SALE OF CCC FLUE CURED TOBACCO AT A FIXED PRICE

Mr. NATCHER. Mr. Chairman, would you yield to me?

Mr. WHITTEN. Yes, I yield to the gentleman.

Mr. NATCHER. Mr. Smith, this particular tobacco you are referring to, from the 1955-56 crops, I believe all of this was flue-cured tobacco? Mr. SMITH. I think that is right. Mostly flue-cured.

Mr. NATCHER. Can you tell the committee as to whether or not this tobacco was sold by bid or by a set price fixed in the Department of Agriculture?

Mr. SMITH. The price was on a fixed basis announced by the association, and it is my understanding that the associations get the approval of the Commodity Credit Corporation officials.

Mr. NATCHER. Mr. Smith, do you know whether or not this is the first time in the sale of surplus tobacco that bids were not requested by the Department?

Mr. SMITH. That I don't know.

Mr. NATCHER. Is it true, Mr. Smith, in this particular instance, this tobacco was sold at 25 cents per pound under the amount that the Government had to pay for it, and in addition a great number of pounds of flue-cured tobacco will receive this 20-percent subsidy?

Mr. SMITH. The acquisition price, as I remember it, was somewhere between 65 and 70 cents a pound and the most recent announced sales price is 45 cents a pound.

Mr. NATCHER. Which is a difference of about 25 cents.

Mr. SMITH. Yes.

Mr. NATCHER. Some 91 million pounds farm weight was sold? Mr. SMITH. That is right.

Mr. WHITTEN. Would the gentleman yield to me?

Mr. NATCHER. Yes.

Mr. WHITTEN. How much was this tobacco worth, overall? shows here how much the cash export subsidy was.

Mr. SMITH. You mean the original value, Mr. Chairman?

Mr. WHITTEN. Let us see how much you had invested in it, how much the carrying charges were that accumulated against it, what you could have sold it for under normal conditions on the domestic market or export market, and all of the information concerning it. I presume that the figure here, $1,409,148 is the amount that you were out in export over and above loss in sale at the fixed price at which you sold it?

Mr. LENNARTSON. That would be the subsidy amount, yes.

Mr. WHITTEN. So now the fixed price at which you sold it, how did that compare with the original investment?

Mr. SMITH. As I understand, the original price was in the neighborhood of 70 cents a pound and the currently announced price at which these tobaccos are being sold is 45 cents a ponnd.

Mr. WHITTEN. Could we have a list of the buyers, and how the transaction was handled. Who decided to offer at a fixed price and who fixed the level? What buyers urged such fixed-price sale? What profits did the buyers make and who received this $1,400,000? (NOTE. The requested material is included in the inserts on pages 1568 and 1575.)

Mr. SMITH. Yes.

Mr. NATCHER. Mr. Smith, was there any question concerning the quality of this tobacco?

Mr. SMITH. It is my understanding that, recognizing the age, it is in good order, although I understand it has been fairly well picked over, in view of the period of time that the inventories of those earlier crops have been carried.

Mr. NATCHER. Mr. Smith, since you have been a member of the Department, to your certain knowledge, has any tobacco, burley, dark, Flue-cured, Maryland type, or any kind of tobacco, been sold by the Department without first calling for bids? Other than this particular transaction?

Mr. SMITH. I personally don't know, because those sales are under the jurisdiction of Commodity Credit Corporation, Mr. Congressman. Mr. GRANGE. Mr. Congressman, could I say something about the 1955-56 crops, as to the quality? The quality of this tobacco was not good. It was in fairly good order, but it was poor quality. The bulk of this

Mr. NATCHER. At that point now, in other words, it was a poor quality when the Government took it under loan? Not poor quality by virtue of being stored. Do you agree on that?

Mr. GRANGE. That is the point I wanted to make. Most of this tobacco is from varieties that are now discounted 50 percent under the price support program. The bulk of this tobacco is from Coker 139 and Coker 140 variety tobacco, that was discounted starting with the 1957 crop. It is a pale, slick, thin-leafed tobacco that over the years they had not been able to dispose of at the established price at which they normally would have sold it.

