TO AMEND THE FAIR LABOR STANDARDS ACT OF 1938

SATURDAY, MAY 8, 1971

HOUSE OF REPRESENTATIVES,

GENERAL SUBCOMMITTEE ON LABOR,

COMMITTEE ON EDUCATION AND LABOR,

San Juan, P.R.

The subcommittee met at 9:30 a.m., pursuant to recess, in the fifth floor courtroom, Federal Building, San Juan, P.R. Representative John H. Dent (chairman of the subcommittee) presiding.

Present: Representative Dent and Hansen. Also present the Hon. Jorge Córdova, Resident Commissioner for Puerto Rico.

Mr. DENT. The hearing will now come to order. The General Subcommittee of the Committee on Education and Labor will resume hearings on H.R. 7130 and related bills to amend the Fair Labor Standards Act. The first witness will be Mr. Dudley Smith, representing the Puerto Rico Sugar Producers Association. Mr. Smith. Mr. SMITH. Chairman Dent,

Mr. Dent. Mr. Smith.

STATEMENT OF DUDLEY SMITH, VICE PRESIDENT, ASSOCIATION OF SUGAR PRODUCERS OF PUERTO RICO

Mr. SMITH. Mr. Hansen, Mr. Córdova. We are particularly appreciative of this opportunity of appearing before you, because there is no other industry in Puerto Rico that is so deeply and profoundly affected by the Fair Labor Standards Act and has been so throughout the years as has the sugar industry. We are particularly concerned with section 104 and 205 of H.R. 7130 as now written, but we would like to discuss many things related to this. We are very familiar with the committee setup.

There are two types of committees provided for under the act and we would like to talk to you some about those as we go along.

Mr. DENT. Mr. Smith, if you would feel more comfortable you may be seated to give your testimony.

Mr. SMITH. Thank you. I would prefer to stand. We have given Miss Fields 25 copies of our statement and I have some additional copies. I will not read the statement but would prefer to give you some of the highlights of it, hoping that you gentlemen will look through it after you have the copy.

Mr. DENT. We will make it a part of the record. (The statement referred to follows:)

(437)

STATEMENT OF MR. DUDLEY SMITH, ASSOCIATION OF SUGAR PRODUCERS

OF PUERTO RICO

My name is Dudley Smith. I am Vice President of the Association of Sugar Producers of Puerto Rico.

I am appearing here as the sugar industry witness and in response to Chairman Dent's letter of April 30, 1971 to Mr. J. B. Garcia-Mendez inviting the Association to appear before this Committee today.

Appearing before official bodies on the application of the Fair Labor Standards Act to the sugar industry of Puerto Rico is not a new experience to me. Throughout the period that the special industry committee and the review committee provisions of the Act have been in effect, I have appeared, as the industry witness, at every such committee hearing related to sugar and sugarcane. In addition to my work on behalf of the sugar industry of Puerto Rico in economic, social and technical lines, I have served as a consultant on sugar to governmental agencies, sugar organizations and other groups in many countries throughout the cane sugar world. Out of this background I speak to you today on the impact that the amendments to the Fair Labor Standards Act provided in H.R. 7130 would have on the sugar industry and on employment and wages in that industry.

Out of intimate experience with sugar and other agricultural industries in Puerto Rico, I believe I can appraise for you the way the Fair Labor Standards Act has worked in the island. Briefly the Act has had the effect of increasing the wage structure rather substantially. Some of this increase would have occurred anyway, but the effect of the Act must not be minimized. On the other hand, the flexibility provided by its terms with special reference to Puerto Rico has permitted the Act to accomplish this laudable objective without at the same time causing a disastrous level of unemployment.

With differences between conditions in Puerto Rico and in the mainland, the elimination of this flexibility would bring about disastrous results. We will undertake to show you what these results will be in sugar and will leave it to others to say what the results would be in their industries.

