State gets licensing for dealers in grains

Rule OK’d; audit details unsettled

The state Plant Board on Wednesday approved an emergency rule needed to begin licensing the people and companies who buy and sell grain in the state, but delayed action on record-keeping requirements until a consensus can be reached among regulators, farmers, dealers and others in the industry.

Board Chairman George Tidwell said definitions of the terms needed to establish audit trails for grain deals generated much discussion over the past several weeks.

"We want people to be comfortable" with the rules needed to implement Act 601 of 2015, the Arkansas Grain Dealers Act, Tidwell said. "But there will be paperwork to do."

The emergency rule unanimously approved by the board established the licensing, bonding and auditing framework for grain dealers required under Act 601. The act was passed by the Arkansas Legislature in March in response to the failure of Turner Grain Merchandising Inc. of Brinkley. Turner Grain's collapse in August and ensuing bankruptcy cost farmers tens of millions in losses.

Until passage of Act 601, only those who stored grain had to hold either a federal or state warehouse license. No one knows how many businesses will need the new state license. Currently 106 businesses in Arkansas hold federal licenses, and the state has issued 39 warehouse licenses.

Darryl Little, director of the Plant Board, said after the meeting that agency staff members will meet with farmers, dealers and others to devise definitions that everyone can use in their record keeping.

With passage of the emergency rule, the board will continue its effort to adopt a permanent rule by the time harvest starts later this year. Little said the board likely will hold a public hearing by late July or early August on the final rule, with any necessary changes being worked into it.

Little hopes that the definitions needed for the record-keeping section can be worked out over the next few weeks.

"A lot of it is just wording. An accountant may use one term and a farmer another, but it's just different ways of saying the same thing," Little said.

However, Little told board members that Act 601 required the licensing and bonding requirements to be in place within 60 days of its effective date -- which gave the board until May 25 to at least have an emergency rule in place. "We definitely want to get this all ironed out before harvest."

In approving the emergency rule, the board also dropped two other sections dealing with how to define regular business hours and the process to be followed if a dealer can't meet its obligations and goes into receivership. Both sections also will be reworked to clarify language and then resubmitted to the board.

The emergency rule, as adopted, applies both to in-state and out-of-state businesses that deal in grain produced in Arkansas. Licenses will be valid for one year and run from July 1 through June 30. Applicants must provide a report on their financial condition and creditworthiness, as well as provide bonding. They also will be subject to annual audits. Additional audits may be required by the director.

The act also created a "slow-pay hotline" for farmers to call to report slow or no payment for the grain they send to a dealer. If a problem is discovered, the director is authorized to suspend a dealer's license pending a hearing. Dealers can face both criminal and civil penalties for violating the law.

After the meeting, board member Marty Eaton, chairman of the board's grain warehouse subcommittee, said he's not expecting any problems reworking the record-keeping definitions. The subcommittee met April 22 to hammer out the draft rules.

While an effort to regulate dealers died about a decade ago, Eaton said people now have a different attitude.

"What's making it easier is that all the farmers got stung by Turner Grain," Eaton said. While it will take time to get the rules in place, the goal is to protect farmers, he added.

When Turner filed for bankruptcy in October, the company listed liabilities of $24.8 million and assets of $13.8 million. The initial filing listed one secured creditor owed slightly more than $1 million and another 43 farmers, agricultural businesses and others with unsecured claims totaling $23.8 million. Another 16 creditors were listed as having "unknown" amounts at stake while another 234 were listed as having claims valued at "$0.00."

Farmers and others in the industry are waiting for the bankruptcy to play out in hopes of learning what prompted Turner's collapse, which became public Aug. 14 when the U.S. Department of Agriculture shut down a company grain elevator after finding no grain being stored there despite certificates saying otherwise.

Turner Grain and its principals, President Jason Coleman and Vice President Dale Bartlett, as well as associated companies have been named in several lawsuits complaining that Turner failed to pay for grain worth millions of dollars or provided checks that couldn't be cashed. Bartlett also has filed for bankruptcy protection.

After the Plant Board meeting, Andrew Grobmyer, executive vice president of the Agricultural Council of Arkansas, said the board is making a good effort toward ensuring clarity in the definitions being used to implement the new law, which is designed to protect farmers.

"They're making sure people understand what paperwork is required of them and what information needs to be retained," Grobmyer said. He said that given the fast-moving nature of rule making for Act 601, businesses that are going to be regulated are already keeping better paperwork and working to comply with the rules until they are finalized.

Cal McCastlain, an attorney who represents grain dealer Southern Growers Marketing Inc., said the record-keeping issue boils down to matching definitions used by the farmers, dealers and buyers involved in grain deals.

"Everyone's looking for the same audit trail. We just need to standardize the approach," McCastlain said after the meeting.

A Section on 05/14/2015

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