Youngstown Daily Legal News

Farming organizations endorse proposed increase for indemnity cap

TIFFANY L. PARKS
Special to the Legal News
Published: April 2, 2013

Backed by industry support, Sen. Cliff Hite is sponsoring a bill that would update Ohio’s grain indemnity and handling law.

“I believe it is important to recognize the historical significance of the grain elevator, which was created in Buffalo, New York in 1843 to keep pace with the emerging international grain trade,” Hite, R-Findlay, said in sponsor testimony for Senate Bill 66.

“Shortly thereafter, the world’s second grain elevator emerged in Toledo where grain from Ohio farms was loaded on to ships that transported it to ... Buffalo then on to Brooklyn.”

Grain was then distributed to East Coast flour mills or transshipped across the Atlantic.

“Long story short, set in motion by the invention of the grain elevator, America itself became an agricultural and economic colossus on the world stage — the planet’s single largest producer of numerous agricultural commodities, a distinction it claims to this day,” Hite said.

The lawmaker said it should come as little or no surprise that within Ohio’s leading industry, grain elevators collectively hold more than $1 billion worth of agricultural commodities such as corn, soybeans and wheat.

“There are 399 licensed grain elevator locations throughout Ohio with approximately 418 million bushels of storage capacity,” he said.

Ohio’s Grain Indemnity fund was established in 1983 to reimburse farmers in the event a licensed grain elevator became insolvent.

“In this event, the farmer is reimbursed 100 percent for any open storage grain in the elevator,” Hite said. “With regard to future contracts, “delayed priced” and “basis” transactions are reimbursed 100 percent of the first $10,000 of the loss and 80 percent thereafter.”

Under Ohio law, the fund is capped at $10 million and has a current balance of $8.2 million.

“It is funded through a one-half of a cent per bushel assessment on grain marketed at Ohio’s licensed elevators. Currently, the collection rate of the one-half of one cent per bushel accumulates approximately $2 million per year for the fund,” Hite said, noting that in 2011, the Ohio Department of Agriculture paid $4.1 million out of the fund to farmers in grain insolvency cases.

“In 2004, approximately $2.5 million was paid out in its largest insolvency case by volume. According to grain prices as of December 2012, that payout would amount to $6.6 million out of the $8.2 million reserve, leaving only $1.6 million moving into 2013.”

Based on that “realistic yet disconcerting scenario,” Hite drafted SB 66 to raise the fund’s statutory cap from $10 million to $15 million and increase the trigger threshold from $8 million to $10 million before the one-half of one cent per bushel assessment is collected.

The proposed legislation has been endorsed by the Ohio Farmers Union and the Ohio Farm Bureau Federation.

A statement from the OFU said updating state law has been one of the union’s priorities for the past two years. SB 66 would usher in the first cap increase since 2004.

“There are fewer elevators holding more grain today in Ohio than in 1983 or 2004. The relative effect of an elevator going bust today is a potentially greater economic event for many farming communities and for the producers doing business with that facility,” said Roger Wise, OFU president.

“Many of us are old enough to remember a time when farmers were in danger of losing everything because their elevator went bankrupt. Ohio’s grain indemnity law has been a model for other states because producers fund it through an occasional levy on our grain.”

No taxpayer dollars are funneled into the fund and Wise said interest from the fund pays for the agriculture department’s administration of the program.

Brandon Kern, director of state policy for the OFBF, said corn prices have increased approximately 225 percent, soybeans have increased 147 percent and wheat has increased 191 percent since the last time the fund cap was raised.

“Considering the impact the failure of a grain elevator could have on farmers at current prices, OFBF believes increasing the grain indemnity fund cap is a reasonable approach at this time,” he said.

SB 66 was unanimously passed by the Senate last month. The bill is now headed to the Ohio House.

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