State's licensing of grain dealers nearing fast

The state Plant Board on Wednesday will consider rules needed to issue licenses to anyone who buys and sells grain in Arkansas under a new state law passed in the aftermath of the failure of Brinkley-based Turner Grain Merchandising Inc.

Until passage of Act 601 of 2015, the state didn't track those who bought and sold grain worth millions of dollars every year.

Darryl Little, director of the Plant Board, said that the board will hold a special meeting to consider the rules needed to implement Act 601, also known as the Arkansas Grain Dealers Act. The board will meet a day before a federal bankruptcy judge is to hold a hearing in Helena as part of Turner Grain's bankruptcy case.

A Plant Board subcommittee met for about four hours April 22 to evaluate a rules package prepared by the board staff. Little said the committee made some adjustments and then forwarded the proposals to the full board.

Act 601, which took effect March 25, said that grain dealers must obtain a state license with 60 days of its effective date, according to Little. To meet that May 25 deadline, the committee will likely adopt the plan proposed by the committee as an emergency rule to give the Plant Board 120 days to adopt a permanent rule, he said.

"If [the full board] accepts that recommendation and decides to move forward, the only way to get it in place in time is to do an emergency rule," Little said Monday.

The new law, which requires all dealers to be licensed by July 1, directs the Plant Board to create a publicly accessible database of licensed dealers: set bonding and credit-worthiness standards; and audit and inspect dealers annually or as necessary.

It also creates a hotline for farmers to call to report slow payments or nonpayment from dealers. In the case of Turner Grain, sources have estimated farmers lost tens of millions of dollars for grain deliveries to the company that went unpaid.

License fees will be levied on a sliding scale on the basis of a dealer's volume and will be comparable to those being paid by warehouse licensees, Little said. Currently, fees would range from $250 per year for those purchasing less than $5 million in grain to $800 for those purchasing more than $100 million in grain. Knowingly operating without a license, refusing to provide records during an audit or otherwise violating the act is a Class D felony.

The law also allows the Plant Board to suspend a grain dealer's license while it investigates a potential problem.

However, Act 601 doesn't apply to people or entities already licensed through the federal Warehouse Act or the Arkansas Public Grain Warehouse law. The board said 106 businesses hold licenses under the federal act and 39 hold state warehouse licenses.

Retired rice farmer Ray Vester of Stuttgart, who sits on both the Plant Board and the Arkansas Agriculture Board, expects the Plant Board to adopt the proposed rules Wednesday and immediately begin the process to make them permanent.

"We understand that as a Plant Board committee, that this is a work in progress," Vester said. "If we see something that will have to be tweaked, we'll do it."

He noted that an attempt to regulate grain dealers failed about a decade ago because of opposition from the industry.

Opposition, however, changed with Turner Grain's failure and the millions of dollars that farmers lost. Vester said a cross section of those involved in the grain sales industry, including farmers and dealers, as well as legislators attended the subcommittee meeting. "Unless there are people in the woodwork who didn't know this was going on, I don't see any changes coming" to the emergency rules.

Cal McCastlain, an attorney representing Southern Growers Marketing Inc., a new grain dealer that incorporated a year ago, called the work done by the Plant Board a good start. But he said the nature of grain deals, as well as the layers of interests, which include farmers, dealers, trucking companies and destinations, can create complex audit trails.

"I think we're going in right direction," said McCastlain, who attended last month's meeting. "I just think we've got some work to do because what makes it so complicated is there are so many variations of how the grain dealers work out there and so many players come into the process."

He expects that the industry will continue working with the Plant Board as it adopts a permanent rule. Little said public hearings on permanent adoption have already been set for June.

"We'll turn right around and start the normal rule-making" process, Little said.

Jeff Pitchford, director of public policy and state affairs for the Arkansas Farm Bureau, said the subcommittee "delved down into the weeds" as it went through the grain dealer rules section by section.

Those in the industry recognize the need for state regulation, he said, but not to the point where its so burdensome that people are forced out because of paperwork or a small chance for profit.

"Our farmers need to have someone to buy their grain, but we need to regulate those who are buying the grain so that Turner Grain doesn't happen again," he said. "The concept is kind of 'Let's start the process, see how it works' and then come back and do some tweaking."

Pitchford said issues such as business hours, what records an auditor might need -- such purchase contracts and delivery tickets -- and whether they should be paper records or computerized need to be addressed.

Calls for the state to regulate and license grain dealers began surfacing after Turner Grain's problems surfaced. Independent dealers both in and outside Arkansas handle transactions involving grain worth millions of dollars every year.

Turner Grain Merchandising, which also did business as Turner Grain Inc., filed for bankruptcy in October, two months after it was shut down by federal agriculture officials after investigators couldn't find any grain in an elevator run by the company despite certificates saying otherwise.

Officials are still sorting out what happened to the company's finances. Turner principals Jason Coleman and Dale Bartlett and companies with ties to Turner have been named as defendants in several lawsuits in which growers and others complained Turner failed to pay them or issued checks that couldn't be cashed.

In its bankruptcy filing, Turner listed liabilities of more than $24.8 million and assets of $13.8 million.

One issue that's popped up during discussions is that no one knows how many independent grain dealers might seek an Arkansas license, according to Little.

"But we still don't know who we're dealing with and who's out there and probably won't know until the end of summer," Little told the Arkansas Agriculture Board last week during an update on grain dealer regulation.

A Section on 05/12/2015

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