A new credit insurance program is the first of its kind for Canadian producers, providing a service previously available only to large grain companies, says the group behind Market Power Assurance.
The program, which is a partnership between Farmers of North America, Atradius Credit Insurance NV and Pangaea Global Risk Management, hopes to attract producers looking for security when selling their products.
Producers may risk not getting paid when selling to a new buyer. Program participants are protected against non-payment and are given access to a pre-screened buyer pool.
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For producers who typically sell domestically or into the United States, the program could also provide impetus to explore other options.
The option could particularly appeal to western Canadian farmers who will be marketing their durum, wheat and barley once the Canadian Wheat Board loses its single desk, but FNA-Strategic Agriculture Institute chief executive officer Bob Friesen said it’s open to all Canadian farmers across Canada, whether it be grain, oilseeds or livestock.
“This is attractive to all farmers simply for what it allows a farmer to do. It allows a farmer a lot of flexibility to decide where they want to sell their product,” he said.
“It allows a farmer to independently sell the product without going through a large broker, a large grain company.”
He said the cost is inexpensive.
“It will typically depend on the credit worthiness of the buyer,” he said. “But in all cases, it should be below one percent of the value of the contract.”
One half a percent on a $1 million sale would total $5,000.
“Protection against non-payment is we believe a huge strength. But it’s also a huge strength that farmers don’t have to sell their production under duress because they need money,” he said, referring to a second component of the program that allows a producer to borrow against a product before it’s sold.
“Even though the grain is still in their bin, they can go to the bank and say, ‘I’ve got the credit insurance,’ and the banks typically will then lend up to at least 90 per cent of that deferred delivery contract,” he said.
