“We’re not removing (CGC security) holusbolus. We’ll only do it in light of something better being offered for producers.”
– AGRICULTURE MINISTER GERRY RITZ
Farmers nervous about losing the Canadian Grain Commission’s (CGC) security program that protects against payment defaults on delivered grain can rest easier knowing it will remain until there are replacements.
That’s what Agriculture Minister Gerry Ritz told Keystone Agricultural Producers vice-president Rob Brunel last month during the Canadian Federation of Agriculture’s annual meeting in Ottawa, Brunel said.
“I took the opportunity to ask the minister that critical question,” Brunel said in a news release last week. “Minister Ritz responded that they will keep the current program in place until we have other options.”
Ritz said something similar in a radio interview, March 4.
“We’re not removing it (CGC security) holus-bolus,” he told Golden West farm broadcaster Kelvin Heppner. “We’ll only do it in light of something better being offered for producers.”
But just how the government will make the transition and to what isn’t clear. Will Bill C-13, the legislation that proposes to end CGC security as well as make other changes to the CGC and Canada Grain Act, be delayed until other options are fleshed out, or will the legislation include transition measures? When asked in an e-mail last week, Ritz, who was in Korea, said: “We will work with the members of the standing committee to find the best solution for farmers.”
Brunel said he’s curious about how Ritz’s promise will be implemented, but relieved farmers won’t go unprotected.
“Our concern from Day 1 was to have another system in place before we got rid of what we’ve got,” he said during an interview.
“From the producer perspective, people are getting a little nervous at how this is going to roll out. The challenge will be to get something in place to replace what they’re trying to get rid of. Where that’s going to go, it’s really hard to say.”
A number of farm groups, including KAP, have hired Scott Wolfe Management to compare and contrast potential farmer-industry administered replacements for CGC security, sometimes referred to as “bonding.” The report, which attempts to compare the insurance and clearing house options, was expected to be completed this week. The report will be discussed at KAP’s general council meeting in Portage la Prairie April 9.
“Now we’ll have a base to compare everything on the same playing field,” Brunel said. “This will aid the discussion of where the security mechanism goes.”
Many farmers want to keep CGC security and strengthen it, Brunel said. It’s not perfect, he said, but perhaps it could provide a base of coverage that farmers could build on with other options. That’s currently not part of C-13.
As it stands now, licensed grain companies, which buy grains using CGC grades, must post enough security to cover what farmers are owed. Twenty-one crops are covered, with canaryseed a notable exception.
According to Ritz, CGC security needs to be replaced because it doesn’t work. Payouts have fallen short, but industry commentators such as Paul Beingessner claim increased CGC vigilance would improve things.
The National Farmers Union suspects the government’s motivation has more to do with its ideological bent towards deregulation.
During the last 10 years the CGC has distributed the security from eight companies. In six of those cases farmers received virtually 100 per cent of what they were owed, but in two they received just 28 and 51 cents on the dollar. On average farmers recouped 77 per cent of their money.
(For example, when Naber Seeds of Melfort, Sask. went bankrupt, 112 farmers received just 51.4 per cent of what they were owed and were short, on average, almost $8,500 each.)
The current security system has other weaknesses. For example, farmers aren’t protected when delivering to processors (unless they are licensed elevators), Brunel said.
In the past, some smaller grain buyers, usually special crops buyers, didn’t bother to get licensed and therefore didn’t post security, leaving farmers vulnerable. However, in 2006, when the CGC announced it would be more vigilant in enforcing licensing and bonding regulations.
CGC security has also been criticized as a barrier to new entrants, but former assistant CGC commissioner Bob Douglas suggests if a company can’t af ford to post security perhaps it can’t afford to be in business either.
The current system has a hidden cost, estimated at $7 million, that presumably farmers ultimately pay. The costs include CGC administration and additional interest and reduced working capital the companies face.
However, other options could prove to be even more expensive, especially if the majority of grain isn’t covered.
Brunel said there’s a strong possibility that if replacement security programs are voluntary, many farmers will opt out.
“If only a 10th of the tonnes are going through the system it’s going to cost too much,” he said.
“If you can’t get industry to buy in on whatever these options are in a voluntary manner they won’t work.”
Cost was the stumbling block in 1999, following nine years of discussions, when the CGC dropped plans for a voluntary insurance program for pulse crop growers.
Farmers were to pay a premium of 0.38 per cent of the value of the special crops being sold to insure against payment defaults. (A farmer delivering $100,000 worth of product would pay $380.)
The CGC mailed out 3,000 information packages to mostly farmers explaining the program and only 10 people replied. All the farmers who responded opposed the plan because, they said, it cost too much.