ATCP 99 - Grain
The United States Warehouse Act is a voluntary regulatory program administered by Farm Service Agency (FSA), a unit within USDA. Under this 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 security to milk producers in the event of payment defaults.
Comparison with Rules in Adjacent States
ATCP 99 - Grain
Like all states with a significant grain industry, Minnesota, Michigan, Illinois, Indiana, and Iowa 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) employs 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 are no exceptions to this requirement. Dealers are not prohibited from entering into contracts with milk producers that have extended payment terms.
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 are no exceptions to this requirement. Dairy plants are not prohibited from entering into contracts with milk producers that have extended payment terms.
Illinois, Indiana, and Iowa do not require dairy producer security.
Summary of Factual Data and Analytical Methodologies
The proposed rule changes, along with statutory changes reflected in Act 155, were prompted by recommendations made by the Agricultural Producer Security Council. DATCP consulted with the Council during the development of this proposed rule. The Council approved the content of the rule at its June 25, 2018 meeting.
ATCP 99 – Grain
As of April 30, 2018, the Fund balance attributable to grain dealers is approximately $6,758,000, which exceeded the previous maximum threshold by $758,000. The Fund balance attributable to grain warehouse keepers is approximately $256,000, which is just above the previous minimum. The combined balance of approximately $7,014,000 is over the new statutory maximum of $7 million and almost entirely a result of the grain dealer portion of the Fund.
Pre-Act 155 Balances
| Minimum Statutory Balance | Actual Balance as of 3/31/18 201820187 | Maximum Statutory Balance |
Grain Dealers | $ 1,000,000 | $ 6,788,914.73 | $ 6,000,000 |
Grain Warehouse Keepers | $ 200,000 | $ 283,878.32 | $ 1,000,000 |
Milk Contractors | $ 3,000,000 | $ 6,579,940.89 | $ 12,000,000 |
Vegetable Contractors | $ 800,000 | ($ 4,296,714.61) | $ 3,000,000 |
Entire Fund | $ 5,000,000 | $ 9,356,019.33 | $ 22,000,000 |
Act 155 Implementation Balances
| Minimum Statutory Balance | Actual Balance as of 3/31/18 | Maximum Statutory Balance |
Grain Dealers and Warehousehouse Keepers | $ 1,200,000 | $ 7,072,793.05 | $ 7,000,000 |
Milk Contractors | $ 3,000,000 | $ 6,579,940.89 | $ 12,000,000 |
Vegetable Contractors | $ 800,000 | ($ 4,296,714.61) | $ 3,000,000 |
Entire Fund | $ 5,000,000 | $ 9,356,019.33 | $ 22,000,000 |
By the time Act 155 became law, the grain dealer portion of the Fund had already exceeded its individual statutory maximum of $6 million. As a result, DATCP enacted an emergency rule and a proposed permanent rule to lower assessments until that portion of the fund fell back below $6 million.
The Fund balance attributable to grain warehouse keepers is approximately $256,000 and is expected to grow by approximately $50,000 each year, and therefore, is not projected to reach the proposed assessment exemption threshold of $500,000 for about another five years and would not reach the proposed automatic assessment reduction threshold of $1 million for about another 15 years. To ensure that the grain warehouse keeper program assessments are equitable and proportionate to their respective exposure, this rule proposes that a reduction in assessments will not be implemented for grain warehouse keepers until the Fund balance attributable to grain warehouse keepers exceeds $1 million.
ATCP 100 – Milk
Act 155 allows a portion of producers’ milk checks to be deferred beyond the current statutory requirement. Previously, milk contractors were required to pay producers by the 4th and 19th of each month for the prior month’s milk. The Act requires DATCP to establish a milk contractor deferred payment assessment rate to be applied to deferred payment contracts to cover the additional risk they pose to producers and the Fund. Similar provisions are already in place for the grain industry and were considered while developing the milk deferred payment assessment rate.
Like the new deferred payment contract provisions for milk contractors, the grain dealer program permits grain dealers to enter in to contracts with grain producers to defer payments for up to 120 days. The deferred payment assessment rate applied to these contracts in the grain program is 0.0035. Deferred payments in the milk program pose a similar risk; therefore, DATCP proposes to use the same deferred payment assessment rate of 0.0035 for milk contractors. That is to say, $100,000 of deferred milk payments would equal a $350 deferred payment assessment.
The amount of increased revenue is unknown and will depend on the amount of milk paid for under deferred payment contracts.
Analysis and Supporting Documents used to Determine Effect on Small Business
Members of the Agricultural Producer Security Council, an advisory council as defined in Wis. Stat. § 15.137 (1), worked with the Department to craft Act 155 and the proposed changes to Wisconsin Administrative Code. Members represent the following: 15.137(1)(a)1.the Farmers' Educational and Cooperative Union of America, Wisconsin Division;15.137(1)(a)2. the Midwest Food Processors Association, Inc.; 15.137(1)(a)3.the National Farmers' Organization, Inc.; 15.137(1)(a)4.the Wisconsin Agri-Business Association, Inc.;15.137(1)(a)5. the Wisconsin Cheese Makers Association;15.137(1)(a)6. the Wisconsin Corn Growers Association, Inc., the Wisconsin Soybean Association, Inc.;15.137(1)(a)7. the Wisconsin Dairy Products Association, Inc.;15.137(1)(a)8. the Wisconsin Farm Bureau Federation;15.137(1)(a)9. Cooperative Network; and 15.137(1)(a)10.the Wisconsin Potato and Vegetable Growers Association, Inc. Effect on Small Business
ATCP 99 - Grain
This rule will not have an immediate impact on grain warehouse keepers. Prior to Act 155, warehouse keepers were not projected to receive an assessment exemption for about five years or an assessment reduction for about 15 years. This proposed rule does not change those projections. Nonetheless, these changes are necessary to harmonize ATCP 99 with statute.
ATCP 100 - Milk
This rule will establish a deferred payment assessment rate that will cover the additional risk posed to milk producers and the Fund associated with milk contractors deferring payments to milk producers for up to 120 days, as permitted by Act 155. Milk contractors entering into deferred payment contracts with producers will pay higher assessments; however, the statute allows these assessments to be passed on to the producers who requested their payments be deferred. Therefore, there will be no effect to milk contractors.
Because Act 155 permits, but does not require, milk contractors to offer deferred payment contracts, any effects will be the result of the decision of the contractor. Milk, grain, and vegetable producers are all protected against financial defaults by contractors who contribute to the overall Fund. All producers could potentially benefit from a higher Fund balance.
DATCP Contact
David A. Woldseth
Department of Agriculture, Trade and Consumer Protection
P.O. Box 8911
Madison, WI 53708-8911
(608) 224-5164
Section 1. ATCP 99.235 (2) is amended to read:
ATCP 99.126(2)(2) assessment amount.
ATCP 99.126(2)(a)(a) A contributing grain warehouse keeper who operates grain warehouses with a combined capacity of less than 500,000 bushels shall pay an annual fund assessment equal to the greater of the following amounts: ATCP 99.126(2)(a)2. 2. If the fund balance attributable to grain warehouse keepers is less than $1 million on May 31 of the last preceding license year, then Tthe sum of the amounts calculated under s. 126.30 (1) (a) and (b), Stats., multiplied by 1.5. ATCP 99.126(2)(b) (b) A contributing grain warehouse keeper who reports at least 500,000 bushels shall pay an annual fund assessment equal to the greater of the following amounts:
