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What can be done about Turner Grain?

The loss by Arkansas farmers of millions of dollars unpaid by Brinkley-based Turner Grain Merchandizing likely will result in state legislation next year. What that legislation will look like is a long way from final form.

Dealers such as Turner Grain buy and resell grain from producers. Dozens of farmers say they have not been paid by that company and others owned by the same people, and the grain has not been located. Many are taking legal action to try to recover losses from a dealer that no longer is in business.

Arkansas has no laws pertaining to grain dealers. It does have laws pertaining to warehouses, but warehouse owners can choose to be certified by state or federal authorities.

Future legislation will depend on facts that have not yet been gathered. The state still doesn’t know how many farmers were hurt and how much they lost. Many farmers have hired attorneys and are no longer saying much.

“There’s sort of some substantive areas that people are getting their minds around, and then there’s still sort of the practical reality of, just what the heck has happened, and how bad is it?” said Harrison Pittman, director of the University of Arkansas System Division of Agriculture’s National Agricultural Law Center.

Butch Calhoun, Arkansas’ secretary of agriculture, in October estimated at $50 million the total losses by farmers allegedly cheated out of their crops. Individual losses have ranged from $30,000 to more than $2 million. Aside from those farmers, others who had booked their corn with Turner Grain at $5.50 to $6 per bushel were being forced to sell for $3.50 because this has been a bumper crop, and prices are down. “They had booked it back early when the price was still up, and now their market’s gone,” he said.

The National Agricultural Law Center is conducting research on other states’ laws that will be shared by those interested in drafting legislation. At Pittman’s behest, Jerry Quick, former senior counsel for the Illinois Farm Bureau, spent three days in Arkansas explaining that state’s comprehensive law. Terry Walker, assistant director of the State Plant Board, said his agricultural regulatory agency also is collecting information from other states to see how their laws are structured.

States have very different rules based on their own situations, so finding a model is difficult. Pittman said some mechanisms are used by a number of states, including licensing and audit processes. Some states have a “prompt payment provision” where, at the seller’s request, payment must be made immediately or within a specified period of time. Bonding is a common requirement, though Pittman said it’s an inadequate solution because the bonds will never be high enough to help everyone who has been hurt.

That was the case in Illinois, where the state’s farmers suffered devastating losses in 1982. The next year, the state switched from a bonding mechanism to an indemnity fund. Grain warehouses and dealers, farmers and lenders pay into a fund from which farmers can draw claims of up to 100 percent of losses up to $1 million. It’s worked well in Illinois, Quick said. The fund’s maximum amount is $6 million, which would be inadequate in Arkansas, where farmers have fewer options and sell more grain to a single dealer.

Indemnity funds have certain advantages in that if they grow to an adequate size without being drawn upon, farmers can stop paying into them. On the other hand, paying into an indemnity fund penalizes farmers who have done nothing wrong and are already paying into numerous other funds to protect themselves against various calamities. Moreover, Pittman said some have argued that an indemnity fund facilitates irresponsible behavior.

“If people know there is an indemnity fund, they might play a little more fast and loose, and producers might say, ‘They’re just doing that with our money. They know that we get paid back with our own money,’” he said.

In Illinois, the state’s Department of Agriculture is statutorily required to place a lien on the property of a failing warehouse or dealer. It must then seize assets and whatever grain is available and sell them off for the benefit of the farmers who have been harmed. That provision has allowed some victims to be made whole without the need to draw from the indemnity fund, Quick said.

Pittman pointed out that there’s a difference between what makes the most sense substantively and what can pass politically. According to the Arkansas Democrat-Gazette, a bill introduced in 1991 to require grain dealers to be licensed and bonded passed the Senate unanimously but died in a House committee.

Among the groups that will influence legislators is the Arkansas Farm Bureau. Jeff Pitchford, director of public policy and state affairs, said the Bureau’s current policy is to support requiring grain dealers and brokers to be licensed and bonded, but it opposes an indemnity fund for grain dealers and warehouses. Pitchford said his association’s policy development process starts at the county level and concludes with its December statewide convention, where members pass resolutions that give the Bureau its “marching orders for the next year.” Among the ideas being discussed is a trigger that would alert the state to perform an audit on a dealer that may be struggling.

It’s hard to imagine state legislators failing to at least try to address the problem. The Turner Grain situation has attracted a lot of attention from a politically powerful group, the state’s farming community. Rep. Matthew Shepherd, R-El Dorado, current chairman of the House Agriculture, Forestry and Economic Development Committee, said, “I would think that there is a high probability that there will be some legislation, at least some legislation that is introduced and will pass that essentially arises from this situation and how to prevent it in the future.”

But Speaker of the House Davy Carter, R-Cabot, who is term-limited, said he can’t predict at this point what will happen when the Legislature meets in January. The facts are developing slowly, and the buying and selling of grain involves a complicated business model. Legislators must proceed carefully so as not to create unintended negative consequences. “What we can’t do is interfere with putting the buyers and sellers together,” he said.

Carter said during a joint meeting of the House and Senate Agriculture Committees and in an interview with Talk Business & Politics that the Legislature can only look to address future problems and can’t use state funds to retroactively reimburse the farmers who already have been hurt. Those farmers instead will have to seek relief from the court system.

“The government can’t prevent undercapitalized businesses from failing or businesses from not performing on their contractual duties,” he said. “That’s a slippery slope (and it’s) not good public policy to do that, to spend taxpayer dollars on losses like that.”

- See more at: http://talkbusiness.net/2014/11/what-to-do-about-turner-grain/?loc=nea#sthash.vgiJApAf.dpuf