Mr. NATCHER. How do you know that? You didn't ask for bids? Mr. GRANGE. No. I say they were not able to dispose of it at the established price.

Mr. NATCHER. No bids were requested. How do you know that the 65 or 70 cents that the Government had in this tobacco could not have been obtained by the Government?

Mr. GRANGE. I know they set a price, Mr. Congressman, and it varied from about 40 to 50 cents. There was some price differential by grade.

Mr. NATCHER. But the overall difference was about 25 cents per pound loss to the Government.

Mr. GRANGE. Approximately a 25-cent reduction. The statement I was making is they were not able to move it at the regularly established price, they had had it in inventory for 7 and 8 years and it had not moved at the established price.

Mr. NATCHER. The price the Government took it under loans, plus the usual charges that go with it. You do not know as to whether or not the Government could have moved it at 65 or 70 cents by bid, do you?

Mr. GRANGE. No, sir.

Mr. WHITTEN. Let me interrupt at this point.

In the first place, under the tobacco program, in most instances you had these cooperatives or holding groups. Could we have for the record the value, and I believe you said this is in Flue-cured tobacco

Mr. SMITH. Predominantly.

Mr. NATCHER. Wait a minute. Would you yield, Mr. Chairman?

You say "predominantly." You mean-in its entirety. Now, Mr. Smith, you don't mean to tell me you sold any other tobacco except Flue-cured under this arrangement?

Mr. SMITH. The recent one, no.

Mr. WHITTEN. I understand this is all Flue-cured.

Could we have for the record the quantity of tobacco produced in the 1955-56 years, from which this stock came?

Mr. SMITH. Yes. By type?

Mr. WHITTEN. Of the Flue-cured, which you said this was.
Mr. SMITH. Yes.

(The material requested follows.)

U.S. Flue-cured tobacco, 1955-56 crops

Mr. WHITTEN. How much of it ended up in the hands of the Government through this type of arrangement, of the total crop?

Mr. GRANGE. I can give you an estimate. It was approximately, as I recall, 22 or 23 percent that year of the Flue-cured crop that moved to the Stabilization Corporation.

Mr. WHITTEN. Yes. Now what restrictions, if any, are there on sales on the domestic market? Once it went into the hands of the Government, is there any restriction on what it can be sold at on the domestic market?

Mr. LENNARTSON. I would like to comment on this. You are in an area which is not a responsibility of AMS and frankly, we don't know, Mr. Chairman.

Mr. WHITTEN. That is a very simple answer. Let's go ahead. We will ask the officials of CCC when they are before us.

Now, in connection with this matter, do you have any discretion in connection with the determination to pay out the $1,409,148 to help export this tobacco?

Mr. LENNARTSON. No. These rates are established by the Commodity Credit Corporation and we are merely servicing the section 32. Mr. WHITTEN. You mean CCC has control of section 32 funds?

Mr. LENNARTSON. No, we are the staff agency for section 32 funds. Mr. WHITTEN. This is section 32 money. Who decided to use it for this purpose?

Mr. LENNARTSON. That is the responsibility of the Secretary.
Mr. WHITTEN. Who is the Secretary's representative here?
Mr. SMITH. I am.

Mr. WHITTEN. All right. You decided to use $1,409,148 of section 32 funds for this purpose then, did you?

Mr. SMITH. Not I alone, sir, because

Mr. WHITTEN. You and the Secretary and the Secretary's group did?

Mr. SMITH. That is right.

Mr. WHITTEN. Now, in that meeting you are bound to have had the whole story unfolded before you, were you not?

Mr. SMITH. I think so.

Mr. WHITTEN. You were present?

Mr. SMITH. Yes.

COST OF PROGRAM

Mr. WHITTEN. Now, what was the gross value of this tobacco? Approximately?

Mr. GRANGE. About $700 million.

Mr. WHITTEN. Now, who made the decision to take $700 million worth of tobacco and sell it at a loss of say $200 million?

Mr. GRANGE. I'm sorry, sir, I gave the value of the crop. It was not $700 million.

