by material, by grades, and by lot numbers or contract, and can be readily located for inspection, shipment, and other purposes.

III. STOCK-PILE POLICIES

Over the past 12 months, there has been a growing recognition within the executive branch, as to the high-priority nature of the stock-piling program. Upon several occasions the President has stressed the urgency of stock-pile procurement. Every item in the stock pile is absolutely essential to American industry in time of emergency. The objectives of the program are minimum ones; even when these objectives have been fully attained, the stock pile would not be able to cure all wartime shortages. It would do no more than ease the desperately critical shortages that might otherwise block our war production completely. Stock-pile program and the national security

The Munitions Board views the stock-piling program as an integral element of the program to provide for the national security. It is essential that this Nation should seek to balance all the different programs for national security. Adequate provision for the mobilization of industry, adequate training and equipping of personnel for military service are all vital elements of this broad security scheme. The stock pile is not a marginal program nor a residual claimant for resources. It is recognized as a high-priority program, a vital part of the pattern for national securiy. It has an essential place to serve in time of emergency not only military but also essential civilian requirements for strategic materials. To advance one part of the national pattern of national security measures to the exclusion of the other component parts invites disastrous unbalance of the entire program.

During the past 6 months the Munitions Board has continued its efforts to adjust stock-pile policies to the acceleration in procurement of materials and to general measures of domestic military security. One particular consequence of the acceleration of stock-pile procurement has been an increase in participation of other Federal agencies with a consequent need for tightening of interdepartmental coordination. The Munitions Board has felt the need for a better focusing of this effort and has sought to provide it by arranging for more frequent consultation and exchange of views.

The Munitions Board continues to recognize that the national security is enhanced by both an adequate stock pile and a prosperous and productive economy. It is our belief that reconciliation of these two objectives can best be achieved by a flexible program. A part of this program would be implemented by longterm contracts, emphasizing the development of new or expanded sources of supply. On the other hand, there are a variety of reasons why it is essential to continue to make spot purchases of materials and purchases of materials for delivery 6 to 12 months in the future. Although it is no longer considered practical to purchase only materials found to be in excess of current industrial requirements, purchases in direct competition with industrial consumers are avoided where possible. Although economy must always be weighed against the national security, economic and prudent buying for the stock pile is attempted at all times. The policy has been successfully followed of never paying above the market price for materials and all funds have been committed or earmarked on this basis. This policy has the double virtue of insuring that the Government's investment remains sound, and also of bringing the largest possible quantity of materials into the stock pile for every dollar appropriated.

Establishment of stock-pile objectives

A new definition of strategic and critical materials was issued by the Munitions Board September 22. It defines such materials as: "Those raw or semiprocessed materials that are required for essential uses in a war emergency, and whose procurement in adequate quantities, quality, or time is sufficiently uncertain for any reason to require prior provisions for their supply." Within this definition two groups of materials have been listed. Group 1 comprises "those strategic and critical materials for which stock piling is deemed necessary to insure an adequate supply for a future emergency (a) primarily because of a dependence on foreign sources of supply or (b) primarily because of the lack of the means for obtaining adequate domestic production to meet emergency needs." Group 2 comprises "those strategic and critical materials that are not recommended for stock-pile purchase but offer supply problems which will require either further

study before a final determination can be made on stock piling, or other action to assure adequate supplies in a future emergency."

Factors determining the composition of each group of materials are subject to constant review and surveillance. Each list is subject to change on the basis of changes in the strategic and critical status of the materials listed or considered for listing. The lists do not include fissionable materials for which responsibility rests with the Atomic Energy Commission. The present lists of Strategic and Critical Materials are contained in the appendix, pages 45-47.

Long-range or total stock-pile objectives are established on the basis of estimates as to the requirements of the United States during an assumed 5-year period of war for each strategic and critical material, in excess of estimated available production and reserve stocks (exclusive of the Government stock pile). However, these objectives are influenced substantially by such considerations as the availability of substitutes, the quantity of a perishable commodity that can feasibly be rotated in the stock pile before deterioration, limitations of feasibility as to cost, and estimates as to the impact on materials requirements of changes in military and industrial technology. At the present time a review of objectives is in process within the Munitions Board, with the assistance of the interdepartmental Strategic Materials Committee. The charter of this Committee appears in the appendix, page 63. Tentative revised estimates have been arrived at for about half of the materials now being stock-piled. This analysis of objectives is considered of high priority and is being energetically pressed. Results of this present appraisal may well become broadly useful to those responsible for examining the formulation of national policies toward strategic resources as well as those concerned with industrial mobilization planning.

