METHOD OF DETERMINING PRICE OF TOBACCO SOLD

Mr. NATCHER. You stated to the committee that the actual price that it would move in trade channels was unknown?

Mr. GODFREY. That is right, sir.

Mr. NATCHER. How did you arrive at the price that you finally fixed on this tobacco?

Mr. GODFREY. Two or three methods. First, we took the average export price for similar type tobacco in other countries, particularly Rhodesia, where the average export price had ranged, if they were exporting to the Belgium-Luxembourg area, between 27 and 37 cents a pound, or, if they were going to the Netherlands, it would range from 22 to 29 cents a pound.

We took their current market average in Rhodesia, the last market average for last year-the current market is opening right now, I guess, about now, the first of March-the average there for the 1961 crop was 39.4 cents per pound. We took the current support level for this type of tobacco, if we now acquired it, which would be 28 cents a pound, on the average. We took into consideration that we would expect at least 80 percent of what was sold to go into export, we would like for it to go into export, so it would be carrying a 20 percent export subsidy.

In view of all of these factors, we settled on the 45 cents a pound, what we considered the current value-this is from tobacco men knowledgeable in the tobacco field-and in relation to prices of competing tobaccos from Rhodesia, Canada, and Brazil and India, that this would be a good price. Of course, the Indian price is much cheaper than this.

LOSS ON TOBACCO SALES

Mr. NATCHER. Mr. Godfrey, to your knowledge, at any time in the operation of this program have you sold tobacco in condition at a loss such as you have done in this particular case?

Mr. GODFREY. No, sir, we have not, because we have not had any tobaccos of this nature to sell before.

Mr. NATCHER. In other words, you state to the committee that in this particular instance this is the largest loss that has ever occurred in the sale of any kind of tobacco, is that right, sir?

Mr. GODFREY. This is right.

Mr. WHITTEN. While you are at that point, will the gentleman yield to me?

Mr. NATCHER. Yes.

LOSS ON FEBRUARY 11 TOBACCO SALE AND OTHER SALES OF 1955-56 CROPS

Mr. WHITTEN. You gave me the figure $4.1 million. That is the difference in your investment now?

Mr. NATCHER. Yes.

Mr. WHITTEN. What is the loss when you add all the rest of it? Mr. GODFREY. If you add carrying charges for the 7 or 8 years. plus interest charges that you would be charging to the stabilization. plus handling charges, plus insurance, it would run in the neighborhood of $80 million.

Mr. WHITTEN. So, now, when we face up to all the factors, the $4.1 million, runs up to $80 million. It is $80 million now that you send checks out to the producers in this area?

Mr. GODFREY. No, we will not send checks out to any producers, no, sir.

Mr. WHITTEN. I thought you said you will refund this to the co-op, which, in turn, will.

Mr. GODFREY. No, sir, the co-op would not make anything to the producers. It just goes back to the co-op.

Mr. WHITTEN. What is the difference between the co-op and the producers?

Mr. GODFREY. The co-op, actually what they will do, rather than just refunding it to the co-op, we will just reduce their obligations to us by that amount. They have borrowed the money from us.

Mr. WHITTEN. In other words, you give them credit on the books? Mr. GODFREY. That is right.

Mr. NATCHER. Mr. Godfrey then the newspaper articles stating that this is a $100 million loss is not too far off, is it?

Mr. GODFREY. Yes, sir, it is a little far off.

Mr. NATCHER. Well, to the extent of what, $20 million?

Mr. GODFREY. Let me explain this this way. Adjustments had been made on the 1955 and 1956 crop to take into account some of the storage charges and interest charges prior to this time. In fact, adjustments had been made on the 1955 crop to the extent that we already had a $40 million loss on it.

So this adjustment of $12.2 million built it up to $52.2 million. Adjustments had been made on the 1956 crop for a $10 million loss. This adjustment built it up to $26.8 million. So instead of having an already made adjustment of $50 million, we built it up now to $79 million. This was an adjustment which reflected a $29 million additional loss.

Mr. NATCHER. This tobacco that you have stated to the committee that was sold about a year ago, and it amounted to a little over 200 million pounds, was tobacco that was in good order. Did you have any loss in that at all?

Mr. GODFREY. Yes, sir, we had some loss on some of it.

Mr. NATCHER. Well, I know, but approximately what was your total loss?

