A-58721, DECEMBER 7, 1934, 14 COMP. GEN. 437

A-58721, DECEMBER 7, 1934, 14 COMP. GEN. 437

AGRICULTURAL ADJUSTMENT ACT - MARKETING AGREEMENTS - COMMODITY BENEFIT PAYMENTS UNDER THE MARKETING AGREEMENT ENTERED INTO BETWEEN THE SECRETARY OF AGRICULTURE AND THE NORTH PACIFIC EMERGENCY EXPORT ASSOCIATION FOR DISPOSAL OF NORTH PACIFIC WHEAT SURPLUS, APPROVED BY THE SECRETARY OF AGRICULTURE, OCTOBER 10, 1933, UNDER THE PROVISIONS OF THE AGRICULTURAL ADJUSTMENT ACT OF MAY 12, 1933, AS AMENDED, IN WHICH PROVISION IS MADE FOR PAYMENT TO THE ASSOCIATION OF A DIFFERENTIAL BETWEEN THE PURCHASE PRICE AND THE NET SALES PRICE, AS DETERMINED BY THE AGREEMENT, IN THE EXPENDITURE OF FUNDS MADE AVAILABLE UNDER SAID AGRICULTURAL ADJUSTMENT ACT OF 1933, THERE IS NO AUTHORITY FOR PAYMENTS TO MEMBERS OF THE ASSOCIATION OF ANY BUYING CHARGE, OR TRADE CHARGE, ON PURCHASES MADE IN THE COUNTRY FOR DELIVERY DIRECT TO THE ASSOCIATION, SUCH CHARGES BEING IN THE NATURE OF A PROFIT AND NOT AUTHORIZED EITHER UNDER THE AGREEMENT OR THE APPROPRIATION.

COMPTROLLER GENERAL MCCARL TO THE SECRETARY OF AGRICULTURE, DECEMBER 7, 1934:

CONSIDERATION HAS BEEN GIVEN YOUR LETTER OF OCTOBER 25, 1934, AS FOLLOWS:

QUESTION HAS ARISEN CONCERNING THE PAYMENTS MADE BY THE SECRETARY OF AGRICULTURE UNDER THE MARKETING AGREEMENT FOR DISPOSAL OF NORTH PACIFIC WHEAT SURPLUS. THE FACTS ARE AS FOLLOWS: THE MARKETING AGREEMENT FOR DISPOSAL OF NORTH PACIFIC WHEAT SURPLUS, COPY OF WHICH IS ATTACHED HERETO, WAS ENTERED INTO BY THE SECRETARY AND THE NORTH PACIFIC EMERGENCY EXPORT ASSOCIATION FOR THE PURPOSE OF BRINGING ABOUT THE REMOVAL OF THE SURPLUS OF WHEAT FROM THE DEPRESSED DOMESTIC MARKET IN THE PACIFIC NORTHWEST, COMPRISING THE STATES OF WASHINGTON, OREGON, AND NORTHERN IDAHO. THE REMOVAL WAS ACCOMPLISHED, BRIEFLY, BY HAVING THE ASSOCIATION PURCHASE THE WHEAT PRODUCED IN THE PACIFIC NORTHWEST AREA, AND THE WHEAT SO PURCHASED WAS SOLD BY THE ASSOCIATION ON WRITTEN BIDS FROM ITS MEMBERS WHO HAD SECURED ORDERS FOR THE SALE OF THE WHEAT IN THE EXPORT TRADE. SECTION 4 OF THE AGREEMENT PROVIDES THE MANNER IN WHICH THE WHEAT WAS TO BE PURCHASED, AND SECTION 5 PROVIDES THE MANNER IN WHICH THE WHEAT SO PURCHASED WAS TO BE DISPOSED OF.

SECTION 7 PROVIDES THE MANNER IN WHICH THE VERIFIED STATEMENTS WITH RESPECT TO SUCH SALES WERE TO BE MADE TO THE SECRETARY AND DEFINES THE TERMS "PURCHASE PRICE," "SALES PRICE" AND "NET SALES PRICE.' COPY OF THE FORMS REFERRED TO IN THESE SECTIONS ARE ATTACHED HERETO.

