moving overseas rather than being used here at home by keeping price controls on fertilizer. This is destroying the American farmer's chance to increase production. He absolutely cannot do it with less fertilizer than he is now receiving, and he will continue to receive less until you do something about it. And the thing you should do about it is to lift price controls.

Now, if there is anything about that comment that you want to respond to, I want you to have every opportunity to do so because neither I nor the other members of the committee want to be unfair. Mr. AHALT. Thank you, sir.

Let me say first that we are concerned about the problem. We are aware that prices are higher in the world market, as my testimony indicated last week. Consequently we are trying to look at answers in the situation that will resolve this problem. We are not taking a defeatist attitude on it, sir. We are moving ahead trying to take some positive actions that will moderate the problem because we believe sincerely that it is more than a price problem that finds us talking about a tight supply situation on fertilizer. That is why we are trying to construct a list of steps that would move toward making more fertilizer available to our farmers to meet, as you point out, the expanded acreage requirements.

Mr. MAYNE. But the price problem is the thing for which you have the responsibility. You say you are looking around at a lot of other things. Those are things that other people in Government have responsibility for. We call on the Department of Agriculture to recommend what improvements should be made in the production of fertilizer and how it can best be distributed. We have enough experts in other fields so that we do not need the Cost of Living Council messing around in areas where you really do not have the expertise, much as I am sure you in good faith are attempting to acquire it.

Now, I hope and trust you do have sufficient expertise about pricing, but this Nation cannot afford to have a bunch of people at the Cost of Living Council trying to second guess every other department of Government and particularly the Department of Agriculture on agricultural production. This is a matter of vital importance, but we rely on the counsel of actual farmers and people in the Department of Agriculture, both of whom know a whale of a lot more about it than anyone in the Cost of Living Council.

Stick, please, to your last list, which is prices, and recognize that price controls on fertilizers are killing the American farmer's chance to produce more food for the American people.

Mr. AHALT. Sir, if I could respond to that, I would say that we cannot look at prices without looking at the supply and demand aspects of the problem. You cannot do something about prices without adjusting supplies or demand. That is how you can effectively do something about a market problem.

Mr. MAYNE. Well, I thank you for your testimony.

Mr. DE LA GARZA. Mr. Sebelius.

Mr. SEBELIUS. Thank you, Mr. Chairman.

Because I had to go get my picture taken presenting a loaf of bread to one of my colleagues, I may repeat something, but I do have a couple, three questions here.

Now, Mr. Ahalt, is it not a fact that on September 19 of this year, Secretary Butz recommended immediate decontrol of fertilizer prices? Mr. AHALT. I believe that is correct, sir. I do not know the exact date. Mr. SEBELIUS. I have a copy of the letter he wrote Dr. Dunlop on September 19.

Is it not true in the United States that we are short about a million tons of nitrogen, about 700,000 tons of phosphates?

Mr. AHALT. Yes, sir, my testimony reflects that.

Mr. SEBELIUS. What feed grain loss does this actually mean if we do not have this for this next year's crop?

Mr. AHALT. I am afraid, sir, that I would not know the answer to that. That is a difficult question to answer.

Mr. SEBELIUS. I will defer that for Dr. Paarlberg when he testifies, Will the Cost of Living Council furnish the committee a copy ofwell, Dr. Paarlberg will be here, so I will ask that of him.

Actually, you state in your statement that "higher prices may generate some additional productive capacity, but this is a long process." Now, should not our fertilizer producers be encouraged to start at once to meet the demand of the mid and late 1970's as far as fertilizer production is concerned?

Mr. AHALT. Yes, sir; they should, but sir, it is very difficult for them to be able to do that. It is not only the price, sir, it is also a problem of getting available feedstocks of natural gas that is needed to produce nitrogen products. It is a combination of things, sir, that is discouraging firms from putting on additional plant capacity.

Mr. SEBELIUS. Now, we actually import a lot of fertilizer itself from other countries, do we not?

