Texas grain farmers have more than one election to consider this fall. After casting ballots in the Nov. 6 Presidential Election, grain farmers have an opportunity to vote in a mail-in referendum to decide on establishment of a grain indemnity fund.
If passed, the indemnity fund would protect grain producers from losses when delivered grain is not paid for. The vote is scheduled for Nov. 19 through Dec. 7.
The Texas State Legislature paved the way for the referendum in the last legislative session and created the Texas Grain Producers Indemnity Board and the indemnity fund program. The effort was initiated following several high profile grain elevator failures in which farmers lost hundreds of thousands of dollars.
Supporters of the referendum say the issues may seem a bit complicated, but boiled down to the basics the indemnity fund creates an insurance policy that protects grain farmers in the case of elevator or other grain buyer failure.
To provide a bit more detail on the fund, TGPIB has released a list of frequently asked questions, including:
What is the purpose of the Texas Grain Producers Indemnity Board and the indemnity fund program?
The Texas Grain Producers Indemnity Board (TGPIB) is the enactment of legislation (HB 1840) passed in 2011.
The TGPIB will establish an indemnity fund program to mitigate up to 90 percent of the financial losses suffered by producers of corn, sorghum, wheat and soybeans when a financial failure prevents grain buyers from paying for sold/contracted grain or delivering unsold grain.
Who are the TGPIB board members?
A nine-member board was appointed by Texas Agriculture Commissioner Todd Staples in Dec. 2011, and includes a representative from the Corn Producers Association of Texas, Texas Agricultural Cooperative Council, Texas Farm Bureau, Texas Grain and Feed Association, Texas Grain Sorghum Producers Association, Texas Soybean Association and Texas Wheat Producers Association. Also serving is a member with expertise in production agriculture financing and a representative with the non-warehouse grain buying industry.
Who is a grain buyer?
For the purpose of the Texas grain indemnity fund program, a grain buyer is:
- A person who buys cultivated corn, sorghum, wheat and/or soybeans from a producer;
- A person who buys seed corn, sorghum, wheat and/or soybeans from a producer;
- A person who stores unsold corn, sorghum, wheat and/or soybeans for a producer.
- The term includes a purchaser, seed dealer, warehouseman, processor or a commercial handler.
Who benefits from the program?
Producers of corn, sorghum, wheat and soybeans who market in Texas benefit directly from the indemnity program. Agricultural lenders, equipment dealers, suppliers, etc., that have a financial interest in the producer and/or their grain may see indirect benefits from the indemnity program.
Also, local and regional economies that would be harmed by the financial failure of a grain buyer will be beneficiaries of the protection afforded through the program.
What is it going to cost; what is the assessment rate?
The rules adopted by the TGPIB set an assessment range of 0.2 percent to 0.6 percent of the final sales price of the grain. The TGPIB will have the authority to adjust the assessment amount within the adopted range and the recommended fund balance annually.
Once the fund reaches an amount determined by the TGPIB as sufficient to cover the risk, a refund process will be initiated to refund assessments on a first in, first out basis.
Who pays the assessment and how is it collected?
The “first point of sale” grain buyer will collect the assessment when producers sell their grain, and remit to the TGPIB.
What about the administrative cost to the buyer for collecting the assessment?
Grain buyers will be compensated through an administration fee that will be set by the TGPIB for costs associated with collecting and remitting the assessment.
What if the grain buyer does not collect the assessment?
Producers must take responsibility to assure the assessment has been deducted.
Producers who sell to grain buyers who do not collect the assessment and remit it to the TGPIB are not eligible for indemnification of financial loss.
How much protection will my participation provide?
Indemnity rate is set a 90 percent. The TGPIB will establish a fund to mitigate up to 90 percent of the financial losses suffered by producers of corn, sorghum, wheat and soybeans when grain buyers fail to pay for grain.
How will the fund’s balance be determined?
The TGPIB annual budget will set the minimum fund balance necessary to cover all anticipated administrative and operating costs, as well as a reasonable estimate for indemnity claim payments.
Who controls the funds?
The fund is managed by the TGPIB. This money will not be a part of the Texas General Fund, and can only be used for the indemnity fund program.
How do I file a claim; what is the process?
If a producer suffers a loss he will submit/file a claim to the TGPIB along with documentation proving delivery of the grain and the loss incurred. The TGPIB will review the claims, and, upon validation of claim, the producer may receive up to 90 percent of the value of the grain.
All rights to any funds which may be recovered in a settlement relative to the loss, up to the indemnity paid to a producer, will be transferred to the TGPIB as a requirement in the settlement of the claim.
Can I get a refund?
Yes, but it may take some time. Annually, the TGPIB will review its budget for the next year and its current financial status and, based on that review, will determine whether or not to issue refund allotments based on prior years' producer assessment submissions. In any event, if the TGPIB has determined the TGPIB financial account is not sufficient to pay refund allotments and maintain a minimum fund balance, the TGPIB may not issue refund allotments.
If a producer files a refund request with the TGPIB, and the TGPIB determines refund allotments are not to be issued at the time of the request, the producer shall remain eligible to file an indemnity claim with the TGPIB.
What is the need for this program; aren’t producers already covered by the bond?
Warehouses are the only grain facilities required to carry a bond, which only applies to stored grain. Other grain buyers are not licensed by the TDA or any other agency and are not required to be bonded.
The current bond requirement for state-licensed warehouses is 10 cents per bushel of storage capacity with a maximum bond requirement of $500,000; federally-licensed warehouses must have a third-party surety bond based on the licensed capacity. The $500,000 bond, at today’s grain prices, does not provide adequate protection in the event of a financial failure.
Bonds only cover a warehouse’s stored grain. Bonds do notcover unpaid for, sold grain or contracted grain.
Why not purchase an insurance policy to cover this risk?
It’s not currently available. No entity now offers an insurance policy to cover the risk of loss of grain due to bankruptcy or theft of grain. Once the grain is delivered, an individual’s crop insurance coverage ends. Additionally, once the grain leaves a producer’s premises, his personal insurance is not applicable.
Will having this fund encourage producers to take more risks with less than reputable grain buyers?
Not necessarily. Producers are responsible for marketing their grain with a grain buyer that participates in the program if they are to be covered.
The program will only reimburse up to 90 percent of a covered loss. Producers will have a 10 percent reduction in their total claim, which should encourage the use of sound judgment in selecting which market they will use.
Is this just another tax?
No! The indemnity fund is designed to protect producers, and ensures they will be paid for their grain in the event of a financial failure of a grain buyer. There is also a provision for assessments to be returned to producers.
As a livestock producer, does this cost me money? And why should I support this program?
Producers of corn, sorghum, wheat and soybeans are the only ones that will pay the assessment, and they are the only ones afforded the protection of the program. This is a program where producers will build a fund to protect themselves in the event of a financial failure of a grain buyer.
Few grain farmers in Texas produce their crops without the protection of multi-peril crop insurance. Two consecutive years of drought have made it abundantly clear that crop insurance is a crucial part of a farmer’s risk management strategy.
But risk does not end at the farmgate. Once a grain producer delivers his crop, his crop insurance no longer covers losses.
And current bond requirements are inadequate to offer the kind of protection grain farmers need. Many have lost significant amounts of income over the past few years to bankruptcy and other calamities over which the producer had no control. The indemnity fund, according to supporters, is designed to protect farmers after the grain leaves the farm.
Grain producers may obtain mail-in ballots at Texas AgriLife Extension Service county offices or from the Texas Department of Agriculture.