SECTION 8 OF THE AGREEMENT PROVIDES THE MANNER IN WHICH PAYMENT WAS TO BE MADE BY THE SECRETARY TO THE ASSOCIATION, AND SECTION 9 PROVIDES THE MANNER IN WHICH THE ASSOCIATION WAS TO TRANSFER THESE FUNDS TO THE ASSOCIATION MEMBERS.

THE MANNER IN WHICH THE PURCHASE OF THE WHEAT AND THE DISPOSAL THEREOF WAS ACCOMPLISHED, UNDER THE TERMS OF THE AGREEMENT, IS BRIEFLY AS FOLLOWS: THE SECRETARY, THROUGH HIS REPRESENTATIVES, ANNOUNCED FROM TIME TO TIME THE QUANTITY OF WHEAT TO BE PURCHASED AND THE PRICE TO BE PAID THEREFOR. A CONTRACT WAS ENTERED INTO BETWEEN THE ASSOCIATION AND THE MEMBER, IN WHICH THE ASSOCIATION AGREED TO BUY FROM THE MEMBER A SPECIFIED QUANTITY OF THE WHEAT TO BE PURCHASED AT THE PRICE ANNOUNCED BY THE SECRETARY. THIS PRICE WAS BASIS NO. 1, FEDERAL GRADES, SACKED, DELIVERED ON TRACK AT TIDEWATER TERMINAL MARKETS, IN ACCORDANCE WITH EXHIBIT A TO THE AGREEMENT. THE MEMBERS OF THE ASSOCIATION PURCHASED THE WHEAT IN MANY INSTANCES FROM PRODUCERS OR ELEVATORS BACK IN THE COUNTRY. IN ORDER TO REFLECT THE ANNOUNCED PRICE BACK TO THE PRODUCER, THE CONTRACT FOR THE PURCHASE OF WHEAT BETWEEN THE ASSOCIATION AND THE MEMBER, COPY OF WHICH IS ATTACHED HERETO, PROVIDES IN PART AS FOLLOWS:

"THE PRICE PAID IN THE COUNTRY FOR WHEAT COVERED BY THIS CONTRACT IS THE FULL ASSOCIATION-QUOTED PRICE AS IN EFFECT ON DATE OF PURCHASE, LESS ONLY THE ESTABLISHED TRADE CHARGES TO CONVERT WHEAT FROM COUNTRY BASIS TO BASIS NO. 1, SACKED, TRACK TIDEWATER TERMINAL.'

THE DOCUMENTS SUBMITTED TO THE SECRETARY UNDER SECTION 8 OF THE AGREEMENT, UPON WHICH PAYMENT WAS MADE TO THE ASSOCIATION BY THE SECRETARY, SHOW THE FULL AMOUNT OF THE PURCHASE PRICE AS ANNOUNCED BY THE SECRETARY'S REPRESENTATIVE.

THE MEMBERS PURCHASING WHEAT ENTERED INTO A SEPARATE CONTRACT WITH THE INDIVIDUAL FROM WHOM SUCH WHEAT WAS PURCHASED. WHEN THE ASSOCIATION MEMBER MADE THE PURCHASE IN THE COUNTRY, DEDUCTIONS WERE MADE FROM THE PRICE TO BE PAID FOR THE WHEAT AS AUTHORIZED BY THE SECRETARY'S REPRESENTATIVE, TO COVER FREIGHT CHARGES AND OTHER CHARGES NECESSARY TO CONVERT THE WHEAT FROM COUNTRY POINTS TO DELIVERY AT TIDEWATER TERMINAL AND THE CHARGES PROVIDED FOR IN EXHIBIT A TO THE AGREEMENT. APPROXIMATELY A ONE-CENT-PER-BUSHEL BUYING CHARGE WAS INCLUDED IN THE DEDUCTIONS MADE BY THE ASSOCIATION MEMBERS FROM THE PRICE THE MEMBERS PAID FOR THE WHEAT AT COUNTRY POINTS. THIS DEDUCTION DOES NOT APPEAR IN THE DOCUMENTS PRESENTED TO THE SECRETARY TO SUPPORT THE CLAIMS OF THE ASSOCIATION WITH RESPECT TO PAYMENT TO THE ASSOCIATION BY THE SECRETARY OF THE DIFFERENCE BETWEEN THE PURCHASE PRICE AND THE NET SALES PRICE IN ACCORDANCE WITH SECTION 8 OF THE AGREEMENT. IT DOES, HOWEVER, APPEAR IN THE MEMBERS' RECORDS OF TRANSACTIONS BETWEEN THEMSELVES AND THE COUNTRY ELEVATORS AND OTHERS FROM WHOM THEY PURCHASED THE WHEAT WITH WHICH TO FILL THE CONTRACTS MADE BETWEEN THE ASSOCIATION AND THE SECRETARY.

