If all of the open stored grain is still in place TDA or the FGIS will sell the grain or return it for the benefit of the owner. If a portion of the open stored grain is in place TDA and FGIS will prorate the remaining grain to the owners and the indemnity fund will cover 85% of any producer loss. If all of the grain is missing the indemnity fund will cover 85% of producer losses. The price for open stored grain will be set on the day the financial failure is declared. The price is set from local cash prices representative of the area of the failed grain buyer.
The producer self certifies that he has produced grain at least once in the previous 3 years. TDA personnel will count and review the ballots. They will have the discretion to randomly audit or specifically check any ballot(s) to maintain the integrity of the referendum. TDA can require a voter to prove production in the previous 36 months before the ballot is counted.
The TGPIB heard the message conveyed by the producers who voted in the 2012 referendum. The board went to work to resolve the problematic issues identified including the cost of the fund, the level of the indemnity fund coverage (deductible), and the refund process. The board knows grain buyer financial failures will continue and the need for producer protection still exists.
The TGPIB has been working with Farm Credit Services to access the insurance industry. We have worked with a major international insurance brokerage firm to get bids from various reinsurers. The bids were based on actual grain buyer financial information submitted directly to the brokerage firm. The bids we have received have been very competitive and affordable. We have complete confidence in the process but we cannot control changes in the financial industry which might cause the rate to change. Therefore it is not prudent for us to quote specific numbers. Many insurance companies will be asked to bid on the coverage. For these reasons we cannot state which company will be the insurance provider or the exact price.
Producers must submit written documentation to substantiate a claim. Scale tickets, warehouse receipts, and written contracts are acceptable instruments for proving a claim. The board has the right to investigate any claim to maintain the integrity of the fund.
If the grain buyer is not collecting the assessment and the producer knows this in advance of grain delivery, this is cause for denial of a claim in the event of a financial failure. If the grain buyer is collecting the assessment but fails to submit the assessment to the TGPIB then the producer will be held harmless in the event of a grain buyer failure. The TGPIB and/or TDA has the right under Agricultural Code Chapter 41, Sub-chapter F to seek legal remedies if a grain buyer refuses to collect the assessment or fails to submit collected assessments to the TGPIB. There is also a provision in Sec.41-102 which allows TDA to revoke any state licenses held by a grain buyer who fails to collect or submit the assessment.
The TGPIB will receive a list of the producers and amount paid by each producer from the grain buyer when assessments are submitted. The board will maintain records of the amounts paid per producer so refunds can be issued at appropriate designated times.
If the fund is suspended, new producers or producers who expand their operations producing more grain will not be carrying their fair share of the load. Producers who retire, or the heirs of producers who die, will not have the opportunity to get back the assessments paid in while the fund was being established. A refund system is the fairest method for all.
Also it is not efficient for grain buyers or the TGPIB to suspend and resume the assessment. Grain buyers would have to adjust their software to collect and submit the assessment with each change. The board would have to send out written notices for each change plus maintaining staffing to handle the assessment would be difficult. Loss of efficiency would increase the cost of the program for the board and ultimately the producer.
What makes the indemnity fund work is having a large enough pool of producers to distribute the risk load just as it is with any insurance program. After every grain buyer financial failure the common statement of those who lose money is they never expected it to happen to them. Their grain buyer was a great person that they have done business with for 10, 20, 30 or more years. The fund is a very practical and low cost insurance to handle the risk associated with selling grain and unlike the property insurance a producer buys, there is the opportunity to get the cost of the program refunded.
The insurance program is based on the financial review of the grain buyer by the insurance provider. It would become very costly to the indemnity fund for the insurance industry to do a review of a grain buyer and potentially only a handful of producers sign up for coverage by the fund. This would create higher insurance rates per dollar of assessment collected and an end result of higher cost for protection.
The indemnity fund will cause producers to be more aware of the risk associated with delivering and selling grain. There is a 15% deductible which producers should take into account when picking a grain buyer. Some of the grain buyers who are noted for late payments do not use written contracts. In order to have protection from the fund, producers must be able to provide a signed written contract if the grain has been sold or contracted. Grain buyers and producers who already use good business practices will be ahead of those who do not.
The board and grain buyers must educate producers that it is in their own best interest to sell to a grain buyer who is protected by the fund. The practical reason why producers will not change grain buyers, specifically to out of state buyers, is the cost per bushel is very small. On $5 per bushel corn, the assessment is 1 cent or about enough to take a loaded truck another 2 miles down the road.
There is a very real limit on the financial incentive to deliver grain to an alternative buyer across the state line. Grain buyers should ask themselves if their customers will move their business to a competitor for what is currently less than a cent per bushel (.002X$3.30/bushel corn). Given the small assessment it is not practical for a producer to switch grain buyers or transport the grain any additional distance.
If a claim is denied the producer can appeal to TDA for an administrative review. The initial review will be by TDA General Counsel. If the producer is not satisfied with the TDA General Counsel review an appeal to the TDA Commissioner for a second review can be made. In most instances it is very likely a producer will not need legal counsel to seek these reviews.
