Making Sure You Get Paid - PulsePoint
December 17, 2018
A refresher on who guarantees payment for grain, and for how long
by Richard Kamchen, Country Guide
Reprinted with permission
Grain producers protect the investment they've planted, fertilized, watched grow, harvested and taken the pains to safely store, but it’s the Canada Grain Act that’s supposed to ensure financial protection from buyers that go bust or act unscrupulously. Farmers have never had to worry about payment from the large elevator companies which have historically dominated the grain business, but recent changes to the marketing system have prompted the entrance of new players such as grain brokers. So it’s worthwhile reviewing the basics — which companies protect you and for how long, and could there be a better system?
The Canada Grain Act requires that licensed primary and process elevators and grain dealers provide security, through a bond, letter of credit, cash deposit or payables insurance to the Canadian Grain Commission (CGC) to cover their potential liabilities to grain producers.
Farmers widely believe that they ultimately pay for payment protection, with grain companies passing on the cost of tendering security through handling or elevation fees.
Farmers can submit a claim for compensation through the Payment Protection Program when licensed buyers can’t or won’t pay for their deliveries.
The security licensed buyers provide is divided among producers who are owed. That security, however, may be less than the total of eligible claims, meaning farmers may not receive 100 per cent compensation.
“To date, the historical payout is 91.23 per cent over the history of the program,” says CGC spokesman Rémi Gosselin.
That total includes the 15 per cent payout from Melfort, Saskatchewan’s Naber Specialty Grains, he notes. That firm went into receivership in June 2015.
How Long You’re Protected
Farmers not paid after delivering to a licensed company can make a compensation claim within 90 days from the date of their delivery. They won’t be covered if they wait beyond 90 days to exchange their elevator or grain receipt for a cash purchase ticket or cheque. Once
producers receive a cash purchase ticket or cheque, they’re covered by the licensed company’s security for the lesser of two dates: 30 days from the date the ticket or cheque was issued, or 90 days from the grain delivery date.
In the case of post-dated cheques, farmers are only covered for 30 days from the date the cheque was issued, no matter the date on the cheque.
Grain buyers not licensed by the CGC are either exempted from licensing, outside the jurisdiction of the Canada Grain Act, or in violation of the act. Unlicensed firms provide no security, and payment protection doesn’t apply to them. The CGC can’t help producers resolve disputes with such companies.
Those exempted from licensing include those not purchasing directly from producers, and can include distilleries and agents acting on behalf of licensed companies.
Exemptions also extend in cases in which licensing isn’t required to maintain the quality, safekeeping, and orderly, efficient handling of Canadian grain. One of these includes feed mills, although their exempt status has been challenged.
Buyers outside the jurisdiction of the act, who therefore may not be licensed, include feed lots and hog barns.
Cash Grain Brokers
Some farmers are using cash grain brokers as part of their grain marketing plan, but they should note that brokers need not be licensed.
“A broker who acts as a middleman between buyer and seller does not need to be licensed because they don’t buy grain from producers,” says Gosselin. Some, however, are licensed.
“It all depends on if they are paying the producer and contracting with the producer,” Gosselin explains. “If they are doing that, then they are a grain dealer and licensed as such.”