Private industrial producers and consumers of strategic materials have been invited to express their views as to proper over-all stock-pile objectives, and to contribute information as to industrial needs for and capacities for producing these materials. This information is taken into account in the formulation of ultimate goals. In accordance with the Stock Pile Act (sec. 2-b) industry advisory committees have advised the Munitions Board as to what specifications would fit their requirements. These recommendations have been carefully reviewed by the Strategic Materials Committee and by the staff of the Munitions Board. In some cases this analysis resulted in definite specifications from which no deviation was permitted. In other instances, however, acceptable ranges were established. These specifications are necessarily under continuous review, and changes have been made from time to time. (For example, if a material deviates very slightly from established tolerances a decision must be arrived at as to whether or not the tolerance for that material should be extended to permit its purchase.)

The Munitions Board recognizes the desirability of stock-piling materials in as high a state of completeness or finish as possible. However, the primary stockpiling objective is to bring within the United States those raw materials which either do not exist here or exist in insufficient quantities to meet essential wartime needs. As conversion of strategic materials into usable forms and shapes is possible, even in time of war, the availability of the materials in whatever form is of first priority. However, such processing involves a loss of time and the expenditure of power, fuel, and facilities during a period when competition for these elements is keen. Therefore, many of the materials on the present stockpiling list are procured in the highest form permissible without committing the material to specific end uses. Other materials, such as agar, asbestos, abrasive bauxite, bismuth, cadmium, castor oil, celestite, cobalt, copper, corundum, diamonds, emetine, graphite, hyoscine, iodine, lead, mercury, mica, monazite, nickel, palm oil, platinum, pyrethrum, quartz crystals, quebracho, quinine, quinidine, rapeseed oil, rubber, rutile, shellac, sperm, and block talc, cannot advantageously be processed to any higher form without committing them to a definite end use. A third group of materials could be processed into higher forms but only at considerable cost; further refinement of these materials has therefore been deferred as of relatively low priority. Bauxite could be processed into pig aluminum, manganese ore into ferromanganese, and vanadium into ferrovanadium. However, to convert the bauxite objective into an equivalent amount of aluminum would cost 4 times as much as the bauxite ore; to convert the vanadium objective into ferrovanadium would cost 20 times as much; to convert the manganese into ferromanganese would cost 22 times as much. One further caution is that the closer toward final finishing a raw material moves the less generally useful it becomes and the more likely it is to become obsolescent.

Procurement plans and programs

Short-range objectives are developed by the Munitions Board in consultation with the Strategic Materials Committee, the Bureau of Federal Supply, and relevant commodity committees.

In the formulation of these short-term or working objectives a number of considerations must be taken into account. First of all is the limitation imposed by the Congress in its appropriation and contract authorization. Second, is the high desirability of improving the balance in the stock pile such that at any given time there will be a substantial quantity of each strategic and critical material available. Other considerations taken into account are: quantities of materials held by other agencies of the Government and regarded as potential or actual surpluses; strategic considerations as to the over-all rate of stock-pile procurement; pressure in domestic markets on the particular commodity being considered, with respect to its price sensitivity, needs of industry for the material, and conversely the ready availability of a quantity of material offered for spot purchase; the strategic location of sources of supply; the availability of opportunities to encourage expanded production through long-term contract; and the desirability of maintaining a constant flow of materials into the stock pile.

To implement these procurement programs, the Bureau of Federal Supply makes use of three purchase devices, spot buying, the buying of futures, and long-term contracts. As of December 31, 1948, there were outstanding obligations of some $208,500,000 for long-term contracts. There were also outstanding some $83,000,000 of obligations for "futures" with deliveries scheduled within 6 to 8 months from that date. At the close of the calendar year 1948, some $421,000,000 had been obligated for materials already delivered, or to be delivered by June 30, 1949. Many of these were purchases for future delivery at the time the commitments were made, but they are all now classed as "spot purchases." Policies with respect to each of these devices are set forth below.

