Mr. GAGE. On the whole, they do. But this method of acquiring their hogs off the competitive market that depresses the price established there.

The CHAIRMAN. Why do the farmers ship there, if they can get more by shipping elsewhere?

Mr. GAGE. Most of their receipts come from selected and favored shippers. The testimony developed, for instance, that here was a shipper who started in to buy less than carload lots of hogs, at some particular country shipping point and ship them to Fowler. He would be protected in weights and prices until local competition was eliminated; at least the universal experience, practically, has been that such a shipper so connected, could and does force out of business any cooperative shipping association or any independent country buyer and, buying for a time on a price basis that might be equal to the Kansas City could eliminate competition, and when competition was successfully eliminated, he would immediately boost the margin. So, as you see, they destroy competition at the local points. The CHAIRMAN. This means Armour & Co., in reality?

Mr. GAGE. Yes; it means, in reality, Armour & Co.

The CHAIRMAN. And Armour & Co. have a plant within and under the jurisdiction of the stockyard act that adjoins this plant, known as the Fowler plant?

Mr. GAGE. Yes.

The CHAIRMAN. It is really all one?

Mr. GAGE. It is really all one.

The CHAIRMAN. But yet the Attorney General has held that this particular plant is not under the control of the stockyard act?

Mr. GAGE. He has held that it is not a stockyard within the definition of the act.

The CHAIRMAN. How about the other buyers at Kansas City? Other packers have plants there, too?

Mr. GAGE. Yes; other packers have plants there too.

The CHAIRMAN. Don't they object?

Mr. GAGE. Wilson & Co., I understand, have notified the department that they will start a similar yard, and we have talked with Secretary Wallace, talked with him the other day, and he did not deny that Swift & Co. and Wilson & Co. have both advised him that they intend doing so.

The CHAIRMAN. If they all do that, they will all be outside the act?

Mr. GAGE. Yes; and what does that mean? In the first place, here you are regulating stockyard charges under this act. They are large competitive stockyards capable of taking care of all the hogs that come to market. You are applying, as the Mistletoe yards grow larger, an additional and unnecessary overhead cost to the remaining hogs that are sold on the open competitive market. They will be carrying a lot of useless overhead, empty pens, and unused facilities at the public stockyards. This is a proposition that gets worse as it goes along, as the volume on the open yards grow smaller as compared with the closed yards. In 1920, when the consent decree went into effect, it was supposed to divorce the Big Five packers from the stockyards industry, and it was supposed to have the effect of compelling them to relinquish all the controls and advantages in stock

yards marketing which the Federal Trade Commission said existed. They had prior to that time operated in a comparatively minor way these Mistletoe yards in connection with the Fowler plant. The figures which we have here and which we will give to the members of the committee if they want them show that the Armour buy on the public yards in that period up to 1920 exceeded by at least 50 per cent the receipts at the Mistletoe yards. Now, after the consent decree was entered and they were supposed to be ousted from interests in the public stockyards they immediately reversed the situation; absolutely changed it, and now instead of being less than the purchases on the open market, as indicated, the purchases at the Mistletoe stockyards exceed the Armour public market buy by approximately 80 per cent. The receipts of hogs at the Mistletoe stockyards were greater in 1923 than the receipts at 53 of the 75 stockyards posted by the Secretary of Agriculture under the act.

In addition to that, take the effect of the Armour-Morris merger. Armour & Co. acquired the Morris plant at Kansas City. That was a plant which had bought its supplies on the open market, over 96 per cent of them-the largest percentage of any of the big packers, who bought that in the public yards. They have closed that Morris plant down as a packing house, although it was conducted at the lowest cost and perhaps was the most efficient plant in Kansas City, but they are continuing to operate the Fowler plant. which is an old, dilapidated, and inefficient plant. However, they are killing most of the hogs received there at the Armour plant. As we pointed out when this matter arose, the closing of the Morris plant-their profits at the Mistletoe plant are so great they evidently justify this action; that is, the proposition of junking, so to speak, the four or five million dollars' worth of investment they have in the Morris plant that they acquired-junking it in favor of the Mistletoe yards and the profits made there.

