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T56131 PROBLEMS IN THE TOBACCO PROGRAM

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HEARING

BEFORE THE

SUBCOMMITTEE ON TOBACCO

OF THE

COMMITTEE ON AGRICULTURE

HOUSE OF REPRESENTATIVES

EIGHTY-NINTH CONGRESS

SECOND SESSION

MARCH 30, 1966

Serial BB

1-9 Printed for the use of the Committee on Agriculture

r-R

U.S. GOVERNMENT PRINTING OFFICE

62-4'22 WASHINGTON : 1966

-eh
COMMITTEE ON AGRICULTURE

HAROLD D. COOLEY, North Carolina, Chairman

W. R. POAGE, Texas, Vice Chairman

E. C. GATHINGS, Arkansas

JOHN L. McMILLAN, South Carolina

THOMAS G. ABERNETHY, Mississippi

WATKINS M. ABBITT, Virginia

PAUL C. JONES, Missouri

HARLAN HAGEN, California

FRANK A. STUBBLEFIELD, Kentucky

GRAHAM PURCELL, Texas

JAMES H. MORRISON, Louisiana

ALEC G. OLSON, Minnesota

SPARK M. MATSUNA GA, Hawaii

MASTON O'NEAL, Georgia

THOMAS S. FOLEY, Washington

JOSEPH Y. RESNICK, New York

LYNN E. STALBAUM, Wisconsin

ELIGIO DE LA GARZA, Texas

JOSEPH P. VIGO RITO, Pennsylvania

JOHN C. MACKIE, Michigan

ROLLAND REDLIN, North Dakota

BERT BANDSTRA, Iowa

STANLEY L. GREIGG, Iowa

CLAIR A. CALLAN, Nebraska

MTS. CHRISTINE S. GALLAGHER:Clerk

HYDE H. MURRAY, Assistant Clerk

JOHN J. HEIMBURGER, General Counsel

FRANCIS M. LEMAY, Staff Consultant

PAUL B. DAGUE, Pennsylvania

PAGE BELCHER, Oklahoma

CHARLES M. TEAGUE, California

ALBERT H. QUIE, Minnesota

MRS. CATHERINE MAY, Washington

RALPH HARVEY, Indiana

PAUL FINDLEY, Illinois

ROBERT DOLE, Kansas

LAURENCE J. BURTON, Utah

PRENTISS WALKER, Mississippi

GEORGE V. HANSEN, Idaho

RESIDENT COMMISSIONER

SANTIAGO POLANCO-ABREU, Puerto Rico

SUBCOMMITTEE ON TOBACCO

WATKINS M. ABBITT, Virginia, Chairman

JOHN L. McMILLAN, South Carolina ROBERT DOLE, Kansas

FRANK A. STUBBLEFIELD, Kentucky PRENTISS WALKER, Mississippi

JOSEPH P. VIGO RITO, Pennsylvania

SANTIAGO POLANCO-ABREU, Puerto Rico

II
CONTENTS

Inequities in Acreage-Poundage Tobacco Program

Statement of: Page

Godfrey, Horace D., Administrator, ASCS, U.S. Department of Agriculture 15

Hardee, Wiley R., Greenville, N.0 4

Jones, Hon. Walter B., a Representative in Congress from the State of

North Carolina 1

Quinerly, Jack, Ayden, N.0 7

Stokes, Thomas, Ayden, N.0 6

"Natural Disasters Play Role in Farm Economy," an article by Roy Martin, the Daily Reflector, Greenville, N.C., March 11, 1966 3

Export Subsidy Arrangement for Tobacco

Carr, C. Stuart, Jr., vice president, Universal Leaf Tobacco Co., Inc., statement of 34

Freeman, Hon. Orville L., Secretary of Agriculture, letter of March 29,

1966 21

XII
.
PROBLEMS IN THE TOBACCO PROGRAM

WEDNESDAY, MARCH 30, 1966

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON TOBACCO

OF THE COMMITTEE ON AGRICULTURE

Washington,

The subcommittee met, pursuant to notice, at 3:10 p.m. in room

1302, Longworth House Office Building, Hon. Watkinsith. ,Abbitt 1

(chairman of the subcommittee) presiding:

Present: Representatives Cooley (chairman of the full committee),

Abbitt, Stubblefield, Vigorito, Dole, and Walker.

Also present: Senator Jordan of North Carolina; Representatives

Henderson, Fountain, Lennon, Kornegay, Roy Taylor, Jones, Broyhill, and Whitener, all of N oith Carolina.

Jack Spain, representing Senator Ervin of North Carolina.

Christine S. Gallagher, clerk; John J. Heimburger, general counsel,

and Francis Le May, consultant.

Mr. A BBITT. I will ask the Subcommittee on Tobacco to come to

order.

We have two matters that we want to discuss this afternoon. One

of them is dealing with the inequities in the tobacco program.

The other has to do with the export question.

INEQUITIES IN ACREAGE-POUNDAGE TOBACCO

PROGRAM

I understand that Congressman Jones of North Carolina, particularly, has a problem, and that he has a short statement that he would

like to make.

Mr. JONES of North Carolina. I would appreciate it.

Mr. ABBITT. We are pleased to have you meet here with the .ubcommittee, and we would be glad to hear from you at this time.

STATEMENT OF HON. WALTER B. JONES, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF NORTH CAROLINA

Mr. JONES. Mr. Chairman and members of the subcommittee, I

appear to make a statement regarding the inequities of the acreagepoundage allotment in hardship cases.

In behalf of several hundred tobacco farmers, we appreciate this

opportunity to call to your attention a most critical and inadequate

situation which now exists.

Let us emphasize that this is no effort to endanger or destroy the

acreage-poundage system of allotments, but rather it is an effort to

make a more acceptable system to those who have been so grossly

mistreated.

1
2 PROBLEMS IN THE TOBACCO PROGRAM

We would have here this afternoon a large number of people from

Virginia, North Carolina, South Carolina, and perhaps Georgia, but

we did not feel that this was necessary—as a matter of fact, I have

purposely discouraged it—for as long as we live under a democratic

government, we expect justice for all.

Our appearance here is no effort to protect or help the inefficient or

indifferent farmer, but we are here in an effort to help those citizens

who are victims of a situation over which they have absolutely no

control. Admittedly, there will be cases of a different nature in

different localities, but we felt that due to the interest of time, we

would present only a few witnesses who will testify as to their own

personal experience regarding their present tobacco- allotment. I

believe you will agree that it is totally unreasonable to expect one to

enter the production of tobacco with an allotment which will not,

under the best of circumstances, provide him with a break-even

return on his investment. This is contrary to the philosophy of our

Government, for in legislation we guarantee labor a fixed return,

airlines, public utilities, and so forth. Without going into specifics,

which will be furnished in a few minutes, I respectfully contend that

these people, who through no fault of their own, should be entitled to

minimum poundage which will enable them to remain in the tobaccoproducing business and derive therefrom enough revenue to cover

expenses and have a return on investments in farm machinery and

labor, and to pay taxes.

There are some who might suggest that this cannot be done at this

time, but I respectfully contend that an official in this Government

who makes a public statement is bound, if at all possible, to abide by

that statement.

I would like to point out that there are cases where the allotments

are increased as the result of losses due to fire, and so forth and so on;

therefore, why can't we make the same distinction for losses from other

causes over which the producer has no control? I say this with due

respect to all those present, and certainly with no personalities involved here. But to make it absolutely clear, there is unrest and

disappointment, if I may so say to those that are present here today,

and perhaps hundreds of others who are not present today, and I refer

to a statement that was made by an official of this Government, Mr.

Horace Godfrey of the Department of Agriculture, in Greenville,

N.C., in April of 1965, in response to a question by one of the gentlemen seated here this afternoon, and I quote:

"What can be done about the hardship cases?"

And the answer given by the respresentative of the Department of

Agriculture, as I recall:

"Nothing for the season of 1965, but something will be worked out

for the season of 1966," he says, Mr. Chairman.

Now, Mr. Chairman, in good faith, these people who have been

penalized under the program are expecting this adjustment to be

forthcoming.

(A newspaper article, "Natural Disasters Play Role in Farm

Economy," submitted by Mr. Jones follows:)
PROBLEMS IN THE TOBACCO PROGRAM 3

[The Daily Reflector, Friday, Mar. 11, 1966]

NATURAL DISASTERS PLAY ROLE IN FARM ECONOMY

(By Roy Martin)

In what could perhaps be termed a majority of cases, the 1965-inaugurated

acreage-poundage tobacco control program has exerted favorable influence upon

the scale of farm land prices and the prices of lease and transfer of tobacco allotments.

But there are other cases—in Pitt County for example—where natural disaster

enters the picture, and has caused acreage-poundage to contribute to a downward

trend in values.

Jack Quinerly of 206 W. 2d Street, Ayden, owns a 360-acre farm 3 miles west

of Grifton, adjacent to the waters of Contentnea Creek—Neuse River.

According to Quinerly, the tobacco crop on the farm during 3 years of the 5

(1959-1963) used to derive initial poundage quotas was severely stunted by

"excessive water and flood conditions."

"Another year I had my tobacco crop heavily damaged by wind," Quinerly

wrote in a March 25, 1965 letter to the U.S. Department of Agriculture. "The

only year in the 5 years considered in the new program that could be called a

normal crop was in 1960."

When acreage-poundage was introduced, procedures for designating poundage

quotas called for utilizing an average pounds-per-acre yield derived from the best

3 years of the past 5 since 1959.

Quinerly's yield since 1959 included: 1959-1,145 pounds; 1960-1,878 pounds;

1961-1,234 pounds; 1962-1,335 pounds; 1963-1,724 pounds; and 1964-2,185

pounds.

Under acreage-poundage, Quinerly's poundage quota averaged out to be 1,530

pounds per acre.

Thus, in 1965, the initial year of the acreage-poundage program, the Ayden

farmer's acreage allotment was 27.88 acres with a poundage quota of 42,879.

Quinerly and his tenant planted 25.41 acres and marketed 45,030 pounds for an

average of 1,772 pounds per acre.

"I left off 2 acres because I knew I would go over the poundage," he said.

"And out of a poundage of 45,030, I didn't sell but six piles for under 60 cents * * *

and destroyed the rest of it to keep from going over."

Because Quinerly and his tenant marketed over the 42,879 pounds allotted

under acreage-poundage, the farm's acreage allotment for 1966 was cut to 26.49

acres and poundage to 40,951 pounds under provisions of the program.

Quinerly termed the area from Grifton to Vanceboro and from Vanceboro to

Grimesland most heavily affected by the combination of natural disaster and

acreage-poundage. He estimated some 150 to 200 farmers have suffered, not

only from poor crop production but also in terms of sale and lease and transfer

values of their holdings.

"Say the average price per acre is around $6,000 to $7,000 per acre of tobacco

allotment and my farm was up to the county poundage average of, say, 2,000

pounds per acre, then I could sell it for as much as any other farm," Quinerly

explained. "But I have a poundage allotment of 1,550 pounds * * * I would be

one-quarter off if you use the county average poundage figure of 2,000 pounds."

He pointed out that his prospective income from lease and transfer has been

affected in approximately the same manner.

"Suppose I had a poundage quota of 2,400 pounds and wanted to lease the

poundage for 20 cents * * * that's $480. Plenty of farmers can lease for that,"

he declared. "But I had 1,530 pounds * * * at 20 cents per pound I would

lose."

Quinerly said he attended the May 1965 meeting in the East Carolina College

gymnasium when representatives of the U.S. Department of Agriculture explained

acreage-poundage to area farmers. He advised that he raised a question about

adjustments for those farmers in his particular situation.

asked if there would be any adjustments made," he explained, "I told them

I couldn't keep a tenant with the poundage I had. They said adjustments would

be made for such cases for the 1966 crop year."

He said when the time came in late 1965 to seek adjustments for the 1966 crop,

he went to the county agent's office and entered his request.

"They said nothing doing * * * they said they didn't have the poundage to

give me," Quinerly explained.
4 PROBLEMS IN THE TOBACCO PROGRAM

Quinerly indicated the problem rests in the interpretation of what constitutes.

"acts of God" because of which adjustments are made.

"Where then did they get the poundage to give the man who lost through actsof God—lightning and such?" he said. "I had only 1 good year * * * I couldn't

help it * * * It wasn't because I didn't do all I could."

Mr. JONES of North Carolina. My first witness is Mr. Wiley

Hardee of Greenville, N.C.

Mr. ABB1TT. Will you come forward, please?

We will be glad to hear from you now.

STATEMENT OF WILEY R. HARDEE, GREENVILLE, N.C.

Mr. HARDEE. Mr. Chairman and members of the committee, I am

Wiley R. Hardee, Pitt County, Swift Creek, N.C. I am not up here

for any selfish individual reasons today. I am up here for these

farmers who have 1,300 pounds, 1,400 pounds, 1,500 pounds, 1,600

pounds, or, say, 1,800 pounds. These farmers need some help. They

are in drastic need of help. I know that.

What happened? They have been dried out for 3 or 4 years in a,

row with no base poundage to work from.

Mr. COOLEY. You say they have as high as 1,800 pounds?

Mr. HARDEE. Let US say 1,800 pounds.

Mr. COOLEY. That is the average for the whole crop, is it not?.

That is about the average, 1,800?

Mr. HARDEE. We will say, 1,300, 1,400, 1,500. We have numbers

of them in that area.

Mr. COOLEY. We have many in our area who are below 1,100 and

1,200.

Mr. HARDEE. We do not have them quite that low, sir, but these

farmers, after having 3 or 4 years in a row, as much as 5 years, of

excessive water, do not have any base poundage to select from. So

that they went ahead with the program wholeheartedly, thinking that

they would get some help. They voted in favor of it. Later, when

the program was passed, they got their notice of their poundage.

Well, they had no poundage. They were way behind in debt. They

owed a lot of money—good people, farmers. So they made arrangements with the Federal land bank, the insurance companies, to

borrow money, to pay these bills off, but now they are doomed, be--

cause they only have 1,200, 1,300, 1,400, 1,500 pounds, to live with

and to pay back what they owe, and the expense and all of this crop.

