By ANN HINCH
Assistant Editor

INDIANAPOLIS, Ind. — On April 8, Gov. Mitch Daniels signed into law a measure upping the minimum balance requirements for the Indiana grain indemnity fund from $5 million to $10 million.

This means if the balance of the fund ever falls below the $10 million mark, an assessment on participating state grain farmers will once again go into effect to replenish it, until it reaches a cap of $15 million, at which point collections will cease. “Participating” means those growers not requesting a refund of their assessment.

An assessment will only start up once more after that if the fund dips below $10 million again. At this time there is no active collection; as of Nov. 30, 2008, the fund balance was $15.3 million, according to the state’s Legislative Services Agency (LSA), in excess of the new cap of $15 million.

The collection rate – when active – is a 0.02 percent premium on the gross sale price received by grain producers. This includes corn, soybeans, wheat and other eligible commodity grains, but not feed ingredients such as soy meal, for example, said Jerome Hawkins, new director of the Indiana Grain Buyers and Warehouse Licensing Agency (IGBWLA).

The LSA’s fiscal impact statement for House Bill 1218 states the last time a fee was collected for the fund was in 1999, three years after it was created. Rep. Joe Pearson (D-District 31), who introduced HB 1218 into the Indiana General Assembly in January, said the total collected at that time was $12 million. Accrued interest and few claims over the past decade increased it to the $15.3 million mark.

“I think this is a great thing the governor has done, to protect the producers,” Hawkins said. “So far, we’ve been able to weather the storm (of the economy). But in case a (grain) licensee would fail, we have this protection in place” for the farmer.

Hawkins explained the IGBWLA audits elevators and other businesses that purchase grain from growers in Indiana. If a buyer cannot pay for contracted grain, the indemnity fund exists to make that payment and the state tries to recover all or part of the money from the defaulted buyer. He said delayed-price grain is guaranteed at 80 percent and stored grain, at 100 percent.
Pearson said there have been 10 buyer failures the fund has covered since its first payout in 1998, for a total of $2.575 million, and there is currently another $1.4 million payout pending.

From 1995-2004, Pearson served as assistant commissioner of agriculture, before the Indiana State Department of Agriculture was created. He said the grain indemnity fund was born out of grain buyer failures through the Midwest in the late 1980s – Hoosier growers alone lost around $5 million and, in some cases, their very farms.

“From that, people came together to say ‘We’ve got to have a way to protect ourselves,’” he explained.

The minimum balance for the fund was set at $10 million, but Pearson said with the consolidation of the grain industry, concentrating more contracts and inventory into fewer hands, the failure of a single buyer could now have more drastic consequences. Also, there is a more valuable market for grain these days, including biofuel.

“It was just prudent to raise those amounts of money,” he said of HB 1218. “It’s the economy scale that’s increased concern of what one company’s liability would be, if it failed.”

Hawkins added recent bank problems in the general economy have made securing credit more difficult, and last year’s higher grain prices meant larger margin calls for exchanges. All this volatility made the state more aware that buyer failures could happen.
He said the IGBWLA tries to resolve problems before they can get to the grain indemnity board and as a result, there have been few claims. Most buyers, he said, prefer to find a way to pay their farmers and preserve their businesses, rather than resort to the state paying their losses. Pearson agreed and said Indiana grain buyers “have been very good, have been very responsible.”

A companion bill, HB 1219, is still in the House pending amendments. If passed, it could increase grain licensing fees and make more information public about licensed buyers. Pearson said right now the IGBWLA can’t disclose any information about a buyer, should a farmer call to check, not even if they are licensed by the state – 1219 would make it possible for state employees to give out at least in what county a buyer is licensed, if it is licensed.
“That’s information that people ought to know,” he said.