her intense annoyance.

The only edible users who find coconut oil not only desirable but essential for their needs are the confectioners and bakers.

I might state, Mr. Chairman, that to my knowledge coconut oil is not used to any particular extent in the manufacture of imitation ice cream which Mr. Holman mentioned. Mellorine; that is the name of the imitation ice cream. Soybean and cottonseed oil are the standard ingredients.

Another factor, so far as I know; the manufacture of that product is permitted only in four States of the Union.

Mr. EBERHARTER. How many States?

Mr. GORDON. Four, that I have official notice of.

Both the confectionery and baking industries use coconut oil for coatings. In this use, its very narrow plastic range which makes it unpopular with the margarine maker is useful because coatings must be nongreasy at ordinary temperature but must melt quickly in the

mouth.

The biscuit makers such as National Biscuit, employ coconut oil for fillings in making products such as Nabisco wafers. In that connection, the National Biscuit Co. has requested permission to file a statement, if that is possible.

Mr. SIMPSON. Do you have the statement?

Mr. GORDON. No; I don't have it. They are going to send it in by