Mr. GODFREY. Well, the total loss up until January of this year on the 1955-56 crop was $50 million. We had lost that much on the 1955-56 crop up until January 1 of this year, and this is in carrying charges and interest and so forth.

I want to reemphasize this, because this is not normally taken into consideration on losses on other commodities.

Mr. WHITTEN. I think, if I may interrupt

Mr. NATCHER. Go right ahead.

Mr. WHITTEN. I think, quite definitely, it is. However, we went along with you last year in separating them, and, I think, properly so. Mr. GODFREY. Yes, sir.

Mr. WHITTEN. We show them in our reports and in your reports as separate.

Mr. GODFREY. Yes.

Mr. NATCHER. Mr. Godfrey, I know that you will agree with me that it is necessary to dispose of tobacco under loan, and, in order to

have a successful program, we must rotate the stocks, and, if tobacco is out of order, it should be sold.

Mr. GODFREY. Yes, sir very definitely.

Mr. NATCHER. Tobacco that is in order and sold under a fixed price where people rush in, as our chairman pointed out, to buy on one particular day, to me is not good, Mr. Godfrey. I think that it was a mistake, and all down through the years, as you know, in the tobacco program we have tried each and every year to make this a successful program.

Mr. Godfrey, a number of people throughout the United States are very much interested in the tobacco program. Our committee has had a number of reports concerning this particular matter, and I do not recall at any time since the tobacco program started where a large quantity of tobacco was sold such as this particular tobacco.

Mr. GODFREY. Our price list the year before last did result in better than 200 million pounds of tobacco being moved during the year.

Mr. NATCHER. Yes, but not tobacco where you had approximately an $80 million loss where the tobacco was sold by set price, and the tobacco was not out of condition from the standpoint of sale, is that not true?

Mr. GODFREY. Well, the tobacco was not out of condition from the standpoint of storage, no, sir. This is true. But part of the 1955– 56 crop was included in this 200 million pounds that sold the year before last and it sold at a loss and at fixed prices.

I would emphasize, to make it clear, that never in the history of the tobacco program have we had anything like this before.

1955-56 CROP THIN, LIGHT TOBACCO

This 1955-56 crop of flue-cured tobacco was a different variety. It was a different type of tobacco than we have ever had before.

We may have another crop from the 1962 very similar to it. We will not know until it goes through two sweats.

Mr. NATCHER. It was a red, very thin tobacco?

Mr. GODFREY. Very thin, light, not red, light. If it was red, we could have sold it.

Mr. NATCHER. A light, very thin type of tobacco?

Mr. GODFREY. Very thin, light tobacco, and actually it did not go through, some of it did not go through the sweats, such as tobacco should do. It did not have enough body to even go through the sweat.

EXPORT OF TOBACCO SOLD ON FEBRUARY 11

Mr. NATCHER. Mr. Godfrey, do you know whether or not any of this tobacco, the 80 or 82 million pounds of tobacco, will be exported? Will 1 pound of it be exported? You have no information today that leads you to believe that a single pound of it will be exported, do you? Mr. GODFREY. I have no information which would definitely say that it will be exported or that it will not. The only thing I knowMr. NATCHER. Will you not speculate with the committee, Mr. Godfrey, and say that very little of this tobacco will be exported? Mr. GODFREY. No, sir; I will not.

Mr. NATCHER. You think that a sizable quantity will be exported? Mr. GODFREY. My guess is 80 percent of it will go into export.

Mr. NATCHER. And that is the reason why you sold so much on February 11?

Mr. GODFREY. I think it is, sir.

Mr. NATCHER. Thank you, Mr. Chairman.

Mr. GODFREY. I would point out that this is not a normal type of export tobacco that they buy here. They normally buy this type of tobacco in other countries. The normal type that they buy here is a heavier bodied tobacco. This, in my opinion, will replace some of the tobacco they have been buying of a neutral variety from other countries.

Mr. NATCHER. That is all I have, Mr. Chairman.
Mr. WHITTEN. Mr. Addabbo?

AUTHORITY FOR SETTING SALE PRICES

Mr. ADDABBO. Mr. Godfrey, on the question of setting the price, from where does that order come, from your office or an office above yours?

