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Producer Security Requirements

Producer Security Requirements

Producer Security is required for all Manufacturing and Grade A dairy 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 Michigan Department of Agriculture & Rural Development (MDARD) Lansing office must approve all forms of producer security.

In addition, the plant is responsible for notifying MDARD 90 days prior to any change in producer security, including, but not limited to, form, amount or cancellation. The plant must also notify MDARD 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 the plant is going to receive significantly more milk into the facility, the plant must notify MDARD to ensure 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 Michigan Department of Agriculture & Rural Development.
  • 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 Michigan Department of Agriculture & Rural Development.
  • 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 Michigan Department of Agriculture & Rural Development.
  • 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 Michigan Department of Agriculture & Rural Development.
  • 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 MDARD Lansing office must approve the agreement. All pre-payments are audited by the MDARD 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 MDARD; however, it is rare that the security does not fall into one of the other categories.