“We still like the old one (program), there’s no question about that.”
– ROB BRUNEL
KAP is making headway on a “Plan B” should the federal government scrap the Canadian Grain Commission’s (CGC) security program that kicks in when licensed grain companies fail to pay farmers.
“We are going to be putting forward a policy position at General Council (July 22),” Keystone Agricultural Producers’ (KAP) vice-president Rob Brunel said in an interview June 2.
A first draft of the framework has been developed, but because it’s still being fine tuned, Brunel declined to say whether KAP is endorsing an insurance-or fund-based replacement.
“It’s not going to be overly detai led because we want to leave our policy flexible enough that we can hopefully work with other commodity groups and general farm groups across Western Canada to hopefully come to a common position,” Brunel said.
Currently licensed grain companies must post security to cover what’s owed to farmers for grain they’ve delivered. If a company fails to pay farmers, the security is used to reimburse them.
But Agriculture Minister Gerry Ritz has said he wants to end the program, leaving it up to farmers, if they so choose, to administer and fund their own security program.
According to Ritz the current program doesn’t work well enough.
“We still like the old one (program), there’s no question about that,” but if the government eliminates it, farmers need an alternative, Brunel said.
“The hope is we build something better than what we have with whatever system that we go with.”
KAP and a number of farm groups hired consultants Scott Wolfe Management to investigate three options – a clearing house approach, and insurance-and fund-based programs.
The firm was then asked for a more detailed assessment of the various approaches, which it completed March 31.
There are a number of options ranging from programs that include all crops to those that are crop specific. Private companies, producer organizations, crop insurance corporations and even the Canadian Wheat Board with respect to CWB grains could do the administration.
“Many industry participants continue to support the current security-based system with ongoing refinement and improvement,” the Scott Wolfe report says.
Scrapping the current program won’t save farmers money.
“With the elimination of the current security-based system, farmers would unlikely see much cost saving coming back to them from the grain companies,” the report says.
“Payment security is considered a minor cost to most grain companies, recognizing that it is relatively a more significant cost to individual small grain companies participating in large transactions. Differences in costs between the varying tools and mechanisms to be considered would not be significant. Cost is not likely to be the key decision factor in determining viable options.”
The report estimates the cost for an insurance program at $4 million to $6 million.
In its first report, Scott Wolfe put the current cost of CGC security at $9 million – $1.4 million for CGC administration, $1 million for grain buyer administ rat ion and $6.6 million for companies to post security. The report said based on 40 million tonnes of grain being covered annually, the average cost is 23 cents a tonne.
Farmers don’t pay anything directly for the coverage, but they pay indirectly to offset the $7.6 million in grain company costs (19 cents a tonne) through lower grain prices.
“Under the current system, the CGC’s cost to administer the program is approximately $1.4 million, or $8,400 per licensee, or one-tenth of one cent per $1 of average total farm cash receipts,” the report said.
A fund-based approach already exists in Ontario for corn, soybeans, canola and wheat. Farmers pay for it through a checkoff. Once the fund gets big enough, the checkoff can be reduced.
“A fund-based system may be a little more predictable than an insurance program,” Brunel said.
If a fund approach is adopted, Brunel said KAP will expect the federal government to help underwrite it during the transition.
Implementing a new payment security program should shed more light on the need for farmers to protect them-s elves against payment defaults, Brunel said.
Some farmers wrongly assume they are 100 per cent protected by the CGC’s program. While that’s the goal, sometimes the security held by the CGC doesn’t cover all farmers are owed. That’s why the CGC recommends farmers seek payment as soon as they deliver grain.
Between 2002 and 2008 farmers received 77 per cent of their money after buyers failed to pay them. Out of nine cases farmers were 100 per cent compensated in six and in one they received 99.8 per cent of what they were owed.
In two cases farmers were not fully covered receiving just 28 and 51 cents on the dollar.
Since 1982, 20 CGC licensees failed. Payments of $9.3 million were made with the security held by the CGC. The CGC was ordered by the federal government to pay farmers another $3.1 million, bringing total payouts of $12.4 million to an estimated 700 to 1,000 farmers. [email protected]