A proposed new grower-funded payment security program was panned by farmers attending Pulse Days 2004. They came up with their own solution on how to protect themselves from the risk of processors defaulting on payment obligations.
Over the past year the pulse industry has been struggling to find a way to replace the licence and bonding system used by the Canadian Grain Commission.
Growers say that model doesn’t fully protect them from the risk of a grain buyer going out of business. Processors say it’s far too expensive to administer.
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In an effort to find a better solution the three prairie pulse grower associations hired Kelwin Management Consulting to explore the issue.
Randy Baldwin unveiled four alternative payment security models at Pulse Days 2004. The Winnipeg consultant told the 952 growers who attended the two-day event that the most promising option was a gradual transition to the type of fund employed by Ontario’s corn, soybean and canola growers.
It’s a payment security model that would be funded through a mandatory producer checkoff, a suggestion that didn’t sit well with some of the growers in attendance.
“I’m quite dismayed at the proposal,” said Terry Boehm, a farmer from Allan, Sask.
“The liability for bad transactions should be on the buyers and traders, not on the producers. The producers have already assumed all the risks of producing the product,” he said.
Producer security was easily the most hotly debated topic at Pulse Days. Organizers arranged a special two-hour meeting on the issue, which drew about 40 producers, processors and government officials, the day following Baldwin’s presentation.
A unique proposal came forward at that meeting, one that appealed to a lot of producers in attendance.
Former Saskatchewan Pulse Growers chair Lyle Minogue suggested keeping a system similar to what’s already in place, only instead of processors putting up a bond large enough to cover all their grain purchases, they would post bonds equal to 10 percent of that amount.
The money would go into a joint fund to cover the losses of any pulse company that goes out of business, rather than the way it is now where each processor is responsible for posting a bond large enough to cover its own individual payment liabilities.
“It’s a form of self-insuring at much less cost than what we’re currently doing,” said Minogue.
Processors have complained that the CGC’s system ties up $200 million of much-needed capital in security. Minogue said his idea would only require $20 million, which would still be more than adequate to protect producers in the case of a business failure.
“That’s a heck of a fund,” he said.
Growers gathered at the Saskatoon Inn meeting room liked the idea.
“I think there’s a way to improve things without throwing the baby out with the bath water and I hope Lyle’s suggestion is taken seriously,” said Tom Jackson, an Alberta Pulse Growers commissioner from Killam, Alta.
Saskatchewan Pulse Growers chair Shawn Buhr said it was such a simple and effective solution he was surprised nobody had thought of it earlier.
But the proposal was not praised unanimously.
Agricore United special crops trader Martin Chidwick wondered why a respectable company that “runs its business ethically and pays on time” should have to bail out a company that is undercapitalized or poorly managed by contributing to a joint fund.
Chidwick, who is president of the Canadian Special Crops Association, also said producers should not have to shoulder all the costs of a new system.
He said members of his association are willing to share the burden.
The CSCA could also help by “vetting” companies from its membership list that don’t meet industry standards, which could help producers decide which firms to deal with.
Baldwin said new ideas are welcome, but he doesn’t want “analysis paralysis.”
Buhr expects a decision within the next few months.
He wants a new or revamped security system in place to protect growers in time for the 2005-06 crop year.