That is all I have to say.

Mr. ABBITT. What do you say should be done by way of recognizing the excessive water that has caused you damage?

That is what you want; to do something about that?

Mr. HARDEE. Yes. We have pictures here to prove about the

excessive water, if anybody would like to see them.

Mr. ABBITT. Would you like to ask any questions?

We are happy to have you here, Senator Jordan.

Senator JORDAN. Thank you vely much. I appreciate this opportunity.

I do know that there are cases, at least, where the farmer has no

control over his situation and where he is in dire need of some help.

I certainly hope that something can be worked out to properly adjust

these inequities he would not have had if he had had a normal season
PROBLEMS IN THE TOBACCO PROGRAM 5

on the land. I am hoping that something can be done. I know of

one over in a county close to me who is going to lose his farm.

Mr. HARDEE. As I say, we have the same thing in my area.

Senator JORDAN. I hope that something can be worked out.

Mr. COOLEY. There is a whole area of North Carolina that is

flooded out once or twice; is there not?

Mr. HARDEE. That is the area we are speaking about, sir.

Mr. COOLEY. Is that in Pitt County?

Mr. HARDEE. Cleveland and Pitt Counties, and also all of those

lower counties there.

Mr. COOLEY. I have heard more talk about it in Beaufort County

than in the rest of them.

Mr. HARDEE. I think that there are several.

Mr. COOLEY. Do you have any suggestions as to how we might do

this, that is, as to legislation?

Mr. HARDEE. I know how you have done in previous cases, say,

this past year in cases where barns were burned by lightning or packhouses were burned. There were affidavits signed, and the farmers

got them signed, too, by his neighbors to prove that he had lost his

barn or his packhouses, and he was given an adjustment on the county

average, and that was something that he had nothing to do with;

such as lightning which could have struck his barn.

Mr. COOLEY. What is the average? I think it is around 1,800,

if I am not mistaken?

Mr. ABBITT. Was the area designated as a disaster area because of

the water?

Mr. HARDEE. I think it was, sir. I cannot say positively. I would

like to know.

Mr. ABBITT. Are there any further questions by members of this

subcommittee?

Mr. JONES of North Carolina. He has given us the facts as he

factually could possibly give them to us. In view of what he has

just said, about the specific section that he was talking about, I want

to say that part of this difficulty was caused by the U.S. Government.

Mr. HARDEE. That is right.

Mr. JONES of North Carolina. There was objection to this particular section of farmland, the voice of America purchased land,

something like 3,000 acres.

Mr. HARDEE. About that.

Mr. JONES of North Carolina. Which they cleared, and that

caused the condition which led in part to the flooding conditions

which have caused the damage to the crops, to which he has made

reference.

Mr. ABBITT. Are there any further questions?

Do you have more witnesses?

Mr. JONES of North Carolina. We have two more. They will be

very brief.

Will you please come forward and introduce yourself and say what

you have to say?

Mr. ABBITT. Are these gentlemen from your district?

Mr. JONES of North Carolina. They are from my district, yes.

May I interject this?

The persons in our area got some news of this hearing. I am sure

you gentlemen have had calls about it. This thing is widespread.

62-422-66-2
6 PROBLEMS IN THE TOBACCO PROGRAM

There are a large number of these people who are involved in isolated

sections of our area. These farmers have been tremendously penalized under the formula that we are now using, through no fault of

their own.

Mr. ABBITT. We are pleased to have you here with us. Let me

say that you have a very active and very energetic Representative

here in the House of Representatives.

We are pleased to have you with us, and we will be pleased to hear

you now.

STATEMENT OF THOMAS STOKES, AYDEN, N.C.

Mr. STOKES. Mr. Chairman and members of the committee, I am

Thomas Stokes. We have been penalized in two ways. We voted

for this referendum. We voted for it in good faith. Yet we have

had 3 consecutive years of flood waters.

We have sowed the tobacco and poundage ran anywhere from 900

to 1,000 pounds. We sold the tobacco from $250 to $500 an acre.

We had 1 good year-1 reasonably good year out of the 5 years.

And to take the 3 years out of the 5 years has put our poundage

mighty low, without no fault of ours, due to these floods.

I have two brothers. I would like to give you an instance there.

One of the brothers had 1,100 pounds of tobacco prior to these wet

years. A man came by and offered him a premium to lease and

transfer all of this tobacco to another township, and he did.

And working with my other brother, we proceeded. There is only

a road that divides the lands, and when he got his poundage back

from this other township after this acreage and poundage had passed,

he got 2,200 pounds.

And here were these disastrous years. And when he got his

poundage back he got 1,600 pounds; so, that is the difference between

these disastrous years, right on one farm, you might say.

We would like to ask that you gentlemen help us out on this. In

other words, this thing was passed, it was passed hurriedly. The one

thing that we needed in it, that was a good-neighbor policy.

So, I would like to ask that we do have some consideration for this.

Thank you.

Mr. ABBITT. We appreciate your statement very much. Are there

any questions by the members present?

Mr. COOLEY. What is your poundage?

Mr. STOKES. My poundage lacks a little—I have forgotten it exactly. It is about 1,600 pounds. Our expenses are continuing to

go up. Our repairs, labor, taxes, are going up, and this does bring

a hardship.

Mr. COOLEY. What is the average for your neighborhood?

Mr. STOKES. The average in my neighborhood will run about 1,600

pounds. We do have some as low as 1,300 and 1,400 pounds. I am

a member of our township committee. I frequently have access to

these records. We do have some in our township as low as 1,300.

Mr. ABBITT. Which county are you from?

Mr. STOKES. Pitt County, the lower part of Pitt County.

Mr. ABBITT. Are there any other questions?

Mr. LENNON. To clear this up, what is the average in the 3 highest

years among the 5 years?
PROBLEMS IN THE TOBACCO PROGRAM 7

?[r. STOKES. I believe that it was about 1,500 and 1,600. As I

said, we only had 1 good year.

Mr. LENNON. One good year out of 5 years?

Mr. STOKES. Yes; out of the 5 years.

Mr. LENNON. You do not now recall what your fixed poundage

was on the basis of the average of the 3 highest years?

Mr. STOKES. No; I do not.

Mr. COOLEY. I thought you said it was about 1,500 pounds.

Mr. STOKES. I do have about 1,600 pounds.

There has been a little raise on it this year, just a little bit. I have

forgotten the number of pounds.

COOLEY. They gave you 1,600 pounds, based on the 3 out of

the 5 years?

Mr. STOKES. Not quite that. It is still not quite that.

Mr. LENNON. What does the community have?

Mr. STOKES. The community average, I would say, would run

between 1,400 and 1,600 pounds.

Mr. LENNON. Between 1,400 and 1,600 pounds? That is for the

whole community?

Mr. STOKES. The whole community was drowned out.

Mr. LENNON. What is the county average?

Mr. STOKES. The county average back there, I suppose, was about

1,800 pounds. We actually had people, instead of irrigating their

lands, they used their irrigation system to pump the water out of the

field, to run it down the creek. Actually, absolutely, that happened.

The rain fell to the ground, and you would go out there and on your

leaves there was that much water, the tip end of the leaf was in the

water. You can imagine what we had.

Mr. ABBITT. What was your high year, your good year?

Mr. STOKES. My good year was 2,200, I believe, or 2,230 pounds.

Mr. ABBITT. Are there any further questions?

We certainly thank you, Mr. Stokes, for coming here and giving us

the benefit of your testimony.

Mr. Jones.

Mr. JONES of North Carolina. We have one more witness, Mr.

Jack Quinerly. He is very much interested in this movement.

Mr. ABBITT. We are very pleased to have you here and will be glad

to hear from you now.

STATEMENT OF JACK QUINERLY, AYDEN, N.C.

Mr. QUINERLY. Mr. Chairman and members of the committee, I

am a farmer, and all I have ever done is farming. It has been my life's

work. My farm is in this area. We have had a tremendous amount

of water.

If you will look at one of the sheets that I have passed up to you,

you will find that in Swift Creek Township that the poundage is unusually low. I am one of those farmers who had to be caught with a.

very low poundage. In other words, I have a 1,530-pound allotment

for 1965.

Mr. COOLEY. What township are you from?

Mr. QUINERLY. I am from Swift Creek. My farm is in Swift Creek.

I live in Ayden.
8 PROBLEMS IN THE TOBACCO PROGRAM

In 1959, I had 1,150 pounds; in 1964, I had 1,878 pounds; in 1961,

I had 1,234 pounds; in 1962, I had 1,335 pounds; in 1963, I had 1,724

pounds; in 1964, I had 2,185 pounds.

So, my choice of any 3 years out of the 5 years was my trouble.

I had water, and it was because I could not help it. In that territory,

2% miles east of Greenville, we had 10 and 12 inches of rain for 3 and

4 days in a row. The water backed out of the river. It backed into

our ditches, and out of our ditches into our fields. And there was no

way to do anything about it. We could not get the water away.

You were speaking about the year that we had so much rain.

Probably, that was called a disaster year. It must have been the

year 1959. If you will look at the sheet before you, you'will find that

that is true.

In Swift Creek, we had 1,279 pounds average for that year, so that

shows the water damage for that year.

On another sheet there, you will see the poundage for every township in the county, beginning with 1959, all the way through. You

will notice that Swift Creek A is lower yet; and Swift Creek A this

past year, which is on another sheet there. Swift Creek A had 33

contracts out of 106.

In going back to my own contract this past year, I sold 1,728

pounds of tobacco. And I only had 1,550. I had to throw away all

tobacco that would not bring 60 cents a pound.

Mr. COOLEY. Why?

Mr. QUINERLY. Well, they did not want to pay 4 cents a pound

for grading the tobacco then, when he is going to go over it, anyway.

And he did not even have it graded. It was just destroyed.

Mr. COOLEY. He threw the tobacco out that was worth 50 cents a

pound?

Mr. QUINERLY. I resold 7 pounds of tobacco this past year that

brought under 50 cents a pound.

Mr. COOLEY. You mean all of it?

Mr. QUINERLY. Yes. That is right. All of the tobacco that we had

this year, brought, this year, from 60 cents up, with the exception of

7 pounds. On top of that, we had a barn which was slightly smoked,

and the insurance company was kind enough to come out and let me

make a fire and burn that up and gave me a check for it.

Under the present situation, my tenant with 1,500 pounds of tobacco

to sell does not care to stay on my farm, and I do not blame him when

he can go to someone else's farm with 2,200 pounds on it.

Mr. ABBITT. In 1965, you produced approximately the same

poundage?

Mr. QUINERLY. I produced 1,728 pounds, and threw away everything under 60 cents a pound with the exception of 7 pounds.

Mr. ABBITT. And that was approximately 1,500?

Mr. QUINERLY. 1,540. Last year, I left over 2 acres. I did not

plant at all, because I knew I was going to produce over.

Mr. ABBITT. Your last year, was that an average season in your

section?

Mr. QUINERLY. Yes; that is right.

Mr. ABBITT. What do you suggest that we do?

Mr. QUINERLY. My suggestion is this: I am for the program; I am

100 percent for the program as it now stands, with the exception of

cases that I know of within the territory that were drowned. out and
PROBLEMS IN THE TOBACCO PROGRAM 9

had 5 years of it, and I think, if you will notice the sheets I have

passed around, you will find that that is true. In a certain section we

were drowned out. I cannot understand why, if a packhouse is hit

by lightning or it burns, you can give him poundage, while if a m9,n

was drowned out, which is an act of God, why cannot you give him

poundage.

Mr. ABBITT. You mean, why the Department cannot do it?

Mr. QUINERLY. What?

Mr. ABBITT. You mean why the Department does not do it.

Mr. QUINERLY. Yes.

Mr. ABBITT. Is that not correct?

Mr. QUINERLY. Well, that might be true.

The third question that I ask is, in 1965 I asked if there would be

some correction, and I was told, the day before we were to vote, that

there would be a correction in 1966, at least, but not in 1965. I

think that I have a letter from Mr. Cooley which states it to the same

extent, that there would be a correction made. I have a letter from

several Congressmen, too, to the same effect.

Mr. ABBITT. I will say this, that your Congressmen from North Carolina are always intensely interested in all of the tobacco legislation here. And I am sure that if you contacted them that they

responded readily.

Mr. QUINERLY. Yes; they did.

Mr. ABBITT. Do you wish to ask something, Senator?

Senator JORDAN. I want to say that I hope that we can work out

these inequities where it is purely a case of something that is beyond

the control of the farmers. I know about these conditions. I know

of some tobacco that turned over and it was propped up and then it

flopped over again. That is true; I saw it. And there is nothing

that you can do about it. But you did not make tobacco. I hope

that we can do something to remedy this situation.

Mr. QUINERLY. Thank you very much. I do, very much so.

The man who is up in Greene County, I can understand that. Greene

County has about 985 contracts. And this year there were 785

probably that did not make their poundage. That poundage will be

added on, of course, you know the story there, but the man with

1,500 pounds, and he produces over, he throws away a third of it,

but still his poundage goes down and his acreage goes down at the

same time.

