basis, the Corporation shall not bear any costs in connection with making such commodity available beyond the cost of the commodities to the Corporation in store and the handing and transportation costs in making delivery of the commodity to designated agencies at one or more central locations in each State." Nor shall the foregoing restrictions apply to sales of commodities the disposition of which is desirable in the interest of the effective and efficient conduct of the Corporation's operations because of the small quantities involved, or because of age, location or questionable continued storability, but such sales shall be offset by such purchases of commodities as the Corporation determines are necessary to prevent such sales from substantially impairing any price-support program, but in no event shall the purchase price exceed the then current support price for such commodities. For the purposes of this section, sales for export shall not only include sales made on condition that the identical commodities sold be exported, but shall also include sales made on condition that commodities of the same kind of comparable value or quantity be exported, either in raw or processed form. Notwithstanding the foregoing, whenever prior to December 31, 1963, the Secretary determines it necessary in order to assure the Nation an adequate supply of milk free of contamination by radioactive fallout, he may make feed owned or controlled by the Commodity Credit Corporation available to producers of milk in any area or areas of the United States at such prices and on such terms and conditions as he deems appropriate in the public interest. (7 U.S.C. 1427.)*

7

LOAN RECORD OF THE FLUE CURED ASSOCIATION

Mr. WHITTEN. If the tobacco did not pay it, you could not collect it. Mr. GODFREY. That is right, except they might make a profit. I did not point out that the Flue-cured Stabilization Co-op had actually distributed more than $16 million in profits to farmers prior to 1954 on prior year crops. This was in addition. They paid off the loans completely, plus interest, paid all the carrying charges themselves on the operation in 1946 through the 1953 crop years, and distributed to producers $16 million additional. Now, this is considered to be quite a record.

There is one other point I wanted to make. I said no tobacco companies had pressured or said anything to us about the offering of this, other than general comments that are made from time to time that we should reduce stocks as much as we could, but some Members of Congress had asked repeatedly that we set realistic prices on 1955-56 crops of flue-cured tobacco in order to move it into trade channels.

Mr. WHITTEN. As you know, I am not as familiar with the tobacco program as I am with many others, because I do not come in direct contact with it except as chairman of the subcommittee. I try to follow it and try to do the best I can with it.

In other commodities of which I am aware, the co-ops sometimes compete with each other to sell at a high price, or there is some degree of competition. Where you have only one co-op and their fee to belong is $5, în effect you have an arm of the Government in this type of case, and an arm without any financial investment in it. I mean the co-op cannot lose. It might win. If it runs in the ground, all you can look to is the tobacco it holds, but if it makes some profit above the loan program they can divide it among the producers.

The two preceding sentences were added by sec. 301 of the Agricultural Trade Development and Assistance Act of 1954, 68 Stat. 458.

This sentence was added by the Act of July 29, 1954, 68 Stat. 583.

7 This sentence was added by the Act of January 28, 1956, 70 Stat. 6.

This sentence was added by the act of September 27, 1962 (75 Stat. 293).

ONE FLUE-CURED ASSOCIATION

Now, is there any particular reason why you have only one? I am asking from curiosity.

Mr. GODFREY. This is history. When they originally set up this type of operation for the price support program, only one co-op was formed for flue-cured to serve the five flue-cured States. You could say six. One is a little bit small in production-Alabama. Only one co-op was set up. This was set up by the joint efforts of the tobacco leadership and farm organization leadership in these five States.

In the case of burley we had a little different situation. As Congressman Natcher recalls, we had big burley in Kentucky. They had one in Tennesseee. In fact, we had two or three co-ops in Tennessee at one time, and one of them came over and handled North Carolina burley tobacco through an arrangement there. But in fluecured, when we froze the price on all tobaccos in 1959, we in effect then said that the possibility of making a profit on stocks that you now have is nil. This is because you then stop the general rise in prices that have prevailed for tobacco for several years and that still prevail for some other commodities. They would have to carry stocks in storage, pay storage charges, handling charges, and everything else, so you in effect stopped the possibility of making any profit. Since we are as you said underwriting their operation, the creation of an additional co-op would mean additional overhead expenditures as far as the Department is concerned, and they would be operating in the same field.

Most of your redrying in the case of flue-cured and storage takes place in the North Carolina-Virginia area. Even though it may be produced in Florida, Georgia, or South Carolina, your redrying and storage takes place in the Virginia-Carolina area.

