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Iowa Attorney General's Office

Iowa Dept. of Agriculture & Land Stewardship

For immediate release - Thursday, January 2, 2003.

Contact 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 warehouses.

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 warehouses.)

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 products.
  • 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 Federally-licensed warehouses.

"No federal regulatory program in the past or at present has existed to perform these important regulatory functions," the letter said.

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 Utilities Commission

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