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| Producer Security Requirements |
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Producer Security is required
for all Manufacturing and Grade A plants that are a first receiving point for
raw milk that is going to be processed at that facility. Because that plant takes
title (possession) of the raw milk for processing, the plant is responsible for
it and must have producer security prior to any shipments being made into the
plant. Also prior to any shipments being received at the plant, the Lansing office
must approve all forms of producer security.
In addition, the plant is responsible for notifying the department
90 days prior to any change in producer security, including, but not limited
to, form, amount or cancellation. They are also responsible for notifying the
department 30 days prior to receiving raw milk that will increase the amount
due or accrued to an amount greater than the amount represented as a basis for
the issuance of the license. In other words, if they are going to receive significantly
more milk into the plant, they must notify the department to insure that the
producer security will be sufficient to cover that amount.
Types of Producer Security:
- Financial Statements:
If a plant wants to use a financial statement they must meet a current ratio
of 1.20:1. Each of the plants must submit an audited year-end financial statement
and verified quarterly financial statements. Verified quarterly financial
statements means statements that are signed and notarized attesting to the
accuracy of the statement submitted. If a plant is using a financial statement
it is not limited as to the amount of milk the plant can receive. Only a plant
that has been in business for longer than 12 months can use a financial statement.
All of the other forms are producer security are available to all plants,
without limits on length of time in business.
- Bond: A surety bond
must cover the greatest 30-day milk receipts, either previous or anticipated,
whichever is greater. The bond is continuous, unless a notice of cancellation
is submitted 90 days prior to the cancellation date. The bond must be issued
by a company that is licensed to do business in the state of Michigan. A bond
must be submitted using form DY 310 and made out in the name of the department.
- Letter of Credit: A
letter of credit must cover the greatest 30-day milk receipts, either previous
or anticipated, whichever is greater. The letter of credit must be submitted
using form DY 309 annually with the license renewal application. The letter
of credit must be issued by a company that is licensed to do business in the
state of Michigan
- Certificate of Deposit
or Money Market Certificate: A certificate of deposit or money market certificate
must cover the greatest 30-day milk receipts, either previous or anticipated,
whichever is greater. A bank statement showing the amount and maturity date
must be submitted annually with the license renewal. Both of these must be
made out in the name of the department.
- Stocks: The cash value
of stocks must cover the greatest 30-day milk receipts, either previous or
anticipated, whichever is greater. An inventory of the stocks and the shares
owned must be submitted annually with the license renewal. Stocks must be
made out in the name of the department.
- Insurance Policies:
The cash value of insurance policies must cover the greatest 30-day milk receipts,
either previous or anticipated, whichever is greater. An inventory of the
policies and the cash values must be submitted annually with the license renewal.
The cash value of these policies must be made out in the name of the department.
- Pre-Payment: A pre-payment
agreement is an agreement where the processor agrees to pay prior to or at
the time of delivery of the milk. Both the plant and the producer prior to
any milk being received by the plant must sign the agreement and the Lansing
Office must approve the agreement. All pre-payments are audited by the Lansing
office to determine that the producers are being paid for their milk in a
timely manner. A pre-payment agreement for each producer shipping into a plant
must be submitted annually at the time of renewal on form DY 317 unless a
new producer is shipping to the plant, at which time the new agreement must
be submitted immediately.
- Other Security: There
is also the option for other security as acceptable to the department, however
it is rare that the security does not fall into one of the other categories.
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