A comparison of farmers’ options to protect themselves against payment defaults on grain deliveries isn’t seen to show any clear winner, according to Thursday’s Manitoba Co-operator.
“This report (“Evaluation of Producer Payment Security Programs”) is a good base to move forward in discussions with our members and government and other groups to make some changes or develop a new system,” said Rob Brunel, vice-president of Manitoba’s Keystone Agricultural Producers, one of the groups that commissioned the report.
The evaluation also shows the current security system administered by the Canadian Grain Commission (CGC), which the federal government wants to scrap, is a viable option, although it could be improved, Brunel, who farms at Ste. Rose du Lac, told the Co-operator’s Allan Dawson.
The report, prepared by Scott Wolfe Management for a number of farm groups, including pulse and canola growers and KAP, finds that “the grain-marketing environment may be at a point in time where producer payment security is most warranted,” alluding to increased price volatility and the worldwide credit crisis.
It also says any security program adopted must be mandatory. “Buyers will not voluntarily provide producer payment security,” the report said. “Mandatory participation would reduce the overall costs.”
The report also advises against a self-regulated system. “Third-party administration is important to a complex and diverse industry.”
Under current Canada Grain Act rules, licensed grain buyers must post security with the CGC to cover what farmers are owed for the grain they deliver.
The federal government spurred producer and commodity groups to review alternative models to secure payment when it introduced amendments which, among other changes, would end the CGC security system.
The government said it had seen the Grain Act’s bonding requirements as cost-prohibitive for new entrants in the grain business.
The government’s amendments were introduced in late 2007 and again in February this year after dying ahead of last October’s election. They were indefinitely stalled in April when the three opposition parties “hoisted” the government bill.
The report compares three other options to protect farmers: insurance, collecting money for a fund and a clearing house.
The report puts the cost of insurance at one cent to $10 a tonne; a fund, which is what farmers in Ontario have, could cost one cent to 20 cents a tonne, while the cost of using a clearing house could be 50 cents to $1 a tonne.
But according to the Co-operator, the report also warns that seeking the lowest-cost alternative may lead to “selective” use of producer payment risk management tools, thus placing farmers at significant risk of not being paid.