Mr. WHITTEN. Here is another question that comes to my mind in this type of an arrangement. Where they handle all the operations in this area, and in the event they sell it above the Government's investment, including support, plus carrying charges, plus all the other elements entering into it-you get what is left after they take out their storage, handling charges, and all of that. How much control do you exercise over how much they spend operating that co-op?

Mr. GODFREY. Their budget is submitted to us annually. Every item in the budget is approved by us.

Mr. WHITTEN. Do you have that same approach in any other commodities?

Mr. GODFREY. To a degree in peanuts, yes, sir. Peanuts and tobacco are two-and naval stores is another.

REPRESENTATIVES OF FOREIGN BUYERS AT TOBACCO SALE

Mr. WHITTEN. Did you have any representatives of foreign buyers or foreign tobacco groups present at your sale on Monday?

Mr. GODFREY. Generally the exporters are considered representatives of foreign buyers. The Tobacco Association of the United States is an association made up of exporters. Then we have a Leaf Tobacco Exporters Association, and the people who normally buy for export, like Universal, are representatives of foreign customers when they buy.

Mr. WHITTEN. Did you have anyone here from abroad who attended the meeting of which you are aware now, and has there been any complaint filed by any representatives?

Mr. GODFREY. I do not know.

Mr. WHITTEN. I wish you would check on that. It has been reported that not only was there some complaint but that some of them were here from abroad. The question arises in my mind how they had advance notice of such a sale so as to be present.

Mr. GODFREY. We have had a complaint from a foreign exporter, southern Rhodesia, and we read this in the papers last week, that they were afraid we were recapturing some of the markets that we had lost. Mr. WHITTEN. Mr. Natcher.

VALUE OF TOBACCO PROGRAM

Mr. GODFREY. I wanted to bring out one or two facts about tobacco. We have been operating a tobacco program now since 1934, and I think that the record should show that the amount of Federal taxes collected annually is considerably in excess of the value of the tobacco crop to farmers, so it is a big revenue producer.

The record should show, also, I think, in addition to this, tobacco is an important factor in our balance of payments because we are exporting 35 to 40 percent of our flue-cured crop.

I think we should show, also, that the tobacco program, as such, has cost the American taxpayer less than any other farm program, in total. I have figures here available for 5 years, 1956 through 1960, for the six basic commodities, which show that the total value of export programs, as far as percent of the value of exports, only 1.1 percent of the tobacco cost went into this.

Other commodities ranged from 10.7 up to 55.6 percent

I point out that the average per farm for the cost of all tobacco programs for the 5 years was $34 per farm, whereas for the other five basic commodities it ran from $148 to $158, $430, $770, and to $5,788.

LOSSES FROM FEBRUARY 11 SALE

Mr. NATCHER. Mr. Godfrey, since some 91 million pounds of 195556 flue-cured tobacco were sold on February 11, and subsequent sale dates

Mr. GODFREY. Roughly. I have not seen the latest figures, but I believe Mr. Turner told me this morning it was 82 million.

Mr. NATCHER. Under the tobacco program that we have in effect today, the Flue-Cured Stabilization Corp. of Raleigh will now be in a position to make demands on CCC for a refund in the difference in the sale price, am I correct?

Mr. GODFREY. This is essentially correct, yes, sir.

Mr. NATCHER. How much refund will you have to make in this particular instance?

Mr. GODFREY. Would you want to start from the original investment minus carrying charges?

Mr. NATCHER. Yes.

Mr. GODFREY. If you started from the original investment minus the carrying charges, it would be the difference in the support level for these particular crops, and the 45 cents average that we received.

Mr. NATCHER. Can you tell me how many million dollars this is going to amount to?

Mr. GODFREY. The average support price was about 5 cents a pound higher than the average selling price and 82 million at 5 cents a pound would give you about $4.1 million.

Mr. NATCHER. $4.1 million refund to the Flue-Cured Corp.

Mr. GODFREY. For the original investment.

Now, if you add to that the carrying charges, storage charges, interest charges, insurance, and everything for the 6 and 7 years, it would run much higher.

Mr. NATCHER. Was any of it in the 65- and 70-cent category, Mr. Godfrey?

Mr. GODFREY. I am not sure, sir. This will be shown on the sales prices.

Mr. NATCHER. Mr. Turner, can you tell me about this?