We want to assure you that our objectives are in line with yours and those stated in Section 2 of the Fair Labor Standards Act. Our objectives go farther, however, in that we strive and have striven through the years, within the concepts and traditions of free enterprise, to make as great a contribution to income and general wellbeing in Puerto Rico as is possible under the circumstances. These are in line with our responsibilities as stewards of a large part of Puerto Rico's major natural resource-agricultural land. No other use of the land so nearly meets these standards; however, conditions beyond our control have prevented us from doing a very good job in recent years. All of Puerto Rico is engaged in a huge campaign to remedy this situation. We hope to show you here today how you can assist us in getting back to where we can adequately meet all of our objectives and obligations.

The production of sugar involves both an agricultural and an industrial phase. I will not undertake to describe the agricultural phase in detail but suffice it to say that Puerto Rico formerly had a very successful sugarcane agriculture. Unfortunately, this no longer is the case. The fact that it is not the case cannot be ascribed in any great degree to the coverage of agriculture under the Fair Labor Standards Act but instead to conditions which would make the industry especially susceptible to disastrous effects of the inflexible provisions included in H.R. 7130.

Sugarcane production was formerly by far the major agriculture activity in Puerto Rico. In the past two or three years the dairy industry has surpassed sugarcane in the economic level of production, not so much because of an increase in dairying, but because of a decline in sugar. Sugarcane production is carried out on relatively large farms, so that except for dairies the principal part of the agricultural coverage under the Fair Labor Standards Act in Puerto Rico is sugarcane farms.

The industrial phase of the sugar industry has been covered by the Fair Labor Standards Act from the time of its enactment in 1938. All of us have had a broad opportunity to see the effect of the flexible provisions of the Act, as provided in the special industry committee set-up, in increasing wages and at the same time protecting employment.

The Puerto Rico sugar industry is an integral part of the greater U.S. sugar industry. As such, it competes with other U.S. areas and in addition competes with those foreign areas that together supply from 37 to 45 percent of U.S. sugar requirements.

The U.S. sugar market is supplied under terms established in the Sugar Act of 1948, as amended. Each year the U.S. Secretary of Agriculture establishes the quantity of sugar that will be purchased by consumers and prices which are fair and reasonable to both consumers and producers. This quantity of sugar is then divided between domestic and foreign areas, and the domestic portion is in turn divided between the different domestic producers, all according to formulae included in the Sugar Act. The operation of this Act, through the timely adjustment of these quotas, results in all producers selling sugar under the same market conditions and prevents any producer or group of producers from passing on to consumers through higher prices any increase in production costs. Thus, in considering factors which will substantially increase the cost of production, which would be the result of H. R. 7130, consideration should be taken of the inability of sugar producers to do anything other than absorb such cost increases themselves, or, as an alternative, to reduce economic activity.

Because of conditions in Puerto Rico, which have been recognized through the years as being significantly different from those in other U.S. sugar areas, the proposed amendment would fall with much greater gravity on the island's industry. Conditions which make this so in Puerto Rico as contrasted with other areas include:

(1) Lag in research in the island with regard to crop varieties, agronomic practices and production techniques which have resulted in a down trend in production in contrast with substantial increases in the other areas;

(2) inability of the island's sugar industry to mechanize, in contrast with the other areas which have become highly mechanized, because of labor policies, public policies and financial considerations; and

(3) greater distance from market and higher marketing costs (except in the case of Hawaii), giving the island a lower net return for sugar sold in the same market.

1. The lag in sugarcane research in Puerto Rico as compared with that in other U.S. areas, over the last 20 years, has been an important factor in the continued downward trend in the industry here while that in the mainland has been straining at its limits. Changes in relationships between Puerto Rico and these other areas in the quantity of sugar produced per acre, as shown in Table No. 1, have had an important impact on our competitive position and on economic conditions in the industry.

2. Not only has the economic production per acre gone down in Puerto Rico because of lag in research and education, but other aspects of sugar crop production have been affected as well. The development of machines, crop varieties and agronomic techniques suited to machines, and improved handling and transportation of sugarcane have put other areas far ahead of Puerto Rico. In the matter of mechanization, repeated efforts to introduce new and improved techniques in sugarcane production over the years have met with failure partly because of public policies and partly because of labor opposition. As a result Puerto Rico requires approximately five times as many manhours of agricultural labor to produce a ton of sugar as is the case in other U.S. areas. Table No. 2 shows for 1969 for Puerto Rico and other U.S. areas the number of manhours of agricultural work per ton of sugar, the number of pounds of sugar produced per manhour, the relative value of the sugar produced per manhour, the average hourly earnings of sugarcane workers, and the agricultural wage cost per ton of sugar. This table shows that even though wages are substantially lower in Puerto Rico than in the other areas, the per-ton agricultural labor cost in the island is approximately twice that of the other areas, due to even wider differences in productivity.

