B-118622, FEB 19, 1986

B-118622, FEB 19, 1986

COMMODITY CREDIT CORPORATION - PRICE SUPPORT PROGRAMS DIGEST: PUBLIC LAW 99-198 MAKES THE SECRETARY OF AGRICULTURE, THROUGH THE COMMODITY CREDIT CORPORATION, LIABLE TO PAY SUGAR BEET GROWERS MAXIMUM PRICE SUPPORT BENEFITS, LESS BENEFITS PREVIOUSLY RECEIVED, ON DEMAND OF THE GROWERS AND SUBJECT TO SUCH ASSURANCES AS THE SECRETARY REQUIRES, IN SITUATIONS WHERE A SUGAR BEET PROCESSOR IS BANKRUPT OR OTHERWISE INSOLVENT AND CANNOT FULFILL CONTRACTUAL COMMITMENTS TO GROWERS.

THE HONORABLE HANK BROWN:

HOUSE OF REPRESENTATIVES

BY LETTER OF OCTOBER 21, 1985, YOU ASKED WHETHER THE COMMODITY CREDIT CORPORATION (CCC) WAS LEGALLY OBLIGATED TO COMPENSATE COLORADO SUGAR BEET GROWERS WHO WERE NOT PAID IN ACCORDANCE WITH PRICE SUPPORT AGREEMENTS BETWEEN THE CCC AND THE GREAT WESTERN SUGAR COMPANY FOR THE 1984 CROP.

YOUR QUESTION WAS RAISED PRIOR TO ENACTMENT OF THE FOOD SECURITY ACT OF 1985, PUB.L. NO. 99-198, 99 STAT. ---, (131 CONG.REC. H12249 (DAILY ED. DEC. 17, 1985)), WHICH ESSENTIALLY MAKES THE CCC LIABLE, AS DISCUSSED BELOW. IN VIEW OF THIS LEGISLATION, YOUR STAFF TOLD US TO LIMIT OUR RESPONSE TO THE EFFECT OF THIS LEGISLATION ON CCC LIABILITY.

THE AGRICULTURE AND FOOD ACT OF 1981, PUB.L. NO. 97-98, 95 STAT. 1213, 1257, CODIFIED AT 7 U.S.C. SEC. 1446(H), WHICH AMENDED SECTION 201 OF THE AGRICULTURAL ACT OF 1949, PUB.L. NO. 81-439, 63 STAT. 1052, ESTABLISHED A SUGAR SUPPORT PROGRAM WHICH COVERED THE 1984 SUGAR BEET CROP. THE LEGISLATION DIRECTED THE SECRETARY OF AGRICULTURE TO SUPPORT THE PRICE OF DOMESTICALLY GROWN SUGAR BEETS AND SUGARCANE THROUGH NONRECOURSE LOANS, AT SUCH LEVELS FOR SUGARCANE AS THE SECRETARY DETERMINED TO BE APPROPRIATE BUT NOT LESS THAN 17.5 CENTS PER POUND FOR THE 1984 CROP, AND AT SUCH LEVELS FOR SUGAR BEETS AS THE SECRETARY DETERMINED TO BE FAIR AND REASONABLE, AS RELATED TO THE LEVEL FOR SUGARCANE. 7 U.S.C. SEC. 1446(H). THE LOANS WERE TO BE MADE TO THE SUGAR BEET PROCESSORS.

OTHER FEDERAL LEGISLATION AND REGULATIONS PLACED REQUIREMENTS ON SUGAR BEET PROCESSORS FOR FULFILLING THEIR RESPONSIBILITIES TO THE PRODUCERS. SECTION 1421(E) OF TITLE 7 OF THE UNITED STATES CODE STATES THAT WHERE PRICE SUPPORT PROGRAMS ARE CARRIED OUT THROUGH PURCHASES FROM OR LOANS OR PAYMENTS TO PROCESSORS, THE SECRETARY OF AGRICULTURE SHALL, TO THE EXTENT PRACTICABLE, OBTAIN FROM THE PROCESSORS SUCH ASSURANCES AS THE SECRETARY DEEMS ADEQUATE, THAT PRODUCERS OF THE COMMODITY INVOLVED HAVE RECEIVED OR WILL RECEIVE MAXIMUM BENEFITS FROM THE PRICE SUPPORTS. SUBSECTION 1435.114(B) OF TITLE 7 OF THE CODE OF FEDERAL REGULATIONS CONDITIONS THE LOAN ELIGIBILITY OF SUGAR BEET OR SUGARCANE PROCESSORS ON THEIR AGREEMENT TO PAY ALL ELIGIBLE PRODUCERS AT SET PRICE LEVELS.

THE DEPARTMENT OF AGRICULTURE TOLD US INFORMALLY THAT THE PRINCIPAL ASSURANCE IT RECEIVED FROM THE GREAT WESTERN SUGAR COMPANY FOR THE 1984 SUGAR BEET CROP WAS THE CERTIFICATION PROVIDED BY GREAT WESTERN ON ITS LOAN APPLICATION THAT IT HAD PAID OR WOULD PAY ALL PRODUCERS AT LEAST THE RATES REQUIRED IN THE SUGAR PRICE SUPPORT LOAN REGULATION, I.E., 7 C.F.R. SEC. 1435.114(B).