(The three tabulations submitted by Mr. Quinerly follow:)
10 PROBLEMS IN THE TOBACCO PROGRAM

1966 Flue-cured tobacco, Pitt County

Community

(1)

Ayden (a) 

Ayden (b) 

Beaver Dam 

Belvoir 

Bethel 

Carolina 

Chicod (a) 

Chicod (b) 

Chicod (c) 

Chicod (d) 

Falkland 

Farmville 

Fountain 

Greenville (a) 

Greenville (b) 

Greenville (c) 

Greenville (d) 

Pactolus 

Swift Creek (a) 

Swift Creek (b) 

Winterville (a) 

Winterville (b) 

Totals 

Number

of farms

(2)

Final data

Average

per acre

(5)

Number

of farms

under

1,800

(6)

Number

of farms

over

2,000

(7)

Acreage

(3)

Poundage

(4)

150 1, 468. 50 2, 961, 501 2,017 11 76

111 1, 095. 36 2, 038, 578 1,861 34 26

115 781.39 1, 577, 831 2,019 16 63

97 549.01 1, 082, 138 1,971 21 41

132 1, 149.25 2,387, 867 2,078 12 85

155 1,228.27 2,411,984 1,964 30 67

119 807.42 1,551,440 1,921 29 47

96 993.46 1, 822, 254 1,834 34 16

146 879.83 1, 775, 970 2,019 17 92

80 421. 93 772,079 1,830 31 20

89 1, 030. 43 2, 007, 287 1,948 15 39

188 2, 062. 64 4, 125, 193 2,000 7 108

100 735.65 1, 444, 986 1,964 15 37

83 752. 10 1, 427, 869 1,898 22 27

67 569.81 1, 051, 850 1,846 29 17

137 1, 149.34 2, 290, 837 1,993 19 73

125 994. 99 1, 888, 827 1,898 29 44

126 1, 016. 00 1, 919, 651 1,889 50 34

103 742.06 1, 300, 852 1,753 71 11

136 818.29 1, 541, 193 1,883 55 43

129 1, 136.39 2, 318. 920 2,041 10 70

115 974.04 2, 001, 788 2,055 15 65

2,599 21, 356. 16 41, 700, 895 1,953 572 1,101

NOTE.-COIS. 1 through 4 show the 1966 allotment data by communities. Col 5 is col. 4 divided by

col. 3. Cols. 6 and 7 show the quota established below 1,800 lbs. per acre and above 2,000 lbs. per acre.

1965 Flue-cured tobacco, Pitt County

Community

(1)

Nunsber of

farms

(2)

Final data

Average per

acre

(5)

Underselling Overselling

Acreage

(3)

Poundage

(4)

Number of

farms

(6)

Pounds

(7)

Number of

farms

(8)

Pounds

(9)

Ayden (a) 146 1, 466. 25 2,944, 736 2, 008 110 267, 337 28 27, 598

Ayden (b) 112 1, 079. 18 1, 992, 881 1, 847 84 200, 969 13 9, 541

Beaver Dam 114 791. 48 1, 590, 820 2. 010 92 392, 150 7 3, 404

Belvoir 98 510.95 995, 796 1,949 63 116,129 17 10, 547

Bethel 134 1, 134. 17 2, 345, 735 2, 068 92 234, 014 23 21, 671

Carolina 154 1, 288.63 2, 519, 456 1,955 111 270. 030 31 32, 291

Chicod (a) 116 808. 24 1, 547, 347 1,914 74 133, 395 34 26, 581

Chicod (b) 97 1, 005. 51 1,836, 796 1, 827 39 78, 732 36 36, 643

Chicod (c) 142 839. 40 1, 696, 072 2, 021 65 99, 405 55 45, 655

Chiend (d) 88 449.92 819, 141 1, 821 54 101, 454 9 8, 898

Falkland 89 1, 029. 01 1, 990, 734 1,935 63 210, 603 19 30, 161

Farmville 189 2, 069. 01 4, 107, 909 1, 985 166 755, 443 9 8. 195

Fountain 102 736. 53 1, 443, 031 1,959 82 223, 863 13 8, 505

Greenville (a) 84 718.90 1, 358, 339 1, 889 52 191, 176 13 8,951

Greenville (b) 66 550.98 1, 010, 984 1, 835 44 154, 049 5 6, 112

Greenville (c) 129 1, 150. 70 2, 281, 346 1.983 104 322, 980 14 9, 955

Greenville (d) 128 1, 020. 14 1, 929, 293 1, 891 72 181, 753 23 23, 890

Pactolus 130 999. 69 1, 885. 963 1, 887 97 322, 141 7 7. 065

Swift Creek (a) 106 731. 01 1, 276, 239 1. 746 49 52,924 33 40, 754

Swift Creek (b) 138 771. 82 1, 444, 801 1,872 57 66, 068 43 34. 513

Winterville (a) 131 1, 196. 00 2, 424, 564 2, 027 103 266, 592 11 9, 843

Winterville (b) 115 966. 83 1, 975, 495 2, 043 83 209, 947 14 14, 762

Totals 2, 608 21,314.35 41,417,478 1, 943 1, 756 4, 851, 154 457 427,535

NOTE.-Cols. 1 through 4 show the number of farms, the acreage allotted and total poundage quota for

each community. Col. 5 is col. 4 divided by col. 3; cols. 6 through 9 show the number of farms which

oversold or undersold the 1965 quota and the pounds.
PROBLEMS IN THE TOBACCO PROGRAM

Community yield-Pitt County, N.C.

11

Community Prefix 1959 1960 1961 1962 1963 3-year

average

Ayden A 1, 557 2,028 1,891 1,717 2,345 2,088

Ayden B 1,431 1,956 1,672 1,601 2,204 1,941

Beaver Dam C 1,588 2, 041 2,128 1,581 2,261 2,143

Belvoir D 1, 564 1,971 2,058 1,988 2,090 2, 045

Bethel E 1, 524 2, 043 2,218 1,801 2,329 2, 197

Carolina F 1,437 1,975 2,095 1,485 2, 158 2,076

Chicod G 1, 527 2, 107 1,893 1, 736 2, 063 2, 021

Chicod_ H 1, 497 2, 025 1, 760 1, 417 2, 047 1, 944

Chicod J 1,495 2,215 1,951 1,437 2,273 2, 146

Chicod K 1,436 2,029 1,662 1, 196 2,086 1,926

Falkland L 1, 508 1,905 1, 815 1,923 2, 151 1, 993

Farmville M 1,489 2, 011 2, 102 1, 696 2,235 2, 116

Fountain N 1, 572 1,963 2,073 1,909 2, 133 2, 056

Greenville o 1, 560 1, 898 2, 066 1,665 2, 067 2, 010

Greenville P 1, 510 1,868 2, 005 1, 513 2, 095 1,989

Greenville Q 1,498 2,111 2,083 1,664 2,211 2, 135

Greenville R 1, 515 2,026 2, 178 1,660 2,028 2, 077

Pactolus S 1, 419 1, 930 1,879 1, 721 2, 112 1,974

Swift Creek T 1,279 1,865 1,468 1,639 2,040 1,848

Swift Creek U 1, 377 2, 087 1,688 1, 413 2. 175 1,981

Winterville V 1, 594 2, 102 2, 129 1,608 2,292 2, 174

Winterville W 1, 592 2, 228 2, 052 1,624 2,214 2, 165

Mr. ABB1TT. I want to say to you that we certainly appreciate your

coming here.

Did you have anything else that you wanted to say?

Mr. JONES of North Carolina. I want to direct a question to Mr.

Hardee, please.

What is your opinion, based on last year's cost of producing and

the average price paid per pound-what would be the minimum.

poundage that a farmer should have where he could expect to maintain himself, pay for his crop, his taxes, his interest, and other factors

that go into the cost of the crop and to have some reasonable return

on his investment? What would you consider to be the minimum

poundage that a man could farm profitably or break even with?

Mr. HARDEE. I would certainly say definitely that with the cost

of equipment and fertilizer, and labor, and everything else that goes

with tobacco, that it is just like you people working here, you know

what it costs, what the cost of living is. Certainly, definitely, 1,800

pounds would be about a minimum whereby a man could realize any

return on his investment. I would say that 1,500 pounds down, he

would only just barely keep going and he would go deeper and

deeper all of the time.

Mr. JONES of North Carolina. Thank you.

Mr. HENDERSON. You know that Jones County was flooded like

Pitt County was. I notice that Mr. Jones agrees. I was disturbed

about the same problem, but last fall, during the selling season some

fellows came to me with this story, that where the 3 out of the 5 years'

average was taken, that for good and sufficient personal reasons a

farmer rented his farm to a sorry tenant, and he was one that was

flooded out, and to prove the point, this past year he had a new

tenant and he more than doubled, almost tripled, his poundage, and

his pleas were that he ought not to be penalized under the acreagepoundage for the sorry tenant that he had had before.

After listening with a sympathetic ear to your neighbors who have

been flooded out, how would you expect us to amend the act and to

relieve you on your own production?
12 PROBLEMS IN THE TOBACCO PROGRAM

Mr. COOLEY. I would not get into that.

Mr. HENDERSON. That is right. The question that bothers me in

trying to help my people and to help you folks is: How can we be

sure of the farmer who had a low average as the result of a natural

disaster or an act of God? How can we separate these from the

other low averages for other reasons?

Mr. QUINERLY. I cannot answer for Jones County, but I can answer

for Swift Creek. And it was all under water.

Mr. HENDERSON. It was in Jones County; I looked at it.

Mr. QUINERLY. We can prove that by pictures taken by Mr. Coates

of Raleigh. He came down and took the pictures.

Mr. HENDERSON. We topped tobacco out of a boat. I thought

it would be the only opportunity that I would have hi a lifetime to

do that. I have topped it many years from the ground, but this is

the first time I had topped it from a boat. My point is that I could

make an argument that all of Jones County ought to be adjusted,

but I do know that in some cases one man would be getting a windfall

if we did not try to distinguish between a natural disaster and other

instances. I am sure that one-half of the farms in Jones County,

where they have pictures of it under water, would present an administrative problem, and that is what is worrying me. I am just as

sympathetic about it, because it has a disaster, but that is the question

I have in mind.

Mr. QUINERLY. I go along with you there. When you take a whole

township and beginning at the halfway point, going back up to Greenville, which was a wet area, and the sheets that I have passed up to

you will bear me out on this, they were drowned out, every one of

those years.

If you will look at the poundage on each one of those statements

that I have handed you, and you go back to 1961 and 1962, and 1963,

you will see for yourself that it was not their fault. Everybody was

doing their farming. So far as raising 3,000 pounds of tobacco is

concerned, most any farmer can tell you how to do that, but he will

also tell you that it will be put in an S. and W. grade, and Uncle Sara

will get it.

Mr. HENDERSON. The concluding point I want to make is that the

farmers that I represent are in a similar situation.

Jones County was flooded. All of the adjacent counties were

flooded. In Wayne, they contended that they had flood damage.

There were 7 out of the 10 counties that need some relief. I wonder

if 70 percent of the counties in the Tobacco Belt are in the same situation? We have such a widespread problem that I wonder how we

can solve it. I would remind my colleagues, when the natural disasters

occurred in Jones County, I introduced a bill to give some relief to

this disaster area, even under the old acreage program, but it is something that is still with us, and I hope that we can find a solution.

Mr. ABBITT. Do you want to say anything?

Mr. TAYLOR. I represent several tobacco producers who raise

burley. We do not have this problem because they voted it down.

I thought they had made a very definite mistake, but we could not

sell it to enough people. I do feel sympathetic toward you gentlemen.

There is no group of people more subject to the vicissitudes of weather

than the farmers. To hold past losses against you in your future

operations I think is not equitable. I do not want you to be penalized.

However, I can see the administrative difficulties involved. .
PROBLEMS IN THE TOBACCO PROGRAM 13

I want to put this question: Is this supposed to be an individual

matter? Or do you have cases where you have entire communities,

entire counties, that were damaged?

Mr. HARDEE. I am here not just representing one community;

there are several involved in this area, not just one farmer but many.

Mr. QUINERLY. This is more than one.

Mr. TAYLOR. Is it not because of the floodwater?

Mr. HARDEE. The floodwaters.

Mr. QUINERLY. The floodwaters. The water backed out of the

creek into the canals and into the fields.

You are speaking about each county having its troubles. Do you

find in your counties 4 years, beginning with 1961 out as a fair year, but

with all of the rest of the years, where they have been drowned out?

Mr. HENDERSON. In 1962, 1963, and 1964, they are the years that I

recall. In 1965, that was a good year, but that is not counted under

the program. I was one that thought that we ought to count that

because it would have averaged out better. I thought it would be

better over the entire period for the national average; so, I think

"yes," to make your case.

Mr. HARDEE. As I mentioned a while ago, it is the lower end; that

is right.

Mr. QUINERLY. When you have 4 years out of the 5 years, you have

not much of a chance to get a fair poundage.

Mr. COOLEY. What was yours, about 1,500 to 1,700 pounds?

Mr. QUINERLY. 1,550 was mine.

Mr. ABBITT. Are there any other questions?

Mr. QUINERLY. That is the allotment given this past year.

Mr. COOLEY. I thought that is what you said.

Mr. LENNON. Let me ask you this: Your 3 high years out of the

5 years were what?

Mr. QUINERLY. Let me see—wait a minute. In 1959, I had 1,145

pounds.

Mr. LENNON. Give me the 3 highest.

In 1960, it was 1,000?

Mr. QUINERLY. 1,878.

Mr. LENNON. In 1963, 1,724?

Mr. QUINERLY. Right.

Mr. LENNON. And in 1964, it was 2,000?

Mr. QUINERLY. That one did not count. They did not use that

one. You did not use that one.

Mr. LENNON. You did not use 1964?

Mr. QUINERLY. You started at 1959, with 1960, 1961, 1962, and

1963. If they had only used 1964, it would have helped me 200

pounds.

Mr. LENNON. You did not have the statistics here.

Mr. QUINERLY. Did not have what?

Mr. LENNON. I believe a question was asked by somebody, as I

recall the testimony, it seems to me that there was some question of

getting all of the statistics at that time. Your final figure was based

on what-1,300 and some?

Mr. QUINERLY. 1,550 pounds; about that.

Mr. LENNON. That is all.

Mr. FOUNTAIN. I want to join Congressman Jones and the others

in expressing the hope that the subcommittee will explore the situa62-422 66 3
•

14 PROBLEMS IN THE TOBACCO PROGRAM

tion further with the Department of Agriculture and see if something

can be worked for these bona fide hardship cases. I do not know how

many there may be in my own congressional district. I know that

there are some over in Warren and Franklin Counties. There are

pockets elsewhere. I have not heard anything about my home

county which adjoins Pitt, Congressman Jones' home county. There

are some pockets where individual farmers have been damaged and

simply did not have 3 good years because of forces beyond their control.

