Mr. McCORMACK. Suppose you had a lot of labels which you had had printed or obtained, and they changed their regulations: you would have to destroy the labels?

Mr. COLEMAN. That is correct; they have continually changed them during the past year.

Mr. McCORMACK. Does another department issue instructions on labels?

Mr. COLEMAN. The pure food and drug law.

Mr. McCORMACK. Do you have to conform to them, too?

Mr. COLEMAN. And to our State law as well.

Mr. McCORMACK. Suppose you got an order from the F. A. C. A. and the pure food and drug department, and they conflicted: what would you do?

Mr. COLEMAN. We followed the F. A. C. A. this last year and our State law.

Mr. McCORMACK. In other words, it creates an uncertainty?
Mr. COLEMAN. It certainly does.

The CHAIRMAN. We thank you for your appearance and the testimony which you have given the committee.

The next witness is Hugh J. McMackin, National Wholesale Wine and Liquor Dealers' Association.

(No response.)

Next is A. Sidney Johnston.

STATEMENT OF A. SIDNEY JOHNSTON, PRESIDENT ASSOCIATED COOPERAGE INDUSTRIES OF AMERICA

Mr. JOHNSTON. Mr. Chairman and gentlemen of the committee, I reside in St. Louis, Mo. I am here tonight as president of the Associated Cooperage Industries of America, which is the national trade association of the cooperage industry.

Our industry appears here in unanimous support of paragraph (f), section 4, page 9, of H. R. 8539, denying the right of the Commission of the Treasury Department to prohibit the use of wooden barrels, casks, and kegs as containers for the bulk distribution and sale of spirits, wine, or malt beverages.

If this right be not denied, both F. A. C. A. and the Treasury Department have stated their purpose to continue the monopoly they have heretofore granted the glass-bottle industry under the N. R. A. codes and their regulations.

To do this would deny the cooperage industry the right to compete for a large volume of business which it enjoyed prior to prohibition and that naturally belongs to it.

Both the Treasury and F. A. C. A. frankly admit the fact of this complete monopoly, notwithstanding the statement in the codes that they are [reading]:

Not designed to promote monopoly or to eliminate or oppress small enterprises and will not discriminate against them, and will not permit monopolies or monopolistic practices.

However, they attempt to justify the continuance of the monopoly on the grounds of "law enforcement" and revenue collection."

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Such a monopoly cannot be justified on either ground, but to the contrary, bulk distribution and sale of legal spirits will so improve

the quality and reduce the cost of liquor to the consuming public that it will substantially reduce the price incentive which is largely responsible for so much law violation and for the loss of untold millions of dollars of revenue to the Government.

The purported reason for the Treasury policy of prohibiting bulk sales is expressed in the report to the Treasury of Mr. J. M. Doran, when he was commissioner of industrial alcohol, in the following words (reading):

Unless measures are taken to aid its prevention, a substantial trade in such goods will probably be carried on through unscrupulous rectifying and blending establishments. Such establishments will be able to purchase comparatively small quantities of legally produced wines or spirits, and under the cloak of this legitimate trade to blend the legally-purchased products with substantial quantities of the illegal tax-free product. Such establishments will thus be a means of injecting the illegal product into legitimate channels of trade.

In other words, Mr. Chairman, in order to prevent unscrupulous rectifiers and blenders from buying bootleg in bulk, they would prohibit the sale of legal spirits in bulk to anyone except those very same rectifiers and blenders. But the fact is that legal bulk whisky would be so cheap that the rectifiers would not have the incentive to buy bootleg spirits, and bootleggers would have no more incentive to sell it than existed before prohibition, when bulk sales were permitted.

Both the Treasury. Department and F. A. C. A. have repeatedly asserted that the right to distribute distilled spirits in bulk containers means nothing, or is of insignificant consequence to the cooperage industry. The basis for this assertion is the fact that spirits are aged in wooden barrels and that if bulk distribution were permitted, it would be distributed in these same barrels without increasing the output of cooperage.

The facts are that prior to prohibition, while more than 70 percent of the distilled spirits produced was distributed in bulk containers, and only a very small part was distributed in the 48-gallon bourbon barrels used for aging. By far the largest part was distributed in wooden kegs of from 1 gallon to 25 gallons in capacity.

Both the Treasury and the F. A. C. A. have gone so far out of their way as to tell the cooperage industry it should be grateful to them for the business which the industry still enjoys in the manufacture of barrels for aging purposes, instead of complaining because a monopoly has been granted to the glass-bottle manufacturers in the distribution of distilled spirits.

