Producer payment security must be revamped

A review of the Canada Grain Act, including operations of the Canadian Grain Commission, is underway with the federal government accepting submissions until April 30.

One of the many changes needed is a better system for producer payment security.

The current licensing and bonding system for grain buyers is administratively onerous and unnecessarily expensive with no guarantee producers will be fully compensated.

The CGC reports roughly 30 failures of licensed grain companies since 1982. More than 1,000 producer claims have been filed against these companies resulting in compensation payments of nearly $30 million.

It should be noted that the ILTA Grain Inc. failure in 2019 paid more than $11 million on 222 eligible claims, the most expensive failure ever. Even with the ILTA claim, payments to producers have averaged less than $800,000 per year.

Posted security has not always been adequate to cover eligible claims. The CGC reports the long-term average payout per eligible claim at about 95 percent.

An even bigger concern is the direct cost for grain companies to obtain security on top of the CGC costs to monitor the rapidly changing financial position of companies so they have appropriate security.

Compensation paid to producers has amounted to a fraction of a penny per tonne of total grain movement. The cost of the program is difficult to estimate, but it’s no doubt many times greater than the benefit. That cost comes out of what producers are paid for their grain.

There are viable alternatives to grain companies posting security and the CGC trying to monitor whether the security is adequate. For instance, a compensation fund could be established and some of the accumulated $137 million-plus CGC surplus could be used as a kick start. Even $20 million allocated to this purpose would go a long way.

On top of this, a small annual contribution per tonne could be paid by producers for all grain deliveries to licensed facilities. Just 10 cents per tonne on 60 million tonnes of annual deliveries would generate $6 million for the compensation fund. The payment could be reviewed each year and would decrease if the size of the fund was deemed adequate.

Grain companies would still be licensed by the CGC and would pay licensing fees to cover CGC administrative costs for the payment security program.

In the event of a grain buyer failure, affected producers would receive compensation. The payments could be 100 percent of eligible claims, but there’s also an argument for a small deductible on compensation payments so that producers would have some incentive not to deal with companies considered a financial risk.

Under the current system, producers are not eligible for compensation if they fail to cash cheques in a timely manner and this includes deferred payments. Rules would need to be established for compensation eligibility under a revamped system and this role could continue to be part of the CGC mandate.

Overall, a compensation fund approach would be simpler and much less expensive for the industry as a whole, while also covering some CGC administrative costs.

Many proposals have been forwarded through the years on ways to revamp producer payment security. Changes proposed in Bill C-48 in 2014 included the concept of a compensation fund. Those changes were not implemented before the dissolution of Parliament in 2015.

Replacing the current cumbersome and expensive system is long overdue and hopefully this time changes will actually be implemented.

Kevin Hursh is an agricultural journalist, consultant and farmer. He can be reached by e-mail at kevin@hursh.ca.

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