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State fund that protects farmers is set to go broke


State fund that protects farmers is set to go broke

Mar 30, 2023 | 5:08 pm ET
By Jared Strong
State fund that protects farmers is set to go broke
The state's Grain Indemnity Fund pays grain producers when dealers and warehouses go bust. (Photo by Jared Strong/Iowa Capital Dispatch)

A state fund that protects farmers from losses when grain dealers and warehouses go bankrupt is poised to run out of money, according to the Iowa Department of Agriculture and Land Stewardship.

The state’s Grain Indemnity Fund, created amid the 1980s farm crisis, has fallen below a minimum threshold. It does not have enough money to cover recent claims that stem from the bankruptcy of a specialty soybean dealer. The situation is set to trigger a long-dormant fee farmers pay per bushel of grain to replenish the fund.

In response, lawmakers are considering new legislation that would either delay the collection of that fee by several months or would overhaul the rules of that fund to eliminate the fee. If the fee were eliminated, the fund would instead draw money from an existing fee on corn sales that is used to promote and support the state’s corn industry.

State fund that protects farmers is set to go broke
State Sen. Jason Schultz is a Republican from Schleswig. (Photo courtesy of the Iowa Legislature)

“The current situation that we have is actually going to invoke a tax on the corn farmer, the soybean farmer, and we don’t do that in this current environment,” said Sen. Jason Schultz, a Schleswig Republican and farmer who supports the overhaul. “We cut taxes. We don’t raise taxes.”

But Lance Lillibridge, a Vinton farmer who is chairman of the Iowa Corn Growers Association, said the indemnity fee is so small that lawmakers shouldn’t consider diverting funds from somewhere else.

“It’s not a tax,” he said. “It’s an extremely cheap insurance policy.”

The state suspended the grain dealer and warehouse licenses of Global Processing Inc., of Kanawha in northern Iowa, in October. The company filed for bankruptcy later that month and listed liabilities that total about $18.3 million and assets of about $15.6 million, according to federal court records.

It was the third such failure in less than two years.

The indemnity fund pays up to $300,000 per farmer for grain when the producers don’t receive payment from dealers or don’t get back their stored grain from warehouses. There are 46 pending claims that total about $3.2 million related to the Global Processing bankruptcy, said Don McDowell, an IDALS spokesperson.

Those pending claims exceed the fund’s cash balance of about $2.4 million, McDowell said. It’s likely that farmers will get a portion of their claims paid and will later get the remainder as the fund is replenished, but it’s possible that not all of the claims will be approved as legitimate.

Because the fund has fallen below $3 million, a board that oversees the fund is obligated by current law to reinstate a quarter-cent-per-bushel fee in July that has historically been paid by grain producers. IDALS estimates that the fee will generate about $6 million annually.

Current law requires the fee to remain active until the indemnity fund reaches $8 million.

The last time the fee was collected was in 1989, three years after the fund was first established.

Declining revenues

The balance of the fund has been shrinking since about 2010 after the Great Recession greatly diminished the investment income the fund netted each year.

For decades, that revenue had been sufficient to cover the costs to administer the fund. That, combined with the department’s ability to recoup a portion of what it paid out in claims from the defunct companies, has allowed the fund to pay $16 million in claims to grain producers while only collecting a total of about $9.7 million in fees.

Grain producers paid the vast majority of those fees — from 1986 to 1989 — but dealers and warehouses pay smaller, annual fees every year regardless of the fund’s balance.

When the fund’s investment revenue began to dry up in 2010, it had a balance of about $7.3 million. By 2020, despite only paying out claims in one year of that decade and recouping much of the money, the fund balance had dropped to $3.4 million, according to IDALS data.

That’s because expenses to administer the fund — which total about $352,000 each year — had diminished the fund balance. IDALS now pays those administration costs out of its budget rather than from the fund itself.

Then, with the fund near its minimum threshold of $3 million, three grain dealers were unable to pay for their purchases.

