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(a) Consumer preference.-The types of food preferred in Hawaii are cosmopolitan-Indian curries, Chinese chow meins, Japanese sukiyakis, to name a few-and each is considered incomplete without servings of rice. This preference is general and not limited to any specific ethnic group. For example, a survey of 110 households in 1963, selected at random to insure obtaining a cross section of the city of Honolulu, indicates that the average amount of rice the housewife had on hand at the time of the interview was more than 10 pounds. This supports the contention that Hawaiian households are heavy users of rice, regardless of socioeconomic background. I have not seen a comparable figure for the country as a whole, but daresay the average household inventory of rice would be a much smaller quantity.

Further, rice is packaged for sale in Hawaii in 5-, 10-, 25-, and 100-pound sacks. According to wholesalers, the greatest volume in sales is in the 25pound sacks. For mainland retail sale, rice is packaged in 12-ounce, 1- and 3pound packages, an indication of the relative importance of rice in dietary habits.

(b) High cost of food substitutes.-Agricultural products, such as wheat, other cereal grains, or potatoes, which are used as rice substitutes in other areas, are either not grown in the State, or grown in very limited quantities. One might question why, with a year-round growing season, Hawaii cannot be selfsufficient in their production. The answer lies in the fact that until very recently the entire emphasis in agriculture has been placed on the plantation expert crops of sugar and pineapple. These are still important to the economy and use large acreages which might, if feasible, have been put into grains. But the established markets for sugar and pineapple products dictate that their present scale of production be continued. The dollars brought in by these two products have substantially supported the local economy by affording the means of paying for the various products we must import from other sources.

There is presently a State-supported program to increase the production of diversified agriculture. This includes potatoes, as well as other food items, but this depends on the opening of lands which heretofore could not be used because of lack of water. We are making headway, but the progress will be slow. In the case of potatoes, which are usually thought of as a rice substitute, the latest available data show that 27,840,000 pounds were consumed within the State.* However, only 215,000 pounds of this total were produced locally. Because of transportation costs and the grade of potatoes which must be purchased. the retail price of potatoes is high. Seldom does the retail price go below 11 cents a pound. As compared with the retail rice price of about 11.5 cents per pound. potatoes cannot compete pricewise as an effective substitute.

(c) Ethnic backgrounds of the population.-Hawaii is proud of the number of racial backgrounds represented by her population. According to the 1960 census. over 50 percent of her population came from forebears immigrating from cour tries bordering the Pacific Ocean rim.* The countries represented are predominantly rice-eating countries. Thus, the food patterns of these countries are followed for many years. Eating habits are not readily changed and usually occur only over a long period of years, unless change is forced because of unavailability. Rice has always been available in Hawaii. There was a time when it was hand cultivated and produced in sufficient quantity to supply the demand. However, as more capital intensive agriculture was introduced, ricegrowing declined until it is practically nonexistent here today. In the meantime, the increasing demand for rice was met by the supply from the mainland.

3. ULTIMATE EFFECT OF INCREASED COST OF RICE TO HAWAII

Ricegrowers will not lose the Hawaiian market. In fact, because of the factors influencing the high consumption of rice in the State, the demand may be assumed to be highly inelastic. Preference, high cost of food substitutes, and ethnic backgrounds will not be readily influenced by any price increase. Over time, as local production of substitutes reduces costs and eating habits are gradually changed, there may be some change.

2 McCarthy, E. J.. "Stockpiling as a Solution to Shortages From Maritime Strikes Affecting Hawaii," Economic Research Center. University of Hawaii (Honolulu: 1964), p. 4. 3 Hawaii Department of Agriculture and U.S. Department of Agriculture, "Statistics of Hawaiian Agriculture," 1963, pp. 19, 50.

Department of Planning and Economic Development, "Research Report 9," Dec. 26.

1963.

However, it is this very inflexibility of demand which is of immediate concern to the economic well-being of the State. It will mean an immediate cash outflow of at least $3.2 million annually, which the State can ill afford. It is therefore respectfully requested that serious consideration be given to some means of alleviating this burden to our State. As I have stated, we want to do our share, but we feel that the present proposal would require us to do much more than our share. This, I know, is not the intent of the legislation.

Mr. POLANCO. Mr. Chairman, I don't want to take the time of the subcommittee, so I shall submit my statement for the record now. Mr. JONES of Missouri. Would you prefer that that follow Mr. Gonzalez' statement?

