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FEDER L RESERVE BO RD

WASHINGTON

X-7293

  T O

T H E  FEDERAL RESERVE BOARD

December

  16, 1932.

Dear

  S i r :

For  your further information  i n  connection with  t h e  grading

and  inspection work  now  conducted  by th e  Bureau  of  Agricultural

Economics

  of the

  United States Department

  of

  Agricul ture,

  you

  will

find inclosed  a  copy  of a  letter dated November  15  from  M r.  Nils

A.

  Olsen, Chief

  of the

  Bureau

  of

  Agricultural Economics,

  i n

  which

he  sets forth  a  clear  and  concise description  of  this service.  You

will also find attached  a  copy  of the  inclosure transmitted with

h i s

  letter showing

  t h e

  inspection markets where this service

  i s

conducted.

  On th e

  reverse side

  of

  th i s l i s t

  of

  inspection markets

you  wil l f ind  a  brief announcement  by the  bureau regarding  the

service with respect

  to

  canned fruits

  an d

  vegetables.

—   Very tr ul y yours,

Chester Morrill,

Secretary.

Inclosures.

TO  CHA.IEMEH AND GOVEENORS  OF ALL F . R .  BANKS.

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UNITED STATES DEPARTMENT OF AGRICULTURE

BUREAU  OF AGRICULTURAL ECONOMICS

Washington,

  D. C.

November  15, 1932 .

M r,  Chester Mo rr il l, Sec reta ry,

Federal Reserve Board,

Washington,  D. C.

Dear  M r.  Morril l :

Following your conversation  th e  other  day  with  M r.  Wells

A.

  Sherman

  of

  this Bureau,

  i t i s my

 understanding t ha t

  you

  desire

a  brief sta tement  of the  grading  and  inspection work  now  conducted

by

  this Bureau.

  The

  legal authori ty

  f o r

  conducting work

  of the

  kind

described  to you by Mr.  Sherman  i s  found  in the  annual agricultural

appropriation

  A ct

  reading

  a s

  follows;

For

  enabling

  th e

  Secretary

  of

  Agriculture, independently

  and

i n  cooperation with other branches  of the  Government, State agencies,

purchasing

  and

  consuming organizations, boards

  of

  trade, chambers

  of

commerce,  o r  other associations  of  business  men or  trade organizations,

and

  persons

  o r

  corporations engaged

  i n t he

  production, transportation,

marketing,  an d  d i s t r ibu t ion  of  farm  and  food pro duc ts , whether ope ra tin g

in one or  more jurisdictions,  to  invest igate  and  ce r t i f y  t o  shippers  and

other interested part ies

  th e

  class, quality, and/or condition

  of

  cotton,

tobacco, fruits  and  vegetables whether  raw,  dried,  o r  canned, poultry,

bu t t e r ,

  hay, and

  o the r peri shable farm products when of fe re d

  f o r

  i n t e r -

state shipment  o r  when received  a t  such important central markets  as t he

Secretary

  of

  Agriculture

  may

  from time

  to

  time designate,

  o r a t

  points

which  may be  conveniently reached therefrom, under such rales  a n d  regula-

t ions

  as he may

  pr es cr ib e, includi ng payment

  of

  such fees

  a s

  w i l l

  be

reasonable  and as  nearly  as may be  cover  the  cost  f o r t h e  service  r e n -

dered: Provided, That certificates issued

  by the

  authorized agents

  of the

Department shall  be  received  i n a l l  courts  of the  United States  a s  prima

facie evidence  of the  t ru th  of the  statements therein contained.

In

  providing such

  a

  service

  i t i s

  necessary

  to

  develop off icial

grades  o r  standards  of the  various products  i n  order that  t h e  grade  and

condition

  may be

  accurately ref lected

  i n t he

  o f f i c i a l ce r t i f i ca t e

  of

grade.  The  chief advantages  of the  development  of  such standards  may be

considered briefly  in two  groups:

( l ) The  advantages  of a  common language between buyer  and  s e l l -

er and  other fi na nc ia ll y inte rest ed pa rt ie s, l ike banks, that  a r e i n -

terested

  i n

  loaning money

  on

  agricultural products covered

  by

  warehouse

receip ts ,  and

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(2) The

  advantages

  of

  actually separating

  th e

  various prod-

ucts into different grades

  of

  market quality.

