Iowa Attorney General's Office
Iowa Dept. of Agriculture & Land Stewardship
For immediate release - Thursday, January 2, 2003.
Machelle Shaffer, IDALS (515-281-7808 or 975-2626) or
Bob Brammer, AG's Office (281-6699)
Judge and Miller Urge USDA to Block New Grain Warehouse Rule that Could End
Protection for Grain Producers
"The impact of the proposed rule is monumental -- and detrimental to America's farmers," says a letter to Veneman
from State Attorney Generals and Agriculture Secretaries.
DES MOINES. Iowa Attorney General Tom Miller and Iowa Secretary of Agriculture Patty Judge, along with their
colleagues representing 12 other states, are urging U.S. Agriculture Secretary Ann Veneman to rescind a new USDA rule
that they say could sharply undercut the protections given to producers selling grain to elevators.
Secretary Judge, Attorney General Miller and their colleagues sent a
letter urging Veneman to rescind the rule, and to leave in place state
regulatory and indemnification programs governing federally-licensed grain
The new USDA rule, in effect, means that a federally-licensed grain warehouse would not be required to carry a state grain
dealer's license. Iowa producers selling their grain to a federal warehouse without a grain dealer's license would not be
protected by the Grain Indemnity Fund, which allows producers to recover up to 90% or a maximum of $150,000 dollars
from grain losses brought on by a bankruptcy or other insolvency. The Grain Indemnity Fund was set up in 1986 to protect
Iowa's producers and depositors on certain grain transactions and is paid for by producer and licensee fees.
In the fall of 2001, the Grain Indemnity Fund paid out nearly $700,000 dollars to help Iowa producers after Crestland
Cooperative, a federally-licensed grain elevator, filed for bankruptcy. Without this help, many of those producers would
have found it very difficult to stay in business.
Secretary Judge stated, "I have grave concerns over what seems to be a USDA move to stop the protections Iowa gives
producers who sell their grain to federally-licensed grain elevators. This new USDA rule could leave Iowa's producers
unprotected and this is not acceptable. In these already stressed economic times, we need our producers to be protected, not
have those protections taken away by a badly thought out rule."
Attorney General Miller said: "This system has worked to protect grain producers for thirty years. We question the legality
of the rule, and we question the wisdom of it. It's entirely possible that it could cause huge losses to farmers by leaving
them without the protection provided by the state indemnification program and state regulation of grain merchandising."
The USDA Rule Change
The USDA rule would add the word "merchandising" (a change that was not revealed in the rule-making process until the
final rule was issued this fall) and thus appear to preempt or block state enforcement of grain merchandising regulations for
federally-licensed elevators and grain warehouses. (The rule states that "compliance with State laws relating to
warehousing, grading, weighing, storing, merchandising, and other similar activities is not required" for federally-licensed
Historically, Judge and Miller said, grain merchandising always has been a matter for state regulation for both federal- and
state-licensed grain warehouses. Regulation of grain "merchandising" or purchasing includes things such as record-keeping, debt-to-asset requirements, current liquidity requirements, what types of sales arrangements a warehouse can use --
and whether the warehouse must participate in a grain indemnity fund to compensate farmers who sold grain to an elevator
that goes bankrupt. The indemnity fund can cover up to 90% of producers' losses, up to $150,000. It is funded by annual
fees and per-bushel fees paid by grain dealers and warehouses.
If the rule would stand, some believe more elevators might move to federal licensing, and Federally-licensed warehouses
might choose to cancel their state grain dealer license with the regulatory and indemnity fund protections.
The State officials' letter to Veneman said "the impact of the proposed final rule is monumental for and detrimental to
America's farmers" for three main reasons:
- Federal regulators have no administrative procedures in place requiring checks and balances on purchasers of farm
- USDA lacks sufficient trained staff to regulate grain merchandising even if regulations were established.
- The USDA has neither developed nor implemented a system of indemnification to protect farmers who sell grain to
"No federal regulatory program in the past or at present has existed to perform these important regulatory functions," the
Miller and Judge said their offices had made several attempts this fall to urge USDA to reconsider the rule, but without
success. They invited colleagues from other states to join them in the letter to Veneman to demonstrate that the rule posed
potential problems for grain producers nationwide. The letter to Veneman also has been sent to Iowa's Congressional
delegation, asking them to support legislation to rescind the rule if USDA lets it go into effect, so state grain merchandising
programs can continue to operate without being preempted by federal regulations.
Attorney General Miller said the States questioned both the rule-making process - because the "merchandising" preemption
was not a part of the rule during the initial drafting and comment phase and only was revealed well after the comment
period had concluded - and whether the rule is beyond the scope of the U.S. Warehouse Act itself. "At the least, this rule
will cause confusion and costly and time-consuming litigation," he said. "At worst, it could cause huge losses to farmers
left unprotected by state regulations and indemnification programs."
Secretary Judge has sent Iowa's grain warehouses and dealers a letter informing them that the Iowa Department of
Agriculture and Land Stewardship will continue to enforce Iowa's Grain Dealer Law (Iowa Code chapter 203 et seq.)
If a grain elevator is state-licensed, the selling and warehousing of grain would continue to be protected by the state.
However, nothing would prevent those state-licensed grain elevators from converting to federal licenses for the purpose of
avoiding state oversight.
In the letter to Iowa's 520 grain warehouses and dealers, Secretary Judge stated, "It is the Iowa Department of Agriculture's
(IDALS) sincere hope that the cooperative state/federal regulatory procedure that has served and protected Iowa's grain
industry and producers so well for over thirty years will be reinstated."
The following 13 states and state officials sent the letter to Veneman:
Colorado - Attorney General Ken Salazar; Don Ament, Commissioner, CO Dept. of Agriculture
Georgia - Tommy Irvin, Commissioner of Agriculture
Idaho - Mike Everett, Deputy Director, Idaho State Dept. of Agriculture
Illinois - Attorney General James E. Ryan; Sandra K. Rolando, Acting Dir., IL Dept. of Agriculture
Iowa - Secretary of Agriculture Patty Judge; Attorney General Tom Miller
Louisiana - Bob Odom, Commissioner, LA Dept. of Agriculture and Forestry; Manning "Pete" Broussard, Asst.
Commissioner, LA Dept. of Agriculture; William Boudreaux, Director, LA Dept. of Agriculture
Michigan - Dan Wyant, Director, Michigan Dept. of Agriculture
Minnesota - Attorney General Mike Hatch; Gene Hugoson, Commissioner, MN Dept. of Agriculture
Missouri - Atty. General Jeremiah W. (Jay) Nixon; Lowell Mohler, Dir., MO Dept.of Agriculture
Nebraska - Merlyn Carlson, Director, Nebraska Dept. of Agriculture
North Dakota - Attorney General Wayne Stenehjem; Roger Johnson, ND Agriculture Commissioner; Susan E. Wefald,
President, ND Public Service Commission; Tony Clark, Commissioner, ND Public Service Commission; Leo M. Reinbold,
Commissioner, ND Public Service Commission
Ohio - Attorney General Betty D. Montgomery; Fred L. Dailey, Director, Ohio Dept. of Agriculture
South Dakota - James A. Burg, Chairman, SD Public Utilities Commission; Robert K. Sahr, Commissioner, SD Public
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