Ending bond security requirements for licensed grain companies will harm farmers, says NFU

(Nov. 6, 2013, Saskatoon) –   The National Farmers Union (NFU) is recommending against new regulations that would replace the current bond security system that protects farmers in the event of non-payment by licensed grain companies. There are numerous implications to the proposed credit insurance system, which the National Farmers Union has outlined in comments submitted to the Canadian Grain Commission (CGC).

The 2012 federal budget directed the CGC to introduce mandatory credit insurance to replace the long-standing bond security system. Under the proposed new regulations all licensed grain companies must have credit insurance. The CGC has engaged Atradius, a multinational insurance company based in Europe to provide the insurance. Maximum payouts for farmers will be reduced to 95% of the value of the grain delivered but not paid for.

“The shift to credit insurance puts valuable information and power into the hands of a foreign corporation instead of our own public agency,” said Terry Boehm, NFU President. “With this change, the federal government is, in effect, handing important regulatory oversight of transactions in the Canadian grain sector to a private company with zero accountability to Canadians. To assess premium rates Atradius will require a significant amount of information about every licensed grain company’s financial affairs and will have the de facto power to deny a grain company’s license by refusing to insure it. The insurance company is accountable to its shareholders – it works for them, not for Canadian grain farmers. ”

“Farmers, as well as Canadians in general, have been very well served by the bond security system which has been in place for decades,” Boehm continued. “The CGC monitored licensed grain company liabilities monthly, requiring each to maintain adequate security in the form of a bond or similar instrument, and taking proactive steps if a company was faltering. The CGC, mandated to act in the interests of Canadian grain farmers, would ensure there was enough money available to pay farmers if the company went under. But more importantly, it would have a clear idea of – or be able to investigate – the causes of company failures and take action to prevent future problems. That ability will disappear under the insurance system.”

“In the very few cases where farmer payouts have been necessary, the bond system has provided most farmers 100% of what they were owed. Only two company failures in more than a decade have resulted in payouts of less than 95%,” Boehm noted. “The government’s regulatory impact analysis attempts to justify the shift to insurance by overstating gaps due to the reporting cycle – problems that could easily be fixed by requiring weekly instead of monthly reporting.”

The NFU recommends that the current bond security system be maintained with more frequent reporting. If the insurance system is nevertheless adopted, the NFU’s recommendations include that farmers be paid 100% of what they are owed rather than the 95 % the government is proposing, that terminal elevators be included, and that time limits for making claims be extended.

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For more information:

Terry Boehm, NFU President : Phone (306) 255-2880 or  (306) 255-7638

NFU Submission: Comments on Regulations Amending Canada Grain Act Regulations regarding producer payment protection