I read with great interest Kristy Foster Seachrist’s article last week in the Farm and Dairy about changes in the grain indemnity law in Ohio.
She wrote about a new bill that was signed July 11th that updates the size of the indemnity fund, and that specifies that the farmers are first in line for assets.
The indemnity fund gives protection to Ohio farmers in a way that farmers in some other states can only dream of.
The law goes way beyond just being an indemnity fund, however. It specifies many aspects of the grain trade that are taken for granted, such as standardized tickets and procedures, and standardized grain inspection that includes a farmer’s right to challenge.
Ohio’s Grain Warehouse law is a model for other states, and a model that has mostly been ignored. To my knowledge, only Illinois and Iowa have real grain laws, and other states have notably resisted regulation.
New York has a bonding law, which gives some protection, but only within the limits of the bond posted. In one notable bankruptcy of the last few years, the farmers got hosed.
What the farmers care about in Ohio is that they will get most of their money back if an elevator they deliver grain to declares bankruptcy without paying them.
This is also true if dealing with any Ohio-licensed commodity dealer, not just with elevators. In some cases, farmers sell grain to cross-country traders who have no grain facilities.
The system works by funding an indemnity fund through periodic one-half cent per bushel levies of grain transactions. The levy comes on the first sale only of grain, and it comes out of the producer.
If a grain business is liquidated and there are insufficient assets to pay off the farmers, the payoff comes from the indemnity fund.
Current law will raise that fund to be maintained between $10 and $15 million to reflect higher commodity prices.
It would be easy for the Grain Warehouse Division to implement this law as merely an insurance fund. In fact, the success of the law is that their employees are proactive in monitoring grain businesses so that there are limited losses in the first place.
Grain levies only occasionally take place, because the money is not needed.
Annual surprise audits prove the assets of the grain companies. Grain bins are measured, and the financial records are audited to assure the inspector that the business is sound. The licensed dealers pay for their licenses and pay for the audits.
These audits are always annoying, always intrusive, and always welcome. They provide the security for all of us to be in the grain business in Ohio.
In addition, Division employees keep their collective ear to the ground to listen for any hint of business problems. Are there any slow-pay problems? Are there any ugly rumors of bad business practices? Most costly problems are headed off before there are losses.
I have had experiences through my various employment history that confirms how some of this works. I remember a farmer who complained to ODA that we did not give him a copy of the destination ticket. The next day an ODA employee was 200 miles from his office reviewing procedures with my assistant. (We were doing it right, but he was making sure.)
I remember going round and round with one inspector over exactly how we handled the release and timing of warehouse receipts. He convinced us to change. He had the power to!
It is this attention to detail that saves the industry money and guarantees that the indemnity comes at small cost to farmers. In the process, the equity of business processes of the industry is scrutinized so that those of us who are not producers are given protection by the system.
As a licensed dealer, I find the law interesting, not just in how it accomplishes its goals with little cost, but what it does not cover that farmers don’t think about.
Most farmers in eastern Ohio seem to give no notice to the fact that most of their grain goes into Pennsylvania with no protection. That is, if a producer sells grain to a firm that is not located in Ohio and does not have an Ohio license, he is not protected. Those of us in business in eastern Ohio probably don’t represent this fact as a competitive advantage often enough. I suppose it seems self-serving.
The fact is, if someone from Kansas City calls you to buy corn to be picked up and delivered into Pennsylvania, you have no protection from the grain law.
The good folks trading and processing in Pennsylvania have had a lot of chances to pass their own law, and they haven’t. They aren’t thinking of the farmers when they choose to be unregulated.