A new way of providing security on grain deliveries has been introduced by the Canadian Grain Commission.
Rather than providing letters of credit or bonds to cover its liabilities, a grain company will have the option of buying insurance through a third party broker.
Officials say the new system will provide better protection for farmers at a lower cost for grain companies.
“My sense is this is a better instrument from a perspective of producers getting what they’re entitled to receive,” said Regis Gosselin, director of corporate services for the commission.
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The program will provide a more accurate ongoing assessment of a company’s liabilities by means of a computerized link between the grain firm’s accounting operations and the insurance company.
The exact level of exposure will be known on a daily basis and insurance rates can be adjusted accordingly, a feature that should reduce costs for the grain company.
“We expect to save hundreds of thousands of dollars a year,” said Radean Carter, spokesperson for Agricore United, which worked closely with the commission and insurance broker Aon Reed Stenhouse to develop the new program.
The program will insure producer cash tickets and grain and elevator receipts as required by the Canada Grain Act.
Participating companies would buy a policy large enough to cover their prospective purchases from growers, insuring 100 percent of prospective liabilities up to the coverage limit.
Until now, grain companies have been required to post bonds or letters of credit, which use up part of their operating lines of credit.
With a bond and letter of credit, a company would provide a monthly report to the commission describing its liabilities, a figure that was usually out of date by the time the commission got it.
Gosselin said the commission has been discussing ways to improve to the security system with licensees for some time.
One of the issues is that the commission tended to set security to reflect peak liabilities, which can vary significantly during the course of a year, depending on a company’s grain purchases.
As a result, for much of the year the level of security was too high, resulting in unnecessary costs for the company.
“Under this system, instead of having, say, $1 million in security there all the time, this will monitor the liabilities and they only pay based on their actual exposure,” he said.
Gosselin said it will be up to individual grain companies to decide which form of security to provide based on their own operations, adding there could be software issues for some firms in terms of the computer links between the insurer and the company.
“Each company will have to decide if it’s workable,” he said. “I have talked to a couple of smaller licensees and they are quite interested.”
At the moment Aon is the only company offering the insurance, but he expects other brokers may soon develop similar programs.