THE FOLLOWING QUESTION IS PRESENTED FOR YOUR DECISION:

WERE THE PAYMENTS BY THE SECRETARY OF AGRICULTURE TO THE ASSOCIATION, MADE IN THE MANNER SET FORTH IN THE ABOVE STATEMENT OF FACTS, PROPERLY MADE; OR SHOULD THE ONE-CENT CHARGE PER BUSHEL, WHICH WAS DEDUCTED BY THE MEMBER IN PURCHASING THE WHEAT IN THE COUNTRY, BE DEDUCTED IN CALCULATING THE DIFFERENTIAL PAYMENT TO BE MADE TO THE ASSOCIATION BY THE SECRETARY OF GRICULTURE?

THE QUESTION PRESENTED ARISES IN CONNECTION WITH TRANSACTIONS UNDER MARKETING AGREEMENT NO. 14 OF THE AGRICULTURAL ADJUSTMENT ADMINISTRATION WITH THE NORTH PACIFIC EMERGENCY EXPORT ASSOCIATION, EXECUTED PURSUANT TO AUTHORITY CONTAINED IN THE AGRICULTURAL ADJUSTMENT ACT APPROVED MAY 12, 1933.

SECTION 4 OF THE AGREEMENT PROVIDES FOR PURCHASE OF WHEAT BY THE ASSOCIATION AND AUTHORIZES THE SECRETARY OF AGRICULTURE IN HIS DISCRETION TO DESIGNATE THE QUANTITY TO BE PURCHASED, THE PRICE TO BE PAID THEREFOR AND FROM WHOM SUCH PURCHASES SHOULD BE MADE. IT DOES NOT APPEAR THAT THE SECRETARY DESIGNATED THE PERSONS OR AGENCIES FROM WHOM PURCHASES SHOULD BE MADE, BUT THE CONTRACTS FOR PURCHASE OF WHEAT FROM MEMBERS OF THE ASSOCIATION WERE APPROVED BY HIS AUTHORIZED REPRESENTATIVE. THE PURCHASE PRICES FIXED BY THE SECRETARY AND NAMED IN THE CONTRACTS FOR PURCHASE BY THE ASSOCIATION WERE ON BASIS NO. 1, FEDERAL GRADES, SACKED AND DELIVERED ON TRACK AT TIDEWATER TERMINAL MARKETS. THE ASSOCIATION MADE ITS PURCHASES FROM ITS MEMBERS. THE MEMBERS OF THE ASSOCIATION, AFTER SECURING A CONTRACT FOR THE SALE OF WHEAT TO THE ASSOCIATION AT A FIXED PRICE, PURCHASED THE WHEAT NECESSARY FOR MAKING DELIVERIES CALLED FOR BY THE CONTRACT FROM PRODUCERS, DEALERS, WAREHOUSES, OR OTHERS IN THE COUNTRY. THE PRICE PAID FOR WHEAT IN THE COUNTRY BY MEMBERS OF THE ASSOCIATION WAS APPROXIMATELY 1 CENT PER BUSHEL LESS THAN THE PRICE PROVIDED BY THE TERMS OF THE CONTRACT BETWEEN THE ASSOCIATION AND ITS MEMBERS. THIS DEDUCTION WAS MADE TO COVER THE ESTABLISHED TRADE CHARGES TO CONVERT WHEAT FROM COUNTRY BASIS TO BASIS NO. 1, SACKED, TRACK TIDEWATER TERMINAL. APPARENTLY, THIS INCLUDED OVERHEAD, BUT NOT TRANSPORTATION CHARGES, FOR THE WHEAT WAS PURCHASED ON A DELIVERED BASIS. IN REALITY, IT IS SIMPLY AN AGENT'S COMMISSION PAYABLE TO THE MEMBERS OF THE ASSOCIATION AS A BUYING CHARGE. THE COUNTRY SELLERS DELIVERED THE WHEAT TO THE ASSOCIATION FOR THE ACCOUNT OF ITS MEMBERS WHOSE CONTRACTS CALLED FOR A PRICE OF 1 CENT PER BUSHEL HIGHER THAN WAS PAID THE SELLERS IN THE COUNTRY.