The next step in the appeals process is controlled by Section 2001 of the Government Code. Under this section an agency decision can be appealed to an Administrative Law Judge in the State Office of Administrative Hearings. A judicial review or a court case and subsequent appeals process are the final steps in the appeals process. The matter of paying for legal representation in this process is governed by state law.
The Texas Grain Producer Indemnity Board (TGPIB) is the enactment of legislation (HB 1840) passed in 2011 and amended by senate bill 1099 in 2015.
The TGPIB will establish an indemnity fund program that will mitigate 85% of all verified financial losses suffered by producers of corn, sorghum, soybeans and wheat when a financial failure prevents grain buyers from paying for purchased/contracted grain or delivering unsold grain.
The nine-member board is appointed by Texas Department of Agriculture (TDA), and includes a representative from the Corn Producers Association of Texas, Texas Agricultural Cooperative Council, Texas Farm Bureau, Texas Grain and Feed Association, Texas Grain Sorghum Producers Association, Texas Soybean Association and Texas Wheat Producers Association, as well as a member with expertise in production agriculture financing and a representative with the non-warehouse grain buying industry.
The rules adopted by the TGPIB set an assessment of two tenths percent of the gross sales price of the grain.
Once the fund reaches an amount determined by the TGPIB as sufficient to cover risks, a refund process will be initiated.
The “first point of sale” grain buyer will collect the assessment when producers sell their grain, and remit payment to the TGPIB.
Grain buyers will be compensated through an administration fee set by the TGPIB for costs associated with collecting and remitting
Producers who sell to grain buyers that do not collect the assessment and remit it to the TGPIB are not eligible for indemnification of financial loss.
It is the producer’s responsibility to know the assessment has been deducted through their settlement statements.
The TGPIB will establish an indemnity fund program mitigating 85 percent of the financial losses suffered by producers of corn, sorghum, soybeans and wheat when grain buyers fail to pay for grain.
The TGPIB annual budget will set the minimum fund balance necessary to cover all anticipated administrative and operating costs, as well as a reasonable estimate for indemnity claim payments.
The fund is managed by the TGPIB as enabled by the Texas State Legislature.
This money will not be a part of the State Treasury and can only be used for the indemnity fund program.
All rights to any funds, which may be recovered in a settlement relative to the loss, up to the indemnity paid to a producer, will be transferred to the TGPIB as a requirement in the settlement of the claim.
Annually, the TGPIB will review its budget for the next year and its current financial status and, based on that review, will determine whether or not to issue refund allotments based on prior years’ producer assessment submissions. In any event, if the TGPIB has determined the TGPIB financial account is not sufficient to pay refund allotments and maintain a minimum fund balance, the TGPIB may not issue refund allotments.
A financial failure is defined as when a grain buyer:
Licensed warehouses are the only grain facilities required to carry a bond, which applies only to stored grain. Other grain buyers are not licensed federally or by TDA, or any other agency and are not required to be bonded.
As updated in 2012, the current bond requirement for state-licensed warehouses is 10 cents per bushel of storage capacity with a maximum bond requirement of $500,000, whereas federally-licensed warehouses must have a third-party surety bond based on the licensed capacity. The $500,000 bond does not provide adequate protection in the event of a financial failure.
If the fund is in place it will pay 85 percent of what is not covered by the bond. The fund will also cover forward contracted grain where as a bond does not.
Currently, there is not an entity that offers an insurance policy to cover the risk of loss of grain due to bankruptcy or theft of grain. Once the grain is delivered, an individual’s crop insurance coverage ends. Additionally, once the grain leaves the producer’s premises, their personal insurance is not applicable.
Producers have the responsibility to market their grain with a grain buyer that participates in the program if they are to be covered. Producers and grain buyers will have to engage in best business practices including the use of written and signed contracts in order to have coverage.
The program will only reimburse 85 percent of a covered loss. Producers will have a 15 percent reduction in their total claim to encourage the use of sound judgment in selecting which market they will use.
No. The indemnity fund is designed to protect producers, and ensures they will be paid for their grain in the event of a financial failure of a grain buyer. There is also a provision for assessments to be returned to producers as funds are available.
Only producers of corn, sorghum, soybeans and wheat are the only ones that will pay the assessment and they are the only ones afforded the protection of the program. This is a program where producers will build a fund to protect themselves in the event of a financial failure of a grain buyer.
This fund gives grain buyer’s customers the peace of mind that doing business with a grain buyer that participates in the indemnity fund guarantees the producer will receive 85 percent of their crops value if that grain buyer were to fail.
The Texas Department of Agriculture will conduct a referendum on the establishment of a grain indemnity fund program. Eligible voters will decide if an assessment of two tenths percent of the gross sales price of grain will be collected by the TGPIB.
The referendum will be conducted December 5-9, 2016.
Eligible grain producers are persons including the owner of a farm on which grain (corn, sorghum, soybeans and/or wheat) is produced or the owner’s tenant or sharecropper engaged in the business of producing grain or causing grain to be produced for commercial purposes.
Only a producer or legal business entity who has sold grain in Texas at any time from December 5, 2013 to December 9, 2016 is eligible to vote in this referendum. Each grain producer or legal business entity gets one vote.
Eligible voters can vote at their county Texas AgriLife Extension office or request a ballot from the Texas Department of Agriculture by calling 512-463-3285.