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The distiller and the rectifier and in some cases the wholesaler, in order to meet competition, must buy whisky the mement it is made, and he has got to assume the burden of financing the aging of that whisky from 6 months to 4 years.
There are 10,000,000 barrels of whisky in the country today that were produced at a cost of about $20 to $25 a barrel. That means that there is a production cost of that whisky in warehouses of from $200,000,000 to $250,000,000.
Now, the banks have already advanced probably $100,000,000 or $150,000,000 of that production cost on our notes, collateralized with the warehouse certificate. The amount per barrel advanced by the banks is from $15 to $20 a barrel, and the banks are holding a lot of that collateral today and if you gentlemen do not put on a floor tax within 2 weeks, the bankers will be seeking us out, they will be sending for me and for 95 percent of the distillers of the country and they will say, “Here, you are competing against big fellows. You are competing against a differential of $12.50 a barrel." That is 25 cents a gallon on a 50-gallon barrel, which is $12.50. The bank is loaning $15. He is going to say to me, “You have got to cut down that loan $10 or $12." Or he is going to cut it down lower. You are going to impair that whole credit structure, and it is a very sensitive structure.
When the big fellows last spring dropped their price on bottled-inbond distillations, and they reduced their prices $5 and $6 a case, all kinds of misinformation was circularized through brokers and through newspapers to the bankers. They feared a break in the whisky market. They cut down the per-barrel amount advanced.
Mr. DINGELL. Will the gentleman yield there?
Mr. DINGELL. Tell the committee, what would be your suggestion, your solution, to forestall this banker demand.
Mr. Higgins. To modify the present provision, the provision of the bill that has already passed providing for the additional 25-cent tax.
Mr. DINGELL. You mean eliminate the tax?
Mr. HIGGINS. No, no. Let the tax of 25 cents stand and then pass this joint resolution that is before the committee, possibly with this provision for the 50-gallon exemption, because I am telling you, if you do not, we are going to be absolutely wrecked. You are going to throw this whole industry right into the lap of the big fellows.
Mr. DINGELL. And the passage of this resolution will forestall that banker demand?
Mr. Higgins. Precisely.
Mr. Higgins. Precisely. We will not be confronted here with a proposition where next fall, in the heavy months--the big period in this industry is October, November, and December. All right, if you do not pass the floor tax, Schenley, Hiram Walker, National, Seagram, and possibly three or four others, strongly and publicly financed companies, will taxpay tens of thousands of barrels. There is no question about it. They can raise the money to do it. They do not have to bottle this immediately.
They will put it in free warehouses and bottle it up next fall. Next fall, when the heavy seasonal demand is on, we will be out trying to sell bulk whisky to the rectifiers, competing against this $12.50 differential. It just cannot be done.
Mr. COOPER. Let me ask you a question there if I may. stood you to say that the profit on a gallon of whisky that you made was only about 5 to 10 cents.
Mr. HIGGINS. Precisely.
Mr. COOPER. And you only make a 5 or 10 cents a gallon profit on a gallon of whisky?
Mr. HIGGINS. Precisely.
Mr. HIGGINS. It costs us today somewhere between, about 35 cents to make the raw whisky. That does no include cooperage.
Mr. COOPER. Thirty-five cents?
Mr. COOPER. You say you sell that for about 5 or 10 cents a gallon profit?
Mr. HIGGINS. Precisely.
Mr. HIGGINS. Average whisky today I think is a 2-year old piece of goods and sells somewhere between 90 cents and $1 a pint.
Mr. COOPER. I asked you how much per gallon.
Mr. COOPER. And it costs the consumer $7 or $8 a gallon. Where does the rest of that money go to?
Mr. Higgins. We make a gallon of raw whisky for 35 cents. There is 12 cents cooperage. We are selling it today for 47 cents. But I think in order to be fair, if we are going to take as an example this dollar-a-pint price, this $8 per gallon price, it should be based on a production cost of about 40 cents. That is for whisky 2 years old. It costs between 40 and 45 cents to produce. You see, we are up against a high grain market.
Mr. COOPER. Let us say that the distiller sustains a cost of 40 cents a gallon.
Mr. Higgins. Forty cents a gallon.
