“Buyers will not volunteer payment security.”
– SCOTT WOLFE REPORT
Any replacement to the current system of bonding western Canadian grain buyers as required by federal law should be mandatory because a voluntary producer payment security system will not work, a new report says.
“Buyers will not volunteer payment security,” says the summary of a report prepared for Prairie farm groups by Scott Wolfe Management, a Headlingley-based consulting firm. “Mandatory participation would be necessary to continue affordability of a base level of coverage.”
But an examination of options to the present system reveals no obvious winner. Each one has advantages and disadvantages, Robert Hyde, a Scott Wolfe consultant, told a Keystone Agricultural Producers council meeting July 14.
Hyde led KAP council through the report commissioned by and other western farm and commodity groups.
The groups asked for the report in response to Bill C-13, a federal bill to amend the Canada Grains Act. C-13, withdrawn by the government earlier this year after pressure from opposition parties, would have scrapped the Canadian Grain Commission’s security system to farmers who deliver grain.
The CGC requires grain buyers to post bonds as surety against default on payment in case of bankruptcy. There are 166 licensees at 517 locations in Western Canada.
The commission’s payment security system covers an average of $8 billion worth of crop cash receipts for 21 crops.
The system has paid $12.4 million to producers since 1982, said Hyde.
But between 20 and 25 per cent of cash receipts are outside the CGC’s coverage because the grains are either exempted by legislation or outside the act. This leaves an estimated eight per cent of sales and deliveries at risk each year, he said.
Hyde listed four options for producer payment risk management in case of default:
Security based: This is the current system in which companies buying commodities post security with a licensing body to cover liabilities to producers.
Insurance based: Producers or buyers, or both, pay an insurance premium.
Fund based: Contributions from producers, buyers, or both, create a fund to cover liabilities. Such a system operates in Ontario through AgriCorp, a provincial agency delivering government and private risk management programs.
Clearing house model: A third-party guarantor provides settlement services and ensures that buyers and sellers can meet their contractual obligations. This is a model proposed by the Western Barley Growers Association.
Each system has its own advantages and disadvantages, Hyde told KAP council in an hour-long presentation.
But he was careful not to make cost comparisons, saying higher-or lower-cost alternatives cannot be proven. It all depends on the crops themselves and the amount of payments covered, he said.
As to who pays for whatever system is in place, the cost ultimately falls to the beneficiaries: producers and other grain industry participants, said Hyde.
The report, filed in April, has been accepted by a committee representing KAP, Wild Rose Agricultural Producers, Agricultural Producers Association of Saskatchewan and commodity groups representing canola, barley and special crops growers. [email protected]