[Federal Register Volume 65, Number 239 (Tuesday, December 12, 2000)]
[Notices]
[Pages 77555-77557]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-31673]


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DEPARTMENT OF AGRICULTURE

Commodity Credit Corporation


Notice of Proposed Change in Price Support Differentials for 
Flue-Cured Tobacco, and Invitation to Comment

AGENCY: Commodity Credit Corporation, USDA.

ACTION: Notice and request for comments.

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SUMMARY: The Commodity Credit Corporation (CCC) is proposing to set 
price support differentials for the 2001 crop of flue-cured tobacco, 
that, because of market conditions, would provide a zero price support 
rate for tobacco that has not been cured in barns with an

[[Page 77556]]

indirect heat source. In order that tobacco can be duly valued for 
price support purposes, farmers will, if the proposal is adopted, be 
required to certify whether their barns have an indirect heat source.

DATES: Comments on this proposal should be received by December 27, 
2000 to be assured of consideration and should be directed to the 
individual listed below.

FOR FURTHER INFORMATION CONTACT: Charles Hatcher, Director, Tobacco and 
Peanuts Division, United States Department of Agriculture (USDA), 1400 
Independence Avenue, SW., STOP 0574, Washington, DC 20250-0514, 
telephone (202) 720-0156 or FAX (202) 418-4270.

SUPPLEMENTARY INFORMATION: Quotas for tobacco production are 
administered under the Agricultural Adjustment Act of 1938, 7 U.S.C. 
1281 et seq. Where quotas for a kind of tobacco have been approved by 
producers of that kind of tobacco, price support is made available for 
that tobacco under the terms and conditions of Section 106 the 
Agricultural Act of 1949, 7 U.S.C. 1421, et seq. Flue-cured tobacco is 
one of the kinds of tobacco for which quotas have been approved. 
Regulations for governing price support and quotas for tobacco are 
found at 7 CFR parts 723 and 1464.
    Price support is made available through non-recourse loans to 
farmers through a designated producer-member association, which in the 
case of flue-cured tobacco is the Flue-Cured Tobacco Stabilization 
Corporation (Stabilization). As such, the loans do not have to be 
repaid, but rather the tobacco is placed in Stabilization's inventory 
and Stabilization then attempts to sell the tobacco for the highest 
price possible. Losses on inventory tobacco are covered by assessments 
levied against all producers (and buyers) of flue-cured tobacco, 
irrespective of, in the case of producers, whether that individual 
producer placed any tobacco under a price support loan.
    The average loan rate for the tobacco is set for each crop year 
under a formula which is set out in Section 106 of the 1949 Act, but, 
in making those loans, variations for location and other factors are 
made in the loan amount which is available for an individual lot of 
tobacco. Such variations in the price support level are known as 
``differentials''. They are provided for explicitly in Section 403 of 
the 1949 Act, which is found at 7 U.S.C. 1423. That section was 
suspended for commodities other than tobacco for the 1996-2000 crops by 
Section 171 of the Agricultural Market Transition Act (AMTA), Public 
Law 104-127, but remains in force for tobacco. Under the provisions of 
section 403 of the 1949 Act, the Secretary may (and the Secretary has 
done so consistently for many years) make appropriate adjustment in the 
support price for differences in grade, type, quality, location and 
other factors. The adjustments must, insofar as practicable, be made in 
such manner that the average support price for the commodity will, on 
the basis of the anticipated incidence of such factors, be equal to the 
national average level of support determined in accordance with section 
106 of the 1949 Act. Using this authority, differentials are 
established each crop year for quota tobaccos, by kind.
    This notice proposes to change the flue-cured tobacco price support 
differentials effective for the 2001 crop year to provide for differing 
valuations of tobacco based on the heat source of the barn in which the 
tobacco is cured. Specifically, it is proposed in this notice that the 
differentials for the upcoming crop year be adjusted so that flue-cured 
tobacco cured in barns which use a direct heat source would have a 
price support value of zero. For ease of reference, and for reasons 
which are explained below, those barns with a direct heat source will 
be referred to as ``un-improved'' barns and those with an indirect heat 
source will be identified as ``improved'' barns. However, those barns 
which have been built with an indirect heat source would, of course, be 
treated the same as those which have been converted, or ``improved'' by 
changing the heat source from a direct source to an indirect source.
    The change in differentials set out in this notice is being 
proposed at the request of Stabilization, the producer-owned 
association. According to Stabilization, buyers in recent years have 
increasingly been concerned about flue-cured tobacco cured in barns 
with direct heat sources because of the desire of buyers to reduce 
nitrosamines which can form through direct heating. Due to those 
concerns and as part of a long-term effort to reduce nitrosamines, 
Stabilization has informed USDA that buyers will no longer, effective 
with the 2001 crop, buy tobacco cured using direct heat; that is, 
Stabilization has indicated that the market value of direct-heated 
tobacco is zero. Recently, however, by a joint enterprise between 
tobacco buyers and Stabilization, farmers have been provided funding to 
convert their barns from direct heat to indirect heat.
    In the meantime, however, because of these buyer preference and 
demands, producers, through their association (Stabilization), have 
requested that the price support value of the tobacco produced in un-
improved barns be zero because otherwise, it is feared, the tobacco 
will go into the price support inventory, will not be marketable, and 
will produce losses that must be borne by all producers together in the 
form of the higher ``no net cost assessments,'' referred to above, 
which, under the terms of the 1949 Act, are designed to help assure 
that the tobacco program is operated at no net cost to the public other 
than the costs associated with price support programs in general. Since 
there is no indication that the market price of the tobacco will be 
greater than zero, this notice proposes adopting the suggestion of the 
producer association. However, in proposing to set the differentials at 
zero for tobacco produced in un-improved barns, the Department is not 
making a determination about the benefits of, or need for, barn 
improvement, or even whether the general trends in barn improvement are 
a good idea or a bad idea. Rather, the differential determination is 
made on the expected actual market price for tobacco produced in the 
un-improved barns, taking into account the assessment of that price 
being made by the producer association itself. It is realized, however, 
that this determination may involve difficulty for some farmers who do 
not, or can not, make the improvements to their barns despite the 
incentives being offered in the industry to make that change. For that 
reason, comment on this proposal is requested. While all comments are 
welcome and solicited, respondents should, in particular, address the 
question of whether tobacco in un-improved barns will, in fact, have a 
market value for the upcoming crop year. It bears emphasizing that 
irrespective of the outcome of the proposal set out in this notice, 
tobacco produced in direct-heated barns will still be, at least 
technically, eligible for price support in that the tobacco will meet 
the minimum requirement that tobacco must meet to generate a price 
support loan as set out in part 1464. However, of course, this will not 
be of much value to the farmer, in terms of loan access since the loan 
value assigned the tobacco would be zero, or, perhaps, close to zero 
Because this is strictly a price determination, it does not appear that 
any change to program regulations, such as the regulation at 7 CFR 
1464.8 dealing with tobacco eligibility standards, needs to be made