THE ASSOCIATION WAS ORGANIZED AS A NONPROFIT CORPORATION UNDER THE LAWS OF THE STATE OF OREGON. ONE OF ITS PURPOSES WAS TO REESTABLISH PRICES TO FARMERS AT A LEVEL THAT WOULD GIVE AGRICULTURAL COMMODITIES A PURCHASING POWER EQUIVALENT TO THAT OF SUCH PRODUCTS IN THE PREWAR PERIOD, AUGUST 1909 TO JULY 1914. THE ASSOCIATION WAS AUTHORIZED TO PURCHASE LARGE QUANTITIES OF WHEAT AT PRICES FIXED BY THE SECRETARY OF AGRICULTURE. FOR THE ASSOCIATION TO PURCHASE ONLY FROM ITS MEMBERS AND ALLOW SUCH MEMBERS TO EFFECT SUCH BARGAINS AS WERE POSSIBLE WITH PRODUCERS OR ELEVATORS WOULD NOT ONLY BE CONTRARY TO THE DECLARED POLICY OF CONGRESS AND THE PURPOSES OF THE MARKETING AGREEMENT BUT WOULD HAVE THE EFFECT OF CREATING A MONOPOLY FOR THE BENEFIT OF THE MEMBERS OF THE ASSOCIATION. ARGUMENT TO SUPPORT SUCH PRACTICES WOULD BE FUTILE. THE PRACTICE ADOPTED BY THE ASSOCIATION IS THE SAME IN PRINCIPLE. THE ONLY DIFFERENCE IS IN THE EXTENT OR AMOUNT OF COMMISSION OR PROFIT AFFORDED MEMBERS FOR MAKING PURCHASES INDIRECTLY FOR THE ASSOCIATION. APPARENTLY, THIS WAS KEPT AT A MINIMUM BY REGULATION OR VERBAL AGREEMENT AS A MATTER OF POLICY.

SECTION 8 OF THE AGREEMENT PROVIDES:

SEC. 8. THE ASSOCIATION SHALL, IF ANY PART OF THE WHEAT PURCHASED IS SOLD AS EITHER WHEAT AND/OR FLOUR, PURSUANT TO SECTION 5 HEREOF, PRESENT TO THE SECRETARY A VERIFIED STATEMENT, ON FORMS TO BE SUPPLIED BY THE SECRETARY, SHOWING THE PURCHASE PRICE OF SUCH WHEAT, THE SALES PRICE AND THE NET SALES PRICE FOR SUCH WHEAT AND/OR FLOUR. THE SECRETARY AGREES TO PAY TO THE ASSOCIATION WITHIN A REASONABLE TIME OF THE RECEIPT OF SUCH STATEMENT AND OTHER DOCUMENTS WHICH SHALL INDICATE TO THE SATISFACTION OF THE SECRETARY THAT SUCH WHEAT AND/OR FLOUR HAS BEEN EXPORTED, OR OTHERWISE DISPOSED OF PURSUANT TO SECTION 5 HEREOF AN AMOUNT EQUAL TO THE DIFFERENCE BETWEEN THE PURCHASE PRICE AND THE NET SALES PRICE.

UNDER THIS SECTION, THE SECRETARY OF AGRICULTURE IS OBLIGATED TO REIMBURSE THE ASSOCIATION FOR LOSSES SUSTAINED ON WHEAT AND/OR FLOUR WHICH HAS BEEN EXPORTED, OR OTHERWISE DISPOSED OF PURSUANT TO PROVISIONS OF SECTION 5 OF THE AGREEMENT. THIS LOSS IS THE DIFFERENCE BETWEEN THE PURCHASE PRICE AND THE NET SALES PRICE. THE PURCHASE PRICE AS DEFINED IN THE AGREEMENT, SECTION 7, PARAGRAPH 3, IS "THE PRICE PROVIDED IN THE WHEAT CONTRACTS PURCHASED PURSUANT TO SECTION 4 REOF.' THE ASSOCIATION IS REQUIRED TO FURNISH VERIFIED STATEMENTS SHOWING THE PURCHASE PRICE AND THE NET SALES PRICE AS A BASIS FOR DETERMINING THE AMOUNT THE SECRETARY OF AGRICULTURE MUST PAY. THE VERIFIED STATEMENTS PRESENTED TO THE SECRETARY SHOW THE PRICE THE ASSOCIATION HAS PAID OR AGREED TO PAY ITS MEMBERS FOR WHEAT BUT DO NOT REFLECT THE ACTUAL PURCHASE PRICE PAID PRODUCERS AND/OR ELEVATORS FROM WHOM THE WHEAT WAS REALLY PURCHASED.

IT WAS NOT THE INTENTION OF THE CONGRESS AND THE MARKETING AGREEMENT FAILS TO MAKE PROVISIONS FOR SETTING UP OR ESTABLISHING A PROFIT MAKING BUSINESS FOR EITHER THE ASSOCIATION OR ITS MEMBERS. PRICES FIXED BY THE SECRETARY WERE CONSIDERABLY HIGHER THAN THE MARKET PRICE UNDER THE THEN EXISTING CONDITIONS AND IT IS NOT UNDERSTOOD WHY IT WAS NECESSARY OR EXPEDIENT TO ALLOW A COMMISSION TO MEMBERS OF THE ASSOCIATION FOR MAKING PURCHASES FOR THE ACCOUNT OF THE ASSOCIATION UNDER SUCH CIRCUMSTANCES. THE APPROPRIATION IS AVAILABLE FOR PAYING ADMINISTRATIVE EXPENSES, RENTAL AND BENEFIT PAYMENTS, AND REFUNDS ON TAXES, BUT IS NOT AVAILABLE FOR PAYING PROFITS OF FAVORED DEALERS IN BASIC AGRICULTURAL PRODUCTS.

THE VERIFIED STATEMENTS PRESENTED BY THE ASSOCIATION TO THE SECRETARY OF AGRICULTURE SHOULD SHOW THE ACTUAL PURCHASE PRICE PAID THE PRODUCERS OR OTHERS FOR THE WHEAT PURCHASED FOR THE ACCOUNT OF THE ASSOCIATION AND THERE IS NO BASIS FOR CHARGING APPROPRIATED FUNDS WITH ANY AMOUNT IN EXCESS OF THE DIFFERENCE BETWEEN THE NET SALES PRICE AND THE PURCHASE PRICE ACTUALLY PAID THE PRODUCERS OR OTHERS FROM WHOM THE WHEAT WAS IN REALITY PURCHASED. THE CONTRACTS WITH THE MEMBERS OF THE ASSOCIATION WERE NOT IN FACT CONTRACTS FOR THE PURCHASE OF WHEAT. THE MEMBERS HAD NO WHEAT TO SELL. THE CONTRACTS BETWEEN THEM AND THE ASSOCIATION HAD THE EFFECT OF MAKING THEM BUYING AGENTS OF THE ASSOCIATION AND PLACE THEM IN POSITION TO SAFELY OPERATE A PROFIT MAKING BUSINESS AT THE EXPENSE OF THE UNITED STATES WITHOUT THE BENEFITS BEING PROPERLY AND FULLY REFLECTED TO THE WHEAT PRODUCERS PURSUANT TO THE POLICY OF THE CONGRESS EXPRESSED IN THE AGRICULTURAL ADJUSTMENT ACT.

ACCORDINGLY, YOU ARE ADVISED THAT THE PAYMENTS BY THE SECRETARY OF AGRICULTURE TO THE ASSOCIATION, MADE IN THE MANNER SET FORTH WERE IMPROPERLY OBTAINED AND MADE AND THAT IN CALCULATING THE DIFFERENTIAL PAYMENT TO BE MADE TO THE ASSOCIATION THE ACTUAL PURCHASE PRICE RECEIVED BY THE PRODUCERS OR OTHERS FROM WHOM WHEAT WAS IN FACT PURCHASED SHOULD BE CONSIDERED AS THE PURCHASE PRICE. UNLESS THE PRICE FIXED IN THE CONTRACTS WITH ASSOCIATION MEMBERS WAS ACTUALLY PAID TO THE PRODUCERS OR OTHERS FROM WHOM THE WHEAT WAS OBTAINED, SUCH PRICE SHOULD BE DISREGARDED AND ADJUSTMENT MADE IN ACCORDANCE WITH THE FACTS AS THEY MAY APPEAR.