Grain producers protect the investment they’ve planted, fertilized, watched grow, harvested and taken the pains to safely store, but it’s the Canada Grain Act that’s supposed to ensure financial protection from buyers that go bust or act unscrupulously. Farmers have never had to worry about payment from the large elevator companies which have historically dominated the grain business, but recent changes to the marketing system have prompted the entrance of new players such as grain brokers. So it’s worthwhile reviewing the basics — which companies protect you and for how long, and could there be a better system?
The Canada Grain Act requires that licensed primary and process elevators and grain dealers provide security, through a bond, letter of credit, cash deposit or payables insurance to the Canadian Grain Commission (CGC) to cover their potential liabilities to grain producers.
Farmers widely believe that they ultimately pay for payment protection, with grain companies passing on the cost of tendering security through handling or elevation fees.
“The farmer’s already paying for the bonding system because it’s in their basis. It’s a cost of doing business in Canada,” says Keystone Agricultural Producers (KAP) president Dan Mazier.
Farmers can submit a claim for compensation through the Payment Protection Program when licensed buyers can’t or won’t pay for their deliveries.
The security licensed buyers provide is divided among producers who are owed. That security, however, may be less than the total of eligible claims, meaning farmers may not received 100 per cent compensation.
“To date, the historical payout is 91.23 per cent over the history of the program,” says CGC spokesman Rémi Gosselin.
That total includes the 15 per cent payout from Melfort, Sask.’s Naber Specialty Grains, he notes. That firm went into receivership in June 2015.
How long you’re protected
Farmers not paid after delivering to a licensed company can make a compensation claim within 90 days from the date of their delivery. They won’t be covered if they wait beyond 90 days to exchange their elevator or grain receipt for a cash purchase ticket or cheque. Once producers receive a cash purchase ticket or cheque, they’re covered by the licensed company’s security for the lesser of two dates: 30 days from the date the ticket or cheque was issued, or 90 days from the grain delivery date.
In the case of post-dated cheques, farmers are only covered for 30 days from the date the cheque was issued, no matter the date on the cheque.
Grain buyers not licensed by the CGC are either exempted from licensing, outside the jurisdiction of the Canada Grain Act, or in violation of the act. Unlicensed firms provide no security, and payment protection doesn’t apply to them. The CGC can’t help producers resolve disputes with such companies.
Those exempted from licensing include those not purchasing directly from producers, and can include distilleries and agents acting on behalf of licensed companies.
Exemptions also extend in cases in which licensing isn’t required to maintain the quality, safekeeping, and orderly, efficient handling of Canadian grain. One of these includes feed mills, although their exempt status has been challenged.
KAP has expressed concerns stemming from instances such as Puratone, a feed mill and hog production company which moved into creditor protection in 2012, leaving some farmers with significant financial losses. KAP, among other farm groups, has recommended including larger commercial feed mills in the current system of producer protection.
Buyers outside the jurisdiction of the act, who therefore may not be licensed, include feed lots and hog barns.
Cash grain brokers
Some farmers are using cash grain brokers as part of their grain marketing plan, but they should note that brokers need not be licensed.
“A broker who acts as a middleman between buyer and seller does not need to be licensed because they don’t buy grain from producers,” says Gosselin.
Some, however, are licensed.
“It all depends on if they are paying the producer and contracting with the producer,” Gosselin explains. “If they are doing that, then they are a grain dealer and licensed as such.”
Producer financial protections have failed to satisfy farmers and their representative organizations.
“The current bonding system, and there’s agreement amongst all industry… it’s very old and it needs to be updated in several ways,” says KAP’s Mazier, who notes the numerous changes in the grain industry in only a relatively few short years.
When the protections fail to protect, it’s the farmer left holding the bag.
“What needs to stop are these shortages,” he adds. “The bond is supposed to cover 90 per cent of total short funding. Well, 10 cents on the dollar doesn’t cut it. Who’s accountable for that? It’s things like that that need to be addressed.”
Reforms have been attempted, but they’ve fallen short.
In October 2012, amendments to the Canada Grain Act were introduced as part of Bill C-45, the Jobs and Growth Act.
Some amendments to the act enabled the CGC to implement an insurance-based producer payment protection model for its licensees.
“Following changes to the legislation, a proposal for an insurance-based model was developed, but it was determined that it did not work in the best interests of all stakeholders in the grain industry, and would not achieve the necessary objectives for an aggregate insurance model,” Gosselin says.
Bill C-45’s passage only saw industry stakeholders stress the necessity for additional changes to the Canada Grain Act.
Another bill, Bill C-48, intended to do just that. Designed to modernize the Canada Grain Act — which hasn’t had a major review since 1971 — Bill C-48 would take into consideration the fundamental changes in the grain sector.
The CGC says changes to the act would have enhanced producer protections, including allowing it to establish and administer a producer compensation fund to compensate producers when a licensee failed to pay for a grain delivery.
The fund would pool the risk of payment failure and be funded by licensee contributions, based on their anticipated risk of failure and grain volume purchases.
The measures had farm group support, but Bill C-48 failed to make it past first reading as a result of the last federal election.
“We considered replacing the current producer payment protection program with a fund-based approach,” explains Gosselin. “The idea is that the fund model (Producer Compensation Fund) would improve the payment protection for producers, as well as reduce the administrative burden and cost to both licensed grain companies and the CGC, thereby making the protection program more responsive and efficient.”
The proposed Producer Compensation Fund approach would improve producer payment protection by aggregating the failure risk of all licensees so that the entire value of the fund would be available to make timely payments to producers on a claimed loss of up to 100 per cent of what they were owed, subject to any prescribed limitations
But the proposed changes, Gosselin says, would require a change to the Canada Grain Act, and there’s no legislative package before Parliament at this time.