Montana Seed Growers Association

On October 22 the MSGA Board of Directors held a phone conference with the Montana Department of Agriculture to discuss the proposed Commodity Indemnity Fund. After a question and answer session the Board moved to accept the proposed Commodity Indemnity Fund in principal, but wanted input from the members. Below you will find some discussion points composed by the Montana Department of Agriculture. Please read over them and contact your District representative or the MSGA office with any thoughts, ideas, questions or concerns. The Montana Department of Agriculture continues to meet with agriculture groups to initiate discussion on implementing this fund. If the various groups are supportive, then a meeting with those groups would be convened to develop the format and governance of such a plan, leading to implementation.

Discussion Points on a Commodity Indemnity Fund

Several states are considering creation of commodity indemnity insurance funds after recent failures of ethanol plants, warehouses and grain storage facilities. Idaho, Iowa and Indiana are among states with funds, often built on dealer and producer assessments. Typical provisions, selected for their applicability in Montana, include:

Participation is mandatory for commodity dealers and voluntary for producers. Protection provided only to producers who participate in the fund. Producers also must have delivered contracted or cash crops to be covered in the event of a failure.

Rules discourage moving in and out of the fund, for example requiring payment for back years plus interest for producers to re-enter the fund.

Producers pay $0.003 per cwt on agricultural commodities at first point of sale. Commodity dealers pay a one-time assessment.

One-time assessment per location for commodity dealers might be on a sliding scale, depending on gross annual purchases. For example:

$1,000 if gross annual commodity purchases are ≤ $1 million
$2,000 if gross annual purchases are > $1 million ≤ $5 million
$3,000 if gross annual purchases are > $5 million

An alternative to dealer participation in the fund might be to increase the bonding level to 3% of gross annual commodity purchases. The minimum bonding level might be increased to $30,000 and the maximum to $1,500,000.

Funds typically are capped and have a floor, depending on the amount of protection judged adequate. For example, assessments could stop when the fund reaches $8,000,000, and resume when payouts reduce the balance below $4,000,000. (Failure of a typical business might require $2,000,000 from the fund.)
A typical maximum distribution per claimant is 90% of what they are owned; no more than 70% of available funds may be used per failure; a $250,000 reserve must be maintained in the fund.
An advisory board would oversee the fund. A five-member board could consist of:

Director of the Montana Department of Agriculture, or a designee
Three active growers who sell commodities to a licensed dealer.

One active licensed commodity dealer.

Agriculture departments typically administer a fund with board oversight. Department responsibilities typically include collection of the assessment, tracking participation, investigating claims, and issuing settlements from the fund.
Expenses of the board and expenses of administrating the fund are paid out of the interest of the fund, with approval to use up to $100,000/year of principal if the interest is insufficient to cover total expenses.