I think our friends here from North Carolina ought to know that

Congressman Jones and the other members of the North Carolina

delegation met just recently with Mr. Freeman in Mr. Cooley's

office, also with Mr. Godfrey, and discussed this very matter. They

are presently, I assume, in the process of exploring the situation and

should soon have some further answers today.

There seems to be a question as to how this can be done—if it can--

whether administratively, or by a change in the legislation, and, if so,

how that can be done without jeopardizing our tobacco program.

As you know

'

there are many antitobacco people who are very anxious,

any time we have legislation on the floor relating to tobacco, to offer

amendments to eliminate our complete tobacco program. So, we

have to be very careful as to how we handle such legislation.

Congressman Henderson mentioned the other type of hardship

situation. I do not know how we can go about it, but I received a

telegram from a constituent of mine over in Franklin who has a hardship case, but it is not this kind of a hardship case. I do not know how

it can be reached. It is a telegram addressed to me from John Lee

Wilder, a farmer in Franklin County and reads as follows:

Following data furnished by John Lee Wilder, 37-year-old farmer, R.F.D. 2,

Franklinton, Franklin County, N.C., for presentation at hearing before House

Agriculture Subcommittee, Washington, D.C., March 30, Longworth Building, as

hardship case: Year 1962 and prior thereto operation of farm under personal

management had average tobacco poundage yield of 1,943 pounds. In the year

1962 for a substantial valuable consideration I purchased 248 acres of farmland

which price was based primarily upon tobacco acreage and on which had an average

yield for the years 1959 through 1962 of 1,252 pounds. Upon consideration of

farming units after the 1962 purchase the poundage allocation for 1966 equals

1,501 pounds. It is contended that the 1962 purchase based on acreage and later

changed to poundage imposes an undue financial hardship. Based on personal

knowledge various farmers in same community are similarly situated.

Mr. Wilder is saying that the acreage program was in effect at the

time he purchased this land, and that a change to the poundage

worked an undue hardship upon him—the kind of hardship which

he could not foresee. I do not know what can be done about that

kind of hardship. I guess a number may be in the same boat. Of

course, this is not a disaster-type hardship, but to Mr. Wilder it is

real because the quality farming he had in mind will no longer be

worth while. I do think that bona fide hardships should be handled.

Where you get an excessive amount of rain that does serious damage

to the crop and results in very low production, that is something

over which the farmer has no control and to him it is about as much

of an act of God ag lightning or anything of that kind.

Mr. Chairman, I want to thank you for extending the invitation to

those of us not on the committee to appear here today and to participate in this hearing.

Mr. ABBITT. We are always very glad to have you.
PROBLEMS IN THE TOBACCO PROGRAM 15

We have with us Mr. Godfrey, from the Department of Agriculture.

Do you care to make any comments regarding the testimony that

has been presented?

STATEMENT OF HORACE D. GODFREY, ADMINISTRATOR, ASCS;

ACCOMPANIED BY CLAUDE TURNER, TOBACCO POLICY STAFF,

AND ART CONOVER, ECONOMIC RESEARCH SERVICE, U.S. DEPARTMENT OF AGRICULTURE

Mr. GODFREY. Mr. Chairman, I will point out merely that the

acreage-poundage law as adopted last year does not provide any

reserve for adjustments; that this matter was considered carefully by

the subcommittee and by the full committee here in the House and

also by the Senate Agriculture Committee when the legislation was

under consideration.

It was the considered opinion then that acreage or poundage

should not be held in resarve :or individual adjustments, that the

3 high years out of the 5-year period would be adequate to take care

of the hardships in addition to the provision in the law which raised

the 3-year community average to the 2-year average, if more than 2

years were bad years during the 5 years, and the 80-percent provision

for individual farms.

It so happens that I was checking here while they were testifying

and 45.8 percent of the tobacco communities in the Flue-cured area

have had yields of less than 1,800 pounds.

Mr. ABBITT. That is in my area, too.

Mr. GODFREY. In fact, your whole State averages under 1,700

pounds. So that if you try to give everybody 1,800 pounds, you would

swell your quota to the size where everybody would have to be adjusted

down, if you were going to have a quota which would provide for

adjustment on supply .and demand.

As Congressman Jones testified in Greenville, N.C., prior to the

referendum last year, the question was asked of me if there was any

poundage or acreage available for adjusting hardship cases

'

and I was

familiar with the Swift Creek area—quite familiar with it—and I

replied that the law did not permit any adjustments, that is, individual

adjustments; furthermore, that it would require a change in legislation

and that legislation could be adopted in 1966, but no adjustments

could be made unless such legislation was adopted.

Now, the question has been raised about adjustments for fire

damage to tobacco in packhouses. Our General Counsel advised

that an interpretation of the law said that tobacco that had been

primed and cured and in a packhouse was tobacco produced. We

submitted to him also the question of hail damage to tobacco in the

field, flood damage, and drought damage. And his ruling was that

this was not tobacco produced. Therefore, that it could not be considered in the yield for the farm.

Mr. KORNEGAY. What about the instance where the farmer gets a

sorry tenant?

Mr. GODFAEY. Again, this is not tobacco ilroduced.

Mr. KORNEGAY. That falls in the same category as the others?

Mr. GODFREY. It falls in the same category, I believe, that Mr.

Henderson was talking about a moment ago; in that category.
16 PROBLEMS IN THE TOBACCO PROGRAM

You would have some administrative difficulties in trying to determine what is a disaster damage and what is a low yield attributable to other factors.

There were some cases of disaster damages. The law does not permit an adjustment for this.

In our report to this committee, which was required by law and which was submitted on December 30, we stated that we in the

Department had contacted farm organizations, State colleges, industry, trade groups, and the ASCS committees in an effort to obtain their evaluation of the operation of the Flue-cured acreage-poundage

program for 1965, and seeking to obtain from them any recommendations of changes to improve the program in the years ahead.

Generally, the respondents were pleased with the first year's opera- tion of the program, although some suggested changes. ,

The consensus of those responding was that additional experience

was needed before an evaluation involving any changes in the acreagepoundage program could be made.

We at that time concurred in this recommendation that was made

by these people that were surveyed. At the present time, however,

if the committees of Congress want to provide some poundage for individual adjustments, and provides the guidelines for making these

adjustments, we would have no objection.

Mr. COOLEY. But you have already made your allotments for this

year, have you not?

Mr. GODFREY. Yes. The allotments are made for all of the acreage.

Mr. COOLEY. And the acreage is gone?

Mr. GODFREY. This would be a swelling of the national quota.

We have made some rough estimates as to what it would take to do this, and these are based on the sample farms that we use in estimating

yields prior to the passage of the legislation last year. This followed

a conference between several members of the North Carolina delegation and myself in Mr. Cooley's office about a month ago.

We believe that it would take in the neighborhood of 10 million

pounds to make the adjustments on the cases that would have at

least 1 bad year out of the 3 high years. These are rough estimates.

Mr. COOLEY. Even if you did that this year, it would be too late;

or would it?

Mr. GODFREY. It would all be governed by the time of the passage

of the legislation, with the markets opening the latter part of July.

We would need the legislation by the middle of May in order to make

it effective on individual farms this year.

Mr. ABBITT. And the planting time now is what?

Mr. GODFREY. The planting time—they are already planting in

Florida, South Georgia, and they will move on into South Carolina

the first part of next month, and on up as time goes by.

Mr. ABBITT. We could not pass a bill so fast.

Mr. GODFREY. Yes.

Mr. ABBITT. Are there any further questions?

Mr. JONES of North Carolina. Yes, sir.

You stated that 45 percent of the allotments are 1,600 or over?

Mr. GODFREY. Forty-five percent of the legal communities in the

Flue-cured area have average yields of under 1,800 pounds.

Mr. JONES of North Carolina. In connection with that, you do not

by implication state that these 45 percent are the result in all cases

of hardship, do you?
PROBLEMS IN ilih, TOBACCO PROGRAM 17

Mr. GODFREY. No, sir. I am trying to point out otherwise by

implication.

Mr. JONES of North Carolina. You made the statement that

since 1 bad out of 3 years involved 10 million pounds increase 

Mr. GODFREY. That is a real rough estimate.

Mr. JONES of North Carolina. You have gone further; you have

figures stating that if we took 2 bad years, what would it be to set

up the 5-year period for hardship?

Mr. GODFREY. Two out of the three, would mean four out of the

five. We have not made an estimate on this. I will tell you the

reason we have not. We consider that if 4 years out of the 5 have a

pattern, then that is more normal than the 1 high year.

Mr. COOLEY. Suppose that a man had an average of 3,000 pounds

straight for the 4 or 5 years, what would his poundage be?

Mr. GODFREY. If he had 3,000 pounds for the 5-year period, and the

community average yield was as much as 2,500 pounds, which is more

than likely what it would be, he would come out with a yield of about

2,800 pounds.

Mr. COOLEY. Well, suppose that he averaged 2,000 pounds per

acre for 3 out of the 5 years?

Mr. GODFREY. He would come out with 1,870 pounds. And be

could have had a complete failure the other 2 years.

Mr. COOLEY. I am sympathetic with the problem. I have suffered

hardships, as have a lot of others, perhaps not on account of bad

weather but on account of bad management. However, in this situation, you do not think that we should try to pass the bill this session,

do you?

Mr. GODFREY. Mr. Chairman, I would defer to your judgment on

that.

Mr. ABBITT. Are there any further questions?

Mr. HENDERSON. If Congress gave the Secretary the authority

to reserve 10 million pounds

'

based on the estimate you made, and

did not give you any criteria, how would you go about adjusting these

hardship cases?

Mr. GODFREY. Congressman Henderson, I do not know the answer

to that. We would have to do quite a bit of discussing with the State

committees and the county committees, the farm organizations, and the

technicians in the Department. We have done some studying on this,

but all of it has been right here among our people in Washington.

Mr. HENDERSON. The reason I asked this question, Mr. Chairman, I think that we all would prefer to write a criterion into the legislative history. Otherwise, we would have a real Pandora's box if we

just gave the Secretary authority to make this adjustment without

having some idea of how to do it, if we did not give guidelines. If you

have some criteria that we could write in, giving us an opportunity

to discuss it with our farmers and our farm groups, they could have

some idea of what is coming.

Mr. GODFREY. We would be glad to develop such criteria if the

Members feel that they want to develop legislation along this route.

We have done some studying on that, as I promised you when you

met with us and the group of people.

Mr. HENDERSON. Mr. Chairman, let me say that in the light of the

comment of the distinguished chairman, it just seems to me the one

thing that we could be doing in the interim when it may not be wise to
18 PROBLEMS IN THE TOBACCO PROGRAM

try to enact legislation, to try to get detailed studies and some criteria

developed that we would use if we were to make the decision to give

the Secretary poundage reserve authority. And I think from my

previous conversations with Mr. Godfrey, that is about the only thing

that we can hope for.

Mr. GODFREY. I would point out that in working with the county

and the community ASCS committees over the years, I do not believe

that they would want a reserve to make adjustments without some

definite criteria laid down. You will recall that we started out under

the old acreage program with the reserves as high as 5 percent at one

time for adjustment purposes and the pressure got so hot on our

committees until the last acreage reserve that we had. under the

acreage program was one-tenth of 1 percent. They wanted it -as

low as they could get it. They did not want the pressure.

Mr. ABBITT. We certainly thank you.

Mr. COOLEY. Just to clear up one thing. Up until December, you

told me all along that you would file the report by January with the

committee.

Mr. GODFREY. Yes, sir.

Mr. COOLEY. At that time you were considering making sOme

modifications. If I understood you correctly, you said a moment ago

that when you came to file the report you did not have sufficient

information or sufficient experience to justify making the recommendations.

Mr. GODFREY. This was our conclusion, that we wanted to operate

another year before we recommended any changes, and this was

based upon the survey of the people in the field. They recommended

no changes until another year of operation.

Mr. COOLEY. I think it is well to clear that up, because, based

on our correspondence and on your letters, I advised my constituents

and other people that we would receive the report and your recommendations. You did not make the recommendations, because

you did not think the experience was sufficient?

Mr. GODFREY. Yes, sir; that is right. The closing part of the report,

from which I read a moment ago, the closing sentence, is:

This Department shares in these views and does not at this time recommend

any legislative changes.

Mr. ABBITT. Thank you very much, Mr. Godfrey.

Mr. COOLEY. We do not want to let him go. We have him up

here for another purpose, too.

Mr. ABBITT. I was going into that now.

Mr. LENNON. You have heard testimony of the Government upon

the Swift Creek area?

Mr. GODFREY. Yes, sir.

Mr. FOUNTAIN. I was born about a mile from a portion of Swift

Creek where many in my neighborhood used to go swimming.

Mr. LENNON. You heard the testimony of these gentlemen from

this area. Is it your belief that they have an equitable matter to

bring to you and to the Department and to this Congress and, particularly, to this committee?

Mr. GODFREY. Congressman Lennon, whenever you devise a formula that applies to all farms, regardless of conditions, there are some

inequities.
PROBLEMS IN THE TOBACCO PROGRAM 19

Mr. LENNON. I was looking at the cominunities in Pitt County,

the fact that their average yield last year, the 1965 crop, was the

lowest of any of the some 32 so-called communities in Pitt County.

That is a pretty good indication and verifies what they said about not

having the 3 good years out of the 5 average.

Mr. GODFREY. It is entirely possible; yes, sir.

Mr. LENNON. There is only 1 on here that is 1,753 out of some 33

communities.

Mr. GODFREY. This is hazardous territory for growing tobacco and

has always been. This is not just recent.

Mr. COOLEY. They have a drainage district in there now, do they

not?

Mr. GODFREY. The drainage district is in there. They have done

considerable drainage in the last 15 years in the area. Prior to the

drainage work that was done 15 years ago, some of this area that is

now producing tobacco, they could not and would not dare to grow

tobacco on there, but this is hazardous growing area. They are taking

a chance in practically all of this area whenever they plant tobacco.

MT. LENNON. It is rich soil?

