Winnipeg Free Press - PRINT EDITION

Protecting farmers a costly endeavour

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Years ago, I received a call from a farmer who wanted the newspaper's help in obtaining payment for a specialty crop he had sold to an independent buyer.

There wasn't much I could do. There might have been news value in shaming a shady grain buyer, but if the problem was cash flow, publicity would only worsen the buyer's ability to pay. It was also apparent this buyer was operating under the table. He wasn't licensed or bonded with the Canadian Grain Commission (CGC), either because he qualified for an exemption, or because auditors hadn't caught up to him, yet.

Besides, I wondered, if the farmer hadn't received payment after his first delivery, why would he deliver to the same buyer again? The farmer answered as though I were an idiot: because he offered the best price, he snorted.

Thankfully, stories like this one are rare. Since farmers are vulnerable if a buyer takes delivery and then defaults on payment, the CGC was given the mandate generations ago to require grain buyers to post enough security to cover their purchases from farmers if they go out of business.

Grain dealers, primary-elevator and process-elevator licensees -- essentially anyone buying directly from farmers for resale -- must report their outstanding liabilities for grain every month. That information is then used by the CGC to establish how much security the licensee must post. Feed mills and hog barns are exempt.

The risk of failure in the grain business is far from theoretical. A 2009 report found 20 CGC licensees had failed since 1982 and security held by the CGC was used to pay out $9.3 million.

Nine cases dealt with between 2002 and 2008 resulted in farmers receiving 77 per cent of the monies owed, on average. In six out of those nine cases, farmers received 100 per cent of what they were owed.

The system has flaws. There have been situations in which farmers received little compensation for their lost grain. In the past, farmers were guilty of delivering and leaving grain unpriced for months, hoping prices would rise. Now they are urged to take payment -- and cash the cheques -- as soon as possible after delivery. There are also limits to how long the CGC protection applies post delivery.

The current approach arguably discriminates against small grain dealers because they must keep proportionally more of their cash flow tied up in security. On the other hand, it is the small, independent dealers who historically have been at greatest risk of business failure.

Some have argued it is an expensive way to provide default protection. Most of the cost of operating this program, estimated at $9 million annually, is passed back to farmers in the form of higher handling fees. Based on a 40-million-tonne crop, that works out to about 23 cents per tonne, or just under one per cent of the current value of wheat.

The federal minister of agriculture proposed scrapping the program altogether in 2007, arguing it was ineffective, costly to farmers and a barrier to new companies.

While farm groups are all for finding cheaper options, they fought to keep some sort of protection in place. The 2009 report, conducted by Scott Wolfe Management and financed by a coalition of farm groups, concluded there was no clearly superior alternative. But it emphasized protection of some kind is needed now more than ever, given the high value of commodities and marketplace volatility.

Over the past year, the search for alternatives zeroed in on a farmer-funded insurance scheme that would cost the farmer less up front, but which offered a shorter protection period after delivery and included a five per cent deductible on claims.

However, the CGC announced earlier this month negotiations with the insurance industry have failed to come up with such a plan. It is going back to the drawing board. The announcement was a relief to some farm groups and a disappointment to others, who had hoped a more transparent and less costly system would emerge.

It appears that for now at least, the status quo is the best option.

 

Laura Rance is editor of the Manitoba Co-operator. She can be reached at 204-792-4382 or by email: laura@fbcpublishing.com

Republished from the Winnipeg Free Press print edition August 23, 2014 B7

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