Mr. AHALT. We do, sir. And Ed Wheeler can comment on this better than I-we import nitrogen, phosphates, as well as potash. But I believe that we are net importers of potash, is that right? Yes.

Mr. SEBELIUS. Well, actually I think the basic thrust of my thinking is, how will continuing the phase IV regulations in this situation at the present time encourage new capacity?

Mr. AHALT. Sir, I do not believe that the phase IV regulations are the sole impediment, if you will, to additional capacity. The phase IV regulations allow producers to pass through their increased costs. Fertilizer companies are doing that. They are passing through their increased costs. Prices of fertilizer are rising.

Mr. SEBELIUS. Well, now, you stated that manufacturers of explosives use between 10 and 20 percent of the anhydrous ammonia and ammonia nitrate supplies.

Isn't it a fact that in 1973 the United States produced about 40 to 50 million tons of ammonia and 1 million tons of ammonia nitrate? Mr. AHALT. I do not have those figures in front of me.

Mr. SEBELIUS. Well, is it not also a fact that the mining industry used about 1 million tons of that nitrate, which takes about 4 million tons of anhydrous to manufacture? In fact, the mining industry only used 3 percent of the ammonia and 14 percent of the nitrate.

Mr. AHALT. Well, I thought it was around 20 percent of the nitrate, but their supplies are short.

Mr. SEBELIUS. Well, that was my main point is that that as far as explosives are concerned, we do not have nearly half the problem, we are not bothered nearly as much as we are using these various items for fertilizer to produce food.

Mr. AHALT. Well, if I could measure the concern by the number of phone calls I have received, I would have to agree with you. But I have been contacted by a number of sources about the explosive shortage.

Mr. SEBELIUS. Thank you. I will not pursue this line of questioning, Mr. Chairman, but I would hope that Mr. Ahalt could stay here, if there is time, so he can listen to Dr. Paarlberg and Mr. Wheeler testify, because I think he will get a few additional thoughts to take back with him.

Thank you, sir.

Mr. AHALT. Thank you.

Mr. DE LA GARZA. Thank you, Mr. Sebelius, and we do invite you to stay if your time permits, Mr. Ahalt, and we appreciate your being here and we will be further in touch with should we have need of your testimony.

Mr. AHALT. Thank you, sir. I am going to submit for the record several pieces of information that I was requested to give to you last week.

Mr. DE LA GARZA. Very well. Thank you, sir.

[The information referred to follows:]

TABLE 1.-ESTIMATED SUPPLIES OF N & P205 IN 1972-73 AND PROJECTED SUPPLIES AND REQUIREMENTS FOR 1973-74 1

TABLE 3.-COMPARISON OF DOMESTIC (UNITED STATES) AND EXPORT PRICES OF GRANULAR
TRIPLE SUPERPHOSPHATE AND DIAMMONIUM PHOSPHATE

1 CF Industries, net selling price to member, f.o.b. Tampa.

2 Award prices on exports as reported by International Commodities Export Corps, f.o.b. Tampa. 3 TSP-Triple superphosphate.

4 DAP-Diammonium phosphate.

5 Not available.

TABLE 4.-PRICES PAID BY FARMERS PER TON FOR SELECTED COMMERCIAL FERTILIZERS

Mr. DE LA GARZA. Dr. Don Paarlberg, Director of Agriculural Economics, USDA, and I understand you are accompanied by Mr. Nick Smith, Dr. Paarlberg.

Dr. PAARLBERG. Yes. Nick Smith is from the Agricultural Stabilization and Conservation Service. That agency has been monitoring the fertilizer situation, and Mr. Smith has been giving leadership to that effort, and he will be available for questions and for factual input that I might not have at hand.

Mr. DE LA GARZA. We eagerly await your testimony, sir.