3. Puerto Rican raw sugar sells in either North Atlantic or Gulf Coast markets. In order to reach the markets, the sugar must be transported to coastal points, loaded aboard ships, moved to the mainland refineries and discharged. The cost of this is deducted from the market price of the sugar. (Hawaiian sugar is similarly handled.)

In the mainland, cane sugar factories, in contrast, the sugar is loaded in rail cars as produced and shipped to nearby refineries. Beet sugar is loaded in trucks and rail cars at the beet sugar factory and moved direct to consumers, usually at a price which includes a substantial freight prepay. Thus, except from sugar from Hawaii, other producers enjoy a marketing advantage of some 20 to more than 100 points above Puerto Rican sugar.

Puerto Rico's high cost and very weak competitive situation have been reflected in production and income trends in the industry over recent years. Table No. 3 shows the number of farms harvesting sugarcane in Puerto Rico, 64-566 0-71-29

the acreage of sugarcane harvested, the quantity of sugar produced and its f.o.b. mill value, and the island's quota deficits and the basic income lost in such deficits. These trends are largely the consequence of the unfavorable competitive position of the sugar industry of Puerto Rico as described above.

In addition to consideration of the competitive position of the Puerto Rican sugar industry in evaluating the impact of the amendments to the Fair Labor Standards Act provided on H.R. 7130, consideration should be given to the present public policy in Puerto Rico in regard to sugar. This policy is reflected in two developments.

1. The first is a statement of policy with regard to agriculture included in the report on this subject to the Governor from the Governor's Advisory Council for the Development of Government Programs. Pertinent excerpts from this report are as follows:

". . . The importance of agriculture as a source of income and employment makes it deserving of our closest attention and of every necessary aid to insure its continuing contribution to the economic and social welfare of our citizens."

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although agriculture provides direct employment to only one out of every ten persons in Puerto Rico, it indirectly supports almost half of the Puerto Rican population still living in the rural and semi-rural zone." "The exodus from the farms to cities in Puerto Rico and to the continent is due primarily to the widening differential between agricultural incomes and those obtainable in other sectors of the economy, especially manufacturing and services. Agriculture, relying upon traditional methods, has simply been unable to pay workers the salaries they can earn in manufacturing industries, or in agricultural tasks on more highly mechanized farms in the United States."

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. . . Great efforts have been made through the industrialization program to create in the rural zone employment opportunities not directly related to agriculture. These efforts have met with very limited success. It is now clear that the major effort to improve the situation of our rural areas has to be directed at attaining greater efficiency in agriculture itself, both in the per cuerda yield and in labor productivity."

"In keeping with this objective, the Advisory Council recommends that agricultural programs should emphasize investments necessary to reach the levels of productivity required to generate substantial benefits for both farmers and agricultural workers

The above quotations reflect the importance which the present Government of Puerto Rico places in agriculture as an instrument of economic production. 2. The second indication of public policy with regard to sugar is legislation and programs developed for the rehabilitation of the sugar industry. Under Act Number 69 approved by the Governor on June 25, 1969, the amount of $100 million is provided under a five-year program for the rehabilitation of sugar production. This program provides technical assistance and cost sharing for the rehabilitation of the sugar industry, including mechanization, agronomic practices, research, and related work necessary to place such industry in a position of competitive equality.

Economic conditions prevailing in the Puerto Rican sugar industry in recent years have made this rehabilitation program essential to return conditions which are of great interest to both agricultural workers and the general public in Puerto Rico. In fact, these economic conditions are so acute that substantial assistance must be given sugarcane farmers to keep them in business and to keep job opportunities alive. These conditions are represented by income, cost and earning trends, based on audited reports, for growers harvesting about 30 percent of Puerto Rico's sugarcane crop in the years 1961 to 1969. These data are shown in Table No. 4.