[[Page 77557]]

on an emergency basis to make the change set forth in this notice. 
Likewise, whether or not the differential proposal is adopted, this 
action will not prohibit tobacco from un-improved barns from being 
marketed to buyers which of itself would mitigate an error in 
determining the market value of the tobacco given that if the market 
value of the tobacco is greater then zero, producers will be free to 
market the tobacco at whatever price the market will be bear. Such 
marketings, if they do produce a return greater than zero, will at 
least indirectly benefit from the price support system because that 
system aids the market price of all tobacco by lifting the price for 
competing producers of the same kind of domestic tobacco.
    In order to assure that there are no loan losses, the proposal will 
require certifications by producers of whether their tobacco has or has 
not been produced in improved barns. For these purposes, an improved 
barn would be any barn which has been retrofitted under the 
association's program or which otherwise have been built with, or 
improved to include, the technology that produces the market-preferred 
tobacco. In making this proposal, the Department wished to emphasize 
that it would be preferable if accommodations could be made within the 
industry to allow disadvantaged farmers extra time to complete barn 
improvements or to provide greater funding so that this change in 
market arrangements will produce less harm. To that end, the comments, 
which would include comment from the associations, and others 
interested in this issue, on whether there will be efforts made to 
provide for such assistance and on whether such considerations should 
be taken in consideration in setting the differentials. However, it 
should be understood that if the market value of the tobacco is indeed 
zero and despite that market value, no change was made in the 
differentials, this would mean not only that there would likely be loan 
losses but that because of those losses it would be necessary to 
increase tobacco assessments immediately (that is, for the 2001 crop) 
to cover such losses, as required by the 1949 Act. Such assessments 
could be considerable.
    Following the receipt of the comments, the Secretary will take such 
action as may be warranted, taking into account the comments and any 
other information as may be relevant.
    Proposed Change in Differentials for Flue-Cured Tobacco: 
Accordingly, it is proposed with respect to the 2001 and subsequent 
crops of flue-cured tobacco that the differentials for such tobacco 
provide (1) that the price support low value of tobacco produced in a 
barn without an acceptable indirect heat source for curing should be 
zero and (2) that producers should be required to certify in a manner 
acceptable to CCC whether their tobacco which is presented for a price 
support loan has been cured in a barn with an acceptable heat source. 
Such certifications may be tied to a program of barn improvement 
implemented by Stabilization as needed to assure a proper valuation of 
the tobacco for price support purposes.

    Signed at Washington, DC, on December 7, 2000.
Keith Kelly,
Administrator, Farm Service Agency and Executive Vice President, 
Commodity Credit Corporation.
[FR Doc. 00-31673 Filed 12-7-00; 4:54 pm]
BILLING CODE 3410-05-P