Fallout widespread from pulse processor closure

The financial demise of Ilta Grain is sending shockwaves through the prairie grain industry.

For the hundreds of farmers owed money by Ilta, the key question is whether or not Ilta’s bond with the Canadian Grain Commission will be large enough to cover the unpaid grain deliveries. Producers may get all of their money or they may have to settle for a percentage.

Many observers are guessing it will just be a percentage and that it’s going to take a long time to sort it all out and get anyone paid.

It seems certain that two groups of producers will be out of luck — those who took deferred grain tickets for their deliveries and canaryseed producers. Deferred payments have never been covered by the CGC bond and neither have canaryseed sales.

A surprising number of producers are unaware of these restrictions. While they’ve been publicized from time to time, it’s human nature to assume a situation like this is never going to be your problem.

Some farm operations are going to be out hundreds of thousands of dollars. Some will be able to absorb the loss while for others it’s going to cause some financial distress. Eventually, it will be public knowledge whether or not the bond was large enough to cover eligible losses. It may never be known how many producers will be left totally unpaid.

From the outside, Ilta Grain gave every indication of being financially solid. The sad truth, however, is that all pulse and specialty crop processors have had a tough couple years. Cleaning capacity was overbuilt after India backed away from pulse crop purchases.

If a company like Ilta with six pulse processing plants, two of which are very large and new can go out of business, what other companies are at the end of their rope? To whom can you safely deliver?

Many pulse and specialty crop producers have come to accept long delays in getting paid. It’s normal to wait two or three weeks for payment to arrive and sometimes it’s much longer. Many companies seem to lack the fiscal capacity to pay in a timely manner and that’s scary.

The payment protection offered through the CGC has been debated for decades. At a couple junctures, it appeared that different payment protection schemes would be enacted. For various reasons, that never happened. At this point, there isn’t even an alternative system under active consideration.

The best advice for producers is to get paid as quickly as they can and cash the cheque right away. Otherwise, they could fall outside the time restrictions of the bonding system. Since deferred grain tickets put you at risk, is this really a good tool for tax planning?

While payment defaults have typically been in the pulses and specialty crops, the same rules and same cautions apply to all the other major grains. Personally, I would never defer canola, barley, durum or any other crop.

It’s natural to chase the highest bid; that’s the way a competitive marketplace should work. It’s great to have large, well-established companies as well as small, nimble companies in the marketplace. However, if the best bid comes from a company where you have to wait and sweat over the payment arriving, is it really worth it?

If the companies with slow payments were getting more complaints and losing more business, perhaps they’d have to adjust their business practices.

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