ACKNOWLEDGMENT This inquiry was conducted under the general direction of Mr. Ishmael Burton, chief of the legal investigating division. For the direct supervision of the inquiry and the preparation of the report the commission makes special acknowledgment of the services rendered by Mr. William W. Bays. Valuable services were also rendered by Messrs. John M. Burkett, Everette MacIntyre, and H. J. Honecker. VI LETTER OF TRANSMITTAL FEDERAL TRADE COMMISSION, The PRESIDENT OF THE SENATE, Washington, June 30, 1932. United States Senate, Washington, D. C. DEAR SIR: I have the honor to transmit herewith a report of the Federal Trade Commission entitled, " Prices and Competition Among Peanut Mills," submitted in pursuance of Senate Resolution 139, Seventy-first Congress, first session. By direction of the commission. W. E. HUMPHREY, Chairman. VII LETTER OF SUBMITTAL To the PRESIDENT OF THE SENATE: FEDERAL TRADE COMMISSION, In response to the request of a resolution of the Senate, the Federal Trade Commission has made an inquiry into the peanut industry, relative to an alleged price-fixing combination acting in violation of the antitrust laws. The inquiry has been pursued in each of the peanut-growing sections in the United States, in the course of which practically every shelling and crushing plant in the industry was visited, its records examined, especially its files of correspondence with other shellers and crushers, with the officials of the associations of peanut-shelling companies, with its branch offices, if any, and with its buying agents. Considerable data as to prices actually paid to farmers were also obtained from the shelling and crushing plants; but, due to the condition of the records of many of the companies, these data were far from satisfactory. Each of the associations of peanut shellers was also visited and an examination made there similar to that at the offices of the companies which are members. In addition, representatives of the commission interviewed a large number of informants in various parts of the industry, in order to obtain from them any reasons for believing that a combination of shellers was beating down the farm price of peanuts. Such informants were growers of peanuts in all sections, country buyers, speculators, brokers, warehousemen, and manufacturing companies which consume peanuts. Unfortunately, at a time when most of the data had been assembled in the investigation and a part of the report thereon prepared, the offices of the commission were destroyed by fire, much of the record already assembled was lost, and the various fields had to be covered again. PRINCIPAL FINDINGS OF FACT Peanuts constitute an important commercial crop in 12 of the Southern States, all the more important in that they can be and have been substituted, to an extent, for cotton as a crop when economic conditions made a shift advisable. They are grown in a broad belt reaching from southeastern Virginia, along the Atlantic and Gulf coasts into Texas, Oklahoma, and Arkansas, the regions in which the growing is concentrated being known as the VirginiaNorth Carolina section, the southeast section, the southwest section, and the Tennessee section. That part of the peanut production which is harvested sometimes exceeds a billion pounds in weight; the average value of the harvest 1 S. Res. 139, Seventy-first Congress, first session (p. 23). for the past 15 years has been nearly $47,000,000. In one year (1917) the value exceeded $100,000,000. The average price per pound, during this 15-year period was, roughly, 5 to 52 cents, or $100 to $110 per ton. For several years prices paid to farmers for peanuts have been abnormally low. From a peak of 11.2 cents per pound, or $224 per ton, in 1920, the average as of January 15, 1932, had fallen to 2 cents per pound, or $40 per ton, a decline of 82 per cent. In 1928, the average price for the season was 4.9 cents per pound, or $98 per ton, a figure which has not been attained as the average for any season since. The season of 1929-30 was a bad one; the average price dropped to 3.8 cents per pound, or $76 per ton; the maximum monthly average for the season was 4.2 cents, the minimum 3.5 cents. Thenceforward, with but few reactions, the course of the price has been downward. This, however, has not been an anomaly in the price movements of the country, as it is practically the same as that of other products grown in the same regions, such as cotton, cottonseed, and farm products in general. The decline for all of them began at about the same time and has continued in the same general direction. Practically the total tonnage of the harvested crop of farmers' stock peanuts, as the raw goods are called, is bought by shelling and crushing plants, which process the stock according to its fitness for the market. In Virginia and North Carolina, a large percentage of the harvest, though probably less than 50 per cent, is sold in the shell for roasting. The bulk of the remainder in that section and of the whole crop in