Agriculturally Speaking... Protecting Michigan Grain Producers
By: Jeff Haarer, Producer Security Manager, MI Dept. of Agriculture and Rural Development
Every day, the Michigan Department of Agriculture and Rural Development works to ensure our state’s producers are paid for the grain they provide to Michigan’s licensed grain dealers. In partial response to a large grain dealer’s failure in 2014 and marketing changes in the industry, Governor Rick Snyder signed legislation in June 2016 amending the Grain Dealers Act and the Farm Produce Insurance Act to improve producer security protection while providing a level playing field for grain dealers to operate competitively with other grain dealers in the international marketplace.
The Farm Produce Insurance Authority was established in 2003 to reimburse participating producers for losses suffered when a grain dealer declares insolvency or is otherwise unable to pay for grain they delivered and sold, but were not paid for. FPIA is a voluntary program where producers are eligible for claim reimbursement. The Authority is chaired by the MDARD director and consists of a 10-member (eight voting) board representing farmers, industry and financial institutions. Commodities covered by the FPIA include corn, soybeans, dry beans, small grains and cereal.
Prior to the June 2016 amendments, an entity applying for a grain dealer’s license was required to report allowable net assets between $50,000 and $1 million, based on the number of bushels handled by the grain dealer in a fiscal year. Due to grain dealers’ increased storage capacity and extended markets, the new legislation increases a grain dealer’s minimum allowable net assets to $100,000 and extends the allowable net asset requirement to an unlimited amount. The new legislation also requires a grain dealer’s certified public accountant to acknowledge, in writing, MDARD’s reliance on the accountant’s statement declaring whether or not the grain dealer’s financial statement meets the allowable net asset requirements of Section 3 (3) of the Grain Dealers Act, MCL 285.63(3).
To receive the protections of the Grain Dealers Act and the Farm Produce Insurance Act, it is essential the producer transacted with a licensed grain dealer and the contracted farm produce was delivered to the grain dealer. If a grain dealer goes out of business, participating producers who have not opted out of the Farm Produce Insurance Fund, are entitled to 100 percent payment for farm produce stored under a warehouse receipt, in a grain bank, or in open storage in Michigan licensed warehouses, or 90 percent payment on all other financial losses from farm produce delivered and sold to the grain dealer, but not paid for by the dealer.
The 2014 Lapeer Grain failure resulted in the FPIA paying over $3.5 million in claims to producers when a large portion of the farm produce related to the claims was assumed by the bank in order to cover deficiencies in Lapeer Grain’s general line of credit. The new legislation establishes a priority lien for producers and lenders for farm produce delivered to a licensed grain dealer for sale or storage. The lien is effective at the time of the delivery and terminates when the liability of the grain dealer to the claimant is discharged through payment. The lien will provide priority to a producer over a general line of credit, and this lien legislation will not go into effect until October 2017.
Due to grain dealer consolidations and facility expansions plus increases in commodity values and yield, the new legislation increases the ceiling for the FPIA from $5 million to $10 million. As a result of the Lapeer Grain failure, in October 2015, the Farm Produce Insurance Authority reinstated the program assessment of two dollars on every $1,000 of farm produce sold. This assessment will continue until the FPIA Board certifies the Farm Produce Insurance Fund reaches the $10 million ceiling. Legislation also now requires a producer to file a claim with the FPIA within 18 months of the date the farm produce was sold or title transferred from the producer to the grain dealer.
Since 2005, the FPIA has paid more than $4.4 million in claims to over 200 producers and has recovered approximately $600,000 from bankruptcy and probate proceedings. Success of the FPIA and the Grain Dealers Act to protect Michigan’s farmers relies on open communication between producers, grain dealers and MDARD on all irregularities and non-payments.
If you have any questions or would like more information about the new legislation for the Grain Dealers Act and the Farm Produce Insurance Act, please contact 517-284-5642 or firstname.lastname@example.org or visit the website at www.michigan.gov/graindealers.