Based on an estimated maximum production of legal whisky in 1934 of 108 million gallons, not more than 2 million bourbon barrels were produced by the entire cooperage industry. At an average price f. o. b. factory of $5 a barrel, the volume of this business amounted to not more than $10,000,000.

Of the distilled spirits produced in 1934, the withdrawals for consumption amounted to approximately 60,000,000 gallons, as compared to average pre-war withdrawals of 130,000,000 gallons. Assuming that 1934 consumption merely equaled the average prewar withdrawals, the bootleg-liquor industry in 1934 amounted to at least 60,000,000 gallons. But of the 60,000,000 gallons withdrawn in 1934, if bulk distribution and sale had been permitted as before prohibition, 70 percent, or not less than 42,000,000 gallons, would

have been distributed in wooden kegs and barrels. Assuming that half of this would have been distributed in the original aging barrels, still 21,000,000 gallons would have been distributed in kegs, and would have required the equivalent of 4,200,000 five-gallon kegs. At an average cost of 20 cents per gallon, or $1 per 5-gallon keg, the sales value of these kegs to the cooperage industry, based only on the total withdrawals of 60,000,000 gallons, would have amounted tc $4,200,000.

If, based on preprohibition withdrawals of only 120,000,000 gal. lons, the equivalent of 8,400,000 five-gallon kegs would have been used, with a sales value of $8,400,000; and based on the most reliable Government estimates of what the consumption would be after repeal-180,000,000 gallons annually-the bulk distribution of 35 percent of this volume would have required the equivalent of 12,600,000 five-gallon kegs, or the equivalent of a sales value to this industry of $12,600,000 annually.

Bear in mind that this accounts for only one-half of 70 percent of the withdrawals, or estimated withdrawals, the other half, or 35 percent, being allocated for distribution purposes to the original aging barrels.

Assuming that the average cost for kegs is 20 cents per gallon and that the additional cost is nothing for the other one-half of the bulk shipments which would be distributed in the original aging barrels, the average container cost would be only 10 cents per gallon if bulk shipments were permitted as before prohibition, whereas distillers have been charging from $1.50 to $3 per case for bottling and packaging costs, and independently of freight charges. They are, of course, in position to charge more or less just as long as the bottling monopoly is continued, and thus to contribute to the high cost of distilled spirits to the consuming public.

Whatever adds to the cost of legitimate spirits to the consuming public encourages and opens the door to the bootlegger, and we confidently assert that if the cost of legal spirits can thus be reduced even as little as $1 a gallon, the consumption of legal spirits and the payment of Federal taxes would be enormously increased and the consumption of bootleg liquor and the evasion of taxes correspondingly decreased.

This is what bulk distribution means to stave and heading producers:

In the production of staves and heading for the manufacture of bourbon-aging barrels, 48 gallons, there necessarily is produced, as a byproduct, an equal amount of offgrade or second-grade material. Bourbon-aging barrels require the finest white oak timber, less than 50 percent of that which is classed as "merchantable" being suitable and finally entering into the production of the bourbon barrel.

The remainder contains checks, knots, streaks, and other defects which it is necessary to cut off, thus making the material suitable for kegs. Based on an estimated production in 1934 of 2,000,000 bourbon barrels, approximately 50,000,000 bourbon staves and 20,000,000 pieces of bourbon heading were required. This resulted in the production of an equal number of pieces of off-grade and cut-off stock. A survey made by our association discloses the fact that

at the present time there are in the principal southern States producing such stock approximately 50,000,000 cut-off staves and 20,000,000 pieces of cut-off heading suitable for kegs that could and should have been used in the bulk distribution of distilled spirits. This stock of the finest quality is rotting on the ground because of the absence of a market. If bulk sales are generally permitted the f. o. b. mill value of this stock would be approximately $1,550,000. This stock is tied up and wasting, not only a valuable natural resource, but the profit of timber owners and mill men, who must rely on its sale for their profit on the bourbon barrel stock primarily produced.

This material now on the ground would have produced the equivalent of 3,000,000 5-gallon kegs, or approximately three-fourths of the volume of kegs that would have been required in the distribution of the 1934 withdrawals of 60,000,000 gallons if bulk sales had been permitted.

Before prohibition all surplus keg stock was consumed, and many mills specialized in producing keg stock from timber that was too small or defective for larger barrel stock. Thus they were permitted to utilize all of their standing merchantable timber, whereas today a large part of it is wasted.

The restoration of the right to make bulk distribution and sale of distilled spirits would not only provide a profitable market for the keg stock now necessarily produced and wasted, but enable the farmer and small-timber owner to properly utilize his timber and employ many additional men who are now out of work.

