Few insurance options Feed mills don’t have to be licensed, so officials are examining ways to ensure producers receive payment
Grain farmers owed money by a Manitoba hog company that went out of business two years ago are still in the midst of a legal battle.
Seventeen growers owed $903,250 by the now defunct Puratone intend to file a new statement of claim this week against former officers and directors of the company.
Their case highlights one of the major shortcomings of Canada’s producer payment protection system.
The Canadian Grain Commission does not license feed mills, which means grain delivered to those companies is not covered by a posted bond.
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A lot of grain could be marketed through feed channels because of the dismal quality of this year’s crop, which means growers need to be aware that grain isn’t protected, said John Sigurdson, spokesperson for the group pursing legal action against Puratone.
“Make sure you get paid for that first load before you deliver the second one. Keep things current,” he said.
Doug Chorney, president of Keystone Agricultural Producers, said the feed mill exemption is a major failing of the current system.
He was hoping a new producer payment protection system would be in place for 2014-15.
The grain commission had been in negotiations with Atradius Credit Insurance about establishing an insurance-based protection model, but negotiations fell apart in July.
Grain groups have not been given much of an explanation for why the negotiations collapsed or what alternatives are being explored.
Commission spokesperson Remi Gosselin said it is a sensitive issue.
“Unfortunately, I can’t discuss the details of the negotiation process because the negotiations between the CGC and Atradius were confidential,” he said.
“We just wanted to develop a cost effective producer protection model, and it did not meet those objectives,” said Gosselin.
The commission is continuing to pursue alternatives to the existing system, which were outlined in a 2009 report by Scott Wolfe Management.
That could include a different type of insurance based model.
Chorney said the current system fails to fully protect growers, and with about $1 billion of grain industry capital tied up in the program, it has become too expensive for grain buyers.
“We know that the costs that are built into the system all go back to farmers, so we want it to be as cost efficient as possible,” he said.
KAP is pushing for the adoption of an Ontario-based model that sets aside grower check-off money in a fund that covers producers in the case of a shortfall.
KAP wants the federal government to provide a guarantee for about five years until enough money is in the fund to cover losses. Growers would own and administer the fund.
Gosselin said the commission is also aware of grower concerns about the lack of coverage for grain delivered to feed mills.
“That’s a separate policy issue, but we’re looking at that as well,” he said.
Feed mills are not covered because the producer protection system falls under the commission’s quality assurance mandate, and feed mills are not part of that domain.
The commission licenses 160 grain companies and dealers under the current system. Expanding the program to include feed mills would be a huge undertaking.
“There would be well over 250 additional companies if the net was cast quite widely,” Gosselin said.
“We need to figure out what types of feed mills are out there and what would be eligible for licensing, so a lot of work needs to go into it.”
KAP has explored private insurance options for growers who deliver grain to unlicensed feed mills, distilleries, certain producer car facilities and other exempted companies.
Producers can buy accounts receivable insurance for about $500 for every $100,000 of grain delivered, depending on what a credit assessment of the buyer turns up. A deductible is usually attached to the policy ranging from five to 10 percent of the value of the grain delivered.
“Maybe we should be talking that up more in the absence of anything happening at the Canadian Grain Commission or the federal government,” said Chorney.
In the meantime, farmers continue a long and costly legal battle to recoup their losses from Puratone.
“A lot of the farmers in our group are getting pretty frustrated, but everybody has stuck it out so far,” Sigurdson said.
“Why should we get run over every time something like this happens? We have to leave some kind of legacy for our future generations that at least we didn’t let this thing (fall by) the wayside.”