Mr. GODFREY. Part of it came from the farm that I sold off in the

headwaters; yes, sir. I sold it because I did not have enough water.

It is at the headwaters of the Swift Creek.

Mr. ABBITT. We certainly do appreciate hearing from you Mr.

Godfrey. We appreciate your coming up here; and we appreciate

your constituents coming up here, Congressman Jones.

I go along with the chairman that we should consult among ourselves, and with the gentlemen here from the tobacco-growing area,

and see what, if anything, should be done.

I do think that we should look into the matter and see what we can

do, if anything.

Mr. COOLEY. I would like to say one other thing. I wish that you

would explain to me what the situation is when a man lives in Wake

County and farms in Harnett County, and you come and give him the

Wake County average out of the other county average.

Mr. GODFREY. You do not need legislation to correct that. I

happen to know the case, I think, that you are referring to. It is

Wake and Johnson.

Mr. COOLEY. Wake and Johnson, that is right.

Mr. HENDERSON. Does it also apply to counties in my area?

Mr. GODFREY. We have a general rule in our regulations which

states that if a farm is located in more than one community or more

than one county, that it will be a matter of record wherever the homestead is located. We have had difficulties for years in combining

tracts of land across county lines, because our counties are administrative units, and that is the way the records are kept. We have

permitted it, however, in some combinations of tracts of land across

county lines. And that was at the request of the farm operator.

When it was in the best interests to do this, he requested it and wanted

all of the farming operations centered in one county, and we permitted

the tracts of land to be combined. He could, therefore, grow his

tobacco any place that he wanted to grow it, and his cotton any place

that he wanted to grow it, and he had to deal only with one county

ASCS office.
20 PROBLEMS IN THE TOBACCO PROGRAM

When he made the request, we would put it wherever his homestead

was. And this is generally where he requested it to be done.

If he did not want it done that way, we have left it where it was.

In this particular case the man came to see me personally when I

was in North Carolina. We accommodated him by combining the

two. And since he lived in Wake County, we put it in Wake County

at his request, and it remained in Wake County.

Now, when we started to compute his farm yield, he was limited by

the 120 percent of the community average yield. So it happened

that if he had left it in Johnson County, the adjoining county, the

community average yield there was higher than the community

average yield in Wake County.

Mr. COOLEY. He made a mistake then?

Mr. GODFREY. He made this mistake in 1956, 4 years before I came

to Washington.

Mr. HENDERSON. The Warsaw-Magnolia Township case in which

the tobacco was actually grown on three farms, as I recall, in Warsaw

Township, and on two farms in Magnolia Township, but the farm

homestead was in Magnolia, but under the acreage-poundage law and

under the regulations on that farm he was saddled with Magnolia

Township average.

Do you not have the authority, if you recognize the inequity of the

situation, to give him the township where he actually grows the

tobacco.

I am not talking about the case where he moved his tobacco from the

two townships and actually had grown it in Magnolia, but the facts

in my case, as I recall them, were that it was actually grown in Warsaw and in Magnolia, and under the acre-poundage you gave him the

computation of Magnolia or the homestead township.

Mr. GODFREY. The yields were computed on the basis of the farms

as constituted at the time we made the computation. We have no

reserve pounds. So, if we moved it back over there, we would still

have to give it the pounds that were computed for it. This is one of

the hardship cases that might receive adjustment otherwise. But

we have a number of farms in this situation. I know of one in Johnson

County, for example, that constituted one farm, and he grows tobacco

in every one of the 26 communities.

Mr. HENDERSON. He has the average of the community in which

his homestead is located? You call them a hardship depending upon

the size of the farm?

Mr. GODFREY. That is right.

Mr. HENDERSON. May I make that clear. You contend that you

do not have the administrative authority to do this?

Mr. GODFREY. We have the administrative authority to do it,

but we do not have the pounds to go with it, to raise it.

Mr. HENDERSON. If you did, before you computed your national

average, could you not do it?

Mr. GODFREY. If he had requested this before acreage-poundage—

yes, we could.

Mr. HENDERSON. This is my question, could it not be done for

1966, next year?

Mr. GODFREY. I would have to check the regulations to see if we

have the old originally computed yields or not. I am not sure.
PROBLEMS IN THE. TOBACCO PROGRAM 21

Mr. HENDERSON. I think that you could identify every one of these

in this period of time. I think that you could tell what the impact is,

and if you got legislative authority to do it, why should we be pleading

with the subcommittee here for legislation which we are going to have

to have to correct this, and you would go along with it, if we could do

it, would you?

Mr. GODFREY. Anytime that you raise this one up, you would have

to adjust the other one down.

Mr. HENDERSON. Thank you.

Mr. COOLEY. I want to make a statement. I think that you agree

that we could not afford to take the legislation to the floor now. We

might endanger the whole program.

Mr. HENDERSON. That is the reason that if they do have the

administrative authority and would make a study of it and say that

it will be wise to do it in 1966, we would have the authority and we

do not need the legislation.

Mr. COOLEY. I do not know when it was, but we have done it.

Mr. GODFREY. Every year for the last 4 years, you did it.

Mr. COOLEY. That is right.

Mr. HENDERSON. I think Mr. Godfrey will agree with me that this

would have a very infinitesimal impact on the total program. If that

is the case, I think it ought to be done administratively. If it would

have an adverse impact, the Congress ought to have another look at it.

I do not think that any farms would lose any acreage to correct this

one inequity that we have had called to our attention.

Mr. GODFREY. It is a question of quite a few of these.

Mr. HENLERSON. Every one of them, I think, could be identified.

Mr. GODFREY. All of them.

Mr. HENDERSON. Yes, sir.

Mr. COOLEY. Very well.

We have another matter that we desire to go into.

Mr. ABBITT. Please proceed.

EXPORT SUBSIDY ARRANGEMENT FOR TOBACCO

Mr. COOLEY. I have had correspondence with Mr. Freeman about

a matter in which all of us are interested, and I would like for Mr.

LeMay to read a letter which I received from Mr. Freeman, yesterday

afternoon.

Mr. LEMAY. The letter reads:

In our conference on March 22, 1966, and in your press release of the same date,

you requested that I rescind the recently adopted export subsidy arrangement on

Government-held tobacco. Your request, as stated in your press release, is based

on five points. Each of these will be dealt with separately. As you know, the

Government does not hold title to any stocks of tobacco since title remains with the cooperative until the tobacco is sold. Notwithstanding this, pricing policies

for loan stocks are approved by CCC after consultation with the management and board of directors of the cooperative handling price support through contractual

arrangements with CCC. Now, as to the points which you cited regarding the subsidy:

1. Is doing great damage to the whole tobacco industry, by interference with and disruptions of the normal marketing system.

The pricing policy has not damaged the whole industry nor disrupted the normal marketing system. As a matter of fact, the minor price adjustment announced on February 11 for the 1960, 1961, and 1962 crops (in the form of 5 cents per pound rebate upon proof of export) is not even as much as reductions in prices made for old crops in prior years. For example, in 1963 the prices for 1958 and 1959 crops
22 PROBLEMS IN THE TOBACCO PROGRAM

were reduced from $7 to $11 below the prices that were quoted for the same grades

of tobacco in 1962. There was no disruption or damage then—and there is none

now.

Sales by the stabilization cooperatives are made through normal trade channels.

A larger volume of sales is particularly needed at this time to supply the demand

created by underproducing the amount needed by domestic users and the anticipated export needs.

From the 1965 crop, the trade purchased only about 990 million pounds of leaf

on the auction market, with a little over 70 million pounds which were acquired

under the price support program. But 1956-66 estimated requirements for domestic and export use total about 1,240 million pounds, farm weight, or a shortfall

of some 250 million pounds. The loan stocks are available and should be used to

fill these needs.

Since the beginning of the crop year July 1, 1965, and continuing through

February 13, 1966, Stabilization Cooperative has sold a total of 98 million pounds

of tobacco. Approximately 84 million pounds of this were sold to companies

normally doing export business. Of the 98 million pounds sold, about 17 million

or 17 percent came from the 1960, 1961, and 1962 crops; 63 million or 64 percent

came from the 1963-64 crops which were priced at a higher level than prior year

crops.

Since the new pricing policy was announced in February, 44 million pounds of

loan stocks have been sold with 35 million being purchased by companies normally

doing export business. Of the 44 million pounds sold since the new pricing policy

has gone into effect, 24 million or 55 percent were purchased from the 1960, 1961,

and 1962 crops; 4.5 million or 10 percent were purchased from 1963 through 1965

crops at prices higher than those quoted for the 1960 through 1962 crops.

These data do not support the charges of interference with and disruption of the

marketing system. While larger amounts have already been sold than in prior

years, sufficient sales have not yet been made to supply the estimated requirements. The total sales from Stabilization stocks since the beginning of the

marketing year are 129 million pounds. Since the dealers purchased 990 million

pounds and the estimated disappearance for the year is 1,240 million pounds, there

remains 121 million pounds needed to fill the estimated demand.

2. Poses a threat over the whole tobacco auction marketing system in the future.

The pricing policy as announced will have no effect whatever on the auction

system. Sales by the cooperative will be limited to that amount necessary to

supply our needs, taking into account last season's underproduction. The acreagepoundage program which you were instrumental in passing has a specific goal—a

reduction in the high level of loan stocks. It has been working in this direction,

and the cooperative has been disposing of some of its stocks, as we described above.

3. May freeze prices for future tobacco crops at the Government loan rate,

with substantial losses to growers.

The 5 cents per pound rebate on exports of 1960-62 crop tobacco cannot possibly

freeze prices for future crops. Our acreage-poundage program is designed to

regulate marketings in line with requirements, taking account of carryover supplies.

As Government stocks are reduced to more normal levels, marketing quotas will

be increased accordingly, being carefully tailored to provide for the normal interplay of market forces. There is, and there will continue to be, active competition

among the various tobacco buying interests. Clearly this is not a situation which

suggests—even remotely—a freeze of prices accompanied by grower losses.

4. Is opposed by all elements of the tobacco industry—spokesmen for producers,

buyers, warehousemen, exporters.

The National Tobacco Industry Advisory Committee, whose membership

includes representatives of all segments of the industry—farmers, warehousemen,

exporters, and domestics—made a recommendation that action be taken to make

our tobacco more competitive in world markets.

5. Is unnecessary, because tobacco has been moving satisfactorily through

normal markets, and Government stocks are being reduced.

Though loan stocks were being reduced prior to repricing, the rate of reduction

can be moderately stepped up to the benefit of our growers and to improve exports. A careful pricing of loan stock tobacco such as worked out in our repricing

schedule will achieve this. Point 5 ignores the principal thrust of our pricing

policy—to make U.S. exports more competitive. Either we supply the amount

needed or foreign users will fill their requirements from other, sources. Our

exports for 1965 were 50 million pounds less than 1964. Our share of world

trade has fallen from 60 percent in the period 1955-59 to about 45 percent in

1965. Our research staff, and exporters themselves, advise that our reduced
PROBLEMS IN THE TOBACCO PROGRAM 23

exports and dwindling share of the market, even though consumption is expanding abroad, is due to the fact that U.S. tobacco is priced too high in comparison

with tobacco produced in other countries. For example, our average export

price is about double the export price for Rhodesia, our major competitor. The

exportation of Flue-cured tobacco is of serious concern to us as we know it is to

you and other Members of the Congress. I would welcome suggestions from

you, other Members of Congress, or the dealers in tobacco, of ways and means

to expand our volume of exports.

We believe the action we have taken is in the right direction, and in the best

interests of the tobacco farmers.

Sincerely,

ORVILLE L. FREEMAN.

Mr. ABBITT. Thank you very much, Mr. LeMay. Does anybody

here care to make any comments on this?

Mr. LENNON. Point No. 4, I guess, is the point or one of the points

that Mr. Cooley, I assume, had in the press conference "Is opposed by

all elements of the tobacco industry—spokesman for producers,

buyers, warehousemen, exporters."

The Secretary answered that allegation by saying that—

The National Tobacco Industry Advisory Committee, whose membership

includes representatives of all segments of the industry—farmers, warehousemen,

exporters, and domestics—made a recommendation that action be taken to make

our tobacco more competitive in world markets.

After we left here the other day, I picked up a little more information than I had at the time that I was here, and I find that the officers

of the Stabilization Corp. did recommend that some means be found

to make tobacco more competitive in the world trade but my information is that they differed with the Board of Directors of the Commodity

Credit Corporation as to the methods that would be used in order to

make tobacco more competitive in the world trade.

Let us take the National Tobacco Advisory Committee, did they

recommend specifically what the Department should do in respect to

this export subsidy?

Mr. GODFREY. First, there is no export subsidy. A subsidy exists

only when you sell something for less than you invest in it. And this

tobacco for 1960, for 1961, and 1962 is priced for export at a higher

price I hal the investment in it.

Mr. LENNON. Taking the factors that you have always said were

used when we sold tobacco for sale in export?

Mr. GODFREY. Yes, sir; that is right. I believe referred to by

economists as a stratified pricing system.

Mr. COOLEY. What kind?

Mr. GODFREY. A stratified pricing system whereby you price

differently in different markets.

The National Agricultural Advisory Committee made recommendation that some way or means be found to make U.S. tobacco competitive in world trade.

Mr. LENNON; Did that recommendation stop right there?

Mr. GODFREY. No, it did not. It went ahead and said that we

propose that a task force be appointed to study this. We carried

out the recommendation and appointed a task force.

Mr. LENNON. From the National Tobacco Advisory Committee?

Mr. GODFREY. Yes, from the National Tobacco Advisory Committee. This task force met in Washington for a little more than a

day and a half. The first day was devoted to the presentation of

information to them on ways and means for making tobacco more
•

24 PROBLEMS IN THE TOBACCO PROGRAM

competitive. Most of this was done by a member of the Department

of Agricultural Economics at Virginia Polytechnic Institute, Dr.

McMurtrie, who has devoted more than 5 years to a study of this.

