                                                         A ugust 18, 1977


77-47     MEMORANDUM OPINION FOR THE
          SECRETARY OF AGRICULTURE

          Price Support for Sugar Producers—Agriculture Act
          of 1949


  This is in response to your request for our opinion whether the
proposed price support program for sugar is authorized under the
Agricultural A ct of 1949, as amended.

                                    I
   The program is set forth in proposed regulations that were published
in the Federal Register on June 14, 1977. The program, as we under­
stand it, would function in the following way:
   A t the close of each marketing quarter the Agricultural Stabilization
and Conservation Service (ASCS) would make a cash payment to each
eligible processor who had marketed refined beet sugar or raw cane
sugar during the quarter, if the “national average price” of refined beet
sugar or raw cane sugar had been less than 13.5 cents per pound for the
quarter. The amount of the payment would be determined by applying
a rate to the number of pounds o f sugar that the eligible processor had
marketed during the quarter. The rate would equal the difference
between (1) the “national average price” of processed sugar for the
quarter, and (2) 13.5 cents per pound; but it would not exceed 2 cents
per pound.
   A processor would be eligible to receive a quarterly payment if, but
only if, he had entered into a written contract with each producer who
had provided him with unprocessed sugar beets or sugarcane for the
quarter, and the contract had prescribed (1) that the producer would
receive an agreed share o f the proceeds generated from the sale of the
processed product, and (2) that the processor would pay the producer
the full amount o f any ASCS payment received by the processor on
account of the sale, less any administrative expenses incurred by the
processor in connection w ith receiving and forwarding the ASCS pay­
ment.

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   In short, the proposed program would provide producers of sugar
beets and sugarcane with supplemental cash payments, pegged to pro­
duction and to the differential between the market price for sugar and
13.5 cents per pound, which payments would be channeled to them
through the processors.
   The program would assure that producers receive an aggregate
return on sugar beets and sugarcane in excess of that which the proces­
sors themselves could afford to pay in light of the current market prices
for processed sugar. In addition, the program would encourage contin­
ued production of sugarcane and sugar beets and would thereby stabi­
lize the market. The question is whether the Act authorizes a program
of this kind.

                                    II
   The Act authorizes the Secretary of Agriculture to provide “price
support” to the producers of certain nonbasic agricultural commodities,
including sugar beets and sugarcane. 7 U.S.C. § 1447. The A ct specifies
that the Secretary shall provide this support, if at all, through “loans,
purchases, or other operations.” Id.
   The proposed program would not provide price support to producers
through “loans” or “purchases.” The issue thus is whether it would
provide price support to producers through “other operations.” The
Act does not define this term, and we know of no court decision that
defines it. “Other operations” are operations other than loans or pur­
chases, but the phrase is otherwise unknown to the law. Legislative
history is the only guide.
   First, whatever the extent of the Secretary’s authority to provide
price support to producers through “other operations,” it is clear that
Congress did not intend to give the Secretary authority to make direct
payments to producers to compensate them for shortfalls in the market
price of a nonbasic commodity, where that price is otherwise unsup­
ported. It is clear that the Secretary was to have no authority to make
“production payments,” and while that term was given no precise
definition in the legislative history, it was understood to refer generally
to direct payments to producers (other than payments made pursuant to
loans or purchases) in circumstances where the market price of their
produce was unsupported and the payments were prompted by a short­
fall in the price. Hearings Before the Senate Committee on Agriculture
and Forestry on Farm Price-Support Program, 81st Cong., 1st Sess.
120-21 (1949); S. Rep. No. 1130, 81st Cong., 1st Sess. 4 (1949).
   Second, there is some evidence that the Act was intended to provide
the Secretary with authority to make direct payments to processors
(other than in connection with loans or purchases) as a means o f
providing price support to producers in certain circumstances. At least
one Senator took that view during the hearings on the relevant bills.
Senator Anderson stated that if the price of an unprocessed commodity
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 w ere supported by other means, the Secretary would have authority to
 make compensatory payments to processors to defray the expenses
 incurred by them in paying the support price, provided the market
 prices for the processed commodity were so low that the processors
could not otherwise afford to pay the support price. He stated that a
program of this kind would be an example of one o f the “other
operations” by which the Secretary could provide price support to
producers. Our research discloses that Senator Anderson’s example is
the only such example given in the legislative history. Hearings, supra,
at 120.
   It should be noted that Senator Anderson’s interpretation is support­
ed to some extent by the language of the Act itself. The Act suggests
that, in fact, a price support operation may involve payments to proces­
sors. The A ct does not describe the circumstances in which these
payments may be made. It simply states that whenever a price support
operation is carried out through “purchases from or loans or payments
to processors” [emphasis added], the Secretary shall receive assurances
from the processors that producers will receive “maximum benefit”
from the operation. 7 U.S.C. § 1421(e).

