"Move toward payment security plan good for producers
Kevin Hursh, Special to The StarPhoenix
Published: Wednesday, July 23, 2008
In this new world of extreme volatility in grain prices, there will be casualties. We've seen grain buyers go out of business before and it will happen again. Producers need protection for this kind of event.
Take, for example, a crop like red lentils. Contract prices as high as 46 cents a pound have been available for the crop currently growing. In the fall that contracted production will be leaving farms with each super B load worth about $40,000.
What if a buyer is unable to pay?
The scenario could involve canola, field peas, canaryseed or even feed barley. Buyers face a great deal of risk. While most are solid financially, others are not. Rapid moves in the market can wipe out a lot of equity in a hurry for any company that isn't careful.
A number of organizations representing producers, processors and exporters are organizing a study on the topic of producer payment security. This is in response to Bill C-39, through which the federal government is proposing to eliminate the mandatory licensing and bonding requirement for grain buyers.
The current requirements are administered by the Canadian Grain Commission. However, there hasn't always been enough protection to pay producers all they're owned for their grain when a buyer has gone out of business. As well, the bonding requirement is criticized as being expensive for buyers -- an expense that is ultimately borne by producers.
Bill C-39 did not pass before Parliament adjourned for the summer. That has given farm organizations a bit more time to find a replacement.
The groups involved in the study include the three general farm organizations from the Prairies -- Keystone Agricultural Producers of Manitoba, the Agricultural Producers Association of Saskatchewan and Wild Rose Agricultural Producers from Alberta. The Canadian Federation of Agriculture is also involved.
The Saskatchewan, Alberta and Manitoba Pulse Growers are part of the group. So is the Canadian Special Crops Association, which represents growers, processors and exporters.
There have been efforts in the past to find ways to protect producers. For instance, the Western Barley Growers Association has been promoting a clearinghouse concept as a replacement.
Under that plan, a private, independent entity would guarantee the financial, delivery and timing obligations of contracts. Both buyers and sellers would pay a fee for the services of the clearinghouse.
In addition to the clearinghouse model, the new study will examine security-based mechanisms, insurance-based mechanisms and fund-based mechanisms. The organizations will be working with a consulting company to evaluate the range of available options.
A funding application is pending. The groups say that once dollars have been secured, there will be avenues for producers and the grain trade to have input into the process.
In recent years, there haven't been as many high-profile financial failures of grain buyers, but there have been some messy cases during the past couple decades. In a few cases, companies were buying crops without proper security in place. In other cases, their bond wasn't large enough to cover all the producer losses.
Some will say a protection system isn't needed -- that producers should just deal with financially stable and reputable buyers. However, there are scores of buyers and it's impossible to know what's going on with each of them. In the interests of price discovery and competition, it's great to have many companies competing for all the various crops.
As producers we tend to want protection, but we aren't very keen about paying for it. Like most things in life, there's no free lunch. There's going to be a price tag no matter what system is developed.
There are many things a producer cannot control, but there are ways that payment security can be assured. Examining those options makes a lot of sense.
Kevin Hursh is a consulting agrologist and farmer based in Saskatoon. He can be reached at kevin@hursh.ca"
Does Bill C-39 really 'Put Farmers First'?
Kevin Hursh, Special to The StarPhoenix
Published: Wednesday, July 23, 2008
In this new world of extreme volatility in grain prices, there will be casualties. We've seen grain buyers go out of business before and it will happen again. Producers need protection for this kind of event.
Take, for example, a crop like red lentils. Contract prices as high as 46 cents a pound have been available for the crop currently growing. In the fall that contracted production will be leaving farms with each super B load worth about $40,000.
What if a buyer is unable to pay?
The scenario could involve canola, field peas, canaryseed or even feed barley. Buyers face a great deal of risk. While most are solid financially, others are not. Rapid moves in the market can wipe out a lot of equity in a hurry for any company that isn't careful.
A number of organizations representing producers, processors and exporters are organizing a study on the topic of producer payment security. This is in response to Bill C-39, through which the federal government is proposing to eliminate the mandatory licensing and bonding requirement for grain buyers.
The current requirements are administered by the Canadian Grain Commission. However, there hasn't always been enough protection to pay producers all they're owned for their grain when a buyer has gone out of business. As well, the bonding requirement is criticized as being expensive for buyers -- an expense that is ultimately borne by producers.
Bill C-39 did not pass before Parliament adjourned for the summer. That has given farm organizations a bit more time to find a replacement.
The groups involved in the study include the three general farm organizations from the Prairies -- Keystone Agricultural Producers of Manitoba, the Agricultural Producers Association of Saskatchewan and Wild Rose Agricultural Producers from Alberta. The Canadian Federation of Agriculture is also involved.
The Saskatchewan, Alberta and Manitoba Pulse Growers are part of the group. So is the Canadian Special Crops Association, which represents growers, processors and exporters.
There have been efforts in the past to find ways to protect producers. For instance, the Western Barley Growers Association has been promoting a clearinghouse concept as a replacement.
Under that plan, a private, independent entity would guarantee the financial, delivery and timing obligations of contracts. Both buyers and sellers would pay a fee for the services of the clearinghouse.
In addition to the clearinghouse model, the new study will examine security-based mechanisms, insurance-based mechanisms and fund-based mechanisms. The organizations will be working with a consulting company to evaluate the range of available options.
A funding application is pending. The groups say that once dollars have been secured, there will be avenues for producers and the grain trade to have input into the process.
In recent years, there haven't been as many high-profile financial failures of grain buyers, but there have been some messy cases during the past couple decades. In a few cases, companies were buying crops without proper security in place. In other cases, their bond wasn't large enough to cover all the producer losses.
Some will say a protection system isn't needed -- that producers should just deal with financially stable and reputable buyers. However, there are scores of buyers and it's impossible to know what's going on with each of them. In the interests of price discovery and competition, it's great to have many companies competing for all the various crops.
As producers we tend to want protection, but we aren't very keen about paying for it. Like most things in life, there's no free lunch. There's going to be a price tag no matter what system is developed.
There are many things a producer cannot control, but there are ways that payment security can be assured. Examining those options makes a lot of sense.
Kevin Hursh is a consulting agrologist and farmer based in Saskatoon. He can be reached at kevin@hursh.ca"
Does Bill C-39 really 'Put Farmers First'?
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