The Wisconsin Department of Agriculture, Trade and Consumer Protection (DATCP) announces that it will hold a public hearing on an emergency rule revising Chapter ATCP 99, relating to revising grain dealer and grain warehouse keeper agricultural producer security fund assessments.

DATCP will hold one public hearing at the time and place shown below.

Hearing impaired persons may request an interpreter for this hearing. Please make reservations for a hearing interpreter by September 28, 2011, by writing to Kevin LeRoy, Division of Trade and Consumer Protection, P.O. Box 8911, Madison, WI 53708-8911, telephone (608) 224-4928. Alternatively, you may contact the DATCP TDD at (608) 224-5058. The hearing facility is handicap accessible.

DATCP invites the public to attend the hearing and comment on the proposed rule. Following the public hearing, the hearing record will remain open until October 7, 2011 for additional written comments. Comments may be sent to the Division of Trade and Consumer Protection at the address below, or to kevin.leroy@wisconsin.gov, or to http://adminrules.wisconsin.gov. Comments or concerns relating to small business may also be addressed to DATCP's small business regulatory coordinator Keeley Moll at the address above, or by email to keeley.moll@wisconsin.gov, or by telephone at (608) 224-5039.

You can obtain a free copy of this emergency rule by contacting the Wisconsin Department of Agriculture, Trade and Consumer Protection, Division of Trade and Consumer Protection, 2811 Agriculture Drive, P.O. Box 8911, Madison, WI 53708. You can also obtain a copy by calling (608) 224-4928 or emailing kevin.leroy@wisconsin.gov. Copies will also be available at the hearing. To view the hearing draft rule online, go to: http://adminrules.wisconsin.gov.

This emergency rule places a cap on the total amount of annual producer security fund assessments that could be charged to any one licensed grain dealer or grain warehouse keeper.

The Wisconsin department of agriculture, trade and consumer protection (DATCP) is adopting this temporary emergency rule. At this time, DATCP has not yet determined if it will adopt a permanent rule on the same subject. This emergency rule will take effect immediately upon publication in the official state newspaper, and will remain in effect for 150 days. The legislature's joint committee for review of administrative rules may extend the emergency rule for up to 120 additional days.

Sections 126.15 and 126.30, Stats.

Sections 93.07 (1), 126.81 (1) (a), and 126.88 (1), 227.24, Stats.

DATCP has broad general authority, under s. 93.07(1), Stats., to interpret laws under its jurisdiction. DATCP has specific authority under s. 126.81 (1) (a), Stats., to interpret and implement Chapter 126, Stats. DATCP also has specific authority under s. 126.88 (1), Stats., to modify agricultural producer security assessments prescribed under Chapter 126, Stats. DATCP is adopting this temporary emergency rule under authority of s. 227.24, Stats.

The Agricultural Producer Security Program is governed under Chapter 126 of the Wisconsin Statutes. More specifically, assessments into the producer security fund are calculated pursuant to s. 126.15, Stats., for grain dealers and 126.30, Stats., for grain warehouse keepers.

Chapter ATCP 99 of the Wisconsin Administrative Code interprets and implements Chapter 126, Stats., as it relates to grain dealers and grain warehouse keepers. DATCP has explicit authority to implement administrative rules modifying the grain dealer and grain warehouse keeper assessments prescribed in the statutes. DATCP has exercised this authority in the case of grain warehouse keeper, see s. ATCP 99.235, Adm. Code. DATCP has not exercised this authority as it relates to grain dealers.

Chapter 126 of the Statutes governs the Agricultural Producer Security Program. This program is designed to limit losses to producers in the event of a default by a grain dealer, grain warehouse keeper, vegetable contractor, or a milk contractor. It contains a number of provisions that are designed to reduce the risk that a default will occur. In the event a default does occur, the program includes the agricultural producer security fund. Producers who suffer losses may be able to make a claim to the fund to cover a portion of those losses.

The Agricultural Producer Security Fund relies on license fees and assessments paid by licensees for revenue. License fees are – generally – directly related to the number of bushels of grain that a grain dealer purchases or that a grain warehouse keeper stores. Assessments are more complicated. They are based on a formula that takes the grain dealers purchases, in dollars, and certain balance sheet ratios from the grain dealers most recently completed fiscal year into account to calculate the amount of the assessment. All else equal, a grain dealer or grain warehouse keeper that purchases or stores more grain will pay higher assessments than one that purchases or stores less grain. Further, a grain dealer or grain warehouse keeper that has a conservative balance sheet will pay lower assessments than one that is more extended or leveraged.

The new grain dealer and grain warehouse keeper license year begins on September 1, 2011. Looking at data from grain dealers and grain warehouse keepers most recent financial statements, it appears that one grain dealer and grain warehouse keeper will have abnormally high assessments. Very large contractors (in the milk contractor, vegetable contractor, and grain dealer areas) have occasionally incurred six-digit annual assessments under this program. However, it appears that this year, without some change, there will be one annual assessment that exceeds one million dollars. This would more than double any previous annual assessment that has ever occurred under the program and more than four times higher than the next highest annual assessment in the grain area of the program.