NOTWITHSTANDING ITS OBTAINING LOANS FROM THE CCC FOR THE 1984 CROP YEAR, IN APRIL 1985 GREAT WESTERN FILED FOR BANKRUPTCY, LEAVING A SUBSTANTIAL AMOUNT OF MONEY UNPAID ON ITS CONTRACTS WITH THE SUGAR BEET GROWERS. AS A RESULT, AMONG OTHER THINGS, THE GROWERS BROUGHT THE PROBLEM TO THE ATTENTION OF THE CCC AND THE CONGRESS. /1/

PRIOR TO ENACTMENT OF PUBLIC LAW 99-198, SUPRA, THE CCC AND THE GROWERS WERE IN CONFLICT ABOUT THE CCC'S LIABILITY TO THE GROWERS. THE GROWERS CONTENDED THAT THE CCC WAS NEGLIGENT IN NOT SEEKING THE NECESSARY ASSURANCES THAT GREAT WESTERN WOULD BE ABLE TO SATISFY THE MINIMUM PAYMENTS TO THE PRODUCERS, AND THUS WAS LIABLE TO THEM FOR THE $19 MILLION GREAT WESTERN FAILED TO PAY FOR THE 1984 SUGAR BEET CROP. ON THE OTHER HAND, THE CCC DENIED ANY LIABILITY ESSENTIALLY ON THE BASIS THAT IT HAD NO DIRECT RELATIONSHIP WITH THE GROWERS. /2/

SECTION 903 OF PUBLIC LAW 99-198, 99 STAT. ---, (131 CONG.REC. H12249, H12277 (DAILY ED. DEC. 17, 1985)) PROVIDES THAT IF A SUGAR BEET PROCESSOR, BECAUSE OF BANKRUPTCY OR OTHER INSOLVENCY, FAILS TO PAY PRODUCERS THE MAXIMUM BENEFITS FROM THE PRICE SUPPORT PROGRAM WITHIN 30 DAYS AFTER THE FINAL SETTLEMENT DATE PROVIDED FOR IN THE CONTRACTS BETWEEN THE PROCESSORS AND PRODUCERS, THE SECRETARY OF AGRICULTURE THROUGH THE COMMODITY CREDIT CORPORATION, ON DEMAND OF THE PRODUCERS AND SUBJECT TO SUCH ASSURANCES AS THE SECRETARY SHALL REQUIRE, IS TO PAY THE PRODUCERS THE DIFFERENCE BETWEEN THE MAXIMUM BENEFITS AND THE BENEFITS ALREADY RECEIVED. THE LEGISLATION IS EFFECTIVE FOR NONPAYMENTS OCCURRING AFTER JANUARY 1, 1985.

THE FACTS SHOWS THAT GREAT WESTERN'S FAILURE TO PAY THE GROWERS THE AMOUNTS CONTRACTED FOR WAS DUE TO ITS BECOMING BANKRUPT IN EARLY 1985. WE UNDERSTAND IT, THE NONPAYMENTS TO THE SUGAR BEET GROWERS OCCURRED AFTER THIS DATE. ACCORDINGLY, THE LEGISLATION WOULD REQUIRE THE SECRETARY, THROUGH THE CCC ON DEMAND OF THE GROWERS, TO PAY THE DIFFERENCE BETWEEN THE MAXIMUM BENEFITS OWED THE PRODUCERS UNDER THE PRICE SUPPORT REGULATIONS AND THE AMOUNTS GREAT WESTERN ALREADY HAS PAID THE PRODUCERS.

WE HOPE WE HAVE BEEN OF ASSISTANCE.

/1/ WE WERE TOLD THAT THE GROWERS ALSO INSTITUTED A CLASS ACTION IN FEDERAL COURT ALLEGING A CONSPIRACY BETWEEN CERTAIN BANKS AND GREAT WESTERN TO VIOLATE THE SUGAR SUPPORT REGULATIONS BY DIVERTING MONIES FROM THE GROWERS TO THE BANKS.

/2/ IN A LETTER DATED SEPTEMBER 23, 1985, FROM FORMER SECRETARY BLOCK TO SENATOR HART, APPARENTLY RESPONDING TO A QUESTION SIMILAR TO THE ONE YOU RAISED WITH US, THE SECRETARY CONCLUDED THAT ANY AGREEMENT BETWEEN GREAT WESTERN AND THE PRODUCERS REGARDING SUGAR BEET PAYMENTS WAS SEPARATE AND DISTINCT FROM THE CCC'S LOAN AGREEMENT WITH GREAT WESTERN. THE DEPARTMENT HAS TOLD US INFORMALLY THAT THE LETTER SUPPORTED ITS POSITION THAT THE CCC WAS NOT LIABLE TO THE GROWERS.