Wis. Stat. § ch. 126 establishes a maximum balance for grain dealers. Without this proposed change, the Department anticipates the grain dealer balance will exceed that maximum balance in the near future. Additionally, the actuarial study indicated that, while the overall Fund was sustainable long-term, adjustments may be needed to assessments or individual Fund balance thresholds to provide more equity across all industry segments.
Alternatives. The Department must take some action to meet its statutory obligation with regard to the Fund balance attributable to vegetable contractors and grain dealers. A permanent solution must be reached or the Fund will not be able to meet its statutory obligation of default protection as dictated by Wis. Stat. § ch. 126. While awaiting the results of the actuarial study, the Department issued emergency rules for all three affected industries. The final one will lapse in February 2018. Due to the length of an administrative rule process, the Department may yet seek emergency rules in the interim.
Rule Content
General
This proposed rule does all of the following:
• Creates an automatic reduction in the Fund assessments paid by grain dealers when the grain dealer portion of the Fund exceeds the statutory maximum.
• Reduces assessments paid by milk contractors by 20 percent by adding a multiplier.
• Increases the Fund assessment paid by vegetable contractors.
• Restores the Fund to meet its statutory obligation.
Summary of, and Comparison with, Existing or Proposed Federal Statutes and Regulations
ATCP 99 - Grain
The United States Warehouse Act is a voluntary regulatory program administered by Farm Service Agency (“FSA”), a unit within USDA. Under the Act, warehouse keepers who obtain a warehouse license must comply with several FSA regulations. Generally, the warehouse keeper must maintain enough grain in inventory to cover 100% of depositor obligations at all times. Further, FSA licensed warehouse keepers must submit financial statements, submit to inspections by USDA auditors, and post surety bonds. In the event a warehouse defaults, FSA can convert the bonds to cash and disperse the proceeds to depositors. The federal grain warehouse license is officially a voluntary program; in practice, it is not completely voluntary. Every state that has significant grain production (including Wisconsin) has some type of state grain warehousing law. These laws require grain warehouse keepers to obtain a license but allow them to choose either a state license or a federal license. Those that choose a federal license are exempt from the state licensing program.
ATCP 100 - Milk
No federal programs currently exist that offer milk producer security from contractor payment defaults.
ATCP 101 - Vegetable
The Perishable Agricultural Commodities Act (“PACA”) is a federal program that provides some protections for vegetables. This program consists of a priority lien against vegetable-related assets and is applicable to fresh vegetables based on a complex set of variables and circumstances. Wisconsin’s vegetable security program applies only to processing vegetables. Wisconsin’s program uses an indemnity fund, rather than a priority lien-type program.
There may be some limited overlap between the Wisconsin and federal programs, but that overlap is justified because the scope of federal coverage is not entirely clear. Overlap was reduced by Wisconsin legislation, which permits certain potato buyers covered under the federal program to opt out of most of the state program.
Comparison with Rules in Adjacent States
ATCP 99 - Grain
Like all states with a significant grain industry, Minnesota, Michigan, Illinois, Indiana, and Iowa all require persons who buy grain from producers to obtain a grain dealer license, and all persons who store grain for others are required to obtain either a state or federal grain warehouse license. Licensees must file financial statements with the state, and the warehouses must maintain 100% of depositor-owned grain in inventory at all times.
Minnesota requires grain dealers and grain warehouse keepers to post bonds with the state. Indiana, Illinois, and Iowa all have a state indemnity fund that is made up of grain dealer and warehouse assessments. Michigan (like Wisconsin) has a combination of bonds and indemnity fund contributions.
ATCP 100 - Milk
Minnesota requires any wholesale dealer or food processor who contracts with other Minnesota dealers or farmers of milk, cream, or products made from milk or cream, to be licensed as a Wholesale Produce Dealer. Dealers are required to obtain a surety bond and required to maintain trust assets so that assets are freely available to satisfy outstanding obligations. There is no exemption to this requirement.
Michigan requires producer security for all manufacturing and Grade A dairy plants that are a first receiving point for raw milk that will be processed at that facility. Security can be in one or more of several forms including bond, letter of credit, certificate of deposit, or pre-payment. There is no exemption to this requirement.
