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Published July 02, 2012, 02:02 PM

PSC candidate wants $10 million indemnity fund

Brad Crabtree, the Democratic nominee for the North Dakota Public Service Commission, wants the Legislature to restore the state indemnity fund for price-later contracts to $10 million in order to protect farmers in elevator insolvencies.

By: Mikkel Pates, Agweek

Bismarck, N.D .— Brad Crabtree, the Democratic nominee for the North Dakota Public Service Commission, wants the Legislature to restore the state indemnity fund for price-later contracts to $10 million in order to protect farmers in elevator insolvencies.

In a Bismarck, N.D., news conference on July 2, Crabtree said he’d also work to establish a task force to help determine how best to protect farmers who have pre-paid for farm inputs and lose investments when suppliers become insolvent. A recent case involving large amounts of pre-pay obligations drew attention during the insolvency at the Falkirk (N.D.) Farmers Elevator.

Crabtree says the significant losses suffered by individual farmers at Falkirk and in other recent grain elevator insolvencies underscore the need for the Legislature and North Dakota Public Service Commission to do more to protect agricultural producers in the state.

The PSC oversees licensing and bonding of the state’s 400 grain elevators, as well as the Credit-Sale Contract Indemnity Fund that compensates producers for losses when an elevator goes insolvent. Credit-sale contracts are actually an unsecured loan, in which farmers deliver to elevators, and often establish the price and receive a payment at a later date.

According to a PSC survey in 2008, 10 elevators had market exposure of $10 million or more and that number has likely grown this summer.

Crabtree faces State Sen. Randy Christmann, R-Hazen, in the general election in November. He criticized Christmann for voting in 2007 to reduce the cap level on the Indemnity Fund from $10 million to $6 million, increasing risks to farmers and potentially to taxpayers.

During the news conference, Crabtree was joined by Mike Clemens of Wimbledon, N.D., former president of the National Sunflower Association and a current national leader in the National Corn Growers Association.

Clemens was one of the farmers burned in the Wimbledon Grain Co. insolvency in January 2002. He and State Rep. Phil Mueller, D-Wimbledon, pushed for the fund’s establishment and were strongly opposed to reducing it at the time.

A member of the Senate since 1994 and assistant majority leader since 2000, Christmann says the move to reduce the fund started in the House, and one of the concerns was whether it would be a pool of money that legislators would attempt to use for funding something else.

With various insolvencies under way, Christmann says it will become apparent whether the $6 million fund level is inadequate.

He called Crabtree’s suggestion to restore the fund “political grandstanding,” as it came just days after a liquidation auction at Falkirk. Falkirk, so far, has not refused to pay for or redeliver grain, and is not technically insolvent, so the indemnity fund is unavailable.

Christmann says he is a customer at the Falkirk/Hazen company, although he was not a pre-pay customer.

Challenges

Not everybody who deals in grain deals in chemicals. Similarly, part of the challenge is to ensure fairness for people who sell high-value seed grain to the elevator.

Clemens says the original $10 million was appropriate. He says the PSC survey showed one or two elevators in the state had a market exposure of $10 million at one time. He says perhaps 15 to 20 elevators in the state today would have exposure of $25 million.

A cost of two-tenths of 1 percent of price-later contracts is not burdensome, he adds. A similar fund is necessary if farmers become unsecured creditors at the bottom of the pick list when elevators go bust, he says.

Crabtree points out that the cost is just one penny for every $5 of grain delivered, and likened it to car insurance. He says new protections may be needed for pre-pay agreements for seed, fertilizer and chemicals that are not covered by the current Indemnity Fund. Crabtree noted that current policy leaves producers in the Falkirk Elevators insolvency as unsecured creditors at the end of the line for compensation.

Task force

Crabtree calls for a “task force of producers, farm and commodity groups and representatives of grain elevators to review options for greater financial disclosure, increased elevator bonding and an expanded Indemnity Fund, and to recommend legislation to reduce future cash sale and pre-pay losses to farmers.”

Christmann agrees, but wonders whether the PSC is the appropriate place for new protections. “It’s almost a banking or insurance kind of thing,” he says.

Crabtree says four insolvencies and potential farmer losses indicate a “failure of leadership on the part of PSC Commissioners Kevin Cramer and Brian Kalk and the Legislature to anticipate and respond to mounting financial risks to farmers’ livelihoods.” Christmann says he disagrees that the current PSC has been irresponsible and says he doesn’t regret reducing the fund level.

In South Dakota, Republican members of the public utilities commission, which oversees elevators in that state, announced they’d formally recommend that the South Dakota Legislature increase the frequency of financial reporting by grain buyers, and increase the penalties for failing to notify the PUC when a company falls to meet its license requirements. Two of the commissioners are candidates for re-election. Democratic opponents have criticized them for failing to protect those affected in cases like the Anderson Seed Co. insolvency at Redfield, S.D., which also involves North Dakota and Minnesota farmers.