Special crops processors want to move from the Canadian Grain Commission’s grain security system to one administered and funded by producers.
They say the commission’s licence and bonding system, which forces grain companies to take out letters of credit in case of default, is far too onerous.
“It’s a rather expensive system and uses up a lot of capital, which is scarce at this time,” said Greg Simpson, president of the Western Canadian Marketers and Processors Association.
It also occasionally fails to protect producers, as evidenced by the Naber Seed and Grain Co. Ltd. receivership, where eligible grain farmers only received 51 cents on the dollar.
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Speaking to an audience gathered at the recent Processing for Profit conference, Simpson said grain companies have $200 million tied up in grain commission bonds.
That financial burden is holding the special crops industry back, he said. It creates a barrier to marketing because it is linked to a company’s level of grain exports – as sales rise so do bond requirements, which is a disincentive for companies to expand their business.
Simpson’s association supports implementing an insurance system similar to the one used by Ontario’s corn, soybean and canola growers.
Ontario’s Grain Financial Protection Program is funded by three checkoffs collected by the province’s grower groups.
It covers corn producers for 95 percent of their losses, while soybean and canola growers are 90 percent insured.
As of March 31, there was $4.4 million in the corn fund, $2.9 million in the soybean fund and $600,000 worth of protection set aside for canola growers.
Checkoffs range from one-tenth of one cent per tonne for corn to 50 cents per tonne for canola.
Simpson said an Ontario-style system could be administered by the Saskatchewan Pulse Growers. He foresees a six-year transition period to move into the new insurance scheme. The bonds or some other type of insurance would have to stay in place in the interim.
Assistant chief CGC commissioner Terry Harasym said the grain commission is open to suggestions on how to reform the current system.
“The program seems to work pretty well in Ontario. Whether it would work as well in the Prairies is something we all need to sit down and take a good hard look at.”
But he pointed out to the 160 processors gathered in Saskatoon for the Dec. 3 meeting that while the current system has flaws, it works “reasonably well” most of the time.
Since April 2002, five licensed grain companies have defaulted on payments to producers and in four of those cases farmers were paid in full.
And while the bonding requirement affects processors’ ability to access credit for other activities, the system does not place a financial burden on farmers.
“In our case producers don’t pay any direct premiums,” said Harasym.
While the CGC hasn’t launched an official review, the federal government agency is eager to work with the special crops industry to change its security system, Harasym said.
Saskatchewan Pulse Growers has hired a consultant to review fund-based, insurance-based and clearinghouse options for producer payment security.
Study results will be released at Pulse Days 2004. Harasym said that document should be a catalyst for an industry-wide discussion on security reform.
“We certainly welcome this initiative and we’ll look at their conclusions and their recommendations, if they have any, very carefully,” he said.