(a) Short-term contracts.-In the case of most materials the Munitions Board considers it essential to get a part of stock-pile requirement from regularly established channels and sources of supply-established producers whose production capacities and outputs are matters of common knowledge throughout industry. To channel materials from these suppliers into the stock pile the most useful instrument is the spot or short-term contract. The advantage of this device as applied in this way is that it is easily adaptable to changes in circumstances. A supplier whose production is increased might make this increased production available to the stock pile if we are able to accept it. On the other hand, interruption of his production could be taken into immediate account in our plans. Spot procurement results in immediately available reserves of materials. When used in moderation it does not seriously affect the pattern of commercial requirements and supply. In the case of materials most urgently needed for the stock pile and in shortest domestic supply relative to demand, the Munitions Board has consulted with representatives of entire producing industries, with the assistance of the Department of Commerce, under a procedure authorized by Public Law 395, Eightieth Congress. In a series of such consultations the Munitions Board was provided with assurances that short-term objectives for spot purchases could be met without recourse to the voluntary allocation procedure provided for under Public Law 395. It must be recognized, in reference to these commodities, that it is here that the stock pile runs the most serious risk of an unfavorable impact on the economy. Accordingly, a high degree of sensitivity (and exchange of information between Government and industry) needs to be maintained in the procurement of such materials.

(b) Future purchase contracts.-In the case of certain commodities it is more advantageous and inexpensive to buy future than immediately available materials. Indeed, it is the usual practice followed by private industry to buy such materials in this way. This is the case with respect to such items as rubber and sisal. Although a long-term contract authorization or cash is needed for the purchase of materials under this arrangement, such commitments are not to be considered as developmental in that they do not necessarily open up any new sources of supply.

(c) Long-term developmental contracts. Whenever we make use of the longterm contract device it is our policy and firm intention to use it in such a way as to encourage a net expansion in production of critical and strategic materialsof production that will be available to the United States in time of peace, and for the most part in time of war. The most important advantage of the long-term

contract device is that it enables the stock pile to receive large quantities of needed materials with least unfavorable impact on the domestic economy. It provides for continuity of delivery of materials to the stock pile. It can be used to open up wholly new and untapped sources of supply. The contract may extend for several years, long enough to enable the producer to amortize an appropriate portion of this development cost. Payment by the Government is made only against actual deliveries. Long-term contracts are based on payment at the market price at the time of delivery. However, they also contain a price floor to support the operation and a price ceiling to protect the Government as far as possible against an excessive price rise. One disadvantage of the long-term developmental contract is that deliveries range over a 2- to 5-year period, so that unless the bulk of contracts of this type is placed within the next few months the period of deliveries may extend too far beyond the projected termination of the procurement phase of the program. This fact emphasizes the need for immediate and full-scale action in the long-term-contract program.

Policies for stock-pile procurement

The Munitions Board and the Bureau of Federal Supply, Treasury Department, have a clear understanding as to what items are to be purchased by the Bureau on its own action and within what limitations. This understanding takes the following form:

The Munitions Board periodically issues purchase directives to the Bureau of Federal Supply, Treasury Department; these indicate quantities, required time of delivery, and special conditions which apply to the purchase of each individual item to be stock-piled. Whenever the Bureau of Federal Supply finds it possible to purchase quantities of material in excess of established short-term objectives, it makes the fact known to the Munitions Board and an increase in the program is then considered by the Board. Conversely, if the price of a material rises appreciably or if supplies fall off materially, the Bureau will suspend purchases and recommend an adjustment in the program. The Bureau of Federal Supply brings to the attention of the Munitions Board long-term proposals as soon as they have been developed to the point where approximate quantities, delivery periods, and prices are known.

Materials from two sources come into the stock pile without specific appropriations: Those declared surplus and held by other agencies, and those turned over to the stock pile by the Economic Cooperation Administration under the “counterpart funds" provision of the ECA Act referred to on page 16. Early in the administration of the stock pile the policy was established of accepting transfers of surplus materials that did not meet stock-pile specifications but which were considered of some substantial value in time of emergency. The same policy is also applied to materials received under the "counterpart funds" arrangement. A relatively small amount of materials suitable for the stock pile still remains in the possession of agencies of the Federal Government, the transfer to the stock pile of which is to be expected.