Under this rule, if a grain dealer's annual producer security fund assessment (except for the portion of the assessment related to deferred payment contracts) exceeds $350,000, then that grain dealer shall pay $350,000, and no more.

If a grain warehouse keeper's annual producer security fund assessment exceeds $150,000, then that grain warehouse keeper shall pay $150,000 and no more.

The United States Warehouse Act is a voluntary regulatory program administered by Farm Service Agency (FSA), a unit within USDA. Under the act, warehouse keepers who obtain a warehouse license must comply with several FSA regulations. Generally, the warehouse keeper must maintain enough grain in inventory to cover 100% of depositor obligations at all times. Further, FSA licensed warehouse keepers must submit financial statements, submit to inspections by USDA auditors, and post surety bonds. In the event the warehouse defaults, FSA can convert the bonds to cash and disperse the proceeds to depositors. While the federal grain warehouse license is officially a voluntary program; in practice, it is not completely voluntary. Every state that has significant grain production (including Wisconsin) has some type of state grain warehousing law. These laws require grain warehouse keepers to obtain a license, but allow them to choose either a state license or a federal license. Those that choose a federal license are exempt for the state licensing program.

Like all states with a significant grain industry, Minnesota, Michigan, Illinois, Indiana, and Iowa all require persons who buy grain from producers to obtain a grain dealer license (though they may use different names), and all persons who store grain for others are required to obtain either a state or federal grain warehouse license. Licensees must file financial statements with the state, and the warehouses must maintain 100% of depositor owned grain in inventory at all times.

Minnesota requires grain dealers and grain warehouse keepers to post bonds with the state. Indiana, Illinois, and Iowa all have a state indemnity fund (like Wisconsin) that is made up of grain dealer and warehouse assessments. Michigan has a combination of bonds and indemnity fund contributions.

When compared to other states' grain programs, there are two things that make Wisconsin's program unique. First, while there are many states that have indemnity funds to protect producers, Wisconsin's indemnity fund (The Agricultural Producer Security Fund) is unique in that it pools risks and resources across multiple agricultural sectors. Second, where other states with indemnity funds tend to charge assessments on a flat rate per amount purchased or stored, Wisconsin's assessment formulas consider the licensee's balance sheet along with total purchases or storage capacity when calculating assessments.

This rule could have a direct impact on certain grain elevators. It would also have an indirect impact on the hundreds of grain farmers with whom the elevators do business, many of which are small businesses. This rule will help facilitate a stable and orderly grain industry and protect the welfare of grain farmers.

DATCP estimates that the balance of the Agricultural Producer Security Fund, as of June 30, 2012, would be about $11.5 million under this rule and about $12.2 million under current rules. The fund balance impacts both farmers and contractors, in certain specific situations.

For example, the maximum amount that can be paid out to producers in the event of a default is 60% of the fund balance. Therefore, in the event of a very large default, there would be more money available to help reimburse producers without this rule than with it. But there is a very low probability of a default occurring that would involve that much money.

Fund balances also play a role in “assessment holidays" for licensees. If the fund balance reaches certain minimum thresholds, licensees who have participated in the fund for at least five years do not have to make annual assessment payments that year. This rule might play a role in which years grain dealers and milk contractors have an assessment holiday. But in both cases, since the impact would only be to shift an assessment holiday from one license year to another, the overall assessments collections, averaged across several years, would be similar.

Comments or concerns relating to small business may also be addressed to DATCP's small business regulatory coordinator Keeley Moll at the address above, or by email to keeley.moll@wisconsin.gov, or by telephone at (608) 224-5039.

The net fiscal impact for this rule could be a loss of revenue of up to $756,000. Under current rules, DATCP estimates that total assessments for both the upcoming license year (Sept. 1, 2011 to Aug. 31, 2012) and fiscal year (July 1, 2011 to June 30, 2012) could be about $1,612,000 for grain dealers and grain warehouse keepers. Under this rule, DATCP estimates that the total assessments could be about $856,000. Should the assessments be collected in accordance with the current rule, the $756,000 in revenue would represent an unexpected “windfall" to the producer security program.

This rule may affect the timing of when assessment revenues are collected in the next few years. The existing producer security assessment formulas contain provisions for “assessment holidays" that are triggered when the balance in the producer security fund reaches certain minimum balances. Although this rule may affect how the formulas determine which years grain dealers and milk contractors will have an assessment holiday, the impact would only be to shift an assessment holiday from one license year to another. The overall assessments collections, averaged across several years, would be similar.

Questions and comments (including hearing comments) related to this rule may be directed to: