Department of Agriculture and Producer Costs To Operate the Tobacco Program

RCED-85-30: Published: Feb 8, 1985. Publicly Released: Feb 8, 1985.

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Pursuant to a congressional request, GAO provided information on: (1) whether the tobacco program operated at no net cost to the government; (2) whether assessments against tobacco producers were sufficient to meet possible losses in stored tobacco purchased with Department of Agriculture (USDA) loans; (3) the extent to which active tobacco farmers have purchased allotments or quotas and whether leasing has diminished; (4) alleged voting irregularities in a 1982 referendum in North Carolina that approved a tobacco price-support program; and (5) the actual value of tobacco stored by producer associations and the percentage of that tobacco expected to deteriorate over the next 5 years.

GAO found that: (1) because the Commodity Credit Corporation (CCC) did not recover full interest costs on loans to tobacco producer associations, the tobacco price-support program operated at a loss to the government; (2) the No Net Cost Tobacco Program Act did not require CCC to change its procedures for charging interest; (3) the 1982 crop assessment against producer associations was apparently adequate to cover crop year 1982 program costs; (4) if CCC changes its procedures for charging interest, crop assessments would have to increase; (5) quotas totalling between 1 and 2 percent of 1983 tobacco marketing quotas were sold; and (6) leasing of marketing quotas decreased in crop year 1983. In addition, GAO also found that: (1) a USDA investigation into a tobacco referendum in five North Carolina counties disclosed that some voters in the referendum were ineligible, but the total number of ineligible voters was not large enough to affect the results of the referendum; (2) as of December 31, 1983, producer associations stored about 734 million pounds of flue-cured tobacco, valued at about $1.7 billion, and about 189 million pounds of burley tobacco, valued at $544 million, under the USDA price-support program; and (3) the extent to which stored tobacco may deteriorate could not be determined.

Matter for Congressional Consideration

  1. Status: Closed - Not Implemented

    Comments: After talking to relevant committee staff, it was found that, since the actions recommended by GAO would probably result in higher tobacco assessments to producers, Congress did not intend to act on it.

    Matter: If Congress wishes to ensure that no costs to the taxpayer will result from CCC interest computation practices for the tobacco program, the No Net Cost Tobacco Program Act of 1982 should be amended to require that the amount of payments on principal and interest that the tobacco producer associations pay CCC on tobacco price-support loans must equal the amount of payments on principal and interest that CCC pays the Treasury for borrowed funds.

 

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