Mr. TURNER. The original price before the reduction?

Mr. NATCHER. Can you tell me how much of it was in the 65- and 70-cent category?

Mr. TURNER. No, sir, I do not have it for the tobacco that was sold, the total, that is.

Mr. NATCHER. Do you have the total?

Mr. TURNER. The average price, prior to the reduction, for the 1955 crop was $76.86 a hundred.

The average price for the 1956 crop was $79.34 a hundred.

Mr. GODFREY. But this included storage charges, interest, and so forth, for the 7 or 8 years added on to the original investment. Mr. TURNER. That is correct.

PRIOR SALES AT FIXED PRICE

Mr. NATCHER. At any time since the tobacco program started, can you give me an instance where this much tobacco was sold by bid at any time for any kind of tobacco? Do you know of a single instance? Mr. GODFREY. Yes, sir.

Mr. WHITTEN. You said by bid.

Mr. NATCHER. I meant by fixed price, not bid. By fixed price. Mr. GODFREY. The year before last, if I am not mistaken, Stabilization Corp. sold approximately 200 million pounds at the set fixed prices that were sent out in January.

Mr. NATCHER. Was this after sampling was permitted?

Mr. GODFREY. They can come in after the price is once published, they can come in and look at any hogshead of tobacco representative of a particular grade.

FEBRUARY 11 SALES USED IN DOMESTIC AND EXPORT MARKETS

Mr. NATCHER. Of the tobacco that was sold, can you tell me how much of it was sold for use in the domestic market?

Mr. GODFREY. We do not know, the figure I saw from stabilization said that 82 percent was bought by people who normally export tobacco.

Mr. NATCHER. Mr. Godfrey, is it not a fact that about 60 percent of it is for the domestic market?

Mr. GODFREY. We hope not.

Mr. NATCHER. You know, there is a little over $1 million, about $1,430,000 is under section 32 funds on this particular transaction. Mr. GODFREY. Of course. You do not receive section 32 funds under the export provision until after proof of export.

Mr. NATCHER. Proof of export has been had for $1,430,000.

Mr. GODFREY. This was tobacco that was bought during last year. Now, the tobacco that was bought on February 11 and subsequent to February 11, they have until the first of June to actually take delivery, and in some cases the first of August to take delivery. Export would come after that time.

Mr. NATCHER. The figure that they submitted to us, then, the Agriculture Marketing Service, of a little over $1 million, was for tobacco not covered by this particular transaction?

Mr. GODFREY. That is right, sir.

Mr. NATCHER. The tobacco covered by this transaction, this particular transaction, you have no figures on, up to this time?

Mr. GODFREY. That is right.

Mr. NATCHER. You do not know whether any of it will be exported? Mr. GODFREY. Except as indicated by who bought it.

Mr. NATCHER. I believe you stated, when our chairman was questioning you, Mr. Godfrey, that some 60 or 70 million pounds was sold on February 11?

Mr. GODFREY. That is right, sir.

Mr. WHITTEN. Will the gentleman yield?

Mr. NATCHER. Yes, I yield.

Mr. WHITTEN. There are two points that the gentleman brought up that I would like to raise here.

INTEREST OF COOPERATIVE IN SALES PRICE OF TOBACCO

First, did the cooperative have any interest in how much money you might recover, since you would provide to them the difference between what it might bring and what you had in the tobacco?

Mr. GODFREY. Yes, sir, they did. There is a feeling, I think Con gressman Natcher is aware of the feeling that exists among the tobacco people to the extent that they do not want any losses on the tobacco program if it can be avoided in any manner.

Mr. WHITTEN. Insofar as the particular business transaction, they had no risk of financial loss in this case?

Mr. GODFREY. Except as it reflects upon their business ability.

Mr. WHITTEN. Insofar as dollars and cents involved with the particular tobacco, they did not. Did you figure out how much cash the Commodity Credit Corporation now will have to pay to this tobacco cooperative?

Mr. GODFREY. The estimate based upon actual investment in the crop, not counting carrying charges or anything else, would be about $4.1 million from what has been sold so far.

CONDITION OF TOBACCO OFFERED FOR SALE

Mr. NATCHER. Mr. Godfrey, was any of this tobacco out of condition?

Mr. GODFREY. We do not know exactly the condition because every hogshead was not checked, but we do know that a portion of each that was inspected showed damage and was going out of condition.