?art of the time was turned over to Dr. Kiger from the Foreign

Agricultural Service to give a picture on exports. Part of the time

was devoted to explaining to them the systems of making other

commodities more competitive in world trade.

We reviewed every commodity that they asked about, and told

them what system was being used.

On Tuesday then, they discussed among themselves ways and means

of making tobacco more competitive. They discussed six or eight

different ways that had been outlined to them. Arid they finally

reached some conclusions. The conclusions have not been made

public as yet. They were recommendations to the Secretary.

Mr. LENNON. Right there, were the recommendations made by the

task force recommendations that were finally implemented in order,

I mean with respect to the sale of 

Mr. GODFREY. Specifically, it has not been published, and it is up

to the Secretary to publish it, since it is a recommendation to him, but

specifically, they agreed unanimous on a two-price system.

Mr. LENNON. You say that they did agree?

Mr. GODFREY. Yes, sir.

Mr. LENNON. The task force made its recommendations to the

full advisory committee?

Mr. GODFREY. No, they made the recommendations to the Secretary of Agriculture.

Mr. LENNON. To the Secretary?

Mr. GODFREY. Yes, sir.

Mr. LENNON. Did the Tobacco Stabilization Corp. make recommendations that were finally made by the Secretary for the disposal

of the surplus tobacco for export?

Mr. GODFREY. No, sir. It is a privileged communication. Mr.

Weeks read it into the last informal hearing, the minutes of the

stabilization board of directors, and I have a copy of them here with

me in which they specifically recommended every action that was

taken, and we restricted one recommendation.

Mr. LENNON. You heard the president of the Stabilization Corp.

the other day, and you are now saying that he, as president of the

Stabilization Corp., made the recommendations to the Board of

Directors of the Commodity Credit Corporation which was finally

adopted with respect to this program for the sale of export tobacco?

Mr. GODFREY. Yes, sir. He signed the minutes himself.

Mr. LENNON. Why did he say that the other day?

Mr. COOLEY. That was after the meeting.

Mr. GODFREY. In the public meeting, in the open hearing, he said

that he had no disagreement with what had been said.
PROBLEMS IN THE TOBACCO PROGRAM 25

Mr. LENNON. I understand you cut one of the recommendations

made by the Stabilization Corp. to your Board of Directors of Commodity Credit Corporation.

Mr. GODFREY. I say that we restricted one of their recommendations. This is the only point of difference. Here is what the letter

says

You will note that the suggestions made when I was in Washington last week

discussing this matter has been complied with in full. In addition to this, a $5

reduction was made on all other export grades.

We had discussed making a $5 reduction only on certain export

grades which were in abundant supply. He says:

We recommended on all other export grades in 1960, 1961, and 1962 crops.

We restricted this, though. We made it applicable to all export

grades of 1960, 1961, and 1962 crops but only if exported. The $5

reduction applied only if exported.

Mr. COOLEY. Just one point. I had a telephone call just a few

minutes ago and the caller stated that he had bought some of the

1962 crop and had sold it for export, and he thought that he was

entitled to the 5 cents a pound. I said that I thought so, too. Is

he entitled to it?

Mr. GODFREY. He did what, sir?

Mr. COOLEY. He bought some of the 1962 crop and has sold it.

Mr. GODFREY. If he bought it, after this pricing policy was adopted,

from Stabilization, he is entitled to it. We made the offer in the

informal hearing that if they had some of their own stocks that

were exported after February 14 when this became operable and

they made the request to us we would work out a procedure to give

them the export subsidy, the export rebate.

Mr. COOLEY. That is the answer that I wanted to get.

Mr. GODFREY. This is what we said in the informal meeting.

Mr. COOLEY. That is what I was talking about, as to the minutes.

I was shocked and I think everybody here was that that was what

his position was. He was asked the question by Mr. Hull.

Mr. GODFREY. This was Tubby now. Carl was there.

Mr. COOLEY. Two different organizations.

Mr. GODFREY. When Carl said, "I have nothing further to say,

I concur with what has been said," Tubby said, "I prefer not to

answer."

Mr. LENNON. When you have men like Mr. Mangum indicate

they are afraid of what might happen if you go under a two-price

tobacco system. I understand the motivation of your exporter who

wants to sell his 1964-65 crop that they bought—I am talking about

the growers now.

Mr. GODFREY. I cannot explain B.C. I have worked with B. C.

Mangum. I think that I gave him the first job that he had with the

Department of Agriculture. I cannot explain his action, because

this is not the first time that we have disagreed. He disagreed on

the feed grain program which this Congress adopted. He disagreed

on the cotton bill which this Congress adopted. In fact, he has

disagreed on everything that the Department has done except the

basic principles of the tobacco program.

Mr. LENNON. I do think that he is reflecting basically the feeling

of our growers as to the beginning of a two-price system.
26 PROBLEMS IN THE TOBACCO PROGRAM

Mr. GODFREY. I do not believe that he is reflecting the feeling of

the growers on the feed grain program, for example, when we got

70 to 80 percent of them in North Carolina participating.

Mr. HENDERSON. Will you yield?

Mr. LENNON. Yes.

Mr. HENDERSON. Do you have any apprehension, Mr. Godfrey,

about a two-price system in tobacco?

Mr. GODFREY. Personally?

Mr. HENDERSON. Yes.

Mr. GODFREY. No, sir. In fact, I think that if we do not get a

two-price system in tobacco we are going to be largely out of the

export business.

Mr. LENNON. How will you finance it, unless we have it as we have

in a two-price cotton system.

Mr. COOLEY. It is an entirely different proposition, Al. You have

synthetic fibers to compete with in cotton. You do not have synthetic tobacco to compete with here. Mr. Godfrey knows, going

back to 1955 or 1956, that I have been urging all along to do something to make this tobacco competitive, that we lower the price on it,

that we do something to get rid of it. We did get rid of the 1955-56

crop at a cost of about $6 million or $7 million.

Mr. GODFREY. Actually, it did not cost us anything on the original

investment.

Mr. COOLEY. I guess that it did not; that is right. We have the

old crops. We ought to get rid of them. I am not apprehensive

about a two-price system in tobacco. We can afford to go all the

way and subsidize it all—everything that we have in storage. My

figures indicate that it would cost $20 million just to subsidize the

whole business, that is, the 800 million pounds that we have in storage.

Mr. LENNON. Can the Government do that without difficulty?

Mr. GODFREY. When the Federal and State Governments receive

$3,500 million in taxes on tobacco alone each year. We subsidize

peanuts grown on only one-tenth of the acres produced and subsidized

them to the tune of $45 million. We subsidized gum rosin • last year

we subsidized wheat $1, 295 million including payment to the farmers.

Mr. LENNON. I agree that we ought to spend a part of the $3.3

billion in Federal excise taxes for this, but the average Member of

Congress will not accept, I am afraid, a two-priced tobacco system

which will assure the grower the same price for his tobacco for export

as that sold on the domestic market. That is what my own fear is.

Mr. GODFREY. I seriously do not know what the Congress would

accept, but I feel that those of use who know the export situation, who

are privileged to study it, have a responsibility to the tobacco growers.

Mr. LENNON. I would have thought that the tobacco growers

generally would approve this program to get rid of this tobacco which

hangs over our market.

Mr. GODFREY. If they are informed, they will, sir.

Mr. LENNON. But the so-called people who are informed, the

leadership in the tobacco industry, seem to be scared to death of this

proposal. That is what I cannot understand.

Mr. GODFREY. Congressman Lennon, I believe that the history

of this Nation is that somebody has to step out on every issue. I

think that if we look back to the cotton legislation last year, there

were very few producer groups that favored the cotton legislation,

but some of us felt that it was in the best interests of the cottongrowers.
PROBLEMS IN THE TOBACCO PROGRAM

The same is true on feed grains.

The same was true on the wheat program.

Very few producer groups were in here on the wheat program.

And you see very few in here on peanuts, until you raise the differential problem and then you get them in here.

Mr. LENNON. What you say is that it is going to work out all right.

Mr. HENDERSON. Can you not give us this information that would

help us to get the farmers and the farm leaders to believe this?

Mr. GODFREY. It is cited in this reply here that we lost 50 million

pounds of our export market last year, while our quality improved,

and the farmers sacrificed $125 million. They produced 328 million

pounds less tobacco. They got $125 million less, the Flue-cured

tobacco farmers, and yet they had to give up 50 million pounds of

export market-11.4 percent of that market. I do not think that

this is right.

Mr. HENDERSON. Let me illustrate my thinking. In my conversation with Leroy Simmong—I know that you knew him from way

back 

Mr. GODFREY. Yes.

Mr. HENDERSON. He said to me this, about a two-price system:

I tried to find out why he thought this would be bad. The only

explanation that I can recall that he gave me at the time, was that

he was afriad of disrupting the market, and that the Stabilization

Corporation in 1966 would get more tobacco under this pricing

system than it would get without it. He agreed with me that he

wanted the stocks reduced, but he was afriad that this system this

year was going to drive the buyers off the market and that Stabilization would have to take it and that we would just be in an endless

circle of trying to reduce the stocks.

Mr. GODFREY. This was answered in the Secretary's letter in which

he states that: "We will judge the sales and gage the sales to where

we will not oversupply the demand."

Mr. HENDERSON. Then, we are going to end up with our domestic

and exporters buyers with all of the buying of all of the tobacco from

the Stabilization Corporation.

Mr. GODFREY. NO, sir. Let me cite some figures for you.

Mr. HENDERSON. We do not want to move in that direction,

do we?

Mr. GODFREY. No, sir. Let me cite some figures for you that have

not been made public before, but are being made public today.

The pricing policy of the Stabilization put a real good umbrella

over the dealers' purchases for 3 years preceding the year in which the

prices are set. For example, you take the 1965 crop. I have here

six selected grades of tobacco. This is applicable to all grades. The

support price on B5GF tobacco, which is a good export grade of

tobacco, was $47. In other words, Stabilization took this at $47.

You can convert this to dry weight. We have invested in it $52.51

as the support price. It cost $5.51 for redrying; 45 cents for sheeting,

and loading; 35 cents for freight; and 4 cents for getting it into the

warehouse, a total cost of $6.35 a hundred, giving a cost for a packed

basis of $58.86. Now, what would you consider a fair markup on

that; that is, the $58 investment? What should Stabilization's price

be as a fair markup?

Mr. HENDERSON. TO price it at that.

•
28 PROBLEMS IN THE TOBACCO PROGRAM

Mr. GODFREY. They have got it priced at $72, a 22-percent markup

over cost. If this is not an umbrella over the dealers, I do not know

what it is. And this is true for every grade, not only the 1965 crop,

but the 1964, and the 1963 crops also. It is about time that we

started pricing our tobacco competitively.

Mr. LENNON. Does not the Commodity Credit Corporation sort of

set the guidelines for Stabilization with respect to the pricing of certain export commodities?

Mr. GODFREY. No, sir. We have tried to work harmoniously with

the Stabilization Board. I want to reveal to you something else.

When I came into Washington in 1961, in January, pricing policies for

Stabilization had never gotten as high as my level, never 'before the

Board at Commodity Credit Corporation. So, I talked this over with

the Under Secretary, Mr. Murphy, and he said, "Well, Horace, I

think that this is important enough that the Board of Directors of

Commodity Credit Corporation should approve of these pricing

policies." I said, "This was my thought." He said, "We will bring.

them to the Board." Since then, we have carried them to the Board.

But that year, prior to consultation with Stabilization, they had some

of the 1955 crop of tobacco that they had continued to add the carrying charges each year onto the acquisition cost, and it was priced for

sale at nearly twice their acquisition cost. That is the reason it was

staying in Stabilization; that is the reason that these buyers were buying tobacco in other countries. So, we have tried to adjust this over

the years and to adjust it down.

We made another adjustment in 1963 as related in the Secretary's

letter here, but we have more to do, as I related right here.

Mr. HENDERSON. Let me ask another question. Do you find that

the policy of the Board of Directors of the Stabilization Corporation

in patronage dividends to the members is their prime interest, or are

they more interested in disposing of the stocks at a fair price that

will move them and will not disrupt the market, and that whatever

dividends there might be would be incidental to that?

Mr. GODFREY. You are putting me on the spot.

Mr. HENDERSON. Let me answer it my way, as to what I think the

members want. I do not think that the members want patronage

dividends. I think that they want stabilization.

Mr. GODFREY. I do not think that 1 dozen out of the 600,00G

members know how the 1965, 1964, and 1963 loan stocks were priced.

Mr. HENDERSON. I have had them tell me when they get the

dividend check that they would rather not have the dividend check

but that they would rather have the Corporation promote the export

of tobacco, or see what can be done with it.

Mr. GODFREY. I am a member of Stabilization. I have my authority in my pocket. I do not want any rebates. I would rather that

they sell the tobacco so that I can sell more.

Mr. HENDERSON. I wanted to find out if you thought that the

Board of Directors understand that.

Mr. GODFREY. I think that there is a little history here. I do not

mind repeating the history. They were organized in 1946; that is, to,

price-support tobacco under a contractual arrangement with the Commodity Credit Corporation. The price-support level from 1946 until

1959 ascended most years, because the parity index went up. The

price-support levels on all commodities did this, if they were fixed at a
PROBLEMS IN THE TOBACCO PROGRAM 29

set rate of parity. I do not know whether Mr. Turner or Mr. Conover has with them the price-support levels over the years or not, but as

I recall, if I do correctly, the price-support levels jumped during that

period of years about 15 cents a pound. Any tobacco acquired during

the earlier period from 1946 to 1959, in other words, from 1946 to

1953, because of the increased support level, they were able to add to

it the charges, and they were able to sell and make a profit on it.

They actually made a patronage refund on all tobaccos sold from 1946

through the 1953 crop.

Now, in 1959, at the insistence of the tobacco leadership, the Congress acted wisely, I think, in kind of putting a lid on the increases in

the price-support level.

Mr. COOLEY. At the 1959 level.

Mr. GODFREY. At the 1959 level, I believe it was that they tied it

clown to that. I think that it was wise to do that. Since that time, it

would be impossible, unless Stabilization prices themselves out of the

market, to make a profit on their tobacco. And here I think they

have priced themselves out of the market.