If tax-paid withdrawals in any year should equal the average preprohibition withdrawals of 130,000,000 gallons, the cut-off stock, instead of going to waste, would represent only three-eighths of the normal requirements of such material; and should such withdrawals equal the advance estimates of 180,000,000 gallons, the material now being wasted would supply one-fourth of the requirement for such kegs, thus not only reestablishing but increasing an industry which the timber-growing States of the South are woefully in need of and entitled to, especially under present conditions.

It must be borne in mind that these figures contemplate bulk distribution in wooden kegs of only 35 percent of tax-paid withdrawals, either actual or estimated, the remaining 35 percent of bulk withdrawals being shipped in the original aging barrels.

Wooden barrels and kegs, the standard liquor containers for centuries, have been outlawed as containers for distribution and sale of spirits. The glass-bottle industry, dominated by one firm, has been granted a complete monopoly at the expense of the cooperage industry. The cooperage industry does not ask you for a monopoly; it simply seeks the right to be permitted to compete with the bottle industry in this field on an equal basis. It asks that the distiller and the consuming public be given a chance to choose between the bottle and the barrel, and to use one or both for distribution and sale if he so desires.

Thank you very much for your consideration, and I should like to have the privilege of revising and extending my remarks in the record, together with a supplemental brief which I have here in this

matter.

(The brief referred to is as follows:)

THE LIQUOR INDUSTRY AND THE GLASS-BOTTLE MONOPOLY UNDER FEDERAL ALCOHOL CONTROL ADMINISTRATION CODES AND H. R. 8001

(Submitted by the Associated Cooperage Industries of America, Inc., St. Louis, Mo.)

ORIGIN OF BOTTLING RESTRICTIONS

The so-called "bottle regulations", which restricted the distribution and sale of distilled spirits to glass bottles of a capacity not in excess of 1 gallon, were written into the codes of fair competition for the alcoholic-beverages industries. Under these regulations, only rectifiers, blenders, and State-owned stores were allowed to purchase spirits in bulk. The wholesale and retail liquor dealers, who could purchase spirits in bulk before prohibition, were prohibited from doing so.

The hearings on the codes, including the report of the President's Interdepartmental Committee, do not indicate exactly how the bottling provisions became a part of the codes. Apparently the simple statement was made that distribution and sales must be confined to bottles to control the liquor traffic and protect the revenue. As far as we can ascertain, no facts or figures were given and no survey was made to provide a basis of fact for this arbitrary assumption. Certain large distilling interests, then making medicinal whisky under permit, supported the bottling provisions for reasons which will be shown later.

The bottle regulations were put in force with the announced purpose of controlling the distribution and sale of liquor, of driving out the bootlegger by controlling his bottle supply, and of protecting the revenue. The reuse and resale of empty legal bottles was made illegal, forcing buyers of whisky to destroy the bottle. (This regulation, incidentally, was estimated in newspaper articles to mean an additional revenue of some $7,000,000 a year to the bottle industry.) Other regulations provided that certain identifying marks must be blown in the bottles, and that sales and purchases of bottles must be recorded. All of this, of course, was apparently aimed at the bootlegger.

FALLACY OF BOTTLE REGULATIONS

The bottle regulations did not accomplish their announced purpose because they are based on several false premises. These are:

1. They attempt to stop cheating at the manufacturing and bottling end, when the cheating occurs at the retail end.

2. They controlled (or attempted to control) the bottle supply to eliminate the bootlegger, when the bootlegger markets but a small proportion of his product in bottles. The bootlegger sells the major portion of his output in gallon jugs and 5-gallon cans.

3. The regulations did not take into consideration the fact that a bottle is a bulk package, just as well as a barrel, and can be tampered with. There is nothing to prevent the law-violating bartender from filling all of his legal empty bar bottles with bootleg whisky from a 5-gallon can, and then throwing the can away. This is what he is doing. It is common knowledge in the trade that brands of liquor that bear metallic labels are in demand because the label can be washed and the bottle can be used for months without replacement. A new type of law violator has sprung up, the "bottlelegger who collects empty legal bottles and sells them to the law violators.

4. The bottle regulations were based on the further premise that the bootlegger could be eliminated by regulation and police power. This was tried for the many years of prohibition, and the bootlegger grew stronger and more powerful.

PROOF OF FAILURE

1. Tax paid withdrawal figures for 1934 show that the legal liquor industry sold approximately 60,000,000 gallons during that year. The preprohibition yearly average tax paid withdrawals between 1912 and 1916 were 130,000,000 gallons. In other words, less than one-half of this proprohibition average was withdrawn in 1934 despite the fact that the population of the United States has increased by some 26,000,000 persons, women are drinking today, etc. 144206-35——6