THE FERTILIZER INSTITUTE, Washington, D.C., October 2, 1973.

Dr. JOHN T. DUNLOP,

Director, Cost of Living Council,

Washington, D.C.

DEAR MR. DUNLOP: Immediately following our conference on Friday afternoon, September 28, we wired all of our producer and broker members per the attached wire.

Please note we only requested responses on only five materials. This was done, frankly, to expedite answers and to ease the compilation problem. Thus, the data hereinafter set out is in no wise complete but we would anticipate similar responses on material not specifically inquired about, e.g., liquids, phosphoric acid, ammonium nitrate, etc.

Of the nearly 50 producers and brokers responding to our Telex, as of noon today, they have reported that they would place the following additional tonnage in the domestic market if prices were de-controlled :

It is abundantly clear that this additional tonnage would have a major impact on our country's 1974 agricultural production.

I cannot emphasize enough that this material is sorely needed in this country. De-control of price is the key to preventing its export. Time truly is of the essence as overseas customers are pressing our producers for firm commitments. We would greatly appreciate an answer to our September 5, 1973, request for exemption.

Sincerely yours,

EDWIN M. WHEELER,

President.

Mr. DE LA GARZA. We thank all of you gentlemen for being here. We appreciate very much your cooperation.

The subcommittee stands recessed until 10 a.m., tomorrow morning. [Whereupon, at 12 o'clock, the subcommittee recessed to reconvene at 10 a.m., tomorrow morning.]

FERTILIZER SHORTAGE SITUATION

THURSDAY, OCTOBER 4, 1973

HOUSE OF REPRESENTATIVES,

DEPARTMENT OPERATIONS SUBCOMMITTEE

OF THE COMMITTEE ON AGRICULTURE,

Washington, D.C.

The committee met, pursuant to notice, at 10 a.m., in room 1301, Longworth House Office Building, Hon. È de la Garza, chairman of the subcommittee, presiding.

Present: Representatives de la Garza, Jones of Tennessee, Denholm, Litton, Mayne, Price, and Sebelius.

Also present: Mr. Poage and Mr. Teague.

Perry Shaw, clerk; John Rainbolt, associate counsel; Hyde H. Murray, associate counsel; Steve Allen, staff consultant; and Fowler C. West, staff director.

Mr. DE LA GARZA. The subcommittee will be in order.

This morning we are privileged to have as our first witness the very distinguished Member from Wisconsin, a very prominent member of the Banking and Currency Committee, and our very dear colleague, Mr. Henry Reuss. We will be very happy to hear from you at this time, Mr. Reuss.

STATEMENT OF HON. HENRY S. REUSS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF WISCONSIN

Mr. REUSS. Thank you so much, Mr. Chairman, for your usual courtesy, and I also want to commend you and your subcommittee. This subcommittee starts on time and handles itself very expeditiously. I have a prepared statement, which, under the rule, Mr. Chairman, I would like to submit for the record and then summarize briefly. Mr. DE LA GARZA. Without objection, your statement will appear in the record at this point.

Mr. REUSS. This subcommittee, to its great credit, is looking into the plight of the American farmer who is faced with an increasing nitrogen fertilizer shortage.

The Department of Agriculture projects a shortfall of around 1 million tons for the year ending next June 30 and successive shortfalls later on. Fertilizer manufacturers need an extra 43 billion cubic feet of natural gas-that is about a 10-percent increase over what they now have to produce that extra 1 million tons of nitrogen fertilizer. Incidentally, the proportion of the Nation's total consumption of natural gas used by the nitrogen fertilizer industry is only 2 percent. According to the Department, the manufacturers have a plant capacity to produce 410,000 tons of the 1 million extra tons needed, but

cannot use that because the natural gas pipeline companies are curtailing about 1712 billion cubic feet of natural gas that they previously had agreed to provide the plants.

The manufacturers for reasons that can be understood have not built the capacity to produce the other 590,000 tons of fertilizer because they have been unable to obtain commitments for the additional natural gas supplies.

The Washington Post had an editorial on this whole subject on September 17, 1973, in which it pointed out that the possibilities for relief are neither numerous nor attractive. Decontrol of prices would contribute to inflation. Continued price control would mean shortages now and further inflation later. The only other choice would be export controls which, as the administration has learned, are fearfully destructive of our relations with other nations.

While agreeing in some part with that analysis I do not believe that export limitation is the proper alternative. Our fertilizer exports in the year ending June 30, 1974, are going to total 1.7 million tons. That is up from 1.35 million tons in the year previous. Putting on export controls, which probably could not lower exports below last year's figure, would free only 350,000 additional tons for domestic use at the most.

As we have said, we need a million tons.

The other and better way to meet our domestic fertilizer demand is to increase our production. This means that the nitrogen fertilizer industry must receive, as I said, another 43 billion cubic feet which is only one/five-hundredth of our total natural gas consumption. So we are dealing with a critical but small portion of the total.

Now, low priorities, such as ordinary industrial plants and electrical generating plants, use 65 percent of the total national supply of natural gas. Nitrogen fertilizer plants are high priority because they require natural gas as feedback. Residences are high priority because they cannot convert easily to oil or coal. Yet, 65 percent of our total natural gas use is in low priority uses.

The Federal Power Commission last March tried to do something about this with its order 467-B, which established priorities for nitrogen fertilizer plants and other important natural gas users. The trouble with that order is twofold.

In the first place, the order only gave a high priority to firm service to nitrogen fertilizer plants. Interruptible service was given low priority, though 41.6 percent of fertilizer plants have interruptible service. Thus, the large curtailments that I have already mentioned.