Mr. GODFREY. No, sir. It was a recommendation that came up from the board of directors of the Flue-Cured Tobacco Stabilization Cooperative. The recommendation was taken before the CCC Board of Directors, and was decided by the CCC Board, and, of course, the Secretary has the final authority over the actions of the CCC Board. Mr. ADDABBO. Did the CCC Board also have anything to do with the sale of the juices and the grapefruit sections in Florida?

Mr. GODFREY. A docket was presented to the Board on that, yes, sir. Mr. ADDABBO. In other words, the same group that had the dealings in Florida?

Mr. GODFREY. Yes, sir.

Mr. ADDABBO. And also in reference to the aforementioned tobacco sale; is that correct?

Mr. GODFREY. Yes, sir.

Mr. ADDABBO. No further questions, Mr. Chairman.

Mr. GODFREY. I might point out for the benefit of the committee that we have adopted a practice on sales prices for tobacco that I have found had not been in existence from 1952 on, and that is that the recommended sales prices that are made by the co-ops now are carried to the Board of CCC. They were not during the previous administration carried to the Board.

Mr. WHITTEN. I would have to say this. We sit here for weeks trying to develop all these things, and we really try, and we do not keep up with all the details of it. But it strikes me that the only thing that would keep the co-op on the track, so to speak—and I am talking about their own self-interest-would be that they would wish to do nothing which would jeopardize their public relations.

Since there was and is no requirement to export this tobacco, what disturbs me is what effect this first sale of tobacco on the domestic market, at greatly reduced prices, may have upon the tobacco program, including income to producers, losses to the Government, and greatly increased profits to the tobacco trade at the expense of the producers and the Government.

Mr. Horan?

Mr. HORAN. This will form a pretty good backdrop as to what I regard as our duty, not only to the Congress, but to you gentlemen

have a successful program, we must rotate the stocks, and, if tobacco is out of order, it should be sold.

Mr. GODFREY. Yes, sir very definitely.

Mr. NATCHER. Tobacco that is in order and sold under a fixed price where people rush in, as our chairman pointed out, to buy on one particular day, to me is not good, Mr. Godfrey. I think that it was a mistake, and all down through the years, as you know, in the tobacco program we have tried each and every year to make this a successful program.

Mr. Godfrey, a number of people throughout the United States are very much interested in the tobacco program. Our committee has had a number of reports concerning this particular matter, and I do not recall at any time since the tobacco program started where a large quantity of tobacco was sold such as this particular tobacco.

Mr. GODFREY. Our price list the year before last did result in better than 200 million pounds of tobacco being moved during the year.

Mr. NATCHER. Yes, but not tobacco where you had approximately an $80 million loss where the tobacco was sold by set price, and the tobacco was not out of condition from the standpoint of sale, is that not true?

Mr. GODFREY. Well, the tobacco was not out of condition from the standpoint of storage, no, sir. This is true. But part of the 195556 crop was included in this 200 million pounds that sold the year before last and it sold at a loss and at fixed prices.

I would emphasize, to make it clear, that never in the history of the tobacco program have we had anything like this before.

1955-56 CROP THIN, LIGHT TOBACCO

This 1955-56 crop of flue-cured tobacco was a different variety. It was a different type of tobacco than we have ever had before.

We may have another crop from the 1962 very similar to it. We will not know until it goes through two sweats.

Mr. NATCHER. It was a red, very thin tobacco?

Mr. GODFREY. Very thin, light, not red, light. If it was red, we could have sold it.

Mr. NATCHER. A light, very thin type of tobacco?

Mr. GODFREY. Very thin, light tobacco, and actually it did not go through, some of it did not go through the sweats, such as tobacco should do. It did not have enough body to even go through the sweat.

EXPORT OF TOBACCO SOLD ON FEBRUARY 11

Mr. NATCHER. Mr. Godfrey, do you know whether or not any of this tobacco, the 80 or 82 million pounds of tobacco, will be exported? Will 1 pound of it be exported? You have no information today that leads you to believe that a single pound of it will be exported, do you? Mr. GODFREY. I have no information which would definitely say that it will be exported or that it will not. The only thing I knowMr. NATCHER. Will you not speculate with the committee, Mr. Godfrey, and say that very little of this tobacco will be exported? Mr. GODFREY. No, sir; I will not.

Mr. NATCHER. You think that a sizable quantity will be exported? Mr. GODFREY. My guess is 80 percent of it will go into export.