STATEMENT OF DR. DON PAARLBERG, DIRECTOR OF AGRICULTURAL ECONOMICS, ACCOMPANIED BY NICK SMITH, AGRICULTURAL STABILIZATION AND CONSERVATION SERVICE, U.S. DEPARTMENT OF AGRICULTURE

Dr. PAARLBERG. Well, I was here last week, and I carried my statement with me, which has been submitted and I understand it has been in the papers. It is in factual context like the statement that Mr. Ahalt has given you.

Both of these come from a study done in the Department of Agriculture which I have here with me, which it has been decided is to be made public. So I have copies of that here.

He has drawn on this study, and I have drawn on it in my statement. And rather than read to you yet another statement, I think that I would like to very briefly summarize the facts regarding the situation. Mr. DE LA GARZA. Without objection, your full statement will appear in the record at this point, Dr. Paarlberg, and then we will hear informally from you.

[The prepared statement of Dr. Don Paarlberg follows:]

STATEMENT OF DON PAARLBERG, DIRECTOR OF AGRICULTURAL ECONOMICS, U.S. DEPARTMENT OF AGRICULTURE

The USDA estimates that in fiscal 1974 nitrogen and phosphate supplies in the U.S. could be short of total demand-industrial demand, fertilizer demand, and export demand-by 1 million tons of nitrogen and 700,000 tons of phosphate. While nitrogen supply is expected to increase 8 percent and phosphate supply 4 percent over 1973 levels, domestic demand for fertilizer is expected to increase 9 percent and 12 percent, respectively. Export demand is expected to increase 26 percent and 19 percent, respectively.

At this point in time, the U.S. can ill afford the consequences of fertilizer shortages. If the whole of the projected total deficit in fertilizer supply in 1974 were to fall upon U.S. farmers, their supply of nitrogen and phosphate would each be about 1 percent less than their 1973 supply at the very time that we are making every effort to encourage producers to expand production of food and fiber. As a result of our recent action eliminating set-aside on wheat, feed grains and cotton for 1974 and expected favorable market prices, American farmers are poised to substantially increase crop production. We must make that possibility a reality by assuring adequate fertilizer supplies this fall and in the critical months in the spring of 1974. With more crop acreage in 1974, any reduction in nitrogen and phosphate fertilizer supply would result in a decline in fertilizer application rates and thereby reduce potential crop output.

The potential shortage of 1 million tons of nitrogen is particularly critical. Such a shortage would undoubtedly result in lower crop yields because of the lower nitrogen application rates, particularly on those farms where application rates were already below average.

The potential shortage of phosphate is of somewhat lesser though substantial concern. Agronomists report that farmers have tended to overuse phosphates and thus have built up the phosphate level in the soil. Nevertheless we can ill afford at this time to run the chance of a less than adequate phosphate supply for domestic use.

To repeat, if domestic agriculture must absorb all of the projected supplydemand deficit, average fertilizer application rates and yields will decline. The substantial increases in crop production that would accompany an adequate supply of fertilizer, increased application rates, and enlarged crop acreages could simply not be achieved-increases that are so desperately needed at home and abroad.

The Department is making every possible effort to increase agricultural production in 1974. In line with this policy, we have recommended to the Cost of Living Council that fertilizer prices be exempt from price ceilings so that adequate supplies may be made available to U.S. farmers. Removing ceilings on fertilizer prices would increase domestic fertilizer supply in four different ways: 1. As domestic prices rise, the price differential between domestic and world prices, which is currently over $30 a ton for several products, will lessen. The economic incentive to export fertilizer will be greatly reduced, redirecting fertilizer to U.S. farmers.

2. Higher prices will encourage fertilizer producers to operate their plants at the highest possible rates. While plants are likely to operate at high rates of utilization in any event in 1974, higher prices for domestic sales would help to take up whatever slack there may be in the system from this past year.

3. Removal of ceilings and higher domestic prices would keep in operation those plants now producing fertilizer, some of which might otherwise close at the ceiling prices now applied to domestic sales. In addition, some idle plants may be drawn back into production. Since the industry overexpanded in the 1960's, numerous plants that become obsolete were, and are still being, retired. Higher prices would keep these plants operating and may draw a few back into production.