Should farmers pay for protection against grain company defaults?

The Canadian Grain Commission has proposed setting up a security fund paid 
for by grain companies, but Ontario has gone with a farmer-funded model

Manitoba’s main farm group is eyeing a plan that would see farmers directly fund insurance to cover losses when grain buyers can’t pay their bills.

That’s a different route than envisioned by Ottawa under sweeping changes to the Canada Grains Act introduced to Parliament last month. The plan is to replace the Canadian Grain Commission’s current security program with one funded by companies. The fund would contain $5 million to $10 million, with contributions based on how much grain companies buy and their risk of failing to pay.

Since farmers will ultimately pay for the program, it makes sense for them to pay directly because they’d know its full cost, be able to gauge its value, and have more influence over it, said Manitoba farmer Rob Brunel, chair of Keystone Agricultural Producers’ grains and oilseeds committee.

Farmers should insure themselves against grain company payment defaults because they’ll ultimately be footing the bill, says Manitoba farmer Rob Brunel.

Farmers should insure themselves against grain company payment defaults because they’ll ultimately be footing the bill, says Manitoba farmer Rob Brunel.
photo: Allan Dawson

“My preference has been to set up something like Ontario has,” said Brunel.

Ontario grain farmers pay 10 cents or less a tonne, depending on the crop, to self-insure. The money goes into crop-specific funds, which as of March 31 totalled $13.87 million.

When an Ontario farmer isn’t paid by a licensed buyer, 95 per cent of what’s owed comes from the fund to compensate the farmer. The Grain Farmer Protection Board, made up of farmer and grain company representatives, oversees the fund, administered by Agricorp, a provincial Crown corporation.

Ontario model

Currently, when Ontario farmers sell soybeans or canola, 10 cents a tonne is deducted and added to the respective funds. The wheat deduction is five cents a tonne, while the checkoff for corn (which has high volumes of sales and few defaults) is just one-tenth of a cent, said Anna Siderius, corporate secretary to the Grain Farmer Protection Board.

Although Western Canada produces more grain, the Ontario program is a working model that can be scaled up, Brunel said.

The Western Grain Elevator Association, which represents the West’s major grain companies, also supports a farmer-paid security plan, said executive director Wade Sobkowich.

“Remove the middleman — that being the grain companies — and have farmers pay into it directly is something to be explored,” he said.

Ontario farmers support the security program in that province, said Grain Farmers of Ontario CEO Barry Senft, a transplanted Saskatchewan farmer and former commissioner of the Canadian Grain Commission.

“The protection program is well liked here,” he said.

The biggest challenge is coverage until the fund is large enough, he added.

Farmer protection

The Grain Growers of Canada will be meeting during FarmTech to discuss Bill C-48, said president Gary Stanford.

The bill has a lot of good points, including the proposed company-funded grain security plan, he said.

“If a feed mill — whether it’s in Alberta, or Manitoba or Saskatchewan — doesn’t pay the farmer, the grain commission will be able to go after the mill or the grain buyer on behalf of the producer,” said the Magrath-area farmer.

“This isn’t all in place yet, but from the Grain Growers’ perspective, we’re looking at this more as a national issue rather than a provincial issue.”

The bill will also allow the grain commission to arbitrate if a farmer has a grading dispute with the grain company or the feed mill, he said.

“For the grain companies and feed mills to be bonded or licensed, a lot of it will be licensed from now on, and the grain commission will be able to make sure these companies are licensed and that the farmers are paid,” said Stanford.

Keystone Agricultural Producers is still considering the pros and cons of farmer-funded insurance, but wants any new program to be more transparent and less expensive than the grain commission’s current one.

Current system

Currently, licensed grain companies must post security in the form of a bond or letter of credit to cover farmer liabilities. A 2009 study estimated the program cost $9 million a year or about 23 cents a tonne based on covering 40 million tonnes of grain. Almost $8 million of it is a cost to grain companies, but it’s assumed most of that sum is passed back to farmers. Administration costs were estimated at $1.4 million a year.

The issue of how to protect farmers from grain buyers who can’t pay their bills has been kicking around for more than 30 years.

In the early ’80s, Memco Limited of Red Deer and Manitoba-based Econ Consulting Ltd. went bankrupt, owing farmers millions. In both cases, the companies had posted insufficient security with the commission, which was then sued by affected farmers and ordered by the courts to pay compensation out of general revenue.

Following those court cases, the grain commission started tightening the rules to put more onus on farmers to protect themselves — encouraging farmers to get paid in cash when delivering grain and putting a time limit on its protection.

If a licensed company refuses or fails to pay, producers must notify the commission in writing within 30 days or their claims are invalid. In the case of a cheque or cash purchase ticket that is not honoured by the bank, the deadline is 30 days after the cheque or cash purchase ticket is given to the producer. The same rule applies to postdated cheques. Farmers who deliver grain to a licensed company and aren’t paid must make a compensation claim within 90 days from the date of the delivery to qualify for protection.

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