Mr. COOPER. For 2-year-old whisky. He makes 5 or 10 cents a gallon profit. Let us allow him 10 cents a gallon profit. That is 50 cents, when it leaves the distiller.
Mr. HIGGINS. That is right.
Mr. HIGGINS. Plus cooperage, which is 12 cents, which makes 62 cents.
Mr. COOPER. That covers everything?
Mr. COOPER. That covers everything then; the total cost of a gallon of whisky when it leaves the distiller? Mr. Higgins. No, no. You have other items.
You have other items. You have to add on about 12 cents. It costs on top of that 6 cents a year which is absorbed in insurance, storage charges and financing. It costs about 6 cents a year to carry a gallon of whisky.
Mr. COOPER. That makes 68 cents.
, you give us the figures. You are the man who knows. I am just seeking information. I want to know the cost of a gallon of whisky when it leaves the distiller.
Mr. HIGGINS. Then there is about a 10-percent loss in shrinkage. So you must add about 7% cents on top of that 74 cents, which gives you a basic cost on a gallon of 2-year-old whisky of between 82 and 83 cents.
Mr. COOPER. That covers everything?
Mr. Higgins. There is a tax ranging from $2 to $3 per gallon on top of that. Mind you, this $1 price includes the Federal and the State taxes. In New York State there is a dollar a gallon tax plus the $2 Federal tax. So you have $3.
Mr. COOPER. That is $3.82.
Mr. Higgins. That is $3.82. On top of that, you have got to charge your bottling charges and your strip-stamp charges.
Mr. COOPER. How much does it cost to bottle a gallon of whisky?
Mr. Higgins. It costs about $1.50 a caso to bottle a case of whisky. A case contains 3 gallons. That would make 50 cents a gallon.
Mr. COOPER. Fifty cents a gallon to bottle the whisky?
Mr. COOPER. That makes $4.32 and you have got it bottled and everything paid.
Mr. Higgins. You have it bottled and everything paid; yes. Then you have the wholesaler's profit.
Mr. COOPER. How much is that?
Mr. Higgins. Well, I do not know. I think there is a 334-percent mark-up. They have to get that. That is a 33% -percent mark-up for your wholesaler.
Mr. COOPER. Very well; 33% percent added onto that.
Mr. Higgins. That is $5.76. On top of that you have got the retailer's mark-up. I understand the ordinary retail mark-up is 40 percent. The retailer must mark his goods up 40 percent to do business.
Mr. LAMNECK. That makes $8.06.
Mr. COOPER. Well, you already have 6 cents more than the price that the whisky is sold for.
Mr. HIGGINS. Well, that is the fact.
Mr. COOPER. What are they doing businesss on? What are they using for money? You have already gotten a figure 6 cents more than they sell the whisky for.
Mr. Higgins. I do not think, Mr. Cooper, selling 2-year-old whisky today for $1 a pint, that anybody is making a very large profit. I know that we distillers are not. I know, further, that all our customers, who are mostly rectifiers—we sell in bulk chiefly to these rectifiers up in Massachusetts and adjoining States, who take this whisky and bottle it in private brands.
I know their financial condition. I know that there is not a rectifier among that group that is operating on a per-gallon net profit or a percase profit of more than 50 or 75 cents. That is about 25 cents a gallon. Now, if you take this competitive differential of 25 cents, it is going
to be tough. It is going to drive some of them out of business. Mr. COOPER. You and many of the others who have appeared here have spoken in the interest of the little fellow.
Mr. HIGGINS. I am speaking in the interest of my own company.
Mr. COOPER. I understand. But the interest of the little fellow has been emphasized all the way through.
Mr. Higgins. That is right.
Mr. COOPER. It is rather significant to me that every time we have a tax matter under consideration, the interest of the little fellow is always the thing that is emphasized. When the undistributed profits tax was under consideration, it was all in the interest of the little fellow that it should be repealed.
Now, the tax rests evenly and equally on everybody, does it not? Mr. HIGGINS. That is right.
Mr. COOPER. The big ones will benefit or suffer just to the same extent as the little ones?
Mr. Higgins. That is right. And that is what we want in this case.
Mr. COOPER. For my part, it does not make a very favorable impression to keep emphasizing the interest of the little fellow, because the tax is the same against everybody.
