DATCP Docket No. 16-R-06 Final Draft Rule
Rules Clearinghouse No. 17-047 October 9, 2019
ORDER OF THE WISCONSIN DEPARTMENT OF AGRICULTURE,
TRADE AND CONSUMER PROTECTION
The Wisconsin department of agriculture, trade and consumer protection proposes the following rule to amend ch. ATCP 99.126 (2), ATCP 100.135 (1), and ATCP 101.245; and to repeal and recreate ch. ATCP 99.126 (3); relating to grain dealers and grain warehouse keepers; milk contractors; and vegetable contractors.
Analysis Prepared by the Department
of Agriculture, Trade and Consumer Protection
This proposed rule would modify Wis. Admin. Code ch. ATCP 101 to increase vegetable contractor assessments, as required by statute, to address the portion of the Agricultural Producer Security Fund (Fund) that is currently below its minimum threshold. This proposed rule will also amend portions of ch. ATCP 99, Wis. Admin. Code, and ch. ATCP 100, Wis. Admin. Code based on findings from a recent actuarial study of the Fund and discussions with the Agricultural Producer Security Council (Council).
Statutory Authority: ss. 25.463 and 126.81 (1) (a) Wis. Stats.
Explanation of Statutory Authority
Wis. Stat. § 25.463 creates the Wisconsin Agricultural Producer Security Trust Fund. Wis. Stat. § 126.46 (1) directs Department to specify by rule annual fund assessments for milk contractors. Wis. Stat. § 126.81 (1) (a) allows Department to promulgate rules to interpret and implement Wis. Stat. ch. 126. Wis. Stat. § 126.88 (2) (a) directs the Department to promulgate a rule modifying assessments when the fund balance or a portion of the fund balance falls below the minimum amounts or rises above the maximum amounts required under Wis. Stats. § 126.88 (1) (a) through (e).
Related Statutes and Rules
Wis. Stat. § 15.137 (1) defines the membership of the Council, who advise the Department on the Fund and other producer security matters.
Plain Language Analysis
The Fund, established by Wis. Stat. § 25.463, is a public trust administered by the Department. Milk contractors, grain dealers, grain warehouse keepers, and vegetable contractors (collectively known as contractors) must purchase a license to obtain milk, grain, and vegetables, respectively, from producers, and most contractors are required to contribute to the Fund annually. Funds are used to settle claims by producers in the event that a contractor defaults on a payment. Funds from each industry are accounted for separately and then deposited into the overall fund. Wis. Stat. Chapter 126 establishes detailed fund assessment requirements, except that it requires the Department to establish milk contractor fund assessments by rule. Wis. Stat. ch. 126.88 (1) sets minimum and maximum fund balances for each industry, as well as a minimum and maximum balance requirement for the overall fund.
Generally, assessment rates are calculated using a complex formula that is based on the contractor’s current ratio and debt-to-equity ratio. The assessment rate is higher for contractors with weaker financial positions. The assessment rate for contractors that are not required to file a financial statement is a fixed rate based on the number of years the contractor contributed to the Fund. The Department calculates the annual assessment at the beginning of each license year.
Under current law, license fees must be paid to obtain a license. Whereas assessment rates are partially based on the amount of risk a given licensee poses, license fees are based simply on the overall purchases (or storage capacity) of the licensee.
In 2014, a default by Allens Inc. caused the Fund to pay vegetable producers more than $6 million. The resultant impact of this default is that the Fund balance attributed to vegetable contractors fell well below the minimum statutory threshold of $800,000. The following year, a $1 million default in the milk industry further drew down the Fund balance. As a result, 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 stopgap measures while it awaited the results of an actuarial study to consider possible permanent rule changes. In December 2015, the Department received the study and began working with the Council to develop recommendations for permanent changes to the agricultural producer security program.
Proposed policies. The Department is statutorily required to initiate rulemaking to modify vegetable contractor assessments as a result of its portion of the Fund balance being below its statutory threshold. Conversely, without a significant increase, the vegetable contractor portion of the Fund balance will remain negative for the foreseeable future.
Wis. Stat. Chapter 126 establishes a maximum balance for grain dealers. As of May 31, 2017, the grain dealer balance has reached the statutory maximum balance of $6 million and the Department is required to initiate rulemaking to reduce grain dealer assessments.1 1After the final draft of this rule was approved by the DATCP Board, 2017 Wisconsin Act 155 combined the Fund statutory thresholds for grain dealers and grain warehouse keepers to a $1.2 million minimum and a $7 million maximum. The Department intends to preserve the individual grain dealer threshold of $6 million to qualify for an assessment reduction.
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.
Policy 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. Chapter 126.