Board racing to implement grain law

The Arkansas Plant Board is scrambling to adopt rules needed to implement a new state law requiring some businesses or people who buy or sell grain to obtain a state license and prove they have the financial ability to carry out such transactions.

This month, the Arkansas Legislature passed Senate Bill 555, the Arkansas Grain Dealers Act, which was signed into law Monday as Act 601 of 2015 by Gov. Asa Hutchinson.

The measure was adopted in the aftermath of the Turner Grain Merchandising Inc. failure, which generated millions of dollars in losses for farmers, according to court documents. The Brinkley-based company, which also did business as Turner Grain Inc., filed for bankruptcy in October.

Terry Walker, the Plant Board's assistant director, said Tuesday that the new law requires grain dealers to obtain a license within the next 60 days unless they are already licensed through the federal Warehouse Act or the Arkansas Public Grain Warehouse Law. Walker said 106 businesses hold federal warehouse licenses while 39 are licensed under the state warehouse law.

"The law says that within 60 days, people that are operating as grain buyers have to make application to secure a license from us," Walker said.

Given the time needed to adopt a permanent rule, as well as legislative approval, Walker expects the Plant Board will need to adopt an emergency rule to give it as long as 120 days to implement a permanent one.

The law, which included an emergency clause so it would take immediate effect once signed by the governor, also requires the Plant Board to create a publicly accessible database of dealers and individuals holding state licenses as well as those licensed under the U.S. Warehouse Act. The licenses must be renewed annually by July 1.

The Plant Board is also authorized to require dealers licensed under the new law to secure a surety bond, set aside reserves or provide other evidence of creditworthiness. The board also can audit and inspect dealers annually or as necessary.

The board can temporarily suspend a license if a problem is discovered or if the dealer doesn't have required bonding or refuses to submit to an audit. The law also creates a "slow-pay hotline" for producers to call if a dealer is more than 30 days late with payments.

State Sen. Ronald Caldwell, R-Wynne, chairman of the Agriculture, Forestry and Economic Development Committee, was a sponsor of the the new grain dealer licensing law.

"What this will do is help us identify in a timely manner anyone in the grain business -- buying and selling -- who aren't paying their bills on time," Caldwell said Tuesday. Before the law, Arkansas did not regulate grain dealers such as Turner Grain.

In the months leading up to the law being passed, some pushed for more specific controls, he said. Instead, a consensus was reached to avoid limiting the Plant Board's ability to make changes over time, since the law marks the first time Arkansas will regulate grain dealers.

As an example, Caldwell said some pushed for mandating payments within 10 days on all contracts.

"Well, some farmers put their grain in a pool and it may be eight months before they get paid," he said. "We didn't want to get into dictating contract terms. We just wanted to know when that contract is not paid for."

Jeff Pitchford, director of public policy/state affairs for the Arkansas Farm Bureau, said the goal of industry groups and legislators who developed the law was to make it flexible. He said the rule-making process will also provide plenty of opportunity for public input.

"This has been such a serious issue, especially in east Arkansas," said Pitchford, who said many Arkansas farmers need grain buyers to help sell their crops. He said 31 other states already have laws regulating dealers.

Caldwell said new laws won't always prevent problems, calling the discussion that resulted in the new law a starting point.

"The fact that Turner Grain has not gone through the bankruptcy process yet means we don't really know yet what they were doing," Caldwell said.

Turner Grain filed for bankruptcy two months after it was shut down by federal agriculture officials after investigators found no grain being stored in a grain elevator run by the company despite certificates saying otherwise.

At the time of its bankruptcy filing, Turner listed liabilities of more than $24.8 million and assets of $13.8 million. The case is still working its way through federal bankruptcy court.

Turner Grain and its principals, Jason Coleman and Dale Bartlett, as well as other companies with ties to Turner 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.

Work on the state law began last fall as officials dealt with sorting out a situation in which the state did not license grain dealers, conduct audits or have any oversight role for the dealers who buy or sell grain.

Walker said three entities were involved in the Turner Grain situation: a grain buyer who would buy grain and then resell it to someone else; a warehouse licensed under the federal act; and a farming operation. He said the grain buyer got into trouble, federal auditors went to the warehouse and didn't find any grain, and they shut Turner down.

A key part of the new law is the hotline, Walker said.

"If I am a producer and I have not been paid, I can call the hotline and say I'm having trouble collecting on my grain and that would initiate an audit," he said. If the dealer is licensed under the federal Warehouse Act, then federal agents would be responsible. But, if the dealer is licensed under either the Grain Dealers Act or the state warehouse law, then it would be the Plant Board's responsibility.

Caldwell said part of the fallout from Turner Grain means that grain contracts will become more formalized and use modern technology such as computers and smartphones.

"This will negate the problems of a handshake deal," he said.

Business on 03/25/2015