The  following paragraphs indicate  th e  extent  to  which grades

have been formulated

  f o r t h e

  principal commodity groups

  and

  whether

cer t i f ica t ion service

  i s

  avai lable .

(1) Raw  f r u i t s  and  vegetables  and  related products: Grades

have been established

  f o r

  p ra c t i c a l l y

  a l l o f t he

  important fresh fruits

and  fresh vegetables  and an  extensive official inspection service  i s

available both

  a t

  shipping poi nts

  and

  important receiving markets,

(2 )

  Canned f r u i t s

  and

  vegetables

  and

  related products.

  The

grading service

  on

  these commodities

  h a s

  only recently been organized

and

  standards have been formulated

  f o r

  several

  of

  these products.

Cert if icat ion service

  i s

  gradually being developed.

(3)

  Grades have been es ta bl is he d

  and

  o f f i c i a l c e r t i f i c a t i on

carried  o n f o r  bu tt er , cheese, eggs,  and  dressed poultry.  The  inspection

of

  dressed poultry

  f o r

  condition

  and

  wholesomeness

  i s

  also conducted

  a t

a  number  of  po ul try canning p l an ts . Likewise  a l l o f the  carlot receipts

of

  live poultry

  a r e

  inspected

  f o r

  health

  and

  crop condition

  in the

  city

of New York

(4) Hay,  beans, soybeans, rice  and  broomcorn. Grades have

been formulated

  f o r

  these products

  and

  considerable certification work

performed,

(5 )

  Meats. Grades have been es ta bl is he d

  f o r

  beef, lamb, mutton,

veal  and  pork  and a  cer t i f ica t ion service  i s  avai lable  i n a  number  of the

important markets.

(6 )  Livestock. Grades have been formulated  f o r  ca t t l e  an d  hogs

and

  sheep

  b u t

  thus

  f a r t h e

  Bureau

  has no t

  undertaken

  to

  grade

  and

  c e r t i f i -

cate  th e  grade  of  live animals.

(7 )  Tobacco. Grades have been es ta bl is he d  f o r a l l o f t h e  impor-

tant types

  of

  tobacco

  and a

  grading service

  i s

  conducted both

  a t t h e

  time

tobacco  i s  sold  by  growers  on  auction floors  and a t  tobacco prizeries,

(8)  Wool. Limited grades , based  on  diameter  of  fiber only, have

been formulated

  f o r

  wool

  b u t

  thus

  f a r th e

  Bureau

  has no t

  developed

  a

  certi-

f icat ion service  f o r  this commodity.

(9 )

  Hides . Tentative grades have been formulated

  f o r

  hides

  b u t

no

  cer t i f ica t ion service

  h a s y e t

  been developed.

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X-7293-a

The  grading service  on the  commodities just mentioned  i s

performed only upon request

  and the

  ava i l ab i l i t y

  of the

  service

depends upon

  th e

  extent

  to

  which

  i t h a s

  been developed.

  The

  scope

of the  service varies with  th e  different commodities.

The

  standardization

  and

  inspection work conducted

  f o r

  cotton

and  grain  i s  carr ied  on  under specific Acts  of  Congress such  as the

United States Cotton Standards

  Act , and the

  United States Grain

Standards

  A ct . The use of the

  off icial grades established

  f o r

  cotton

and  grain  i s  mandatory  i n  transactions made  on the  bas i s  of  grade.

The use of

  grades

  f o r a l l

  other commodities

  i s

  permissive.

  You a r e

famil iar ,

  of

  course,

  a s I

  believe

  a l l o f the

  members

  of the

  Federal

Reserve Board  a r e ,  with  th e  United States warehouse  Act and the  stand-

ardization provision contained therein which requires that

  th e

  grade

o f a l l

  fungible products stored

  i n

  Federally licensed warehouses must

be

  shown upon

  th e

  warehouse receipt

  but may, at the

  request

  o f the de -

pos i to r ,

  be

  omitted

  on

  receipts issued

  f o r

  non-fungible products.