Illinois, Indiana, and Iowa do not require dairy producer security.
ATCP 101 - Vegetable
Minnesota requires any wholesale dealer or food processor who contracts with other Minnesota dealers for fresh fruits or vegetables to be licensed as a Wholesale Produce Dealer. Dealers are required to obtain a surety bond and required to maintain trust assets so that assets are freely available to satisfy outstanding obligations.
Illinois, Iowa, Michigan, and Indiana lack similar programs.
Summary of Factual Data and Analytical Methodologies
As a result of a large default, the Department and the Council identified the need to evaluate the entire agricultural producer security program. An actuarial study was conducted to, in part, examine the overall sustainability of the Fund and analyze the equitability of assessments contributed by each industry relative to anticipated losses. The Department adopted a number of interim emergency rules as a stopgap measure while it awaited the results of an actuarial study to consider possible permanent rule changes. In December 2015, the Department received the study of the Fund and began working with the Council to develop recommendations for permanent changes in the agricultural producer security program. These proposed rule changes reflect that joint effort.
Producer Security Fund; Assessment Revenues
The following table shows projected assessment revenues for FY 2019-20 (with and without the changes in this proposed rule):
Total Projected Fund Assessment Revenues |
| FY 2019-20* Without this rule | FY 2019-20* With this rule | Difference |
Grain Dealers | $ 974,000 | $ 256,000 | $ (718,000) |
Grain Warehouse Keepers | 38,000 | 38,000 | 0 |
Milk Contractors | 1,095,000 | 859,000 | (236,000) |
Vegetable Contractors | 24,000 | 254,000 | 230,000 |
TOTAL | $ 2,131,000 | $ 1,407,000 | $ (724,000) |
* Projection assumes constant procurement volumes, commodity price levels and contractor financial strength.
Without this rule, the Department projects that the fund balance will grow to $10,552,000 at the end of FY 2019-20. With this rule, the Department projects that the fund balance will grow to $9,562,000 by the end of FY 2019-20. Under this rule, the fund balance amount attributable to vegetable contractor will build over several years toward the required statutory minimum (it currently falls short of the required minimum).
| Minimum Statutory Balance | Actual Balance as of June 30, 2016 | Maximum Statutory Balance |
Grain Dealers | $ 1,000,000 | $ 5,546,281.97 | $ 6,000,000 |
Grain Warehouse Keepers | $ 200,000 | $ 46,432.94 | $ 1,000,000 |
Milk Contractors | $ 3,000,000 | $ 6,132,665.50 | $ 12,000,000 |
Vegetable Contractors | $ 800,000 | ($ 4,707,617.97) | $ 3,000,000 |
Entire Fund | $ 5,000,000 | $ 7,017,762.44 | $ 22,000,000 |
Analysis and Supporting Documents used to Determine Effect on Small Business
Members of the Agricultural Producer Security Council (“Council”), as defined in Wis. Stat. § 15.137 (1), have worked with the Department in crafting certain rule changes following the 2015 actuarial study. Members represent the following: the Farmers' Educational and Cooperative Union of America, Wisconsin Division; the Midwest Food Processors Association, Inc.; the National Farmers' Organization, Inc.; the Wisconsin Agri-Business Association, Inc.; the Wisconsin Cheese Makers Association; the Wisconsin Corn Growers Association, Inc., the Wisconsin Soybean Association, Inc.; the Wisconsin Dairy Products Association, Inc.; the Wisconsin Farm Bureau Federation; Cooperative Network; and the Wisconsin Potato and Vegetable Growers Association, Inc. Effect on Small Business
This rule will have a positive impact on grain dealers by automatically reducing assessments whenever the grain dealer portion of the Fund balance exceeds its statutory maximum. The rule also reduces deferred payment contract assessments whenever the grain dealer portion of the Fund balance exceeds its statutory maximum.
This rule will have a positive impact on milk contractors by reducing their assessments by 20 percent. The Fund will continue to grow but at a slower pace thus ensuring that they pay a fairer share of the cost of the program.
This rule will increase vegetable contractor fund assessments by 0.2% of their contract obligations to producers. By spreading the increase to achieve the statutory minimum over 18 years, this should have minimal impacts on the vegetable contractors.
DATCP Contact
David A. Woldseth