I would point out that the dealers that are buying American tobacco

also buy in Canada. And I have here the market report for Canada

which closed—and this is kind of amazing, as you consider it. The

markets closed on March 3 and only once have they ever closed on an

earlier date; they sold 18 million pounds, or 13 percent, more than they

did last year. They sold 154 million pounds as compared to 136

million pounds last year, and they received better than 9 cents per

pound more for it than they received last year.

And some of the same people that buy our tobacco for export

bought this tobacco.

Mr. JONES of North Carolina. What was the average price?

Mr. GODFREY. The average price that they sold for was $65.95, a

little under ours.

Mr. COOLEY. Mr. Godfrey, let me make a statement.

My letter to the Secretary was based on information which had come

to me from, I thought, all segments of the tobacco industry, and I

received a telegram from the Farm Bureau in my home county stating:

Support you and commend you highly in your action in requesting the Secretary

of Agriculture to rescind immediately the export subsidy arrangement on Government-held tobacco.

And that may be reflected by Mr. Mangum and the others, because

I think that the Farm Bureau has traditionally opposed subsidies.

You do not want to call it a subsidy, but, as you say, I think that even

now it is a fact that even if the Secretary were to rescind this order, he

could still reduce the prices, could he not?

Mr. GODFREY. Yes.

Mr. COOLEY. It comes to exactly the same thing.

Mr. GODFREY. The same thing, but there is a difference. You

reduce the prices and make it available to everybody, it will affect

the farmers' receipts on the market this year.

Mr. COOLEY. That is what I want to discuss.

Mr. GODFREY. It will affect the farmers' receipts at the market,

because the domestic people would be eligible to buy this tobacco

at a reduced price. They can use this tobacco. And the domestic

buyers take about two-thirds of the crop on the floor purchases.

They generally buy all of their needs on the warehouse floor.
30 PROBLEMS IN THE TOBACCO PROGRAM

Mr. COOLEY. Let me go back to another point. On this export

question that I was talking about, the export of 400 million pounds

a year average, at 5 cents a pound, would be $20 million a year. I

think that is just a drop in the bucket when related to the enormous

amount of taxes that we pay into the Treasury.

The thing that is shocking is whenever you see a list of the losses

that we have sustained. I had a fact sheet prepared by the staff

showing how enormous the amounts of money are that we have lost

on other commodities, and that the loss on tobacco is negligible.

I think it is a good thing to get out of it, to subsidize the 400 million

pounds of tobacco and let it go into the world market and go to a

two-price system. That is mighty little money to pay to save the

tobacco industry of America. We are up against it. We will have

to do something like that.

The thing that I am careful about—and I want you to be, too, and

everybody—is that the people are treated fairly.

I understood you to say a while ago that of the export crops that

come out of these years that you mentioned, you will pay the 5 cents

a pound?

Mr. GODFREY. Yes.

Mr. COOLEY. If they satisfy you that it is for export.

Mr. GODFREY. If they acquire it, the tobacco, after the new sales

policy went into effect. If they acquired it before the policy went

into effect, they took the same risk as an ordinary businessman would

do. And if they buy a car today, it goes down in price tomorrow,

that is their risk.

Mr. COOLEY. I thought you were going to take the tobacco inventory of these companies? Suppose that an exporter had some that

he bought 

Mr. GODFREY. You are asking if he bought the tobacco and had it

in inventory when the pricing went into effect?

Mr. COOLEY. Yes, sir.

Mr. GODFREY. I see nothing wrong with it.

Mr. COOLEY. For export only?

Mr. GODFREY. Yes, sir.

Mr. COOLEY. I do not think that they will complain if you do that,

but, as has been pointed out here during the discussions, the industry

still stands by these points.

Mr. GODFREY. We want to be fair with them. We consider that

they are an integral part of the entire tobacco industry, but at the

same time we feel that we should not sit idly by and let the farmers'

markets erode away. We have got to do something to protect the

farmers' markets. If the farmers are willing to give up $125 million

in income in 1 year in order to get his house in order, it would seem

to me that the dealers should say "Yes, let us subsidize whatever is

necessary; let us have a two-price system and get the tobacco moving."

Mr. COOLEY. I think that, probably, they would change their

views if we subsidized it across the board and let everybody call it a

subsidy or whatever you want to call it. Let the Government put up

$20 million a year until we get out of trouble.

Mr. LENNON. We actually have a shortage of tobacco, do we not?

Mr. GODFREY. No.

Mr. LENNON. Based on the yield of last year?
PROBLEMS IN THE TOBACCO PROGRAM 31

Mr. GODFREY. Oh, yes, sir. We created a shortage by the farmers

underproducing. We had four goals in the acreage-poundage program.

Mr. LENNON. The stocks are not there available to fill these needs.

It says on pages 1 and 2 of the letter; that is, if I read it correctly.

Mr. GODFREY. This is exactly what he says.

Mr. COOLEY. That is the reason that he thinks that they will fill

that need, by using up the tobacco.

Mr. GODFREY. If they can get it at a competitive price. This is

what they will tell you. How many people have been abroad and

have come back to the United States and made a report on tobacco.

You had a committee that you appointed in 1958. It was chaired

at that time; that is, the subcommittee, by Congressman Watts of

Kentucky. His report said that there were two problems in increasing the exportation of American produced tobacco—one was quality

and two was price.

Mr. COOLEY. That is exactly right.

Mr. GODFREY. The chairman of the board of the Tobacco Associates went abroad and came back. I heard him make three different

speeches, and he said that there were two problems in exporting

more tobacco, quality and price.

There was a bankers-sponsored tour of Europe the year before of

North Carolinians, and if I am not mistaken there were 156 people

from throughout the area that went on this tour. Every one of them

came back and made the same statement. Archie Davis of the Bank

made several speeches. He said: "We have two problems in holding our markets and trying to expand them. We have to improve

our quality and be price competitive."

We have improved our quality, and instead of being price competitive, the price went up nearly 7 cents a pound last year, or 10 percent,

because we shorted the market.

Mr. LENNON. I will ask one more question. I am talking about

part No. 3 in the letter:

"May freeze prices for future tobacco crops at the Government

loan rate, with substantial losses to growers."

Can we have your assurance that this would be done automatically?

Mr. GODFREY. The assurance that I can give you would be based

on the experiences with other commodities. When you short the

market, if you produce less than the market demand, your price is

always in excess of the price-support level. It is always; it has been

for every commodity since we have had a price-support program.

Mr. COOLEY. You think that will be the situation this year?

Mr. GODFREY. Yes, sir; I see no reason why it should not be.

There is a possibility that they can overproduce the market demand

this year. I would hasten to point out—this is the reason I am hedging just a little bit, Congressman Lennon, the quota is 1,126 million

pounds. They have a carryover from last year of 70 million pounds.

This takes it up to 1,196 million pounds. They can overproduce and

oversell this by 10 percent. This could run it above 1,300 million

pounds. Now, there will not be a demand for 1,300 million pounds.

So, if they do this, then the price they receive on the warehouse floor

will average just 1 or 2 cents above the price-support level and instead

of 4 or 5 cents. Last year, I think it was very unusual. There was

A
32 PROBLEMS IN THE TOBACCO PROGRAM

no real justification for the price averaging from 6 to 8 cents above the

price-support level.

Mr. LENNON. That will be a disappointment to them.

Mr. GODFREY. Yes, sir.

Mr. LENNON. Once they get it, they do not want to change it.

You are now predicting what is likely to happen, what the difference

between the price-support level--and what others?

Mr. GODFREY. If we fail to maintain our exports, the loss of 50

million pounds in exports will hurt them more than anything that we

do on the price basis. A loss of 50 million pounds in export means

about $35 million to the American farmers.

Mr. FOUNTAIN. What is the total for export, not for Stabilization

but the Commodity Credit Corporation? What is the percentage?

Mr. GODFREY. On the total it runs approximately 35 percent.

Mr. FOUNTAIN. You do not feel that the two-price system will in

any way affect that?

Mr. GODFREY. No, sir. A major part is bought for export, not by

dealers but, for example, by the Imperial Tobacco Co. and the Export

Tobacco Co., and the remainder is bought by the many dealers who

belong to this association.

Mr. FOUNTAIN. What do you mean by "the dealers"?

Mr. GODFREY. It is bought by the dealers, I would say about 50

percent of it. I am guessing now.

Mr. FOUNTAIN. What percentage is bought by the dealers? You

mean 50 percent of that?

Mr. GODFREY. It is bought for export—this is about right, about

50 percent. Imperial buys a little in excess of 100 million pounds.

Then, I expect that Export would buy a little more than this, also.

And 450 normally is purchased for export. In the 1964-65 marketing

year Stabilization sold 64 million pounds in total.

I do not know, but out of the remainder, the large dealers, I would

guess, would purchase a minimum of 60 percent of it, or that would

mean 60 percent of the remaining 50 percent, so that would mean 80

percent of it is purchased by about four companies and the other

20 percent purchased for export is divided among all of the other

dealers.

Mr. COOLEY. Can you give us an idea as to the view of the Secretary

and his associates, as to the suggestion I have made about the possibility of subsidizing other exports?

Mr. GODFREY. We recommended a two-price system last year.

The Department did that. The President also did.

Mr. COOLEY. You do not have to have legislation for that?

Mr. GODFREY. We do not have to have legislation for an export

subsidy; no.

Mr. COOLEY. That is what I was saying.

Mr. GODREY. But you would have to have it for a two-price system

similar to the wheat program.

Mr. COOLEY. I know that, but if you wanted to reduce the stocks—

Mr. GODFREY. If you wanted to reduce the stocks, if you wanted

to provide a cheaper price for our tobacco that goes into export--

Mr. COOLEY. That is right.

Mr. GODFREY (continuing). You do not have to have additional

legislation.

Mr. JONES of North Carolina. For the total program?
PROBLEMS IN THE. TOBACCO PROGRAM 33

Mr. GODFREY. Yes, sir.

Mr. JONES of North Carolina. You can do that?

Mr. GODFREY. ou would not have to have additional authority

for it.

Mr. JONES of North Carolina. What is the feeling on that?

Mr. GODFREY. I could not say, sir. It has not been discussed

recently with the Secretary or the Under Secretary.

Mr. COOLEY. What do you think the reaction would be on the

part of the Stabilization Board? They are loaded down with tobacco;

800 million pounds of it, and we are losing export markets. The

farmers are facing a decrease in their income.

Mr. GODFREY. I do not know what the reaction would be of the

Board. There is a lack of information among the tobacco producers

as to the true export situation.

Mr. COOLEY. I am inclined to agree with that, but I think that we

are dealing with something of great importance, and I think that

$20 or $30 million that we are talking about is inconsequential

when it comes to the problem we have facing us.

Mr. GODFREY. Mr. Chairman, I want to say now before I forgetc.it

that I am delighted at the opportunity to discuss this with this group,

because I think it is one of the most serious things that has occurred.to

Flue-cured tobacco producers since we have had a tobacco program.

The loss of their markets. And I do not believe that any of us who

are in responsible positions, who know the export situation, can justify

not doing something about it.

Mr. COOLEY. Suppose that we rounded up all of these exporters

that we had up here on February 14, and they were to agree with this?

After all, they are our salesmen. They go around the world right now

trying to sell the markets.

Mr. GODFREY. Precisely.

Mr. COOLEY. If they knew that they could reduce their price somewhat, they would start moving, would they not?

Mr. GODFREY. I would think that you would want to discuss this

with the Secretary and the Under Secretary and get the opinions of the

Department.

Mr. COOLEY. All right.

Mr. GODFREY. And I would think that you would want a unified

effort here on the part of the leadership in Congress that when the

questions come, you would be in the position to say that the tobacco

producers of the United States are entitled to foreign markets as are

the producers of cotton and wheat and gum rosin or peanuts, or anything else.

Mr. COOLEY. That is right. I am glad to have your views on it.

Mr. HENDERSON. We may not know enough about this whole program. I have been under the impression that when we sold cigarettes

in America by the domestic companies through advertising, television

media—you see a great deal of it every night—and in the newspapers,

and suppose that the Department would do some advertising about

smoking, how pleasurable it is—I wonder what would happen?

Mr. GODFREY. We are carrying on some promotional programs

now. There have been some criticisms of some of our promotional

programs in the Congress, particularly in the Senate.

Mr. HENDERSON. Would there not be the same criticism of a

subsidy program—call it whatever you might.
34 PROBLEMS IN THE TOBACCO PROGRAM

Mr. GODFREY. This is what I indicated a moment ago. I think

there will be some criticism, because it is tobacco, but I think that

eventually, we will have to face this issue, and if we face it before we

lose all of our markets, I think that we will be better off.

Mr. COOLEY. There is one other thing that I would like for you to

discuss. We have received some inquiries about it. It is this sealed

bid proposition. The buyers do not seem to like that idea, to have

sealed bids. They think of the auction system. We are accustomed

to the auction system, and to put in a sealed bid or to put a price on

it, they do not like it. The telephone call I received said to put a

price on it.

Mr. GODFREY. We attempted this, as you will recall, on the 1955-56

crop that we had left. At the time we put a fixed price on the 1955-56

crops, we had a little over 100 million pounds out of 600 million pounds

that we had acquired left. We received considerable criticism from

the Appropriations Committee and from some segments of the trade,

some of the same people who are now criticizing were being critical

that we had reduced the price too much. We priced it at what we

thought it was worth. So, the Appropriations Committee suggested

to us that "When you do this again, if you do not know the true value

of it, put it up on bid, because this is the standard Government procedure." So, this is what we did.

Mr. COOLEY. Are they advised and know what they are buying?

Mr. GODFREY. They have a right to go and look at it, before they

bid. We show it. They feel, I believe, that this is a little unfair

competition, because they do not know what the other man is going

to bid. If you have a set price, then they know what all of their

competitors are buying, so that they then know what to quote.

Mr. COOLEY. When will this be offered to them, in a bid?

