These are turbulent times in the pulse and special crops industry. If you think farmers have been hit hard, there’s arguably even more economic bloodshed among processors and exporters.
Most of the problems stem from the loss of India as Canada’s top market for lentils and peas. Pulse crop exporters have scrambled to find alternative markets and they’ve had more success on peas than lentils.
New business relationships have been forged with different end-use customers in different countries, increasing the worry of timely payments. That cascades down to the producer level.
Even in more stable times, there can be producer complaints about delivery and payment being outside the contract terms. In the current environment, many observers say those problems have been magnified.
The past couple years have seen precipitous price drops in red lentils, large green lentils and kabuli chickpeas. Companies on the wrong side of those price drops have lost a lot of money. In many cases, pre-seeding producer contract prices are not covered by corresponding contracts with end use buyers.
Production contracts are a double-edged sword. As a producer, you can regret signing a contract when the market price at harvest ends up being higher. Alternatively, if the price drops, you can be happy that you protected the price on a portion of your production.
Either way, contracts should be honoured both by producers and by the contracting company. For farmers waiting for delivery or waiting for payment on deliveries, it can be aggravating and stressful to see their contract breached.
However, the vast majority of companies want to honour their contracts. They want to do business the right way, but market disruptions can put them in a bind.
Lack of volume is another complicating factor. Lentil acreage and production was down dramatically in 2018. To keep running, lentil cleaning plants have cut margins so dramatically that in many cases they aren’t covering their costs. Many have branched into other commodities to keep the lights on.
What’s the solution and what should producers do to protect themselves? Some advocate dealing only with the major companies — those backed by well-financed investors and/or companies where special crops aren’t the main business. However, smaller companies add an important element of competition to the industry. Farmers are well-served by having both big and small players.
With the current market turbulence, it may be reasonable to spread sales around to more than one company. And it’s probably reasonable to check with friends and neighbours on how specific companies are performing before doing business.
If you’ve delivered product to a licensed facility and payment is well past the terms of the contract, it’s a good idea to be in touch with the Canadian Grain Commission. The CGC licensing and bonding provisions haven’t always provided 100 percent payment protection, but in most cases of payment default, producers have eventually received the vast majority of their money.
There are time limits. Payment protection only lasts for 90 days after delivery and only 30 days after a cheque has been issued. The Canadian Grain Commission’s website explains all the details.
Hopefully, there are brighter times ahead and we can emerge from the current troubles without any companies going out of business leaving unpaid producers. As producers, we should be careful, but we should also exercise some empathy for what processors and exporters are facing.