Mr. POLANCO. No, no.

Mr. JONES of Missouri. That will be fine. We will insert your statement in the record here.

(The statement referred to follows:)

STATEMENT OF HON. SANTIAGO POLANCO-ABREU, RESIDENT COMMISSIONER OF PUERTO RICO

Mr. Chairman, I should like to identify myself with the statement in the record by the consumers of Puerto Rico on the almost certain effect on the economy of Puerto Rico and its people that the provisions of title III of H.R. 7097 would have. The application of title III has not yet become a matter of general knowledge amongst the people of Puerto Rico, but already I am told that a petition against the enactment of title III, in its present form, is being sent to me and that it will contain approximately 50,000 signatures. I ask that this petition, together with its signatures, be placed in the file of the record of these hearings, together with such other petitions which I may receive.

This is indicative of the very great concern on the part of Puerto Rican families over the effects of the proposed reduction in the subsidy on rice and its probable results on the consumers who will have to pay at the grocery store an amount to compensate for the subsidy reduction.

I shall not speak in precise statistical terms on the effect of this legislation. The Secretary of Commerce, Commonwealth of Puerto Rico, the Honorable Jenaro Baquero, is preparing a statement which will contain these references. I ask, at this point. that when the statement is received, it be made a part of the printed record of these hearings.

Rice and beans is the main staple of the Puerto Rican people. It appears on the tables for two meals each day. It may be compared with the use of potatoes as a staple foodstuff in continental United States. In Puerto Rico it is used by people of means, as well as by the poor people, but, naturally, the poorer people are unable to supplement rice and beans with meat proteins, salads, and vegetables to the extent of the others. In other words, rice and beans is the principal diet of the poorer class in Puerto Rico, and this means most of the people. A few pennies a pound in increased prices for rice will impose a serious hardship on these people. They simply cannot afford to pay substantially more than they are already paying, which is about 13 cents per pound.

The Puerto Rican development programs have resulted in a per capita income increase of from $423 in 1954 to $830 in 1964. Considering increases in prices during that period, the per capita real purchasing power was increased from $237 in 1954 to $526 in 1964, but this must be compared with the 1964 per capita income of $1,444 in Mississippi, the lowest income State, and $3,505 in Washington, D.C. Moreover, the per capita income in the rural areas in Puerto Rico, which comprises most of the island, is substantially less than the overall average. These are the people with large families and low income, who must depend upon rice and beans for most of their diet. These are the people who will be sorely injured by any price increase in rice.

Puerto Rico purchases 100 percent of its rice from sources within the United States. The commodity must then find its way to a seaport where it is subject to high shipping rates, since no subsidy can be paid to American-flag ships in domestic trade and foreign-flag ships cannot be used under the provisions of the coastwise shipping laws. It is seen, then, that every pound of rice purchased in Puerto Rico has a built-in ocean freight cost, in addition to the usual railroad and trucking costs.

Mr. POLANCO. Since my statement will be supplemented by the statement from the Commonwealth's secretary of commerce, I have refrained from any technical or statistical discussion and have, instead, directed attention to the effect on the Puerto Rican consumers of a legislation before you. I hope that before giving final consideration to title III of H.R. 7097, the committee will take into careful consideration the humanitarian aspects of the question and that it will consider that any substantial increase in the price of this food for the poor would be a step in retreat in today's war on poverty being waged by the administration and the Congress.

(The supplemental statement follows:)

ADDITIONAL STATEMENT OF HON. SANTIAGO POLANCO-ABREU, RESIDENT

COMMISSIONER OF PUERTO RICO

Mr. Chairman, here in the United States, it is difficult to visualize how important a 5-cent rise in the cost of a pound of rice can be in Puerto Rico. To most Americans, rice is a marginal part of the family diet, and a negligible item of the family's overall budget.

But in Puerto Rico, rice is the staff of life the principal food of at least two meals a day in most Puerto Rican families. A 5-cent rise in the cost of a pound of rice means a 42-percent jump in the cost of the basic part of their diet. To an average American family in Washington, the impact would be about the same if the family's meat bill jumped 42 percent overnight.

