Arkansas Agriculture Secretary Butch Calhoun unveiled draft legislation Wednesday that would require anyone operating as a grain buyer to be licensed by the state as a way to help row-crop farmers get paid for their crops in the event the dealer fails.
Calhoun told members of the state Agriculture Board that his agency and others have been circulating proposals over the past several weeks, knowing that the idea of regulating grain dealers is likely to be taken up by the Arkansas General Assembly in January.
After the meeting, Calhoun, who will retire from his post Dec. 31, said at the least, the proposal would develop a list of who is buying and selling grain in the state. Other measures, such as setting financial requirements, bonding, insurance and a proposed "indemnity fund" that would be funded voluntarily by growers, would provide some coverage in the event a dealer fails before a farmer is paid.
"As a farmer, I had no idea that people buying grain didn't have anybody looking over their shoulders," Calhoun said.
He said the state's grain warehouses -- where farmers send grain to be stored -- are regulated by the state, unlike grain dealers. Only two grain warehouses have failed in the past few decades, he said, and because of state oversight, affected growers were able to recover money owed them.
"Now what we're wanting to do is come up with what a lot of other states have done: a way to, at the very least, have a list of who is doing it and have some kind of license that they're being checked or audited," he said.
He said the indemnity fund would be entirely voluntary.
The draft legislation is one result of the failure of Turner Grain Merchandising Inc. of Brinkley, which filed for bankruptcy Oct. 23, citing liabilities of more than $24.8 million and $13.8 million in assets.
Federal agriculture officials shut down Turner, which did business as Turner Grain Inc., in August after finding no grain being stored in a grain elevator run by the company despite certificates saying otherwise. Since then, Turner Grain and its principals, Jason Coleman and Dale Bartlett, as well as other companies with ties to Turner Grain, have been named as defendants in several lawsuits in which growers and others complained that the commodities broker failed to pay them or issued checks that couldn't be cashed.
Calhoun and others have estimated that growers who sent their grain to Turner, as well as other grain dealers that did business with the troubled company, could be out tens of millions of dollars.
Turner Grain Merchandising is one of many grain dealers that operate without any state oversight.
Legislation that would have established bonding and licensing requirements similar to that imposed by other states failed to win approval by the Arkansas Legislature in 1991.
Under the draft unveiled Wednesday, grain buyers would have to meet a set of standards before being licensed, as well as meet net worth, bonding and other insurance requirements.
The measure also would establish a "grain indemnity fund" of up to $25 million that participating farmers would pay into to allow growers to offset potential losses if a grain buyer fails.
Terry Walker, assistant director of the state Plant Board, said board employees surveyed licensing rules adopted by other states and then whittled down the various requirements to sort out what might be appropriate for Arkansas growers.
The goal of the licensing law, Walker said, is to get an early alert from growers that they might be having trouble getting payment from a grain dealer to avoid larger financial problems similar to the one created by Turner's failure.
Under the current draft, participating producers will be told that if they sell their grain to a dealer and don't get a settlement within 21 days, the Plant Board will investigate and potentially audit the dealer to determine why. But producers will have to notify the board of a potential problem before the 21-day window is up. If they wait past that deadline, any potential reimbursement out of the fund will drop to 85 percent.
The indemnity fund would be filled using an assessment of two-tenths of 1 percent of the gross value of a grain transaction. Walker said that growers who decide to participate will have to pay the assessment on all their crops, not just one or two. Growers who elect not to participate will have the assessment refunded to them.
"It's not meant to be 100 percent coverage for losses. It's capped at $750,000 per producer," Walker said, adding such a state-run indemnity fund can't be expected to make everyone whole.
The grain-warehouse audits have helped prevent problems, Walker said, with the last failure occurring in 1992. Currently, there are about 150 grain warehouses in Arkansas holding either a federal or state license.
He said the 39 licensed by the state are generally audited twice per year, though the law only requires an annual audit.
So far, growers have been receptive to the idea of Arkansas licensing grain dealers, Calhoun said.
But he said how such a system will work will change when it's debated by the Legislature. "That's the reason we're coming up with something for them to look at," he said.
Business on 11/06/2014