the other major sections is shelled and sold for use in various forms, such as salted peanuts, peanut candy, peanut butter, and other forms. The lower grades of peanuts are crushed at the plant for the oil content, and the crude product is sold to refineries. The shelling plants dispose of their finished goods to a great extent through brokers, though' considerable quantities are sold by some of them directly to large consuming companies such as candy manufacturers. Great quantities of finished goods are carried in cold-storage warehouses at centers of consumption by peanut mills, speculators, and consuming manufacturers. There are 51 peanut-milling companies in the United States, which operate 102 plants. Sixty-six of these plants are owned or controlled by 15 separate companies; the remaining 36 are single-plant concerns. At these 102 plants, millions of pounds of peanuts harvested annually are cleaned, shelled, or crushed for oil. The prices which they pay for farmers' stock peanuts are the components of the averages mentioned above. In almost every case in the southeast, the mills are located within or adjacent to the peanut-growing section and receive their raw material from trucks at the mill door, or by carloads from points at which it is freight wise feasible to buy. The peanut area being within a convenient radius, the majority of these mills do not buy very far afield. Many of them limit themselves to the immediately surrounding territory. Some of the larger ones, however, buy at a distance. In Virginia and North Carolina and in the southwest section the mills are not located at points so close to the fields growing the bulk of the crop and they reach out farther on the whole for their supplies. There are three associations of peanut mills in the country, one in each of the major producing sections-the National Peanut Cleaners and Shellers Association, Suffolk, Va.; the Southeastern Peanut Association, Atlanta, Ga.; and the Southwest Peanut Association, DeLeon, Tex. From the large number of persons interviewed, representatives of the commission obtained many alleged reasons for the price movement of peanuts, such as increased imports in 1928, in anticipation of a higher duty which became effective in 1929; overproduction in 1929, a harvest of 956,000,000 pounds, nearly 200,000,000 more than the average for the preceding 5-year period; damaged crop in that season, "the worst in years," according to experts; slackened demand for finished goods, a dull market, according to market reports; heavy carry-over of finished goods in cold-storage warehouses (statistics gathered by the commission showed more than 90,000,000 pounds in storage at one time in 1929); and a price-fixing combination, concerning which no one gave definite information. Since 1925, certain companies which were then members of the National Peanut Cleaners and Shellers Association have been operating under a decree1 of a Federal court where they are perpetually enjoined, restrained, and prohibited: "to give to each other in any manner information concerning, or to discuss with each other * * * prevailing prices for farmers' stocks, past or prospective prices for farmers' stocks." From the inhibitions of this decree some of the respondents were exempted, the court indicating that "jurisdiction of the case is retained for further proceedings as to them if it should develop that their course of conduct should interfere with the proper enforcement and carrying out of the decree." Among the exempted companies are two which the record shows do some of the very things that the decree explicitly forbids to those respondents who were not exempted. They apparently take advantage of their exemption and exchange prices, make arguments to each other to maintain or lower prices and give to each other advance information as to when they will change their prices, from indulging in all of which practices, as noted above, their competitors coming within the decree are enjoined. In the southeast section, also, practices were found at certain points where two or more shelling plants are located, which act as a restraint upon the free exercise of competition. In one Georgia market, in the midst of an important peanut-growing region, farmers haul hundreds of tons of peanuts to the door of the plants operated there. The record shows that the respective managers of these plants engage in various activities. Some of the correspondence assembled indicates the use of a given price "as an inducement until peanuts began moving heavier," at $77.50, say, through Saturday, "and then on Monday go to $75 per ton," and with increasing volume, we will reduce to $72.50 and then to $70 if necessary." The record shows that they are in constant touch with one another, engage in lively price discussions, give advance information as to their price policy and even fix the price they pay to the farmer for peanuts. 66 1 United States of America v. National Peanut Cleaners and Shellers Association et al., June 15, 1925. |