They defended the complaint when it was originally brought before the Department of Agriculture, on the ground that these Mistletoe yards were sort of a heritage acquired along with the Fowler plant, and they took it over as part of the assets of the National Packing Co. They said they were operating it as a plant adjunct at that time and that there had not been transfers to any great extent of receipts to the Armour plant, or, in short, they said it was just being operated because they had it and had to make their property yield a return on the investment, and to do that they were compelled to operate it. Evidently in the light of recent developments they were not sincere in this position.

Mr. J. Ogden Armour went on the stand himself and said he did not approve the method employed as a principle of marketing, if engaged in to any great extent, for if it was so engaged in it would destroy the open competitive market, and he stated on the stand that the operation of those yards would not be extended. Now, here we have a concrete example of just what he means.

The CHAIRMAN. Do you claim it has been extended?
Mr. GAGE. Yes.

there been? In 1920 there

Senator GOODING. What percentage of expansion has Mr. GAGE. I have here the actual figures as to that. were 281,068 hogs received at the Mistletoe house. In 1923 there were 1,039,216.

Senator CAPPER. About what proportion of the entire receipts of Kansas City is that?

Mr. GAGE. If you add their receipts to the Kansas City hog receipts you get a total of 4,654,421, which would make that figure of the Fowler yards 22.3 per cent of the total receipts; it would be about 38 per cent as compared with the stockyards public market sales alone.

The CHAIRMAN. Armour & Co. still buys on the regular market? Mr. GAGE. Yes, he does; but at the time this started his purchases at the public market exceeded by 50 per cent the purchases at the Mistletoe plant, and the opposite is true now; Mistletoe purchases exceed the public market by 80 per cent.

The CHAIRMAN. And the general market has been reduced by the combination of Morris and Armour through the entire elemination of Morris?

Mr. GAGE. Yes.

The CHAIRMAN. And since that combination the purchases at this yard, of which you complain, have been doubled and the purchases by Armour & Co. include what would have been Morris's at the regular stockyards? Is that right?

Mr. GAGE. No; that is not quite fair to them.

The CHAIRMAN. Let us get it fair to them. We want to include everybody.

Mr. GAGE. You do not exactly understand. The Morris plant was not closed down until between Christmas and January this last year; however, they were operating at reduced capacity last year. Last year there were only six or eight thousand hogs a week going into that plant, whereas there had been eighteen or twenty thousand. To that extent Morris purchases are included. Now, with the Morris plant closed, we can see next year just what the situation will develop. Armour & Co. in 1922 bought only about 32 per cent of the hogs it slaughtered at Kansas City on the public market, although they had then two plants located right there. Morris was buying 96 per cent. Here is one phase of the situation: When Armour & Co. came there, for instance, and located their plant, the stockyards company gave Armour & Co. a stock bonus of $500.000 for locating the plant. You are doubtless familiar with the transactions in Chicago, in 1892, whereby Armour & Co. and other packers got bonuses when they threatened to move their plants. In 1912 Armour acquired control of the Chicago yards under an exchange of stock induced by what the Federal Trade Commission described as a threat to move the packing plants further west. Morris evidently saw that situation, how Armour had profited, and possibly other packers in Chicago, in acquiring control of the stockyards, and shortly thereafter in Kansas City Morris started a similar campaign on the Kansas City Stockyards Co. when controlled by interests in Boston. When stockholders objected to the exchange of stock, a letter was sent to them by Kidder, Peabody & Co., of Boston, the last paragraph of which shows just what the purpose was of granting to Morris a controlling interest. in the yards. The letter says:

We are informed that the reasons for this proposed exchange are similar to those in respect to the Chicago Junction and Union Stockyards, namely, to cement with the company large interests active in using the property and insuring their being domiciled at this particular point for the transaction of their business in the future as in the past.

Now, that deal was put over, and, of course, Morris, having control there, profited and was interested in the stockyards company. The Mistletoe yards are just about the same kind of a proposition that the packers established in Chicago when they started the Central Stockyards Co. and extorted the bonus from the Chicago stockyards interests. The Central stockyards operated largely on the same principle and in the same way and in a measure for the same purpose.

Now, here is the situation under the present act: Nobody to-day would say that it would be legitimate and proper for a stockyards company to go out and buy support of packers which is necessary to control market activity. That would not be proper. It would not be proper to show favoritism to any particular shippers at particular points. The old method that has been employed by these owners of stockyards could no longer, under this act, be carried into execution, and yet the packer is now pursuing the same tactics, only under a different guise. Here, according to the Attorney General. is a method of buying by which they can absolutely undermine the public markets, destroy them, control them, dominate them, in spite of any regulation the Secretary can apply, and in fact it puts every farmers' cooperative shipping association that seeks to enter business, and it puts the whole packers and stockyards act and the whole stockyards administration, as far as regulation is concerned, on a branch line where the costs will become so high that the more they do it—

The CHAIRMAN (interposing). How does this affect the cooperative companies?

