CGC’s new farmer payment protection program delayed

The new insurance scheme will provide 45 days of protection after farmers deliver their grain

It’s taking longer than expected to roll out the Canadian Grain Commission’s (CGC) new insurance program to protect farmers against payment defaults by grain companies.

But farmers need not worry because the current security program will continue until the new one is ready to go, Jim Smolik, the CGC’s assistant chief commissioner told Winter Cereals Manitoba’s annual meeting March 12.

Last fall the CGC had expected the new program to start Dec. 1.

“But there’s a lot of stuff we didn’t anticipate that needs to get done especially when the government is engaging with a private company,” Smolik said.

That company is Atradius Credit Insurance, which offers trade credit insurance around the world.

Among other things, the government wants to be sure grain company and farmer information supplied to Atradius is secure, he said.

One of the biggest changes between the new and existing program will be the length of time farmers are protected after they deliver any of 20 eligible crops to a licensed grain company. Now farmers are protected for 90 days after delivering or 30 days after receiving a cheque.

Under the new scheme, protection runs out 45 days after delivering, Smolik said. (Farmers will have 30 days to file a claim with the CGC after a payment default.)

Questions

That is raising questions about protection for crops — often pulses — stored by buyers without having issued a CGC-approved grain receipt. Those deliveries are unprotected now, which won’t change under the new system.

“You’re at risk,” Smolik said.

Some farmers might be concerned about fewer days of protection, but it also reduces the risk of a payment default, which means lower premium costs for grain companies, Smolik said.

“What we’re trying to do is strike a balance,” he said.

The total amount of coverage changes too. Under the current program grain companies are supposed to post enough security through letters of credit or bonds to cover what they owe farmers for their grain. In theory, 100 per cent of a farmer’s claim could be covered if a grain buyer fails to pay. However, in past, some companies didn’t have enough security to cover all what farmers were owed, so payments were pro-rated.

Under the new program farmers will be guaranteed 95 per cent of what they are owed, Smolik said.

“The farmer will have a little bit of skin in the game and ensure that he is dealing with a reputable company,” he said. “What we’re also trying to do is encourage you when you deliver your grain to get a cheque and cash it as quickly as possible.”

From the Grainews website: Grain industry reacts to CGC’s insurance-based security scheme

Underwritten

The CGC’s new insurance program being underwritten by Atradius will save grain companies, the Canadian Grain Commission and ultimately farmers, money, Smolik said.

Now grain companies collectively tie up $900 million to $1 billion of capital to cover farmer liabilities, he said.

“This way, by kind of pooling that (risk through insurance) it will allow them to put a whole bunch of money back into their operations and businesses and hopefully back through you guys,” Smolik said.

Currently companies must provide the CGC with monthly updates on their finances, including what is owed to farmers.

And the CGC must track and audit grain company finances. The new insurance approach will cut company and CGC administration costs, Smolik said.

All licensed grain companies will be required to be insured against defaults and premiums will be based on each company’s risk of default.

“So the riskier they are the higher the premium will be,” he said.

The insurance plan will cover up to $100 million in annual grain payment defaults. That might not seem like much given the total value of Western Canada’s crop, but Smolik said according to Deloitte Touche there’s only a 0.6 per cent chance of payouts exceeding the limit.

When a company fails to pay a farmer, he or she must apply to the CGC, which will then submit a claim to Atradius. If the claim is legitimate, a payout will be issued to the CGC, which will then pay the farmer.

About the author

Reporter

Allan Dawson

Allan Dawson is a reporter with the Manitoba Co-operator based near Miami, Man. Covering agriculture since 1980, Dawson has spent most of his career with the Co-operator except for several years with Farmers’ Independent Weekly and before that a Morden-Winkler area radio station.

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