The first was Pipeline Foods LLC, a Minnesota company, which filed for bankruptcy in July 2021. The Grain Indemnity Board paid 11 claims to producers for a total of about $494,000.

In August 2022, IDALS suspended and revoked the licenses of B&B Farm Store in Jesup when it failed to pay for grain. The board approved 44 claims for a total of about $1.2 million.

In October 2022, Global Processing filed for bankruptcy. The estimated value of its unpaid grain was $4.7 million, but claims were made for a total of about $3.2 million.

Those claims are pending. Grain producers can attempt to recoup their money directly from the company in court. Those who make a claim with the indemnity fund are paid 90% of their total loss, and they can sue the company for the rest.

Proposed changes

Despite being conceived in the 1980s, the parameters of the indemnity fund have made it a viable insurance for farmers many years later, McDowell said.

“Over the past three decades, the Grain Indemnity Fund has successfully protected Iowa farmers from facing significant financial losses due to a grain warehouse or grain dealer failure,” he said.

The two major changes to the fund since it began included shifting the burden of administrative costs to IDALS and increasing the maximum payout to farmers to $300,000, which happened in 2009. That is double what it was when the fund was created.

IDALS said none of the approved claims so far have exceeded that maximum because producers have a tendency to spread their sales to multiple buyers. However, one claimant has three pending claims related to the most-recent bankruptcy that, in total, exceed the cap.

There is pending legislation supported by IDALS that would delay the start of fee collections from July to September this year. That bill has received committee support in the Iowa House and Senate.

“The department is working closely with the Legislature, farmers and industry stakeholders to strengthen and modernize the fund,” McDowell said, “so that this vital and low-cost financial protection can remain in place for years to come.”

Other legislation that has received committee support in the Senate but is opposed by a multitude of agricultural groups would eliminate the fees for the indemnity fund that are set to reactivate and instead replenish the fund with a portion of so-called corn “checkoff” assessments.

Those assessments of one cent per bushel are currently directed to the Iowa Corn Promotion Board, which uses the money for market development, education and research to advance the industry. The bill would take one-fourth of that money and redirect it into the indemnity fund.

State fund that protects farmers is set to go broke
Sen. Pam Jochum is a Democrat from Dubuque. (Photo courtesy of Iowa Senate)

“I am a bit bewildered by this legislation,” said Sen. Pam Jochum, D-Dubuque, who opposed the overhaul in recent subcommittee and committee hearings. She added: “That checkoff is used for education, to promote corn — not just within our own country, but abroad as well. It does research, et cetera. I truly do not understand why we are moving the checkoff money into the indemnity fund. It makes absolutely no sense to me whatsoever.”

The bill passed the Senate Ways and Means Committee last week with an 11-7 vote. It would also increase the maximum payouts to farmers to $600,000 and would raise the minimum balance of the fund — from $3 million to $10 million — and the maximum balance — from $8 million to $20 million.

Sen. Dawn Driscoll, R-Williamsburg, voted for the bill but said “we have still a lot more work to do on this bill.”

“I am trying to come up with an idea, an initiative, to not tax the farmer again, because at the end of the day, I’m a farmer, and I’m trying to do what’s right for the producer,” she said.

The Iowa Corn Growers Association is among the agricultural groups that oppose the bill. Lillibridge, who chairs the group, said the corn checkoff generates about $20 million annually to support that industry. Its popularity among farmers is evident, he said, because they have the ability to seek repayment of the fees, but those repayments account for less than 10% of the total.

"This is the vehicle that helps me promote everything I do on my farm, and it's got a huge return on investment," he said.

An early version of the bill included language that sought to divert money from a similar program that supports the soybean industry, but that is a federal program unlike the corn checkoff, which was created by the state. The committee amended the bill to exclude the soybean checkoff before passing it last week.

The soybean fee is expected to generate nearly $19 million this year for the Iowa Soybean Association.

"The association is opposed to those moneys going from checkoff to indemnity fund,” said Randy Miller, president of the association. “It’s just not consistent with what the federal law created.”