Mr. GAGE. Here is a cooperative shipping association at a country point, and one of the protected shippers, for instance, comes in and drives out the established association and disorganizes it. Apparently he gets a price that justifies him in doing it. The Fowler people have been on the stand and testified they did. They were favored in prices and weights

Senator GOODING (interposing). Weights?

Mr. GAGE. Weights. yes: they get the benefit of shrinkage, and that is how the competition is eliminated. When the established association is out of business, is disorganized, when the other buyer is gone, then he does not act so kindly to the producer. He raises his margin and gets more than is coming to him..

Senator GOODING. Have you anything to show that they were protected in the rise and fall of the market through advices?

Mr. GAGE. Evidence showed they kept in telephonic communication with the Armour men who fixed the prices, and, when they had any competition in local buying they were told about it. We had an Armour shipper on the stand who testified that he had entered into contract down in Paola. Kans., whereby he was paying so much a week for a certain period to a competitor for refraining from competing. You can readily see that is the same old game that was worked in the selling side of the packing industry, in the favoring of local butchers and the selling of meat at low prices, to drive out competition, etc.

Senator GOODING. In other words, it is no new method to cheat the game?

Mr. GAGE. In sustaining the packers and stockyards act. Chief Justice Taft said these competitive markets were a necessary part

of the route by which the livestock travels from the producer to the consumer, and hence public utilities. Now, here apparently we have a situation where it is contended that they can not be a necessary part of the route, according to the Attorney General, under the act. In unlimited numbers, the livestock can travel another route. It is the same situation as if the Interstate Commerce Commission should, under the law, regulate one railroad, forbid rebating, compel uniform action in rates, and then permit a competing railroad to do its business through rebates or in any form of old-fashioned competition it sees fit to employ.

Senator GOODING. If Armour & Co. can operate that way all the rest of the packers can?

Mr. GAGE, Absolutely.

The CHAIRMAN. And operate as to all kinds of livestock?

Mr. GAGE. Yes; as to all kinds of livestock. Further than that, according to this opinion, as the matter stands now, there is nothing on earth to prevent Armour & Co. and Fowler Packing Co. from buying all the hogs for all the packers at these yards, and distributing them. We made the point that Armour & Co. was a separate organization, a separate legal entry from Fowler Packing Co. That is true under the law, but the Attorney General said that did not make any difference, it could sell to anyone it pleased, if it was the original purchaser. As a matter of fact the packers never dreamed of any such latitude in plant buying. They never believed in the legality of any such monopoly as that would create. They were defending themselves only upon the proposition of using the Mistletoe yards to supply the plant, and as a plant adjunct.

The CHAIRMAN. Where did that hearing take place? You made complaint of all this to whom?

Mr. GAGE. To the Secretary of Agriculture.

The CHAIRMAN. And you had a hearing?

Mr. GAGE. Yes.

The CHAIRMAN. What did the Secretary of Agriculture decide? Mr. GAGE. The Secretary of Agriculture decided that it was not a public stockyards. He decided that certain infractions of the law were shown which we sought to remedy under the packer section and directed their discontinuance. The situation is just as bad now as it ever was.

The CHAIRMAN. How did the Attorney General get into it?
Mr. GAGE. I was talking to Judge Hainer this morning.
Senator GOODING. Whom do you represent?

Mr. GAGE. I have been attorney for the Farmers' Union, the Missouri Livestock Producers' Association, and the Kansas City Livestock Exchange in this controversy.

The CHAIRMAN. You drew the bill, Senate No. 2089?

Mr. GAGE. I drafted the bill. I am not saying to you, Senator, that this bill is the solution of this problem absolutely, but it does carry into legislative form what the Big Five packers agreed to in the consent decree. That consent decree has not been enforced. Armour & Co. has violated it every day.

The CHAIRMAN. What I am getting at is that if they won't obey the decree of the court, why will they obey this law? If they don't obey the courts, how do you expect them to obey Congress?