Mr. Higgins. Precisely, and what we want, Mr. Cooper, in this case, is to have the tax levied on the big and little fellow alike and give no one any competitive advantage.
That is one of the troubles in this industry since it was restored in 1933; all this pulling and hauling by different branches of the industry, through Government regulations, or through some other source, to try to gain a competitive advantage. We do not want any competitive advantage created in this case. If that floor tax does not go on, the big, well financed, strongly financed companies, are going to secure a competitive advantage. There is no question about that.
Mr. KNUTSON. Mr. Higgins, you said something about being up against a high grain market. How much do you pay for grain now?
Mr. Higgins. Well, I do not know. I rather think a mixed bushel of grain—this is just a guess-is about between 80 and 90 cents today. That is, corn, rye, and barley.. Barley is quite expensive. During the drought period in ran as high as $1.50 for a mixed bushel.
Mr. KNUTSON. I believe the price of rye and corn in the Minnea polis market is somewhere around 55 cents. Certainly the freight would not be over 20 cents to Boston from Minneapolis.
Mr. HIGGINS. That is right.
Mr. Higgins. But your barley must be taken into account. We use 10 percent malt.
Mr. KNUTSON. Barley is down. What kind of barley do you use, malt barley?
Mr. HIGGINS. Barley malt.
Mr. KNUTSON. That is less than $1 a bushel, is it not? You are using foreign malt, are you not?
Mr. HIGGINS. No. We are buying domestic malt, as I understand, from the Columbia Malt Co. I am not the buyer of our organization, but I understand that everything we use is domestic grain. I know that one company we buy from, is the Columbia Malt Co., up in the Northwest somewhere.
Mr. LAMNECK. How much of a production have you?
Mr. Higgins. We have a capacity of 1,500 bushels, which produces about 150 barrels a day. We were in continuous production from February 1935 up until the middle of last month, either on three-fourths or full capacity. We were producing from 110 to 140 barrels a day.
Mr. LAMNECK. Of whisky?
Mr. HIGGINS. We believe it is a good brand, and it is well-accepted in the trade. We hope it is a good brand.
Mr. LAMNECK. These rectifiers that mix 2-year-old whisky with neutral spirits, are they an injury to the distiller of whisky or not? Mr. Higgins. I do not think so. I think they
I think they are a very important adjunct to the distiller. All rectifiers do not mix alcohol and whisky. A great number of the rectifiers are doing no blending at all. They are merely buying bulk whiskies, say 100 to 110 proof, taking it into their own plant, and reducing it to 90 proof, which is a palatable proof, and then bottle it under a private blend to compete with the nationally known brands.
Mr. LAMNECK. That is all,
Mr. O'NEAL. Mr. Chairman, if I may be permitted to make an announcement, I would like anyone who has come here and is interested in this bill to come forward, give his name, and make a statement as to whom he represents, so that it will be a matter of record for the committee.
Mr. CROWTHER. Mr. Chairman, before the next witness is heard, I would like to read four or five lines from a statement on a subject that Mr. Cooper and I have been interested in. This is from evidence given before this committee from the brief of Mr. Landis, attorney for the Wholesale Liquor Dealers' Committee of the city of New York. Just listen to this:
The prices being charged are entirely out of proportion to the true value being offered to the public, As to blended whiskies, we quote from the price list of the American Medicinal Spirits Co., Green River blended whisky as follows: $12 per case to the consumer; $31.50 to the retailer; to the privileged retail buyers, in 50-case lots, $29.30 per case. To the unfortunate wholesale buyer who must purchase a minimum of 600 cases, $26.77 per case.
The actual value of this blended whisky is $9 per case.
Mr. COOPER. Mr. Chairman, Mr. Fuller of Arkansas requested me to present this telegram for the record. The telegram is addressed to him. Mr. Fuller had to leave and asked me to put it in the record. I want to read the telegram and ask that it be made part of the record.
Mr. CULLEN. Without objection,
All dealers that I know of are opposed to floor tax. To try and collect floor tax from dealers in Arkansas would put a big percentage of them out of business because they would be unable to pay it. Feel that the cost of collection of floor tax would exceed amount Government would derive from it. All Arkansas dealers urge you to use your influence against this.
L. G. ROARK.