Are your grain deliveries protected?
Know the full CGC rules to make sure your payment is protected when you make a sale
NOTE: This article is reproduced with permission. The original article was published on May 4, 2018 on Grainews.ca: https://www.grainews.ca/2018/05/04/are-your-grain-deliveries-protected-2/
By Brian Wittal
Not getting paid for the grain you deliver. It doesn’t happen often, but when it does, it’s a tough financial blow. Know the rules so you can protect yourself.
The law in this area is in the hands of the Canada Grains Commission. Everything you read here in italics comes from the CGC website.
Let’s start with the licensing of grain buyers. “Licensed” elevators and dealers must provide security to the CGC. If producers don’t get paid, the CGC will use this security for compensation.
Licensed operations fall into four categories: grain dealer, primary elevator, process elevator and terminal elevator. On the CGC’s website you will find a list of all licensed elevators and dealers. If a company is not on the list, it’s not licensed. It’s either exempt, outside the jurisdiction of the Canada Grain Act, or in violation of the Canada Grain Act. Unlicensed grain companies do not provide security, and none of the protections of the Act apply, including payment protection.
A rule of thumb is if a company is buying grain directly from a producer and the grain is moving into the handling system for domestic sale or export, that company should be licensed.
Which companies are exempt
According to the list on the CGC website, elevators that ship only producer cars, seed cleaning plants that do not buy grain from producers, distilleries that do not buy directly from producers and feed mills are some of the companies that are exempt from licensing.
Which also means these businesses do not provide security for payment!
There may be exceptions in each of these categories so check the list of licensed companies on the CGC website.
If you are selling to an unlicensed feed mill, when you are hauling, get a cheque ASAP and deposit it in your bank to minimize your risk of nonpayment should something happen to the company.
Most grain brokers are exempt because they do not buy grains directly from producers. If you’re selling through a broker, find out if the buyer on the other end is a licensed company or not. If not, again, request payment ASAP to reduce the risk of nonpayment should the buyer become insolvent.
What is payment security
Licensed companies must provide security to cover amounts owed to producers for grain deliveries. If a company is unable to pay you, this security is divided among all producers owed money for their grain. This doesn’t necessarily mean you will be paid 100 per cent of what you are owed, but it does provide a level of protection.
There are four different forms of security acceptable to the CGC: bond, irrevocable standby letter of credit or guarantee, payables insurance and cash deposit.
The CGC calculates the required security level for a new applicant by taking the forecasted annual tonnes and dollars purchased from farmers, dividing by 365 (for an average daily liability), then multiplying by 60 (liability exposure that assumes 30 days for payment to be issued and 30 days for payment to clear the bank).
Licensed grain companies report information to the CGC every month. The CGC monitors the security amount against the grain company’s outstanding financial obligations to farmers at the end of each month.
The CGC does monitor security levels, but if a grain company had a busy month and took in three or four times its monthly average tonnage, then went insolvent, producers may only get paid one-third or one-quarter of the value of the grains they delivered depending on the amount of the security provided.
How to lower your risk
The GCC has a list of way to lower your risk of not getting paid on its website:
When delivering grain, always get a primary elevator receipt, grain receipt or cash purchase ticket that identifies the grain, grade, weight, price and date of delivery. A scale ticket is not accepted for compensation claims.
If you deliver grain to a company that is licensed by us and you are not paid, you may make a claim for compensation within 90 days from the date of your delivery. If you wait longer than 90 days to exchange your elevator or grain receipt for a cash purchase ticket or cheque, you are not covered.
Once you receive a cash purchase ticket or cheque, you are covered by the licensed company’s security for 30 days maximum from the date it was issued, or until 90 days from the date of grain delivery. The lesser of these two time periods applies.
If a licensed grain company gives you a post-dated cheque for payment, you are covered for 30 days maximum from the date it was issued, regardless of the date on the cheque. For example: You get a post-dated cheque on October 1. The cheque is dated November 15. You are only covered by the licensed company’s security until October 31.
Do not, for any reason, defer a cheque from an unlicensed grain company or buyer. You are leaving yourself open for a potential total loss of payment should that buyer become insolvent before the deferred payment date!
Know who you are doing business with and don’t be afraid to ask questions to reduce your potential risk of nonpayment for your grains.