For Puerto Ricans, therefore, title III of H.R. 7097 is not a simple matter of economic abstractions, or something which indirectly affects some remote cost-of-living index. It is a matter of immediate importance to families of less than $5,000 annual income, which means 83 percent of all Puerto Rican families; they would have to pay $13,500,000 of the $16,800,000 which would be added to Puerto Rico's annual grocery bill as a result of a 5-cent price rise. To families of less than $3,000 annual income, which means 60 percent of Puerto Rican families, the impact of this bill would be dramatic. They, the group least capable of absorbing a sharp increase in their food bill of any group in the Nation, would have to absorb 57 percent of the increased cost of rice. It is, therefore, in human terms, and in awareness of the severe hardship it would visit on over 1,500,000 people in the Commonwealth of Puerto Rico, that I urge Congress to review title III of this bill.

Puerto Rico will be an important beneficiary of the poverty program. But to the poor people of Puerto Rico, the benefits of this splendid program will more than cancel out if their grocery bill for rice jumps 42 percent.

Let me give you a clearer picture of the human realities of Puerto Rico, and the daily life of its people. I know of no better way to bring home fully the impact of this bill.

First of all, let us remember that Puerto Rico is still very poor by U.S. standards. We are very proud of the fact that we have been able to raise our per capita income from $121 in 1940 to $832 today, but this is still a far cry from the average per capita income of $2,500 in the United States as a whole, or $3,500 in Washington.

I have mentioned that 60 percent of Puerto Rican families (with an average of 5.2 persons in each family) have an annual income of $3,000 or less. And it is this income group for whom rice is the very heart of the family's diet. I might point out that 41 percent of Puerto Rican families have an annual income of less than $2,000, and 20 percent actually live on an income of less than $1,000

a year.

For families of such modest income, moreover, food takes a much larger percentage of their overall expenditures than for famiiles of more comfortable circumstances. (A Puerto Rican family with a $2,000 income, for example. spends 54.1 percent of its total income for food, while a U.S. family in the median income bracket of $6,249 (with an average of 3.36 persons in each family) spends only 20 percent of its income for food.)1

Knowing these facts, we begin to have some idea of the impact of a 5-cent rise in the cost of a pound of rice in human terms. We start with families already

1 These are latest available figures from the U.S. Department of Commerce (Census Bureau and Department of Labor).

extremely poor and very large by U.S. standards, who are obliged to expend a very heavy percentage of their modest means for food. Their diet, in turn, runs very heavily to rice. The average Puerto Rican eats 119 pounds of rice a year, against the U.S. average of 7 pounds. Knowing this, it is not difficult to project what a 42-percent price rise in rice will mean to the average Puerto Rican. He has the choice of either two things: to reduce his consumption of rice, his basic food, by one-third, or to reduce his outlays for clothing, housing, and other items of the family budget severely to compensate for the sharply increased cost of rice. In either case, the hardship on the 60 percent of Puerto Rican families with incomes of less than $3,000 would be acute.

We all know, of course, that it is in no way the intent of Congress to work such hardship on the Puerto Rican people. On the contrary, the application of the poverty program to the Commonwealth makes very evident the sincere concern of Congress for bettering the life of those Puerto Ricans who still live in poverty.

I am sure that, when this bill was drafted, the framers were unaware of the severity with which it would strike the poor people of Puerto Rico.

The objectives of the bill are most laudable. But the human price which would be paid in Puerto Rico as a result of title III is far too great to pay. I therefore most strongly urge that the committee and Congress disapprove this title of the bill, out of humanitarian consideration for the people of Puerto Rico, and in full knowledge of the severe hardship this title would visit on them.

Mr. POLANCO. May I say another thing. I want to file about 50,000 petitions signed by rice consumers in Puerto Rico. The petitions are in Spanish, and the translation for the record is as follows.

Mr. JONES of Missouri. If you will type that out and furnish that at this point in the record.

Mr. POLANCO. That is very good.

(The document referred to follows:)

TRANSLATION OF PETITIONS FROM PUERTO RICO

Hon. ORVILLE L. FREEMAN,

Secretary of Agriculture,

Washington, D.C.

DEAR MR. SECRETARY: We the undersigned are firmly opposed to title III of H.R. 7097 which will raise the price of rice 5 cents per pound, what means about $15 million a year.

If we spend that quantity of money on rice, such quantity must be spent less on other U.S. products.

(Seven Signatures).

Mr. JONES of Missouri. We will not be able of course to include those names, but we will show the number of names.

Mr. POLANCO. That is correct. And finally I hope that the Secretary of Commerce of the Commonwealth of Puerto Rico will prepare a statement, and I ask consent to file it in the record when I receive it along with any additional statements which I receive.

