USDA and states battling over elevator licenses

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SALEM, Ohio – The USDA’s changes to the U.S. Warehouse Act are shaping up to be a classic battle of states’ vs. federal rights.

The USDA said last week that a grain warehouse with a federal license is subject only to U.S. regulations and the facility doesn’t have to get a state license.

Not so fast, responded Ohio and Indiana’s top grain warehouse officials.

“We’re still requiring a state license of all federal elevators,” said David Schleich, chief of the Ohio Department of Agriculture’s Division of Plant Industry, which oversees Ohio’s agricultural commodity handler licensing program.

“At this point, it’s business as usual.”

Ditto in Indiana, said John Steinhart, deputy director of the Indiana Grain Buyers and Warehouse Licensing Agency.

State law there requires anyone purchasing grain to buy a state license, “and that law is still on the books,” Steinhart said.

Rewriting the rules. The USDA is currently rewriting the 1916 U.S. Warehouse Act, a voluntary licensing program. The rewrite is an effort to create a more uniform nationwide policy for producers who deal with federally licensed warehouses.

In the process, the USDA is claiming “exclusive authority over any warehouse licensed under the U.S. Warehouse Act,” said Bert Ferrish, deputy administrator of commodity operations for the USDA’s Farm Service Agency.

“What that means is that a warehouse cannot be dually regulated by both state and federal authorities,” Ferrish said.

Approximately 520 companies are federally licensed. These sites total nearly 4 billion bushels of commercial storage space – nearly 50 percent of total U.S. commercial grain storage.

Like Indiana, Ohio law requires federally licensed grain merchandisers and warehouses operating in the state to also hold a state license.

Indemnity fund. One of the main concerns, particularly in states like Ohio and Indiana that maintain grain indemnity funds, is whether there’s adequate protection for producers in the event of an insolvency at a federally licensed facility.

Since 2000, there have been eight federal licensee failures. In lieu of an indemnity program, the USDA has been held liable for contractual losses in some cases.

“If a producer had grain sold to a warehouse company, and the warehouse failed and was unable to pay the producer, then we’ve been held liable under the act to indemnify that producer,” USDA’s Ferrish said.

The department is revamping the warehouse act to include an industry-funded indemnity fund.

Indiana’s John Steinhart said it’s too early to tell whether that fund will offer adequate protection, because the USDA’s announcement didn’t include program details on cost and oversight.

“Regulatory programs are only as good as the oversight that program has,” Steinhart said. “If you don’t have oversight of those facilities, the program isn’t going to be very effective.”

State protection. That indemnity protection is important. Just ask the 49 claimants who recovered nearly $821,000 in the aftermath of a 2001 insolvency at Hartzler Feed and Seed in Rittman, Ohio. Another three claims seeking an additional $87,600 are still pending, Schleich said.

In the event of an Ohio state-licensed elevator insolvency, grain depositors are reimbursed 100 percent by the state for any grain stored in the elevator.

Delayed price and basis transactions are reimbursed 100 percent of the first $10,000 of the loss and 80 percent of the remainder.

The money comes from a fund created through a half-cent-per-bushel assessment on grain marketed at licensed elevators in Ohio and collected only from July 1, 1983, to Dec. 31, 1985. The assessment is collected only if the fund falls below $4 million.

Indiana joined ranks. Indiana saw the light when 550 farmers lost $5.5 million after Merchants Grain Inc., a St. Louis-based company with elevators in six states, went bankrupt in 1990-91. Ohio producers were protected and paid after the Ohio Department of Agriculture worked quickly to seize assets to pay Ohio farmers with grain on deposit.

Indiana created its grain indemnity program in 1995, funded through a producer assessment collected from July 1, 1996 until July 1, 1998. Since 1995, it has paid $1.5 million to producers.

Ohio’s neighbor to the east, Pennsylvania, has no indemnity fund protecting grain depositors.

Other concerns. The National Association of State Departments of Agriculture created a warehouse task force last year to comment on various parts of the USDA’s proposed changes.

In a briefing with the USDA last week, association members raised questions about states’ ability to regulate grain merchandising and how state indemnity programs would be affected.

The task force members also questioned coverage levels for credit contracts. In the event of an insolvency, depositors have 100 percent coverage for stored obligations, and 80 percent coverage for noncredit type sales contracts where grain has been delivered, but payment not received.

For producers with credit type sales contracts, where grain has been delivered but payment has not been received, 80 percent coverage on the first $25,000 and 50 percent coverage on the balance.

The state departments of agriculture are also questioning why changes were made in licensing agreements and not through rulemaking.

“It can be changed with the stroke of a pen,” Steinhart said.


related article:

Protect yourself

COLUMBUS – Regardless of what authority holds the license, farmers can protect themselves, according to Ohio Department of Agriculture’s David Schleich.

* Look for a valid license.

* Double check your scale ticket.

* File that scale ticket: It’s proof of grain delivery!

* Know what you have deposited and where.

“You’ve got to help us help you,” Schleich said. “Farmers need to keep track of their records.”

If producers are in doubt of any elevator’s status, they should call the Ohio Department of Agriculture at 1-800-282-1958.

“We get paid to talk to you.”


Related links

National Association of State Departments of Agriculture warehouse task force:

www.nasda.org/nasda/nasda/Legislative_Regulatory/WarehouseTaskForce/warehouse_index.htm

Ohio Department of Agriculture listing of licensed grain handlers:

www.state.oh.us/agr/Plant%20Industry/grainlicenseerevised%20012103.html

USDA’s U.S. Warehouse Act FAQ

www.usda.gov/news/releases/2003/02/qa0047.htm

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