Checking the Financial Stability of Buyers

[charliep]

Just a quick note to query you as to how you check out the financial stablitiy of the buyers you do business with. Over the past year, the grain industry has seen at least a couple of grain buyers go bankrupt with at least some farmers getting hung out to dry in terms of not getting paid (or only collecting a portion of the amount owing them).

1) What should governments/regulatory agencies role be in ensuring the financial stability of grain buyers/others that do business in the farm community (particularly those that are not licensed and bonded under the CGC)? Is more regulation needed?

2) What steps should farm managers take to make sure of the financial stability of the businesses they deal with? What steps do you take in your business to manage this risk?

3) Any thoughts on approaches Lee and I should taking to communicate this information to the farm community. This would be not to scare people/impact business relationships but rather make sure people are approaching getting paid in a very business like manner.

[TOM4CWB]

Charlie,

A close personal relationship with those buying is the best accountability we can expect.

The Canada Grain Act only requires the CGC pay up to the amount held in Bond in case of a bankruptcy.

Just try to find out how much bond is held, and the specific liabilities held against that specific bond, good luck, it is "Commercially Sensitive Information" not avaliable to the public!

So where does this leave us?

No Domestic feed mills are bonded.

No Domestic Seed Dealers are bonded because they do not use Canada Grain Act grades therefore are exempt from the Canada Grain Act.

Since We can't find out how much security is held against what liabilities, with bonded companies, we don't actually know if the bond would cover the specific sale about to be transacted, so again seller beware.

So on "Non Board" grains it is seller beware no matter what, even if licensed and bonded under the CGC.

With CWB Board Grains the agents of the CWB do not own the grain bought from farmers because it was bought on behalf of the CWB.

Since this grain is "Board grain" then the government of Canada is responsible, if I legally deliver this board grain under contract. I am told I will get paid for this Board grain no matter what.

[TOM4CWB]

Charlie,

I thought I would follow up on my posting and confirm exactly what the CGC bond means to grain farmers!

I explained to the CGC this morning that I want to deliver wheat, and could I have a statement on what, info on liabilities and, bonding was held by the CGC on a specific licensee.

The CGC would not tell me how much bonding is held, or what the liabilities were attributable to that bond.

Further this CGC staff person told me that the last report came in from Nov 30th, and they were not expecting the Dec. 31st statement until January 15th!

This person further explained that the bond is like a bank account, and that if more liabilities were created than bond held, what good would it be to know what the CGC knows anyway (since its info is 40 days out of date anyway).

Just think for a second, do you really think logically Western Canadian Grain Handlers would tie up;

Lets see here, if the elevator system is 70% full, with a total capacity of 8mmt, that is say 5.6 mmt.

5.6 mmt is worth on average say $180/t (canola, peas, durum, #1CWRS wht) or one billion dollars.

$1 billion of their credit line tied up in a CGC bond, it doesn’t happen!

This is why the CGC will not tell us how much bond is held on behalf of specific elevator companies.

Instead the CGC allows licensed primary elevators to use the grain they receive as an asset, therefore they don’t hold bonds for the value of this grain.

Then on the bonding requirements for grain reported no longer in store, they use last years records to establish this years bonding requirements.

Bonding is only good for 90days after proper documented graded delivery, and for only 30days after a cash purchase document has been issued.

There is even a question if a farmer’s own CWB delivered grain in an owned condo is bonded and secure after 90days!

Now Charlie, what kind of regulations would you suggest to implement on unlicensed grain buyers;

Regulations that stop small guys from starting, that are unequal, like we have now (CGC regs) stopping competition from occuring in the grain handling sector?

Is what is happening in our best interests Charlie?

[TOM4CWB]

Charlie, cat got your tongue?

thalpenny,

On deffered CWB payments over 90 days, is the CWB holding trust funds to assure that payment cannot be defaulted upon, after the 90 day CGC coverage expires?

Is it true the CGC is looking at exempting CWB grain from being reported monthly by CWB Agents because the CWB is responsible for security on this board grain?

[charliep]

Tom4cwb

I agree that over regulation is not what is needed - encouraging competition/innovation in service is a better way. On the other hand, that puts more onus back on the seller (already there as you will tell me).

My analogy is being a pedestrian in Mexico. If you ever stepped in front of a car, you would get hit - simple as that. Here in Canada, we have lots of protection for pedestrians to the point where they think they are safe and take foolish risks. There are likely similar number of accidents in both places.

Maybe the advantage of the system here is that you have to manage getting paid in a very disciplined fashion. This means dealing with people you know/trust, doing credit checks on new buyers, making sure you get money at time of delivery and never getting more than a load behind in payments before allowing the next one for new buyers until you have established a relationship (even a good idea for trusted relationships).

What are others thoughts?