Mr. LENNARTSON. It would be about $85 million.

Mr. WHITTEN. $85 million, and you sold it for, say, $50 or $55 million.

Who made the decision to sell tobacco that had not gone out of its original condition at about a $30 million discount?

Who made that decision, without bids?

Mr. SMITH. Mr. Chairman, I was not present when that decision was made.

Mr. WHITTEN. Under the original setup, Mr. Grant, who would make that determination?

Mr. GRANT. This would have been, as I understand it, the Commodity Credit Corporation Board, with the approval of the Secretary. Mr. WHITTEN. We want the names of the buyers and any information you have about approaches to the Department, to sell it on a fixed amount instead of bids.

Mr. SMITH. They wouldn't come to us on that.

Mr. WHITTEN. Check in the Department then.

Now, after they had bought it at that discount, what made you decide to give them a little more discount, if they just exported it? Mr. LENNARTSON. They would have had the information with respect to the subsidy before they bought the tobacco. It was publicly announced.

Mr. WHITTEN. The 20 percent was?

Mr. LENNARTSON. Yes. The subsidy was announced.

Mr. WHITTEN. It was?

Mr. LENNARTSON. Yes, along with the price that Commodity Credit was willing to sell the tobacco for.

Mr. WHITTEN. Now, I would like full information on this transaction, values, amounts, buyers, payments. I have asked the names of those who bought, and the full story to see if all the industry was given an opportunity to get in on this fixed price sale.

(The information requested may be found beginning on p. 1610 of the ASCS testimony.)

Mr. WHITTEN. I want the record to carry the full story.

I repeat again, you know the experience the Department had with cheese, and the experience it had with butter and all of these various other things. We are getting into so many things here that to me I wonder if we shouldn't wait here until we have somebody from the Secretary's Office, because this is in a policy area. Mr. Smith here

is trying to carry the load, but I just wonder if this isn't a matter we should go into elsewhere.

Mr. NATCHER. Mr. Chairman, would you yield?

Mr. WHITTEN. Yes.

Mr. NATCHER. Mr. Smith, since you have been in this Division of the Department, can you tell us if at any time in the past a subsidy that compares with this one was ever paid in the sale of any tobacco? Mr. SMITH. I think this is the first tobacco export payment program in many years.

(NOTE.-Sec. 32 costs involved in previous tobacco export subsidy programs and the quantities involved were as follows:)

Mr. WHITTEN. Please provide for the record all information as to whether you ever had a fixed price sale before. (The information will be supplied to the committee.)

PERCENTAGE OF SALE TOBACCO EXPORTED

Mr. WHITTEN. What percentage of the amount of tobacco, $85 million worth, moved in the world trade and what part was put on the American market?

Mr. SMITH. I am only familiar with the inventories as they existed at the time this program was initiated, Mr. Chairman.

As I stated earlier, that quantity was something like 110 or 120 million pounds. The actual quantity that has so far moved into export under this program is about 23.5 million pounds.

Mr. WHITTEN. How much of it was sold at this reduced price? All of it?

Mr. SMITH. The quantity at the recently reduced price, that has had a subsidy applied to it, is nominal, about three-quarters of a million pounds. So we don't know, as of this date, how much of what was sold at the reduced price will actually be offered for export for which the export payment would apply.

Mr. WHITTEN. Was it sold under any restriction, as far as domestic use is concerned?

Mr. SMITH. As far as I know, no.

Mr. WHITTEN. If that much tobacco is available for those that want to buy it, wouldn't that reduce the demand on the domestic market, to that extent, and have some effect on depressing prices for the new crop and thereby increase the amount placed in Government loan?

Mr. SMITH. I think it is reasonable to assume or conclude, Mr. Chairman, that if domestic users buy this tobacco, that they might not buy as much of the new crop tobacco or later crop tobacco, unless they had some special use in mind for this particular type of

tobacco.

Mr. WHITTEN. One of the things that has disturbed Members of Congress and many people is this matter of selling on the domestic market at reduced prices from Commodity Credit Corporation hold