Tobacco Program's Production Rights and Effects on Competition

Pursuant to a congressional request, GAO reviewed certain aspects of the Agricultural Stabilization and Conservation Service's (ASCS) flue-cured and burley-cured tobacco programs to determine: (1) by occupation or source of income, the owners of tobacco allotments and quotas that are leased or rented; (2) the amounts and average costs of the leased or rented allotments and quotas; (3) the program's long-term effects on the competitiveness of U.S.-grown tobacco and on farmers' income; (4) the potential for averting future loan program costs by authorizing the Secretary of the Department of Agriculture (USDA) to adjust price-support levels for the various kinds of tobacco; and (5) the amount of the tobacco that warehouses market as floor sweepings.

In the six areas and regions studied, farmers who grow tobacco, the program's intended beneficiaries, owned only 40 percent of the farms with allotments and marketing quotas. Of these owners, about 26 percent rented and 42 percent leased their allotments and quotas to others. Prices for leases ranged from 25 to 80 cents a pound for flue-cured tobacco and from 25 to 90 cents a pound for burley-cured tobacco. USDA estimated that the 1981 share-rental rates averaged 39 cents a pound for flue-cured tobacco and 51 cents a pound for burley-cured tobacco. When leasing was first authorized in 1961, USDA estimated that about 2 percent of the tobacco allotment and quota owners would lease the rights to others. By 1981, about 57 percent of the quota owners in flue-cured, tobacco-producing areas and 27 percent of the quota owners in the burley-cured, tobacco-producing areas had leased their rights. The legislated price-support formula, which establishes minimum prices for U.S. tobacco, has increased the price of U.S. tobacco without regard for changes in production costs and competing countries' prices, making U.S. tobacco less competitive in both U.S. and world markets. Authority for the Secretary of Agriculture to adjust the price-support levels for various kinds of tobacco could help make U.S. tobacco more competitive and curtail the amounts of low-quality tobacco coming under Government loan. Large losses have been incurred through Commodity Credit Corporation (CCC) interest repayment practices and the fact that, prior to April 1981, CCC made loans at below-market interest rates.