Protections on deliveries | New program will replace the grain commission’s bonding system
Canadian farmers who sell their crops to an insolvent grain company and don’t receive payment for their deliveries will soon be recovering their losses through a new insurance-based security program.
The Canadian Grain Commission will replace its existing producer payment protection plan with a new plan designed to control costs for the grain industry, reduce administration and provide more transparent and predictable coverage to producers. The changes are expected to take effect some time after Dec. 1, 2013, most likely in the new year.
The CGC’s current producer payment protection program system is a bond-based system that requires grain companies to report their financial liabilities on a monthly basis and post a bond against those liabilities.
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The proposed new system would require licensed grain companies to pay annual premiums in exchange for an insurance policy that would provide aggregate coverage up to $100 million per year.
Under the insurance-based system, farmers who deliver grain would be issued a document protecting them from financial losses that occur when a grain company is unable to meet its payment obligations.
Individual producers would be eligible to make a claim within 45 days of delivery. In the event of a claim, they would be eligible to receive a maximum 95 percent of the original value of the grain they delivered.
The remaining five percent would be retained as a deductible, similar to user deductibles on auto or home insurance policies.
Details of the proposed changes were posted on the Canada Gazette website and can be viewed at http://bit.ly/16tTRk3.
All stakeholders, including grain companies, CGC licensees, farmers, farm groups and industry associations, can submit feedback on the amended regulations until Nov. 4.
CGC spokesperson Remi Gosselin said the proposed changes are designed to benefit both producers and grain companies.
“It’s considerably reducing the cost of maintaining the program and it will also decrease security shortfalls,” Gosselin said.
In the past, security posted by grain companies has often been insufficient to cover payments due to producers that are in default.
In some cases, producer payments were pro-rated leaving farmers to swallow losses worth thousands of dollars.
Under the new system, producers will be covered for aggregate claims totalling $100 million, more than 20 times the aggregate losses ever claimed by farmers under the old bond-based system.
Gosselin said there are no up-front costs for farmers under the new system, only a five percent deductible payable when a claim paid.
“Producers are not seeing any kind of change,” Gosselin said.
“It’s the licensees (grain companies), that are paying a premium for this insurance.”
Under the old bond-based system, large established grain companies that posed a minimal default risk were required to post bonds or security worth tens of millions of dollars, based on the large volumes of grain they handle.
Gosselin said the total value of grain industry security posted under the old system was in the hundreds of millions of dollars.
Coverage will continue under the current individual security-based payment protection model until the new proposed model takes effect.
Insurance coverage will be provided by Atradius, an insurance company with headquarters in Amsterdam and offices in 45 countries.
