Statutory Authority: ss. 25.463 and 126.81 (1) (a), Stats.
Explanation of Statutory Authority
Wis. Stat. s. 25.463 creates the Wisconsin Agricultural Producer Security Fund. Wis. Stat. s. 126.15 allows DATCP to establish by rule annual fund assessments for grain dealers. Wis. Stat. s. 126.30 allows DATCP to establish by rule annual fund assessments for grain warehouse keepers. Wis. Stat. s. 126.46 (1) directs DATCP to establish by rule annual fund assessments for milk contractors. Wis. Stat. s. 126.60 allows DATCP to establish by rule annual fund assessments for vegetable contractors. Wis. Stat. s. 126.81 (1) (a) allows DATCP to promulgate rules to interpret and implement Wis. Stat. ch. 126. Wis. Stat. s. 126.88 (1) directs DATCP to promulgate a rule modifying assessments when the fund balance or a portion of the fund balance falls outside the specified minimum and maximum amounts. Wis. Stat. s. 126.88 (2) (a) directs DATCP to promulgate a rule modifying assessments when the fund balance or a portion of the fund balance falls below the minimum amounts required under s. 126.88 (1) (a) through (e), Stats. Wis. Stat. s. 126.88 (2) (b) allows DATCP to promulgate an emergency rule without demonstrating that the emergency rule is necessary for the preservation of the public peace, health, safety, or welfare under ch. 227.24, Stats. Wis. Stat. s. 126.88 (2) (b) also allows a rule promulgated under this paragraph to remain in effect for not more than 24 months.
Related Statutes and Rules
Wis. Stat. s. 15.137 (1) defines the membership of the Council, who advise the Department on the Fund and other producer security matters.
Plain Language Analysis
The Fund, established by Wis. Stat. s. 25.463, is a public trust administered by the Department. Milk contractors, grain dealers, grain warehouse keepers, and vegetable contractors (collectively known as contractors) must purchase a license to obtain milk, grain, and vegetables, respectively, from producers, and most contractors are required to contribute to the Fund annually. Funds are used to settle claims by producers in the event that a contractor defaults on a payment. Funds from each industry are accounted for separately and then deposited into the overall fund. Wis. Stat. Chapter 126 establishes detailed fund assessment requirements, except that it requires the Department to establish milk contractor fund assessments by rule. Wis. Stat. s. 126.88 (1) sets minimum and maximum fund balances for each industry, as well as a minimum and maximum balance requirement for the overall fund.
In 2014, a default by a contributing vegetable contractor caused the Fund to pay vegetable producers more than $6 million. The resultant impact of this default is that the Fund balance attributed to vegetable contractors fell well below the minimum statutory threshold of $800,000. The following year, a $1 million default in the milk industry further drew down the Fund balance. As a result, the Department and the Council identified the need to evaluate the entire agricultural producer security program. An actuarial study was conducted to, in part, examine the overall sustainability of the Fund and analyze the equitability of assessments contributed by each industry relative to anticipated losses. The Department adopted a number of interim emergency rules as stopgap measures while it awaited the results of an actuarial study to consider possible permanent rule changes. In December 2015, DATCP received the results from an actuarial study and began developing recommendations for changes to the agricultural producer security program.
Those recommended changes led to permanent rulemaking to adjust assessments paid into the Fund by the milk, grain, and vegetable industries. The Council and the DATCP Board approved the final draft of the permanent rule in August and September of 2017, respectively. Modifications to fund assessments must be in place prior to the start of a license year: February 1, 2018 for vegetable contractors, May 1, 2018 for milk contractors, and September 1, 2018 for grain dealers. This emergency rule was necessitated due to the uncertainty of the effective date of the permanent rule.
Wis. Stat. s. 126.88 requires the department to modify assessments when the Fund or the fund balance for any industry is outside the respective minimum or maximum required balance. This emergency rule modifies current language to meet the statutory obligation of the Fund balance attributable to vegetable contractors (below the statutory minimum) and grain dealers (above the statutory maximum). Without this emergency rule, the Fund will fail to meet its statutory obligations as dictated by Wis. Stat. Chapter 126. Wis. Stat. Chapter 126 establishes a maximum balance for grain dealers. As of May 31, 2017, the grain dealer balance has reached the statutory maximum balance of $6 million and the Department is required to initiate rulemaking to reduce grain dealer assessments.
Additionally, the actuarial study indicated that, while the overall Fund was sustainable long-term, adjustments may be needed to assessments or individual Fund balance thresholds to provide more equity across all industry segments.
The department adopted this emergency rule to amend Agricultural Producer Security Fund assessment amounts required for contributing grain, milk and vegetable contractors. Specifically, this emergency rule:
• Creates an automatic reduction in the Fund assessments paid by grain dealers when the grain dealer portion of the Fund exceeds the statutory maximum of $6 million.
• Reduces assessments paid by milk contractors by 20 percent by using a multiplier.
• Increases vegetable contractors fund assessments to account for the negative balance of that portion of the Fund, by adding an assessment of 0.2% multiplied by contract obligations, net of waiver, with a $50,000 cap.
Producer Security Fund; Assessment Revenues
This emergency rule will reduce the milk contractor and grain dealer portions of the Fund balance because both industries will begin paying less in assessments annually. It also increases fund assessments for contributing vegetable contractors in order to meet the statutory requirement to maintain a minimum fund balance.
The following table shows projected assessment revenues:
Total Projected Fund Assessment Revenues*
Without this emergency rule
With this emergency rule
Grain Warehouse Keepers
* Projections assume constant procurement volumes, commodity price levels and contractor financial strength.
Under this emergency rule, the fund balance amount attributable to vegetable contractor will begin to build towards the required statutory minimum of $800,000.
Minimum Statutory Balance
Actual Balance as of June 30, 2017
Maximum Statutory Balance
Grain Warehouse Keepers
This emergency rule will have a positive impact on grain dealers by automatically reducing assessments whenever the grain dealer portion of the Fund balance exceeds its statutory maximum. The rule also reduces deferred payment contract assessments whenever the grain dealer portion of the Fund balance exceeds its statutory maximum.
This emergency rule will have a positive impact on milk contractors by reducing their assessments by 20 percent. The Fund will continue to grow but at a slower pace thus ensuring that they pay a fairer share of the cost of the program.
This emergency rule will increase vegetable contractor fund assessments by 0.2% of their contract obligations to producers. By spreading the increase to achieve the statutory minimum over 18 years, this should have minimal impacts on the vegetable contractors.
Federal and Surrounding State Programs
ATCP 99 - Grain
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 a warehouse defaults, FSA can convert the bonds to cash and disperse the proceeds to depositors. 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 from the state licensing program.
ATCP 100 - Milk
No federal programs currently exist that offer milk producer security from contractor payment defaults.
ATCP 101 - Vegetable
The Perishable Agricultural Commodities Act (PACA) is a federal program that provides some protections for vegetables. This program consists of a priority lien against vegetable-related assets and is applicable to fresh vegetables based on a complex set of variables and circumstances. Wisconsin’s vegetable security program applies only to processing vegetables. Wisconsin’s program uses an indemnity fund, rather than a priority lien-type program.
There may be some limited overlap between the Wisconsin and federal programs, but that overlap is justified because the scope of federal coverage is not entirely clear. Overlap was reduced by Wisconsin legislation, which permits certain potato buyers covered under the federal program to opt out of most of the state program.