CGC retains bond based insurance

Farmers who sell crops to insolvent or bankrupt grain buyers will have to rely on financial protections already in place at the Canadian Grain Commission, at least for now.

CGC chief commissioner Elwin Hermanson says plans to implement a new insurance-based producer payment protection system have been set aside.

The commission had hoped to develop a new system based on insurance premiums to replace an existing program that requires licensed grain companies to post bonds or financial guarantees.

However, negotiations on the insurance-based model bogged down and the commission terminated discussions with potential insurers earlier this year.

The commission’s existing bond based system will remain in place for the 2014-15 crop year and possibly beyond that.

“This particular type of model, this type of insurance scheme, is probably not going to work, simply because of the constraints within the insurance industry,” Hermanson said.

“But certainly, we are still open to finding a better model.”

Industry groups that had been promoting an insurance-based system expressed disappointment last week that negotiations between the grain commission and private sector insurers had broken off.

Levi Wood, president of the Western Canadian Wheat Growers Association, said members of his organization had hoped for a new system that would reduce the protection costs borne by farmers and give individual growers the option of forgoing insurance altogether when the perceived risk of non-payment for their crop deliveries was low.

“Ultimately, we would like to see a model where people could choose the level of insurance they want on their transactions,” said Wood.

“For example, if you’re dealing with one of the major line companies, you might be willing to forego the insurance costs altogether on that transaction because you trust (that company).”

Wood said the current bond-based system provides a level of protection to farmers, but the costs borne by producers are not transparent.

In some cases, protections have also been inadequate.

“I’m not sure that the current program, as it’s designed, is working like it’s supposed to,” Wood said.

“There have been cases where the bonds haven’t been adequate to cover farmers’ losses.”

Brett Halstead, a grain and oilseed farmer from Nokomis, Sask., said an insurance-based program would have been preferable to the current bond-based system.

“It was a little disappointing to hear that the insurance-based system is not going through,” said Halstead, a farmer director with the Saskatchewan Canola Commission.

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