CGC letter about Insurance-based model

[sumdumguy]

July 29, 2014- letter states that negotiations with Atradius Credit Insurance N.V. have ended. This producer payment protection model would not achieve the necessary objectives. Something about cost-effectiveness.

CGC will continue with the existing licensing program.

[gustgd]

Wheat Growers – yesterday, the Canadian Grain Commission (CGC) announced that it was discontinuing negotiations with Atradius Credit to establish an insurance-based payment security model to replace the bonding system now in place. The letter from the CGC is attached.

Below is a media release we have issued on the matter. The Wheat Growers will continue to explore options, including private transaction-based models, that might provide farmers with the opportunity to obtain better payment security at a reduced cost.

Blair Rutter
Executive Director
Western Canadian Wheat Growers Association

[gustgd]

Wheat Growers disappointed by CGC decision
on payment security model

The Western Canadian Wheat Growers Association is disappointed with yesterday’s announcement by the Canadian Grain Commission (CGC) that it has discontinued plans to implement an insurance-based model to secure grain payments to prairie farmers.

“While we respect the Commission’s decision, we had hoped an insurance-based system would have provided farmers with better coverage at a reduced cost,” says Levi Wood, President of the Wheat Growers. “We are surprised and disappointed the Commission was not able to successfully conclude negotiations on such a model.”

The Wheat Growers support the concept of an insurance model as a means to provide prairie farmers with better coverage and lower costs than now exists under the CGC bonding provisions. In the past, farmers have sometimes incurred substantial payment shortfalls in those cases where a buyer has gone into receivership or otherwise defaulted on amounts owing to farmers.

Under the proposed insurance-based model, farmers would have been guaranteed a minimum payment security of 95% on all grain deliveries. It was also expected that an insurance-based system would lower the overall costs incurred by the industry and ultimately borne by farmers.

The Wheat Growers also viewed an insurance-based model as a vehicle by which individual farmers would eventually be able to elect the amount of payment security coverage they wanted on their grain deliveries to each of their buyers. Such an option would have given every farmer the opportunity to obtain the payment coverage that best suited their needs.

The Wheat Growers will urge the Canadian Grain Commission to continue to explore insurance-based models as an alternative to the existing payment security system.

“Insurance-based models are currently in place in the private sector for deliveries to feedlots and U.S. buyers,” says Wood. “The Commission should consider whether any of these models could be adapted for use on deliveries to licensed grain buyers in Canada.”

For further comment, please contact:

Levi Wood
President

[hobbyfrmr]

I regard this as two steps backward. Western Canadian farmers are stuck with the old licence and bonding arrangement with the CGC.
People get what they deserve.

[TOM4CWB]

Gerrid,

One size does not fit all.

We need a flexible system as some buyers have massive Capital assets and CGC bonding is a very low cost system for a letter of credit as required backing. An Insurance based premiums system would mean a subsidy from High asset based buyers to Low Capital asset based buyers.

These Other grain dealers on the opposite side with few assets are better served with an insurance based system which is lower cost for them vs letter of Credit bonding.

We need many options to best serve growers with the least over all cost.

We actually have some insurance based coverage operational out here in Alberta that I know are operational and have been for over a year.

I am neither surprised nor disappointed that the Insurance-based model by itself has been rejected.

Complex issue with many years of work to get the coverage that best backs growers sales to industry.

Sincerely,
Tom Jackson

[sumdumguy]

Since 1994, this has been an issue for processors and brokers as well as farmers. Elwin Hermanson and the CGC know about the inadequacy of the current system.

I am surprised that some insurance company wouldn't jump at the chance to cover this industry.

I suppose receivables insurance is an option. I am sure have already checked out the cost of this coverage. Is it affordable? Would it serve the purpose ?

[TOM4CWB]

Marketmasters in Alberta was working with Atradius Credit Insurance N.V. with an insurance based program.

Not many growers signed up and were willing to pay for the insurance so it has been discontinued.

Atradius Credit Insurance N.V. is working on an insurance based program for future coverage. They were trying to have it ready for business this fall (2014) but it is a question whether the demand from growers will be strong enough to have it operational.

[Hopalong]

Agree there are problems with one size fits all.
Bigger risk with small buyer with no assets.
Interesting to see what happens with grain commission on grower-elevator delivery contacts and where things shake out.