A second fly in the ointment is that the FPC lacks jurisdiction over intrastate pipelines and thus cannot get at natural gas consumption in the great gas producing States-Louisiana, Oklahoma, New Mexico, and, I regret to say, Texas. These States consume 6,300 billion cubic feet, or 45 percent of all the cubic feet burned in the United States as low priority industrial and electrical generating fuel each year. This contributes importantly to the nationwide shortage of natural gas for high priority uses.

On September 20, 1973, I introduced H.R. 10436, which was designed to solve the natural gas supply problems of nitrogen fertilizer manufacturers and other priority uses. That bill is before the Interstate and Foreign Commerce Committee. In a nutshell, it provides that FPC

shall so administer the Natural Gas Act as to insure that the full requirements of nitrogen fertilizer manufacturers, residential users, and high priority commercial users be met.

Natural gas supplies to these three types of high priority users cannot be increased, however, unless natural gas service to nonpriority industrial and electrical generating users is correspondingly decreased. Not by very much, because the additional amount of our total natural gas supply required by priority users is slight-0.2 percent for fertilizer plants.

The bill would insure a decrease in low priority use by giving the FPC authority over all gas, interstate and intrastate, and by requiring it to see that the full natural gas needs of the priority users be met. Natural gas taken away from nonpriority users could be replaced by coal and oil freed from use by priority users.

I have urged the Commerce Committee to give this bill prompt consideration, and I invite this subcommittee to take similar action. I believe that it will take the combined efforts of a great many of our congressional committees under the leadership of the Agriculture Committee to solve, and solve promptly, this potentially devastating nitrogen fertilizer shortage.

I am very grateful for this opportunity, Mr. Chairman.

Mr. DE LA GARZA. Thank you very much, Mr. Reuss. We appreciate having you here.

While we do have you here, I grasp at the opportunity to pass along to you some comments from the American Farm Bureau Federation, and I quote:

Wage and price controls, while possibly effective as a temporary expedient to meet an emergency, can cripple the private enterprise system which has made America strong if they are enforced over an extended period.

Continuing the quote:

We oppose extension of legislative authority for price and wage controls. Further they state:

We recognize that your committee does not have jurisdiction over this legislation authorizing such controls, but we urge you to bring this to the attention of your colleagues in the Banking and Currency Committee.

Mr. REUSS. You will never have a better chance, Mr. Chairman. Mr. DE LA GARZA [continuing]. "To insure that authority for such controls is not extended next year."

Mr. REUSS. Let me respond to that, Mr. Chairman, and say that, while I do not always agree with the Farm Bureau Federation, I think they have a large point there. I am going to take, as a member of the Banking and Currency Committee, a good long, hard look at any request for extension of the wage-price authority we gave the administration. In my judgment, the administration's exercise of this authority has not been prudent. In some cases, particularly in the case of farm commodities, it has been counterproductive.

On this specific question, I would like to see the interests of the homeowner in reasonably priced fuel for heating preserved. But I cannot see any reason why we should not allow prices of natural gas sold to industrial users to find their own level, which would mean a very considerable appreciation. That, incidentally, would be an excellent way

of rationing the very scarce and valuable commodity, natural gas, to a form of use that is less necessary than nitrogen fertilizer manufacturing.

Mr. DE LA GARZA. In testimony yesterday and questions afterward by Mr. Wheeler of the Fertilizer Institute, Mr. Reuss, he seemed to indicate that the production of fertilizer could be increased dramatically or sufficient enough to take care of the needs only if the price freeze were taken off. He seemed to think that the freeze has kept the investment from coming in or the marginal productive plants from operating and that with the removal it would bring it up to par, not for the long range period but at least to take care of the immediate situation.

Mr. REUSS. I cannot intelligently comment on that for the reason that I do not know enough about the cost-price profit picture of the nitrogen fertilizer industry. The expanded market they are going to get because of the excellent farm bill for which I voted last month to expand American farm production signals good news for the American nitrogen fertilizer industry.

Whether the current price control arrangements are actually inhibiting necessary capital investment I do not know. In any event, however, I would think that price controls probably ought to be taken off of nitrogen fertilizer manufacturers and off of vast sections of the economy almost immediately. The only thing I duck is a specific judgment right now on the Fertilizer Institute's request.

Mr. DE LA GARZA. Well, we understand that, Mr. Reuss.

Mr. Chairman?

Mr. POAGE. I would just like to ask you, Henry-I note where you suggest that low priority users such as industrial plants and electrical generating plants use 65 percent of the total supply of natural gas you are speaking of.

Now, you have got better entre with some of these agencies that are devoted to preserving the ecology than some of our members have, I guess. Can you give us any assurance that we could transfer some of these powerplants from gas to coal? I agree with you that we are wasting a tremendous amount of natural gas on low priority uses that could just as well be served by other types of fuel, but everywhere I have heard of anybody trying to change, there has been such an outcry from some of these organizations in New York City that filed a class action against them that nobody will change even though they could.

I have got some plants in my district that are burning gas every day that do not need to burn it. They could just as well burn oil or coal. But they are afraid to try to change. They subject themselves to all kinds of lawsuits.

Mr. REUSS. I would say, Mr. Chairman, that you legitimately address that question to me and I will reply as follows:

One, there are ways-stack cleaners, for example-whereby low grade fuels, lower grade than natural gas, specifically oil and coal, can be made reasonably environmentally satisfactory in utility and industrial plants. That should be, of course, insisted on. That makes the price slightly higher to the consumer. Most of us would gladly bear that as a cost of clean air.