[Federal Register Volume 66, Number 184 (Friday, September 21, 2001)]
[Notices]
[Pages 48659-48661]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-23659]


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DEPARTMENT OF AGRICULTURE

Commodity Credit Corporation


Notice of Changes in Price Support Differentials for Flue-Cured 
Tobacco

AGENCY: Commodity Credit Corporation, USDA.

ACTION: Notice.

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[[Page 48660]]

SUMMARY: The Commodity Credit Corporation (CCC) is announcing a change 
in price support differentials for flue-cured tobacco beginning with 
the 2002 crop. The change in differentials is being implemented because 
of concern relating to marketability of flue-cured tobacco cured in 
barns with direct heat sources; for such tobacco, CCC will provide a 
price support rate that is one-half the normal price support rate for 
tobacco that has been cured in a barn with an indirect heat source. In 
order that tobacco can be duly valued for price support purposes, 
farmers will be required to certify whether their barns have an 
indirect heat source.

EFFECTIVE DATE: This change is effective immediately September 21, 
2001.

FOR FURTHER INFORMATION CONTACT: Thomas R. Burgess, Deputy Director, 
Tobacco and Peanuts Division, United States Department of Agriculture 
(USDA), 1400 Independence Avenue, SW, STOP 0514, 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 USC 128 
et seq. (1938 Act) 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 USC 1421, et seq. (1949 Act). Flue-
cured tobacco is one of the kinds of tobacco for which quotas have been 
approved. Regulations 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. Losses on inventory tobacco are covered by assessments levied 
under the No Net Cost Tobacco Program Act of 1982, against all 
producers (and buyers) of flue-cured tobacco, irrespective of, in the 
case of producers, whether the 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, Public Law 104-
127, but remains in force for tobacco. Under the provisions of section 
403 of the 1949 Act, the Secretary of Agriculture may (and the 
Secretary has done so consistently for many years) make appropriate 
adjustments 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 tobacco, by 
kind.
    A notice of proposed change in price support differentials for 
flue-cured tobacco and an invitation to comment was published in the 
Federal Register on December 12, 2000, (65 FR 77555). A number of both 
positive and negative responses were received. Those favoring the 
proposal were concerned about the following: the need to maintain the 
high integrity of U.S. tobacco; the need to be competitive with world 
markets, as the tobacco of competitors of U.S.-grown flue-cured tobacco 
is grown in indirect heated barns; the need to prevent a large increase 
in loan inventories of questionable value which would create a burden 
on CCC; and, the need to prevent a large increase in No-Net Cost 
assessments due to increased inventories. Also, the largest customers 
of US flue-cured have stated they are planning to begin acquiring 
tobacco with low specific nitrosamines. Those responding negatively to 
the proposal argued the following: there is no need for a change 
because they do not believe there is a problem, that it is only a 
marketing ploy; they need more time to convert their barns, and cannot 
get the barns converted for 2001; there is not enough scientific 
evidence to support the barn conversion; and, they cannot afford the 
cost of conversion on such short notice due to economic stress. After 
careful consideration of these responses, it was decided to make the 
proposed change, but to delay implementation of this change until the 
2002 flue-cured marketing year; proceeding in this manner will address 
market and consumer concerns regarding the integrity of U.S.-grown 
flue-cured tobacco, while giving producers the time they need to 
convert to indirect-heated barns.
    Beginning with the 2002 crop year, this notice changes the flue-
cured tobacco price support differentials to provide for differing 
valuations of tobacco based on the heat source of the barn in which the 
tobacco is cured. The price support differentials for 2002 crop year 
tobacco that is cured in a barn with a direct heat source and marketed 
in calendar year 2002 and beyond will be set at one-half of the normal 
price support for flue-cured tobacco.
    Setting the differential at half the normal price reflects that 
there may still be some market value associated with tobacco this is 
not cured in a barn with an indirect heat source and while it is 
difficult to determine what the lowered price might actually bin the 
market, it was determined that setting the price at the 50% level was a 
fair compromise which will be reassessed for future market years as 
changes in the marketing of tobacco become better understood and 
apparent. This is, on further consideration, setting a zero or near 
zero price for the tobacco appears too drastic at this time. As for the 
delay in the crop year implementation of the change in the 
differentials, it appears at this time that the association does not 
object to the delay, and that there has been general understanding in 
the industry that material changes in buying habits, as they involve 
this issue, have been modified accordingly. For these reasons, it 
appears that the revised disposition of this issue, is fair resolution 
for all concerned in this program which is a ``no net cost program'' in 
which all costs, other than the normal administrative costs associated 
with all support programs subject to producer assessments. As for the 
actual determination of the differentials, while this notice indicates 
the determination made with respect to the issues at hand at this time, 
final determinations for all differentials are made at the time that 
the body of differentials is announced for the crop year (that is, all 
the grade loan rates and premiums and discounts).
    The plan with respect to the heat source issue would be that, 
beginning with 2002 crop, producers will have to certify whether their 
tobacco has or has not been produced in improved barns, i.e., whether 
or not the tobacco was cured by an indirect heat source. For these 
purposes, an improved barn will be any barn which has been retrofitted 
under the association's program or

[[Page 48661]]

which otherwise have been built with, or improved to include, the 
technology that produces the market-preferred tobacco. The 
certification program will be administered by Stabilization. County FSA 
offices will be requested to cooperate by marking the producer's 
marketing card (MQ-76) with the notation ``NO CERTIFICATION'' for any 
farm failing to provide a certification to Stabilization. Individual 
lots of tobacco will be stamped ``NO CERTIFICATION'' at the auction 
warehouse. All tobacco with a ``NO CERTIFICATION'' designation will 
receive the lower price support loan value. Further announcements will 
be made as needed to implement this change. It is expected that several 
announcements would be made by press release or other less formal means 
of communications. To repeat: this value will not be based on either a 
positive or negative determination regarding indirect heating but a 
market value determination as part of the government's function of 
setting price support differentials. It should also be understood that 
if the market value of the tobacco is indeed reduced but no change was 
made in the differentials, not only would there be loan losses but 
also, because of those losses, if would be necessary to increase 
tobacco assessments to cover such losses, as required by the 1949 Act. 
Such assessments could be considerable.

    Signed at Washington, DC., on September 17, 2001.
James R. Little,
Acting Administrator Farm Service Agency and, Acting Executive Vice 
President Commodity Credit Corporation.
[FR Doc. 01-23659 Filed 9-20-01; 8:45 am]
BILLING CODE 3410-05-P