The  location  of  offices performing inspection  and  grading

services  i s  such  as to  bring them into close proximity with  th e  most

important producing areas

  and

  with

  th e

  important receiving markets

  of

th e

  country.

  A few

  copies

  of the

  l i s t

  of

  off ices grading f rui ts

  and

vegetables  a r e  enclosed.

Official inspection, grading,

  and

  ce r t i f i ca t i on

  may be

  requested

by any  par ty f inancial ly in teres ted  i n a  given  l o t o f  fann product s,  i n -

cluding sh ippers , common ca r r i e r s , pub lic warehousemen, broker s, bankers,

and

  receivers.

The  c e r t i f i c a t e s  a r e  useful :

(1) As

  supporting evidence

  of

  quali ty

  i n

  making deliveries.

(2) As

  off icial evidence

  of

  condition

  and

  qual i ty

  to

  enable

bankers

  to

  correctly appraise paper offered them

  a s

  co l la te ra l .

(3) To

  assure rec eivers

  and

  bankers

  of the

  compliance

  o r n o n -

compliance

  of

  products

  f o r

  which there

  may be

  legal minimum require-

ments

  of

  quality when moved

  i n

  interstate commerce.

  For

  example

  the

Federal Food  and  Drugs  Act now  re qu ir es ce rt ai n canned products below

U. S.

  Standard

  to

  bear certain legends

  on

  labels.

(4)  Transportation companies  use the  c e r t i f i c a t e s  of  grade  and

condition

  i n

  settlement

  of

  claims.

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  X-7293-a

O f f i c i a l ce r t i f i ca t e s

  of

  grade

  a r e

  widely used

  on

  staple

products which

  of

  necessity must remain

  a t

  warehouses

  f o r

  inde f i -

ni te periods while awai ting marketing. Many producers

  of

  such

products

  a r e

  obliged

  to

  borrow heavily

  i n

  order

  t o

  finance their

operations

  and

  natu rall y resort

  to

  pledging their warehoused stocks

a s

  co ll at er al . Thus

  th e

  in t e r e s t

  of

  f inancia l ins t i tu t ions

  a n d d i s -

counting

  and

  rediscounting agencies

  i s

  re ad il y appar ent. Quite

  a num-

ber of

  these insti tutions f ind

  i t t o

  their advantage

  t o

  fortify them-

selves with official assurance  of the  character  of the  merchandise

on  which they  a r e  asked  t o  advance money  in  addit ion  to the  claims

of the  borrower.

A  c e r t i f i c a t e  of  grade covering canned fruits  and  vegetables

f o r

  example covers

  a t

  least four salient points:

(1) The  size  and  precise location  of the lo t  graded,  i f the

samples have been officially drawn.

(2) How the

  samples were drawn

  and by

  whom.

(3) An

  accu rate determination

  of the

  condition

  o f t h e l o t .

By

  condition

  we

  r e f e r

  n o t

  only

  to the

  condition

  of the

  product

  bu t

to the  condition  of the  glass  o r t i n  container  i n  which preserved

and the

  type

  o f

  package

  in

  which packed.

(4) Hie

  statement

  of

  grade based upon standards

  o r

  grades

approved

  f o r t h e

  purpose

  by

  this Bureau.

I t has

  been

  th e

  earnest endeavor

  of

  this Bureau

  i n

  developing

t h e

  various grades

  to

  have

  i n

  mind

  th e

  needs

  of the

  interes ted par t ies .

In

  such commodities

  a s

  canned fruits

  and

  vegetables

  we

  have been parti-

cular ly careful

  to

  embody those factors

  in the

  grades which make possible

their proper evaluation.

  Die

  in t e r e s t s

  of the

  lending agencies

  a r e

  being

served,

  we

  f e e l ,

  in ou r

  e f f o r t s

  to

  give

  a s

  accurate

  a

  picture

  a s

  possible

of the

  condition

  a s

  well

  as the

  grade

  of

  stored merchandise.

Very truly yours,

Enclosures

(S )

  Mils

  A.

  01sen

Chief

  of

  Bureau.