Midwestern states have varying protections for farmers against grain dealer bankruptcies

A fund that helps shield Iowa farmers from losses from bankruptcies of the companies that buy or store their grain is poised to tax their products for the first time in more than 30 years, which has prompted legislation that could overhaul the fund.

The state’s Grain Indemnity Fund has provided payouts to farmers since the 1980s if grain dealers or warehouses have failed to make good on their agreements with farmers. The fund pays 90% of their losses up to $300,000.

The fund was seeded at its start with a quarter-cent-per-bushel fee on initial corn and soybean transactions from 1986 to 1989. It’s available money has dwindled for the past decade and, with three recent grain buyer failures, has nearly depleted.

The fund is mandated to keep between $3 million and $8 million in its coffers. Because it has dropped below $3 million, it will reenact the per-bushel fee effective July 1, if nothing in the law changes.

There is pending legislation that would delay that fee until September. The bill is supported by the Iowa Department of Agriculture and Land Stewardship to allow grain buyers and warehouses sufficient time to prepare for the fee collection.

There is other legislation that would siphon money from the existing corn “checkoff” assessments — 1 cent per bushel that is used for market development, education and research — to replenish the fund instead. That change would also increase the Grain Indemnity Fund’s operating range from $8 million to $20 million.

What other Midwest states do

Midwestern states have tackled the issue of grain buyer and warehouse bankruptcies in two ways: Either they have established a fund to provide payments to farmers or they require companies to have insurance in the form of bonds to compensate farmers for their losses.

Minnesota is currently contemplating the establishment of a fund akin to Iowa’s and would seed it, at least in part, with state money. The fund would operate between $9 million and $15 million and in later years would be subsidized by a 0.2% fee on grain sales if necessary.

“We’ve heard from farmers and our grain advisory group that an indemnity fund is a necessity,” said Allen Sommerfeld, a spokesperson for the Minnesota Department of Agriculture. “It’s the best way to provide farmers a legitimate safety net when these failures happen, and the unfortunate reality is that we know they will happen in the future.”

Minnesota has relied on bonding requirements for grain dealers and warehouses that have fallen well short of making farmers whole when bankruptcies happen. In the past eight years, payouts from those bonds have covered between 8% and 17% of losses for farmers in regard to failed grain buyers, Sommerfeld said.

“The bond disbursement process is also very lengthy due to the amount of litigation that surrounds many grain facility closures, and claimants have waited years to receive payouts,” he said. “That’s unacceptable when a family’s livelihood is at stake. We can’t have more stories about family farms being wiped out like we’ve had over the last ten years or so.”

Several other states have indemnity funds to cover grain losses, including Illinois, Indiana and North Dakota. Illinois’ fund covers up to $1 million of loss per farmer and went broke in 2001, when it paid out about $32 million. That required a $4 million loan from the state to cover its payouts. It is funded through grain company licenses, grain storage capacity assessments, recoveries from licensee failures and interest, said Krista Lisser, a spokesperson for the Illinois Department of Agriculture.

Indiana’s fund keeps between $20 million and $25 million and is funded with a 0.2% tax on sales to licensed grain buyers. That fee was collected between 1996 and 1998 and between 2015 and 2017. Farmers can opt out of the program and get their money back.

South Dakota has no similar fund but has increased oversight of its grain buyers. The state requires those buyers to submit quarterly financial statements.

“An indemnity fund is one tool to pay farmers, with costs borne on the front end when people pay into the fund,” said Leah Mohr, deputy executive director of the South Dakota Public Utilities Commission. “South Dakota has chosen to utilize other tools to protect our producers, with some of those tools unique to this state. We have seen success here.”

A bill that would delay Iowa’s fees for its fund until September, House File 666, passed the Iowa House unanimously last week. It’s future and that of the bill that would overhaul the state’s indemnity fund are unclear.