South Dakota PUC commissioner details grain buyer legislation
October 16, 2013
Farmers who sell to grain buyers and grain warehouses will be better protected under a measure being debated in the Legislature this year. That's according to Public Utilities Commission Vice Chairman Chris Nelson who spoke about House Bill 1017 during the South Dakota Farmers Union's annual Legislative Day luncheon held in Pierre on Jan. 29, 2013. The bill is in response to the financial failure of Anderson Seed Company's plant in Redfield that never paid for millions of dollars in grain it stored at its warehouse. Commissioner Nelson spoke to a crowd of about 70 people which included South Dakota Farmers Union members and a large group of legislators.
"The one thing that I really want to stress every time I talk about this is the fact that we don't have a broken grain buyer system in South Dakota," Nelson said. "In 2012, 99.96135 percent of the $7.5 billion worth of grain that was sold in this state was paid for, with one exception, and that was Anderson Seed in Redfield, and unfortunately that ended up taking some folks for a whole lot more money than should've ever happened."
Anderson Seed Company owes an estimated $2.6 million to producers after they delivered grain to the Redfield plant but never got paid. The plant is now closed.
"In the wake of that we took a look at, what can we change in our state law to give the PUC the tools that we think we need to find those kind of problems much sooner than we were able to with Anderson Seed?" the commissioner said.
In a free market system, companies are going to go broke, Nelson said. But the key is finding the problems quickly so they don't escalate to the Anderson Seed level and cost producers millions of dollars.
"One of the biggest issues we had with Anderson was that our current state law requires at the time of licensing of a grain buyer, that they give us their last audited financial statement from their last fiscal year end," Nelson said. "In the case of Anderson, that statement was nine months old. This legislation will require not only that audited statement, but also current financial information when they come in for re-licensing so that we know exactly what the situation is with that particular grain buyer or warehouse."
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The legislation would also make sure the company is telling the truth and not hiding anything in their financial statements and would be subject to perjury charges if they're not telling the truth.
"If they're going to lie to you and me and the public there's going to be some consequences to that," Nelson said.
The PUC legislation also deals with the level of bond requirement for grain buyers. Anderson Seed Company was bonded for $100,000, not nearly enough to cover the $2.6 million that was lost. But Nelson says the PUC hasn't increased the bond requirement substantially, but he says "we've right-sized it, we think, for the amount of business grain buyers are doing."
It would set bonding requirements on a scale. The more grain the company buys, the more they have to be bonded for. If they buy over $85 million in grain, the bond would be as high as $500,000. The legislation also creates what Nelson called a "Self-reporting mechanism." If a grain buyer or warehouse hits financial troubles, they have to notify the PUC immediately. "They can't hide it," Nelson said.
PUC staff will investigate and determine whether or not the grain buyer should be shut down immediately, or find out if they are simply going through a temporary rough spot, and have a plan to get out of financial trouble. If there's not a big risk of farmers losing money, the PUC will work with the grain buyer to stay in business. "Obviously that's our hope, to help keep those folks in business," Nelson said. If someone loses money, this legislation would make it a felony. If the PUC thinks the business can recover, it won't become public knowledge.
"The reason for that is, if we made that public, would you do business with them? Probably not. It would have the opposite effect of what we want," Nelson said.
If the PUC staff determines there's no hope for recovery, they can recommend to the commission that the grain buyer's license be pulled, and that would come into the public record during a PUC meeting. The company would have a chance to defend itself.
South Dakota Farmers Union testified in favor of the legislation in the House Agriculture and Natural Resources Committee. It passed the committee, and later passed the full House of Representatives easily by a vote of 66-2. It will now move to a Senate committee for a hearing. No date has been set. F
–SD Farmers Union