What you need to know about the grain indemnity fund
Previously, the state of Minnesota used bonds purchased by elevators to compensate growers who went unpaid for delivered or stored grain. But the required bond amounts were often too low to cover all claims against the elevators in the event of bankruptcy and did not prevent farmers from sustaining significant losses.
For example, when the Porter elevator in western Minnesota closed in 2015, $1.1 million in claims were approved against a $125,000 bond. That meant growers were compensated just 11% of the value of their grain.
The omnibus agriculture finance bill signed this month by Minnesota Gov. Tim Walz creates a $10 million grain indemnity fund to compensate growers when first purchasers fail to pay them for delivered grain or redeliver the grain.
Here is what you need to know about the fund and how it will affect Minnesota growers.
Why did lawmakers create the fund?
First and foremost, farmers are unlikely to ever be fully compensated for delivered grain if an elevator declares bankruptcy before paying for that grain. That’s because the grain will first be used to pay back creditors who have collateral with the elevator. After those creditors are paid, there’s often not enough money remaining to make farmers even partially whole.
The idea of the indemnity fund is to limit those significant losses by ensuring there are funds available to compensate farmers.
How will the fund work?
If a farmer delivers grain to an elevator, and the elevator does not pay, he or she can submit a claim for compensation to the Minnesota Department of Agriculture (MDA). If MDA approves the claim, the agency will send a check to the farmer.
The exact compensation amount will depend on the contract type, grain value, and the length of time between the contract’s signing and the failure to pay. If a storage contract was signed more than three years prior to the elevator failure, growers aren’t eligible for compensation.
How will the fund be replenished?
If the fund dips below $8 million by May 1 of a given year, farmers will be charged a 0.2% fee on all grain sales to first purchasers starting on July 1.
Fees will be collected until the fund reaches $15 million. In the event of economic hardship, the commissioner could suspend the collection of the fee once the fund is back over $8 million.
Can I opt out of the fund?
Yes, but only on the back end.
If the fund dips below $8 million, and MDA begins charging the fee, farmers can be refunded for their contributions to the fund. Refund requests must be in writing and must be made within 12 months of paying the fee. Refunds will be paid within 90 days of MDA approving a refund request.
Farmers who receive refunds of their fees cannot receive money from the grain indemnity fund should an elevator fail to pay after the farmer receives their refund. If a farmer wants to reenter the indemnity fund program, he or she can do so after paying back all refunded premiums plus interest. Farmers would only be eligible for payments on breaches of contract that occur at least 120 days after their reentry into the program.
What role did the Minnesota Corn Growers Association (MCGA) play in the creation of the fund?
MCGA is a member of the Grain Advisory Group, which the state formed after the Porter elevator closure.
In 2020, upon recommendation from the group, the Legislature approved changes to financial reporting for grain elevators. But after several additional elevator closures, MDA decided to ask the Legislature to establish an indemnity fund. The agency first proposed the creation of a fund during the 2022 legislative session. The fund was not established during the 2022 session, but lawmakers adopted language requiring MDA to create recommendations to improve the grain licensing program.
After the 2022 session, MDA held three meetings with the Grain Advisory Group to explain its proposal. MCGA provided feedback to the proposal this past winter. Specifically, MCGA encouraged MDA to:
- Utilize general fund dollars as the only source of revenue for the indemnity fund.
- Include an opt out for farmers who do not want to participate in the program.
MCGA also encouraged MDA to consider the following changes as it seeks improvements to its grain licensing program:
- Increase the bonding requirements to better match an elevator’s capacity
- Increase awareness of financial reporting requirements and protections to both grain buyers and sellers
- Increase transparency of financial reports and increased penalties for the falsification of financial data
- Increase penalties for operating without a grain buyer’s license
- Publicize private grain insurance programs available for farmers to protect their sales
The Grain Advisory Group will spend the summer looking at additional protections for the Legislature to consider in its next session.