Mr. GODFREY. It is already offered to them. I believe the bids

are to be opened on April 4.

Mr. ABBITT. We have someone from the industry who would like

to be heard. I understand that Mr. C. Stuart Carr, Jr., vice president, of the Universal Leaf Tobacco Co., Inc., is here and would like

to be heard.

We shall be glad to hear you now.

STATEMENT OF C. STUART CARR, JR., VICE PRESIDENT, UNIVERSAL LEAF TOBACCO CO., INC., RICHMOND, VA.

Mr. CARR. Mr. Chairman and members of the committee, my name

is C. Stuart Carr, Jr., and I am vice president of the Universal Leaf

Tobacco Co., Inc., and chairman of the executive committee of the

Leaf Tobacco Exporters Association.

I did not come here, gentlemen, to testify before you today. I

came strictly as an observer. I think had we, our association and

our membership, known of this meeting, many of us would have been

here, not that it would make any difference one way or the other in

influencing your thoughts or your decisions in any direction.

You have heard Mr. Godfrey's testimony. I think it is only fair

that you hear the dealers' side of it.

I am not refuting anything that he has said, other than I would like

to bring out one special point in his testimony.
•

PROBLEMS IN THE TOBACCO PROGRAM 35

He told you about how much less money the tobacco grower got

last year and how many pounds fewer were raised and sold last year,

but he did not tell you—I do not think—failed to bring it up, that,

actually the farmers did not raise the poundage that they were allocated under the acreage-poundage program last year. Had they

raised the poundage that they were entitled to sell, they would not

have been $125 million short by any means. There is a vast difference

in that.

Due to the heavy rains and to other reasons, they did not make the

poundage that they were allocated.

I would like to ask you gentlemen—I know it is late, and I am not

going to hold you up, but I would like to ask you if you would refer to

Mr. Freeman's statement. I just would like to make one or two

comments on those five points that are brought out in Mr. Freeman's

letter.

Let us take No. 1, in which it is said that it is doing great damage to

the tobacco industry. Well, our contention there, gentlemen, is that

there is no orderly system of pricing. I find buyers. That is where

we make our livelihood. There are some 50 or 100 dealers in the

tobacco buyers group, and our company alone employs.10,000 workers

in North Carolina and Virginia during the tobacco season, and the

dealer segment has a place in the industry.

As Mr. Cooley brought out, we are the industry's salesmen. What

we have asked for, time and again—we have talked to Mr. Godfrey

about this, and his associates, in no secretive fashion—we have tried to

ask him to work along with us on any radical changes that might come

up within his organization, and an announcement that he might make

that there is a departure from what has been going on before. What

we have pleaded for all along, gentlemen, is an orderly system of

pricing. You put yourself in the position of a foreign manufacturer—

you see that 3 years ago tobacco was cut 15 to 20 cents a pound.

My goodness, how do you know how to go out and buy on the auction

floor the next year, you are going to have a cut to the extent of 15 or

20 cents a pound?

He states here, No. 1, that this reduction in 1960 or 1961 or 1962

crops, that the subsidy is only 5 cents, whereas in 1958 or 1959, in

those crops, they were reduced $7 to $11, but he did not tell you that

the 1955 or 1956 crops were reduced 15 to 20 cents a pound.

You will all remember all of this furor that came up, and this hullabaloo, what we called a fire sale. And it did disrupt the trade. All

we are trying to do is to just ask, as honest merchants—to get the

U.S. Department of Agriculture to come out with a pricing policy.

Mr. COOLEY. Did you not market some of that tobacco?

Mr. CARR. Yes, sir; we bought it.

Mr. COOLEY. Did you get hurt?

Mr. CARR. We got hurt the following year in the auctions, because

it disrupted the whole train of thought and buying plans of the foreign

manufacturers. That is the reason we bought a lot of it.

Mr. COOLEY. From then on, if you buy any of this what you might

call being a fire sale, you got the export subsidy.

Mr. CARR. The 5 cents a pound; at the time of export. On the

basis of that, we give a copy of the export declaration and the import,

so that they can see who the tobacco goes to.

Mr. COOLEY. They want to know that it is going to be exported.
36 PROBLEMS IN THE TOBACCO PROGRAM

Mr. CARR. Yes, that is correct.

Mr. COOLEY. You maintain that if the Department will do what

we have talked about doing today, to take anything out of your

inventory that came out of the 1962 crop and to pay you 5 cents a

pound if you export it, that you would approve of that; or would you?

Mr. CARR. What we are asking for, Mr. Cooley, is a system—and

let us stick to it; let us not jump here this year and say "All right,

you have 5 cents a pound on the 1961 and 1962 crops." That is a

subsidy. We are asking not to do that. We are asking them not

to put up 53,000 hutches for sealed bids. I do not know anything

worse than a sealed bid.

Mr. COOLEY. He said, first of all, that you could see it..

Mr. CARR. You can see three hutches. I do not think that they

opened more than three hutches of any one lot. That may represent

a thousand hutches. You may look at 3 of them representing 1,000.

You do not know whether that is buggy, infected, or whether it is

all uniform. We think that it is the worst thing that could happen.

There is no mention in the letter, that I can see, of this sealed bid.

Mr. COOLEY. No, there is not.

Mr. CARR. But getting back to your point. You say, if he gives

us the subsidy on the tobacco that we hold of 1960, 1961, or 1962,

that ought to satisfy us? No, sir; it does not.

Mr. COOLEY. Why not?

Mr. CARR. We want them to dispose of the holdings. We are

just as anxious to see these holdings gotten rid of as you are, or any--

body else. We want to ask them to come out with some kind of a

policy and stick to it. In 1963, there was this hullabaloo that you

remember, and here we come again this year with a lot of foolishness.

We think that it is just throwing a cog into the whole works.

Let me go a little further, if you will, and then I will try to answer

questions:

No. 2, poses a threat to the whole tobacco auction marketing system in the

future.

Again, put yourself in the position of a foreign buyer. You see

that the Government has a subsidy on these three crops, and the

export people know the same thing. They are changing prices from

year to year. I agree that the prices have to be modified in line with

what the tobacco is worth, and the demand for it. If you are foreign

buyer, why would you come over here and buy tobacco on the auction

market when you have the distinct feeling that Mr. Godfrey and his

associates will come around and put a $5 subsidy on it? Let Stabilization take it in and hold it. They can carry it at a lower interest rate

that we can. We pay 7 percent for our money. I do not think that

he is paying but probably 4 or 5 percent; but that is his business and

not ours.

Mr. COOLEY. It does more than that, in stabilization.

Mr. CARR. Let us decide on something and do it in an orderly,

instead of jumping in and jumping out. That is our main complaint,

that we do not have any orderly system for its disposal. We pleaded

with Mr. Godfrey time and again to come up with a system on this.

Mr. COOLEY. Suppose that we came up with a system that you

do not subsidize the whole, everything that we have got to do that,

do you not agree with his observations about quality and prices

abroad?

or
PROBLEMS IN THE TOBACCO PROGRAM 37

Ir Mr. CARR. Oh, yes, sir. I think he misled you in mentioning one

Government grade that was priced at $22 above cost. That is a

grade that is very popular to the export minded. He did not tell

you that the Stabilization prices a lot of other grades at cost. They

price that tobacco on the basis of what they think they can get for it.

Mr. COOLEY. He just used that for illustration.

Mr. GODFREY. Yes, sir. May I interrupt here? Every grade

that Stabilization has from 1963, 1964, and 1965 crops is priced

at above $11 above cost. Everything.

Mr. CARR. But not $22.

Mr. GODFREY. I said it was $13 above cost, 22 percent. It is

priced at least $12 above cost.

Mr. CARR. Let me go back to this part of the foreign buyer, Mr.

Cooley, and Mr. Abbitt, and gentlemen: Why would they come over

here and buy tobacco next fall when it is just as simple and much

cheaper to let the Stabilization take it in with the hope of getting a $5

subsidy on it, if it is a worthwhile gamble? They cannot lose anything. Even if Stabilization does not change the price on it. If they

do not give a $5 subsidy on it. It is not going to cost them any more

in the hands of Stabilization than it would if they bought it through

4dealer, through our company or on the warehouse floor.

Mr. COOLEY. I want to know how you feel about subsidizing it.

Mr. CARR. That is all right. But if you formulate a plan, stick to

it. That is what we are asking for, some consistency.

Mr. FOUNTAIN. Your statement is that you do not know what the

plan is now. What you want is some consistency?

Mr. CARR. Yes, sir.

Mr. FOUNTAIN. In 1963 when we had similar problems was there

an understanding that in the future there would be coordination with

everyone affected so as to avoid misunderstandings?

Mr. CARR. That is right.

Mr. FOUNTAIN. In other words, you were told that you would be

consulted or advised concerning any plan for the future sale of tobacco

stores in Stabilization.

Mr. HENDERSON. Something was said the other day that this was a

one-shot deal and that we were not going to do it continuously. You

say that if we are going to do it, we ought to continue to do this?

Mr. CARR. Right. We do not know what the Department is going

to do. We have no idea as to what will be done; it may be a one-shot

deal; it may be that every deal may be 10 cents a pound next year.

We have no idea of what they are going to do.

Mr. FOUNTAIN. I wonder if you would elaborate again on the

impact of this so-called indefiniteness upon your industry?

Mr. CARR. Yes, sir. I will give you a few illustrations. He states

in here, I believe, in article No. 5, that our exports in 1965 were 50

million pounds less than in 1964. I submit to you that there is a very

valid reason for that. There was a lot of talk about subsidy, a twoprice system, and everything, and we advised our best customers not

to ship tobacco. We advised them all not to ship. We have no idea

what this man is going to do, or his department. I am not dealing

in personalities, because I am a friend of Mr. Godfrey's. We do not

know what they are going to do. We do not have the vaguest idea

of what they will do. Before all of this hullabaloo of the pricing

system came up, we had a committee from the Leaf Tobacco Dealers
38 PROBLEMS IN THE TOBACCO PROGRAM

Exporters Association up here and had an appointment with Mr.

Godfrey. We talked with him, not only then but we have talked with

him at our tobacco convention last June at White Sulphur Springs,

and we told him that we would like very much to have an opportunity

to talk with him before anything was done on this pricing system.

We came up here and met with him in January before the price lists

came out on February 11. We asked him, please, to consider not to

subsidize any of these crops, because it would disrupt the trade and it

would show there was no normal basis for pricing stabilization stocks.

We asked him not to subsidize tobacco. We asked him, please, not

to put tobacco up on a bid basis, other than, say, the 1957 crop which

we all know is old. He did not have the courtesy to answer our letter

until after this congressional hearing, that is, the first one.

• We have tried to bend over backward to try to get along with these

people. Maybe we are wrong. We do not claim that we are right

on everything that comes along. I think that we have shown a frank

disposition to cooperate.

You made the statement that we are the tobacco salesmen, which

we claim to be whether we are or not, and if we are, our knowledge

and experience are worth something. We spend millions of dollars

every year.

Mr. COOLEY. If we did not have you going around the world to

sell the tobacco, I do not know what would happen.

Mr. CARR. We have tried to do the best that we can. We try to,

run down every single lead, whether it is in a Communist country or

in a Western country, to sell tobacco. I do not believe the statement

has been made very often that we are doing a poor job of it. So,

apparently, that part is going along all right.

Mr. HENDERSON. Do you know whether Rhodesia, and Canada,

and India have a strict pricing policy, so that when you go to buy

there, you know what they are doing all of the time?

Mr. CARR. Yes, sir. I can say that, Mr. Henderson. There is

no stabilization in Canada. It is strictly a free market. The Canadian market is something that, probably, has not been brought out

here—until a while ago. The Canadian market was higher this

year because of the boycott against Rhodesia.

Mr. HENDERSON. But I am concerned about—

Mr. CARR. Rhodesia has no stabilization; there is no price-support

level in Rhodesia, or in Canada, or in India.

Mr. HENDERSON. I would like to know if there is anyone who takes

any more risk than the farmer does. If we are going to protect our

stabilization policy, so that the world knows it, farmers will have to

take their chances. And they will, if the farmers of other competing

nations take the same chances that our farmers are taking.

Mr. CARR. I would say they are, Mr. Henderson, because last yearin Rhodesia they raised an abnormally large crop and the farmers

either lost money or broke even. They figure a certain number of

cents per pound they have to sell their tobacco for to break even, and

it was right at that level.

Mr. HENDERSON. If they lost money for 10 or 15 years, they will

not be like American farmers--

Mr. COOLEY. Let me interrupt, if I may.

Mr. Abbitt has to catch a plane in about 20 minutes.
4

PROBLEMS IN THE TOBACCO PROGRAM 39

I am sorry that you did not know about this. I am sure that he

is, too. We just announced that we would have a meeting when we

received the letter. We did not write letters about it. He has just

agreed with me to have another meeting. If you confer with your

colleagues and associates and all of the other people in the industry,

and if you want to come back up here again, it will be satisfactory.

Mr. CARR. That is certainly very kind of you. We appreciate

that a lot. We may take advantage of that.

Mr. ABBITT. Will you let the chairman know?

Mr. COOLEY. You let each one of us know, and we will get set for

you.

Mr. CARR. We would like to study Mr. Freeman's statement.

Mr. ABBITT. Do you have enough copies of it there?

Mr. CARR. I would like to have some more copies. I would appreciate having about a dozen of them, if you can spare them. Let us study

this. I think you circumvented the point of the sealed bid entirely.

Mr. COOLEY. It may be my fault. Maybe I left it out of my letter

to him. That is, probably, what I did. But you heard Mr. Godfrey's position on that here.

Mr. CARR. Yes, sir.

Mr. COOLEY. We will just call it off now for the time being, and

anytime that' you all can come back, let us know, and we will have

another meeting.

Mr. CARR. All we want from the Department is just something

that they are going to do and to stick to it.

We would like to have a chance to talk with them personally

before they do it.

Mr. COOLEY. We will now adjourn.

(Whereupon, at 5:40 p.m., the subcommittee adjourned.)

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