                                    Ill
    In light of the legislative history, the question might be resolved by
 determining the extent to which the proposed program resembles or
 differs from the two nonpurchase, nonloan programs that are described
 in the legislative history: (1) the program of “production payments,”
 which the A ct prohibits; and (2) the program of compensatory pay­
 ments to processors, described by Senator Anderson, which the Act
 perhaps permits.
    It is our opinion that there would be no distinction in substance
between the proposed program and a program of “production pay­
ments.” It is true that there would be a distinction in form: the pay­
ments would be made, not to the producers directly, but to processors,
as forwarding agents for the producers. But the effect of the program
would be precisely the same as the effect of a program of production
payments. The market price for the processed commodity would float;
the producers’ share of that price would be determined by private
agreement in an otherwise unsupported market; and the ASCS pay­
ments would be made, w here necessary, to subsidize the producers on
account of shortfalls in the market price.
   On the other hand, there would be a significant difference between
the proposed program and a program such as the one suggested by
Senator Anderson. A program of that kind would presuppose that
processors would pay a support price for the unprocessed commodity.
Payments to the processors would then be made, not to subsidize the
producers, but to compensate the processors for the additional costs
incurred by paying the support price. T he proposed program, in contra­
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distinction, would have no short-run impact upon the prepayment price
of the unprocessed commodity.1 That price would be unsupported in
the short run; and payments to the processors would be made for the
purpose of subsidizing the producers, protecting them from the de­
pressed market.
   In short, the proposed program is indistinguishable from a program
of production payments, which the Act prohibits; and it is distinguish­
able in substance from the one program that the legislative history puts
forward as an example of an authorized “other operation.” It is true
that there would be a formal similarity between the proposed program
and a program of compensatory payments to processors, but consider­
ations of substance must override considerations of form to the extent
that they may conflict. Accordingly, it is our conclusion that the
proposed program is unauthorized. In the face of the clear expression
of- congressional intent with regard to production payments, a program
of indirect payments to producers is not one o f the “other operations”
that the Secretary is authorized to employ. We do not wish to suggest,
however, that price support to producers may never be provided by
means of direct payments to processors, but if it is to be so provided,
the processors must act as something more than forwarding agents for
payments that are otherwise indistinguishable from production pay­
ments.
   Finally, without question, payments made under the proposed pro­
gram would tend to stabilize the market, inasmuch as they would
encourage producers to remain in the market; however, the same would
be true if the payments were to be made to the producers directly.
   For the reasons given above, we conclude that the program is pro­
hibited under the Agricultural Act of 1949, as amended.
                                                       P   eter   F. F   laherty

                                                       Deputy Attorney General2




  1 In light o f the absence o f any direct im pact upon the prepaym ent price o f the
unprocessed com m odity, the argum ent could be m ade that the proposed program is not
authorized under the A ct for the simple reason that it does not provide “p rice support.”
W e have not found it to be necessary to accept o r reject that argum ent in determ ining
w hether the proposed program is an authorized “other operation.”
  2 T his opinion w as prepared by the O ffice o f Legal Counsel.

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