The Bureau of Federal Supply has been engaged in foreign procurement of strategic materials for the stock pile since July 23, 1946. This experience has proved of great value in the combined program. A flexible set of devices has been evolved in which are combined the gift, loan, and economic development and planning powers of the Economic Cooperation Administration and the buying and long-term contractual authorities of the Bureau of Federal Supply. To further the teamwork between the two agencies, it is essential that ECA activities be backed up by firm contract offers by the Bureau of Federal Supply to accept materials from the expanded output.

Stock pile administration

The Bureau of Federal Supply maintains full records of the status and condition of stock-piled materials, and implements systematic plans for rotation of perishable stores. Advice on care and handling of stock-piled materials, submitted to the Munitions Board by the Industry Advisory Committees, is forwarded to the Bureau of Federal Supply for action.

Storage of stock-piled materials is accomplished insofar as feasible in military depots. The storage locations were fixed by the Munitions Board in accordance with strategic recommendations. In addition, a storage plan for each individual item in the stock pile was prepared by the Stock Pile Storage Committee (for

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charter of this committee see appendix, p. 65) and adopted for application by the Munitions Board. In the formulating of this plan the committee took into consideration such matters as relative strategic security, the location of principal consuming centers, available public storage sites, available transportation between proposed storage sites and consuming centers, and special types of storage protection required for perishable items.

The procedure for release or use of material in the stock pile effectively precludes any form of “dumping"--a necessary safeguard in dealing with such large quantities of commodities. If an item is found no longer critical or strategic it may be sold only after 6 months' public notice, and after a full description of the disposal plan has been submitted to the Congress. Under terms of the Strategic and Critical Materials Stock Piling Act, "The plan and date of disposition shall be fixed with due regard to the protection of the United States against avoidable loss on the sale or transfer of the material to be released and the protection of producers, processors, and consumers against avoidable disruption of their usual markets." The intent of Congress is made clear in the act that materials in the stock pile are to be used only in time of national emergency related to defense or war. At such time, the President or his designated agent may order disposal of the stock pile in furtherance of the national security.

IV. STOCK-PILE OPERATIONS

This section of the report presents information about the financial and physical status of the stock-pile program, and a brief account of operations in the storage of materials. The part on "Physical status" is generalized to preserve the confidential classification imposed on all quantitative stock-pile data.

Financial operations

The Congress appropriated $100,000,000 for the stock pile for the fiscal year 1947 and a second $100,000,000 for the fiscal year 1948. In the latter year the Congress also authorized the Bureau of Federal Supply, Treasury Department, to engage in contract obligations to the extent of $75,000,000 to be liquidated out of future appropriations. By April 9, 1948, all funds and contract authority for stock-pile accumulation had been fully obligated and contract-placement operations were suspended until June 25, when additional funds and contract authorizations were made available. The June 25 measure provided $300,000,000 of outright appropriation, of which $75,000,000 was earmarked to liquidate the contract authorization previously granted and $225,000,000 was for additional purchase of materials.

In addition, the Congress authorized the Bureau of Federal Supply to make contract obligations in excess of its appropriation for the fiscal year 1949, and to be liquidated out of future appropriations, to the extent of $300,000,000.

During the first 6 months of the fiscal year 1949, expenditures of stock-pile funds amounted to $92,600,000 and brought the total of all expenditures of Public Law 520 funds to $179,400,000. The unexpended cash balance, as of December 31, 1948, amounted to $320,600,000, of which all except $78,900,000 was obligated for expenditure during the next 6 months.

Between June 25 and 30, 1948, contract commitments were entered into to the extent of $35,000,000. Additional commitments to the extent of $402 200,000 against cash and contract authority were made during the period July 1 to December 31, 1948. By the close of the period covered by this report, then, there remained unobligated $78,900,000 of cash and $8,500,000 of contract authority, a total of $87,400,000 of unused obligational authority. All of these unobligated funds were earmarked for the purchase of specific materials in the immediate future, and no funds or contract authorization remained available for acceptance of additional contracts until further appropriations are granted. A number of such offers have been presented to the Bureau of Federal Supply but cannot be acted upon until supplemental authority is made available. A detailed summary statement of finances is presented in the appendix on pages 43–44.

The distinction between obligations and expenditures for stock-pile materials is an important one. There is an average lag of a year or more from date of contract placement to date of materials delivery. This lag results from the fact that spot purchases are not customary in raw materials markets and that purchase economy results from the buying of materials for delivery 6 to 12 months