Losses sustained by these growers have been so heavy that some of them, along with thousands of smaller growers, have ceased sugarcane production and shifted their land to pasture or left it idle. (Table No. 3) Most of these farms now come under the exemptions of Section 13 (a) (6), so that both the workers and the Puerto Rican economy have lost heavily.

The factory side of the business also has been deeply affected by declines in both the volume and the quality of sugarcane. Table No. 5 shows the income costs and earnings of substantially all of the island's sugar factories for the years 1961 to 1969, with estimates for 1970. This table also shows the number of factories operating, tons of cane ground and the sugar produced from this

cane. Factory losses have been sustained until the net worth of the industry has been reduced by one-half. With the high portion of fixed assets, nearly all of the factories have lost all of their working capital and are sustaining financial problems which, in fact encourage the cessation of operations in several

cases.

This background setting of the competitive relationships dominating the sugar industry of Puerto Rico and the public policies of the Government of Puerto Rico in regard to sugar indicates the tremendous impact which H.R. 7130 would have through the increase in minimum wages, coupled with the elimination of flexible conditions which can be applied to an industry in this position.

Stated simply, the bill, by the removal of review committees, would impose within a two-year period an increase of about 60 percent in the minimum agricultural wage on sugarcane farms without any machinery for tempering this increase to the ability of the industry to pay. The results of this, together with the provisions of H.R. 7130 with regard to public employees, not heretofore covered, would force the almost complete cessation of sugarcane production on all farms in Puerto Rico. This is clearly shown by the economic and financial data we have submitted.

The cessation of sugarcane production would make the impact of the bill on the industrial side of the industry a moot question inasmuch as there would be no sugarcane for the mills to grind. However, assuming that the agricultural phase of the industry can in some way be kept in operation, we must take a look on the impact of the bill on the industrial side of the business. H.R. 7130 through its elimination of the hardship review committee provisions now contained in the Fair Labor Standards Act and the two successive 20-cent per hour automatic increases would raise the minimum industrial wage in the sugar manufacturing industry by about 30 percent over the next 20 months. An additional 10 percent increase in manufacturing wages would accrue from the elimination of the seasonal overtime exemption for sugar now contained in Section 13(b) (15) of the Act.

Sugarcane is one of the most perishable of all agricultural commodities. It must be processed within hours from the time it is harvested in order to avoid excessive losses of sucrose through inversion into non-crystalizable sugars. Moreover, the sucrose content of the sugarcanes is at maximum or optimum peak for a comparatively short period so that the processing season must be concentrated into about 18 to 20 weeks in order to achieve economic sugar yields from the cane. The elimination of the seasonal overtime exemption could not economically be offset by an increase in the period in which sugarcane is processed. The work-week must be continued at 144 hours or more as is the case in practically all of the sugarcane world. In fact, many areas operate their factories 168 hours per week. Thus, with the competitive relationships existing in sugar, the added overtime would have to be absorbed by the sugarcane processors. Clearly, the industry cannot sustain this and continue in operation.

Puerto Rican laws regarding the industrial workers in the sugar manufacturing industry provide for extra payment only after 48 hours of work in any week. This exemption does not apply to the non-processing season. Moreover, under Puerto Rican law the worker receives, not the time and a half, as in the Fair Labor Standards Act, but double time for work in excess of 8 hours per day or 48 hours per week.

Another aspect of Puerto Rican law relating to agricultural wages is Act number 141 of June 24, 1969. Under this law the Government of Puerto Rico currently supports the existing minimum agricultural wage by paying the difference between any wage rate below 90 cents an hour in 1971 and $1.00 an hour in 1972 and such levels without additional cost to the cane grower. This was provided by the Government of Puerto Rico in recognition of the need of the workers for higher wages and also of the inability of the sugarcane grower to pay such wages. One of the most important aspects of the two automatic 20-cent increases provided in H.R. 7130 would be to relieve the Government of part of the amount it is now paying.

May we again state our recognition that wage rates in Puerto Rican sugarcane production are depressingly low and must be increased as rapidly as possible. We refer particularly to the minimum wages for unskilled agricultural workers. It is the large number of such workers employed in the industry and the very low level of worker productivity, as has been shown,