Date: 1985-11-14
Speaker: FRED G. BOND (republican)
Chamber: S

General Manager. FlueCured Tobacco Cooperative Stabilization Corporation. Raleigh. NC. DEAR MR. BOND: This letter responds to your request dated January 9. 1985. for the issuance of a business review letter pursuant to the Department of Justices business review procedure. 28 C.F.R. 1 50.6. You have requested a statement of the Antitrust Divisions present enforcement intentions with respect to a plan of the FlueCured Tobacco Cooperative Stabilization Corporation ("the cooperative") to offer for sale its entire inventory stock of fluecured tobacco to United States cigarette manufacturers. We understand that all domestic growers of fluecured tobacco. which is grown in a fivestate area covering Virginia. North Carolina. South Carolina. Georgia and Florida. are members of the cooperative. The cooperative. by contract with the Commodity Credit Corporation. administers the tobacco loan program of the United States Department of Agriculture ("USDA"). Under the program. tobacco not purchased on the open market at or above the government support price is automatically consigned to the cooperative. and the grower is paid the support price. Pursuant to the No Net Cost Tobacco Program Act of 1982. should losses be incurred upon the sale of tobacco held by the cooperative. th*ey are borne by the growers. Accordingly. an assessment upon each pound of tobacco consigned to the cooperative Is levied against the growers and used for a reserve fund to cover losses and carrying charges for tobacco inventory. You have told us that inventory stocks held by the cooperative have risen dramatically in the recent past. This is because the government support price is currently about $1.70 per pound. which is higher than the world price of tobacco. Thus. the cooperative is holding a great deal of surplus tobacco and paying very significant carrying charges. Sale of the surplus at a price lower than the support price. as contemplated by the cooperative. will eliminate the high carrying charges presently borne by the tobacco growers and will. in turn. significantly lower the 1985 assessment required by the No Net Cost Act. We understand the cooperatives plan to be as follows. The cooperative will meet individually with the six domestic cigarette manufacturers in an attempt to sell them a pro rata portion of the tobacco inventory. based upon their respective shares of the domestic cigarette market. The coopertative will attempt to negotiate with the manufacturers separately to establish a price for the inventory. Its willingness to offer the tobacco at a price lower than the support price will be contingent upon its ability to dispose of the entire stock. You believe that it will be necessary to sell the tobacco to the cigarette manufacturers at the same price. to each. and we understand that the cooperatives decision to sell its inventory at a uniform price was reached unilaterally. After discussing the proposal with you and consulting with USDA about the tobacco program. and absent any evidence that the program is a product of any agreement among cigarette manufacturers. we have concluded that the Department has no present intention of challenging your offer of the inventory to the cigarette manufacturers. This conclusion is based upon your representations that you have decided that disposal of the inventory in its entirety is in the best interest of your members and that the cooperative is most likely to achieve Its goal if It offers the inventory Jor sale at the same price to all of the manufacturers. Pursuant to 28 C.F.R. J 50.6. this letter and your business review request will be made publicly available immediately and its supporting materials will be made publicly available within 30 days of the date of this letter. unless you request that any part of the material you submitted be withheld in accordance with paragraph 10(c) of the business review procedure. Sincerely.