Mr. JONES of Missouri. Without objection, they will be filed, and you can furnish it to the clerk of the committee and it will be placed in the record.

(The material referred to follows:)

STATEMENT OF JENARO BAQUERO, SECRETARY OF COMMERCE, COMMONWEALTH OF PUERTO RICO

Mr. Chairman and members of the committee, I welcome the opportunity to explain the position of the Government of the Commonwealth of Puerto Rico with respect to this bill and to furnish the necessary facts and information to justify that position.

Our department of commerce has thoroughly studied the structure of the rice market in Puerto Rico. From that Study we have obtained certain facts that we consider very relevant and pertinent in considering this bill.

1. Our 2.6 million population consumes some 3.2 million hundredweight of rice yearly. From this total, around 3 million hundredweight are dollar purchases and the rest is moved under Government welfare programs. This represents a per capita consumption approximately 140 pounds per annum.

2. Local production as well as imports of rice from foreign areas are negligible. Therefore, all the rice we consume at present is supplied by U.S. producers. 3. Our share of the total domestic consumption for the entire United States is well above the 10 percent mark.

4. Rice is a basic and probably the most important foodstuff on our diet. On the average each person consumes between 5 and 6 ounces of rice daily. 5. The dependence on rice for nutrition is greater among the lower income families.

Sixty percent of the Puerto Rican families receive an annual family income of less than $3,000. Under the Federal definition they are classified as poors. 6. Every cent increase on the price of a pound of rice will cost Puerto Rican consumers more than $3 million a year. It is estimated that as a result of the program changes under consideration the retail price of rice will increase by 4 to 6 cents per pound. Therefore, the total cost to our families will be between $12 and $18 million a year. This is more than what at present we can afford to spend yearly in the construction of schools and hospitals together.

7. This drain in purchasing power, will have adverse indirect effects in business activity and employment. Furthermore, a reduction in effective demand for rice wil not only hurt mainland prdoucers but will also hurt the three mills now operating in Puerto Rico.

8. The current retail price of rice averages 12 cents per pound. An increase of 4 to 6 cents in this price wil represent a 33- to 50-percent increase in price. No matter how inelastic you may consider the demand for rice, you have to expect that a price increase of that magnitude will have to produce a significant reduction in demand.

9. Despite a notable increase in population, total rice consumption has re mained relatively stationary during the last decade. This suggests that the demand for rice may not be inelastic at all.

10. In fact local distributors have had to spend considerable amounts of money in advertisement and promotion to keep the effective demand at that level. Competition is so keen that the market retail price of rice has remained stable during the last decade in spite of considerable increases in marekting costs and a 26-percent increase in the general consumer's price index.

11. Insofar as rice can be purchased from foreign producers (c.i.f. The Guianas) at a price slightly higher than that of the U.S. rice (c.i.f. San Juan. tariff included), an increase of 4 to 6 cents in the retail price of U.S. rice will price it out of the Puerto Rican market.

12. An efficient public policy requires that its different programs be consistent with each other and harmonious with the basic goals of the society. If we let our farm and pricing programs go opposite to our welfare programs, only waste and useless bureaucracy can result. The two programs will just neutralize each other. Both, or at best one of them, will be wasted. This seems to be the case with the President's war on poverty program and the present rice program. The second, seriously hurts the same income and social sectors that the first attempts to help. In Puerto Rico, for example, if the provisions of title III of H.R. 7097 are applied in its present form, they will more than upset the benefits we expect from the war on poverty program.

When you take away one dollar from the rich to give it to the needy, at least you can justify your action arguing that a net gain in total welfare resulted insofar as the sacrifice imposed on the rich by taking his dollar is less than the satisfaction given to the poor who received it. But when you take away from a poor sector and give to another poor sector the same amount-less administrative or bureaucratic costs-the only thing you have for certain is that you make one of the two more poor. The transfer will produce a net loss in welfare to the community as a whole.

13. Conclusion: We don't want special treatment unless it is clearly warranted. We are thoroughly convinced that the changes contemplated under this program will inflict undue hardships to the Puerto Rican families. Furthermore, the adverse impact of this program on the lower income sectors of the United States and Puerto Rico will not only prove it to be very unsound and ill-advised fiscal policy but in practice will be in contradiction with the traditional moral foundstion of the U.S. economic policy and the public policy of the present Washington administration.

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