The Honorable Ann Veneman
Secretary of Agriculture
United States Department of Agriculture
1400 Independence Avenue, SW
Washington, D.C. 20250
RE: Federal U. S. Warehouse Act regulation changes affecting state grain dealer/merchandising laws
Dear Secretary Veneman:
We, the undersigned state attorneys general and commissioners and secretaries of agriculture, write you today on an issue of immediate importance to our respective states. Our concerns revolve around two considerations. First, an agency of the federal government is encroaching on regulatory schemes for grain merchandising that have been the sole province of the states for many decades. This agency does so without any federal regulatory plan in place to compensate for the elimination of the state programs. Second, this encroachment is not in the best interests of the states' agricultural producers.
For many years, the federal government and various state governments have worked harmoniously performing their respective regulatory functions at federally licensed elevators throughout the country. Specifically, the USDA has regulated the storage of grain, and state regulatory agencies have regulated the merchandising of grain in federally licensed facilities.
In addition to regulating the merchandising of grain in federally licensed grain warehouses, many state regulatory schemes provide a source of indemnification for farmers who suffer financial losses resulting from their sale of grain to insolvent federally licensed grain warehouses. This indemnification has been accomplished by means of grain dealer bonds and/or grain dealer indemnity funds derived from assessments paid by those farmers and/or elevators.
During this period, if the purchase and sale of agricultural products were governmentally regulated and/or producer losses indemnified, those responsibilities fell on the respective states. There was no question raised as to states' authority to do so. In addition, no federal regulatory program in the past or at present has existed to perform these important regulatory functions.
On August 5, 2002, a USDA rule change, previously unknown to the public in general and the states in particular, was made public. If this change is ultimately implemented, the authority of states to regulate the purchase and sale of agricultural products in both federal and state warehouses, and the protection of the financial interests of farmers selling those agricultural products, will be jeopardized. Specifically, section 735.1(c) of the Final Rule states that "compliance with State laws relating to warehousing, grading, weighing, storing, merchandising, or other similar activities is not required with respect to activities engaged in by a warehouse operator in a warehouse subject to a license issued in accordance with this part." (Emphasis added.) 7 C.F.R. § 735.1.
Interestingly, the term "merchandising" was never a part of this rule during the initial drafting and comment phases of the rule making process. Its existence became known only after it appeared in the Final Rule last August, well after the comment period had concluded. Since the buying and selling of agricultural products is totally removed and different from the storage of those products, many individuals and governmental entities believe the massive change set out in the rule is beyond the scope of the U. S. Warehouse Act itself.
The impact of the proposed Final Rule is monumental for and, in our opinion, detrimental to America's farmers for three major reasons. First, federal regulators have no administrative procedures in place to implement a federally-sponsored system of checks and balances on purchases of agricultural products from producers. Second, even if rudimentary merchandising procedures could be established prior to the Final Rule's current implementation date of January 8, 2003, the USDA lacks the sufficient number of employees adequately trained to perform the requisite merchandising oversight duties. Third, the USDA has neither developed nor implemented a system of indemnification to protect farmers who sell grain to Federally licensed warehouses.
The undersigned respectfully request that the United States Department of Agriculture rescind the Final Rule as it is currently drafted. At the very least, we urge you to extend the moratorium on implementation of the final rule and leave state regulatory and indemnification programs governing federally licensed grain warehouses in place until the USDA has actually developed, adequately staffed and is ready to implement alternative, effective federal programs to regulate federally licensed warehouses and indemnify producers.
If you feel a meeting between representatives of your office and a delegation representing the undersigned might prove helpful, please contact my office as soon as possible so that such a meeting might be arranged.
Because of the serious consequences that may impact producers in all agricultural states, we look forward to your response before January 7, 2003.
Thank you for your time and consideration of our concerns.
THOMAS J. MILLER
Attorney General of Iowa
For himself, and on behalf of:
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