Ag Producer Security Workgroup Prepares Recommendations

By Joan Sanstadt, News Editor
Thursday, April 17, 2008 12:21 PM CDT

Members of the Special Work Group on Producer Security on April 8 wound up their recommendations for improving the security program.

The work group, chaired by Gary Rohde, was brought together to tackle the most difficult issues facing the Producer Security program.

Following the task laid down by Rod Nilsestuen, secretary of the Department of Agriculture, Trade and Consumer Protection (DATCP), the group considered every possible option n except that of not having a producer security program.

The Wisconsin Agricultural Producer Security Program, housed at and staffed by the DATCP, is overseen by the Agricultural Producer Security Council, chaired by Ron Statz.

The once separated security programs for milk, grain and vegetable producers had been combined into a single program with a single security fund prior to Sept. 11, 2001.

The intent of joining the programs into one was that it would be easier to purchase a security bond (for contingent financial backing) to cover payments to producers that would have to be made should a default occur in any of the three industries.

One of the effects of the Sept. 11 terrorist attacks was that no company was even remotely interested in issuing such a bond.

The fund, now at close to $9 million has grown through a combination of license fees and assessments on contractors that buy milk, vegetables and grain from producers and also on warehouse keepers, who store producers’ grain.

The far-ranging options considered by the work group, with assistance from DATCP staff, included once again dividing security coverage into separate plans for milk, grain and vegetables; the purchase of a trade credit insurance policy to help cover any default(s); as well as changes to the administrative rule and even to the statute, if necessary.

One thing everyone n staff and work group n agreed upon was that “producers have been promised more coverage than is currently available.” In reality, most producers of these commodities do not know how the producer security program works or how or who pays for it. What producers likely believe is that if a default were to occur involving their milk contractor, vegetable or grain contractor n they would receive 100 percent reimbursement.

That was never the case n and probably not too many producers recall that those who shipped milk to Kasson in the late 1980s were not reimbursed by the security program n but instead received payment because of an act of the legislature. And that didn’t happen overnight n it required approval from the Wisconsin Claims Board and even then, producers received only about 50-cents on the dollar.

Since Kasson there have been defaults of a much lesser magnitude n and, more importantly, defaults have been PREVENTED due to the vigilance and hands-on help from DATCP staff to avert a possible default.

Recommendations

The work group agreed on a number of recommendations that will still need to be approved by the Ag Producer Security Council at its April 28 meeting before being forwarded to Nilsestuen.

Here is a list of most of the approved recommendations:

- Purchase of a trade credit insurance policy, with a good share of the premium to be paid by interest earned on the almost $9 million security fund. This policy is to become effective no later than July 1, 2008;

- Limiting coverage for deferred payment contracts in the grain industry;

- Increase minimum assessments so that no contractor is paying only the $20 license fee for what amounts to potentially millions of collars in coverage;

- Limiting the amount of the security fund’s growth by providing for assessment holidays n but only as long as adequate coverage for producers remains;

- Establishing a defined mechanism for replenishing the fund in the event of a large default (that would draw not only on the trade credit insurance policy but also from the fund);

- Reduce costs by eliminating 1.67 positions at the DATCP (these positions are already vacant);

- Work with partners in neighboring grain states to re-establish cooperative agreements with USDA for sharing audit work (thus reducing cost);

- Having each industry cover its own administrative fees, principally by license fees, not assessments;

- Modify the financial audit filing requirements so that only the largest companies that most likely need audits for other purposes need to file audited statements with DATCP;

- Modify to further cap assessments for milk contractors at the highest end of the scale;

- Reduce the security filing requirements for milk contractors with faster pay (to producers) schedules; and

- Continue ongoing efforts to identify efficiencies in the program.

Comments

Gary Rohde, former DATCP secretary and former dean of UW-River Falls College of Agriculture, served as chair of the committee at the request of Nilsestuen. (Nilsestuen had also tapped Rohde to chair the Livestock Siting Committee a few years ago.)

Rohde thanked members of the work group for their contributions to the discussion that involved complicated issues. He also thanked DATCP n namely Eric Hanson, section chief for the agricultural producer security program; Kevin LeRoy, analyst for the trade practices bureau; and Jeremy McPherson, director of the trade practices bureau, for their work.

“I think the program has been run very, very well,” Rohde said. “We have to be careful as we try and push toward spending fewer dollars, having fewer staff n that we don’t lose sight of the industry. This is a solid industry of milk contractors, grain contractors, grain warehouse keepers and vegetable contractors. I think we can say there has been good oversight in terms of this program. We’ve strengthened it at a time when we haven’t seen losses,” Rohde noted.

On behalf of Nilsestuen, Rohde also thanked Janet Jenkins, administrator of the division of trade and consumer protection, for her work. “This is a complicated program and I don’t want to pretend to have done more than scratch the surface. But the secretary wanted us to look at options to make producer security more relevant with current times,” Rohde continued.

The Agricultural Producer Security Council will review the recommendations at its next meeting on April 28.

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